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0000950009-96-000028
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0000950009-96-000028_0000.txt
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Filed Pursuant to Rule 424(b)(3) Registration Nos. 33-55787 and 33-64179
PRICING SUPPLEMENT NO. 21, dated January 11, 1996 (To Prospectus dated December 20, 1995 and Prospectus Supplement dated December 20, 1995)
Due 9 Months or More From Date of Issue
Original Issue Date: January 17, 1996
Stated Maturity: January 19, 1999
Interest Payment Dates: February 15 and August 15
(If other than U.S. Dollars, see attachment hereto)
Option to Receive Payments in Specified Currency: [ ] Yes [ ] No (Applicable only if Specified Currency is other than U.S. Dollars)
(Applicable only if Specified Currency is other than U.S. Dollars)
Redemption: [X] The Notes cannot be redeemed prior to maturity. [ ] The Notes may be redeemed prior to maturity.
The Redemption Price shall initially be % of the principal amount of the Notes to be redeemed and shall decline at each anniversary of the initial Redemption Date by % of the principal amount to be redeemed until the Redemption Price is 100% of such principal amount.
Repayment: [X] The Notes cannot be repaid prior to maturity. [ ] The Notes can be repaid prior to maturity at the option of the holder of the Notes.
Discount Notes: [ ] Yes [X] No
Agent's Discount or Commission: .35%
Agent's Capacity: [X] Agent [ ] Principal
Net proceeds to Company (if sale to Agent as principal):
Agent: [X] Merrill Lynch & Co. [ ] Salomon Brothers Inc
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424B3
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424B3
| 1996-01-12T00:00:00
| 1996-01-12T15:19:33
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0000062418-96-000001
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0000062418-96-000001_0000.txt
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended November 30, 1995.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From _______ to _______.
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
501 John James Audubon Parkway, P.O. Box 810, Amherst, New York 14226-0810 (Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Number of shares outstanding of each class of the Registrant's common stock, as of the latest practicable date:
Class Outstanding at January 9, 1996
Common stock $.01 par value 59,979,072
Part I. Financial Information Page No.
Consolidated Condensed Balance Sheets as of November 30, 1995 and February 28, 1995 3
Consolidated Statements of Income and Retained Earnings For the Three Month Periods Ended November 30, 1995 and 1994 4
Consolidated Statements of Income and Retained Earnings For the Nine Month Periods Ended November 30, 1995 and 1994 5
Consolidated Statements of Cash Flows For the Nine Month Periods Ended November 30, 1995 and 1994 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Part II. Other Information 14
Cash $ 900 $ 800 Other current assets 79,500 58,600 Total current assets 860,000 805,000
Property, plant and equipment, net 519,200 487,900 Cost in excess of net assets acquired 352,100 356,400
maturities of debt $ 83,600 $ 67,300 Compensation related liabilities 71,600 70,400 Other current liabilities 91,200 99,800
Total current liabilities 427,000 425,300
Total long-term debt 630,500 610,700 Other non-current liabilities 197,200 174,900
Additional paid-in capital 551,000 550,200 Foreign currency translation adjustment (2,400) (6,100) Total stockholders' equity 706,300 635,500
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,961,000 $1,846,400
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED) For the Three Month Periods Ended November 30, 1995 and 1994 (Amounts in thousands, except per share data)
Cost of products sold 358,800 261,700 Selling and administration 83,500 71,700 Research and development 13,300 8,800 Depreciation and amortization 16,900 14,800 Total operating costs 472,500 357,000 Income before provision for taxes 37,700 26,600
Provision for income taxes 14,700 10,100 Income before extraordinary items 23,000 16,500
Extraordinary items, net of tax - (1,100)
Retained earnings - beginning of the period 135,900 120,000
Cash dividends of $.03 and $.026 per share (1,800) (1,300) Retained earnings - end of the period $157,100 $134,100
Net income per share of common stock:
Income before extraordinary items $ .38 $ .34 Net Income $ .38 $ .32
Income before extraordinary items $ .38 $ .32 Net Income $ .38 $ .30
Weighted average number of shares outstanding:
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED) For the Nine Month Periods Ended November 30, 1995 and 1994 (Amounts in thousands, except per share data)
Cost of products sold 1,049,200 730,200 Selling and administration 257,000 205,000 Research and development 35,000 24,500 Depreciation and amortization 49,300 38,000 Total operating costs 1,390,500 997,700 Income before provision for income taxes 117,500 81,600 Provision for income taxes 45,800 31 300 Income before extraordinary items 71,700 50,300
Extraordinary items, net of tax - (1,100)
Retained earnings - beginning of the period 90,800 88,600 Cash dividends of $.09 and $.079 per share (5,400) (3,700) Retained earnings - end of the period $157,100 $134,100 Net income per share of common stock: Primary: Income before extraordinary items $ 1.19 $ 1.09 Net income $ 1.19 $ 1.07
Income before extraordinary items $ 1.19 $ .99 Net income $ 1.19 $ .97
Weighted average number of shares outstanding:
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Month Periods Ended November 30, 1995 and 1994
Cash flows from operating activities: Income before extraordinary items $ 71,700 $ 50,300 Items not affecting cash: Depreciation and amortization 49,300 38,000 Pension and compensation related items (7,800) (10,600) Deferred income taxes 21,800 4,900 Net cash provided by earnings 135,000 82,600 Changes in assets and liabilities, net of effects of businesses acquired and discontinued: Cash flows from investing activities: Divestitures and asset sales 1,400 5,300 Purchase of plant and equipment, net (66,000) (28,000) Net cash used in investing activities (90,700) (321,800) Cash flows from financing activities: Credit agreement borrowings, net 11,700 241,200 Other changes in long-term debt, net 5,200 600 Changes in short-term bank borrowings 16,400 700 Common stock transactions (200) 300 Cash dividends paid (5,400) (3,500) Effect of exchange rate fluctuations 100 (100) Net increase in cash 100 300 Cash and cash equivalents: Beginning of the year 800 500 End of the period $ 900 $ 800
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. In the opinion of the Company's management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company at November 30, 1995, and the results of its operations and its cash flows for the three and nine month periods ended November 30, 1995 and 1994. Such results are not necessarily indicative of the results to be expected for the full year.
2. On November 4, 1994, the Company acquired substantially all of the stock of Purolator Products Company (Purolator) for a cash purchase price of $25.00 per share, or a total cost, including expenses, of approximately $286.3 million. Purolator is a manufacturer of a broad range of filters and separation systems used in automotive (principally aftermarket), marine, heating, ventilating, air conditioning, and high-technology liquid-filtration applications, and specialized industrial filters and separation systems. Purolator is a significant addition to the Company's Power and Fluid Transfer business segment.
The acquisition has been accounted for under the purchase method, and the financial position of Purolator is included in the consolidated results of operations for the three and nine month periods ended November 30, 1995, and in the consolidated balance sheets of the Company as of November 30, 1995 and February 28, 1995 based upon a preliminary determination and allocation of the purchase price. Such amounts will be finalized upon additional analysis and asset valuation determinations to be made by the Company and various outside appraisal firms during the last quarter of fiscal 1996. The final changes are not expected to have a significant impact on the Company's results of operations as reported herein.
The following table presents the pro forma consolidated condensed results of operations for the Company's three and nine month periods ended November 30, 1994 as if the following transactions had occurred at the beginning of the periods: (i) the consummation of the acquisition of Purolator in November 1994 and the borrowings under the 1994 Credit Agreement in connection therewith; and (ii) the consummation of the Equity Offering in December 1994 and the application of the estimated net proceeds therefrom. The pro forma amounts do not purport to be indicative of the results that actually would have been obtained had the transactions identified above actually taken place at the beginning of the periods, nor are they intended to be a projection of future results (dollars in thousands, except per share amounts): Three Months Ended Nine Months Ended November 30, 1994 November 30, 1994 Income before interest and taxes $ 47,500 $ 146,700 Income before extraordinary items $ 20,000 $ 60,500 extraordinary items: Primary $ .37 $ 1.15 Fully-diluted $ .34 $ 1.06
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. Accounts receivable are presented net of allowances for doubtful accounts of $18,900,000 and $18,600,000 at November 30, 1995 and February 28, 1995, respectively.
4. Inventories consist of the following components (dollars in thousands):
Raw materials, parts and sub-assemblies $104,300 $103,500
Since physical inventories taken during the year do not necessarily coincide with the end of a quarter, management has estimated the composition of inventories with respect to raw materials, work-in- process and finished goods. It is management's opinion that this estimate represents a reasonable approximation of the inventory breakdown as of November 30, 1995. The amounts at February 28, 1995 are based upon the audited balance sheet at that date.
5. Property, plant and equipment is stated at cost and consists of the following components (dollars in thousands):
Land and land improvements $ 41,500 $ 41,500 Machinery and equipment 513,400 451,600 Total property, plant and equipment 708,300 638,400 Less accumulated depreciation 189,100 150,500 Property, plant and equipment, net $519,200 $487,900
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. Long-term debt consists of the following at November 30, 1995 and February 28, 1995 (dollars in thousands):
Credit Agreement $ 310,000 $ 300,000 Less Current maturities (6,500) (8,600) Net senior debt 372,500 352,700
8-3/4% Senior Subordinated Notes 258,000 258,000 Total long-term debt 630,500 610,700
Total stockholders' equity 706,300 635,500 Long-term debt as a percentage of total capitalization 47.2% 49.0%
7. In May 1995, the Company's Board of Directors adopted a Shareholders' Rights Plan under which Preferred Stock Purchase Rights were distributed as a dividend at a rate of one Right for each share of Common Stock held as of the close of business on June 2, 1995. The Rights will expire at the close of business on June 2, 2005.
Each Right entitles the holder to buy one one-hundredth of a newly- issued share of Mark IV Industries, Inc. Series A Junior Participating Preferred Stock at an exercise price of $80. The Rights will detach from the Common Stock and will initially become exercisable for such shares of Preferred Stock if a person or group acquires beneficial ownership of, or commences a tender or exchange offer which would result in such person or group beneficially owning, 20 percent or more of the Company's Common Stock, except through a tender or exchange offer for all shares which the Board determines to be fair and otherwise in the best interest of the Company and its stockholders. If either the acquiring person beneficially owns 20% or more of the Company's Common Stock or the Company is a party to a business combination which is not approved by the Company's Board of Directors, each Right (other than those held by the acquiring person) will entitle the holder to receive, upon exercise, shares of Common Stock of the Company or of the surviving company with a value equal to two times the exercise price of the Right.
8. For purposes of cash flows, the Company considers overnight investments as cash equivalents. The Company made cash interest payments of approximately $51,600,000 and $45,600,000 in the nine month periods ended November 30, 1995 and 1994, respectively. The Company also made cash income tax payments of approximately $26,200,000 and $15,100,000 in the nine month periods ended November 30, 1995 and 1994, respectively.
9. On December 5, 1995, the Company acquired the assets of FitzSimons Manufacturing Company (FMC) for a cash purchase price of $23,700,000. FMC is a manufacturer of fuel system components for the North American automotive and truck industries, with annual sales of approximately $60,000,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash provided by earnings was approximately $135,000,000 for the nine month period ended November 30, 1995, an increase of approximately $52,400,000 (63%) over the nine month period ended November 30, 1994. As of November 30, 1995, the Company had working capital of approximately $433,000,000 an increase of approximately $53,300,000 (14%) from February 28, 1995. The increase in working capital is substantially attributable to the Power and Fluid Transfer segment to support higher business levels and temporary seasonal inventory and accounts receivable increases.
The Company has borrowing availability under its primary credit agreements in excess of $352,500,000 and additional availability under its various domestic and foreign demand lines of credit of approximately $124,800,000 as of November 30, 1995. Long-term debt at November 30, 1995 increased approximately $19,800,000 (3%) from the total amount as of February 28, 1995, primarily as a result of increased borrowings required to support the temporarily increased working capital requirements referred to above.
Although the Company's long-term debt increased in absolute terms, as a percentage of total capitalization it decreased slightly to approximately 47% as of November 30, 1995, from 49% at February 28, 1995. Debt reduction in the balance of the fiscal year will be pursued through the use of cash generated from operations and reduced working capital requirements. Management believes that cash generated from operations should be sufficient to support the Company's working capital requirements and anticipated capital expenditures for the foreseeable future.
On October 30, 1995, the Company announced it is exploring the possibility of selling its infrastructure business to potential strategic buyers. This business, also known as the Transportation Products Group (TPG), has annual revenue of approximately $225 million, and is a part of the Company's Power and Fluid Transfer business segment. The Company has retained Bear, Stearns & Co. Inc. to represent it in pursuing the possible sale of TPG. The sale of TPG would allow Mark IV to become more focused in the worldwide Industrial, Automotive Aftermarket and Automotive OEM markets of its Power and Fluid Transfer business. Proceeds from a sale of TPG may be used to pay down debt, fund future acquisitions in core business areas, or to repurchase the Company's Common Stock.
The Company classifies its operations in two business segments: Power and Fluid Transfer and Professional Audio. The Company's current business strategy is focused upon the enhancement of its business segments through internal growth, cost control and quality improvement programs and selective, strategic acquisitions, with an emphasis on expanding the Company's international presence.
The results of operations for the three and nine month periods ended November 30, 1995 include the results of operations of Purolator. The results of operations for the three and nine month periods ended November 30, 1994 include the results of operations of Purolator from its November 4, 1994 acquisition date.
Net sales for the three month period ended November 30, 1995 increased $128,200,000 (32%) over the comparable period last year. The increase was primarily due to the inclusion of the results of operations of Purolator for the full period and several smaller acquisitions. Excluding the acquisitions, sales in the Power and Fluid Transfer segment increased approximately $47,500,000 (13%) in the three month period ended November 30, 1995, while sales in the Professional Audio segment remained comparable to the prior year's quarter. Foreign currency exchange rate movements had a nominal effect on sales in the quarter ended November 30, 1995 in comparison to the prior year's quarter.
Net sales for the nine month period ended November 30, 1995 increased $435,200,000 (39%) over the comparable period last year. The increase was primarily due to the inclusion of the results of operations of Purolator for the full period and several smaller acquisitions. Excluding the acquisitions, sales increased approximately $97,400,000 (9%) in the nine month period ended November 30, 1995, with $85,000,000 of the increase in the Power and Fluid Transfer segment and $12,400,000 in the Professional Audio segment. Foreign currency exchange rate movements had a $12,900,000 positive effect on sales in the nine months ended November 30, 1995 in comparison to the prior year. Excluding acquisitions and the positive effect of foreign currency movements, the internal growth was $84,500,000 (8%) in the nine month period ended November 30, 1995 compared to the nine month period ended November 30, 1994.
The cost of products sold as a percentage of consolidated net sales increased to approximately 68% for the three and nine month periods ended November 30, 1995, as compared to approximately 65% for the three and nine month periods ended November 30, 1994. The increase in the percentage of costs is primarily the result of the Purolator acquisition, due to its historically lower gross margins.
Selling and administration costs as a percentage of net sales were 16% for the three and nine month periods ended November 30, 1995 as compared to approximately 18% for the three and nine month periods ended November 30, 1994. The reduced level of costs as a percentage of sales is primarily a result of the inclusion of the Purolator operations for the full periods which tend to have a lower level of such costs after the elimination of duplicate corporate and other costs. The reduction in the level of costs also indicates the Company's continued emphasis on cost control has been successful in substantially offsetting the impact of inflation on such costs.
Research and development costs increased by $4,500,000 (51%) and $10,500,000 (43%) for the three and nine month periods ended November 30, 1995 as compared to the three and nine month periods ended November 30, 1994. The increase was primarily attributable to the inclusion of the results of operations of Purolator. As a percentage of net sales, these expenses remained consistent at approximately 2% in each period. This consistent level of investment reflects the Company's continuing emphasis on new product development.
Depreciation and amortization expense increased by $2,100,000 (14%) and $11,300,000 (30%) for the three and nine month periods ended November 30, 1995 as compared to the three and nine month periods ended November 30, 1994. The increase is primarily attributable to the inclusion of the results of operations of Purolator for the full period and several smaller acquisitions, as well as depreciation resulting from fixed asset additions made in the first half of fiscal 1996.
Interest expense for the three and nine month periods ended November 30, 1995 increased by $1,600,000 (12%) and $6,500,000 (17%) as compared to the three and nine month periods ended November 30, 1994. The increase is primarily due to an increase in the weighted average debt outstanding resulting from borrowings incurred to finance the acquisition of Purolator, net of the effects of the conversion of the Company's 6-1/4% Convertible Subordinated Debentures and the equity offering which occurred in the second half of fiscal 1995. Increases in economic rates on the Company's domestic and foreign debt also contributed to increased interest expense in the current periods.
The Company's provision for income taxes as a percentage of pre-tax accounting income for the three and nine month periods ended November 30, 1995 increased to approximately 39% as compared to 38% for the three and nine month periods ended November 30, 1994. The slightly higher effective tax rate is primarily the result of relatively increased income in foreign locations with higher statutory tax rates than in the U.S.
As a result of the replacement of the Company's 1993 Credit Facility with the 1994 Credit Agreement, the Company recognized a $1,100,000 extraordinary loss, net of related tax benefits, for the three and nine month periods ended November 30, 1994, related to the write-off of the unamortized balance of deferred charges associated with the 1993 Credit Facility.
As a result of all of the above, the Company's net income for the three and nine month periods ended November 30, 1995 increased $7,600,000 (49%) and $22,500,000 (46%) over the comparable periods last year.
Generally, the Company has been able to pass on inflation-related cost increases; consequently, inflation has had no material impact on income from operations.
Items 1, 2, 3, 4 and 5 are inapplicable and have been omitted.
11 Statement Regarding Computation of Per Share Earnings
Item 6(b) Reports on Form 8-K
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE:January 12, 1996 /s/ Sal H. Alfiero
DATE:January 12, 1996 /s/ Clement R. Arrison
DATE:January 12, 1996 /s/ William P. Montague
DATE:January 12, 1996 /s/ John J. Byrne
DATE:January 12, 1996 /s/ Richard L. Grenolds
11 Statement Regarding Computation of Per Share Earnings 17 27 Financial Data Schedule 19
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10-Q
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10-Q
| 1996-01-12T00:00:00
| 1996-01-12T16:50:18
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0000950134-96-000093
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0000950134-96-000093_0003.txt
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PARCEL, MAURO, HULTIN & SPAANSTRA, P.C. 1801 CALIFORNIA ST., STE. 3600
14142 Denver West Parkway, Suite 250
Re: Registration Statement on Form S-3
We have acted as counsel for Canyon Resources Corporation, a Delaware corporation (the "Company"), in connection with the registration for sale of 61,539 shares of the Company's Common Stock (the "Securities") in accordance with the registration provisions of the Securities Act of 1933, as amended.
In such capacity we have examined, among other documents, the Registration Statement on Form S-3 filed by the Company with the Securities and Exchange Commission on or about January 12, 1996, as may be further amended from time to time (the "Registration Statement"), covering the registration of the Securities.
Based upon the foregoing and upon such further examinations as we have deemed relevant and necessary, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing under the laws of the State of Delaware.
2. The Securities have been legally and validly authorized under the Company's Certificate of Incorporation, as amended, and constitute duly and validly issued and outstanding and fully paid and nonassessable shares of the Company.
We hereby consent to the use of our name beneath the caption "Legal Matters" in the Prospectus forming a part of the Registration Statement and to the filing of a copy of this opinion as Exhibit 5.1 thereto.
/s/ Parcel, Mauro, Hultin & Spaanstra, P.C.
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S-3
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EX-5.1
| 1996-01-12T00:00:00
| 1996-01-12T13:01:08
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0000950170-96-000012
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0000950170-96-000012_0000.txt
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PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): DECEMBER 29, 1995
(Exact name of registrant as specified in its charter)
(State or other (Commission File Number) (I.R.S. Employer
16115 N.W. 52ND AVENUE, MIAMI, FLORIDA 33014 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 621-8282
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
All American Semiconductor, Inc., a Delaware corporation (the "Registrant"), completed on December 29, 1995, the acquisition (the "Transaction") of two affiliated, privately-held electronic components distribution companies, Added Value Electronics Distribution, Inc. headquartered in Tustin, California, and A.V.E.D.-Rocky Mountain, Inc. headquartered in Denver, Colorado (collectively, the "Added Value Companies"). Immediately prior to the closing, the Transaction had been approved by the shareholders of the Registrant. All of the information regarding the Transaction required by Item 2 of Form 8-K has been "previously reported" (as defined in Rule 12b-2 of the rules and regulations promulgated under the Securities Exchange Act of 1934, as amended) by the Registrant in the Registrant's Registration Statement No. 033-64019 on Form S-4 (which includes the Registrant's Proxy Statement/Prospectus dated December 13, 1995, distributed to the Registrant's shareholders in connection with obtaining their approval of the Transaction) as filed with the Securities and Exchange Commission (the "Registration Statement") and such information is incorporated herein by reference, except that (1) the exact number of shares of Common Stock, $.01 par value, of the Registrant issued in connection with the Transaction to the former stockholders of the Added Value Companies was 2,013,401 (exclusive of the 160,703 shares issued in the Transaction to a wholly-owned subsidiary of the Registrant) and (2) the actual amount of the Added Value Companies' bank debt paid off by the Registrant was approximately $3.8 million.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) and (b) The financial statements of the businesses acquired (the Added Value Companies) and the pro forma financial information required by Items 7(a) and 7(b), respectively, of Form 8-K have been "previously reported" by the Registrant in, and are incorporated herein by reference to, the Registration Statement.
(c) The following Exhibits are filed with this report:
2.1 Merger Purchase Agreement dated as of October 31, 1995, among the Registrant, All American Added Value, Inc., All American A.V.E.D., Inc. and the Added Value Companies (incorporated by reference to Appendix A to the Proxy Statement/Prospectus included in and Exhibit 2.1 to the Registrant's Registration Statement No. 033-64019 on Form S-4).
20.1 Proxy Statement/Prospectus dated December 13, 1995, of the Registrant (incorporated by reference to the Registrant's Registration Statement No. 033-64019 on Form S-4).
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: January 12, 1996 By: /s/ HOWARD L. FLANDERS
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8-K
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8-K
| 1996-01-12T00:00:00
| 1996-01-12T14:37:52
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0000950149-96-000028
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0000950149-96-000028_0000.txt
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<DESCRIPTION>THE MONTGOMERY FUNDS ANNUAL REPORT DATED 6/30/95.
CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
The Montgomery Funds represents a growing family of no-load mutual funds providing a comprehensive range of equity, fixed-income and global investment opportunities. We currently manage more than $8 billion on behalf of more than 300,000 individual investors, helping them meet their financial goals through a combination of professional portfolio management and solid customer service.
CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
This report and the financial statements contained herein are provided for the general information of the shareholders of The Montgomery Funds. This report is not authorized for distribution to prospective investors in the funds unless preceded or accompanied by an effective prospectus. Mutual fund shares are not deposits or obligations of, or guaranteed by, any depository institution. Shares are not insured by the FDIC or any other agency and are subject to investment risk, including the possible loss of principal. Neither The Montgomery Funds nor Montgomery Securities is a bank. For more information on any Montgomery Fund, including charges and expenses, call 800-572-3863 for a free prospectus. Read it carefully before you invest or send money. Montgomery
JUNE 30, 1995 ANNUAL REPORT key to superior long-term performance, in good markets and especially in bad ones. We want you to understand how we go about meeting this challenge because it will help you make your mutual fund investment decisions with greater confidence.
We know these decisions are far from easy. Mutual fund investing has become increasingly complex with the proliferation of fund alternatives along with bewildering and, at times, contradictory advice from financial pundits. In fact, there are more mutual funds than there are securities on the New York Stock and American Stock Exchanges combined.
All of us know people who do more research when buying a refrigerator than they do when investing in a mutual fund. And yet, the long-term consequences of your investment decisions mean they demand even more thoughtful consideration. It's up to you -- and your financial advisor, if you work with one -- to decide what your goals are, to assess your tolerance for risk, and to choose the asset classes most appropriate to meet your needs. And it's up to you to be disciplined in your approach to investing, particularly for long-term investments such as equity or international funds.
Instead of chasing the latest investment fad or the most recent high-flying fund, we suggest you determine the asset classes most appropriate to your situation, and then choose a fund family that is committed to finding and supporting superior portfolio managers. That's our job, and here's how we go about it:
First, we look for fund managers who have delivered consistent, long-term performance -- and that means not one good year but a string of good years. The portfolio managers responsible for The Montgomery Funds bring years of proven experience to the job.
Second, we look for fund managers with a real passion for portfolio management -- people who love the business of managing money and selecting securities, who are excited about the markets they follow. Montgomery's managers are truly dedicated to what they do; they also tend to be independent thinkers, willing to buck the "prevailing wisdom."
When we find professionals who measure up to those stringent criteria, we offer them an environment in which they can focus exclusively on the task at hand: managing money. Our investment professionals are single-minded in their dedication to investment management, and we've built the infrastructure that allows them to pursue that without distraction.
We also make sure we have plenty of depth in each investment discipline. Each Senior Portfolio Manager is backed by a team of experienced investment professionals and analysts. This team approach leads to more comprehensive market coverage and more creative ideas. Finally, we hold managers accountable for the consistency of their disciplines and the quality of their decision making.
These are challenging tasks, but absolutely necessary ones. We address them on your behalf, so that when you invest in any Montgomery fund, you can do so with a high degree of confidence in the people who are managing your money. You're buying a lot more than a fund -- you're buying an entire firm.
Once you're in a fund, of course, our long-standing advice applies: Invest for the long-term, and give your funds time to deliver results and move you further towards your financial goals.
As always, we encourage you to let us know how we're doing at helping you meet those goals or if you have ideas about how we might serve you more effectively. Our customer service representatives can be reached at (800) 572-FUND. Thank you for your support and confidence. We look forward to reporting to you again in six months.
Chairman and Chief Executive Officer
WHEN THE STOCK MARKET IS SETTING RECORDS, EVEN THE MOST SOPHISTICATED INVESTORS ARE TEMPTED TO BECOME MARKET TIMERS. THEY WANT TO SELL AT "THE TOP" OF THE CYCLE AND BEGIN INVESTING AGAIN AT "THE BOTTOM."
Unfortunately, the markets rarely send clear signals about tops and bottoms; market timers run a real risk of missing upward movements and rarely avoid downturns. We believe the key to long-term investment success is to stay in the market -- and try to forget about the day-to-day fluctuations in the Dow Jones Industrial Average. In other words, we believe there is no wrong time to invest for long-term players.
But if you're looking for ways to make weathering market volatility a bit easier, consider these two prudent -- and proven -- strategies:
- Make sure you are well diversified, to cushion your investments against volatility in any one security, market, or asset class.
- Invest regularly, to smooth out the inevitable ups and downs of the market.
THE #1 ASSET ALLOCATION FUND
An easy way to ensure asset class diversification is with the Montgomery Asset Allocation Fund, which seeks high total return through a strategic mix of stocks for growth, bonds for income, and cash for liquidity. Its high degree of diversification helps protect the Fund from the volatility of a 100% equity portfolio.
So far, this approach has resulted in ASSET ALLOCATION category-leading performance: According to FUND Lipper Analytical Services, Inc., the Fund ranked #1 among 136 flexible portfolio funds 35.99% for the year ending June 30, 1995 -- and #1 among 124 such funds since inception. One-year total return for the year ended 6/30/95
The performance data quoted represents historical Average annual total return performance and is not indicative of future since inception (3/31/94) performance. Return and principal value will vary through 6/30/95 and shares may be worth more or less when redeemed.
While past performance is no guarantee of future results, you can be sure of the experience and expertise of the Fund's management: Roger Honour (Montgomery Growth Fund) handles the equity investments while Bill Stevens, who manages all of Montgomery's fixed-income funds, invests the portions allocated to bonds and cash.
ASSET ALLOCATION FUND MIX AS OF 7/31/95
INVEST REGULARLY; A GOOD STRATEGY FOR VOLATILE MARKETS
Once you've determined your long-term financial goals, consider the time-tested strategy of regular investing: committing the same dollar amount on a monthly or quarterly basis. Regular investing eliminates the temptation to try to "time the market," and it allows you to automatically buy more shares when prices are down and fewer when prices are up: dollar-cost averaging. (Such a plan does not ensure a profit and does not protect against a loss in declining markets.) Over time, you can reduce the average cost per share and better manage the risk of market fluctuations.
Montgomery makes regular investing simple with our AUTOMATIC ACCOUNT BUILDER program, which automatically taps your checking account for a monthly or quarterly investment of $100 or more into any Montgomery fund.
IN SHORT, THERE ARE PRUDENT WAYS TO STAY INVESTED -- AND TO KEEP INVESTING -- DURING PERIODS OF MARKET VOLATILITY. PLEASE REVIEW YOUR PROSPECTUS FOR MORE DETAILS ON THE ASSET ALLOCATION FUND, AUTOMATIC ACCOUNT BUILDER, AND ALL THE INVESTMENT OPPORTUNITIES WE OFFER -- OR CALL YOUR MONTGOMERY REPRESENTATIVE TODAY.
Montgomery Growth Fund's strong performance in 1994 enabled it to outperform the S&P 500 Index as well as the Lipper Growth Funds Average for the twelve months ended June 30, 1995. During the first six months of 1995, however, the Fund underperformed the index, largely due to the level of cash in the Fund in a rapidly rising market.
Looking forward, we are encouraged by the current valuations and growth prospects of companies in which the Fund has invested. We are not banking heavily on any particular macroeconomic forecast. Rather, we have carefully placed our bets on the earnings potential of our individual stock positions. We believe that our "all weather" investment process will add value throughout the different seasons of the economic cycles and remain committed to our disciplined, quantitative and qualitative approach to stock selection as the key to superior long-term returns.
Hypothetical Illustration of $10,000 Invested at Inception
(1) Average Annual Total Return (2) The S&P 500 Index is composed of 500 widely held common stocks listed on the NYSE, AMEX and OTC Market. (3) Lipper's Growth Funds Average universe consists of 514 funds. Note: The performance shown represents past performance and is not a guarantee of future results.
We are excited about the long-term prospects for investing in the micro cap area. Smaller companies are often undiscovered, underesearched, and underappreciated by investors because of their size. This represents tremendous opportunity for investors who are willing to contact companies directly and conduct independent fundamental research. The U.S. Growth Equity team's mission is to continue to uncover the "hidden gems" in the micro cap universe.
The first half of 1995 represented a strong start for the Montgomery Micro Cap Fund. We were able to exceed the returns on the Russell 2000 Index, a significant achievement given our substantial levels of cash flow in the period. We attribute this success to our investment discipline of only investing in companies that we feel represent high quality growth at reasonable prices.
We thank you for your support and patience during this start-up phase of the Montgomery Micro Cap Fund.
Hypothetical Illustration of $10,000 Invested at Inception
(2) The Russell 2000 Index is a capitalization weighted total return index which is comprised of 2,000 of the smallest capitalized U.S. domiciled companies whose common stock is traded in the U.S. on the NYSE, AMEX and NASDAQ. (3) Lipper's Small Company Growth Funds Average universe consists of 267 funds. Note: The performance shown represents past performance and is not a guarantee of future results.
For the twelve months ended June 30, 1995, the Fund kept pace with the Russell 2000 Index, while trailing the Lipper Small Company Growth Funds Average. Our investment style, which requires all portfolio candidates to pass strict valuation criteria and possess sustainable earnings growth out two to three years, biased the Fund away from some of the technology stocks that have been carried to dizzying valuations since the fourth quarter of 1994.
Currently, the Fund's holdings are selling at approximately 16 times one-year forecasted earnings. The Fund is positioned for strong growth, and we believe the strength of earnings in the Fund's companies will be recognized by the market and individual investors.
Hypothetical Illustration of $10,000 Invested at Inception
(1) Average Annual Total Return (2) The Russell 2000 Index is a capitalization weighted total return index which is comprised of 2,000 of the smallest capitalized U.S. domiciled companies whose common stock is traded in the U.S. on NYSE, AMEX and NASDAQ. (3) Lipper's Small Company Growth Funds Average universe consists of 267 funds. Note: The performance shown represents past performance and is not a guarantee of future results.
Performance for the nine months since the Fund's inception was well ahead of the Lipper Equity Income Funds Average; however, the Fund lagged the S&P 500 Index, largely due to the most recent quarter. Our investment approach emphasizes high quality companies with relatively stable earnings, and therefore showed solid relative performance during the fourth quarter of 1994 and early 1995. However, as investor preference rotated toward the more financially leveraged and cyclical firms late in the first quarter, our performance lagged.
Looking forward, we believe that the consistent use of relative yield valuation, coupled with diligent fundamental analysis, should add value for our shareholders, while seeking to maintain greater stability of principal during the unavoidable periods of market decline.
Hypothetical Illustration of $10,000 Invested at Inception
(2) The S&P 500 Index is composed of 500 widely held common stocks listed on the NYSE, AMEX and OTC Market. (3) Lipper's Equity Income Funds Average universe consists of 109 funds. Note: The performance shown represents past performance and is not a guarantee of future results.
The Montgomery Asset Allocation Fund uses a three pronged attack for achieving the best possible returns. First, the allocation decision is made based on a proprietary quantitative model. In the synchronous bond and stock market rallies, the goal was to avoid significant cash positions. Early in the year we reduced our cash allocation from 10% to 5%, and moved to a fully invested allocation in July.
Second, the active management of the bond portion of the portfolio is designed to generate consistently better performance than the high grade bond market, and provide an "anchor to windward" for the portfolio. The fixed-income allocation declined slightly over the first half of 1995 from 50% to 47%.
Thirdly, and most importantly, the active management of the equity allocation seeks out the best long-term growth opportunities that offer solid fundamental value. The equity allocation increased over the first half from 40% to 46% and in July moved to 58%.
We will continue to review our allocation positions monthly in order to take advantage of the continual shifting of economic, market and political environments.
Hypothetical Illustration of $10,000 Invested at Inception
(1) Average Annual Total Return (2) The S&P 500 Index is composed of 500 widely held common stocks listed on the NYSE, AMEX and OTC counter. (3) The Lehman Brothers Aggregate High Grade Bond Index includes fixed rate debt issues rated investment grade or higher by Moody's, S&P or Fitch. (4) Lipper's Flexible Portfolio Funds Average universe consists of 136 funds. Note: The performance shown represents past performance and is not a guarantee of future results.
The past twelve months were characterized by volatility in global markets, primarily caused by changing interest rates and currency valuations. In addition, large swings in emerging markets added to the volatility. While the second half of 1994 and the beginning of 1995 were difficult for global investors, the five-month period ended June 30, 1995 produced a strong rebound.
Montgomery Global Opportunities Fund performed relatively well during this rocky ride. While we have underperformed the Morgan Stanley Capital International World Index due to an underweighted position in the U.S., we have outperformed our peer group since inception. More recently, the Montgomery Global Opportunities Fund was among the top-ranked Global Funds in the Lipper Universe during the second quarter of 1995. Our emphasis on technology and telecommunication stocks contributed to our recent strong performance.
As we move into the second half of 1995, we remain cautiously optimistic on global markets. We continue to position the portfolio in those stocks with positive earnings momentum and which offer the highest total return (growth and yield) for the best price.
Hypothetical Illustration of $10,000 Invested at Inception
(1) Average Annual Total Return (2) The Morgan Stanley Capital International World Index measures performance of twenty global stock markets. (3) Lipper's Global Funds Average universe consists of 108 funds. Note: The performance shown represents past performance and is not a guarantee of future results.
During the twelve-month period ended June 30, 1995, interest-rate and currency fluctuations caused volatility in global markets. Events within emerging markets, such as the "meltdown" in Mexico, also contributed to the volatility across the world's equity markets.
Within the Montgomery Global Communications Fund, however, we were able to capitalize on this volatility and produce returns superior to our peer group. The Fund has also significantly outperformed the Morgan Stanley Capital International World Index and its peer group since inception, producing a 12.93% average annual return. In the short term, our exciting second-quarter 1995 performance resulted from the global growth in the telecommunications equipment sector as well as from our exposure to technology and wireless communications stocks.
We remain bullish on the worldwide demand for communications services and equipment, a large and diverse sector. We believe this group will continue to provide better growth prospects than global markets in general. As of June 30, 1995, the Fund was invested in approximately seventy companies and thirty countries.
Hypothetical Illustration of $10,000 Invested at Inception
(1) Average Annual Total Return (2) The Morgan Stanley Capital International World Index measures performance of twenty global stock markets. (3) Lipper's Global Funds Average universe consists of 108 funds. Note: The performance shown represents past performance and is not a guarantee of future results.
MONTGOMERY INTERNATIONAL SMALL CAP FUND
During the past twelve months, international equities, particularly small capitalization stocks, were volatile, reversing course several times. The fourth quarter of 1994 and the first quarter of 1995 proved especially difficult as interest rate uncertainties and currency fluctuations impacted investor sentiment.
While the Montgomery International Small Cap Fund was impacted by the difficult late 1994/early 1995 period, the Fund rebounded sharply during the second quarter of 1995. Many of our favorite holdings were rewarded recently, as investors recognized their strong fundamentals and earnings growth. We have also taken advantage of market weaknesses to purchase new attractive investment opportunities. Such opportunities include, on a country level, Japanese stocks. On an industry level, we have identified select financial services companies, late cycle capital equipment/engineering, retail trade, and shipping companies.
We continue to emphasize bottom-up stock selection with a broad international scope, focusing our research on those small and medium size companies offering the strongest earnings and dividend growth for the most attractive prices. We believe that over time this investment strategy will continue to add value.
Hypothetical Illustration of $10,000 Invested at Inception
(1) Average Annual Total Return (2) The Morgan Stanley Capital International EAFE Index is composed of Europe, Australia and a Far East Index of eighteen developed market countries. (3) Lipper's International Small Company Funds Average universe consists of 11 funds. Note: The performance shown represents past performance and is not a guarantee of future results.
The past twelve months represented a period of volatility in emerging markets. The third quarter of 1994's strong performance resulted from positive corporate reports. These results, however, were more than reversed in the subsequent two quarters by rising U.S. interest rates and the "meltdown" in Mexico. The second quarter of 1995 yielded the strong returns more indicative of long term expectations in emerging markets, as sentiment shifted positive and currency relationships stabilized.
Montgomery Emerging Markets Fund investors were rewarded for keeping their assets in the Fund for the full twelve months. The Fund not only posted a positive return, it outperformed the benchmark index and peer group by wide margins. Our decision to underweight Mexico prior to the crisis, as well as strategic investments in Asia, contributed to our strong relative performance.
Our outlook for the emerging markets remains positive. As global liquidity improves with the prospects of falling interest rates and slower economic growth in the developed markets, we expect that the emerging markets will garner more investor attention.
Hypothetical Illustration of $10,000 Invested at Inception
(1) Average Annual Total Return (2) The IFC Global Composite Index is comprised of over 1,200 individual stocks from 25 developing countries in Asia, Latin America, Middle East, Africa and Europe. (3) Lipper's Emerging Markets Funds Average universe consists of 31 funds. Note: The performance shown represents past performance and is not a guarantee of future results.
MONTGOMERY SHORT GOVERNMENT BOND FUND
We believe 1995 is shaping up to be as good for the U.S. bond market as 1994 was bad. The yield on two-year U.S. Treasury Notes has declined by almost 2%, and was one of the best performing securities, risk adjusted, in the world. The total return on 30-year U.S. Treasuries rivaled the strong performance of the stock markets. As one of the more conservatively positioned short government funds, the Montgomery Short Government Bond Fund has to work hard to keep up in a powerful bull market.
Looking forward, we are impressed with the Federal Reserve's resolve to keep inflation in check. We would look at any rise in interest rates in the second half of this year that results from renewed economic growth as a buying opportunity.
Hypothetical Illustration of $10,000 Invested at Inception
(1) Average Annual Total Return (2) The Lehman Brothers 1-3 Year Government Index is composed of all U.S. Government issues with maturities of 1-3 years. (3) Lipper's Short U.S. Government Funds Average universe consists of 131 funds. Note: The performance shown represents past performance and is not a guarantee of future results.
Intermediate term tax exempt yields trended lower in the first half of 1995, but the decline was not as abrupt as in other fixed income sectors. Municipal bond prices lagged on the upside as the emergence of prospective Federal tax reform and Orange County's bankruptcy stifled demand. The influence of these technical factors is expected to dissipate with relative valuation returning more closely to normal.
As of June 30, 1995, portfolio management embarked on a program to modestly extend maturities in order to increase the dividend distribution rate. Strategic decision-making will continue to emphasize quantitative analysis methods in an effort to optimize risk-adjusted returns. Proprietary credit analysis also remains a priority; this approach was successful in completely insulating the portfolio from the decline in credit of Orange County.
Investment returns have been very competitive. For the year ended June 30, 1995, the Fund ranked first of nine within its Lipper category with a total return of 6.03%.
Hypothetical Illustration of $10,000 Invested at Inception
(1) Average Annual Total Return (2) Lipper's California Municipal Debt Funds Average universe consists of 9 funds. Note: The performance shown represents past performance and is not a guarantee of future results.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
* Aggregate cost for Federal tax purposes was $702,997,413.
** Rate represents annualized yield at date of purchase.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
* Aggregate cost for Federal tax purposes was $155,420,740.
** Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
* Aggregate cost for Federal tax purposes was $6,085,943.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
* Aggregate cost for Federal tax purposes. ** Security pledged as collateral for dollar roll transactions.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
* Aggregate cost for Federal tax purposes was $12,774,861.
** Illiquid or Special Situation Security. (See Note 7 to Financial Statements).
*** Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
* Aggregate cost for Federal tax purposes.
** Illiquid Security or Special Situation Security (See Note 7 to Financial Statements).
*** Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
# Amount represents less than 0.1%.
++ See Note 2 to Financial Statements.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
The accompanying notes are an integral part of these financial statements.
# Amount represents less than 0.1%.
The accompanying notes are an integral part of these financial statements.
MONTGOMERY INTERNATIONAL SMALL CAP FUND
The accompanying notes are an integral part of these financial statements.
MONTGOMERY INTERNATIONAL SMALL CAP FUND
The accompanying notes are an integral part of these financial statements.
MONTGOMERY INTERNATIONAL SMALL CAP FUND
The accompanying notes are an integral part of these financial statements.
MONTGOMERY INTERNATIONAL SMALL CAP FUND
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
* Aggregate cost for Federal tax purposes was $966,121,237.
** Illiquid or Special Situation Security (See Note 7 to Financial Statements).
*** Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
# Amount represents less than 0.1%. Descriptions of securities have not been audited by Deloitte & Touche LLP.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
# Amount represents less than 0.1%.
The accompanying notes are an integral part of these financial statements.
MONTGOMERY SHORT GOVERNMENT BOND FUND
The accompanying notes are an integral part of these financial statements.
MONTGOMERY SHORT GOVERNMENT BOND FUND
* Aggregate cost for Federal tax purposes.
** Security pledged as collateral for reverse repurchase agreement.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
* Aggregate cost for Federal tax purposes.
** Rate represents annualized yield at date of purchase.
+ Floating rate note, rate resets weekly.
++ Floating rate note, rate resets annually.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
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STATEMENTS OF ASSETS AND LIABILITIES
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
** Amount represents distributions in excess of net investment income.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
FOR THE YEAR ENDED JUNE 30, 1995*
* The Montgomery Micro Cap Fund and Montgomery Equity Income Fund commenced operations on December 30, 1994 and September 30, 1994, respectively.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
FOR THE YEAR ENDED JUNE 30, 1995
* The Montgomery California Tax-Free Money Fund commenced operations on September 30, 1994.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
* Non cash activities include reinvestment of dividends of $1,164,807.
The accompanying notes are an integral part of these financial statements.
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STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 1995*
* The Montgomery Micro Cap Fund and Montgomery Equity Income Fund commenced operations on December 30, 1994 and September 30, 1994, respectively.
STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 1994*
* Montgomery Growth Fund, Montgomery Asset Allocation Fund and Montgomery Global Opportunities Fund commenced operations on September 30, 1993, March 31, 1994, September 30, 1993, respectively.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 1995*
* The Montgomery California Tax-Free Money Fund commenced operations on September 30, 1994.
STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 1994*
* Montgomery International Small Cap Fund and Montgomery California Tax-Free Intermediate Bond Fund commenced operations on September 30, 1993 and July 1, 1993, respectively.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
* The Fund commenced operations on September 30, 1993. ** Total return represents aggregate total return for the periods indicated. + Annualized. ++ The amount shown in this caption for each share outstanding throughout the period may not accord with the change in the aggregate gains and losses in the portfolio securities because of the timing of purchases and withdrawal of shares in relation to the fluctuating market values of the portfolio.
The accompanying notes are an integral part of these financial statements.
FOR A FUND SHARE OUTSTANDING THROUGHOUT THE PERIOD.
* The Fund commenced operations on December 30, 1994. ** Total return represents aggregate total return for the period indicated. + Annualized. # Per shares numbers have been calculated using the average shares method, which more appropriately represent the per share data for the period since the use of the undistributed income method did not accord with the results of operations.
The accompanying notes are an integral part of these financial statements.
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
* The Fund's shares became available for investment by the public on July 13, 1990. ** Total return represents aggregate total return for the periods indicated. + Annualized.
The accompanying notes are an integral part of these financial statements.
FOR A FUND SHARE OUTSTANDING THROUGHOUT THE PERIOD.
* The Fund commenced operations on September 30, 1994. ** Total return represents aggregate total return for the period indicated. + Annualized.
The accompanying notes are an integral part of these financial statements.
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
* The Fund commenced operations on March 31, 1994. ** Total return represents aggregate total return for the periods indicated. + Annualized. # Annualized expense ratios excluding interest expense for the year ended June 30, 1995 and for the period ended June 30, 1994 were 1.30% and 1.30%, respectively.
The accompanying notes are an integral part of these financial statements.
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
* The Fund commenced operations on September 30, 1993. ** Total return represents aggregate total return for the periods indicated. + Annualized. # Annualized expense ratios excluding interest expense and taxes for the periods ended June 30, 1994 and 1995 were each 1.90%.
The accompanying notes are an integral part of these financial statements.
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
* The Fund commenced operations on June 1, 1993. ** Total return represents aggregate total return for the periods indicated. + Annualized. ++ The amount shown in this caption for each share outstanding throughout the period may not accord with the change in the aggregate gains and losses in the portfolio securities because of the timing of purchases and withdrawal of shares in relation to the fluctuating market values of the portfolio. # Amount represents less than $0.01 per share. ## Annualized expense ratios excluding interest expense for the year ended June 30, 1995 and for the period ended June 30, 1994 were 1.90% and 1.90%, respectively.
The accompanying notes are an integral part of these financial statements.
MONTGOMERY INTERNATIONAL SMALL CAP FUND FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
* The Fund commenced operations on September 30, 1993. ** Total return represents aggregate total return for the periods indicated. + Annualized. # Amount represents less than $0.01 per share. ## Annualized expense ratio excluding interest expense for the period ended June 30, 1994 was 1.90%.
The accompanying notes are an integral part of these financial statements.
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
* The Fund commenced operations on March 1, 1992. ** Total return represents aggregate total return for the periods indicated. + Annualized. ++ Per shares numbers have been calculated using the average shares method, which more appropriately represent the per share data for the period since the use of the undistributed income method did not accord with the results of operations. # Amount represents less than $0.01 per share. ## The amount shown in this caption for each share outstanding throughout the period may not accord with the change in the aggregate gains and losses in the portfolio securities because of the timing of purchases and withdrawal of shares in relation to the fluctuating market values of the portfolio.
The accompanying notes are an integral part of these financial statements.
MONTGOMERY SHORT GOVERNMENT BOND FUND FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
* The Fund commenced operations on December 18, 1992. ** Total return represents aggregate total return for the periods indicated. + Annualized. # Amount represents less than $0.01 per share. ## Annualized expense ratios excluding interest expense for the years ended June 30, 1995 and 1994 were 0.47% and 0.25%, respectively.
The accompanying notes are an integral part of these financial statements.
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
* The Fund commenced operations on September 14, 1992. ** Total return represents aggregate total return for the periods indicated. + Annualized. # Amount represents less than $0.01 per share. ## Annualized operating expense ratio excluding interest expense for the year ended June 30, 1995 was 0.60%.
The accompanying notes are an integral part of these financial statements.
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
* The Fund commenced operations on July 1, 1993. ** Total return represents aggregate total return for the periods indicated. # Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
* The Fund commenced operations on September 30, 1994. ** Total return represents aggregate total return for the period indicated. + Annualized. # Amount represents less than $0.001 per share.
The accompanying notes are an integral part of these financial statements.
The Montgomery Funds and The Montgomery Funds II (individually, the "Trust" and, collectively, the "Trusts") are registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as diversified, open-end management investment companies. As of June 30, 1995, the Trusts had fourteen publicly offered series: Montgomery Growth Fund, Montgomery Micro Cap Fund, Montgomery Small Cap Fund, Montgomery Equity Income Fund, Montgomery Asset Allocation Fund (formerly Montgomery Strategic U.S. Fund), Montgomery Global Opportunities Fund, Montgomery Global Communications Fund, Montgomery International Small Cap Fund, Montgomery Emerging Markets Fund, Montgomery Short Government Bond Fund (formerly Montgomery Short Duration Government Fund), Montgomery Government Reserve Fund, Montgomery California Tax-Free Intermediate Bond Fund (formerly Montgomery California Tax-Free Short/Intermediate Fund), Montgomery California Tax-Free Money Fund and Montgomery Institutional Series: Emerging Markets Portfolio (individually, the "Fund" and, collectively, the "Funds").
The Montgomery Funds were organized as a Massachusetts business trust on May 10, 1990 and commenced operations with the Montgomery Small Cap Fund. The Montgomery Funds II were organized as a Delaware business trust on September 8, 1993 and commenced operations with the Montgomery Institutional Series: Emerging Markets Portfolio. Prior to the public offerings of shares of each Fund, a limited number of shares were sold to Montgomery Asset Management, L.P. and/or affiliated persons of Montgomery Asset Management in private placement offerings. Otherwise, no Fund had any significant operations prior to the date on which it commenced operations (i.e., commenced selling shares to the public).
Information presented in these financial statements pertains to all the above Funds except for Montgomery Institutional Series: Emerging Markets Portfolio which is presented under separate cover.
The following is a summary of significant accounting policies.
A. PORTFOLIO VALUATION--For the Montgomery Growth Fund, the Montgomery Micro Cap Fund, Montgomery Small Cap Fund, Montgomery Equity Income Fund, Montgomery Asset Allocation Fund, Montgomery Short Government Bond Fund and Montgomery California Tax-Free Intermediate Bond Fund portfolio securities are valued using current market valuations: either the last reported sales price, or, in the case of securities for which there is no reported last sale and in the case of fixed income securities, the mean of the closing bid and asked prices.
For the Montgomery International Small Cap Fund and the Montgomery Emerging Markets Fund, portfolio securities which are traded primarily on foreign exchanges or for which market quotations are readily available are generally valued at the last reported sales price on the respective exchanges or markets, except that when an occurrence subsequent to the time that a value was so established is likely to have changed said value, the fair value of those securities will be determined by consideration of other factors by or under the direction of the Board of Trustees or its delegates. Securities traded on the over-the-counter market are valued at the mean between the last available bid and ask price prior to the time of valuation.
For the Montgomery Global Opportunities Fund and the Montgomery Global Communications Fund, portfolio securities are valued using current market valuations: either the last reported sales price, or, in the case of securities for which there is no reported last sale and in the case of fixed income securities, the mean of the last available bid and asked prices. The value of portfolio securities which are traded primarily on foreign securities exchanges are generally valued at the immediate preceding closing values of such securities on the respective exchanges or markets, except that when an occurrence subsequent to the time that a value was so established is likely to have changed said value, the fair value of those securities will be determined by consideration of other factors by or under the direction of the Board of Trustees or its delegates.
Securities, including American Depositary Receipts and European Depositary Receipts, which are traded on securities exchanges are valued at the last sale price on the exchange on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any reported sales and in the case of fixed income securities, at the mean between the last available bid and asked price. In cases where securities are traded on more than one exchange, the securities are valued on the exchange determined by the Manager to be the primary market. Securities traded in the over-the-counter market are valued at the mean between the last available bid and asked price prior to the time of valuation. Securities and assets for which market quotations are not readily available (including restricted securities which are subject to limitations as to their sale) are valued at fair value as determined in good faith by or under the supervision of the Trust in accordance with methods which are authorized by the Trust's Board of Trustees.
For the Montgomery Government Reserve Fund and the Montgomery California Tax-Free Money Fund, portfolio securities are valued at amortized cost, which means they are valued at acquisition cost (as adjusted for amortization of premium or discount) rather than at current market value. Amortized cost involves valuing a portfolio security instrument at its cost, initially, and thereafter, assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. Calculations are made to compare the value of each Fund's investments valued at amortized cost with market values. Market valuations are obtained by using actual quotations provided by market makers, estimates of market value, or values obtained from yield data relating to classes of money market instruments.
For each of the Funds, securities for which market quotations are not readily available are valued at fair market value as determined in good faith by or under the supervision of the Trusts' officers in accordance with methods which are authorized by the Trusts' Board of Trustees. Short-term securities with maturities of 60 days or less (excluding the Montgomery Government Reserve Fund and the Montgomery California Tax-Free Money Fund which value all securities at amortized cost) are carried at amortized cost, which approximates market value.
B. FORWARD FOREIGN CURRENCY CONTRACTS--Certain Funds may engage in forward foreign currency contracts. Forward foreign currency contracts are valued at the forward rate and are marked-to-market daily. The change in market value is recorded by the Fund as an unrealized gain or loss.
When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Forward foreign currency contracts have been used solely to establish a rate of exchange for settlement of transactions. Although forward foreign currency contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts.
C. FOREIGN CURRENCY--Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period, and purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. Unrealized gains and losses which result from changes in foreign currency exchange rates on investments have been included in the unrealized appreciation/(depreciation) of securities. Net realized foreign currency gains and losses resulting from movement in exchange rates include foreign currency gains and losses between trade date and settlement date on investment securities transactions, foreign currency transactions and the difference between the amounts of interest and dividends recorded on the books of the Fund and the amount actually received and the portion of foreign currency gains and losses related to fluctuations in exchange rates between the initial purchase trade date and subsequent sale trade date.
D. REPURCHASE AGREEMENTS--Each Fund may engage in repurchase agreement transactions individually or jointly through a joint repurchase account with other series of the Trusts pursuant to a joint repurchase agreement. Under the terms of a typical repurchase agreement, a Fund writes a financial contract with a counterparty and takes possession of a government debt obligation as collateral. The Fund also agrees with the counterparty to allow the counterparty to repurchase the financial contract at a specified date and price, thereby determining the yield during the Fund's holding period. This arrangement results in a fixed rate of return that is not subject to market fluctuations during the Fund's holding period. The value of the collateral is at least equal at all times to the total amount of the repurchase obligations, including interest. In the event of counterparty default, the Fund has the right to use the collateral to offset losses incurred. There could be potential loss to the Fund in the event the Fund is delayed or prevented from exercising its rights to dispose of the collateral securities, including the risk of a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights. The Fund's investment manager, acting under the supervision of the Board of Trustees, reviews the value of the collateral and the creditworthiness of those banks and dealers with which the Fund enters into repurchase agreements to evaluate potential risks. The Funds may also participate on an individual or joint basis in tri-party repurchase agreements which involves a counterparty and a custodian bank.
E. DOLLAR ROLL TRANSACTIONS--The Asset Allocation Fund and The Short Government Bond Fund may enter into dollar roll transactions with financial institutions to take advantage of opportunities in the mortgage market. A dollar roll transaction involves a sale by the Fund of securities with a simultaneous agreement to repurchase substantially similar securities at an agreed upon price at a future date. The securities repurchased will bear the same interest as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. The Fund will invest the proceeds of the sale in additional instruments, the income from which, together with any additional fee income received for the dollar roll, may or may not generate income for the Fund exceeding the yield on the securities sold. Dollar roll transactions involve the risk that the market value of the securities sold by the Fund may decline below the repurchase price of those securities.
F. SHORT SALES/FORWARD COMMITMENTS--Certain Funds may seek to hedge investments through forward commitments to sell high grade liquid debt securities. In some cases, the Fund may enter into forward commitments to sell securities the Fund does not yet own (but has the right to acquire). Such forward commitments effectively constitute a form of short sale and have been limited to date to the Montgomery Short Government Bond Fund and to securities issued by the Federal Home Loan Mortgage Corporation ("FHLMC") in connection with certain FHLMC conversion programs. To complete such a transaction, the Fund must obtain a security that is convertible into the security it has made a commitment to deliver. Forward commitments involve transaction costs and entail risk to the extent interest rates move in a direction different from that anticipated. There is a risk that the market price will increase for the security it must purchase. Whenever the Fund engages in this type of transaction, it maintains other high quality liquid debt securities equal in value to the forward commitment in a segregated account with its custodian.
G. REVERSE REPURCHASE AGREEMENTS--The Growth Fund, The Micro Cap Fund, The Small Cap Fund, The Equity Income Fund, The Asset Allocation Fund, The Global Opportunities Fund, The Government Reserve Fund, The California Tax-Free Intermediate Bond Fund and The California Tax-Free Money Fund may enter into reverse repurchase agreement transactions with member banks on the Federal Reserve Bank of New York's list of reporting dealers for leverage purposes. A reverse repurchase agreement involves a sale by the Fund of securities that it holds with an agreement by the Fund to repurchase the same securities at an agreed upon price and date. A reverse repurchase agreement involves the risk that the market value of the securities sold by the Fund may decline below the repurchase price of the securities. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, a Fund's use of the proceeds of the agreement may be restricted pending a determination by the party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. Each Fund will establish a segregated account with its custodian in which the Fund will maintain cash, U.S. government securities or other liquid high grade debt obligations equal in value to its obligations with respect to reverse repurchase agreements.
H. REVERSE DOLLAR ROLL TRANSACTIONS--The Montgomery Asset Allocation Fund and Montgomery Short Government Bond Fund may enter into reverse dollar roll transactions. When a Fund engages in a reverse dollar roll, it purchases a security from a financial institution and concurrently agrees to resell a similar security to that institution at a later date at an agreed-upon price. Under the 1940 Act, reverse dollar roll transactions are considered to be loans by a Fund and must be fully collateralized. If the seller defaults on its obligation to repurchase the underlying security, a Fund may experience delay or difficulty in exercising its rights to realize upon the security, may incur a loss if the value of the security declines and may incur disposition costs in liquidating the security.
I. FUTURES CONTRACTS--Upon entering into a futures contract, a Fund (the Montgomery Government Reserve Fund and Montgomery California Tax-Free Money Fund do not enter into futures contracts) is required to deposit with the custodian on behalf of the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount. This is known as the "initial margin." Subsequent payments ("variation margin") are made or received by a Fund each day, depending on the daily fluctuation of the value of the contract.
There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments, which may not correlate with the change in value of the hedged investments. In addition, there is the risk the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
J. DIVIDENDS AND DISTRIBUTIONS--Dividends, if any, from net investment income of the Montgomery Growth Fund, the Montgomery Micro Cap Fund, the Montgomery Small Cap Fund, the Montgomery Asset Allocation Fund, the Montgomery Global Opportunities Fund, the Montgomery Global Communications Fund, the Montgomery International Small Cap Fund and the Montgomery Emerging Markets Fund are declared and paid at least annually. Dividends from net investment income of the Montgomery Short Government Bond Fund, the Montgomery Government Reserve Fund, the Montgomery California Tax-Free Intermediate Bond Fund and the Montgomery California Tax-Free Money Fund are declared daily and paid monthly. Dividends from net investment income of the Montgomery Equity Income Fund are declared and paid quarterly.
Distributions of any short-term capital gains earned by a Fund are distributed no less frequently than annually. Additional distributions of net investment income and capital gains for each Fund may be made in order to avoid the application of a 4% non-deductible excise tax on certain undistributed amounts of ordinary income and capital gains. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences and differing characterization of distributions made by the Fund.
Permanent differences incurred during the year ended June 30, 1995 resulting from differences in book and tax accounting have been reclassified at year end to undistributed net investment income and paid-in capital as follows:
Paid-in capital was reduced by $20,117 for the Montgomery Short Government Bond Fund due to a tax return of capital.
K. SECURITIES TRANSACTIONS AND INVESTMENT INCOME-- Securities transactions are recorded on a trade-date basis. Realized gain and loss from securities transactions are recorded on the specific identified cost basis. Dividend income is recognized on the ex-dividend date. Dividend income on foreign securities is recognized as soon as the Fund is informed of the ex-dividend date. Interest income, including, where applicable, amortization of discount on short-term investments, is recognized on the accrual basis. Securities purchased on a when-issued or delayed delivery basis may be settled a month or more after the trade date; interest income is not accrued until settlement date. The Funds instruct their custodian to segregate assets in a separate account with a current value at least equal to the amount of its when issued purchase commitments.
The Montgomery Small Cap Fund has invested in pay-in-kind ("PIK") bonds. PIK bonds pay interest through the issuance of additional bonds. PIK bonds are recorded at fair market value on the date of payment and carry a risk in that unlike bonds which pay interest in cash throughout the period to maturity, the Fund will realize no cash until the cash payment date unless a portion of such securities are sold and, if the issuer defaults, the Fund may obtain no return at all on its investment.
L. FEDERAL INCOME TAXES--Each Fund has qualified and it is the intention of each Fund to continue to qualify and elect treatment as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), by complying with the provisions available to certain investment companies, as defined in applicable sections of the Code, and to make distributions of taxable income to shareholders sufficient to relieve each Fund from all or substantially all federal income taxes.
M. ORGANIZATION COSTS--Expenses incurred in connection with the organization of each Fund, including the fees and expenses of registering and qualifying its shares for distribution under federal and state securities regulations, are being amortized on a straight-line basis over a period of five years from the following dates:
N. CASH--Cash, as used in the Statement of Cash Flows, is the amount reported in the Statements of Assets and Liabilities for the Montgomery Short Government Bond Fund. The Fund issues and redeems its shares, invests in securities and distributes dividends from net investment income and net realized gains (which are either paid in cash or reinvested at the discretion of shareholders). These activities are reported in the Statement of Changes in Net Assets. Information on cash payments is presented in the Statement of Cash Flows. Accounting practices that do not affect reporting activities on a cash basis include unrealized gain or loss on investment securities and accretion income recognized on investment securities. Amounts reported as Due to Custodian on the Statements of Assets and Liabilities reflect cash and foreign currency overdrafts.
O. EXPENSES--Most expenses of the Trust can be directly attributed to a Fund. Expenses which cannot be directly attributed are apportioned between the Funds in the Trust.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES AND OTHER CONTRACTUAL COMMITMENTS:
a. Montgomery Asset Management, L.P. is the Funds' Manager (the "Manager"). The Manager, a California limited partnership, is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The general partner of the Manager is Montgomery Asset Management, Inc. The sole limited partner of the Manager is Montgomery Securities, the Funds' principal underwriter and distributor. Under the Advisers Act, both Montgomery Asset Management, Inc. and Montgomery Securities may be deemed controlling persons of the Manager. Although the operations and management of the Manager are independent from those of Montgomery Securities, it is expected that the Manager may draw upon the research and administrative resources of Montgomery Securities at its discretion in a manner consistent with applicable regulations.
Pursuant to investment management agreements ("Investment Management Agreements"), the Manager provides each Fund with advice on buying and selling securities, manages the investments of each Fund including the placement of orders for portfolio transactions, furnishes each Fund with office space and certain administrative services, and provides the personnel needed by the Trusts with respect to the Manager's responsibilities under such agreement. The Manager has agreed to reduce some or all of its management fee or absorb fund expenses if necessary to keep each Fund's annual operating expenses, exclusive of interest and taxes, at or below the maximum allowed by applicable state expense limitations or the following percentages of each Fund's average net assets, whichever is lower: 1.50% for the Montgomery Growth Fund; 1.75% for the Montgomery Micro Cap Fund; 1.40% for the Montgomery Small Cap Fund; 0.85% for the Montgomery Equity Income Fund; 1.30% for the Montgomery Asset Allocation Fund; 1.90% for the Montgomery Global Opportunities Fund, Montgomery Global Communications Fund, Montgomery International Small Cap Fund and Montgomery Emerging Markets Fund; 0.60% for the Montgomery Government Reserve Fund and Montgomery California Tax-Free Money Fund; and 0.70% for the Montgomery Short Government Bond Fund and Montgomery California Tax-Free Intermediate Bond Fund. Any reductions or absorptions made to the Funds by the Manager are subject to recovery within the following two years (three years for the Montgomery Asset Allocation Fund) provided the Fund is able to affect such reimbursement and remain in compliance with applicable expense limitations. The Manager may terminate these reductions or absorptions at any time.
Montgomery Asset Management, L.P. serves as the Funds' administrator (the "Administrator"). The Administrator performs services with regard to various aspects of each Fund's administrative operations.
As compensation, each Fund has accrued a monthly management and administration fee (accrued daily) based upon the average daily net assets of each Fund at the following effective annual rates:
The Manager has recouped previously deferred fees and/or absorbed expenses during the year ended June 30, 1995. These amounts have been included with current year management fees in the Statement of Operations and are part of the effective rates shown above. The amounts recouped during the year ended June 30, 1995 were $88,428, $21,106, $60,321, $182,351, $78,233 and $450,190 for the Montgomery Growth Fund, Montgomery Asset Allocation Fund, Montgomery Global Opportunities Fund, Montgomery Global Communications Fund, Montgomery International Small Cap Fund and Montgomery Government Reserve Fund, respectively.
For the year ended June 30, 1995, the Manager has deferred fees and/or absorbed expenses as follows:
As of June 30, 1995, the deferred management fees and absorbed expenses subject to recoupment are $158,785, $49,653, $124,429, $144,683, $387,886, $184,013, $414,057, $474,297, $213,281 and $198,927 for the Montgomery Micro Cap Fund, Montgomery Equity Income Fund, Montgomery Asset Allocation Fund, Montgomery Global Opportunities Fund, Montgomery Global Communications Fund, Montgomery International Small Cap Fund, Montgomery Short Government Bond Fund, Montgomery Government Reserve Fund, Montgomery California Tax-Free Intermediate Bond Fund and Montgomery California Tax-Free Money Fund, respectively.
b. Certain officers and Trustees of the Trust are, with respect to the Trust's Manager and/or principal underwriter, "affiliated persons" as defined in the 1940 Act. Each Trustee of the Montgomery Funds who is not an "affiliated person" will receive an annual retainer and quarterly meeting fee totaling $30,000 per annum, as well as reimbursement for expenses.
c. For the year ended June 30, 1995, the Funds' securities transactions generated commissions of $11,840,329 of which $74,850 was paid to Montgomery Securities.
d. The Funds have no sales load and do not pay distribution (Rule 12b-1) fees to their distributor. Therefore, Montgomery Securities has received no direct compensation for serving as the Funds' principal underwriter and distributor.
e. At June 30, 1995, Montgomery Global Communications Fund owned 90,000 shares of Montgomery Emerging Communications Fund which has the same investment manager as the Trust. For the year ended June 30, 1995, the Montgomery Global Communications Fund received no dividend income from the Montgomery Emerging Communications Fund.
f. Certain Funds are parties to agreements with Charles Schwab & Co. Inc. ("Schwab") related to the Funds' participation in Schwab's mutual fund OneSourceTM program. The Funds that participate in the OneSourceTM program make payments to Schwab for certain services provided to shareholders who own shares of the Funds through that program. The Manager may make additional payments to Schwab in connection with the Funds' participation in the OneSourceTM program. Certain Funds also are parties to agreements for participation in similar programs sponsored by organizations such as Fidelity Investments. The following Funds participate in one or more of these programs: Montgomery Growth Fund; Montgomery Micro Cap Fund; Montgomery Small Cap Fund; Montgomery Equity Income Fund; Montgomery Asset Allocation Fund; Montgomery Global Opportunities Fund; Montgomery Global Communications Fund; Montgomery International Small Cap Fund; Montgomery Emerging Markets Fund; Montgomery Short Government Bond Fund; Montgomery California Tax-Free Intermediate Bond Fund.
a. The aggregate amount of purchases and sales of long-term securities, excluding long-term U.S. Government securities, during the year ended June 30, 1995 were as follows:
The aggregate amount of purchases and sales of long-term U.S. Government securities, during the year ended June 30, 1995, were:
b. At June 30, 1995, aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was as follows:
c. Information regarding transactions under dollar roll transactions is as follows:
The average amount outstanding during the period was calculated by totaling borrowings at the end of each day and dividing the sum by the number of days in the year ended June 30, 1995.
Interest income earned for the year ended June 30, 1995 by the Montgomery Asset Allocation Fund and the Montgomery Short Government Bond Fund under dollar roll transactions aggregated $6,878 and $1,875, respectively.
Interest expense incurred for the year ended June 30, 1995 by the Montgomery Asset Allocation Fund and the Montgomery Short Government Bond Fund for dollar roll transactions aggregated $85 and $19,843, respectively.
Information regarding borrowings under reverse repurchase agreements is as follows:
The average interest rate approximated 5.34%, 4.50% and 5.00% for the Montgomery Asset Allocation Fund, the Montgomery Short Government Bond Fund and the Montgomery Government Reserve Fund, respectively, during the year. The amount outstanding during the year was calculated by adding the borrowings at the end of each day and dividing the sum by the number of days in the year ended June 30, 1995.
Interest expense for the year ended June 30, 1995 on borrowings by the Montgomery Asset Allocation Fund, the Montgomery Short Government Bond Fund and the Montgomery Government Reserve Fund under reverse repurchase agreements aggregated $949, $160,436 and $63,359, respectively.
d. The Montgomery Global Opportunities Fund, the Montgomery Global Communications Fund, the Montgomery International Small Cap Fund and the Montgomery Emerging Markets Fund regularly trade in forward foreign exchange contracts with off balance sheet risk in the normal course of its investing activities in order to manage exposure to market risks.
The schedule of forward foreign exchange contracts at June 30, 1995 was as follows:
e. Under an unsecured Revolving Credit Agreement with Credit Lyonnais San Francisco Branch and Credit Lyonnais Cayman Islands Branch, each of the Funds of The Montgomery Funds and The Montgomery Funds II may, for one year starting October 1, 1994, borrow (consistent with applicable law and its investment policies) amounts over $1,000,000 but not more than 10% of its net asset value, provided that the aggregate principal amount of outstanding loans under the agreement to all Funds does not exceed $25,000,000. For the year ended June 30, 1995 the Funds, except for Montgomery Global Communications Fund, did not borrow under the Revolving Credit Agreement.
Information regarding borrowings by the Montgomery Global Communications Fund for the year ended June 30, 1995 was as follows:
The interest expense for the year ended June 30, 1995 for the Montgomery Global Communications Fund was $23,966. The average interest rate approximated 8.125% during the year.
4. TRANSACTIONS IN SHARES WITH A BENEFICIAL INTEREST:
The Trusts have authorized an unlimited number of shares of beneficial interest which have a par value of $0.01. Because the Montgomery Government Reserve Fund and the Montgomery California Tax-Free Money Fund are money market funds and money market funds sell shares, issue shares for reinvestment of dividends and redeem shares only at a constant net asset value of $1.00 per share, the number of shares represented by such sales, reinvestments and redemptions are the same as the dollar amounts shown for such transactions. Transactions in shares of beneficial interest for the years and periods indicated below were as follows:
* The Montgomery Growth Fund, Montgomery Micro Cap Fund, Montgomery Equity Income Fund, Montgomery Asset Allocation Fund, Montgomery Global Opportunities Fund, Montgomery International Small Cap Fund, Montgomery California Tax-Free Intermediate Bond Fund and the Montgomery California Tax-Free Money Fund commenced operations on September 30, 1993, December 30, 1994, September 30, 1994, March 31, 1994, September 30, 1993, September 30, 1993, July 1, 1993 and September 30, 1994, respectively.
Certain Funds may purchase securities on foreign security exchanges. Securities of foreign companies and foreign governments involve special risks and considerations not typically associated with investing in U.S. companies and the U.S. government. These risks include re-valuation of currencies, less reliable information about issuers, different securities transactions clearance and settlement practices, and future adverse political and economic developments. These risks are heightened for investments in emerging market countries. Moreover, securities of many foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. companies and the U.S. government. The Montgomery Emerging Markets Fund invests at least 65% of its total assets in the equity securities of companies in emerging market countries.
The Montgomery Global Communications Fund concentrates its investments in the global communications industry. Because of this concentration, the value of this Fund's shares may vary in response to factors affecting the global communications industry, and therefore may be more volatile than that of investment companies that do not similarly concentrate their investments. The global communications industry may be subject to greater changes in governmental policies and governmental regulation than many other industries, and regulatory approval requirements may materially affect the products and services of this industry.
The Montgomery California Tax-Free Intermediate Bond Fund and the Montgomery California Tax-Free Money Fund concentrate in California municipal securities. Certain California constitutional amendments, legislative measures, executive orders, administrative regulations, court decisions and voter initiatives could result in certain adverse consequences, including impairing the ability of certain issuers of California municipal securities to pay principal and interest on their obligations.
7. ILLIQUID AND SPECIAL SITUATION SECURITIES:
Each Fund may not invest more than 15% of its net assets in illiquid securities. The securities shown in the table below have been determined by the Manager to be illiquid because they are restricted or because there is an exceptionally low trading volume in the primary trading market for the security at June 30, 1995. These securities are valued at market price.
# Amount equals less than 0.01%.
The following securities held by the Funds on June 30, 1995 are unrestricted securities for which reliable market prices can be established. These securities are valued at their market prices. However, because the process of re-registering the securities in the Fund's name can take more than seven days, the following shares of each of these securities were deemed temporarily restricted in the hands of the Fund at June 30, 1995. The Fund bears the cost of re-registering these securities:
At June 30, 1995, the following funds had available for federal tax purposes unused capital losses as follows:
Under current tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. In the fiscal year ended June 30, 1995 the following Funds elected to defer losses occurring between November 1, 1994 and June 30, 1995 under these rules as follows:
Such deferred losses will be treated as arising on the first day of the fiscal year ending June 30, 1996.
To the Board of Trustees and the Shareholders of The Montgomery Funds and The Montgomery Funds II:
We have audited the accompanying statements of assets and liabilities, including the portfolio of investments, of the Montgomery Growth Fund, the Montgomery Micro Cap Fund, the Montgomery Small Cap Fund, the Montgomery Equity Income Fund, the Montgomery Asset Allocation Fund (formerly the Montgomery Strategic U.S. Fund), the Montgomery Global Opportunities Fund, the Montgomery Global Communications Fund, the Montgomery International Small Cap Fund, the Montgomery Emerging Markets Fund, the Montgomery Short Government Bond Fund (formerly Montgomery Short Duration Government Fund), the Montgomery Government Reserve Fund, the Montgomery California Tax-Free Intermediate Bond Fund (formerly Montgomery California Tax-Free Short/Intermediate Fund) and the Montgomery California Tax-Free Money Fund (the Funds) (all portfolios of The Montgomery Funds, except for the Asset Allocation Fund which is a portfolio of The Montgomery Funds II) as of June 30, 1995, and the related statements of operations for the period ended June 30, 1995, the statements of changes in net assets for the periods ended June 30, 1995 and 1994, the statement of cash flows for the period ended June 30, 1995 and financial highlights for each of the periods ended June 30, 1995, 1994, 1993 and 1992. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The Montgomery Small Cap Fund's financial highlights for the year ended June 30, 1991 and for the period July 13, 1990 (effective date of registration) to June 30, 1991 were audited by other auditors whose report dated July 31, 1991, expressed an unqualified opinion on such financial highlights.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at June 30, 1995 by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of the Funds as of June 30, 1995, the results of their operations, the changes in their net assets, and their financial highlights for the respective stated periods, in conformity with generally accepted accounting principles.
FISCAL YEAR ENDED JUNE 30, 1995
The amount of long term capital gain paid for the fiscal year ended June 30, 1995 was as follows:
Of the distributions made from investment income the following percentages are tax exempt for regular Federal income tax purposes:
Of the distributions made by the following Funds the corresponding percentage represents the amount of each distribution which will qualify for the dividends received deduction available to corporate shareholders:
Of the distributions made by the following Funds from investment income the corresponding percentage represents the portion of each distribution derived from investments in U.S. Government and Agency obligations. All or a portion of the distributions made from this income may be exempt from taxation at the state level. Please consult your tax advisor for state specific information:
For the fiscal year ended June 30, 1995, foreign income and foreign taxes paid relating to foreign sources and possessions in the United States, on a per share basis were as follows:
The above figures may differ from those cited elsewhere in this report due to differences in the calculation of income and capital gains for Securities and Exchange Commission (book) purposes and Internal Revenue Service (tax) purposes.
The Montgomery Funds BULK RATE 600 Montgomery Street, 15th Floor U.S. POSTAGE PAID San Francisco, CA 94111-9361 Mount Prospect, Il.
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0000707805-96-000003
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0000707805-96-000003_0000.txt
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Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 31, 1995
(Exact name of registrant as specified in its charter)
(State or otherjurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.)
100 Dutch Hill Road, Orangeburg, N.Y. 10962 (Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code):
ITEM 2. Acquisition or Disposition of Assets
On January 2, 1996, U.S.B. Holding Co., Inc. (the "Company") issued a press release announcing the sale of its wholly-owned subsidiary, Royal Oak Savings Bank, F.S.B., to Monocacy Bancshares, Inc. has been completed effective December 31, 1995. A copy of the press release is filed as Exhibit 99 hereto.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits. The following exhibit is filed as part of this Current Report on Form 8-K:
Press Release of U.S.B. Holding Co., Inc. issued January 2, 1996 99
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Exhibit No. Description Sequential Page No. 99 Press Release of U.S.B. 5
FOR IMMEDIATE RELEASE FOR RELEASE TO JANUARY 2, 1996 THE PRESS
For further information, please contact
PARENT COMPANY OF UNION STATE BANK SELLS MARYLAND SUBSIDIARY BANK
Orangeburg, NY - Mr. Thomas E. Hales, Chairman of the Board, U.S.B. Holding Co., Inc., parent company of the Rockland/Westchester-based Union State Bank, announced today that it has completed the sale of its Maryland subsidiary Bank. Royal Oak Savings Bank, FSB, was sold to Monocacy Bancshares, Inc., parent company of Taneytown Bank and Trust Company, Taneytown, Maryland effective December 31, 1995. The approximate sales price of $7.8 million is based on the level of deposits and certain other assets and liabilities sold as of December 31, 1995.
Royal Oak Savings Bank was formed by the merger of two former Maryland banks in 1991 by U.S.B. Holding Co., Inc. Royal's Oak's offices are located in Randallstown and Eldersburg, MD. Royal Oak had approximately $50 million in assets as of December 31, 1995.
Monocacy will continue to manage and operate Royal Oak Savings Bank, FSB under its charter but expects to merge Royal Oak with the Taneytown Bank in the second quarter of 1996.
Mr. Hales commented that the gain resulting from Royal Oak's sale will serve in supporting other initiatives of the U.S.B. Holding Co., Inc. and its primary subsidiary, Union State Bank.
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0000819940-96-000013
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0000819940-96-000013_0000.txt
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Dreyfus Disciplined Midcap Stock Fund
We are pleased to send you this annual report for Dreyfus Disciplined Midcap Stock Fund. It covers the twelve months ended October 31, 1995.
As you will see in this letter, the Fund outperformed its benchmark index during the period. In the sections that follow, we report the detailed results and describe the portfolio makeup. In addition, to place the Fund's performance in its broader setting, we discuss economic and market developments during the period.
The much-desired soft landing for the U.S. economy that the Federal Reserve Board has been striving to attain appears to have occurred. This is the result of more than a year of moves by the Fed to tighten interest rates, followed by a token loosening of the reins last summer.
Now that the economy has settled down a bit, the central bank must concern itself with the possibility that the economy might slow down more than would be desirable. However, the latest economic statistics do not contain convincing evidence of that happening. The housing industry is doing well, industrial orders continue to expand and gross domestic product keeps on growing, albeit at a reduced rate.
In the meantime, the rate of inflation appears to be under firm control. Consumer prices have advanced only at a very moderate pace, and average wages have barely inched ahead. Unemployment is not getting out of hand, and hovers near the so-called full employment level.
Retail spending has settled down, in part because consumers are carrying large debit balances in mortgage and credit card debts. To what extent this will affect holiday shopping remains to be seen.
As your Fund reached the end of its fiscal year, October 31, 1995, stocks were not far below the record levels they had reached earlier in the fall.
Among the factors accounting for this market strength were good corporate profits and low interest rates. Third quarter profit reports from leading corporations, while not universally favorable, were better than earlier quarters. The extensive lean and mean corporate reorganizations of the past few years appear to be paying off. Even though the pricing environment for most corporate products is extremely competitive, manufacturers and service providers appear able to squeeze out improved profits.
How long that continuing improvement will last is an open question. Many economists think that profit levels may flatten out over the coming months. The recent record on that score, however, has been encouraging.
Interest rates also have buoyed stock prices and sustained the bond market. As the cost of borrowing has steadily decreased, many corporations have benefited. This advantage has been particularly notable with public utilities.
Another factor in market strength has been the relentless advance of technology, which has virtually forced corporations -- and now individual households as well -- to reequip in order to keep up with technical progress. The obvious result has been seen in record prices commanded during the year by high technology stocks. While some disillusionment may set in, the market clearly takes a very optimistic view of the long-range outlook for these companies.
In addition, equities have been favorably affected by the very large inflow of investment money, on a regular basis, from 401(k) and other retirement plans. To be sure, money managers could at some point turn off the spigot, and divert this cash flow into bonds or money market instruments. During the past year, however, equity purchases by pension funds and other retirement investors have provided a supportive background for stock prices.
Of course, there are some concerns. Perhaps the biggest has been the struggle between Congress and the White House over how to reduce Government spending and cut the burden of the Government's perennial deficit. Hopefully, this impasse will be settled soon. In the meantime, the uncertainties in Washington have been a source of worry to investors.
The fading value of the U.S. dollar has also been a question mark. Yet, after hitting a low last spring, the dollar has gradually recovered some lost ground. This dollar rebound reflects weakness in the economies of Western Europe and Japan, but also the strengthening of economic activity here at home.
For the fiscal year that ended October 31, 1995, Dreyfus Disciplined Midcap Stock Fund achieved a total return of 23.39% for its Investor shares, and 23.57% for its Class R shares.* This compares with a total return of 21.21% for the Fund's benchmark, the Standard & Poor's 400 MidCap Index.** In late 1994 and early 1995, the Fund was adversely affected by a number of factors, not the least of which was the tight money policy that the Federal Reserve was pursuing at that time. By last spring, however, the market for the types of equities held by the Fund began to improve. In particular, our technology holdings started to show considerable strength.
Since then, the Fund has benefited from a rising equity market, plus stock selection for the portfolio. Of course, the Federal Reserve Board's easing of interest rates in July was a helpful factor for equities in general. The portfolio also benefited from the fact that many issues in the portfolio were purchased at attractive price-to-earnings ratios.
A wide range of holdings contributed to the Fund's positive performance, including some Health Care stocks, Financial issues and Technology.
As the fiscal year ended, the principal sectors in which we held investments were Capital Spending; Interest Sensitive/Regulated issues; Utilities; Consumer Cyclical/Discretionary stocks; and Health Care.
Your investment in this Fund is appreciated. We will continue our best efforts to help you achieve your investment goals.
* Total return includes reinvestment of dividends and any capital gains paid. ** SOURCE: LIPPER ANALYTICAL SERVICES, INC. -- Reflects the reinvestment of income individends and, where applicable, capital gain distributions. The Standard & Poor's 400 MidCap Index is a broad-based index of 400 companies and is a widely accepted, unmanaged index of medium-cap stock market performance.
Dreyfus Disciplined Midcap Stock Fund October 31, 1995 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS DISCIPLINED MIDCAP STOCK FUND CLASS R SHARES AND THE STANDARD & POOR'S
Stock Fund Standard & Poor's (Class R Shares) Midcap 400 Index *
*Source: Lipper Analytical Services, Inc.
Investor Class Shares Class R Shares Period ended 10/31/95 Period ended 10/31/95 1 Year 23.39% 1 Year 23.57% From Inception (4/6/94) 12.79 From Inception (11/12/93 10.34
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Class R shares of Dreyfus Disciplined Midcap Stock Fund on 11/12/93 (Inception Date) to a $10,000 investment made in the Standard & Poor's MidCap 400 Index on that date. For comparative purposes, the value of the Index on 10/31/93 is used as the beginning value on 11/12/93. All dividends and capital gain distributions are reinvested. Performance for Investor Class shares will vary from the performance of Class R shares shown above due to differences in charges and expenses.
The Dreyfus Disciplined Midcap Stock Fund seeks investment returns (including capital appreciation and income) consistently superior to the Standard & Poor's MidCap 400 Index. While the midcap market is the Fund's main focus, the Fund can also invest in other areas, such as stocks of smaller and larger corporations. The Fund's performance shown in the line graph takes into account all applicable fees and expenses. The Standard & Poor's MidCap 400 Index is a broad-based Index of 400 companies with market capitalizations generally ranging from $50 million to $10 billion and is a widely accepted, unmanaged index of overall midcap stock market performance which does not take into account charges, fees and other expenses. Further information relating to Fund performance, including expense reimbursements, if applicable, is contained in the Financial Highlights section of the Prospectus and elsewhere in this report.
Dreyfus Disciplined Midcap Stock Fund Statement of Investments October 31, 1995
900 Alumax, Inc.+ ................... $00,026,550 3,400 Arco Chemical Company ........... 166,600 900 Cleveland-Cliffs, Inc. .......... 33,638 1,400 Cyprus Minerals ................. 36,575 2,000 Eastman Chemical ................ 119,000 1,500 Fleetwood Enterpirses, Inc. ..... 30,750 2,700 First Mississippi Corporation.... 55,350 1,912 Firstmiss Gold Inc. + ........... 34,416 2,500 Greenfield Industries, Inc. ..... 75,000 1,600 Rayonier, Inc. .................. 60,000 4,900 Smith International, Inc.+....... 78,400 1,500 Temple Inland, Inc. ............. 68,250 2,200 Varian Associates ............... 113,025 2,100 Vigoro Corporation .............. 91,087 2,000 Viking Office Products, Inc.+.... 89,000 3,500 Wellman, Inc. ................... 82,250 2,400 3 Com Corp. + ................... 112,800
2,700 Case Corporation ................ 102,937 1,500 DSC Communications +............. 55,500 1,600 Danaher Corp. ................... 49,600 4,100 INDRESCO Inc. +.................. 70,213 9,200 Frontier Corp. .................. 248,400 2,200 Scripps (E.W.) Company, Cl. A.... 83,050
1,700 Alberto-Culver Company, Cl. B.... 53,338 1,600 Nine West Group Inc. +........... 71,200 2,900 Whitman Corporation ............. 61,625 3,900 Brunswick Corporation ........... 76,050 2,100 First Brands Corp. .............. 96,075
2,400 Harley Davidson, Inc. ........... $ 64,200 5,800 Leggett & Platt, Inc. ........... 139,200
1,400 V. F. Corporation ............... 67,025 2,300 Applebees International Inc. .... 64,688 2,200 BMC Software Inc + .............. 78,375 3,700 Carson Pirie Scott & Company+ ... 62,437 4,900 Circuit City Stores, Inc. ....... 163,538 3,000 Dole Food, Inc. ................. 112,875 4,500 Gartner Group Inc. + ............ 196,312 4,300 Hannaford Brothers .............. 112,338 2,700 Heritage Media Corporation +..... 74,925 3,600 Hormel Foods .................... 82,800 2,700 IHOP Corp. +..................... 58,050 2,200 Lin Television +................. 62,975 3,100 Manpower, Inc. .................. 84,087 4,100 Morrison Restaurants, Inc. ...... 64,063 2,600 Pittston Services Group ......... 71,500 3,800 Players International, Inc.+..... 40,850 800 Ralston Purina Company .......... 47,500 2,100 Smuckers (J.M.), Cl. A........... 41,212 1,200 Tandy Corporation ............... 59,250 1,300 Ashland Coal, Inc. .............. 30,875 5,100 Brooklyn Union Gas Company ...... 128,137 2,300 Diamond Shamrock Inc. ........... 59,225 5,900 Peco Energy Company.............. 172,575 4,300 Williams Companies Inc. ......... 166,088 1,200 Advanta Corporation ............. 46,500 2,400 Allied Group, Inc. .............. 78,000
Dreyfus Disciplined Midcap Stock Fund Statement of Investments (continued) October 31, 1995
Shares Common Stocks (continued) Value 1,300 American General Corporation .... $ 42,737 4,100 Bank of New York 1,800 BayBanks, Inc. .................. 145,800 2,300 Bear Stearns Company, Inc. ...... 45,713 2,500 Bergen Brunswig Corporation ..... 51,875 2,900 Commercial Federal .............. 95,337 2,000 Crestar Financial Corporation ... 114,000 4,400 Cullen Frost Bankers ............ 224,400 3,300 Equifax, Inc. ................... 128,700 3,300 First Bank System, Inc. ......... 164,175 1,400 First Chicago Corporation ....... 95,025 800 First Interstate Bancorp ........ 103,200 2,400 Old Republic Intl Corp........... 68,700 1,600 Price T Rowe .................... 79,600 2,300 RCSB Financial .................. 51,175 2,600 Standard Financial +............. 35,750 3,600 Vesta Insurance Group ........... 145,350 1,000 Bowater Inc. .................... 44,250 3,800 Chesapeake Corporation .......... 116,375 2,200 HFS Inc. +..................... 134,750 1,900 King World Productions, Inc.+.... 66,263 1,500 Royal Caribbean Cruises ......... 34,500 1,900 Sport Authority (The) +.......... 41,325 1,500 Becton, Dickinson & Company ..... 97,500 2,500 Cardinal Health, Inc. ........... 128,437 1,400 Elan Corp. PLC ADS + ............ 56,175 3,700 MediSense + ..................... 79,088 2,000 Medtronic, Inc. ................. 115,500 2,300 Mylan Labs, Inc. ................ 43,700 2,700 OrNda Healthcorp + .............. 47,587
2,600 Rite Aid Corp. .................. $ 70,200 1,028 Vencor Inc. + ................... 28,527 2,900 Watson Pharmeceutical + ......... 129,775 2,800 Applied Material, Inc.+.......... 140,350 2,300 Autodesk, Inc. .................. 78,200 2,000 Cabletron Systems Inc.+ ......... 157,250 6,600 Cadence Design Systems, Inc.+.... 212,850 3,600 Informix Corporation+ ........... 104,850 2,000 Komag, Inc.+ .................... 114,000 4,600 Loral Corporation ............... 136,275 1,700 Micron Technology, Inc. ......... 120,063 3,700 Millipore Corporation ........... 130,887 3,200 NetManage Inc.+ ................. 65,200 1,500 Novellus Systems, Inc.+ ......... 103,313 3,100 Seagate Technology+ ............. 138,725 1,600 Smith (A.O) Corp................. 33,200 2,400 StrataCom, Inc.+ ................ 147,600 2,300 Sun Microsystems, Inc.+.......... 179,400 3,300 Teradyne, Inc. +................. 110,137 4,800 Worldcom Inc. + ................. 156,600 1,000 Conrail, Inc. ................... 68,750 2,600 Illinois Central Corporation .... 99,450 1,800 Landstar System, Inc.+ .......... 47,250 8,200 Baltimore Gas & Electric 5,900 Boston Edison Company ........... 161,513 7,100 DQE, Inc. ....................... 195,250 3,300 MCN Corporation ................. 71,775 7,900 Portland General Corporation .... 214,288
Dreyfus Disciplined Midcap Stock Fund Statement of Investments (continued) October 31, 1995
$619,806 Goldman Sachs & Company due 7/31/97 (cost $619,806)..... $ 619,806
NET ASSETS ................................... 100.0% $13,545,875
Note to Statement of Investments; + Non-income producing security.
See notes to financial statements.
Dreyfus Disciplined Midcap Stock Fund Statement of Assets and Liabilities October 31, 1995
See notes to financial statements.
Dreyfus Disciplined Midcap Stock Fund Statement of Operations Year ended October 31, 1995
See notes to financial statements.
Dreyfus Disciplined Midcap Stock Fund Statement of Changes in Net Assets
See notes to financial statements.
Dreyfus Disciplined Midcap Stock Fund
Contained below is per share operating performance data for a share of Capital Stock outstanding, total investment return, ratios to average net assets and other supplemental data for each period indicated. This information has been derived from the Fund's financial statements.
See notes to financial statements.
Dreyfus Disciplined Midcap Stock Fund
The Dreyfus/Laurel Funds, Inc. (the "Company") is registered under the Investment Company Act of 1940 ("Act") as a diversified open-end management investment company and operates as a series company currently offering sixteen Series including the Dreyfus Disciplined Midcap Stock Fund (the "Fund"). The Dreyfus Corporation ("Manager") serves as the Fund's investment adviser. The Manager is a direct subsidiary of Mellon Bank, N.A. ("Mellon Bank").
Premier Mutual Fund Services, Inc. (the "Distributor") acts as the distributor of the Fund's shares. The Distributor, located at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned subsidiary of FDI Distribution Services, Inc., a provider of mutual fund administration services, which in turn is a wholly-owned subsidiary of FDI Holdings, Inc., the parent company of which is Boston Institutional Group, Inc.
The Fund is currently authorized to issue two classes of shares: Investor shares and Class R shares. Investor shares are sold primarily to retail investors and bear a distribution fee. Class R shares are sold primarily to bank trust departments and other financial service providers (including Mellon Bank and its affiliates) acting on behalf of customers having a qualified trust or investment account or relationship at such institution, and bear no distribution fee. Each class of shares has identical rights and privileges, except with respect to the distribution fee and voting rights on matters affecting a single class. The Company has the authority to issue 25 billion shares of capital stock with a par value of $.001.
Investment income, net of expenses (other than class specific expenses) and realized and unrealized gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class.
(a) Portfolio Valuation: Investments in securities are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Directors.
(b) Securities Transactions and Investment Income: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount on investments, is recognized on the accrual basis.
(c) Repurchase Agreements: The Fund may engage in repurchase agreement transactions. Under the terms of a typical repurchase agreement, the Fund, through its custodian, and sub-custodian takes possession of an underlying debt obligation subject to an obligation of the seller to repurchase, and the Fund to resell, the obligation at an agreed-upon price and time, thereby determining the yield during the Fund's holding period. This arrangement results in a fixed rate of return that is not subject to market fluctuations during the Fund's holding period. The value of the collateral is at least equal, at all times, to the total amount of the repurchase obligations, including interest. In the event of a counterparty default, the Fund has the right to use the collateral to offset losses incurred. There is potential loss to the Fund in the
Dreyfus Disciplined Midcap Stock Fund NOTES TO FINANCIAL STATEMENTS (continued)
event the Fund is delayed or prevented from exercising its rights to dispose of the collateral securities, including the risk of a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights. The Fund's manager, acting under the supervision of the Board of Directors, reviews the value of the collateral and the creditworthiness of those banks and dealers with which the Fund enters into repurchase agreements to evaluate potential risks.
(d) Financial Futures: The Fund may invest in trading financial futures contracts in order to gain exposure to or protect against changes in the market. The Fund is exposed to market risk as a result of changes in the value of the underlying financial instruments. Investments in financial futures require the Fund to "mark to market" on a daily basis, which reflects the change in the market value of the contract at the close of each day's trading. Accordingly, variation margin payments are made or received to reflect daily unrealized gains or losses. When the contracts are closed, the Fund recognizes a realized gain or loss. These investments require initial margin deposits with a custodian, which consist of cash or cash equivalents, up to approximately 10% of the contract amount. The amount of these deposits is determined by the exchange or Board of Trade on which the contract is traded and is subject to change. At October 31, 1995, there were no financial futures contracts outstanding.
(e) Distributions to Shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net are declared and paid on a quarterly basis. Dividends from net realized capital gain are normally declared and paid annually, but the Fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code. To the extent that net realized capital gain can be offset by capital loss carryovers, if any, it is the policy of the Fund not to distribute such gain.
On November 2, 1995, the Board of Directors declared dividends from net investment income for the Investor shares and ClassR shares in the amount of $0.0189 per share and $0.0263 per share, respectively, payable on November 3, 1995 to shareholders of record onNovember 2, 1995.
(f) Federal Income Taxes: It is the policy of the Fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Internal Revenue Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes.
NOTE 2--Investment Management Fee and other Transactions with Affiliates:
(a) Investment Management Fee: Pursuant to an Investment Management agreement with the Manager, the Manager provides or arranges for one or more third parties and or affiliates to provide investment advisory, administrative, custody, fund accounting and transfer agency services to the Fund. The Manager also directs the investments of the Fund in accordance with its investment objective, policies and limitations. For these services, the Fund is contractually obligated to pay the Manager a fee, calculated daily and paid monthly, at the annual rate of 1.10% of the value of the Fund's average daily net assets. Out of its fee, the Manager pays all of the expenses of the Fund except brokerage fees, taxes, interest, Rule 12b-1 distribution fees and expenses, fees and expenses of non-interested Directors
Dreyfus Disciplined Midcap Stock Fund NOTES TO FINANCIAL STATEMENTS (continued)
extraordinary expenses. In addition, the Manager is required to reduce its fee in an amount equal to the Fund's allocable portion of fees and expenses of the non-interested Directors (including counsel).
(b) Distribution Plan: The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act relating to its Investor shares. Under the Plan, the Fund may pay annually up to .25% of the value of the average daily net assets attributable to its Investor shares to compensate the Distributor and Dreyfus Service Corporation, an affiliate of the Manager, for shareholder servicing activities and the Distributor for activities primarily intended to result in the sale of Investor shares. The Class R shares bear no distribution fee. For the year ended October 31, 1995, the distribution fee for the Investor shares was $1,422.
Under its terms, the Plan shall remain in effect from year to year, provided such continuance is approved annually by a vote of majority of those Directors who are not "interested persons" of the Investment Company and who have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan.
(c) Directors' Fees: Each director who is not an "interested person" as defined in the Act receives $27,000 per year, $1,000 for each Board meeting attended and $750 for each Audit Committee attended and is reimbursed for travel and out-of-pocket expenses. These expenses are paid in total by the following funds: the Dreyfus/Laurel Funds, Inc., the Dreyfus/Laurel Tax-Free Municipal Funds, and the Dreyfus/Laurel Funds Trust. In addition the Chairman of the Board receives an annual fee of $75,000 per year. These fees and expenses are charged and allocated to each series based on net assets.
The aggregate amount of purchase and sales of investment securities, other than short-term securities, during the year ended October 31, 1995, amounted to $10,996,070 and $18,527,076, respectively.
At October 31, 1995, accumulated net unrealized appreciation on investments was $2,309,255, consisting of $2,628,442 gross unrealized appreciation and $319,187 gross unrealized depreciation.
At October 31, 1995, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
Dreyfus Disciplined Midcap Stock Fund
The Board of Directors and Shareholders The Dreyfus/Laurel Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of the Dreyfus Disciplined Midcap Stock Fund of The Dreyfus/Laurel Funds, Inc., including the statement of investments, as of October 31, 1995, and the related statement of operations for the year then ended, and the statement of changes in net assets and the financial highlights for each of the periods indicated herein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as we as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects the financial position of the Dreyfus Disciplined Midcap Stock Fund of The Dreyfus/Laurel Funds, Inc., as of October 31, 1995, and the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for each of the periods indicated herein, in conformity with generally accepted accounting principles.
Dreyfus Disciplined Midcap Stock Fund
First Data Investor Services Group, Inc.
Further information is contained in the Prospectus, which must precede or accompany this report.
|
N-30D
|
N-30D
| 1996-01-12T00:00:00
| 1996-01-12T11:26:00
|
0000950124-96-000212
|
0000950124-96-000212_0005.txt
|
THIS AGREEMENT made and entered into as of this tenth day of January, 1994 by and between ABACO CASA DE BOLSA, S.A. de C.V., ABACO GROUP FINANCIERO, a Mexico corporation ("Purchaser"), and Frederick G. Uhlmann (the "Optionholder").
WHEREAS, the Optionholder, a director and/or executive officer of Rodman & Renshaw Capital Group, Inc. (the "Company"), was granted options to purchase shares of Common Stock, $.09 par value per share (the "Shares"), of the Company, pursuant to the terms of the Company's Incentive Stock Option Plan
WHEREAS, the Company has entered into an Acquisition Agreement, dated as of November 17, 1993 (the "Acquisition Agreement"), by and among the Company, Abaco Grupo Financiero, S.A. de C.V. and Purchaser pursuant to which, on the Tender Closing Date, as that term is defined in the Acquisition Agreement, Purchaser accepted for payment pursuant to a tender offer 2,363,003 Shares at $10.50 per Share in cash;
WHEREAS, pursuant to Section 5.10(C) of the Acquisition Agreement, directors and executive officers who exercised any or all of their vested employee stock options to purchase Shares between the first business day after the Tender Closing Date and the tenth business day after the Tender Closing Date may at any time between the eleventh business day and the twentieth business day after the Tender Closing Date elect to sell to Purchaser any or all of the Shares acquired upon such exercise ("Elected Shares") in accordance with the terms set forth in the Acquisition Agreement;
WHEREAS, the Optionholder desires to sell to Purchaser, and Purchaser desires to buy from Optionholder, the number of Elected Shares indicated below the Optionholder's signature on page 3 hereof subject to the terms stated herein.
NOW, THEREFORE, Purchaser and the Optionholder agree as follows:
1. Agreement to Sell and to Purchase. On the Closing Date (as defined in Section 2) and upon the terms set forth in this Agreement, the Optionholder shall sell, assign, transfer, convey and deliver the number of Elected Shares indicated below the Optionholder's signature on page 3 hereof to Purchaser, and Purchaser shall purchase and accept such Elected Shares from the Optionholder.
2. Closing. The closing of such sale and purchase (the "Closing") shall take place at 10:00 a.m., Chicago time, on
January 10, 1995, or at such other time and date as the parties hereto shall agree in writing (the "Closing Date") at the offices of the Company, 120 South LaSalle Street, Chicago, Illinois 60603, or at such other place as the parties hereto shall agree in writing. At the Closing, the Optionholder shall deliver to Purchaser stock certificates representing the Elected Shares to be sold to Purchaser pursuant to this Agreement, duly endorsed in blank for transfer or accompanied by appropriate stock power duly executed in blank. In consideration and exchange for such Elected Shares, Purchaser shall pay to the Optionholder, within two business days after delivery of such Elected Shares, the Purchase Price as provided in Section 3 hereof.
3. Purchase Price. The aggregate purchase price (the "Purchase Price") for the Elected Shares to be sold to Purchaser pursuant to this Agreement shall be the sum of: (A) the number of Elected Shares sold to Purchaser pursuant to this Agreement multiplied by $10.50 per Share, and (B) interest at the rate of 4% per annum on the aggregate amount set forth in clause (A) of this Section 3 from the period commencing on the date of this Agreement and ending on the date that the Purchase Price is paid in full to the Optionholder. The Purchase Price shall be paid to the Optionholder by delivery to the Optionholder, at his address specified below, of a certified or official bank check payable to the order of the Optionholder in funds immediately available in Chicago on the date of payment.
4. Ownership. The Optionholder represents and warrants to and covenants with Purchaser that on the date hereof and on the Closing Date, the Optionholder is and will be, subject to the rights hereunder of Purchaser, the record and beneficial owner of the Elected Shares, free and clear of any liens, claims, and encumbrances.
5. Investment Intent. The Elected Shares will be acquired by Purchaser hereunder solely for the account of Purchaser, for investment, and not with a view to the resale or distribution thereof.
6. Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, Purchaser and the Optionholder and their respective heirs, successors and assigns.
7. Expenses. Except as otherwise expressly provided in this Agreement, all legal and other fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees, costs or expenses.
8. Entire Agreement. This Agreement represents the entire agreement and understanding of the parties with reference to the transactions set forth herein and no representations or warranties have been made in connection with this Agreement. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement and all prior drafts of this Agreement, all of which are merged into this Agreement.
9. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement.
10. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, Purchaser and the Optionholder have executed this Agreement the day and year first above written.
ABACO CASA de BOLSA, S.A. de
Number of Elected Shares to be sold: 27000
Optionholder's Address: 783 White Oaks
|
SC 13D
|
EX-5
| 1996-01-12T00:00:00
| 1996-01-12T13:22:08
|
0000011860-96-000003
|
0000011860-96-000003_0000.txt
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REGISTRATION OF CERTAIN CLASSES OF SECURITIES PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
(Exact name of registrant as specified in its charter)
(State of incorporation) (I.R.S. Employer Identification No.)
(Address of principal executive offices)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which to be so registered each class is to be registered
Preference Stock New York Stock Exchange, Inc. Purchase Rights Chicago Stock Exchange, Inc.
If this Form relates to the registration of a class of debt securities and is effective upon filing pursuant to General Instructions A.(c)(1), please check the following.
If this Form relates to the registration of a class of debt securities and is to become effective simultaneously with the effectiveness of a concurrent registration statement under the Securities Act of 1933 pursuant to General Instruction A.(c)(2), please check the following.
Securities to be registered pursuant to Section 12(g) of the Act:
Item 1. Description of Securities to be Registered
On September 28, 1988, the Board of Directors of Bethlehem Steel Corporation ("Bethlehem") declared a dividend distribution of one Right for each outstanding share of Bethlehem Common Stock to stockholders of record at the close of business on October 18, 1988. Each Right entitles the registered holder to purchase from Bethlehem a unit consisting of one one-hundredth of a share (a "Unit") of Series A Junior Participating Preference Stock, par value $1.00 per share (the "Preference Stock"), at a Purchase Price of $80.00 per Unit, subject to adjustment. The description and terms are set forth in a Rights Agreement (the "Rights Agreement") between Bethlehem and Morgan Shareholder Services Trust Company, as Rights Agent, as amended by Amendment No. 1 to the Rights Agreement (the "Amendment"), dated as of November 1, 1995, between Bethlehem and First Chicago Trust Company of New York (formerly Morgan Shareholder Services Trust Company).
Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate Rights Certificates will be distributed. The Rights will separate from the Common Stock and a Distribution Date will occur upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock and otherwise becomes an Acquiring Person (the "Stock Acquisition Date") or (ii) 10 business days (or such later date as may be determined by the Board) following the commencement of a tender offer or exchange offer (or such later date as may be determined by the Board of Directors) that would result in a person or group beneficially owning 20% or more of such outstanding shares of Common Stock.
The term "Acquiring Person" shall mean any Person who or which, together with all affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company or of any Subsidiary of the Company, (iv) any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan or (v) any such Person who has reported or is required to report such ownership (but less than 20%) on Schedule 13G under the Exchange Act (or any comparable or successor report) or on Schedule 13D under the Exchange Act (or any comparable or successor report) which Schedule 13D does not state any intention to or reserve the right to control or influence the management or policies of the Company or engage in any of the action specified in Item 4 of such Schedule (other than the acquisition or disposition of the Common Stock in the ordinary course), but only to the extent such Person continues to comply with the provisions of this clause (v).
Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new Common Stock certificates issued after October 18, 1988 will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. Pursuant to the Rights Agreement, Bethlehem reserves the right to require prior to the occurrence of a Triggering Event (as defined below) that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Preference Stock will be issued.
The Rights are not exercisable until the Distribution Date and will expire at the close of business on October 18, 1998, unless earlier redeemed by Bethlehem as described below.
As soon as practicable after the Distribution Date, Rights Certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and, thereafter, the separate Rights Certificates alone will represent the Rights. Except in certain circumstances specified in the Rights Agreement or as otherwise determined by the Board of Directors, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights.
In the event that (i) a Person becomes an Acquiring Person (except pursuant to an offer for all outstanding shares of Common Stock which at least a majority of the members of the Board of Directors who are not officers of Bethlehem and who are not representatives, nominees, Affiliates or Associates of an Acquiring Person determines to be fair to and otherwise in the best interests of Bethlehem and its stockholders), (ii)Bethlehem is the surviving corporation in a merger with an Acquiring Person and its Common Stock is not changed or exchanged), (iii) an Acquiring Person engages in one or more "self-dealing" transactions as set forth in the Rights Agreement, or (iv) during such time as there is an Acquiring Person, an event occurs which results in such Acquiring Person's ownership interest being increased by more than 1% (e.g., a reverse stock split), each holder of a Right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property, or other securities of Bethlehem) having a value equal to two times the exercise price of the Right. Notwithstanding any of the foregoing, following the occurrence of any of the events set forth in this paragraph, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by an Acquiring Person or an Associate or Affiliate of any Acquiring Person will be null and void. However, Rights are not exercisable following the occurrence of either of the events set forth above until such time as the Rights are no longer redeemable by Bethlehem as set forth below.
For example, at an exercise price of $80 per Right, each Right not owned by an Acquiring Person (or by certain related parties) following an event set forth in the preceding paragraph would entitle its holder to purchase $160 worth of Common Stock (or other consideration, as noted above) for $80. Assuming that the Common Stock had a per share value of $20 at such time, the holder of each valid Right would be entitled to purchase eight (8) shares of Common Stock for $80.
In the event that, at any time following the Stock Acquisition Date, (i) Bethlehem is acquired in a merger or other business combination transaction in which Bethlehem is not the surviving corporation (other than a merger described in the second preceding paragraph or a merger which follows an offer described in the second preceding paragraph), or (ii) 50% or more of Bethlehem's assets or earning power is sold or transferred, each holder of a Right (except Rights which previously have been voided as set forth above) shall thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The events set forth in this paragraph and in the second preceding paragraph are referred to as the "Triggering Events."
The Purchase Price payable, and the number of Units of Preference Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preference Stock, (ii) if holders of the Preference Stock are granted certain rights or warrants to subscribe for Preference Stock or convertible securities at less than the current market price of the Preference Stock, or (iii) upon the distribution to holders of the Preference Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional Units will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Preference Stock on the last trading date prior to the date of exercise.
At any time until ten days following the Stock Acquisition Date, Bethlehem may redeem the Rights in whole, but not in part, at a price of $.01 per Right (payable in cash, Common Stock or other consideration deemed appropriate by the Board of Directors). Under certain circumstances set forth in the Rights Agreement, the decision to redeem shall require the concurrence of a majority of the Continuing Directors. Immediately upon the action of the Board of Directors ordering redemption of the Rights, with, where required, the concurrence of the Continuing Directors, the Rights will terminate and the only right of the holders of Rights will be to receive the $.01 redemption price.
The term "Continuing Directors" means any member of the Board of Directors of Bethlehem who was a member of the Board prior to the date of the Rights Agreement, and any person who is subsequently elected to the Board if such person is recommended or approved by a majority of the Continuing Directors, but shall not include an Acquiring Person or an affiliate or associate of an Acquiring Person, or any representative of the foregoing entities.
Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of Bethlehem, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to Bethlehem, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for Common Stock (or other consideration) of Bethlehem or for common stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of the Rights, any of the provisions of the Rights Agreement may be amended by the Board of Directors of Bethlehem prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement may be amended by the Board (in certain circumstances, with the concurrence of the Continuing Directors) in order to cure any ambiguity, to make changes which do not adversely affect the interests of holders of Rights, or to shorten or lengthen any time period under the Rights Agreement; provided, however, that no amendment to adjust the time period governing redemption shall be made at such time as the Rights are not redeemable.
As of September 30, 1988, there were 74,511,460 shares of Common Stock of Bethlehem outstanding and 1,996,856 shares of Common Stock of Bethlehem in the treasury. Each share of Common Stock of Bethlehem outstanding at the close of business on October 18, 1988 received one Right. So long as the Rights are attached to the Common Stock, one additional Right (as such number may be adjusted pursuant to the provisions of the Rights Agreement) shall be deemed to be delivered for each share of Common Stock issued or transferred by Bethlehem after such date. In addition, following the Distribution Date and prior to the expiration or redemption of the Rights, Bethlehem may issue Rights when it issues Common Stock only if the Board of Directors deems it to be necessary or appropriate, or in connection with the issuance of shares of Common Stock pursuant to the exercise of stock options or under employee plans or upon the exercise, conversion or exchange of certain securities of Bethlehem. One million five hundred thousand (1,500,000) shares of Preference Stock have been initially reserved for issuance upon exercise of the Rights.
The rights have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire Bethlehem in a manner which causes the Rights to become discount Rights unless the offer is conditional on a substantial number of Rights being acquired. The Rights, however, should not affect any prospective offeror willing to make an offer at a fair price and otherwise in the best interests of Bethlehem and its stockholders as determined by a majority of the Directors who are not affiliated with the person making the Offer, or willing to negotiate with the Board of Directors. The Rights should not interfere with any merger or other business combination approved by the Board of Directors since the board of Directors may, at its option, at any time until ten days following the Stock Acquisition Date redeem all but not less than all the then outstanding Rights at the Redemption Price.
The Rights Agreement between Bethlehem and the Rights Agent specifying the terms of the Rights, which includes as Exhibit B the Form of Rights Certificate, and Amendment No. 1 to the Rights Agreement, are attached hereto as Exhibits 1 and 2 and are incorporated herein by reference. The foregoing description of the Rights does not purport to be complete and is qualified in its entirety by reference to such Exhibits.
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereto duly authorized.
By /s/ G. L. Millenbruch
1 Form of Rights Agreement, dated as of September 28, 1988 between Bethlehem Steel Corporation and Morgan Shareholder Services Trust Company which includes as Exhibit B thereto the Form of Rights to the Company's Registration Statement on Form 8-A dated October 4, 1988).
2 Amendment, dated as of November 1, 1995 9 to the Rights Agreement between Bethlehem Steel Corporation and First Chicago Trust Company of New York (formerly Morgan Shareholder Services Trust Company).
AMENDMENT NO. 1 TO THE RIGHTS AGREEMENT
Amendment No. 1, dated as of November 1, 1995 (the "Amendment"), between Bethlehem Steel Corporation, a Delaware corporation (the "Company"), and First Chicago Trust Company of New York, a New York corporation (the "Rights Agent").
WHEREAS, the Company and the Rights Agent (whose name at the time was Morgan Shareholder Services Trust Company) entered into a Rights Agreement, dated as of September 28, 1988 (the "Rights Agreement"), and the Company and the Rights Agent desire to amend the Rights Agreement in accordance with Section 26 of the Rights Agreement;
NOW, THEREFORE, in consideration of the premises and mutual agreements set forth in the Rights Agreement and this Amendment, the parties hereby agree as follows:
Section 1. Amendment to Definition of "Acquiring Person". Section 1(a) of the Rights Agreement is amended to read in its entirety as follows:
(a) "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company or of any Subsidiary of the Company, (iv) any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan or (v) any such Person who has reported or is required to report such ownership (but less than 20%) on Schedule 13G under the Exchange Act (or any comparable or successor report) or on Schedule 13D under the Exchange Act (or any comparable or successor report) which Schedule 13D does not state any intention to or reserve the right to control or influence the management or policies of the Company or engage in any of the actions specified in Item 4 of such Schedule (other than the acquisition or disposition of the Common Stock in the ordinary course), but only to the extent such Person continues to comply with the provisions of this clause (v).
Section 2. Amendment of Section 11(a)(ii) Event. Section 11(a)(ii)(B) of the Rights Agreement is amended to (x) delete the phrase "the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding" and substitute in its place the phrase "an Acquiring Person" and (y) delete the phrase "the 20% threshold to be crossed" and substitute in its place the phrase "such Person to become an Acquiring Person."
Section 3. Rights Agreement as Amended. The term "Agreement" as used in the Rights Agreement shall be deemed to refer to the Rights Agreement as amended hereby. The foregoing amendments shall be effective as of the date hereof and, except as set forth herein, the Rights Agreement shall remain in full force and effect and shall be otherwise unaffected hereby.
Section 4. Execution in Counterparts. This Amendment may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed an original, but all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written.
By /s/ G. L. Millenbruch Chief Financial Officer & Treasurer
By /s/ Charles D. Keryc
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8-A12B/A
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8-A12B/A
| 1996-01-12T00:00:00
| 1996-01-12T14:33:18
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0000950109-96-000202
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0000950109-96-000202_0000.txt
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SUPPLEMENT DATED JANUARY 11, 1996 TO PROSPECTUSES DATED APRIL 30, 1995
THIS SUPPLEMENT PROVIDES NEW AND ADDITIONAL INFORMATION BEYOND THAT CONTAINED IN THE PROSPECTUSES AND SHOULD BE RETAINED AND READ IN CONJUNCTION WITH SUCH PROSPECTUSES.
Effective January 11, 1996 all references in the prospectuses dated April 30, 1995 of Monitor Funds (the "Trust") to "Federated Administrative Services" as administrator and Federated Securities Corp. as distributor of the Trust are hereby replaced with SEI Financial Management Corporation. and SEI Financial Services Company, respectively, and all references to "Federated Services Company" as transfer agent and dividend disbursing agent of the Trust are hereby replaced with SEI Financial Management Corporation.
The information provided in the "Administration of Funds" section of the Trust's prospectuses dated April 30, 1995 is hereby replaced in its entirety with the following: "As Administrator of the Trust, SEI Financial Management Corporation is entitled to receive an annual administrative fee at a maximum rate of .11% of each Portfolio's average daily net assets for services performed under the Administration Agreement dated January 11, 1996 between SEI Financial Management Corporation and the Trust. SEI Financial Management Corporation and SEI Financial Services Company are located at 680 E. Swedesford Road, Wayne, PA 19087".
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
SUPPLEMENT DATED JANUARY 11, 1996 TO STATEMENT OF ADDITIONAL INFORMATION DATED
Effective January 11, 1996 all references in the Statement of Additional Information dated April 30, 1995 of Monitor Funds (the "Trust") to "Federated Administrative Services" ("Federated") as administrator and "Federated Securities Corp." as distributor of the Trust are hereby replaced with SEI Financial Management Corporation. and SEI Financial SErvices Company, respectively, all references to "Federated Services Company" as transfer agent and dividend disbursing agent for the Trust are hereby replaced with SEI Financial Management Corporation.
The following information is hereby added to the "Administrator" section of the Trust's Statement of Additional Information dated April 30, 1995: "SEI Financial Management Corporation ("SFM") serves as administrator to the Trust pursuant to an Administration Agreement dated January 11, 1996. SFM is entitled to receive an annual administrative fee at a maximum rate of .11% of each Portfolio's average daily net assets for services performed under the Administration Agreement. SFM is located at 680 E. Swedesford Road, Wayne, PA 19087".
The information with respect to Messrs. Gonzales, Petnuch and Huber in the "Trustees and Officers" section of the Trust's Statement of Additional Information dated April 30, 1995 is hereby replaced with the following information:
David G. Lee--680 E. Swedesford Road, Wayne, PA 19087, President and Chief Executive Officer. Senior Vice President of the Administrator and Distributor since 1993. Vice President of the Administrator and Distributor (1991-1993). President, GW Sierra Trust Funds before 1991.
Stephen G. Meyer--680 E. Swedesford Road, Wayne, PA 19087, Controller, Treasurer and Chief Financial Officer. Vice President and Controller--Fund Resources, a division of SEI Corporation since March 1995. Director--Internal Audit and Risk Management--SEI Corporation (1992-1995). Senior Associate with Coopers & Lybrand LLP (1990-1992).
Kathryn L. Stanton--680 E. Swedesford Road, Wayne, PA 19087, Vice President and Secretary. Vice President and Assistant Secretary of SEI Corporation, since 1994. Associate with Morgan, Lewis & Bockius (1989-1994).
Sandra K. Orlow--680 E. Swedesford Road, Wayne, PA 19087, Vice President and Assistant Secretary. Vice President and Assistant Secretary of SEI Corporation, since 1983.
Robert B. Carroll--680 E. Swedesford Road, Wayne, PA 19087, Vice President and Assistant Secretary. Vice President and Assistant Secretary of SEI Corporation since 1994. Attorney with the Securities and Exchange Commission, Division of Investment Management (1990-1994).
Kevin P. Robins--680 E. Swedesford Road, Wayne, PA 19087, Vice President and Assistant Secretary. Senior Vice President, General Counsel and Secretary of SEI Corporation since 1994. Vice President and Assistant Secretary of SEI Corporation (1992-1994). Associate with Morgan, Lewis & Bockius (1988-1992).
Todd Cipperman--680 E. Swedesford Road, Wayne, PA 19087, Vice President and Assistant Secretary. Vice President and Assistant Secretary of SEI Corporation since 1995. Associate with Dewey Ballantine (1994-1995), Associate with Winston & Strawn (1991-1994).
Joseph M. Lydon--680 E. Swedesford Road, Wayne, PA 19087, Vice President and Assistant Secretary. Director of Business Administration--Fund Resources, a division of SEI Corporation since 1995. Vice President of Fund Group, Vice President of the Advisor--Dreman Value Management, LP and President of Dreman Financial Services, Inc. (1989-1995).
THIS SUPPLEMENT SHOULD BE RETAINED AND READ IN CONJUNCTION WITH THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 30, 1995.
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497
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497
| 1996-01-12T00:00:00
| 1996-01-12T10:52:54
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0000922423-96-000020
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0000922423-96-000020_0000.txt
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Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934
The Earth Technology Corporation (USA)
Common Stock, par value $.10 per share (Title of class of securities)
(CUSIP number of class of securities)
Mark H. Swartz, Vice President- Tyco International Ltd. (Name, address and telephone number of person authorized to receive notices and communications on behalf of Bidders)
New York, New York 10022
Page 1 of 6 pages Exhibit Index is located on page 5
T1 Acquisition Corp., a Delaware corporation (the "Purchaser") and a wholly-owned subsidiary of Tyco International Ltd., a Massachusetts corporation ("Tyco"), and Tyco hereby amend their Tender Offer Statement on Schedule 14D-1 dated December 13, 1995 (the "Schedule 14D-1"), relating to the Purchaser's offer to purchase all the outstanding shares of Common Stock, par value $.10 per share (the "Shares"), of The Earth Technology Corporation (USA), a Delaware corporation (the "Company"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings set forth in the Schedule 14D- 1.
Item 10(f) is hereby amended to add the following:
"(f) On January 12, 1996, Tyco announced that the Offer of the Purchaser to purchase all outstanding Shares of the Company had been extended to 12:00 midnight, New York City time, on Friday, January 12, 1996."
Item 11. Material To Be Filed as Exhibits.
(a)(9) Press release, issued January 12, 1996.
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
By: /s/ M. Brian Moroze Title: Vice President and Secretary
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
By: /s/ Barbara S. Miller
(a)(9) Press release issued on January 12, 1996. 6
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SC 14D1/A
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SC 14D1/A
| 1996-01-12T00:00:00
| 1996-01-12T16:05:20
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0000950109-96-000200
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0000950109-96-000200_0015.txt
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This Distribution Agreement is made as of this ___day of ________ , 1995 between Weiss Treasury Fund, a Massachusetts business trust (herein called the "Trust"), and Weiss Funds, Inc., a Florida corporation (herein called the "Distributor").
WHEREAS, the Trust is an open-end management investment company and is so registered under the Investment Company Act of 1940; and
WHEREAS, the Trust desires to retain the Distributor as Distributor for each of the Trust's separate portfolios -- currently, the Weiss Treasury Only Money Market Fund, Weiss Intermediate Treasury Fund and Weiss Treasury Bond Fund, together with all other portfolios, if any, subsequently established by the Trust (individually known as a "Fund" and collectively "Funds") -- to provide for the sale and distribution of shares of beneficial interest of the Funds, each such share having a par value of $.001 (herein collectively called "Shares"), and the Distributor is willing to render such
NOW THEREFORE, in consideration of premises and mutual covenants set forth herein the parties hereto agree as follows:
1. Delivery of Documents. The Trust has delivered to the Distributor copies of each of the following documents and will deliver to it all future amendments and supplements thereto, if any:
(a) The Trust's Agreement and Declaration of Trust and all amendments thereto (such Agreement and Declaration of Trust, as presently in effect and as it shall from time to time be amended, herein called the "Trust's
(b) The By-Laws of the Trust (such By-Laws, as presently in effect and as they shall from time to time be amended, herein called the "By-
(c) Resolutions of the Board of Trustees of the Trust authorizing the execution and delivery of this Agreement;
(d) The Trust's Registration Statement under the Securities Act of 1933, as amended (the "1933 Act"), and the Investment Company Act of 1940, as amended (the "1940 Act"), on Form N-1A as filed with the Securities and Exchange Commission (the "Commission") on _____________, 1995 and all subsequent amendments thereto (said Registration Statement, as presently in effect and as amended or supplemented from time to time, is herein called the "Registration
(e) Notification of Registration of the Trust under the 1940 Act on Form N-8A as filed with the Commission; and
(f) Prospectuses and Statements of Additional Information of the Funds (such prospectuses and statements of additional information, as presently filed with the Securities and Exchange Commission and as they shall from time to time be amended and supplemented, herein called individually the "Prospectus" and collectively the "Prospectuses").
2. Registration and Sale of Additional Shares. The Trust will from time to time use its best efforts to register under the 1933 Act such number of Shares not already registered as the Distributor may reasonably be expected to sell on behalf of the Trust. The Trust and the Distributor will cooperate in taking such action as may be necessary from time to time to qualify Shares so registered for sale by the Trust or the Distributor in any states mutually agreeable to the Trust and the Distributor, and to maintain such qualification. This Agreement relates to the issue and sale of Shares that are duly authorized and registered and available for sale by the Trust, including redeemed or repurchased Shares if and to the extent that they may be legally sold and if, but only if, the Trust sees fit to sell them.
3. Sale of Shares. Subject to the provisions of paragraphs 5 and 7 hereof and to such minimum purchase requirements as may from time to time be currently indicated in the Trust's prospectus or statement of additional information, the Distributor is authorized to sell as agent on behalf of the Trust Shares authorized for issue and as agent on behalf of the Trust Shares authorized for issue and registered under the 1933 Act. The Distributor may also purchase as principal Shares for resale to the public. Such sales will be made by the Distributor on behalf of the Trust by accepting unconditional orders to purchase Shares placed with the Distributor by investors and such purchases will be made by the Distributor after its acceptance of such orders. The sales price to the public of Shares shall be the public offering price as defined in paragraph 6 hereof.
4. Solicitation of Orders. The Distributor will use its best efforts (but only in states in which it may lawfully do so) to obtain from investors unconditional orders for Shares authorized for issue by the Trust and registered under the 1933 Act, provided that the Distributor may in its discretion refuse to accept orders for Shares from any particular applicant.
5. Sale of Shares by the Trust. Unless the Distributor is otherwise notified by the Trust, any right granted to the Distributor to accept orders for Shares or to make sales on behalf of the Trust or to purchase Shares for resale will not apply to (i) Shares issued in connection with the merger or consolidation of any other investment company with the Trust or its acquisition, by purchase or otherwise, of all or substantially all of the assets of any investment company or substantially all of the outstanding shares of any such company, and (ii) to Shares that may be offered by the Trust to shareholders of the Trust by virtue of their being shareholders.
6. Public Offering Price. All Shares sold to investors by the Distributor will be sold at the public offering price. The public offering price for all accepted subscriptions will be the net asset value per Share, determined, in the manner provided in the Trust's registration statements as from time to time in effect under the 1933 Act and the 1940 Act, next after the order is accepted by the Distributor.
7. Suspension of Sales. If and whenever the determination of net asset value is suspended and until such suspension is terminated, the Distributor shall not accept further orders for Shares except unconditional orders placed with the Distributor before it had knowledge of the suspension. In addition, the Trust reserves the right to suspend sales and the Distributor's authority to accept orders for Shares on behalf of the Trust if, in the judgment of a majority of the Board of Trustees or a majority of the Executive Committee of such Board, if such body exists, it is in the best interests of the Trust to do so, such suspension to continue for such period as may be determined by such majority; and in that event, no Shares will be sold by the Distributor on behalf of the Trust while such suspension remains in effect except for Shares necessary to cover unconditional orders accepted by the Distributor before it had knowledge of the suspension.
8. Portfolio Securities. Portfolio securities of any Portfolio of the Trust may be bought or sold by or through the Distributor and the Distributor may participate directly or indirectly in brokerage commissions or "spread" in respect to transactions in portfolio securities of any Portfolio of the Trust; provided, however, that all sums of money received by the Distributor as a result of such purchases and sales or as a result of such participation must, after reimbursement of its actual expenses in connection with such activity, be paid over by the Distributor to or for the benefit of the Trust.
9. Expenses. (a) The Trust will pay (or will enter into arrangements providing that others than the Distributor will pay) all fees and expenses:
(1) in connection with the preparation, setting in type and filing of any registration statement (including a prospectus and statement of additional information) under the 1933 Act or the 1940 Act, or both, and any amendments or supplements thereto that may be made from time to time;
(2) in connection with the registration and qualification of Shares for sale in the various jurisdictions in which the Trust shall determine it advisable to qualify such Shares for sale (including registering the Trust as a broker or dealer or any officer of the Trust or other person as agent or salesman of the Trust in any such jurisdictions);
(3) of preparing, setting in type, printing and mailing any notice, proxy statement, report, prospectus or other communication to shareholders of the Trust in their capacity as such;
(4) of preparing, setting in type, printing and mailing prospectuses annually, and any supplements thereto, to existing shareholders;
(5) in connection with the issue and transfer of Shares resulting from the acceptance by the Distributor of orders to purchase Shares placed with the Distributor by investors, including the expenses of printing and mailing confirmations of such purchase orders and the expenses of printing and mailing a prospectus included with the confirmation of such orders;
(6) of any issue taxes or any initial transfer taxes;
(7) of WATS (or equivalent) telephone lines other than the portion allocated to the Distributor in this paragraph 9;
(8) of wiring funds in payment of Share purchases or in satisfaction of redemption or repurchase requests, unless such expenses are paid for by the investor or shareholder who initiates the transaction;
(9) of the cost of printing and postage of business reply envelopes
(10) of one or more CRT terminals connected with the compute facilities of the transfer agent other than the portion allocated to the Distributor in this paragraph 9;
(11) permitted to be paid or assumed by the Trust pursuant to a plan ("12b-1 Plan"), if any, adopted by the Trust in conformity with the requirements of Rule 12b-1 under the 1940 Act ("Rule 12b-1") or any successor rule, notwithstanding any other provision to the contrary herein;
(12) of the expense of setting in type, printing and postage of a periodic newsletter to shareholders other than the portion allocated to the Distributor in this paragraph 9; and
(13) of the salaries and overhead of persons employed by the Distributor as shareholder representatives other than the portion allocated to the Distributor in this paragraph 9.
b) The Distributor shall pay or arrange for the payment of all fees and expenses:
(1) of printing and distributing any prospectuses or reports prepared for its use in connection with the offering of Shares to the public;
(2) of preparing, setting in type, printing and mailing any other literature used by it in connection with the offering of Shares to the public;
(3) of advertising in connection with the offering of Shares to the
(4) incurred in connection with its registration as a broker or dealer or the registration or qualification of its officers, trustees, agents, or representatives under federal and state laws;
(5) of that portion of WATS (or equivalent) telephone lines, allocated to it on the basis of use by investors (but not shareholders) who
(6) of that portion of the expenses of setting in type, printing and postage of a periodic newsletter to shareholders attributable to promotional material included in such newsletter at the Distributor's request concerning investment companies other than the Trust or concerning the Trust to the extent it is required to assume the expense thereof pursuant to paragraph 9(b)(8), except such material which is limited to information, such as listings of other investment companies and their investment objectives, given in connection with the exchange privilege as from time to time described in the Trust's prospectus;
(7) of that portion of the salaries and overhead of persons employed by it as shareholder representatives attributable to the time spent by such persons in responding to requests from investors, but not shareholders, for
(8) of any activity which is primarily intended to result in the sale of Shares, unless a 12b-1 Plan shall be in effect which provides that the Trust shall bear some or all of such expenses, in which case the Trust shall bear such expenses in accordance with such Plan; and
(9) of that portion of one or more CRT terminals connected with the computer facilities of the transfer agent attributable to its use of such terminal(s) to gain access to such of the transfer agent's records as also serve as its records.
Expenses which are to be allocated between the Distributor and the Trust shall be allocated pursuant to reasonable procedures or formulae mutually agreed upon from time to time, which procedures or formulae shall to the extent practicable reflect studies of relevant empirical data.
10. Conformity with Law. The Distributor agrees that in selling Shares it will duly conform in all respects with the laws of the United States and any state in which Shares may be offered for sale by it pursuant to this Agreement and to the rules and regulations of the National Association of Securities Dealers, Inc., of which the Distributor is a member.
11. Independent Contractor. The Distributor shall be an independent contractor and neither the Distributor nor any of its officers or employees is or shall be an employee of the Trust in the performance of its duties hereunder. The Distributor shall be responsible for its own conduct and the employment, control and conduct of its agents and employees and for injury to such agents or employees or to others through its agents or employees. The Distributor shall assume full responsibility for its agents and employees under applicable statutes and agree to pay all employee taxes thereunder.
12. Indemnification. The Distributor agrees to indemnify and hold harmless the Trust and each of its Trustees and officers and each person, if any, who controls the Trust within the meaning of Section 15 of the 1933 Act, against any and all losses, claims, damages, liabilities or litigation (including legal and other expenses) to which the Trust or such Trustees, officers, or controlling person may become subject under such Act, under any other statute, at common law or otherwise, arising out of the acquisition of any Shares by any person which (i) may be based upon any wrongful act by the Distributor or any of its employees or representatives, or (ii) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement (including a prospectus or statement of additional information) covering Shares or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading if such statement or omission was made in reliance upon information furnished to the Trust by the Distributor, or (iii) may be incurred or arise by reason of its acting as the Trust's agent instead of purchasing and reselling Shares as principal in distributing the Shares to the public, provided, however, that in no case (i) is its indemnity in favor of a trustee or officer or any other person deemed to protect such trustee or officer or other person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of his duties or by reason of his reckless disregard of obligations and duties under this Agreement or (ii) is the Distributor to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Trust or any person indemnified unless the Trust or such person, as the case may be, shall have notified the Distributor in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claims shall have been served upon the Trust or upon such person (or after the Trust or such person shall have received notice of such service on any designated agent), but failure to notify the Distributor of any such claim shall not relieve it from any liability which it may have to the Trust or any person against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The Distributor shall be entitled to participate, at its own expense, in the defense, or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but if it elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Trust, to its officers and Trustees, or to any controlling person or persons, defendant or defendants in the suit. In the event that the Distributor elects to assume the defense of any such suit and retain such counsel, the Trust, such officers and Trustees or controlling person or persons, defendant or defendants in the suit shall bear the fees and expenses of any additional counsel retained by them, but, in case the Distributor does not elect to assume the defense of any such suit, it will reimburse the Trust, such officers and Trustees or controlling person or persons, defendant or defendants in such suit for the reasonable fees and expenses of any counsel retained by them. The Distributor agrees promptly to notify the Trust of the commencement of any litigation or proceedings against it in connection with the issue and sale of any Shares.
The Trust agrees to indemnify and hold harmless the Distributor and each of its trustees and officers and each person, (if any, who controls the Distributor within the meaning of Section 15 of the 1933 Act, against any and all losses, claims, damages, liabilities or litigation (including legal and other expenses) to which the Distributor or such trustees, officers or controlling person may become subject under such Act, under any other statute, at common law or otherwise, arising out of the acquisition of any Shares by any person which (i) may be based upon any wrongful act by the Trust or any of its employees or representatives, or (ii) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement (including a prospectus or statement of additional information) covering Shares or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon information furnished to the Distributor by the Trust; provided, however, that in no case (i) is the Trust's indemnity in favor of a trustee or officer or any other person deemed to protect such trustee or officer or other person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of his duties or by reason of his reckless disregard of obligations and duties under this Agreement or (ii) is the Trust to be liable under its indemnity agreement contained in this paragraph with respect to any claims made against the Distributor or any such trustee, officer or controlling person unless the Distributor or such trustee, officer or controlling person, as the case may be, shall have notified the Trust in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon the Distributor or upon such trustee, officer or controlling person (or after the Distributor or such trustee, officer or controlling person shall have received notice of such service on any designated agent), but failure to notify the Trust of any such claim shall not relieve it from any liability which it may have to the person against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The Trust will be entitled to participate at its own expense in the defense, or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but if the Trust elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Distributor, its trustees, officers, or controlling person or persons, defendant or defendants in the suit. In the event that the Trust elects to assume the defense of any such suit and retain such counsel, the Distributor, its trustees, officers or controlling person or defendants in the suit, for the reasonable fees and expenses of any counsel retained by them. The Trust agrees promptly to notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or trustees in connection with the issuance or sale of any Shares.
13. Authorized Representations. The Trust is not authorized to give any information or to make any representations on behalf of the Distributor other than the information and representations contained in a registration statement (including a prospectus or statement of additional information) covering Shares, as such registration statement and prospectus may be amended or supplemented from time to time.
The Distributor is not authorized to give any information or to make any representations on behalf of the Trust or in connection with the sale of Shares other than the information and representations contained in a registration statement (including a prospectus or statement of additional information) covering Shares, as such registration statement may be amended or supplemented from time to time. No person other than the Distributor is authorized to act as principal underwriter (as such term is defined in the 1940 Act) for the Trust.
14. Duration and Termination of this Agreement. This Agreement shall become effective upon the date first written above and will remain in effect until ___________, 1997 and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by the vote of a majority of the trustees who are not interested persons of the Distributor or of the Trust, cast in person at a meeting called for the purpose of voting on such approval, and by vote of the Board of Trustees or of a majority of the outstanding voting securities of the Trust. This Agreement may, on 60 days' written notice, be terminated at any time without the payment of any penalty, by the Board of Trustees of the Trust, by a vote of a majority of the outstanding voting securities of the Trust, or by the Distributor. This Agreement will automatically terminate in the event of its assignment. In interpreting the provisions of this paragraph 14, the definitions contained in Section 2(a) of the 1940 Act (particularly the definitions of "interested person", "assignment" and "majority of the outstanding voting securities"), as modified by any applicable order of the Securities and Exchange Commission, shall be applied.
15. Amendment of this Agreement. No provisions of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. If the Trust should at any time deem it necessary or advisable in the best interests of the Trust that any amendment of this Agreement be made in order to comply with the recommendations or requirements of the Securities and Exchange Commission or other governmental authority or to obtain any advantage under state or federal tax laws and should notify the Distributor of the form of such amendment, and the reasons therefor, and if the Distributor should decline to assent to such amendment, the Trust may terminate this Agreement forthwith. If the Distributor should at any time request that a change be made in the Trust's Declaration of Trust or By-laws or in its methods of doing business, in order to comply with any requirements of federal law or regulations of the Securities and Exchange Commission or of a national securities association of which the Distributor is or may be a member relating to the sale of shares of the Trust, and the Trust should not make such necessary change within a reasonable time, the Distributor may terminate this Agreement forthwith.
16. Termination of Prior Agreements. This Agreement upon its effectiveness terminates and supersedes all prior underwriting contracts between parties.
17. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. Subject to the provisions of Section VI hereof, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and shall be governed by Massachusetts law; provided, however, that nothing herein shall be construed in a manner inconsistent with the 1940 Act or any rule or regulation of the Commission thereunder.
18. Massachusetts Business Trust. The Trust is organized as a Massachusetts business trust, and references in this Agreement to the Trust mean and refer to the Trustees from time to time serving under its Declaration of Trust on file with the Secretary of State of the Commonwealth of Massachusetts, as the same may be amended from time to time, pursuant to which the Trust conducts its business. It is expressly agreed that the obligations of the Trust hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Trust, as provided in said Declaration of Trust. Moreover, if the Trust has more than one series, no series of the Trust other than the series on whose behalf a specified transaction shall have been undertaken shall be responsible for the obligations of the Trust, and persons engaging in transactions with the Trust shall look only to the assets of that series to satisfy those obligations. The execution and delivery of this Agreement has been authorized by the Trustees and signed by an authorized officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them but shall bind only the trust property of the Trust as provided in such Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written.
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N-1/A
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EX-99.13
| 1996-01-12T00:00:00
| 1996-01-11T17:32:37
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0000898430-96-000095
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0000898430-96-000095_0000.txt
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Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report January 10, 1996
(Exact name of registrant as specified in its charter)
(State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.)
(address of principal executive offices) (Zip Code)
including area code: (408) 732-2400
On January 10, 1996, Advanced Micro Devices, Inc. (the "Company") issued a press release announcing its financial results for the year ended December 31, 1995, and for the fourth quarter of the year. The full text of the press release is set forth in Exhibit 99 attached hereto and is incorporated in this report as if fully set forth herein.
Except for the historical information contained in the Company's press release, certain of the matters discussed in the press release are forward looking statements that involve risks and uncertainties, including the timely development and acceptance of new products, the impact of competitive products and pricing and such risks and uncertainties as are described in registration statements, reports and other documents filed by the Company from time to time with the Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934. Specific reference is made to the risks and uncertainties described in the Registration Statement on Form 3-4 (Registration No. 33-64911) filed by the Company in connection with its planned acquisition of NexGen, Inc., and, in particular, to the risk factors entitled "Fluctuations in Operating Results," "Personal Computer Marketplace" and "Dependence on Microprocessor Revenues."
Item 7. Financial Statements and Exhibits.
99 Press release dated January 10, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: January 12, 1996 By: /s/ Marvin D. Burkett
99 Press release dated January 10, 1996
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8-K
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8-K
| 1996-01-12T00:00:00
| 1996-01-12T15:37:02
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0000950130-96-000092
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0000950130-96-000092_0085.txt
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<DESCRIPTION>OLD COMPASS AUGUST 1995 SEMI-ANNUAL REPORT
STATEMENTS OF NET ASSETS/SCHEDULE OF INVESTMENTS............ 3 STATEMENTS OF ASSETS AND LIABILITIES........................ 38 STATEMENTS OF CHANGES IN NET ASSETS......................... 42 NOTES TO FINANCIAL STATEMENTS............................... 50
STATEMENT OF NET ASSETS THE COMPASS CAPITAL GROUP
5.740%, 10/10/95................ $ 5,000 $ 4,969 Commerzbank A.G. International Nederlanden U.S. State Bank of New South Wales, 5.875%, 09/12/95 (A)............ 10,000 10,000 5.938%, 09/26/95 (A)............ 10,000 9,999
6.313%, 09/15/95................ $ 3,500 $ 3,500 5.700%, 09/06/95 (A)............ 10,000 10,000 5.950%, 09/01/95 (A)............ 5,000 5,000 5.960%, 09/01/95 (A)............ 5,000 5,000 6.150%, 09/01/95 (A)............ 10,000 9,999 5.620%, 09/06/95 (A)............ 5,000 5,000 5.980%, 09/01/95 (A)............ 10,000 9,996 5.680%, 09/06/95 (A)............ 3,700 3,698 Ford Credit Auto Lease Trust 5.812%, 09/15/95 (A)............ 8,113 8,113 6.190%, 09/01/95 (A)............ 10,000 10,000 5.987%, 09/18/95 (A)............ 10,000 10,000 5.941%, 11/18/95 (A)............ 5,000 5,000 6.070%, 09/01/95 (A)............ 10,000 10,000 6.000%, 09/01/95 (A)............ 5,000 5,005
7.250%, 09/01/95 (A)............ $ 7,394 $ 7,554 5.670%, 09/06/95 (A)............ 5,000 4,983 EURO CERTIFICATES OF DEPOSIT (2.1%) Total Euro Certificates of Deposit Bank of Tokyo, Los Angeles Dai Ichi Kangyo Bank, New York First National Bank of Chicago $46,279,516).................... $ 45,000 $ 45,000 from 0.00% to 8.50%, maturities market value $4,817,649)........ 30,553 30,553 OTHER ASSETS AND LIABILITIES (2.6%) NET ASSETS: shares of beneficial interest... 480,112 Accumulated net realized loss on Total Net Assets: (100.0%)........ $ 480,026 Net Asset Value, Offering Price
(A) Variable Rate Security--The rate reported on the Statement of Net Assets is the rate in effect on August 31, 1995.
The accompanying notes are an integral part of the financial statements.
5.061%, 09/14/95................ $ 30,000 $ 29,945 Goldman Sachs Group, 5.75%, dated to 01/15/00, rates ranging from 5.625% to 6.375%, market value $15,300,855).................... $ 15,000 $ 15,000 to 08/15/98, rates ranging from 5.125% to 9.00%, market value OTHER ASSETS AND LIABILITIES (0.1%) NET ASSETS: Accumulated net realized gain on Total Net Assets: (100.0%)......... $ 560,715 Net Asset Value, Offering Price and Redemption Price Per Share........ $ 1.00
The accompanying notes are an integral part of the financial statements.
Board Project, Series A, VRDN, 3.600%, 09/01/95 (A) (B) (C).... $ 1,000 $ 1,000 Series C, Prerefunded @ 100, GO 3.900%, 09/07/95 (A) (B) (C).... 1,000 1,000 3.900%, 09/07/95 (A) (B) (C).... 500 500 4.250%, 01/01/96 (C)............ 1,990 1,990 3.650%, 09/07/95 (A) (B) (C).... 945 945 3.650%, 09/01/95 (A) (B)........ 300 300 Series A, VRDN, RB, (MBIA) 3.500%, 09/07/95 (A) (B)........ 500 500 Finance Authority, Series A, RB 4.500%, 11/01/95 (B) (C)........ 625 625 Finance Authority, Series B, RB 4.250%, 02/01/96................ $ 955 $ 955 State, Series B-2, RB, AMT 4.625%, 10/01/95 (B) (C)........ 900 900 3.350%, 09/01/95 (A) (B) (C).... 200 200 Eddy County, Pollution Control IMC 3.600%, 09/07/95 (A) (B) (C).... 500 500 New York City, EDL Construction Project, Series A, RB, (MBIA) 4.400%, 05/01/96 (B)............ 1,000 1,000 Port of Saint Helens, Pollution Project, Series A, VRDN, RB 3.650%, 09/01/95 (A) (B) (C).... 600 600
3.450%, 09/01/95 (A) (B)........ $ 2,000 $ 2,000 Penn Street Project, VRDN, RB 3.500%, 09/01/95 (A) (B) (C).... 200 200 3.700%, 09/07/95 (A) (B) (C).... 1,200 1,200 Paper Company Project, Series A, 3.650%, 09/07/95 (A) (B) (C).... 500 500 3.400%, 09/01/95 (A) (B)........ 1,100 1,100 Systems Project, Series C, VRDN, 3.400%, 09/01/95 (A) (B) (C).... 600 600 System Authority, Series 1992 B, 3.250%, 09/01/95 (A) (B) (C).... 1,900 1,900 Project, Series K, VRDN, RB, 3.500%, 09/07/95 (A) (B)........ 800 800 3.600%, 09/01/95 (A) (B) (C).... 1,000 1,000 3.500%, 10/06/95................ $ 700 $ 700 4.400%, 02/01/96 (C)............ 695 697 3.700%, 09/01/95 (A) (B) (C).... 500 500 Houston, Water & Sewer Authority, 3.700%, 09/01/95 (A) (B) (C).... 1,100 1,100 Green River, VRDN, RB, AMT 3.700%, 09/01/95 (A) (B) (C).... 1,300 1,300 OTHER ASSETS AND LIABILITIES (0.9%)
shares of beneficial interest... 35,088 Accumulated net realized loss on Total Net Assets: (100.0%)........ $ 35,063 Net Asset Value, Offering Price
(A) Variable Rate Security--The rate reported on the Statement of Net Assets is the rate in effect on August 31, 1995. (B) Put and Demand features exist requiring the issuer to repurchase the instrument prior to maturity. The maturity date shown is the next demand date. (C) Securities are held in connection with a letter of credit or other credit support. TRAN--Tax and Revenue Anticipation Note
The following organizations have provided underlying credit support for certain securities as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
4.750%, 11/09/95................ $ 2,765 $ 2,767 5.350%, 12/15/95 (B) (C)........ 2,000 2,008
The accompanying notes are an integral part of the financial statements.
3.450%, 09/01/95 (A) (B) (C).... 3,300 3,300 3.250%, 09/01/95 (A) (B) (C).... 1,400 1,400 3.300%, 09/01/95 (A) (B) (C).... 1,500 1,500 3.700%, 09/01/95 (A) (B) (C).... 500 500 3.900%, 09/01/95 (C)............ 1,000 1,000
The accompanying notes are an integral part of the financial statements.
Drive Partners Project, VRDN, RB 3.250%, 09/01/95 (A) (B) (C).... $ 700 $ 700 3.650%, 09/07/95 (A) (B) (C).... 1,000 1,000 3.550%, 09/07/95 (A) (B) (C).... 1,000 1,000 Project, Series B, VRDN, RB 3.400%, 09/07/95 (A) (B) (C).... 400 400 3.350%, 09/07/95 (A) (B) (C).... 600 600 3.350%, 09/01/95 (A) (B) (C).... 700 700 Facilities, Series A, VRDN, RB, 3.050%, 09/01/95 (A) (B)........ 900 900 3.350%, 09/01/95 (A) (B)........ 1,700 1,700 3.350%, 09/07/95 (A) (B) (C).... 200 200 Authority, Series C-1, VRDN, RB 3.650%, 09/07/95 (A) (B) (C).... 530 530 Authority, Series J, VRDN, RB, AMT 3.600%, 09/07/95 (A) (B) Financing, Series A, VRDN, RB 3.350%, 09/07/95 (A) (B) (C).... $ 600 $ 600 Financing, Series D, VRDN, RB 3.350%, 09/07/95 (A) (B) (C).... 200 200 3.350%, 09/07/95 (A) (B) (C).... 200 200 7.125%, 01/01/96 (B) (C)........ 1,740 1,793 3.050%, 09/07/95 (A) (B)........ 4,000 3,999 Control, Exxon Project, VRDN, RB
3.250%, 09/01/95 (A) (B)........ 1,000 1,000 Port of Saint Helens, Pollution Project, Series A, VRDN, RB, AMT 3.650%, 09/01/95 (A) (B) (C).... 700 700 3.200%, 09/07/95 (A) (B) (C).... 3,100 3,100
Accumulated net realized loss on Total Net Assets: (100.0%)......... $ 49,628 Net Asset Value, Offering Price and Redemption Price Per Share........ $ 1.00
(A) Variable Rate Security--The rate reported on the Statement of Net Assets is the rate in effect on August 31, 1995. (B) Put and Demand features exist requiring the issuer to repurchase the instrument prior to maturity. The maturity date shown is the next demand date. (C) Securities are held in connection with a letter of credit or other credit support.
The following organization has provided underlying credit support for certain securities as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
Security Program, Series F, RB 4.375%, 06/01/96 (B) (C)........ $ 975 $ 975 Security Program, Series G, RB 4.600%, 06/01/96 (B) (C)........ 250 250 Light Project, Series A, VRDN, 3.550%, 09/07/95 (A) (B) (C).... 500 500 Light Project, Series B, VRDN, 3.550%, 09/07/95 (A) (B) (C).... 1,000 1,000 3.800%, 09/01/95 (A) (B) (C).... 700 700 4.300%, 09/01/95 (A) (B) (C).... 200 200 Paper Project, Series A, VRDN, 3.650%, 09/07/95 (A) (B) (C).... 500 500 Paper Project, Series C, VRDN, 3.650%, 09/07/95 (A) (B) (C).... 900 900
integral part of the financial
3.400%, 09/01/95 (A) (B)........ 500 500 Emmaus, Subseries B-10, VRDN, RB 3.700%, 09/07/95 (A) (B) (C).... 1,800 1,800
integral part of the financial
Guarriello LP Project, Series A, 3.900%, 09/07/95 (A) (B) (C).... $ 945 $ 945 Systems Project, Series C, VRDN, 3.400%, 09/01/95 (A) (B) (C).... 400 400 Systems, Series B, VRDN, RB 3.400%, 09/01/95 (A) (B) (C).... 250 250 3.700%, 09/01/95 (A) (B) (C).... 900 900 3.850%, 09/07/95 (A) (B) (C).... 1,495 1,495 3.900%, 09/01/95 (A) (B) (C).... 500 500 3.550%, 11/02/95 (C)............ 1,000 1,000 3.750%, 11/16/95 (C)............ 500 500 3.250%, 09/01/95 (A) (B) (C).... 1,000 1,000 3.850%, 09/01/95 (A) (B) (C).... 2,100 2,101 3.250%, 09/01/95 (A) (B) (C).... 1,000 1,000 4.000%, 01/01/96 (C)............ $ 650 $ 650 View Towers Project, VRDN, RB 3.750%, 09/07/95 (A) (B) (C).... 1,550 1,550 Philadelphia, Series A, TRAN, GO Project, Series H, VRDN, RB, 3.500%, 09/07/95 (A) (B)........ 290 290 3.600%, 09/01/95 (A) (B) (C).... 1,300 1,300 3.750%, 09/01/95 (A) (B) (C).... 1,000 1,000
Authority, Series A1, VRDN, RB 3.900%, 09/07/95 (A) (B) (C).... 1,825 1,825 Authority, B & W Edensburg 3.550%, 09/07/95 (A) (B) (C).... 510 510 3.550%, 09/07/95 (A) (B) (C).... 100 100 Series A, VRDN, RB, AMT 3.700%, 09/07/95 (A) (B) (C).... 100 100 Series A, VRDN, RB, AMT 3.750%, 09/07/95 (A) (B) (C).... 500 500 Series B, VRDN, RB, AMT 3.750%, 09/07/95 (A) (B) (C).... 300 300
3.250%, 09/01/95 (A) (B)........ $ 300 $ 300 5.250%, 04/05/96 (C)............ 1,500 1,507 5.000%, 05/22/96 (C)............ 1,500 1,507 4.500%, 01/15/96 (B)............ 1,500 1,503 6.650%, 10/15/95 (B)............ 1,000 1,003 Port of Saint Helens, Pollution Project, Series A, VRDN, RB, AMT 3.650%, 09/01/95 (A) (B) (C).... 400 400 OTHER ASSETS AND LIABILITIES (1.1%) NET ASSETS: shares of beneficial interest... 41,565 Total Net Assets: (100.0%)........ $ 41,565 Net Asset Value, Offering Price
(A) Variable Rate Security--The rate reported on the Statement of Net Assets is the rate in effect on August 31, 1995. (B) Put and Demand features exist requiring the issuer to repurchase the instrument prior to maturity. The maturity date shown is the next demand date. (C) Securities are held in connection with a letter of credit or other credit support. TRAN--Tax and Revenue Anticipation Note The following organizations have provided underlying credit support for certain securities as defined in the Statement of Net Assets: AMBAC--American Municipal Bond Assurance Company
York International................. 63,200 $ 2,812 Sequa, Class A*.................... 94,900 2,527 Aluminum of America................ 369,400 21,102 California Federal Bank*........... 143,462 2,242 Coast Savings Financial*........... 63,600 1,773 Long Island Bancorp................ 83,800 2,126
The accompanying notes are an integral part of the financial statements.
IMC Global......................... 70,000 $ 4,428 Rhone Poulenc S.A., ADR............ 31,089 645 Alcatel Alsthom, ADR............... 61,500 1,230 Drilling Oil & Gas Wells (0.8%) Central Vermont Public Service..... 193,100 2,655 New York State Electric & Gas...... 49,100 1,185 Niagara Mohawk Power............... 462,200 5,546 Brascan Limited, Class A........... 101,700 1,665 Lehman Brothers Holding............ 213,560 5,072 Food, Beverage & Tobacco (5.9%) Chiquita Brands International...... 123,000 1,937 Gulf Canada Resources*............. 232,600 1,090 National Fuel Gas.................. 25,000 703 Ace Limited........................ 264,700 $ 8,140 American Financial Group........... 130,000 4,014 Brierley Investments, ADR*......... 62,500 926 Enhance Financial Services......... 26,400 535 Horace Mann Educators.............. 60,100 1,705 Old Republic International......... 110,000 3,039 Zurich Reinsurance Centre*......... 12,500 369 Red Lion Hotels*................... 8,900 206 Lumber & Wood Products (0.2%) Alexander & Baldwin................ 138,700 3,156 Overseas Shipholding Group......... 40,400 843 Potash of Saskatchewan............. 35,800 2,036 Paper & Paper Products (6.5%)
Nordsk Hydro A.S., ADR............. 66,000 2,789
Phillips Petroleum................ 116,600 $ 3,833 Shell Transport & Trading......... 10,000 694 Photographic Equipment & Supplies (2.0%) American Real Estate Partners*.... 138,826 1,041 Essex Property Trust.............. 161,000 2,797 Newhall Land & Farming............ 204,200 2,757 RFS Hotel Investors............... 18,000 257 Hills Department Stores*.......... 119,251 1,610 Goodrich B. F..................... 58,000 3,451 Steel & Steel Works (0.4%) Portugal Telecom S.A., ADR*....... 60,100 1,089 Boise Cascade, 7.48% Series G..... 99,800 3,555 8.75% Series E.................. 211,450 8,854 Series A........................ 100,000 $ 963 California Federal Bank*.......... 14,346 95 6.125%, 11/01/24................ $ 4,775 4,823
The accompanying notes are an integral part of the financial statements.
OTHER ASSETS AND LIABILITIES (0.5%) NET ASSETS: shares of beneficial interest... 278,118 Accumulated net realized gain on Distributions in excess of net Total Net Assets: (100.0%)........ $ 342,684 Net Asset Value and Redemption Price Per Share................. $ 14.06 Maximum Public Offering Price Per
The accompanying notes are an integral part of the financial statements.
York International................. 38,700 $ 1,722 First Bank System.................. 90,400 4,124 State Street Boston................ 82,000 3,024 Comcast, Special Class A........... 150,000 3,206 Viacom, Class B*................... 60,000 2,918 Chemical and Allied Products (6.0%) Air Products and Chemicals......... 26,800 1,437 Zeneca Group PLC, ADR.............. 65,000 3,364 Nokia, Class A, ADR................ 33,000 2,289 Computer and Office Equipment (4.1%) Hubbell, Class B................... 37,000 2,169 American International Group....... 39,750 3,205 American Re Insurance.............. 70,200 2,808 Automatic Data Processing.......... 42,000 2,730 Dun & Bradstreet................... 32,000 1,852 Policy Management Systems*......... 44,000 2,178
Paper & Paper Products (3.1%)
Noble Affiliates.................. 69,000 $ 1,906 Hafslund Nycomed-Cl B, ADR........ 92,889 2,229 Rhone Poulenc Rorer............... 2,200 97 May Department Stores............. 56,000 2,373 Illinois Tool Works............... 63,000 3,859 L.M. Ericsson Telephone, ADR...... 148,000 3,164 Vodafone Group, ADR............... 75,000 3,141 market value $3,332,945)........ $ 3,267 $ 3,267 OTHER ASSETS AND LIABILITIES (0.3%) NET ASSETS: shares of beneficial interest... 129,039 Accumulated net realized gain on Total Net Assets: (100.0%)........ $ 158,546 Net Asset Value and Redemption Price Per Share................. $ 12.93 Maximum Public Offering Price Per
Chips & Technologies*.............. 3,200 44 Cybex Computer Products*........... 2,800 64 Diamond Multimedia Systems*........ 2,000 54 Integrated Silicon Systems*........ 8,700 248 Number Nine Visual Technology*..... 2,600 47 Project Software & Development*.... 1,000 29 Summit Medical Systems*............ 1,900 29 System Software Associates......... 7,900 249 Wind River Systems*................ 1,900 35 Level One Communications*.......... 1,600 40
Silicon Valley Group*.............. 3,500 151 Opta Food Ingredients*............. 1,700 27 Health & Allied Services (2.8%) Community Health Systems*.......... 4,600 177
Health & Allied Services, continued: Healthsouth Rehabilitation*........ 8,400 $ 198 Integrated Health Services*........ 4,500 134 Inphynet Medical Management*....... 1,400 31 Mid Atlantic Medical Services*..... 8,600 160 Physicians Health Services*........ 2,500 70 United American Healthcare*........ 1,800 20 Tecnol Medical Products*........... 10,300 187 ABR Information Services*.......... 2,800 63 National Wireless Holdings*........ 2,600 34 Transaction Systems Architects*.... 1,300 32 Chicago Miniature Lamp*............ 2,600 44 Oil & Gas Field Services (0.5%) Oil and Gas Exploration (1.5%) Barrett Resources*................. 8,700 $ 188 Belden & Blake*.................... 2,100 34 Reading & Bates*................... 13,800 167 American Radio Systems*............ 8,200 234 Felcor Suite Hotels................ 2,000 54 Dave & Buster's*................... 1,800 31 Lone Star Steakhouse & Saloon*..... 13,100 524 Papa John's International*......... 2,100 84 Rock Bottom Restaurants*........... 2,300 59
Dollar Tree Stores*................ 2,400 71 Friedman's, Class A*............... 11,900 277 Just For Feet*..................... 3,600 105 Orchard Supply Hardware*........... 1,100 17 Sports & Recreation*............... 8,500 101 U.S. Office Products*.............. 2,500 43
Semiconductors & Related Devices (12.4%) ACT Manufacturing*............... 1,900 $ 37 Applied Digital Access*.......... 2,000 24 Colonial Data Technologies*...... 9,400 170 by Federal Home Loan Bank $2,198,560)...................... $ 2,153 $ 2,153 NET ASSETS: Accumulated net realized gain on Distributions in excess of net Total Net Assets: (100.0%)....... $ 26,375 Net Asset Value and Redemption Price Per Share................ $ 12.85 Maximum Public Offering Price Per
The accompanying notes are an integral part of the financial statements.
E.I. Dupont de Nemours............. 4,000 262 Bristol Myers Squibb............... 5,800 398 Food, Beverage & Tobacco (4.3%) American Brands.................... 8,000 $ 335 Archer Daniels Midland............. 15,750 262 Philip Morris Companies............ 3,000 224 Hanson PLC, ADR.................... 15,000 257 Paper & Paper Products (1.6%)
Photographic Equipment & Supplies (1.1%) Eastman Kodak..................... 6,200 $ 357 Dun & Bradstreet.................. 4,500 260 J. C. Penney...................... 4,000 181 May Department Stores............. 8,000 339 Toys R US*........................ 7,500 195 Dominion Resources of Virginia.... 8,500 307 General Public Utilities.......... 7,000 200 Pacific Gas and Electric.......... 9,000 259 8.250%, 08/01/09................ $ 500 535 6.250%, 09/01/99................ $ 200 $ 198 U. S. TREASURY OBLIGATIONS (28.4%)
Total U. S. Treasury Obligations
7.125%, 07/21/99................ $ 300 $ 310 Temp Cash Fund.................... 380 380 OTHER ASSETS AND LIABILITIES (1.3%) NET ASSETS: based on 2,872,437 shares of Accumulated net realized gain on Total Net Assets: (100.0%)........ $ 31,907 Net Asset Value and Redemption Price Per Share................. $ 11.11 Maximum Public Offering Price Per
9.000%, 08/15/98................ $ 1,000 $ 1,066
The accompanying notes are an integral part of the financial statements.
9.000%, 11/15/96................ $ 1,500 $ 1,551 Prime Credit Card Master Trust Standard Credit Card Master Trust 8.875%, 09/07/99................ $ 5,000 $ 5,331
The accompanying notes are an integral part of the financial statements.
Temp Cash Fund.................... 5,108 5,108
The accompanying notes are an integral part of the financial statements.
OTHER ASSETS AND LIABILITIES (1.1%) NET ASSETS: shares of beneficial interest... 196,432 Accumulated net realized loss on Distributions in excess of net Total Net Assets: (100.0%)........ $ 193,819 Net Asset Value and Redemption Price Per Share................. $ 10.29 Maximum Public Offering Price Per
9.000%, 08/15/98................ $ 1,000 1,066 ABN-AMRO Bank, New York, Callable Toronto Dominion Bank, New York 9.000%, 12/01/09................ $ 4,500 $ 5,377 Paper & Paper Products (3.3%)
The accompanying notes are an integral part of the financial statements.
America, Callable 04/15/96 @ 100
The accompanying notes are an integral part of the financial statements.
9.000%, 03/01/21................ $ 4,000 $ 4,795 J.C. Penney, Callable 7/12/00 @ 7.150%, 08/15/99................ $ 2,000 $ 2,046 Chase Manhattan Master Credit Card Standard Credit Card Master Trust
The accompanying notes are an integral part of the financial statements.
U. S. TREASURY OBLIGATIONS (37.7%)
The accompanying notes are an integral part of the financial statements.
6.500%, 05/15/97................ $ 2,000 $ 2,022 Total U. S. Treasury Obligations Temp Cash Fund 3,948 3,948 OTHER ASSETS AND LIABILITIES (1.7%) NET ASSETS: shares of beneficial interest... 246,818 Accumulated net realized loss on Total Net Assets: (100.0%)........ $ 249,380 Net Asset Value and Redemption Price Per Share................. $ 10.51 Maximum Public Offering Price Per
The accompanying notes are an integral part of the financial statements.
Salt River Project, Series A, RB 5.300%, 01/01/03................ $ 500 518 State, Public Power Authority, San Juan Power Project, Series A, Palm Beach County, Solid Waste
The accompanying notes are an integral part of the financial statements.
6.125%, 12/01/23................ $ 500 $ 505 7.150%, 06/01/00 (A)............ 1,000 1,129 7.000%, 06/01/00 (A)............ 1,000 1,115 8.625%, 0926/97 (A) (B)......... 560 601 5.600%, 09/01/11 (B)............ 1,260 1,213 5.750%, 02/15/25................ $ 1,000 $ 968 6.625%, 01/01/11 (A) (B)........ 500 551
The accompanying notes are an integral part of the financial statements.
No. 15, Forest Grove, GO, Methacton School District, GO, (FGIC) Series A, GO, (FGIC), Callable
The accompanying notes are an integral part of the financial statements.
6.250%, 01/01/18................ $ 500 $ 511 Authority Revenue, Series B, RB, 6.500%, 02/15/08 (A)............ 1,000 1,079 State, Series B, GO, Callable University of Texas, Series A, RB, Salt Lake City, Motor Fuel Excise Series A, RB, (FGIC), Callable 6.750%, 02/01/00 (A)............ 1,000 1,110 Authority, Series A, RB, AMT 6.700%, 07/01/05 (B)............ 500 527 Port of Seattle, Series A, RB, 6.250%, 11/01/10................ $ 500 $ 518 State, Public Power Supply, Nuclear Project No. 1, Series B, RB, (MBIA) District of Columbia, Series C, GO, (AMBAC), Prerefunded @ 102 7.600%, 06/01/98 (A)............ 450 496 OTHER ASSETS AND LIABILITIES (1.0%) NET ASSETS: shares of beneficial interest... 29,343 Accumulated net realized loss on
The accompanying notes are an integral part of the financial statements.
Total Net Assets: (100.0%)........ $ 28,737 Net Asset Value and Redemption Price Per Share................. $ 10.56 Maximum Public Offering Price Per
(A) Put and Demand features exist requiring the issuer to repurchase the instrument prior to maturity. The maturity date shown is the next demand date. (B) Securities are held in connection with a letter of credit or other credit support.
The following organizations have provided underlying credit support for certain securities as defined in the Statement of Net Assets: AMBAC--American Municipal Bond Assurance Company
Absecon, Board of Education, COP, 5.625%, 12/15/02................ $ 770 $ 795 Series A, RB, (FGIC), Callable Borough of Roselle, Fiscal Year 5.700%, 12/01/05 (C)............ 500 513 6.000%, 12/01/12 (C)............ 500 508 Center Project, Series B, RB, RB, (FGIC), Callable 01/01/03 @ Cherry Hill Township, GO, Callable
5.000%, 01/01/07................ $ 1,000 $ 985 Essex County, Series A, GO, (MBIA), Callable 10/01/01 @ 102 RB, (MBIA), Callable 07/01/97 @ 6.250%, 02/01/12 (C)............ 500 526 Mercer County, Hamilton Board of (MBIA), Callable 12/15/03 @ 102
Board of Education Project, RB, (MBIA), Callable 06/01/01 @ 102 5.900%, 06/01/03................ $ 500 $ 524 7.250%, 12/01/98 (B)............ 985 1,084 Authority, Series A, RB, (FGIC), 5.350%, 07/15/10 (C)............ 1,150 1,156 Newark, Board of Education, GO, (MBIA), Callable 12/15/04 @ 102 North Bergen Township, GO, (FSA) Ocean County, Series A, GO 6.250%, 10/01/01................ $ 1,280 $ 1,397 Ocean County, Series A, GO, 6.300%, 01/01/12 (C)............ 1,005 1,051 Parsippany Troy Hills Township, GO 5.200%, 09/01/13 (C)............ 1,000 941
7.200%, 06/15/99 (B)............ 1,200 1,341 Authority, 89 Kiva L.P. Project, 5.550%, 08/01/04 (C)............ 565 573 6.000%, 07/01/06 (C)............ 300 306 6.100%, 07/01/07 (C)............ 200 204 5.950%, 06/01/05 (C)............ 865 865
7.000%, 04/01/03................ $ 500 $ 556 State, GO, Prerefunded @ 101.50 7.400%, 04/15/97 (B)............ 820 874 Cathedral Health Care, Series A, State, Health Care Facility, Dover Jersey Shore Medical Center, RB, State, Health Care Facility, St. 4.900%, 01/01/05 (C)............ 1,000 1,001 State, Housing and Finance Agency, 6.700%, 05/01/05 (C)............ 500 524 6.700%, 11/01/05 (C)............ 1,000 1,049 6.950%, 11/01/13 (C)............ 750 775 State, Refunding Bond, Series C, RB, Callable 01/15/99 @ 101.25 State, Refunding Bond, Series C, RB, Callable 01/15/99 @ 101.50 State, Series C, RB, Callable 6.500%, 01/15/08................ $ 1,000 $ 1,078 Series A, RB, Callable 09/01/05 Project, Series A, RB, (MBIA), A, RB, Callable 01/01/96 @ 100 Series B, RB, Callable 05/15/99
Project, Series A, RB, (MBIA) Tinton Falls, Board of Education, Authority, Series B, RB, (AMBAC)
4.650%, 09/15/06................ $ 500 $ 485 Finance Authority, Series B, RB, RB, Callable 12/01/04 @ 100 West Long Branch, Board of Board of Education, Series 1993, Woodbridge Township, Series C, GO, 7.250%, 04/01/14 (C)............ 1,500 1,551
Delaware River Joint Toll Bridge 6.250%, 07/01/12................ $ 1,400 $ 1,460 University of Puerto Rico, Series L, RB, Prerefunded @ 102 7.750%, 06/01/96 (B) (C)........ 1,015 1,064 University of Puerto Rico, Series 3.750%, 09/01/95 (A) (B) (C).... 600 600 OTHER ASSETS AND LIABILITIES (1.0%) NET ASSETS: shares of beneficial interest... 97,309 Accumulated net realized loss on Total Net Assets: (100.0%)........ $ 97,752 Net Asset Value and Redemption Price Per Share................. $ 11.22
Maximum Public Offering Price Per
(A) Variable Rate Security--The rate reported on the Statement of Net Assets is the rate in effect on August 31, 1995. (B) Put and Demand features exist requiring the issuer to repurchase the instrument prior to maturity. The maturity date shown is the next demand date. (C) Securities are held in connection with a letter of credit or other credit support. VRDN-- Variable Rate Demand Note The following organizations have provided underlying credit support for certain securities as defined in the Statement of Net Assets: AMBAC--American Municipal Bond Assurance Company
Hospital, Series A, RB, (MBIA), 7.000%, 07/01/06................ Allegheny County, Series C-42, GO Berks County, Second Series, GO, $ 500 464 Center City District, Business FACE AMOUNT VALUE Improvement, RB, (AMBAC) (000) (000) 5.500%, 02/01/12 (A)............ 1,170 1,125 Deer Lakes, School District, GO, (MBIA), Callable 01/15/04 @ 100 6.450%, 01/15/19................ $ 500 $ 514 Series A, RB, Escrowed to Project, RB, Callable 05/01/02 @ Pittsburgh, Series D, GO, (AMBAC) Series AA, GO, (AMBAC), Callable (FSA), Callable 02/01/08 @ 100
The accompanying notes are an integral part of the financial statements.
(MBIA), Callable 05/01/00 @ 100 RB, (AMBAC), Callable 03/01/98 @ Project, RB, Prerefunded @ 102 7.550%, 11/01/00 (A)............ 500 580
The accompanying notes are an integral part of the financial statements.
STATEMENT OF NET ASSETS/SCHEDULE OF INVESTMENTS
C, RB, Callable 07/01/04 @ 100 6.400%, 07/01/12................ $ 500 $ 502 Project, Series D, RB, (FGIC), Franchise Tax Project, Series A, West Chester, School District, GO, West View, Municipal Authority, GO Total Short Term Investments (Cost OTHER ASSETS AND LIABILITIES (1.8%) NET ASSETS: shares of beneficial interest... $ 17,816 Accumulated net realized loss on Total Net Assets: (100.0%)........ $ 17,269 Net Asset Value and Redemption Price Per Share................. $ 9.86 Maximum Public Offering Price Per
(A) Put and Demand features exist requiring the issuer to repurchase the instrument prior to maturity. The maturity date shown is the next demand date.
The accompanying notes are an integral part of the financial statements.
The following organizations have provided underlying credit support for certain securities as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
YPF Sociedad Anonima ADR.......... 14,000 $ 247 Broken Hill Proprietary........... 51,221 743 Five Arrow Chile Fund PC.......... 100,000 293 Five Arrow Chile Fund Warrants,
The accompanying notes are an integral part of the financial statements.
Tele Danmark A/S 'B'............... 8,779 $ 461 Societe Nationale Elf Aquitaine.... 6,979 511 Hong Kong Telecommunications....... 328,800 595 Swire Pacific 'A'.................. 88,000 659 Hindalco Industries GDR*........... 10,000 350 Assicurazioni Generali SPA......... 20,782 500 East Japan Railway................. 273 1,299 Mitsui Marine & Fire Insurance..... 91,000 610 Mitsui O.S.K. Lines*............... 233,000 737 Nippon Telegraph & Telephone....... 160 1,447 Nippon Television Network.......... 1,660 391 Pioneer Electronics................ 70,000 $ 1,340 Sumitomo Metal Industries.......... 242,000 676 Sumitomo Trust & Banking........... 53,000 721 Tokyo Steel Manufacturing.......... 11,000 212 Toyo Ink Manufacturing............. 35,000 198 Grupo Carso SA ADR*................ 25,000 309 International Nederlanden Group.... 9,918 551 Kvaerner AS Series B............... 10,649 395 United Overseas Bank............... 68,930 597
Samsung Electronics GDR*........... 86 5 Samsung Electronics New GDR*....... 7,000 441 Banco de Santander................. 12,168 498 Stora Kopparberg 'B'............... 37,639 470
BBC Brown Boveri AG................ 509 $ 537 Roche Holding AG................... 79 529 Siam Commercial Bank............... 41,000 443 BTR Warrants, Expire 11/26/98*..... 1,146 1 Royal Bank of Scotland Group....... 80,000 576 ABN-Amro Holdings.................. 349 $ 13 3.500%, 06/30/99................. $ 150 207 2.750%, 04/15/04................. $ 310 248 Total Investments (94.5% of Net
(1) In local currency unless otherwise indicated
The accompanying notes are an integral part of the financial statements.
6.250%, 10/16/03................ JY 120,000 $ 1,484 6.000%, 10/30/01................ 180,000 $ 2,152
The accompanying notes are an integral part of the financial statements.
Total Investments (90.5% of Net
(1) In local currency unless otherwise indicated
The accompanying notes are an integral part of the financial statements.
6.250%, 10/16/03................ JY 120,000 $ 1,484 6.000%, 10/30/01................ 180,000 $ 2,152
The accompanying notes are an integral part of the financial statements.
Total Investments (90.5% of Net
(1) In local currency unless otherwise indicated
The accompanying notes are an integral part of the financial statements.
STATEMENT OF ASSETS AND LIABILITIES
* Net of $22,000 accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
For the Six-Month Period Ended August 31, 1995 (Unaudited)
Less: foreign taxes withheld................. -- Expenses: Insurance and other fees..................... 7 Net realized gain (loss) on securities sold...... 14,167 Net realized loss on forward foreign currency contracts and foreign currency transactions.... -- Change in unrealized appreciation on forward foreign currency contracts, foreign currency and translation of other assets and liabilities Change in unrealized appreciation on Net realized and unrealized gain on Increase in net assets resulting
* Net of $22,000 change in accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
STATEMENT OF CHANGES IN NET ASSETS (000) For the Six Month Period Ended August 31, 1995 (Unaudited) and the Year
STATEMENT OF CHANGES IN NET ASSETS (000) For the Six-Month Period Ended August 31, 1995 (Unaudited) and the Year
Net investment income......... $ 426 Net realized gain (loss) on DISTRIBUTIONS: In excess of net realized SHARE TRANSACTIONS: Proceeds from shares issued... 23,513 Cost of shares redeemed....... (400) NET ASSETS: End of period................. $ 23,933 SHARES ISSUED AND REDEEMED: Issued in lieu of cash
(1) Formerly the Small Cap Value Fund (2) Commenced operations on July 1, 1994
The accompanying notes are an integral part of the financial statements.
STATEMENT OF CHANGES IN NET ASSETS (000) For the Six-Month Period Ended August 31, 1995 (Unaudited) and the Year
(1) Net of $22,000 change in accrued foreign withholding taxes. (2) Net of $10,000 change in accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS THE COMPASS CAPITAL GROUP For the Six-Month Period Ended August 31, 1995 (Unaudited) and the
For a Share Outstanding Throughout each Period.
NEW JERSEY MUNICIPAL MONEY FUND
Footnotes on page 49 following table
The accompanying notes are an integral part of the financial statements.
For the Six Month Period Ended August 31, 1995 (Unaudited) and the
For a Share Outstanding Throughout each Period.
RATIO OF RATIO OF NET RATIO OF RATIO OF AVERAGE NET AVERAGE NET EXPENSES TO NET INCOME ASSETS ASSETS PORTFOLIO AVERAGE NET TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER ASSETS NET ASSETS WAIVERS) WAIVERS) RATE ----------- ----------- ------------- ------------- ----------- 1995** 0.95%* 2.05%* 0.95%* 2.05%* 34.00% 1995 0.95 2.47 0.95 2.47 57.96 1994 0.93 3.06 0.93 3.06 156.21 1993 1.00 3.33 1.00 3.33 70.84 1992 0.96 4.04 0.96 4.04 111.52 1991 0.94 4.65 0.98 4.61 98.75 1990(5) 0.93* 4.29* 1.06* 4.16* 54.08 1995** 0.95%* 0.87%* 0.95%* 0.87%* 30.98% 1995 0.96 0.55 0.96 0.55 46.28 1994 0.94 0.56 0.94 0.56 153.03 1993 0.98 1.14 0.98 1.14 114.83 1992 1.00 1.80 1.00 1.80 144.16 1991 0.92 2.08 0.96 2.04 91.32 1990(5) 0.90* 2.72* 1.00* 2.62* 41.69 1995** 1.28%* 0.49%* 1.28%* 0.49%* 103.90% 1995 1.30 0.86 1.30 0.86 15.84 1994 1.31 0.72 1.31 0.72 49.34 1993 1.38 0.45 1.38 0.45 43.00 1992(3) 1.22* 0.65* 1.27* 0.60* 9.08 1995** 1.05%* 4.07%* 1.05%* 4.07%* 12.86% 1995(6) 0.70* 4.10* 1.15* 3.65* 30.63 1995** 0.85%* 6.00%* 0.85%* 6.00%* 25.80% 1995 0.85 5.33 0.85 5.33 53.66 1994 0.84 5.02 0.84 5.02 58.80 1993 0.88 6.28 0.88 6.28 25.95 1992 0.85 6.90 0.85 6.90 57.81 1991 0.84 7.44 0.88 7.40 42.86 1990(5) 0.88* 7.41* 0.98* 7.31* 2.46 1995** 0.84%* 6.16%* 0.84%* 6.16%* 23.17% 1995 0.85 6.02 0.85 6.02 34.69 1994 0.83 5.53 0.83 5.53 49.41 1993 0.87 6.62 0.87 6.62 36.88 1992 0.89 7.66 0.89 7.66 120.70 1991 0.82 7.97 0.86 7.93 63.33 1990(5) 0.82* 7.10* 0.98* 6.94* 12.97
The accompanying notes are an integral part of the financial statements.
For the period ended August 31, 1995
For a Share Outstanding Throughout each Period.
RATIO OF RATIO OF NET RATIO OF RATIO OF AVERAGE NET AVERAGE NET EXPENSES TO NET INCOME ASSETS ASSETS PORTFOLIO AVERAGE NET TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER ASSETS NET ASSETS WAIVERS) WAIVERS) RATE ------------- ----------- ------------- ------------- ----------- 1995** 0.92%* 4.51%* 0.92%* 4.51%* 32.60% 1995 0.75 4.75 0.93 4.57 60.86 1994 0.69 4.66 0.96 4.39 80.70 1993 1.01 4.80 1.30 4.49 144.89 1992 0.75 5.81 1.31 5.25 114.78 1991 0.32 6.33 1.40 5.25 30.21 1990(7) 0.39* 5.85* 1.56* 4.68* 0.00 1995** 0.88%* 4.51%* 0.88%* 4.51%* 18.47% 1995 0.79 4.71 0.87 4.63 28.43 1994 0.38 4.75 0.86 4.27 12.05 1993 0.48 5.04 1.04 4.48 16.09 1992(3) 0.52* 5.35* 1.29* 4.58* 0.00 1995** 1.00%* 4.48%* 1.00%* 4.48%* 50.34% 1995 0.65 4.63 1.01 4.27 48.91 1994(8) 0.22* 4.27* 0.85* 3.64* 30.68 1995** 1.41%* 1.37%* 1.41%* 1.37%* 34.74% 1995 1.46 0.07 1.46 0.07 47.68 1994 1.59 0.11 1.59 0.11 51.30 1993 1.63 0.91 1.63 0.91 80.72 1992(3) 1.56* 0.25* 1.61* 0.20* 22.26 1995** 1.18%* 5.75%* 1.18%* 5.75%* 58.50% 1995 1.24 5.96 1.24 5.96 130.64 1994 1.38 6.00 1.38 6.00 128.14 1993 1.30 6.31 1.30 6.31 115.25 1992(3) 1.33* 6.79* 1.37* 6.75* 110.13
** For the 6 months ended August 31, 1995. (1) Commenced operations on March 1, 1988. (2) Commenced operations on March 24, 1988. (3) Commenced operations on July 1, 1991. (4) Commenced operations on August 15, 1991.
The accompanying notes are an integral part of the financial statements.
(5) Commenced operations on May 31, 1989. (6) Commenced operations on July 1, 1994. (7) Commenced operations on December 1, 1989. (8) Commenced operations on August 31, 1993.
The accompanying notes are an integral part of the financial statements.
The Compass Capital Group (the 'Group') was organized on October 1, 1987, and is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company established as a Massachusetts business trust.
The Group is authorized to issue an unlimited number of shares which are units of beneficial interest without par value. The Group presently offers shares of the Cash Reserve Fund, U.S. Treasury Fund, Municipal Money Fund, New Jersey Municipal Money Fund, Pennsylvania Municipal Money Fund, Equity Income Fund, Growth Fund, Small Company Fund (formerly Small Cap Value), Balanced Fund, Short/Intermediate Fund, Fixed Income Fund, Municipal Bond Fund, New Jersey Municipal Bond Fund, Pennsylvania Municipal Bond Fund, International Equity Fund and International Fixed Income Fund (referred to as a 'Fund' or collectively as the 'Funds'). Sales of shares of the Group may be made to customers of Midlantic Bank N.A. ('Midlantic'), and to the general public. Effective August 27, 1994, Midlantic National Bank, the investment adviser to the Group, merged with Continental Bank and changed its name to Midlantic Bank, N.A.
The following is a summary of significant accounting policies followed by the Group in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles.
Securities Valuation -- Investments in equity securities which are traded on a national securities exchange (or reported on the NASDAQ national market system) are stated at the last quoted sales price if readily available for such equity securities on each business day; other equity securities traded in the over-the-counter market and listed equity securities for which no sale was reported on that date are stated at the last quoted bid price. Option contracts are valued at the last quoted bid price quoted on the primary exchange or board of trade which such option contracts are stated. Debt obligations exceeding sixty days to maturity for which market quotations are readily available are valued at the most recently quoted bid price. Foreign securities in the International Equity Fund and International Fixed Income Fund (the 'International Funds') are valued based upon quotations from the primary market in which they are traded. Debt obligations with sixty days or less remaining until maturity may be valued at their amortized cost. Restricted and illiquid securities for which quotations are not readily available are valued at fair value using methods determined in good faith as approved by the Board of Trustees.
Security Transactions and Related Income -- Security transactions are accounted on the date the security is purchased or sold (trade date). Interest income is recognized on the accrual basis.
Dividend income is recorded on the ex-dividend date. Gains or losses realized on sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds. Market discounts and premiums are not amortized for financial reporting and Federal income tax purposes in the taxable variable net asset value funds. Market premiums and original issue discounts are amortized for financial reporting and Federal income tax purposes in the Municipal Bond Fund, New Jersey Municipal Bond Fund, and Pennsylvania Municipal Bond Fund.
Repurchase Agreements -- The Group may enter into repurchase agreements with member banks of the Federal Deposit Insurance Corporation ('FDIC') with capital, surplus and undivided profits in excess of $100,000,000 (as of the date of their most recently published financial statements) and from registered broker/dealers whom Midlantic deems creditworthy under guidelines approved by the Board of Trustees, subject to the seller's agreement to repurchase such securities at a mutually agreed-upon date and price. The repurchase price generally equals the price paid by the Group plus interest negotiated on the basis of current short-term rates.
Securities pledged as collateral for repurchase agreements are held by the custodian bank until the respective agreements mature. Provisions of the repurchase agreements ensure that the market value of the collateral, including accrued interest thereon, is sufficient in the event of default of the counterparty.
The Group may also invest in tri-party repurchase agreements. Securities held as collateral for tri-party repurchase agreements are maintained in a segregated account by the broker's custodian bank until maturity of the repurchase agreement.
If the counterparty defaults and the value of the collateral declines or if the counterparty enters an insolvency proceeding, realization of the collateral by the Funds may be delayed or limited.
Distributions to Shareholders -- Distributions from net investment income are declared daily and paid monthly for the money market funds. Distributions from net investment income are declared and paid monthly for the variable net asset value funds, excluding the Small Company Fund which is paid quarterly and the International Funds which are paid twice annually. Any net realized capital gains are declared and distributed to shareholders at least annually.
Differences between undistributed net investment income or accumulated net capital gains for financial reporting and tax purposes, if permanent, are required to be reclassified to/from paid in capital.
Federal Income Taxes -- It is the intention of the Group to continue to qualify as a regulated investment company for Federal income tax purposes and distribute all of its taxable income and net capital gains. Accordingly, no provision for Federal income taxes is required.
Foreign Currency Translation -- The books and records of the International Funds are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis:
(I) market value of investment securities, assets and liabilities at the current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions.
The International Funds do not isolate that portion of gains and losses on investment securities which is due to changes in the foreign exchange rates from that which is due to changes in market prices of such securities.
The International Funds report certain foreign currency related transactions as components of realized and unrealized gains for financial reporting purposes, whereas such components are treated as ordinary income for Federal income tax purposes.
Forward Foreign Currency Contracts -- The International Funds enter into forward foreign currency contracts as a hedge against either specific transactions or portfolio positions. These contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until the contract settlement date. Such contracts, which protect the value of a Fund's investment securities against a decline in the value of currency, do not eliminate fluctuations in the underlying prices of the securities. They simply establish an exchange rate at a future date. Also, although such contracts tend to minimize the risk of loss due to a decline in the value of a hedged currency, at the same time they tend to limit any potential gain that might be realized should the value of such foreign currency increase.
The aggregate principal amounts of the contracts are not recorded as the Funds intend to settle the contracts prior to delivery.
Other -- Expenses that are directly related to one of the Funds are charged directly to that Fund. Other operating expenses of the Group are prorated to the Funds on the basis of relative net assets.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term and U.S. Government securities) for the six month period ended August 31, 1995 were as follows:
SEI Financial Management Corporation (the 'Administrator') serves the Group as Administrator. Under the terms of the administration agreement between the Group and the Administrator, the Administrator earns an annual fee of .18% of the daily net assets of the Funds. SEI Financial Services Company (the 'Distributor') serves the Group as Distributor pursuant to a distribution agreement between the Group and the Distributor. The Distributor receives no fee for its services.
Investment advisory services are provided to the Group by Midlantic. Under the terms of the investment advisory agreement, Midlantic is entitled to receive fees based on a percentage of the average net assets of the Funds. The advisory fee is equal to .35% of the average daily net assets of the Cash Reserve Fund and U.S. Treasury Fund; .40% of the Municipal Money Fund, New Jersey Municipal Money Fund and Pennsylvania Municipal Money Fund; .60% of the Short/Intermediate Fund, Fixed Income Fund, Municipal Bond Fund, New Jersey Municipal Bond Fund and Pennsylvania Municipal Bond Fund; .70% of the Growth Fund, Equity Income Fund and Balanced Fund; .80% of the International Fixed Income Fund; and .90% of the Small Company Fund and International Equity Fund.
Wall Street Associates, Morgan Grenfell Investment Services Limited and Seligman Henderson Co. serve as subadvisors for the Small Company Fund, International Fixed Income Fund and International Equity Fund, respectively pursuant to subadvisory agreements with Midlantic. Wellington Management Company ('Wellington') serves as subadvisor to the Equity Income Fund and Growth Fund pursuant to a subadvisory agreement among Midlantic, Wellington and the Group.
At August 31, 1995 the total cost of securities and the net realized gains or losses on securities sold for Federal income tax purposes was not materially different from amounts reported for financial reporting purposes. The aggregate unrealized appreciation and depreciation information at August 31, 1995 for each variable net asset value fund is as follows:
6. RECENT AND SUBSEQUENT EVENTS:
On July 10, 1995, Midlantic Corporation, the parent corporation of the investment adviser of the Group, entered into a merger agreement with PNC Banc Corp. As a result, the Trustees of the Group will call a special meeting of the shareholders to vote on the following proposal: Shareholders of the Group will vote to approve or disapprove an asset purchase agreement which provides for (A) the transfer of assets and liabilities of the Group's investment portfolios to corresponding portfolios of The PNC Fund (the 'Compass Transaction') and (B) the approval of interim investment advisory and sub-advisory agreements for the Group's investment portfolios if the merger of Midlantic Corporation and
PNC Banc Corp. occurs before the closing of the Compass Transaction. Detailed information about the proposed transaction will be described in the Proxy Statement mailed to the Shareholders.
7. FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING AT AUGUST 31, 1995
At August 31, 1995, the International Fixed Income Fund had unrealized gains on closed but unsettled foward foreign currency contracts of $31,987 scheduled to settle on September 18, 1995.
|
485BPOS
|
EX-99.D
| 1996-01-12T00:00:00
| 1996-01-11T17:57:27
|
0000912057-96-000431
|
0000912057-96-000431_0000.txt
|
U. S. SECURITIES AND EXCHANGE COMMISSION
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
For the transition period from
(Exact name of small business issuer as specified in its charter)
(State or other jurisdiction of (IRS Employer Identification Number)
10842 Old Mill Road, Suite #5 (Address of principal executive offices)
Issuer's telephone number (402) 330-8268
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
APPICABLE ONLY TO CORPORATE ISSUERS
As of December 31, 1995 the Issuer had 26,136,081 shares of its common stock outstanding.
Transitional Small Business Disclosure Format Yes No X
as of November 30, 1995. 5
Unaudited Consolidated Statements of Operations for the three months and nine months ended November 30, 1995, and November 30, 1994. 7
Unaudited Consolidated Statements of Cash Flows for the nine months ended November 30, 1995, and November 30, 1994. 8
Notes to Consolidated Financial Statements 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Between November 30, 1994 and September 1, 1995, the Company acquired three gathering systems and one delivery system for approximately $1.9 million. These acquisitions added 42 miles of pipeline and 66,000 MCF/D capacity to its existing pipeline network.
The Company also opened operations (Gateway Pipeline Company and its subsidiary Castex Energy, Inc.) in Houston, Texas with the acquisition of certain oil and gas producing properties and lease prospects. Gateway Pipeline has formed a marketing division and has begun to market gas produced by Castex as well as other small amounts of gas. Since January 1, 1995, the Company has advanced $.7 million to Gateway Pipeline and Castex for its share of drilling costs and the acquisition of additional drilling prospects.
NINE MONTHS ENDED NOVEMBER 30, 1995 COMPARED TO 1994
Operating profit decreased from $608,600 in 1994 to $206,500 in 1995. Operating margins from all joint ventures, including Fort Cobb Irrigation and Fuel Authority, before depreciation increased $335,100 from 1994. This increase was the result of new acquisitions made in 1995 of $374,400 and acquisitions made throughout the nine month period in 1994 of $91,600. These increases were offset by decreases of $130,800 in operating margins from properties acquired prior to March 1, 1994.
The major decrease in net operating margins occurred on the Destino system. The system has been shut down since May 1995 as the result of the lack of capacity on the main interconnection to the system. This shutdown has lowered operating margins by $104,400 from the comparable period in
1994. The joint venture operator is exploring other connections and is negotiating with the owner of the interconnected line to increase Destino's access to the line.
Lower gas prices throughout much of 1995 have also contributed to lower operating margins. Natural gas prices throughout the spring and summer were substantially lower than in 1994. Natural gas prices ranged from $1.17 to $1.55 per MMBTU in 1995 compared to $1.51 to $2.01 per MMBTU in 1994. Lower gas prices reduce the margin retained by the Company since most purchase contracts are based on a percentage of the index or sales price. Also, producers are reluctant to produce wells at high volume when gas prices are depressed.
The major reason for the decrease in operating profit is the costs associated with the start up of Gateway Pipeline Company ("Pipeline") in Houston. This operating subsidiary sustained a net operating loss of $323,000 for the nine months ended November 30, 1995. Pipeline was formed to acquire, operate and manage gas gathering systems and acquire and develop oil and gas producing properties. Pipeline has been actively pursuing such acquisitions and development, however, in the nine months ended November 30, 1995, no significant properties were acquired except a delivery system in Texas County, Oklahoma. Pipeline and its subsidiary, Castex Energy, Inc. expect to make several acquisitions in the fourth quarter which will generate sufficient operating profit to cover operating overhead expenses.
Corporate general and administrative expenses increased $177,400 in 1995 compared to 1994. This increase reflects higher salaries and wages and higher legal and accounting fees from increased corporate activities and higher costs of shareholder and investor relations for annual and quarterly reports and other communications. Other increases in general and administrative expenses are due to Gateway Pipeline and Ft. Cobb Fuel Authority.
The net loss applicable to common stock of $1,426,200 is a result of the lower operating profit discussed above and an increase in preferred stock dividends of $897,600 of which $189,400 is attributable to greater amortization of the Series G offering costs. The Company continues to raise funds for investment through preferred stock issues. However, delays in investing the funds in operating properties and start-up time required for acquired properties have increased the preferred stock dividend requirements relative to operating profits.
THREE MONTHS ENDED NOVEMBER 30, 1995, COMPARED TO 1994
Net operating profit for the three months ended November 30, 1995 decreased $98,900 compared to the similar period in the prior year. Properties acquired after November 30, 1994, increased operating profit by $142,700. However, properties acquired in the three month period in 1994 contributed $29,800 less to operating profit in 1995 compared to 1994. Operating profit from properties acquired before August 31, 1994, and thus owned for each quarter increased $34,700 in 1995 compared to 1994.
Operating profit from the EPNG system increased $107,000 largely due to increased nominations from the system. This increase from EPNG which was acquired prior to August 31, 1994 was offset by reductions at White Ranch of $32,300 due to increased operating costs, and at Destino of $38,900 due to a shutdown of the system for lack of capacity on the main interconnect pipeline.
Operating profit from the Rockdale system decreased $28,800 from the previous year due to lower gas prices and higher operating costs to correct processing inefficiencies.
The net operating profit was further adversely affected by operating losses of $118,600 incurred by Gateway Pipeline Company. As discussed above, Pipeline has not yet been able to acquire significant natural gas properties which provide sufficient operating revenues to cover general and administrative overhead.
Corporate general and administrative expenses increased by $69,800 reflecting wage and salary increases and higher legal and accounting fees. Costs associated with improved reporting to shareholders also increased during the current quarter. The remaining increase is due to costs at Gateway Pipeline and Ft. Cobb Fuel Authority.
Net loss for common shares was $483,500 in 1995, a $248,500 decrease from the prior year quarter. This decrease is due to lower operating profits discussed above and an increase in preferred stock dividends of $235,700. Preferred stock dividends includes an additional $31,800 of amortization for Series G Preferred Stock. Delays in acquiring properties and start-up time related to those properties have increased preferred stock dividends relative to operating profits.
The Company successfully raised $10,000,000 through its offering of Series G Preferred Stock and closed the offering in January 1995. In February 1995 the Company began offering its Series N Preferred Stock to accredited investors. As of December 31, 1995, $2,944,000 of Series N has been sold. As of November 30, 1995, the Company had $474,700 of funds available for acquisitions.
The Company received, from its primary bank, a $750,000 bridge acquisition line of credit. In December, $575,000 was advanced to acquire natural gas gathering systems in Texas offshore waters. The advance will be repaid with proceeds from Series N. The Company's subsidiary, Castex Energy, Inc., has obtained a commitment from a major bank for a $15 million credit facility. $10 million of this commitment will be used, along with equity funds supplied by Series N proceeds, to purchase oil and gas producing properties in Louisiana. The remaining funds will be available to develop other lease prospects owned by Castex.
The Company has also obtained a $650,000 bridge loan to fund certain oil and gas acquisitions. Such bridge loan will be repaid from Series O Preferred Stock which will be sold to accredited investors.
The Company generated cash flow from operations of $65,900 in 1995 compared to $331,200 in 1994. In 1995, the Company used reserves of $67,700 from the proceeds of Series N and $220,400 of reserves from the issuance of Series G, as described in the respective Private Placement Memorandums, to pay Series N and Series G dividends. In December the Company received one half ($140,000) of the expected settlement in a bankruptcy proceeding. The Company believes that cash flow from operations, its short-term borrowing capacity and the continued sales of Series N Preferred Stock will be adequate to fund current operations and provide the equity financing necessary to accomplish future acquisitions.
The Company has been named as a third party defendent in a lawsuit filed in the District Court of Harris County, Texas on November 28, 1995. Nuevo Energy Company, a defendant in a lawsuit filed by Shoreham Pipeline Company as operator/manager of the Encinitas Joint Venture, has filed a countersuit claiming damages of approximately $4,000,000. These damages allegedly are the result of the lawsuit by Shoreham which prevented Nuevo from selling certain leases. The action is currently in discovery.
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
11 Statement re Computation of Per Share Earnings, filed herewith.
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
The accompanying notes are an integral part of this statement.
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
The accompanying notes are an integral part of this statement.
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
The accompanying notes are an integral part of these statements.
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these statements.,
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by the Company, without audit. In the opinion of management, such financial statements reflect all adjustments necessary for a fair presentation of the financial position and results of operations in accordance with generally accepted accounting principles.
The consolidated financial statements include the accounts of Gateway Energy Corporation (formerly Gateway Gathering Systems, Inc.), its eighty percent (80%) owned subsidiary, Gateway Pipeline Company and the Fort Cobb Oklahoma Irrigation Fuel Authority (99% owned by the Company). The Company's investments in its joint ventures are accounted for using the proportional consolidation method. All significant intercompany transactions have been eliminated in consolidation.
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or income tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates in effect when these differences reverse. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that they will not be realized. Deferred tax expense is the result of changes in deferred tax assets and liabilities.
Gateway Pipeline Company, the Company's eighty percent (80%) owned subsidiary, initiated a private offering of preferred stock to accredited investors. The preferred stock has been designated as 10% Cumulative Convertible Series A Preferred Stock. Dividends are paid quarterly at the stated rate of 10%, with provisions for an additional 3% depending on earnings of the properties acquired with the proceeds. The Preferred Stock is convertible into the Company's common stock after twenty-four months at a conversion price equal to ninety percent (90%) of the average bid price. The Company may call the Series A Preferred Stock after twenty-four months at stated value. The Company may require conversion after twenty-four months, if shareholders have received cumulative dividends of thirteen percent (13%), at a conversion price equal to eighty-five percent (85%) of the average bid price. As of November 30, 1995, $386,000 of the Series A Preferred Stock has been sold.
On September 28, 1995, the Company issued a Promissory Note due December 28, 1995, to a shareholder in exchange for $235,000 in cash. The proceeds were used for working capital purposes due to delays in collecting funds from a major creditor. The Note bears interest at 11% per annum, and as a commitment to the issuer, the Company issued 20,000 shares of common stock and a warrant to purchase an additional 60,000 shares at $.25 per share. The Note was extended to March 28, 1996 and will be repaid from the proceeds from the bankruptcy proceedings involving a former major customer.
(5) Acquisition Letter of Credit
On December 15, 1995, the Company entered into a revolving line of credit agreement with a bank with maximum available borrowings of $750,000. Interest is payable monthly at 2.5% above the bank's base rate beginning in November 1995. All outstanding principal and interest is due and payable October 31, 1996, the maturity date. Interests in certain of the Company's joint ventures and all deposit and escrow accounts at the bank have been pledged as collateral for the line.
On December 18, 1995, the bank advanced $575,000 against this line to purchase an 80% interest in certain gathering systems in Texas offshore waters. Such advance is expected to be repaid from proceeds from the sales of Series N Preferred Stock.
On November 30, 1995, the Company issued two (2) Promissory Notes for a total of $650,000 due February 28, 1996, or May 31, 1996, if extended by the Company. The proceeds from the notes are being used to acquire the Company's interest in the South Lake Arthur properties (See Note 7b) and are intended to be repaid from the proceeds of Series O Preferred Stock which is being offered to accredited investors.
The Notes provide for interest at 11% per annum which may be paid with common stock of the Company at $.35 per share. As part of the commitment, the Company issued 37,500 shares of common stock and warrants to purchase 82,875 shares of common stock at $.35 per share.
(a) Acquisition of Offshore Gathering Systems - On December 15, 1995, the Company's eighty percent (80%) owned subsidiary, Shoreham Gathering Company, acquired eight separate gathering systems in Texas state waters offshore. The systems were purchased for cash of $710,000 and consist of approximately 49 miles of various size pipe. Six of the eight systems are inactive but are located in areas where there is considerable lease and drilling activity.
(b) Agreement to Purchase Production Properties - Castex Energy, Inc., the Company's oil and gas producing company, is currently negotiating a Purchase and Sale Agreement to acquire ownership interests in numerous oil and gas producing properties located in the South Lake Arthur field in Jefferson Davis and Vermillion Parishes, in Louisiana for $11.1 million, effective July 1, 1995. The closing is expected to be on or before February 15, 1996. Castex has accumulated funds from Gateway ($800,000) and other investors to make a deposit of $1.0 million and has received a commitment from a bank for a credit facility of up to $15.0 million, $10.0 million of which will be used to complete the acquisition and $5.0 million of which will be used to fund future drilling activity on prospects currently controlled by Castex.
It is expected that the South Lake Arthur properties and the lease prospects will be transferred to a limited partnership of which Gateway Energy Corporation will own approximately 60%. Castex Energy, Inc. will be the general partner and will manage the limited partnership. Certain officers of Castex and other individuals will own the remaining 40% of the limited partnership.
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
10QSB
|
10QSB
| 1996-01-12T00:00:00
| 1996-01-12T11:56:24
|
0000038868-96-000001
|
0000038868-96-000001_0000.txt
|
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended December 2, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from __________ to __________
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (IRS Employers Identification No.)
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (213) 466-5151
Former name, former address and former fiscal year, if change since last report: Not Applicable.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____.
Indicate the number of shares outstanding for each of the registrant's classes of Common stock, as of the latest practicable date. 2,955,309 shares of Class A Capital Stock ($1 par value) and 5,903,118 shares of Class B Capital Stock ($1 par value) at December 27, 1995.
FREDERICK'S OF HOLLYWOOD, INC. AND SUBSIDIARIES
PART I -- FINANCIAL INFORMATION (Unaudited)
December 2, 1995 and September 2, 1995
Consolidated condensed statements of income - Three months ended December 2, 1995
Consolidated condensed statements of cash flows - Three months ended December 2, 1995 and
Notes to consolidated condensed financial
Management's Discussion and Analysis of Financial Condition and Results of Operations
PART II - OTHER INFORMATION
See accompanying notes to the consolidated financial statements.
See accompanying notes to the consolidated financial statements.
See accompanying notes to the consolidated financial statements.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS December 2, 1995 and December 3, 1994
NOTE 1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the financial position as of December 2, 1995 and September 2, 1995, and the results of operations and cash flows for the three months ended December 2, 1995 and December 3, 1994.
These financial statements should be read in conjunction with the Company's 1995 annual report on Form 10-K405.
NOTE 2. EARNINGS PER SHARE
Earnings per share calculations are based on the weighted average number of shares of both Class A and Class B capital stock outstanding during each period plus capital stock equivalents. Capital stock equivalents reflect the assumed exercise of dilutive employees' stock options less the number of treasury shares assumed to be purchased from the proceeds using the average market price or, for fully diluted earnings per share, the greater of the average market price or period end market price of the Company's common stock. ESOP shares that have not been committed to be released are not considered outstanding (See Note 4).
Net Earnings $ 107 1,028
NOTE 3. PROVISION FOR STORE CLOSING
In the fourth quarter of Fiscal 1994, the Company recorded a provision for closing twelve stores and the write down of certain display fixtures of $3,442,000. The provision reflects anticipated costs associated with lease buyouts of $1,703,000, the non- recoverable investment in property, equipment and inventory of $1,651,000, and other expenses directly related to the store closings of $88,000.
The consolidated statement of income includes sales and operating losses for ten stores designated in the provision for store closing that were actually closed. A summary for the three months is as follows:
Net sales $ -0- 364,000
NOTE 4. EMPLOYEE STOCK OWNERSHIP PLAN
Effective September 4, 1994, the Company adopted Statement of Position (SOP) 93-6 (Employers' Accounting for Employee Stock Ownership Plans). Under SOP 93-6 the debt of the ESOP is recorded as debt of the Company and the shares pledged as collateral are reported as unearned ESOP shares in the statement of financial position. As shares are released from collateral, the company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings-per- share computations. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as compensation expense. ESOP compensation expense was $53,000 for the three months ended December 2, 1995. The ESOP shares as of December 2, 1995 were as follows:
Shares released for allocation 15,000 shares as of December 2, 1995 $735,000
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at September 2, 1995 are presented below (000's Omitted):
for tax purposes pursuant to the Tax Reform Act of 1986 $ 705 Total deferred tax assets 765 Deferred tax liabilities: Property and equipment, principally due to Net deferred tax liability $(2,237)
The Company has not provided for a valuation allowance against its deferred tax assets as realization of such assets is considered to be more likely than not.
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The most significant changes in the Company's balance sheet from September 2, 1995, the end of the preceding fiscal year to December 2, 1995 are as follows:
Cash and cash equivalents increased $1,843,000. The Company had working capital of $21,390,000 and net cash provided by operating activities of $2,764,000 for the three months ended December 2, 1995.
Accounts receivable increased $105,000. The increase is primarily attributable to increased credit card receivables.
The decrease in income taxes receivable from $213,000 at September 2, 1995 to $163,000 at December 2, 1995 is due to the receivable being applied to the Company's current year's taxes due.
Inventory increased $3,955,000 from $19,862,000 to $23,817,000. Inventory levels generally peak at the end of the first quarter in preparation for the increased sales volume during the holiday season. The Company continues to closely monitor its inventories and believes its inventory position is substantially on plan relative to the anticipated sales.
Prepaid expenses decreased $60,000. The decrease is mainly attributed to the timing differences of invoice payments.
Deferred catalog costs increased $186,000. The decrease is attributed to the timing differences of catalog mailings.
Accounts payable rose $5,938,000. The major factor causing the increase was the purchase of inventory for the holiday selling season.
Accrued payroll decreased $104,000. This fluctuation (decrease) is attributable to the difference in the length of time between the end of the pay period (accrual of estimated payroll) and the payment of that payroll as it relates to two different points in time; the end of the fiscal year and the end of the first quarter.
The decrease in accrued insurance and other accrued expenses was $216,000. The difference is caused by the timing of the required accruals and the corresponding payments.
The following table summarizes the Company's net sales and operating profit(loss) by business segment for the three month period ending December 2, 1995 and December 3, 1994:
Net Sales Operating Profit (Loss)
Retail Stores $18,314 18,723 (980) (308) Mail Order 18,328 17,325 1,108 2,037 Total $36,642 36,048 128 1,729
The results of the interim period are not necessarily indicative of results for the entire year.
Net sales rose $594,000 (1.6%) for the three months ended December 2, 1995 as compared with the prior year. The factors contributing to the increase in each segment were as follows:
Retail store sales volume decreased $409,000 (2.2%) for the three months ended December 2, 1995 as compared with the similar period last year. Comparable store sales volume decreased 2.5% for the three months ended December 2, 1995. There were no stores opened or closed during the quarter for a total of 204 stores in 39 states. The decrease in retail store sales is attributed to the continued softness in the specialty store environment.
Mail Order sales volume increased $1,003,000 (5.8%) for the three months ended December 2, 1995 as compared with the similar period last year. The gain is attributable to an increase in the number of catalogs distributed.
Gross profit amounted to $15,570,000 (42.5% of sales) for the three months ended December 2, 1995. This compares with $15,539,000 (43.1% of sales) for the same period in the prior year. The increase in gross profit is mainly attributable to the increased sales volume.
Selling, general and administrative expenses increased $1,632,000 (11.8%) to $15,442,000 (42.1% of sales) from $13,810,000 (38.3% of sales) for the three months ended December 2, 1995 as compared to the similar period last year. The increase is primarily attributable to increased advertising and increased catalog costs related to price increases in paper and postage.
The increased operating loss of $672,000 for Frederick's of Hollywood retail stores is attributable to reduced sales and increased advertising and promotional expenses. The decline in mail order operating profit was primarily due to postage increases and significantly higher paper costs. The Company has implemented several methods in order to mitigate the impact of the increased paper and postage costs.
The increase in other income of $27,000 reflects increased interest income.
The Company's business is seasonal in nature with the Holiday Season and Valentine's Day (which both fall within the second quarter) historically accounting for the largest percentage of sales volume. In the Company's three most recent fiscal years, the second quarter accounted for approximately 30% of the Company's annual sales.
Income taxes are provided on the basis of estimated federal and state taxes for each year. The rate used for the first quarter of 1996 and 1995 was 41.5%.
PART II - OTHER INFORMATION
Items 1 - 5 are omitted because they are not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(b) No reports on Form 8-K were filed for this quarter.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: January 9, 1996 By:/s/ George W. Townson Chairman of the Board, President
Date: January 9, 1996 By: /s/ John B. Hatfield
|
10-Q
|
10-Q
| 1996-01-12T00:00:00
| 1996-01-12T13:55:07
|
0000950130-96-000108
|
0000950130-96-000108_0006.txt
|
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE.
Purpose of Form. -- A person who is required to file an information return with the Internal Revenue Service ("IRS") must obtain your correct taxpayer identification number ("TIN") to report income paid to you, real estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. Use Form W-9 to furnish your correct TIN to the requester (the person asking you to furnish your TIN) and, when applicable, (1) to certify that the TIN you are furnishing is correct (or that you are waiting for a number to be issued), (2) to certify that you are not subject to backup withholding, and (3) to claim exemption from backup withholding if you are an exempt payee. Furnishing your correct TIN and making the appropriate certifications will prevent certain payments from being subject to backup withholding.
Note: If a requester gives you a form other than W-9 to request your TIN, you must use the requester's form.
How To Obtain a TIN. -- If you do not have a TIN, apply for one immediately. To apply, get Form SS-5, Application for a Social Security Card (for individuals), from your local office of the Social Security Administration, or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), from your local IRS office.
To complete Form W-9 if you do not have a TIN, write "Applied for" in the space for the TIN in Part I, sign and date the form, and give it to the requester. Generally, you will then have 60 days to obtain a TIN and furnish it to the requester. If the requester does not receive your TIN within 60 days, backup withholding, if applicable, will begin and continue until you furnish your TIN to the requester. For reportable interest or dividend payments, the payor must exercise one of the following options concerning backup withholding during this 60-day period. Under option (1), a payor must backup withhold on any withdrawals you make from your account after 7 business days after the requester receives this form back from you. Under option (2), the payor must backup withhold on any reportable interest or dividend payments made to your account, regardless of whether you make any withdrawals. The backup withholding under option (2) must begin no later than 7 business days after the requester receives this form back. Under option (2), the payor is required to refund the amounts withheld if your certified TIN is received within the 60-day period and you were not subject to backup withholding during that period.
Note: Writing "Applied for" on the form means that you have already applied for a TIN or that you intend to apply for one in the near future.
As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date the form, and give it to the requester.
What Is Backup Withholding? -- persons making certain payments to you after 1992 are required to withhold and pay to the IRS 31% of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee compensation, and certain payments from fishing boat operators, but do not include real estate transactions.
If you give the requester your correct TIN, make the appropriate certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if:
1. You do not furnish your TIN to the requester, or
2. The IRS notifies the requester that you furnished an incorrect TIN, or
3. You are notified by the IRS that you are subject to backup withholding because you failed to report all your interest and dividends on your tax return (for reportable interest and dividends only), or
4. You do not certify to the requester that you are not subject to backup withholding under 3 above (for reportable interest and dividend accounts opened after 1983 only), or
5. You do not certify your TIN. This applies only to reportable interest, dividend, broker, or barter exchange accounts opened after 1983, or broker accounts considered inactive in 1983.
Except as explained in 5 above, other reportable payments are subject to backup withholding only if 1 or 2 above applies. Certain payees and payments are exempt from backup withholding and information reporting. See Payees and Payments Exempt From Backup Withholding, below, and Example Payees and Payments under Specific Instructions, below, if you are an exempt payee.
Payees and Payments Exempt From Backup Withholding. -- The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except as listed in item (9). For broker transactions, payees listed in items (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are exempt from backup withholding for barter exchange transactions, patronage dividends, and payments by certain fishing boat operators.
(1) A corporation. (2) An organization exempt from tax under section 501(a), an IRA, or a custodial account under section 403(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies, or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividend and patronage dividends generally not subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident partner. . Payments of patronage dividends not paid in money. . Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the following: . Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payor's trade or business and you have not provided your correct TIN to the payor. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in section 6049(b)(5) to nonresident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. . Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A, and 6050N, and the regulations under those sections.
Failure To Furnish TIN. -- If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect.
Civil Penalty for False Information With Respect to Withholding. -- If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty.
Criminal Penalty for Falsifying Information. -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment.
Misuse of TINs. -- If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to civil and criminal penalties.
Name. -- If you are an individual, you must generally provide the name shown on your social security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change, please enter your first name, the last name shown on your social security card, and your new last name.
If you are a sole proprietor, you must furnish your individual name and either your SSN or EIN. You may also enter your business name or "doing business as" name on the business name line. Enter your name(s) as shown on your social security card and/or as it was used to apply for your EIN on Form SS-4.
1. Interest, Dividend, and Barter Exchange Accounts Opened Before 1984 and Broker Accounts Considered Active During 1983. You are required to furnish your correct TIN, but you are not required to sign the certification.
2. Interest, Dividend, Broker, and Barter Exchange Accounts Opened After 1983 and Broker Accounts Considered Inactive During 1983. You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form.
3. Real Estate Transactions. You must sign the certification. You may cross out item 2 of the certification.
4. Other Payments. You are required to furnish your correct TIN, but you are not required to sign the certification unless you have been notified of an incorrect TIN. Other payments include payments made in the course of the requester's trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services, payments to a nonemployee for services (including attorney and accounting fees), and payments to certain fishing boat crew members.
5. Mortgage Interest Paid by You, Acquisition or Abandonment of Secured Property, or IRA Contributions. You are required to furnish your correct TIN, but you are not required to sign the certification.
6. Exempt Payees and Payments. If you are exempt from backup withholding, you should complete this form to avoid possible erroneous backup withholding. Enter your correct TIN in Part I, write "EXEMPT" in the block in Part II, and sign and date the form. If you are a nonresident alien or foreign entity not subject to backup withholding, give the requester a complete Form W-8, Certificate of Foreign Status.
7. TIN "Applied for." Follow the instructions under How To Obtain a TIN, on page 1, and sign and date this form.
Signature. -- For a joint account, only the person whose TIN is shown in Part I should sign.
Privacy Act Notice. -- Section 6109 requires you to furnish your correct TIN to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are required to file a tax return. Payors must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a TIN to a payor. Certain penalties may also apply.
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's SSN. (3) Show your individual name. You may also enter your business name. You may use your SSN or EIN. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title). Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed.
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SC 14D1
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EX-99.(A)(6)
| 1996-01-12T00:00:00
| 1996-01-12T17:26:30
|
0000950109-96-000198
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0000950109-96-000198_0013.txt
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Memorandum to: Board of Directors John Hancock Variable Life Insurance Company
This opinion is furnished with the filing of this post-Effective Amendment to the Registration Statement on Form S-6 (File Number 33-64366) which covers certain flexible premium joint and last survivor variable life insurance Contracts issued by John Hancock Variable Life Insurance Company, under which amounts will be allocated by JHVLICO to one or more of the twelve subaccounts of John Hancock Variable Life Account S.
The Prospectus included in the amended Registration Statement describes Contracts which are issued by the Company. The Contract forms were prepared under my direction, and I am familiar with the amended Registration Statement and exhibits thereto. In my opinion:
1 The "sales load" (as defined in paragraph (c)(4) of Rule 6e-3(T) under the Investment Company Act of 1940) will not exceed 9% of "payments" (as defined in the first sentence of paragraph (c)(7) of the Rule) equal to the sum of the guideline annual premiums (as defined in paragraph (c)(8) of the Rule) that would be paid during the period equal to the lesser of 20 years or the anticipated joint life expectancy of the named insureds based on the 1980 Commissioner's Standard Ordinary Smoker/Nonsmoker Mortality Table. The sales load on payments made in excess of such sum will not exceed 9%.
Sales load in excess of (1) 30% of payments made which are less than or equal to one guideline annual premium, plus (2) 10% of
payments greater than one but no greater than two guideline annual premiums; plus (3) 9% of payments in excess of two guideline annual premiums, will be refunded if the Contract is surrendered during the first 24 months after issue. Except to the extent that
exemptive relief is being applied for, the proportionate amount of sales load deducted from any payment will not exceed the proportionate amount deducted from any prior payment, unless an increase is caused by reductions in the annual cost of insurance or a reduction in the sales load deducted from amounts transferred to a Contract from another plan of insurance.
2. The death benefits, surrender values, and accumulated premiums of the Contract as illustrated in the amended Registration Statement are based on the assumptions stated in the illustrations and are consistent with the provisions of the Contract. Such assumptions, including the current rates of cost of insurance and other current charges, are reasonable. The Contract has not been designed so as to make the relationship between premiums and benefits, as shown in the illustrations, appear more favorable to a prospective purchaser of a Contract for joint insureds who are non-smoker males age 55 and non-smoker females age 50, than to purchasers of a Contract for joint insureds who have different underwriting characteristics. Nor were the particular illustrations shown selected for the purpose of making the relationship appear more favorable.
3. The charge for federal taxes that is imposed under the Contracts is reasonable in relation to the Company's increased tax burden under Section 848 of the Internal Revenue Code of 1986, resulting from the Company's receipt of such premiums. The cost to the Company of capital used to satisfy its increased federal tax burden under Section 848 is, in essence, the Company's targeted rate of return. The targeted rate of return that is used in calculating the level of such charge is reasonable, and the factors taken into account by the Company in determining such targeted rate of return are the appropriate factors to consider in determining such targeted rate of return.
I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the use of my name under the heading "Experts" in the Prospectus relating to actuarial matters.
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485BPOS
|
EX-99.6
| 1996-01-12T00:00:00
| 1996-01-11T17:42:34
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0000225930-96-000005
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0000225930-96-000005_0000.txt
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THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUSES OF TEMPLETON WORLD FUND AND TEMPLETON FOREIGN FUND DATED JANUARY 1, 1996, AS AMENDED FROM TIME TO TIME, WHICH MAY BE OBTAINED WITHOUT CHARGE UPON REQUEST TO THE PRINCIPAL UNDERWRITER, 700 CENTRAL AVENUE, P.O. BOX 33030 TOLL FREE TELEPHONE: 800/DIAL BEN
-Risk Factors . . . . . . . . . .................10 -Special Net Asset Value Purchases..................35 -Redemptions in Kind. . . . . . . ..................36
After incorporating under the laws of Maryland as Templeton World Fund, Inc. and registering under the Investment Company Act of 1940 (the "1940 Act"), the Company commenced business as an investment company on January 17, 1978. On October 1, 1982 the Company's name was changed to Templeton Funds, Inc. (the "Company") and it became a series investment company with two separate classes of Shares constituting, respectively, Templeton World Fund ("World Fund") and Templeton Foreign Fund ("Foreign Fund") (collectively, the "Funds"). As such, the holder of the Shares issued for one Fund has an interest only in the portfolio, assets and liabilities of that Fund.
INVESTMENT POLICIES. The investment objective and policies of each Fund are described in each Fund's Prospectus under the heading "General Description--Investment Objective and Policies." Each Fund may invest for defensive purposes in commercial paper which, at the date of investment, must be rated A-1 by Standard & Poor's Corporation ("S&P") or Prime-1 by Moody's
Service, Inc. ("Moody's") or, if not rated, be issued by a company which at the date of investment has an outstanding debt issue rated AAA or AA by S&P or Aaa or Aa by Moody's.
REPURCHASE AGREEMENTS. Repurchase agreements are contracts under which the buyer of a security simultaneously commits to resell the security to the seller at an agreed-upon price and date. Under a repurchase agreement, the seller is required to maintain the value of the securities subject to the repurchase agreement at not less than their repurchase price. Templeton Global Advisors Limited (the "Investment Manager") will monitor the value of such securities daily to determine that the value equals or exceeds the repurchase price. Repurchase agreements may involve risks in the event of default or insolvency of the seller, including possible delays or restrictions upon a Fund's ability to dispose of the underlying securities. A Fund will enter into repurchase agreements only with parties who meet creditworthiness standards approved by the Board of Directors, I.E., banks or broker-dealers which have been determined by the Investment Manager to present no serious risk of becoming involved in bankruptcy proceedings within the time frame contemplated by the repurchase transaction.
LOANS OF PORTFOLIO SECURITIES. World Fund may lend to banks and broker-dealers portfolio securities with an aggregate market value of up to one-third of its total assets. Such loans must be secured by collateral (consisting of any combination of cash, U.S. Government securities or irrevocable letters of credit) in an amount at least equal (on a daily marked-to-market basis) to the current market value of the securities loaned. World Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. World Fund may terminate the loans at any time and obtain the return of the securities loaned within five business days. World Fund will continue to receive any interest or dividends paid on the loaned securities and will continue to have voting rights with respect to the securities. However, as with other extensions of credit, there are risks of delay in recovery or even loss of rights in collateral should the borrower fail.
DEBT SECURITIES. The Funds may invest in debt securities which are rated at least Caa by Moody's or CCC by S&P or deemed to be of comparable quality by the Investment Manager. As an operating policy, neither Fund will invest more than 5% of its assets in debt securities rated lower than Baa by Moody's or BBB by S&P. The market value of debt securities generally varies in response to changes in interest rates and the financial condition of each issuer. During periods of declining interest rates, the value of debt securities generally increases. Conversely, during periods of rising interest rates, the generally declines. These changes in market value will be reflected in a Fund's net asset value.
Although they may offer higher yields than do higher rated securities, low rated and unrated debt securities generally involve greater volatility of price and risk of principal and income, including the possibility of default by, or bankruptcy of, the issuers of the securities. In addition, the markets in which low rated and unrated debt securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets for particular securities may diminish a Fund's ability to sell the securities at fair value either to meet redemption requests or to respond to a specific economic event such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain low rated or unrated debt securities may also make it more difficult for each Fund to obtain accurate market quotations for the purposes of valuing the Fund's portfolio. Market quotations are generally available on many low rated or unrated securities only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of low rated debt securities, especially in a thinly traded market. Analysis of the creditworthiness of issuers of low rated debt securities may be more complex than for issuers of higher rated securities, and the ability of a Fund to achieve its investment objective may, to the extent of investment in low rated debt securities, be more dependent upon such creditworthiness analysis than would be the case if a Fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. The prices of low rated debt securities have been found to be less sensitive to interest rate changes than higher rated investments, but more sensitive to adverse economic downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in low rated debt securities prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If the issuer of low rated debt securities defaults, a Fund may incur additional expenses to seek recovery.
A Fund may accrue and report interest on high yield bonds structured as zero coupon bonds or pay-in-kind securities as income even though it receives no security's maturity or payment date. In order to qualify for beneficial tax treatment afforded regulated investment companies, a Fund must distribute substantially all of its net income to Shareholders (see "Tax Status"). Thus, a Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash in order to satisfy the distribution requirement.
Recent legislation, which requires federally insured savings and loan associations to divest their investments in low rated debt securities, may have a material adverse effect on the Funds' net asset values and investment practices.
STRUCTURED INVESTMENTS. Included among the issuers of debt securities in which the Funds may invest are entities organized and operated solely for the purpose of restructuring the investment characteristics of various securities. These entities are typically organized by investment banking firms which receive fees in connection with establishing each entity and arranging for the placement of its securities. This type of restructuring involves the deposit with or purchases by an entity, such as a corporation or trust, of specified instruments and the issuance by that entity of one or more classes of securities ("Structured Investments") backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued Structured Investments to create securities with different investment characteristics such as varying maturities, payment priorities or interest rate provisions; the extent of the payments made with respect to Structured Investments is dependent on the extent of the cash flow on the underlying instruments. Because Structured Investments of the type in which the Funds anticipate investing typically involve no credit enhancement, their credit risk will generally be equivalent to that of the underlying instruments.
The Fund is permitted to invest in a class of Structured Investments that is either subordinated or unsubordinated to the right of payment of another class. Subordinated Structured Investments typically have higher yields and present greater risks than unsubordinated Structures Investments. Although the Fund's purchase of subordinated Structured Investments would have a similar economic effect to that of borrowing against the underlying securities, the purchase will not be deemed to be leverage for purposes of the limitations placed on the extent of the Fund's assets that may be used for borrowing activities.
Certain issuers of Structured Investments may be deemed to be "investment companies" as defined in the 1940 Act. As a result, the Fund's investment in these Structured Investments may be limited by the restrictions contained in the 1940 Act.
Structured Investments are typically sold in private placement transactions, and there currently is no active trading market for Structured Investments. To the extent such investments are illiquid, they will be subject to the Fund's restrictions on investments in illiquid securities.
STOCK INDEX FUTURES CONTRACTS. World Fund's investment policies permit it to buy and sell stock index futures contracts with respect to any stock index traded on a recognized stock exchange or board of trade, to an aggregate amount not exceeding 20% of World Fund's total assets as of the time when such contracts are entered into. Successful use of stock index futures is subject to the Investment Manager's ability to predict correctly movements in the direction of the stock markets. No assurance can be given that the Investment Manager's judgment in this respect will be correct.
A stock index futures contract is a contract to buy or sell units of a stock index at a specified future date at a price agreed upon when the contract is made. The value of a unit is the current value of the stock index. For example, the Standard & Poor's 500 Stock Index (the "S&P 500 Index") is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange ("NYSE"). The S&P 500 Index assigns relative weightings to the value of one share of each of these 500 common stocks included in the Index, and the Index fluctuates with changes in the market values of the shares of those common stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one contract would be worth $75,000 (500 units x $150). The stock index futures contract specifies that no delivery of the actual stocks making up the Index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if World Fund enters into a futures contract to buy 500 units of the S&P 500 Index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, World Fund will gain $2,000 (500 units x gain of $4). If World Fund enters into a futures contract to sell 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, World Fund will lose $2,000 (500 units x loss of $4).
During or in anticipation of a period of market appreciation, World Fund may enter into a "long hedge" of common stock which it proposes to add to its portfolio by purchasing stock index futures for the purpose of reducing the effective purchase price of such common stock. To the extent that the securities which World Fund proposes to buy change in value in correlation with the stock index contracted for, the purchase of futures contracts on that index would result in gains to World Fund which could be offset against rising prices of such common stock.
During or in anticipation of a period of market decline, World Fund may "hedge" common stock in its portfolio by selling stock index futures for the purpose of limiting the exposure of its portfolio to such decline. To the extent that World Fund's portfolio of securities changes in value in correlation with a given stock index, the sale of futures contracts on that index could substantially reduce the risk to the portfolio of a market decline and, by so doing, provide an alternative to the liquidation of securities positions in the portfolio with resultant transaction costs.
Parties to an index futures contract must make initial margin deposits to secure performance of the contract, which currently range from 1 1/2% to 5% of the contract amount. Initial margin requirements are determined by the respective exchanges on which the futures contracts are traded. There also are requirements to make variation margin deposits as the value of the futures contract fluctuates.
At the time World Fund purchases a stock index futures contract, an amount of cash, U.S. Government securities, or other highly liquid debt securities equal to the market value of the contract will be deposited in a segregated account with World Fund's Custodian. When selling a stock index futures contract, World Fund will maintain with its Custodian liquid assets that, when added to the amounts deposited with a futures commission merchant or broker as margin, are equal to the market value of the instruments underlying the contract. Alternatively, World Fund may "cover" its position by owning a portfolio with a volatility substantially similar to that of the index on which the futures contract is based, or holding a call option permitting World Fund to purchase the same futures contract at a price no higher than the price of the contract written by World Fund (or at a higher price if the difference is maintained in liquid assets with World Fund's Custodian).
STOCK INDEX OPTIONS. World Fund may purchase and sell put and call options on securities indices in standardized contracts traded on national securities exchanges, boards of trade, or similar entities, or quoted on NASDAQ. An option on a securities index is a contract that gives the purchaser of the option, in return for the premium paid, the right to receive from the writer of the option, cash equal to the difference between the closing price of the index and the exercise price of the option, expressed in dollars, times a specified multiplier for the index option. (An index is designed to reflect specified facets of a particular financial or securities market, a specific group of financial instruments or securities, or
World Fund may write call options and put options only if they are "covered." A call option on an index is covered if World Fund maintains with its custodian cash or cash equivalents equal to the contract value. A call option is also covered if World Fund holds a call on the same index as the call written where the exercise price of the call held is (i) equal to or less than the exercise price of the call written, or (ii) greater than the exercise price of the call written, provided the difference is maintained by World Fund in cash or cash equivalents in a segregated account with its Custodian. A put option is also covered if World Fund holds a put on the same index as the put written where the exercise price of the put held is (i) equal to or greater than the exercise price of the put written, or (ii) less than the exercise price of the put written, provided the difference is maintained by World Fund in cash or cash equivalents in a segregated account with its Custodian.
If an option written by World Fund expires, World Fund will realize a capital gain equal to the premium received at the time the option was written. If an option purchased by World Fund expires unexercised, World Fund will realize a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out by an offsetting purchase or sale of an option of the same series (type, exchange, index, exercise price, and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when World Fund desires.
INVESTMENT RESTRICTIONS. Each of the Funds has imposed upon itself certain investment restrictions which, together with its investment objective and policies, are fundamental policies except as otherwise indicated. No changes in either Fund's investment objective and policies or investment restrictions (except those which are not fundamental policies) can be made without the approval of that Fund's Shareholders. For this purpose, the provisions of the 1940 Act require, with respect to either Fund, the affirmative vote of the lesser of either (1) 67% or more of the Shares of a Fund present at a Shareholders' meeting at which more than 50% of the outstanding Shares of such Fund are present or represented by proxy or (2) more than 50% of the outstanding Shares of a Fund.
In accordance with these restrictions, neither of the Funds will:
1. Invest in real estate or mortgages on real estate (although each Fund may invest in marketable securities secured by real estate or interests therein or issued by companies or investment trusts which invest in real estate or interests therein); invest in other open-end investment companies; invest in interests (other than debentures or equity stock interests) in oil, gas or other mineral exploration or development programs; or purchase or sell commodity contracts except that World Fund may purchase or sell stock index futures contracts.
2. Purchase or retain securities of any company in which Directors or officers of the Company or of its Investment Manager, individually owning more than 1/2 of 1% of the securities of such company, in the aggregate own more than 5% of the securities of such company.
3. Purchase more than 10% of any class of securities of any one company, including more than 10% of its outstanding voting securities, or invest in any company for the purpose of exercising control or management.
4. Act as an underwriter; issue senior securities; purchase on margin or sell short; write, buy or sell puts, calls, straddles or spreads (but World Fund may make margin payments in connection with, and purchase and sell, stock index futures contracts and options on securities indices).
5. Loan money apart from the purchase of a portion of an issue of publicly distributed bonds, debentures, notes and other evidences of indebtedness, although the Funds may buy from a bank or broker-dealer United States and Canadian government obligations with a simultaneous agreement by the seller to repurchase them within no more than seven days at the original purchase price plus accrued interest.
6. Borrow money for any purpose other than redeeming its Shares or purchasing its Shares for cancellation, and then only as a temporary measure up to an amount not exceeding 5% of the value of its total assets; or pledge, mortgage or hypothecate its assets for any purpose other than to secure such borrowings, and then only up to such extent not exceeding 10% of the value of its total assets as the Company's Board of Directors
may by resolution approve. As an operating policy approved by the Board of Directors of the Company, neither Fund will pledge, mortgage or hypothecate its assets to the extent that at any time the percentage of pledged assets plus the sales commission will exceed 10% of the Offering Price of the Shares of a Fund. (For purposes of this restriction, collateral arrangements by World Fund with respect to margin for a stock index futures contract are not deemed to be a pledge of
7. Invest more than 5% of the value of a Fund's total assets in securities of issuers which have been in continuous operation less than three years.
8. Invest more than 5% of a Fund's total assets in warrants, whether or not listed on the New York or American Stock Exchange, including no more than 2% of its total assets which may be invested in warrants that are not listed on those exchanges. Warrants acquired by a Fund in units or attached to securities are not included in this restriction. This restriction does not apply to options on securities indices.
9. Invest more than 15% of a Fund's total assets in securities of foreign issuers which are not listed on a recognized United States or foreign securities exchange, including no more than 10% of its total assets (including warrants) which may be invested in securities with a limited trading market. A Fund's position in the latter type of securities may be of such size as to affect adversely their liquidity and marketability and a Fund may not be able to dispose of its holdings in these securities at the current market price.
10. Invest more than 25% of a Fund's total assets in a single industry.
11. Invest in "letter stocks" or securities on which there are any sales restrictions under a purchase agreement.
12. Participate on a joint or a joint and several basis in any trading account in securities. (See "Investment Objectives and Policies--Trading Policies" as to transactions in the same securities for World Fund, Foreign Fund, and/or other mutual funds with the same or affiliated advisers.)
Whenever any investment policy or investment restriction states a maximum percentage of either Fund's assets which may be invested in any security or other property, it is intended that such maximum percentage limitation be determined immediately after and as a result of that Fund's acquisition of such security or property. The value of a Fund's assets is calculated as described in its Prospectus under the heading "How to Buy Shares of the Fund." Nothing in the investment policy or investment restrictions (except restrictions 9 and 10) shall be deemed to prohibit either Fund from purchasing securities pursuant to subscription rights distributed to either Fund by any issuer of securities held at the time in its portfolio (as long as such purchase is not contrary to either Fund's status as a diversified investment company under the 1940 Act).
RISK FACTORS. Each Fund has an unlimited right to purchase securities in any foreign country, developed or developing, if they are listed on a stock exchange, as well as a limited right to purchase such securities if they are unlisted. Investors should consider carefully the substantial risks involved in securities of companies and governments of foreign nations, which are in addition to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign companies comparable to the reports and ratings published about companies in the United States. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to United States companies. A Fund, therefore, may encounter difficulty in obtaining market quotations for purposes of valuing its portfolio and calculating its net asset value. Foreign markets have substantially less volume than the NYSE and securities of some foreign companies are less liquid and more volatile than securities of comparable United States companies. Although neither Fund may invest more than 15% of its total assets in unlisted foreign securities, including not more than 10% of its total assets in securities with a limited trading market, in the opinion of management such securities with a limited trading market do not present a significant liquidity problem. Commission rates in foreign countries, which are generally fixed rather than subject to negotiation as in the United States, are likely to be higher. In many foreign countries there is less government supervision and regulation of stock exchanges, brokers and listed companies than in the United States.
Investments in companies domiciled in developing countries may be subject to potentially higher risks than investments in developed countries. These risks include (i) less social, political and economic stability; (ii) the small current size of the markets for such securities and the currently low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies which may restrict a Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the absence of developed legal structures governing private or foreign investment or allowing for judicial redress for injury to private property; (vi) the absence, until recently in certain Eastern European countries, of a capital market structure or market-oriented economy; and (vii) the possibility that recent favorable economic developments in Eastern Europe may be slowed or reversed by unanticipated political or social events in such countries.
In addition, many countries in which a Fund may invest have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had any may continue to have negative effects on the economies and securities markets of certain countries. Moreover, the economies of some developing countries may differ favorably or unfavorably from the United States economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments position.
Investments in Eastern European countries may involve risks of nationalization, expropriation and confiscatory taxation. The Communist governments of a number of Eastern European countries expropriated large amounts of private property in the past, in many cases without adequate compensation, and there can be no assurance that such expropriation will not occur in the future. In the event of such expropriation, a Fund could lose a substantial portion of any investments it has made in the affected countries. Further, no accounting standards exist in Eastern European countries. Finally, even though certain Eastern European currencies may be convertible into United States dollars, the conversion rates may be artificial to the actual market values and may be adverse to a Fund's Shareholders.
Investing in Russian companies involves a high degree of risk and special considerations not typically associated with investing in the United States securities markets, and should be considered highly speculative. Such risks include: (1) delays in settling portfolio transactions and risk of loss arising out of Russia's system of share registration and custody; (2) the risk that it may be impossible or more difficult than in other countries to obtain and/or enforce a judgment; (3) pervasiveness of corruption and crime in the Russian economic system; (4) currency exchange rate volatility and the lack of available currency hedging instruments; (5) higher rates of inflation (including the risk of social unrest associated with periods of hyper-inflation); (6) controls on foreign investment and local practices disfavoring foreign investors and limitations on repatriation of invested capital, profits and dividends, and on a Fund's ability to exchange local currencies for U.S. dollars; (7) the risk that the government of Russia or other executive or legislative bodies may decide not to continue to support the economic reform programs implemented since the dissolution of the Soviet Union and could follow radically different political and/or economic policies to the detriment of investors, including non-market-oriented policies such as the support of certain industries at the expense of other sectors or investors, or a return to the centrally planned economy that existed prior to the dissolution of the Soviet Union; (8) the financial condition of Russian companies, including large amounts of inter-company debt which may create a payments crisis on a national scale; (9) dependency on exports and the corresponding importance of international trade; (10) the risk that the Russian tax system will not be reformed to prevent inconsistent, retroactive and/or exorbitant taxation; and (11) possible difficulty in identifying a purchaser of securities held by a Fund due to the underdeveloped nature of the securities markets.
There is little historical data on Russian securities markets because they are relatively new and a substantial proportion of securities transactions in Russia are privately negotiated outside of stock exchanges. Because of the recent formation of the securities markets as well as the underdeveloped state of the banking and telecommunications systems, settlement, clearing and registration of securities transactions are subject to significant risks. Ownership of shares (except where shares are held through depositories that meet the requirements of the 1940 Act) is defined according to entries in the company's share register and normally evidenced by extracts from the register or by formal share certificates. However, there is no central registration system for shareholders and these services are carried out by the companies themselves or by registrars located throughout Russia. These registrars are not necessarily subject to effective state supervision and it is possible for a Fund to lose its registration through fraud, negligence or even mere oversight. While a Fund will endeavor to ensure that its interest continues to be appropriately recorded either itself or through a custodian or other agent inspecting the share register and by obtaining extracts of share registers through regular confirmations, these extracts have no legal enforceability and it is possible that subsequent illegal amendment or other fraudulent act may deprive the Fund of its ownership rights or improperly dilute its interests. In addition, while applicable Russian regulations impose liability on registrars for losses resulting from their errors, it may be difficult for a Fund to enforce any rights it may have against the registrar or issuer of the securities in the event of loss of share registration. Furthermore, although a Russian public enterprise with more than 1,000 shareholders is required by law to contract out the maintenance of its shareholder register to an independent entity that meets certain criteria, in practice this regulation has not always been strictly enforced. Because of this lack of independence, management of a company may be able to exert considerable influence over who can purchase and sell the company's shares by illegally instructing the registrar to refuse to record transactions in the share register. This practice may prevent a Fund from investing in the securities of certain Russian companies deemed suitable by the Investment Manager. Further, this also could cause a delay in the sale of Russian company securities by a Fund if a potential purchaser is deemed unsuitable, which may expose the Fund to potential loss on the investment.
Each Fund endeavors to buy and sell foreign currencies on as favorable a basis as practicable. Some price spread in currency exchange (to cover service charges) will be incurred, particularly when a Fund changes investments from one country to another or when proceeds of the sale of Shares in U.S. dollars are used for the purchase of securities in foreign countries. Also, some countries may adopt policies which would prevent a Fund from transferring cash out of the country or withhold portions of interest and dividends at the source. There is the possibility of cessation of trading on national exchanges, expropriation, nationalization or confiscatory taxation, withholding and other foreign taxes on income or other amounts, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default in foreign government securities, political or social instability, or diplomatic developments which could affect investments in securities of issuers in foreign nations.
Either Fund may be affected either unfavorably or favorably by fluctuations in the relative rates of exchange between the currencies of different nations, by exchange control regulations and by indigenous economic and political developments. Some countries in which a Fund may invest may also have fixed or managed currencies that are not free-floating against the U.S. dollar. Further, certain currencies may not be internationally traded. Certain of these currencies have experienced a steady devaluation relative to the U.S. dollar. Any devaluations in the currencies in which a Fund's portfolio securities are denominated may have a detrimental impact on that Fund. Through policy of the Funds, the Investment Manager endeavors to avoid unfavorable consequences and to take advantage of favorable developments in particular nations where from time to time it places the investments of either Fund.
The exercise of this flexible policy may include decisions to purchase securities with substantial risk characteristics and other decisions such as changing the emphasis on investments from one nation to another and from one type of security to another. Some of these decisions may later prove profitable and others may not. No assurance can be given that profits, if any, will exceed losses.
The Directors consider at least annually the likelihood of the imposition by any foreign government of exchange control restrictions which would affect the liquidity of either Fund's assets maintained with custodians in foreign countries, as well as the degree of risk from political acts of foreign governments to which such assets may be exposed. The Directors also consider the degree of risk involved through the holding of portfolio securities in domestic and foreign securities depositories (see "Investment Management and Other Services -- Custodian and Transfer Agent"). However, in the absence of willful misfeasance, bad faith or gross negligence on the part of the Investment Manager, any losses resulting from the holding of either Fund's portfolio securities in foreign countries and/or with securities depositories will be at the risk of the Shareholders. No assurance can be given that the Directors' appraisal of the risks will always be correct or that such exchange control restrictions or political acts of foreign governments might not occur.
There are additional risks involved in stock index futures transactions. These risks relate to World Fund's ability to reduce or eliminate its futures positions, which will depend upon the liquidity of the secondary markets for such futures. World Fund intends to purchase or sell futures only on exchanges or boards of trade where there appears to be an active secondary market, but there is no assurance that a liquid secondary market will exist for any particular contract at any particular time. Use of stock index futures for hedging may involve risks because of imperfect correlations between movements in the prices of the stock index futures on the one hand and movements in the prices of the securities being hedged or of the underlying stock index on the other. Successful use of stock index futures by World Fund for hedging purposes also depends upon the Investment Manager's ability to predict correctly movements in the direction of the market, as to which no assurance can be given.
There are several risks associated with transactions in options on securities indices. For example, there are significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. There can be no assurance that a liquid market will exist when World Fund seeks to close out an option position. If World Fund were unable to close out an option that it had purchased on a securities index, it would have to exercise the option in order to realize any profit or the option may expire worthless. If trading were suspended in an option purchased by World Fund, it would not be able to close out the option. If restrictions on exercise were imposed, World Fund might be unable to exercise an option it has purchased. Except to the extent that a call option on an index written by World Fund is covered by an option on the same index purchased by World Fund, movements in the index may result in a loss to World Fund; however, such losses may be mitigated by changes in the value of World Fund's securities during the period the option was outstanding.
TRADING POLICIES. The Investment Manager and its affiliated companies serve as investment adviser to other investment companies and private clients. Accordingly, the respective portfolios of certain of these funds and clients may contain many or some of the same securities. When certain funds or clients are engaged simultaneously in the purchase or sale of the same security, the trades may be aggregated for execution and then allocated in a manner designed to be equitable to each party. The larger size of the transaction may affect the price of the security and/or the quantity which may be bought or sold for each party. If the transaction is large enough, brokerage commissions in certain countries may be negotiated below those otherwise chargeable.
Sale or purchase of securities, without payment of brokerage commissions, fees (except customary transfer fees) or other remuneration in connection therewith, may be effected between any of these funds, or between funds and private clients, under procedures adopted pursuant to Rule 17a-7 under the 1940 Act.
PERSONAL SECURITIES TRANSACTIONS. Access persons of the Franklin Templeton Group, as defined in SEC Rule 17(j) under the 1940 Act, who are employees of Franklin Resources, Inc. or their subsidiaries, are permitted to engage in personal securities transactions subject to the following general restrictions and procedures: (1) The trade must receive advance clearance from a
Compliance Officer and must be completed within 24 hours after this clearance; (2) Copies of all brokerage confirmations must be sent to the Compliance Officer and within 10 days after the end of each calendar quarter, a report of all securities transactions must be provided to the Compliance Officer; (3) In addition to items (1) and (2), access persons involved in preparing and making investment decisions must file annual reports of their securities holdings each January and also inform the Compliance Officer (or other designated personnel) if they own a security that is being considered for a fund or other client transaction or if they are recommending a security in which they have an ownership interest for purchase or sale by a fund or other client.
The name, address, principal occupation during the past five years and other information with respect to each of the Directors and Executive Officers of the Company are as follows:
NAME, ADDRESS AND PRINCIPAL OCCUPATION OFFICES WITH COMPANY DURING PAST FIVE YEARS
Chairman of the Board, president and chief executive officer of and craft centers); and a director of RBC Holdings (U.S.A.) Inc. (a bank holding company) and Bar-S Foods. Age 63.
Chairman of Templeton Emerging Markets Investment Trust PLC; chairman of Templeton Latin America Investment Trust PLC; chairman of Darby Overseas Investments, Ltd. (an investment firm) (1994- present); director of the Amerada Hess Corporation, Capital Cities/ABC, Inc., Christiana Companies, and the H.J. Heinz Company; Secretary of the United States Department of the Treasury (1988-January 1993); and chairman of the board of Dillon, Read & Co. Inc. (investment banking) prior thereto. Age 65.
NAME, ADDRESS AND PRINCIPAL OCCUPATION OFFICES WITH COMPANY DURING PAST FIVE YEARS
Retired; formerly, credit adviser for the National Bank of Canada. Age 85.
Farmer; and president of Clairhaven Investments, Ltd. and other private investment companies. Age 79.
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and a Corporation. Age 63.
director of Gulfwest Banks, Inc. present) and Mercantile Bank (1991- Ltd. (1986-1992); and chairman of Templeton Funds Management, Inc. (1974-1991). Age 74.
Consultant for the Triangle Consulting Group; chairman of the board and chief executive officer of Florida Progress Corporation (1982-February 1990) and director of various of its subsidiaries; chairman and director of Precise Power Corporation; executive-in-residence of Eckerd College (1991- present); and a director of Checkers Drive-In Restaurants, Inc. Age 72.
NAME, ADDRESS AND PRINCIPAL OCCUPATION OFFICES WITH COMPANY DURING PAST FIVE YEARS
President, chief executive officer, and director of Franklin Resources, Inc.; chairman of the board and director of Franklin Advisers, Inc. and Franklin Templeton Distributors, Inc.; director of General Host Corporation, and Templeton Global Investors, Inc.; and officer and director, trustee or managing general partner, as the case may be, of most other subsidiaries of Franklin and of 55 of the investment companies in the Franklin Templeton Group. Age 62.
Executive vice president and director of Franklin Resources, Inc.; president and director of Franklin Advisers, Inc.; executive vice president and director of Franklin Templeton Distributors, Inc.; and officer and/or director, trustee or managing general partner, as the case may be, of most other subsidiaries of Franklin, and of 42 of the investment companies in the Franklin Templeton Group. Age 55.
Director or trustee of various economic analyst, U.S. Government. Age 66.
NAME, ADDRESS AND PRINCIPAL OCCUPATION OFFICES WITH COMPANY DURING PAST FIVE YEARS
Chairman of White River Corporation (information services); director of Fund America Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI Communications Corporation, Fusion Systems Corporation, Infovest Corporation, and Medimmune, Inc.; formerly, chairman of Hambrecht and Quist Group, director of H&Q Healthcare Investors, and president of the National Association of Securities Dealers, Inc. Age 67.
Manager of personal investments (1978-present); chairman and chief executive officer of Landmark Banking Corporation (1969-1978); financial vice president of Florida Power and Light (1965-1969); vice president of The Federal Reserve Bank of Atlanta (1958-1965); and a director of various other business and nonprofit organizations. Age 66.
President and director of Templeton Global Advisors Limited; chief investment officer of global equity research for Templeton Worldwide, Inc.; president or vice president of the Templeton Funds; formerly, investment administrator with Roy West Trust Corporation (Bahamas) Limited (1984-1985). Age 35.
NAME, ADDRESS AND PRINCIPAL OCCUPATION OFFICES WITH COMPANY DURING PAST FIVE YEARS
Senior vice president, treasurer and chief financial officer of Franklin Resources, Inc.; director and executive vice president of Templeton Investment Counsel, Inc.; director, president and chief executive officer of Templeton Global Investors, Inc.; president or vice president of various Templeton Funds; director or trustee of six Templeton Funds; accountant, Arthur Andersen & Company (1982-1983); and a member of the International Society of Financial Analysts and the American Institute of Certified Public Accountants. Age 35.
Vice president of the Templeton Funds; vice president and treasurer of Templeton Global Investors, Inc. and Templeton Worldwide, Inc.; assistant vice president of Franklin Templeton Distributors, Inc.; formerly, vice president and controller of the Keystone Group, Inc. Age 55.
Certified public accountant; treasurer of the Templeton Funds; senior vice president of Templeton Worldwide, Inc., Templeton Global Investors, Inc., and Templeton Funds Trust Company; formerly, senior tax manager of Ernst & Young (certified public accountants) (1977-1989). Age 41.
Senior vice president of Templeton Global Investors, Inc.; vice president of Franklin Templeton Distributors, Inc.; formerly, secretary of the Templeton Funds; attorney, Dechert Price & Rhoads (1985-1988) and Freehill, Hollingdale & Page (1988); and judicial clerk, U.S. District Court (Eastern District of Virginia) (1984-1985). Age 42.
Partner, Dechert Price & Rhoads. Age 50.
* These Directors are "interested persons" of the Company as that term is defined in the 1940 Act. Mr. Brady and Franklin Resources, Inc. are limited partners of Darby Overseas Partners, L.P. ("Darby Overseas"). Mr. Brady established Darby Overseas in February, 1994, and is Chairman and a shareholder of the corporate general partner of Darby Overseas. In addition, Darby Overseas and Templeton Global Advisors Limited are limited partners of Darby Emerging Markets Fund, L.P.
There are no family relationships between any of the Directors, except that Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
All of the Company's Officers and Directors also hold positions with other investment companies in the Franklin Templeton Group. No compensation is paid by the Company to any officer or Director who is an officer, trustee or employee of the Investment Manager or its affiliates. Each Templeton Fund pays its independent directors and trustees and Mr. Brady an annual retainer and/or fees for attendance at Board and Committee meetings, the amount of which is based on the level of assets in each fund. Accordingly, the Company currently pays the independent Directors and Mr. Brady an annual retainer of $12,500 and a fee of $950 per meeting attended of the Board and its Committees. The independent Directors and Mr. Brady are reimbursed for any expenses incurred in attending meetings, paid pro rata by each Franklin Templeton Fund in which they serve. No pension or retirement benefits are accrued as part of Company expenses.
The following table shows the total compensation paid to the Directors by the Company and by all investment companies in the Franklin Templeton Group:
* For the fiscal year ended August 31, 1995. ** For the calendar year ended December 31, 1995
As of December 1, 1995, there were 394,994,390 World Fund Shares outstanding, of which 912,183 Shares (or 0.231% of the total outstanding World Fund Shares) were owned beneficially by all the Directors and Officers of the Company as a group. As of December 1, 1995, no person owned of record or, to the knowledge of management, owned beneficially or of record, 5% or more of the outstanding World Fund-Class I Shares, and no person owned of record or, to the knowledge of management, owned beneficially, 5% or more of the outstanding World Fund-Class II Shares, except Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484 owned of record 145,954 Shares (representing 14% of the outstanding Shares). As of December 1, 1995, there were 790,763,336 Foreign Fund Shares outstanding, of which 653,565 Shares (or 0.083% of the total outstanding Foreign Fund Shares) were owned beneficially by all the Directors and officers of the Company as a group. As of December 1, 1995, to the knowledge of management, no person owned beneficially of record 5% or more of the outstanding Foreign Fund-Class I Shares, except Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800 Deer Lake Drive East, P.O. Box 45286, Jacksonville, Florida 32246-6484 owned of record 48,828,748 Shares (representing 6% of the outstanding Shares) and no person owned beneficially 5% or more of the outstanding Foreign Fund-Class II Shares, except Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800 Deer Lake Drive East, P.O. Box 45286, Jacksonville, Florida 32246-6484 owned 3,858,566 Shares (representing 25% of the outstanding Shares).
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGEMENT AGREEMENTS. The Investment Manager of each Fund is Templeton Global Advisors Limited, a Bahamian corporation with offices in Nassau, Bahamas. On October 30, 1992, the Investment Manager assumed the investment management duties of Templeton, Galbraith & Hansberger Ltd. ("Old TGH"), a Cayman Islands corporation, with respect to the Funds in connection with the merger of the business of Old TGH with that of Franklin Resources, Inc. ("Franklin"). The Investment Management Agreements between the Investment Manager and the Company on behalf of World Fund and Foreign Fund, dated October 30, 1992, amended and restated December 6, 1994, was approved by the Shareholders of each Fund on October 30, 1992, and was last approved by the Board of Directors, including approval by a majority of the Directors who were not parties to the Investment Management Agreements or interested persons of any such party, at a meeting on December 5, 1995 and will continue through December 31, 1996.
The Investment Management Agreements will continue from year to year thereafter, subject to approval annually by the Board of Directors or by vote of a majority of the outstanding Shares of each Fund (as defined in the 1940 Act) and also, in either event, with the approval of a majority of those Directors who are not parties to the Agreements or interested persons of any such party in person at a meeting called for the purpose of voting on such approval.
Each Investment Management Agreement requires the Investment Manager to manage the investment and reinvestment of each Fund's assets. The Investment Manager is not required to furnish any personnel, overhead items or facilities for the Funds, including daily pricing or trading desk facilities, although such expenses are paid by investment advisers of some other investment companies. These expenses have been and may continue to be borne by the Funds.
Each Investment Management Agreement provides that the Investment Manager will select brokers and dealers for execution of each Fund's portfolio transactions consistent with the Company's brokerage policies (see "Brokerage Allocation"). Although the services provided by broker-dealers in accordance with the brokerage policies incidentally may help reduce the expenses of or otherwise benefit the Investment Manager and other investment advisory clients of the Investment Manager and of its affiliates, as well as the Funds, the value of such services is indeterminable and the Investment Manager's fee is not reduced by any offset arrangement by reason thereof.
The Investment Manager renders its services to the Funds from outside the United States. When the Investment Manager determines to buy or sell the same securities for a Fund that the Investment Manager or certain of its affiliates have selected for one or more of the Investment Manager's other clients or for clients of its affiliates, the orders for all such securities trades may be placed for execution by methods determined by the Investment Manager, with approval by the Company's Board of Directors, to be impartial and fair, in order to seek good results for all parties (see "Investment Objectives and Policies--Trading Policies"). Records of securities transactions of persons who know when orders are placed by a Fund are available for inspection at least four times annually by the Compliance Officer of the Company so that the non-interested Directors (as defined in the 1940 Act) can be satisfied that the procedures are generally fair and equitable for all parties.
The Investment Manager also provides management services to numerous other investment companies or funds and accounts pursuant to management agreements with each fund or account. The Investment Manager may give advice and take action with respect to any of the other funds and accounts it manages, or for its own account, which may differ from action taken by the Investment Manager on behalf of a Fund. Similarly, with respect to a Fund, the Investment Manager is not obligated to recommend, purchase or sell, or to refrain from recommending, purchasing or selling any security that the Investment Manager and access persons, as defined by the 1940 Act, may purchase or sell for its or their own account or for the accounts of any other fund or account. Furthermore, the Investment Manager is not obligated to refrain from investing in securities held by a Fund or other funds or accounts which it manages or administers. Any transactions for the accounts of the Investment Manager and other access persons will be made in compliance with the Company's Code of Ethics as described in section "Investment Objectives and Policies -- Personal Securities Transactions."
Each Investment Management Agreement further provides that the Investment Manager shall have no liability to the Company, a Fund or any Shareholder of a Fund for any error of judgment, mistake of law, or any loss arising out of any investment or other act or omission in the performance by the Investment Manager of its duties under the Agreement or for any loss or damage resulting from the imposition by any government of exchange control restrictions which might affect the liquidity of a Fund's assets, or from acts or omissions of custodians or securities depositories, or from any wars or political acts of any foreign governments to which such assets might be exposed, except for any liability, loss or damage resulting from willful misfeasance, bad faith or gross negligence on the Investment Manager's part or reckless disregard of its duties under the Investment Management Agreement. Each Investment Management Agreement will terminate automatically in the event of its assignment, and may be terminated by the Company on behalf of a Fund at any time without payment of any penalty on 60 days' written notice, with the approval of a majority of the Directors of the Company in office at the time or by vote of a majority of the outstanding Shares of a Fund (as defined by the 1940 Act).
MANAGEMENT FEES. For its services, each Fund pays the Investment Manager a monthly fee equal on an annual basis to 0.75% of the average daily net assets of the Fund up to the first $200,000,000, reduced to a fee of 0.675% of such average daily net assets in excess of $200,000,000 up to $1,300,000,000, and further reduced to a fee of 0.60% of such average daily net assets in excess of $1,300,000,000. Each class of Shares pays a portion of the fee, determined by the proportion of the Fund that it represents. During the fiscal years ended August 31, 1995, 1994 and 1993, the Investment Manager received fees from World Fund of $33,261,874, $31,051,062, and $25,931,668, respectively, and from Foreign Fund of $36,110,792, $23,889,119, and $12,676,159, respectively, pursuant to the Investment Management Agreements.
The amount of such fee would be reduced by the amount by which a Fund's annual expenses for all purposes (including the investment management fee) except taxes, brokerage fees and commissions, and extraordinary expenses such as litigation, exceed any applicable state regulations. The strictest rule currently applicable to a Fund is 2.5% of the first $30,000,000 of net assets, 2.0% of the next $70,000,000 of net assets and 1.5% of the remainder.
THE INVESTMENT MANAGER. The Investment Manager is an indirect wholly owned subsidiary of Franklin, a publicly traded company whose shares are listed on the NYSE. Charles B. Johnson (a Director and Officer of the Fund) and Rupert H. Johnson, Jr. (a Director of the Fund) are principal shareholders of Franklin and own, respectively, approximately 20% and 16% of its outstanding shares. Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
BUSINESS MANAGER. Templeton Global Investors, Inc. performs certain administrative functions for the Company including:
o providing office space, telephone, office equipment and
o paying all compensation of the Company's officers;
o authorizing expenditures and approving bills for payment on behalf of the Company;
o supervising preparation of annual and semiannual reports to Shareholders, notices of dividends, capital gain distributions and tax credits, and attending to correspondence and other
o daily pricing of each Fund's investment portfolio and preparing and supervising publication of daily quotations of the bid and asked prices of each Fund's Shares, earnings reports and other financial data;
o monitoring relationships with organizations serving the Company, including the custodian and printers;
o providing trading desk facilities to the Company;
o supervising compliance by the Company and each Fund with recordkeeping requirements under the 1940 Act and regulations thereunder, and with state regulatory requirements; maintaining books and records for the Company and each Fund (other than those maintained by the Custodian and Transfer Agent); and preparing and filing tax reports other than the Funds' income tax
o monitoring the qualifications of the tax-deferred retirement plans offered by the Company; and
o providing executive, clerical and secretarial help needed to carry out these responsibilities.
For its services, the Business Manager receives a monthly fee equal on an annual basis to 0.15% of the first $200,000,000 of the Company's aggregate average daily net assets (I.E., total of World Fund and Foreign Fund), reduced to 0.135% annually of the Company's aggregate net assets in excess of $200,000,000, further reduced to 0.1% annually of such net assets in excess of $700,000,000, and further reduced to a fee of 0.075% annually of such net assets in excess of $1,200,000,000. The fee is allocated between World Fund and Foreign Fund according to their respective average daily net assets. Each class of Shares pays a portion of the fee, determined by the proportion of the Fund that it represents. Since the Business Manager's fee covers services often provided by investment advisers to other funds, each Fund's combined expenses for advisory and administrative services may be higher than those of other investment companies. During the fiscal years ended August 31, 1995, 1994, and 1993, the Business Manager (and, prior to April 1, 1993, Templeton Funds Management, Inc., the previous business manager) received business management fees of $8,965,630, $7,161,271, and $5,119,730, respectively.
The Business Manager is relieved of liability to the Company for any act or omission in the course of its performance under the Business Management Agreement in the absence of willful misfeasance, bad faith or gross negligence. The Business Management Agreement may be terminated by the Company at any time on 60 days' written notice without payment of penalty, provided that such termination by the Company shall be directed or approved by vote of a majority of the Directors of the Company in office at the time or by vote of a majority of the outstanding voting securities of the Company (as defined by the 1940 Act), and shall terminate automatically and immediately in the event of its assignment.
Templeton Global Investors, Inc. is an indirect wholly owned subsidiary of Franklin.
CUSTODIAN AND TRANSFER AGENT. The Chase Manhattan Bank, N.A. serves as Custodian of the Funds' assets, which are maintained at the Custodian's principal office, MetroTech Center, Brooklyn, New York 11245, and at the offices of its branches and agencies throughout the world. The Custodian has entered into agreements with foreign sub-custodians approved by the Directors pursuant to Rule 17f-5 under the 1940 Act. The Custodian, its branches and sub-custodians generally do not hold certificates for the securities in their custody, but instead have book records with domestic and foreign securities depositories, which in turn have book records with the transfer agents of the issuers of the securities. Compensation for the services of the Custodian is based on a schedule of charges agreed on from time to time.
Franklin Templeton Investor Services, Inc. serves as the Company's Transfer Agent. Services performed by the Transfer Agent include processing purchase, transfer and redemption orders; making dividend payments, capital gain distributions and reinvestments; and handling all routine communications with Shareholders. The Transfer Agent receives from the Company an annual fee of $13.74 per Shareholder account plus out-of-pocket expenses, such fee to be adjusted each year to reflect changes in the Department of Labor Consumer Price Index.
LEGAL COUNSEL. Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005, is legal counsel for the Company.
INDEPENDENT ACCOUNTANTS. The firm of McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, serves as independent accountants for the Company. Its audit services comprise examination of the Funds' financial statements and review of the Funds' filings with the Securities and Exchange Commission ("SEC") and the Internal Revenue Service ("IRS").
REPORTS TO SHAREHOLDERS. The Company's fiscal year ends on August 31. Shareholders will be provided at least semiannually with reports showing the portfolio of each Fund and other information, including an annual report with financial statements audited by the independent accountants. Shareholders who would like to receive an interim quarterly report may phone the Fund Information Department at 1-800/DIAL BEN.
The Investment Management Agreements provide that the Investment Manager is responsible for selecting members of securities exchanges, brokers and dealers (such members, brokers and dealers being hereinafter referred to as "brokers") for the execution of the Company's portfolio transactions and, when applicable, the negotiation of commissions in connection therewith. All decisions and placements are made in accordance with the following principles:
1. Purchase and sale orders will usually be placed with brokers who are selected by the Investment Manager as able to achieve "best execution" of such orders. "Best execution" means prompt and reliable execution at the most favorable securities price, taking into account the other provisions hereinafter set forth. The determination of what may constitute best execution and price in the execution of a securities transaction by a broker involves a number of considerations, including without limitation, the overall direct net economic result to a Fund (involving both price paid or received
and any commissions and other costs paid), the efficiency with which the transaction is effected, the ability to effect the transaction at all where a large block is involved, availability of the broker to stand ready to execute possibly difficult transactions in the future, and the financial strength and stability of the broker. Such considerations are judgmental and are weighed by the Investment Manager in determining the overall reasonableness of brokerage commissions.
2. In selecting brokers for portfolio transactions, the Investment Manager takes into account its past experience as to brokers qualified to achieve "best execution," including brokers who specialize in any foreign securities held by a Fund.
3. The Investment Manager is authorized to allocate brokerage business to brokers who have provided brokerage and research services, as such services are defined in Section 28(e) of the Securities Exchange Act of 1934 (the "1934 Act"), for the Company and/or other accounts, if any, for which the Investment Manager exercises investment discretion (as defined in Section 3(a)(35) of the 1934 Act) and, as to transactions as to which fixed minimum commission rates are not applicable, to cause a Fund to pay a commission for effecting a securities transaction in excess of the amount another broker would have charged for effecting that transaction, if the Investment Manager determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker, viewed in terms of either that particular transaction or the Investment Manager's overall responsibilities with respect to the Company and the other accounts, if any, as to which it exercises investment discretion. In reaching such determination, the Investment Manager is not required to place or attempt to place a specific dollar value on the research or execution services of a broker or on the portion of any commission reflecting either of said services. In demonstrating that such determinations were made in good faith, the Investment Manager shall be prepared to show that all commissions were allocated and paid for purposes contemplated by the Company's brokerage policy; that commissions were paid only for products or services which provide lawful and appropriate assistance to the Investment Manager in the performance of its investment decision-making responsibilities; and that the commissions paid were within a reasonable range. The determination that
commissions were within a reasonable range shall be based on any available information as to the level of commissions known to be charged by other brokers on comparable transactions, but there shall be taken into account the Company's policies that (i) obtaining a low commission is deemed secondary to obtaining a favorable securities price, since it is recognized that usually it is more beneficial to a Fund to obtain a favorable price than to pay the lowest commission; and (ii) the quality, comprehensiveness and frequency of research studies which are provided for the Company and the Investment Manager are useful to the Investment Manager in performing its advisory services under its Investment Management Agreements with the Company. Research services provided by brokers to the Investment Manager are considered to be in addition to, and not in lieu of, services required to be performed by the Investment Manager under its Investment Management Agreements. Research furnished by brokers through whom the Company effects securities transactions may be used by the Investment Manager for any of its accounts, and not all such research may be used by the Investment Manager for the Company. When execution of portfolio transactions is allocated to brokers trading on exchanges with fixed brokerage commission rates, account may be taken of various services provided by the broker, including quotations outside the United States for daily pricing of foreign securities held in a Fund's portfolio.
4. Purchases and sales of portfolio securities within the United States other than on a securities exchange shall be executed with primary market makers acting as principal except where, in the judgment of the Investment Manager, better prices and execution may be obtained on a commission basis or from other sources.
5. Sales of the Funds' Shares (which shall be deemed to include also shares of other investment companies registered under the 1940 Act which have either the same investment adviser or an investment adviser affiliated with the Funds' Investment Manager) made by a broker are one factor among others to be taken into account in deciding to allocate portfolio transactions (including agency transactions, principal transactions, purchases in underwritings or tenders in response to tender offers) for the account of a Fund to that broker; provided that the broker shall furnish "best execution" as defined in paragraph 1 above, and that such allocation shall be within the scope of a Funds
policies as stated above; and provided further, that in every allocation made to a broker in which the sale of Shares is taken into account there shall be no increase in the amount of the commissions or other compensation paid to such broker beyond a reasonable commission or other compensation determined, as set forth in paragraph 3 above, on the basis of best execution alone or best execution plus research services, without taking account of or placing any value upon such sale of Shares.
Insofar as known to management, no Director or officer of the Company, nor the Investment Manager or the Principal Underwriter or any person affiliated with any of them, has any material direct or indirect interest in any broker employed by or on behalf of the Company for either World Fund or Foreign Fund. Franklin Templeton Distributors, Inc., the Principal Underwriter for the Company, is a registered broker-dealer but has never executed any purchase or sale transactions for either Fund's portfolio or participated in commissions on any such transactions, and has no intention of doing so in the future. The total brokerage commissions on World Fund's portfolio transactions during the fiscal years ended August 31, 1995, 1994, and 1993 (not including any spreads or concessions on principal transactions) were $8,042,091, $6,895,789, and $4,751,804. The total brokerage commissions on Foreign Fund's portfolio transactions during the fiscal years ended August 31, 1995, 1994, and 1993 (not including any spreads or concessions on principal transactions) were $11,925,138, $7,329,697, and $3,185,372. All portfolio transactions are allocated to broker-dealers only when their prices and execution, in the good faith judgment of the Investment Manager, are equal to the best available within the scope of the Company's policies. There is no fixed method used in determining which broker-dealers receive which order or how many orders.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Prospectuses describe the manner in which the Funds' Shares may be purchased and redeemed. See "How to Buy Shares of the Fund" and "How to Sell Shares of the Fund."
Net asset value is determined separately for each Fund. Net asset value per Share is determined as of the scheduled closing of the NYSE (generally 4:00 p.m., New York time), every Monday through Friday (exclusive of national business holidays). The Company's offices will be closed, and net asset value will not be calculated, on those days on which the NYSE is closed, which currently are: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed well before the close of business in New York on each day on which the NYSE is open. Trading of European or Far Eastern securities generally, or in a particular country or countries, may not take place on every New York business day. Furthermore, trading takes place in various foreign markets on days which are not business days in New York and on which a Fund's net asset value is not calculated. Each Fund calculates net asset value per Share, and therefore effects sales, redemptions and repurchases of its Shares, as of the close of the NYSE once on each day on which that Exchange is open. Such calculation does not take place contemporaneously with the determination of the prices of many of the portfolio securities used in such calculation and if events occur which materially affect the value of those foreign securities, they will be valued at fair market value as determined by the management and approved in good faith by the Board of Directors.
The Board of Directors may establish procedures under which a Fund may suspend the determination of net asset value for the whole or any part of any period during which (1) the NYSE is closed other than for customary weekend and holiday closings, (2) trading on the NYSE is restricted, (3) an emergency exists as a result of which disposal of securities owned by either Fund is not reasonably practicable or it is not reasonably practicable for either Fund fairly to determine the value of its net assets, or (4) for such other period as the SEC may by order permit for the protection of the holders of either Fund's Shares.
OWNERSHIP AND AUTHORITY DISPUTES. In the event of disputes involving multiple claims of ownership or authority to control a Shareholder's account, each Fund has the right (but has no obligation) to: (1) freeze the account and require the written agreement of all persons deemed by the Fund to have a potential property interest in the account, prior to executing instructions regarding the account; or (2) interplead disputed funds or accounts with a court of competent jurisdiction. Moreover, the Funds may surrender ownership of all or a portion of an account to the IRS in response to a Notice of Levy.
In addition to the special purchase plans described in the Prospectuses, other special purchase plans also are available:
TAX-DEFERRED RETIREMENT PLANS. Each Fund offers its Shareholders the opportunity to participate in the following types of retirement plans:
o For individuals whether or not covered by other
o For simplified employee pensions;
o For employees of tax-exempt organizations; and
o For corporations, self-employed individuals and partnerships.
Capital gains and income received by the foregoing plans generally are exempt from taxation until distribution from the plans. Investors considering participation in any such plan should review specific tax laws relating thereto and should consult their attorneys or tax advisers with respect to the establishment and maintenance of any such plan. Additional information, including the fees and charges with respect to all of these plans, is available upon request to the Principal Underwriter. No distribution under a retirement plan will be made until Franklin Templeton Trust Company ("FTTC") receives the participant's election on IRS Form W-4P (available on request from FTTC) and such other documentation as it deems necessary, as to whether or not U.S. income tax is to be withheld from such distribution.
INDIVIDUAL RETIREMENT ACCOUNT (IRA). All individuals (whether or not covered by qualified private or governmental retirement plans) may purchase Shares of either Fund pursuant to an IRA. However, contributions to an IRA by an individual who is covered by a qualified private or governmental plan may not be tax-deductible depending on the individual's income. Custodial services for IRAs are available through FTTC. Disclosure statements summarizing certain aspects of IRAs are furnished to all persons investing in such accounts, in accordance with IRS regulations.
SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRA). For employers who wish to establish a simplified form of employee retirement program investing in Shares of either Fund, there are available Simplified Employee Pensions invested in IRA Plans. Details and materials relating to these Plans will be furnished upon request to the Principal Underwriter.
RETIREMENT PLAN FOR EMPLOYEES OF TAX-EXEMPT ORGANIZATIONS (403(B)). Employees of public school systems and certain types of charitable organizations may enter into a deferred compensation arrangement for the purchase of Shares of either Fund without being taxed currently on the investment. Contributions which are made by the employer through salary reduction are excludable from the gross income of the employee.
Such deferred compensation plans, which are intended to qualify under Section 403(b) of the Internal Revenue Code of 1986, as amended (the "Code"), are available through the Principal Underwriter. Custodian services are provided by FTTC.
QUALIFIED PLAN FOR CORPORATIONS, SELF-EMPLOYED INDIVIDUALS AND PARTNERSHIPS. For employers who wish to purchase Shares of either Fund in conjunction with employee retirement plans, there is a prototype master plan which has been approved by the IRS. A "Section 401(k) plan" is also available. FTTC furnishes custodial services for these plans. For further details, including custodian fees and plan administration services, see the master plan and related material which is available from the Principal Underwriter.
LETTER OF INTENT. Purchasers who intend to invest $50,000 or more in Class I Shares of the Funds or any other fund in the Franklin Group of Funds and the Templeton Family of Funds, except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products Series Fund, Franklin Valuemark Funds and Franklin Government Securities Trust (the "Franklin Templeton Funds"), within 13 months (whether in one lump sum or in installments, the first of which may not be less than 5% of the total intended amount and each subsequent installment not less than $25 unless the investor is a qualifying employee benefit plan (the "Benefit Plan"), including automatic investment and payroll deduction plans), and to beneficially hold the total amount of such Class I Shares fully paid for and outstanding simultaneously for at least one full business day before the expiration of that period, should execute a Letter of Intent ("LOI") on the form provided in the Shareholder Application in the Prospectus. Payment for not less than 5% of the total intended amount must accompany the executed LOI unless the investor is a Benefit Plan. Except for purchases of Shares by a Benefit Plan, those Class I Shares purchased with the first 5% of the intended amount stated in the LOI will be held as "Escrowed Shares" for as long as the LOI remains unfulfilled. Although the Escrowed Shares are registered in the investor's name, his full ownership of them is conditional upon fulfillment of the LOI. No Escrowed Shares can be redeemed by the investor for any purpose until the LOI is fulfilled or terminated. If the LOI is terminated for any reason other than fulfillment, the Transfer Agent will redeem that portion of the Escrowed Shares required and apply the proceeds to pay any adjustment that may be appropriate to the sales commission on all Class I Shares (including the Escrowed Shares) already purchased under the LOI and apply any unused balance to the investor's account. The LOI is not a binding obligation to purchase any amount of Shares, but its execution will result in the purchaser paying a lower sales charge at the appropriate quantity purchase level. A not originally made pursuant to an LOI may be included under a subsequent LOI executed within 90 days of such purchase. In this case, an adjustment will be made at the end of 13 months from the effective date of the LOI at the net asset value per Share then in effect, unless the investor makes an earlier written request to the Principal Underwriter upon fulfilling the purchase of Shares under the LOI. In addition, the aggregate value of any Shares, including Class II Shares, purchased prior to the 90-day period referred to above may be applied to purchases under a current LOI in fulfilling the total intended purchases under the LOI. However, no adjustment of sales charges previously paid on purchases prior to the 90-day period will be made.
If an LOI is executed on behalf of a benefit plan (such plans are described under "How to Buy Shares of the Fund -- Net Asset Value Purchases (Both Classes)" in the Prospectus), the level and any reduction in sales charge for these employee benefit plans will be based on actual plan participation and the projected investments in the Franklin Templeton Funds under the LOI. Benefit Plans are not subject to the requirement to reserve 5% of the total intended purchase, or to any penalty as a result of the early termination of a plan, nor are Benefit Plans entitled to receive retroactive adjustments in price for investments made before executing LOIs.
SPECIAL NET ASSET VALUE PURCHASES. As discussed in the Prospectus under "How to Buy Shares of the Fund -- Description of Special Net Asset Value Purchases," certain categories of investors may purchase Class I Shares of a Fund at net asset value (without a front-end or contingent deferred sales charge). Franklin Templeton Distributors, Inc. ("FTD") or one of its affiliates may make payments, out of its own resources, to securities dealers who initiate and are responsible for such purchases, as indicated below. FTD may make these payments in the form of contingent advance payments, which may require reimbursement from the securities dealers with respect to certain redemptions made within 12 months of the calendar month following purchase, as well as other conditions, all of which may be imposed by an agreement between FTD, or its affiliates, and the securities dealer.
The following amounts will be paid by FTD or one of its affiliates, out of its own resources, to securities dealers who initiate and are responsible for (i) purchases of most equity and fixed-income Franklin Templeton Funds made at net asset value by certain designated retirement plans (excluding IRA and IRA rollovers): 1.00% on sales of $1 million but less than $2 millon, plus 0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on sales of $100 million or more; and (ii) purchases of most fixed-income Franklin Templeton Funds made at net asset value by non-designated retirement plans: 0.75% on sales of $1 million but less than $2 million, plus 0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on sales of $100 million or more. These payment breakpoints are reset every 12 months for purposes of additional purchases. With respect to purchases made at net asset value by certain trust companies and trust departments of banks and certain retirement plans of organizations with collective retirement plan assets of $10 million or more, FTD, or one of its affiliates, out of its own resources, may pay up to 1% of the amount invested.
Under agreements with certain banks in Taiwan, Republic of China, the Funds' Shares are available to such banks' discretionary trust funds at net asset value. The banks may charge service fees to their customers who participate in the discretionary trusts. Pursuant to agreements, a portion of such service fees may be paid to FTD, or an affiliate of FTD to help defray expenses of maintaining a service office in Taiwan, including expenses related to local literature fulfillment and communication facilities.
REDEMPTIONS IN KIND. Redemption proceeds are normally paid in cash; however, the Fund may pay the redemption price in whole or in part by a distribution in kind of securities from the portfolio of the Fund, in lieu of cash, in conformity with applicable rules of the SEC. In such circumstances, the securities distributed would be valued at the price used to compute the Fund's net asses value. If shares are redeemed in kind, the redeeming Shareholder might incur brokerage costs in converting the assets into cash. A Fund is obligated to redeem Shares solely in cash up to the lesser $250,000 or 1% of its net assets during any 90-day period for any one Shareholder.
Each of the Funds intends normally to pay a dividend at least once annually representing substantially all of its net investment income (which includes, among other items, dividends and interest) and to distribute at least annually any realized capital gains. By so doing and meeting certain diversification of assets and other requirements of the Code, each Fund intends to qualify annually as a regulated investment company under the Code. The status of the Funds as regulated investment companies does not involve government supervision of management or of their investment practices or policies. As a regulated investment company, a Fund generally will be relieved of liability for U.S.
Federal income tax on that portion of its net investment income and net realized capital gains which it distributes to its Shareholders. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement also are subject to a nondeductible 4% excise tax. To prevent application of the excise tax, each Fund intends to make distributions in accordance with the calendar year distribution requirement.
Dividends of net investment income and net short-term capital gains are taxable to Shareholders as ordinary income. Distributions of net investment income may be eligible for the corporate dividends-received deduction to the extent attributable to a Fund's qualifying dividend income. However, the alternative minimum tax applicable to corporations may reduce the benefit of the dividends-received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses) designated by a Fund as capital gain dividends are taxable to Shareholders as long-term capital gains, regardless of the length of time the Fund's Shares have been held by a Shareholder, and are not eligible for the dividends-received deduction. Generally, dividends and distributions are taxable to Shareholders, whether received in cash or reinvested in Shares of a Fund. Any distributions that are not from a Fund's investment company taxable income or net capital gain may be characterized as a return of capital to Shareholders or, in some cases, as capital gain. Shareholders will be notified annually as to the Federal tax status of dividends and distributions they receive and any tax withheld thereon.
Distributions by a Fund reduce the net asset value of the Fund Shares. Should a distribution reduce the net asset value below a Shareholder's cost basis, the distribution nevertheless would be taxable to the Shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of capital. In particular, investors should be careful to consider the tax implication of buying Shares just prior to a distribution by a Fund. The price of Shares purchased at that time includes the amount of the forthcoming distribution, but the distribution will generally be taxable to them.
Certain of the debt securities acquired by the Funds may be treated as debt securities that were originally issued at a discount. Original issue discount can generally be defined as the difference between the price at which a security was issued and its stated redemption price at maturity. Although no cash income is actually received by the Funds, original issue discount on a taxable debt security earned in a given year generally is treated for Federal income tax purposes as interest and, therefore, such income would be subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Funds at a discount which exceeds the original issue discount on such debt securities, if any. This additional discount represents market discount for Federal income tax purposes. The gain realized on the disposition of any taxable debt security having market discount will be treated as ordinary income to the extent it does not exceed the accrued market discount on such debt security. Generally, market discount accrues on a daily basis for each day the debt security is held by a Fund at a constant rate over the time remaining to the debt security's maturity or, at the election of a Fund, at a constant yield to maturity which takes into account the semi-annual compounding of interest.
A Fund may invest in stocks of foreign companies that are classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign company is classified as a PFIC if at least one-half of its assets constitute investment-type assets or 75% or more of its gross income is investment-type income. Under the PFIC rules, an "excess distribution" received with respect to PFIC stock is treated as having been realized ratably over the period during which a Fund held the PFIC stock. A Fund itself will be subject to tax on the portion, if any, of the excess distribution that is allocated to that Fund's holding period in prior taxable years (and an interest factor will be added to the tax, as if the tax had actually been payable in such prior taxable years) even though the Fund distributes the corresponding income to Shareholders. Excess distributions include any gain from the sale of PFIC stock as well as certain distributions from a PFIC. All excess distributions are taxable as ordinary income.
A Fund may be able to elect alternative tax treatment with respect to PFIC stock. Under an election that currently may be available, a Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether any distributions are received from the PFIC. If this election is made, the special rules, discussed above, relating to the taxation of excess distributions, would not apply. In addition, another election may be available that would involve marking to market the Funds' PFIC shares at the end of each taxable year (and on certain other dates prescribed in the Code), with the result that unrealized gains are treated as though they were realized. If this election were made, tax at the fund level under the PFIC rules would generally be eliminated, but the Funds could, in limited circumstances, incur nondeductible interest charges. Each Fund's annually as a regulated investment company may limit its elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among other things, the character of gains, the amount of gain or loss and the timing of the recognition of income with respect to PFIC stock, as well as subject a Fund itself to tax on certain income from PFIC stock, the amount that must be distributed to Share-holders, and which will be taxed to Shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to a fund that did not invest in PFIC stock.
Income received by a Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. If more than 50% of the value of a Fund's total assets at the close of its taxable year consists of securities of foreign corporations, that Fund will be eligible and intends to elect to "pass through" to the Fund's Shareholders the amount of foreign taxes paid by that Fund. Pursuant to this election, a Shareholder will be required to include in gross income (in addition to taxable dividends actually received) his pro rata share of the foreign taxes paid by a Fund, and will be entitled either to deduct (as an itemized deduction) his pro rata share of foreign income and similar taxes in computing his taxable income or to use it as a foreign tax credit against his U.S. Federal income tax liability, subject to limitations. No deduction for foreign taxes may be claimed by a Shareholder who does not itemize deductions, but such a Shareholder may be eligible to claim the foreign tax credit (see below). Each Shareholder will be notified within 60 days after the close of the Funds' taxable year whether the foreign taxes paid by a Fund will "pass through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it may not exceed the Shareholder's U.S. tax attributable to his foreign source taxable income. For this purpose, if the pass-through election is made, the source of a Fund's income flows through to its Shareholders. With respect to a Fund, gains from the sale of securities will be treated as derived from U.S. sources and certain currency fluctuation gains, including fluctuation gains from foreign currency-denominated debt securities, receivables and payables, will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income (as defined for purposes of the foreign tax credit), including the foreign source passive income passed through by a Fund. Shareholders may be unable to claim a credit for the full amount of their proportionate share of the foreign taxes paid by a Fund. Foreign taxes may not be deducted in computing alternative minimum taxable income and the foreign tax credit can be used to offset only 90% of the alternative minimum tax (as computed under the Code for purposes of this limitation) imposed on corporations and individuals. If a Fund is not eligible to make the election to "pass through" to its Shareholders its foreign taxes, the foreign income taxes it pays generally will reduce investment company taxable income and the distributions by a Fund will be treated as United States source income.
Certain options and futures contracts in which World Fund may invest are "section 1256 contracts." Gains or losses on section 1256 contracts generally are considered 60% long-term and 40% short-term capital gains or losses ("60/40"); however, foreign currency gains or losses (as discussed below) arising from certain section 1256 contracts may be treated as ordinary income or loss. Also, section 1256 contracts held by World Fund at the end of each taxable year (and on certain other dates as prescribed under the Code) are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized.
Generally, the hedging transactions undertaken by World Fund may result in "straddles" for U.S. Federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by World Fund. In addition, losses realized by World Fund on positions that are part of the straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which the losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the tax consequences to World Fund of hedging transactions are not entirely clear. The hedging transactions may increase the amount of short-term capital gain realized by World Fund which is taxed as ordinary income when distributed to Shareholders.
World Fund may make one or more of the elections available under the Code which are applicable to straddles. If World Fund makes any of the elections, the amount, character, and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions.
Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to Shareholders and which will be taxed to Shareholders as ordinary long-term capital gain may be increased or decreased as compared to a fund that did not engage in such hedging transactions.
Requirements relating to the World Fund's tax status as a regulated investment company may limit the extent to which World Fund will be able to engage in transactions in options and futures contracts.
Under the Code, gains or losses attributable to fluctuations in foreign currency exchange rates which occur between the time a Fund accrues income or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time a Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain financial contracts and options, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains and losses, referred to under the Code as "section 988" gains and losses, may increase or decrease the amount of a Fund's net investment income to be distributed to its Shareholders as ordinary income. For example, fluctuations in exchange rates may increase the amount of income that a Fund must distribute in order to qualify for treatment as a regulated investment company and to prevent application of an excise tax on undistributed income. Alternatively, fluctuations in exchange rates may decrease or eliminate income available for distribution. If section 988 losses exceed other net investment income during a taxable year, a Fund would not be able to make ordinary dividend distributions, or distributions made before the losses were realized would be recharacterized as return of capital to Shareholders for Federal income tax purposes, rather than as an ordinary dividend, reducing each Shareholder's basis in his Fund Shares, or as a capital gain.
Upon the sale or exchange of his Shares, a Shareholder will realize a taxable gain or loss depending upon his basis in the Shares. Such gain or loss will be treated as capital gain or loss if the Shares are capital assets in the Shareholder's hands, and generally will be long-term if the Shareholder's holding period for the Shares is more than one year and generally otherwise will be short-term. Any loss realized on a sale or exchange will be disallowed to the extent that the Shares disposed of are replaced (including replacement through the reinvesting of dividends and capital gain distributions in a Fund) within a period of 61 days beginning 30 days before and ending 30 days after the disposition of the Shares. In such a case, the basis of the Shares acquired will reflect the disallowed loss. Any loss realized by a Shareholder on the sale of a Fund's Shares held by the Shareholder for six months or less will be treated for Federal income tax purposes as a long-term capital loss to the extent of any distributions of long-term capital gains received by the Shareholder with respect to such Shares.
In some cases, Shareholders will not be permitted to take sales charges into account for purposes of determining the amount of gain or loss realized on the disposition of their Shares. This prohibition generally applies where (1) the Shareholder incurs a sales charge in acquiring the stock of a regulated investment company, (2) the stock is disposed of before the 91st day after the date on which it was acquired, and (3) the Shareholder subsequently acquires shares of the same or another regulated investment company and the otherwise applicable sales charge is reduced or eliminated under a "reinvestment right" received upon the initial purchase of shares of stock. In that case, the gain or loss recognized will be determined by excluding from the tax basis of the Shares exchanged all or a portion of the sales charge incurred in acquiring those Shares. This exclusion applies to the extent that the otherwise applicable sales charge with respect to the newly acquired Shares is reduced as a result of having incurred a sales charge initially. Sales charges affected by this rule are treated as if they were incurred with respect to the stock acquired under the reinvestment right. This provision may be applied to successive acquisitions of stock.
Each Fund generally will be required to withhold Federal income tax at a rate of 31% ("backup withholding") from dividends paid, capital gain distributions, and redemption proceeds to Shareholders if (1) the Shareholder fails to furnish a Fund with the Shareholder's correct taxpayer identification number or social security number and to make such certifications as a Fund may require, (2) the IRS notifies the Shareholder or a Fund that the Shareholder has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect, or (3) when required to do so, the Shareholder fails to certify that he is not subject to backup withholding. Any amounts withheld may be credited against the Shareholder's Federal income tax liability.
Ordinary dividends and taxable capital gain distributions declared in October, November, or December with a record date in such month and paid during the following January will be treated as having been paid by a Fund and received by Shareholders on December 31 of the calendar year in which declared, rather than the calendar year in which the dividends are actually received.
Distributions also may be subject to state, local and foreign taxes. U.S. tax rules applicable to foreign investors may differ significantly from those outlined above. Shareholders are advised to consult their own tax advisers for details with respect to the particular tax consequences to them of an investment in either Fund.
Franklin Templeton Distributors, Inc. ("FTD" or the "Principal Underwriter"), P.O. Box 33030, St. Petersburg, Florida 33733-8030, toll free telephone (800) 237-0738, is the Principal Underwriter of each Fund's Shares. FTD is a wholly owned subsidiary of Franklin.
The Company, pursuant to Rule 12b-1 under the 1940 Act, has adopted a Distribution Plan with respect to each class of Shares ("Plans") on behalf of each Fund. Under the Plans adopted with respect to Class I Shares, a Fund may reimburse the Principal Underwriter or others quarterly (subject to a limit of 0.25% per annum of each Fund's average daily net assets attributable to Class I Shares) for costs and expenses incurred by FTD or others in connection with any activity which is primarily intended to result in the sale of a Fund's Shares. Under the Plans adopted with respect to Class II Shares, each Fund will pay FTD or others quarterly (subject to a limit of 1.00% per annum of each Fund's average daily assets attributable to Class II Shares of which up to 0.25% of such net assets may be paid to dealers for personal service and/or maintenance of Shareholder accounts) for costs and expenses incurred by FTD or others in connection with any activity which is primarily intended to result in the sale of the Fund's Shares. Payments to FTD or others could be for various types of activities, including (1) payments to broker-dealers who provide certain services of value to each Fund's Shareholders (sometimes referred to as a "trail fee"); (2) reimbursement of expenses relating to selling and servicing efforts or of organizing and conducting sales seminars; (3) payments to employees or agents of the Principal Underwriter who engage in or support distribution of Shares; (4) payments of the costs of preparing, printing and distributing Prospectuses and reports to prospective investors and of printing and advertising expenses; (5) payment of dealer commissions and wholesaler compensation in connection with sales of a Fund's Shares and interest or carrying charges in connection therewith; and (6) such other similar services as the Company's Board of Directors determines to be reasonably calculated to result in the sale of Shares. Under the Plan adopted with respect to Class I Shares of a Fund, the costs and expenses not reimbursed in any one given quarter (including costs and expenses not reimbursed because they exceed 0.25% of the Fund's average daily net assets attributable to Class I Shares) may be reimbursed in subsequent quarters or years.
During the fiscal year ended August 31, 1995, FTD incurred in connection with the distribution of shares costs and expenses of $10,215,632 for Class I Shares of World Fund, $11,211 for Class II Shares of World Fund, $15,404,475 for Class I Shares of Foreign Fund, and $355,895 for Class II Shares of Foreign Fund. During the same period, the Company made reimbursements pursuant to the Plans in the amount of $10,215,632 on behalf of Class I Shares of World Fund $11,211 on behalf of Class II Shares of World Fund, $14,581,987 on behalf of Class I Shares of Foreign Fund, and $90,617 on behalf of Class II Shares of Foreign Fund. As indicated above, unreimbursed expenses, which amount to $1,087,776 for Shares of Foreign Fund, may be reimbursed by the Company during the fiscal year ending August 31, 1996 or in subsequent years. In the event that a Plan is terminated, the Company will not be liable to FTD for any unreimbursed expenses that had been carried forward from previous months or years. During the fiscal year ended August 31, 1995, FTD spent, with respect to Class I Shares of World Fund, the following amounts on: compensation to dealers, $8,860,935; sales promotion, $287,494; printing, $183,388; advertising, $817,078; and wholesale costs and expenses, $66,736; and with respect to Class II Shares of World Fund, the following amounts on: compensation to dealers, $818; sales promotion, $6; printing, $5; advertising, $32; and wholesale costs and expenses, $10,349; and, with respect to Class I Shares of Foreign Fund, the following amounts on: compensation to dealers, $12,429,081; sales promotion, $290,597; printing, $734,122; advertising, $1,443,337; and wholesale costs and expenses, $507,338; and with respect to Class II Shares of Foreign Fund, the following amounts on: compensation to dealers, $25,609; sales promotion, $198; printing, $919; advertising, $1,118; and wholesale costs and expenses, $328,050.
The Distribution Agreement provides that the Principal Underwriter will use its best efforts to maintain a broad and continuous distribution of each Fund's Shares among bona fide investors and may sign selling contracts with responsible dealers, as well as sell to individual investors. The Shares are sold only at the Offering Price in effect at the time of sale, and each Fund receives not less than the full net asset value of the Shares sold. The discount between the Offering Price and the net asset value may be retained by the Principal Underwriter or it may reallow all or any part of such discount to dealers. In the three fiscal years ended August 31, 1995, 1994, and 1993, FTD (and, prior to June 1, 1993, Templeton Funds Distributor, Inc.) retained of such discount $1,962,439, $1,931,397, and $1,208,991, respectively, or approximately 18.64%, 17.97%, and 19.87% of the gross sales commissions for those years with
Fund, and retained $6,510,032, $9,452,983, and $3,975,783, respectively, or approximately 13.17%, 15.79%, and 15.81% of the gross sales commissions for those years with respect to Foreign Fund.
The Distribution Agreement provides that the Company shall pay the costs and expenses incident to registering and qualifying each Fund's Shares for sale under the Securities Act of 1933 and under the applicable Blue Sky laws of the jurisdictions in which the Principal Underwriter desires to distribute such Shares, and for preparing, printing and distributing prospectuses and reports to Shareholders. The Principal Underwriter pays the cost of printing additional copies of prospectuses and reports to Shareholders used for selling purposes. (The Company pays costs of preparation, set-up and initial supply of the Funds'
The Distribution Agreement is subject to renewal from year to year in accordance with the provisions of the 1940 Act and terminates automatically in the event of its assignment. The Distribution Agreement may be terminated without penalty by either party upon 60 days' written notice to the other, provided termination by the Company shall be approved by the Board of Directors or a majority (as defined in the 1940 Act) of the Shareholders. The Principal Underwriter is relieved of liability for any act or omission in the course of its performance of the Distribution Agreement, in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations.
FTD is the Principal Underwriter of the Shares of the Fund throughout the world, except for Hong Kong and other parts of Asia, and other countries or territories as it might hereafter relinquish to another principal underwriter. The Fund has entered into a non-exclusive underwriting agreement with Templeton Franklin Investment Services (Asia) Limited ("Templeton Investment Services"), whose office address is 2701 Shui On Centre, Hong Kong as principal underwriter for sale of the Shares in Hong Kong and other parts of Asia. The terms of the underwriting agreements with Templeton Investment Services are substantially similar to those of the Distribution Agreement with FTD. Templeton Investment Services is an indirect wholly owned subsidiary of Franklin.
FTD is the principal underwriter for the other Templeton Funds.
The Shares of each Fund have the same preferences, conversion and other rights, voting powers, restrictions and limitations as to dividends, qualifications and terms and conditions of redemption, except as follows: all consideration received from the sale of Shares of either Fund, together with all income, earnings, profits and proceeds thereof, belongs to that Fund and is charged with liabilities in respect of that Fund and of that Fund's part of general liabilities of the Company in the proportion that the total net assets of the Fund bear to the total net assets of both Funds. The net asset value of a Share of either Fund is based on the assets belonging to that Fund less the liabilities charged to that Fund, and dividends are paid on Shares of either Fund only out of lawfully available assets belonging to that Fund. In the event of liquidation or dissolution of the Company, the Shareholders of each Fund will be entitled, out of assets of the Company available for distribution, to the assets belonging to that particular Fund.
The Shares have non-cumulative voting rights so that the holders of a plurality of the Shares voting for the election of Directors at a meeting at which 50% of the outstanding Shares are present can elect all the Directors and in such event, the holders of the remaining Shares voting for the election of Directors will not be able to elect any person or persons to the Board of Directors.
Each Fund may, from time to time, include its total return in advertisements or reports to Shareholders or prospective investors. Quotations of average annual total return for each Fund will be expressed in terms of the average annual compounded rate of return for periods in excess of one year or the total return for periods less than one year of a hypothetical investment in the Fund over periods of one, five, or ten years (up to the life of the Fund) calculated pursuant to the following formula: P(1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the average annual total return for periods of one year or more or the total return for periods of less than one year, n = the number of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period). All total return figures reflect the deduction of the maximum initial sales charge and deduction of a proportional share of a Fund's expenses on an annual basis, and assume that all dividends and distributions are reinvested when paid. World Fund's average annual total return for the one-, five- and ten-year periods ended August 31, 1995 was 3.56%,
13.39% and 12.91%, respectively. Foreign Fund's average annual total return for the one-, five- and ten-year periods ended August 31, 1995, was (2.79)%, 8.99% and 16.43%, respectively.
Performance information for each Fund may be compared, in reports and promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones Industrial Average, or other unmanaged indices so that investors may compare each Fund's results with those of a group of unmanaged securities widely regarded by investors as representative of the securities market in general; (ii) other groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely used independent research firm which ranks mutual funds by overall performance, investment objectives and assets, or tracked by other services, companies, publications, or persons who rank mutual funds on overall performance or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in a Fund. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses.
Performance information for each Fund reflects only the performance of a hypothetical investment in each Fund during the particular time period on which the calculations are based. Performance information should be considered in light of each Fund's investment objective and policies, characteristics and quality of the portfolio and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future.
From time to time, each Fund and the Investment Manager may also refer to the following information:
(1) The Investment Manager's and its affiliates' market share of international equities managed in mutual funds prepared or published by Strategic Insight or a similar statistical organization.
(2) The performance of U.S. equity and debt markets relative to foreign markets prepared or published by Morgan Stanley Capital International or a similar financial organization.
(3) The capitalization of U.S. and foreign stock markets as prepared or published by the International Finance Corporation, Morgan Stanley Capital International or a similar financial organization.
(4) The geographic and industry distribution of the Fund's portfolio and the Fund's top ten holdings.
(5) The gross national product and populations, including age characteristics, literacy rates, foreign investment improvements due to a liberalization of securities laws and a reduction of foreign exchange controls, and improving communication technology, of various countries as published by various statistical organizations.
(6) To assist investors in understanding the different returns and risk characteristics of various investments, the Fund may show historical returns of various investments and published indices (E.G., Ibbotson Associates, Inc. Charts and Morgan Stanley EAFE - Index).
(7) The major industries located in various jurisdictions as published by the Morgan Stanley Index.
(8) Rankings by DALBAR Surveys, Inc. with respect to mutual fund shareholder services.
(9) Allegorical stories illustrating the importance of persistent long-term investing.
(10) The Fund's portfolio turnover rate and its ranking relative to industry standards as published by Lipper Analytical Services, Inc. or Morningstar, Inc.
(11) A description of the Templeton organization's investment management philosophy and approach, including its worldwide search for undervalued or "bargain" securities and its diversification by industry, nation and type of stocks or other securities.
(12) Quotations from the Templeton organization's founder, Sir John Templeton,* advocating the virtues of diversification and long-term investing, including the following:
o "Never follow the crowd. Superior performance is possible only if you invest differently from the crowd."
o "Diversify by company, by industry and by country."
o "Always maintain a long-term perspective." * Sir John Templeton sold the Templeton organization to Franklin Resources, Inc. in October, 1992 and resigned from the Company's Board on April 16, 1995. He is no longer involved with the investment management process.
o "Invest for maximum total real return."
o "Invest - don't trade or speculate."
o "Remain flexible and open-minded about types of investment."
o "When buying stocks, search for bargains among quality stocks."
o "Buy value, not market trends or the economic outlook."
o "Diversify. In stocks and bonds, as in much else, there is safety in numbers."
o "Do your homework or hire wise experts to help you."
o "Aggressively monitor your investments."
o "Learn from your mistakes."
o "Outperforming the market is a difficult task."
o "An investor who has all the answers doesn't even understand all the questions."
o "There's no free lunch."
o "And now the last principle: Do not be fearful or negative too often."
In addition, each Fund and the Investment Manager may also refer to the number of Shareholders in the Fund or the aggregate number of shareholders of the Franklin Templeton Funds or the dollar amount of fund and private account assets under management in advertising materials.
The financial statements contained in the Fund's Annual Reports to Shareholders of Templeton World Fund and Templeton Foreign Fund dated August 31, 1995 are incorporated herein by reference.
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0000950123-96-000092
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0000950123-96-000092_0000.txt
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Two World Trade Center, New York, New York
LETTER TO THE SHAREHOLDERS October 31, 1995
Bonds have rallied significantly since late last year. Progressive tightening of monetary policy by the Federal Reserve Board over the 12 months through February 1995 led to slower economic growth and caused bonds to advance. The trend toward lower long-term interest rates this year was also aided in July by a 25 basis point reduction in the federal-funds rate (the interest rate banks charge each other for overnight loans).
Long-term municipal bond yields declined from a high of 7.37 percent in November 1994 to 6.02 percent at the end of October 1995, as tracked by The Bond Buyer Revenue Bond Index*. This 135 basis point decline in yield corresponded to an 11 percent price increase for callable municipal bonds with 30-year maturities. Similarly, yields on 1-year municipal notes moved from 4.51 percent to 3.82 percent. The yield pickup for extending maturity from 1-to 30-years was at 220 basis points.
Tax-exempt bonds began the year by outperforming U.S. Treasury bonds, but then deteriorated on a relative basis. The ratio of the Revenue Bond Index yield to the 30-year U.S. Treasury bond yield moved from 89 percent in December 1994 to 84 percent by the end of February 1995. A declining ratio means that municipal bond prices have been stronger than U.S. Treasury prices. In the spring the municipal market began to discount the risk of comprehensive changes in the tax code created by flat tax rhetoric from Washington. This caused the yield ratio to reach a high of 95 percent during the summer. Over the past 10 years, long municipal yields have averaged 89 percent of U.S. Treasury yields.
* The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25 selected municipal revenue bonds with 30-year maturities. Credit ratings of these bonds range from Aa1 to Baa1 by Moody's Investors Service, Inc., and AA+ to A- by Standard & Poor's Corp.
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
The municipal market continued to experience consolidation in 1995. Municipal underwriting in the first 10 months of the year was down 16 percent from the same period in 1994. This change followed a 44 percent drop in volume for all of 1994. The effect of lower volume and profitability was also apparent in the decisions of several major dealers to withdraw from the municipal business.
Flat-tax advocates have generated increased publicity for their proposals and have affected the municipal market since early 1995. Most of the discussion on proposed tax-reform measures is based on theoretical concepts, containing broad assumptions and lacking specific details. Basically, the various plans raise questions about the fairness of changing from a progressive to a regressive tax structure. Low flat-tax rate plans call for the elimination of deductions of mortgage interest, charitable contributions, property taxes, and state and local income taxes. Should politicians make tax reform a central issue in the 1996 elections, media coverage will expand from the financial page to the front page. If that happens, municipal bonds could come under further pressure. For example, when major tax reform turmoil occurred in 1986, municipal yields briefly exceeded taxable yields.
In addition to the market risk associated with the flat-tax proposals, municipal credits would also be negatively affected. If mortgage interest and property tax deductions were eliminated, municipalities would experience a decline in their property tax base. The loss of state and local income tax deductions would increase the relative economic disadvantage that high-tax states already face. The flat tax represents a shift in tax accountability from the federal to local governments. Taxpayer recognition of the extent of changes under consideration may impede the passage of comprehensive tax reform.
The net asset value (NAV) of InterCapital Insured Municipal Trust (IMT) rose from $14.27 to $15.86 per share during the fiscal year ended October 31, 1995. Based on this NAV change plus reinvestment of tax-free dividends totaling $1.02 per share, the Trust's total return was 19.54 percent. Over the same period, IMT's market price on the New York Stock Exchange appreciated 15.84 percent from $12.625 to $14.625 per share. Based on this market price change and reinvestment of tax-free dividends, the Trust's total return was 24.59 percent. IMT began the fiscal year trading at an 11.5 percent discount to NAV and closed at an 8 percent discount. Undistributed net investment income totaled $0.127 per share on October 31, 1995 versus $0.179 per share a year ago.
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
On October 31, 1995, IMT's long-term portfolio was diversified among 12 long-term municipal sectors and 51 sectors -- refunded, hospital revenue and revenue bonds -- represented 54 percent of the portfolio. The average maturity and call protection of the Trust's long-term holdings were 20 and 7 years, respectively. Net assets exceeded $490 million.
Each position in the portfolio was backed by triple "A" rated bond insurers. This is to ensure the timely payment of principal and interest. The distribution of credit enhancements is illustrated on the right.
As discussed in previous reports, the total income available for distribution to common shareholders includes incremental income provided by Auction Rate Preferred Share (ARPS) leverage. ARPS dividends reflect prevailing short-term interest rates on maturities normally ranging from one week to one year. Incremental income to common shares depends on two factors: first, the spread between the interest earned on the long-term bonds in the established portfolio of investments and the ARPS auction rate plus ARPS expenses; second, the amount of ARPS outstanding. The greater the amount of ARPS outstanding, the greater the amount of incremental income available for distribution to common shareholders.
The profitability of ARPS declined in 1994 and the first half of 1995. ARPS yields have moved somewhat lower since the Federal Reserve Board's initial easing in July 1995. A reduction in the amount of ARPS outstanding -- to control the portfolio's price volatility last year -- also diminished incremental income to common shares. Currently, $130 million in ARPS are outstanding. This represents 27 percent of net assets.
CREDIT ENHANCEMENTS AS OF OCTOBER 31, 1995 (% OF TOTAL LONG-TERM INVESTMENTS)
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
The slower pace of economic growth in 1995 and the Federal Reserve Board's previous interest rate moves have improved bond-market expectations. The decreasing supply of new issues, combined with significant maturities and calls for redemption, should continue to be positive for the municipal market. However, tax-reduction proposals are likely to continue to receive publicity and may cloud the outlook for tax-exempt bonds. With long-term municipal securities yielding more than 90 percent of the yield on U.S. Treasuries, the market has already begun the process of discounting the risk that a flat tax might eventually become law.
The Trust's procedure for reinvestment of all dividends and distributions on common shares is through purchases in the open market. This method helps to support the market value of the Trust's shares. In addition, we would like to remind you that the Trustees have approved a procedure whereby the Trust, when appropriate, may purchase shares in the open market or in privately negotiated transactions at a price not above market value or net asset value, whichever is lower at the time of purchase. During the fiscal year ended October 31, 1995, the Trust purchased and retired 519,900 shares of common stock at a weighted average market discount of 7.5 percent. The Trust may also utilize procedures to reduce or eliminate the amount of outstanding ARPS, including their purchase in the open market or in privately negotiated transactions.
We appreciate your ongoing support of InterCapital Insured Municipal Trust and look forward to continuing to serve your investment needs.
RESULTS OF ANNUAL MEETING (unaudited)
On October 31, 1995, an annual meeting of the Trust's shareholders was held for the purpose of voting on three separate matters, the results of which were as follows:
(1) ELECTION OF TRUSTEES BY ALL SHAREHOLDERS:
ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
The following Trustees were not standing for reelection at this meeting:
Jack F. Bennett, Michael Bozic, Charles A. Fiumefreddo, Dr. Manuel H. Johnson, Paul Kolton, and John L. Schroeder.
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT MANAGEMENT AGREEMENT:
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
PORTFOLIO OF INVESTMENTS October 31, 1995
SEE NOTES TO FINANCIAL STATEMENTS
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
SEE NOTES TO FINANCIAL STATEMENTS
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
SEE NOTES TO FINANCIAL STATEMENTS
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
Based on Market Value as a Percent of Net Assets
SEE NOTES TO FINANCIAL STATEMENTS
SEE NOTES TO FINANCIAL STATEMENTS
SEE NOTES TO FINANCIAL STATEMENTS
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS October 31, 1995
1. ORGANIZATION AND ACCOUNTING POLICIES
InterCapital Insured Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company. The Trust was organized as a Massachusetts business trust on October 3, 1991 and commenced operations on February 28, 1992.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued for the Trust by an outside independent pricing service approved by the Trustees. The pricing service has informed the Trust that in valuing the Trust's portfolio securities, it uses both a computerized matrix of tax-exempt securities and evaluations by its staff, in each case based on information concerning market transactions and quotations from dealers which reflect the bid side of the market each day. The Trust's portfolio securities are thus valued by reference to a combination of transactions and quotations for the same or other securities believed to be comparable in quality, coupon, maturity, type of issue, call provisions, trading characteristics and other features deemed to be relevant. Short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. The Trust amortizes premiums and accretes discounts over the life of the respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends and distributions to its shareholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment Manager") paid the organizational expenses of the Trust's common shares in the amount of $76,000 which have been reimbursed by the Trust for the full amount thereof. Such expenses have been deferred and are being amortized by the straight-line method over a period not to exceed five years from the commencement of operations.
Pursuant to an Investment Management Agreement, the Trust pays a management fee, calculated weekly and payable monthly, by applying the annual rate of 0.35% to the Trust's average weekly net assets.
Under the terms of the Agreement, the Investment Manager maintains certain of the Trust's books and records and furnishes, at its own expense, office space, facilities, equipment, clerical, bookkeeping and certain legal services and pays the salaries of all personnel, including officers of the Trust who are employees of the Investment Manager. The Investment Manager also bears the cost of telephone services, heat, light, power and other utilities provided to the Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended October 31, 1995 aggregated $13,787,810 and $39,497,281, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the Trust's transfer agent. At October 31, 1995, the Trust had transfer agent fees and expenses payable of approximately $11,500.
The Trust has an unfunded noncontributory defined benefit pension plan covering all independent Trustees of the Trust who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the year ended October 31, 1995 included
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
Trustees' fees and expenses in the Statement of Operations amounted to $12,000. At October 31, 1995, the Trust had an accrued pension liability of $21,242 which is included in accrued expenses in the Statement of Assets and Liabilities.
4. PREFERRED SHARES OF BENEFICIAL INTEREST
The Trust is authorized to issue up to 1,000,000 non-participating preferred shares of beneficial interest having a par value of $.01 per share, in one or more series, with rights as determined by the Trustees, without approval of the common shareholders. On April 9, 1992, the Trust issued 3,600 shares of Auction Rate Preferred Shares ("Preferred Shares") consisting of 1,800 shares each of Series TU and TH for gross total proceeds of $180,000,000. The preferred shares have a liquidation value of $50,000 per share plus the redemption premium, if any, plus accumulated but unpaid dividends, whether or not declared, thereon to the date of distribution. The Trust may redeem such shares, in whole or in part, at the original purchase price of $50,000 per share plus accumulated but unpaid dividends, whether or not declared, thereon to the date of redemption.
For the year ended October 31, 1995, the Trust purchased and retired 600 shares of Series TU in the amount of $30,00,000.
Dividends, which are cumulative, are reset through auction procedures.
Subsequent to October 31, 1995 and up through December 6, 1995, the Trust paid dividends to each of the Series TH and TU at rates ranging from 3.70% to 3.82% and 3.60%, respectively, in the aggregate amount of $508,564.
The Trust is subject to certain restrictions relating to the preferred shares. Failure to comply with these restrictions could preclude the Trust from declaring any distributions to common shareholders or purchasing common shares and/or could trigger the mandatory redemption of preferred shares at liquidation value.
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
The preferred shares, which are entitled to one vote per share, generally vote with the common shares but vote separately as a class to elect two Trustees and on any matters affecting the rights of the preferred shares.
5. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in common shares of beneficial interest were as follows:
* The Trustees have voted to retire the shares purchased.
6. DIVIDENDS TO COMMON SHAREHOLDERS
The Trust has declared the following dividends from net investment income:
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
7. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected ratios and per share data for a common share of beneficial interest outstanding throughout each period:
** The per share amounts were computed using an average number of shares outstanding during the period. + Total investment return is based upon the current market value on the last day of each period reported. Dividends and distributions are assumed to be reinvested at the prices obtained under the Trust's dividend reinvestment plan. Total investment return does not reflect brokerage commissions. (1) Not annualized. (2) Annualized. (3) The above expense and net investment income ratios would have been 0.71% and 7.89%, respectively, which reflects 0.01% effect for custody cash credits.
SEE NOTES TO FINANCIAL STATEMENTS
TO THE SHAREHOLDERS AND TRUSTEES OF INTERCAPITAL INSURED MUNICIPAL TRUST
In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of InterCapital Insured Municipal Trust (the "Trust") at October 31, 1995, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended and for the period February 28, 1992 (commencement of operations) through October 31, 1992, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trust's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principals used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 1995 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above.
1177 Avenue of the Americas New York, New York 10036
1995 FEDERAL TAX NOTICE (unaudited)
During the year ended October 31, 1995, the Trust paid the following per share amounts from tax-exempt income: $1.02 to the common shareholders, $1,731 to Series TU preferred shareholders and $3,444 to Series TH preferred shareholders. For the year ended October 31, 1995, the Trust paid the following per share amounts from long-term capital gains: $0.02 to the common shareholders, $35.96 to Series TU preferred shareholders and $20.95 to Series TH preferred shareholders.
Chairman and Chief Executive Officer
Vice President, Secretary and General Counsel
Harborside Financial Center - Plaza Two Jersey City, New Jersey 07311
1177 Avenue of the Americas New York, New York 10036
New York, New York 10048
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0000912057-96-000435
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0000912057-96-000435_0000.txt
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED NOVEMBER 30, 1995, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO __________.
(Exact name of registrant as specified in its charter)
(State of incorporation) (I.R.S. Employer (Address of principal (Zip Code)
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock Outstanding Shares at December 29, 1995 Common Stock, par value $.10 per share 56,689,475
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
November 30, 1995 and May 31, 1995. . . . . . . . . . . . . . . . . . . 3-4
Condensed Consolidated Statements of Income Three and Six Months Ended November 30, 1995 and 1994 . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows Six Months Ended November 30, 1995 and 1994 . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . 7-10
Review of Condensed Consolidated Financial Statements by Independent Public Accountants . . . . . . . . . . . . . . . . . . . 11
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . 12
Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . 13-17
Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 18
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
See accompanying Notes to Condensed Consolidated Financial Statements.
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
See accompanying Notes to Condensed Consolidated Financial Statements.
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME
See accompanying Notes to Condensed Consolidated Financial Statements.
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying Notes to Condensed Consolidated Financial Statements.
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X, and should be read in conjunction with Federal Express Corporation's Annual Report on Form 10-K for the year ended May 31, 1995. Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed therein.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly the consolidated financial position of Federal Express Corporation and subsidiaries as of November 30, 1995, the consolidated results of their operations for the three- and six-month periods ended November 30, 1995 and 1994, and their consolidated cash flows for the six-month periods ended November 30, 1995 and 1994. Operating results for the three- and six-month periods ended November 30, 1995 are not necessarily indicative of the results that may be expected for the year ending May 31, 1996.
Certain prior period amounts have been reclassified to conform to the current presentation.
The Company has a revolving credit agreement with domestic and foreign banks that provides for a commitment of $1,000,000,000 through May 31, 2000, all of which was available at November 30, 1995. Interest rates on borrowings under this agreement are generally determined by maturities selected and prevailing market conditions. Commercial paper borrowings are backed by unused commitments under this revolving credit agreement and reduce the amount available under the agreement.
The Certificate of Incorporation authorizes the Board of Directors, at its discretion, to issue up to 4,000,000 shares of Series Preferred Stock. The stock is issuable in series which may vary as to certain rights and preferences and has no par value. As of November 30, 1995, none of these shares had been issued.
During the six-month period ended November 30, 1995, 657,312 shares of common and treasury stock were issued under employee incentive plans at prices ranging from $30.56 to $80.06 per share. During the same period, the Company acquired 144,062 shares of its common stock at an average cost of $84.99 per share.
As of November 30, 1995, the Company's purchase commitments for the remainder of 1996 and annually thereafter under various contracts are as follows (in thousands):
(1) Primarily spare parts and engines, aircraft modifications and rotables.
(2) Primarily facilities, vehicles, computers and other equipment.
The Company is committed to purchase 12 Airbus A300, 13 Airbus A310, 12 MD-11, five B-727-200 and 17 Cessna 208B aircraft to be delivered through 2000. Deposits and progress payments of $247,142,000 have been made toward these purchases. At November 30, 1995, the Company had options to purchase up to 40 additional Airbus A300 aircraft for delivery beginning in 1999. In addition, the Company may be required to purchase seven MD-11 aircraft for delivery beginning no later than 2000 under a put option agreement.
During the six-month period ended November 30, 1995, the Company acquired four Airbus A300 aircraft under operating leases. These aircraft were included as purchase commitments as of May 31, 1995. At the time of delivery, the Company sold its rights to purchase these aircraft to third parties who reimbursed the Company for its deposits on the aircraft and paid additional consideration. The Company then entered into operating leases with each of the third parties who purchased the aircraft from the manufacturer.
Lease commitments added since May 31, 1995 for the four Airbus A300 aircraft and three additional MD-11 aircraft to be acquired by operating lease are as follows (in thousands):
In August 1995, the Company reached an agreement with the Internal Revenue Service ("IRS") concerning an excise tax dispute for the seven and one-half year period ended March 31, 1991. Under the terms of the settlement, the Company will not owe any additional federal excise tax for this period. The dispute involved a claim by the IRS that the Company had underpaid federal excise tax by as much as $159 million. This settlement agreement completes the IRS' audit of the Company's federal excise tax return for the period covered by the settlement. The Company also gave up its claim for a $70 million refund of excise tax for the same time period.
The Company is subject to other legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the aggregate liability, if any, with respect to these other actions will not materially adversely affect the financial position or results of operations of the Company.
REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Arthur Andersen LLP, independent public accountants, has performed a review of the condensed consolidated balance sheet of the Company as of November 30, 1995, and the related condensed consolidated statements of income for the three- and six-month periods ended November 30, 1995 and 1994 and the condensed consolidated statements of cash flows for the six-month periods ended November 30, 1995 and 1994, included herein, as indicated in their report thereon included on page 12.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Federal Express Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of Federal Express Corporation and subsidiaries as of November 30, 1995 and the related condensed consolidated statements of income for the three- and six-month periods ended November 30, 1995 and 1994 and the condensed consolidated statements of cash flows for the six-month periods ended November 30, 1995 and 1994. These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Federal Express Corporation and subsidiaries as of May 31, 1995 and the related consolidated statements of income, changes in common stockholders' investment and cash flows for the year then ended. In our report dated June 29, 1995, we expressed an unqualified opinion on those financial statements, which are not presented herein. In our opinion, the accompanying condensed consolidated balance sheet as of May 31, 1995 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
For the quarter ended November 30, 1995, the Company recorded net income of $90 million ($1.57 per share) on revenues of $2.5 billion compared with net income of $86 million ($1.53 per share) on revenues of $2.4 billion for the same period in the prior year. For the six months ended November 30, 1995, the Company recorded net income of $165 million ($2.90 per share) on revenues of $5 billion compared with net income of $147 million ($2.61 per share) on revenues of $4.6 billion for the same period in the prior year. Operating results reflect the effects of a weak international airfreight market and delays in the start-up of the Company's intra-Asian express network (AsiaOne).
The following table shows a comparison of revenues (in millions):
The following table shows a comparison of selected express and airfreight (IXF/ATA) statistics (in thousands, except dollar amounts):
During the quarter, yield-management actions continued to slow the rate of decline in U.S. domestic express revenue per package (yield), but also contributed to a slowing of year-over-year volume growth. These actions included examining and, where applicable, realigning the level of customer discount to be commensurate with customer shipping profiles and increasing the list price for one of the Company's deferred services in June 1995. As a result, yields declined only 1% and 2% for the quarter and year-to-date periods, respectively, compared with declines of 6% and 5% for the same periods in the prior year. Volume growth slowed to 8% and 10% for the quarter and year-to-date periods for 1996 compared to 16% for these same periods in the prior year. The drop in the rate of domestic volume growth is particularly evident in the Company's economy two-day service which experienced growth rates of 1% and 5% in 1996's second quarter and year-to-date periods, respectively, compared to 22% and 24% for the same periods in 1995. Management will continue to review and realign customer discounts for the remainder of 1996.
The Company's IP volumes and yields continued to experience year-over-year growth. However, airfreight results were mixed. IXF service volumes (a space- confirmed, time-definite service) increased 25% and 31% for the quarter and year-to-date periods, but yields declined 8% and 7% for the same periods. ATA volumes (a lower-priced, space-available service) declined 14% and 21% for the quarter and year-to-date periods, with yields essentially unchanged. Increased capacity in the global airfreight market and slowing growth in world demand adversely affected airfreight yields. The Company's Subic Bay hub in the Philippines, opened September 1995, and its new intra-Asia express network contributed to the growth in IP volumes and attracted incremental airfreight, although not as much as originally anticipated, given the impact on sales and marketing efforts of the delay in the planned July opening. Management expects both IP and airfreight volume growth to continue to be restrained by a weak international economy during the remainder of 1996.
The decrease in Charter, Logistics services and other revenue is largely attributable to the January 1995 sale of two dedicated warehousing and contract distribution companies in the United Kingdom. Also contributing to the decline are decreases in charter activity of $6 million and $11 million for the quarter and year-to-date periods, respectively, partially offset by increased sales of engine noise reduction kits in the first quarter.
Salaries and employee benefits increased 1% and 5% for the quarter and year-to-date periods. This increase is a result of volume-related growth, largely offset by decreased provisions under the Company's performance-based incentive compensation plans in the second quarter.
A 19% increase in Rentals and landing fees for both the quarter and year- to-date periods is primarily due to the leasing of additional Airbus A300 and A310 aircraft. As of November 30, 1995, the Company had 13 A300 and 13 A310 aircraft under operating lease compared with six A300 and five A310 aircraft as same date in the prior year. Management expects year-over-year increases in lease expense to continue as the Company enters into additional aircraft leases during 1996 and thereafter. The Company expects to be able to convert its A300 purchase commitments into direct operating leases. (See Note 6 of Notes to Condensed Consolidated Financial Statements.)
Fuel expense increased 12% and 10% for the quarter and year-to-date periods, respectively, due to increases in gallons consumed and average jet fuel price per gallon. The increase in average jet fuel price per gallon is primarily due to the 4.3 cents per gallon excise tax on aviation fuel which became effective October 1, 1995.
Maintenance and repairs expense increased 22% and 6% for the quarter and year-to-date periods, respectively. Earlier than expected DC-10 engine maintenance, increased spare parts supplies on aircraft in preparation for peak season and distribution of spare parts to the newly-opened Subic Bay facility contributed to these increases. Although the Company incurred a larger percentage of the year-to-date maintenance and repairs expense in the second quarter due to the above factors, the year-to-date increase is consistent with a long-term trend of increasing maintenance and repairs expense.
Other operating expense increased 18% for both the second quarter and year- to-date periods of 1996, primarily due to the cost of on-going projects designed to optimize the value of goods and services purchased and the use of resources. Management expects these projects to result in future, long-term cost savings. Volume-related increases in transportation services by outside vendors and temporary manpower also contributed to the rise in other operating expense.
Management does not believe that a labor dispute between the Company and the Air Line Pilots Association ("ALPA"), the collective bargaining agent representing the Company's pilots, had a material adverse effect on the Company's results of operations for the quarter or year-to-date periods ended November 30, 1995. During the quarter, the Company incurred certain contingency expenses associated with maintaining service reliability while the Company attempted to reach a collective bargaining agreement. These expenses can be expected to continue until such time as a collective bargaining agreement is reached with ALPA.
The Company's consolidated operating income for the second quarter of 1996 decreased 3% from the prior year, while consolidated operating income for the year-to-date period remained essentially unchanged.
U.S. domestic operating income rose to $137 million for the second quarter (a 3% year-over-year increase) and $263 million for the year-to-date period (a 4% year-over-year increase). These increases reflect slower volume growth and reduced yield decline as well as cost per package reductions of 0.3% and 1.3% for the quarter and six-month periods, respectively. U.S. domestic operating margin for the quarter and year-to-date periods was 7.6% and 7.3%, respectively, compared to 7.9% and 7.6% for the same periods in the prior year.
The Company's international operating income was $33 million for the second quarter (a 22% year-over-year decline) and $57 million for the year-to-date period (a 13% year-over-year decline). These declines are attributable to a weaker than expected airfreight market and a two-month delay in opening the Subic Bay hub, which hampered sales momentum for the fall peak season. Concurrent with the delay, incremental costs resulted from the addition of a trans-Pacific flight, the establishment of the AsiaOne network and the impact of two typhoons in the Philippines. A decline in charter revenue also negatively affected international operating income. International operating margin for the quarter and year-to-date periods was 4.6% and 4.1%, respectively, compared to 6.5% and 5.2% for the same periods in the prior year.
A decrease in net interest expense of 21% and 24% for the quarter and year- to-date periods was due to lower debt levels and a higher level of capitalized interest. Interest is capitalized during the modification of certain Airbus A310 aircraft from passenger to freighter configuration. During the first six months of 1996, seven A310 aircraft were modified, or were undergoing modification, compared with none in the same period of the prior year.
Other, net includes a $7.3 million and a $5.9 million distribution in the second quarter of 1996 and 1995, respectively, from the bankruptcy estate of a firm engaged by the Company in 1990 to remit payments of employees' withholding taxes to the appropriate authorities. During the third quarter of 1991, the Company recorded a $32 million charge to other income and expense for an estimated probable loss due to the failure of the firm to remit taxes due. Through November 30, 1995, the Company has received $17.5 million from the bankruptcy estate of the firm. All major issues pertaining to the bankruptcy have been resolved, and any additional amounts the Company may receive are expected to be insignificant.
Other, net also includes gains on sales of B-727 aircraft during both the first and second quarters of 1996.
Cash and cash equivalents totaled $115 million at November 30, 1995, and decreased $242 million during the first six months of 1996. Cash provided from operations was $425 million compared with $466 million for the same period in the prior year. The Company currently has available a $1 billion revolving bank credit facility that is generally used to finance temporary operating cash requirements and to provide support for the issuance of commercial paper. Management believes that cash flows from operations and available cash under its commercial paper program and revolving bank credit facility will adequately meet its working capital needs for the foreseeable future.
The Company's operations are capital intensive, characterized by significant investments in aircraft, vehicles, package handling facilities, sort equipment, and computer and telecommunication equipment. The amount and timing of capital additions are dependent on various factors including volume growth, new or enhanced services, geographical expansion of services, competition and availability of satisfactory financing.
Capital expenditures for the first six months of 1996 totaled $689 million and included four A310 aircraft, 18 Cessna 208 aircraft, deposits on future Airbus A300 aircraft, vehicles and ground support equipment, and customer automation and computer equipment. In comparison, prior year expenditures totaled $479 million and included vehicle and ground support equipment, customer automation and computer equipment and deposits on future Airbus A300 aircraft. For information on the Company's purchase commitments, see Note 6 of Notes to Condensed Consolidated Financial Statements.
Additional investing activities included the purchase of an all-cargo route authority between the U.S. and China in the first quarter of 1996.
In August and October 1995, approximately $123 and $195 million, respectively, of pass through certificates were issued under a November 1994 shelf registration filed with the Securities and Exchange Commission to refinance the debt portion of leveraged leases related to five Airbus A300 aircraft. The pass through certificates are not direct obligations of, or guaranteed by, the Company, but amounts payable by the Company under the five leveraged leases are sufficient to pay the principal of and interest on the certificates. The Company has $147 million of certificates remaining under this registration statement which may be used to partially finance the purchase of aircraft, or to finance or refinance aircraft in leveraged lease transactions.
The Company's capital resources include backstop financing for 12 Airbus A300 aircraft and the public and private debt markets for leveraged lease financing. Management believes that the capital resources available to the Company provide flexibility to access the most efficient markets for financing aircraft acquisitions and are adequate for the Company's future capital needs.
Note 7 Legal Proceedings in Part I is hereby incorporated by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
11.1 Statement re Computation of Earnings Per Share.
12.1 Computation of Ratio of Earnings to Fixed Charges.
15.1 Letter re Unaudited Interim Financial Statements.
(b) Reports on Form 8-K.
During the quarter ended November 30, 1995, the Registrant filed four Current Reports on Form 8-K. The first report was dated September 14, 1995 and filed under Items 5 and 7, Other Events and Financial Statements and Exhibits. The report contained a press release dated September 14, 1995 and Appendix A to a Private Placement Memorandum prepared with respect to the Registrant's commercial paper program.
The second report was dated October 17, 1995 and filed under Item 7, Financial Statements and Exhibits. The report contained a Consent and a Form T-1 Statement of Eligibility Under the Trust Indenture Act of 1939 in connection with Registration Statement on Form S-3 No. 33-56569.
The third report was dated October 25, 1995 and filed under Items 5 and 7, Other Events and Financial Statements and Exhibits. The report contained a press release dated October 25, 1995.
The fourth report was dated October 26, 1995 and filed under Item 7, Financial Statements and Exhibits. The report contained documents relating to the 1995 Pass Through Certificates, Series B1, B2, and B3.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: January 11, 1996 /s/ JAMES S. HUDSON
11.1 Statement re Computation of Earnings Per Share.
12.1 Computation of Ratio of Earnings to Fixed Charges.
15.1 Letter re Unaudited Interim Financial Statements.
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10-Q
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10-Q
| 1996-01-12T00:00:00
| 1996-01-12T13:32:44
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0000844788-96-000004
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0000844788-96-000004_0000.txt
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<DESCRIPTION>AMENDED FORM 8-K FOR 01/05/96
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 5, 1996
(Exact name of registrant as specified in charter)
(State or other jurisdiction (Commission (I.R.S. Employer of incorporation) file number) Identification No.)
1410 Cherrywood Drive Coeur d'Alene, Idaho 83814 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 208-664-6757
Item 4. Changes in Registrant's Certifying Accountant
(a) By letter dated January 5, 1996, Arthur Andersen LLP notified Fischer-Watt Gold Company, Inc., of confirmation that the client-auditor relationship between Fischer-Watt Gold Company, Inc., and Arthur Andersen LLP had ceased. Since Fischer-Watt Gold Company, Inc., did not dismiss Arthur Andersen LLP as its auditors, Fischer-Watt Gold Company, Inc., has treated such letter as a resignation.
(b) During the two most recent fiscal years and the interim period subsequent to January 31, 1995, there have been no disagreements with Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
(c) The board of directors of Fischer-Watt Gold Company, Inc., has not recommended or approved a change in accountants.
(d) Arthur Andersen LLP's reports on the financial statements for the past two years contained no adverse opinion or disclaimer of opinion, nor was it qualified or modified as to audit scope or accounting principles except as follows:
The Report of Independent Public Accountants on the financial statements of Fischer-Watt Gold Company, Inc. as of and for the two years ended January 31, 1995 was modified to refer to "The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has had negative cash flow from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in this regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty."
(e) As required by Item 304 of Regulation S-B, the Registrant has requested that Arthur Andersen LLP furnish it with a letter addressed to the SEC stating whether it agrees with the above statements or, if not, stating the respects in which it does not agree. Such letter from Arthur Andersen LLP dated January 10, 1996 is filed as Exhibit 2.16 to this Form 8-K/A.
1 16 Letter of Arthur Andersen LLP pursuant to Regulation S-B Item 304 (a)(3) filed as Exhibit 1.16 to Form 8-K filed January 9, 1996 and incorporated herein by reference.
2 16 Letter dated January 10, 1996 wherein Arthur Andersen LLP stated that it is in agreement with the statements in Item 4 included in the Form 8-K of Fischer-Watt Gold Company, Inc., filed January 9, 1996.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: January 11, 1996 /s/ George Beattie, President
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8-K/A
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8-K
| 1996-01-12T00:00:00
| 1996-01-12T14:20:00
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0000930661-96-000016
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0000930661-96-000016_0000.txt
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(PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
FUND AMERICAN ENTERPRISES HOLDINGS, INC. (Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $1.00 PER SHARE (Title of Class of Securities)
(CUSIP Number of Class of Securities)
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
825 Eighth Avenue - Worldwide Plaza New York, New York 10019
(Name, address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person(s) Filing Statement)
(Date Tender Offer First Published, Sent, or Given to Security Holders)
TRANSACTION VALUE* AMOUNT OF FILING FEE* *Based on $71.00 cash price per share for 500,000 shares.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
Form or Registration No.: Schedule 13E-4 Filing Party: Fund American Enterprises Holdings, Inc. Date Filed: December 4, 1995
This Final Amendment amends and supplements the Issuer Tender Offer Statement on Schedule 13E-4 originally filed on December 4, 1995, relating to the invitation of Fund American Enterprises Holdings, Inc., a Delaware corporation (the "Company"), to its shareholders to tender up to 500,000 shares of its Common Stock, par value $1.00 per share (the "Shares"), to the Company at $71 per Share, upon the terms and subject to the conditions set forth in the Offer to Purchase dated December 4, 1995 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer").
Item 8(e) is amended by adding the following paragraph:
The Company has terminated its offer to purchase 500,000 shares at $71.00 per share without purchasing any of its shares. The offer was originally scheduled to close on January 2, 1996 but was extended to January 10, 1996 when the Company recently announced that it had entered into a letter of intent contemplating the sale of Source One Mortgage Services Corporation for an aggregate price equal to Source One's adjusted book value as of the closing date plus a premium of $65 million.
The Company noted that it decided to exercise its right to terminate the offer in light of the $72.375 closing price of shares as of January 10, 1996, which prior to the scheduled expiration date exceeded the tender price, and the insignificant number of shares that were tendered.
A press release dated January 11, 1996 announcing such withdrawal is attached hereto as Exhibit (a) (12) and incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Item 9 is amended by adding the following exhibit::
(a)(12) Press Release dated January 11, 1996
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
January 11, 1995 By: /s/ Michael S. Paquette
(a)(1) Offer to Purchase dated December 4, 1995...................... *
(a)(2) Letter of Transmittal (together with Guidelines for Certification of Taxpayer Identification Number on
(a)(3) Notice of Guaranteed Delivery................................. *
(a)(4) Letter from the Company's Chairman to Shareholders dated December 4, 1995........................... *
(a)(5) Form of Letter from First Chicago Trust Company of New York to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees............................ *
(a)(6) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to their clients........... *
(a)(7) Form of summary advertisement dated December 4, 1995.......... *
(a)(8) Text of press release dated November 28, 1995................. *
(a)(9) Text of press release dated November 29, 1995................. *
(a)(10) Text of press release dated December 4, 1995.................. *
(a)(11) Supplement dated December 26, 1995............................ *
(a)(12) Text of press release dated January 11, 1996..................
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SC 13E4/A
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SC 13E4/A
| 1996-01-12T00:00:00
| 1996-01-12T15:30:36
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0000950112-96-000058
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0000950112-96-000058_0000.txt
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INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X] Filed by a Party other than the Registrant [ ]
[ ] Preliminary Proxy statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box): [ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(2) Form, Schedule or Registration Statement No.:
LAKE SUCCESS, NEW YORK 11042
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Meeting") of ASTROSYSTEMS, INC., a Delaware corporation (the "Company"), will be held at the Marriott Hotel at Nassau Coliseum, 101 James Doolittle Blvd., Uniondale, New York on Friday, February 2, 1996 at 10:00 A.M. for the following purposes:
(1) To act upon a proposal to approve the adoption of a Plan of Complete Liquidation and Dissolution (the "Plan"). Approval of the adoption of the Plan shall also constitute approval of the sale of certain assets of the Company's Industrial Automation Division, as described in the accompanying Proxy Statement under the heading entitled "Disposition of Certain Assets-- Operating Divisions and Subsidiary."
(2) To act upon a proposal to approve an Asset Purchase Agreement, dated as of January 11, 1996, among Cabot Court, Inc. ("Orbitsub"), a wholly-owned subsidiary of Orbit International Corp. ("International"), International, the Company and Behlman Electronics, Inc. ("Behlman"), a wholly-owned subsidiary of the Company, pursuant to which, subject to stockholder approval of the Plan, the Company will sell to Orbitsub certain assets relating to its Defense Electronics Division and Behlman will sell to Orbitsub certain of its assets.
(3) To elect a board of five Directors.
(4) To ratify the appointment of Richard A. Eisner & Company, LLP as the Company's independent auditors for the fiscal year ending June 30, 1996.
(5) To transact such other business as may properly come before the Meeting.
Only stockholders of record at the close of business on December 5, 1995 are entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE, DATE AND SIGN THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY, AND RETURN IT IN THE PRE-ADDRESSED ENVELOPE PROVIDED FOR THAT PURPOSE. ANY STOCKHOLDER MAY REVOKE HIS PROXY AT ANY TIME BEFORE THE MEETING BY WRITTEN NOTICE TO SUCH EFFECT, ATTN: CORPORATE SECRETARY, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
LAKE SUCCESS, NEW YORK 11042
This Proxy Statement is being mailed on or about January 12, 1996 to all stockholders of record of Astrosystems, Inc. (the "Company") at the close of business on December 5, 1995 (the "Meeting Record Date") in connection with the solicitation by the Board of Directors of Proxies to be voted at the Annual Meeting of Stockholders (the "Meeting") to be held on February 2, 1996 or any adjournment thereof.
All Proxies duly executed and received will be voted on all matters presented at the Meeting in accordance with the specifications made in such Proxies. In the absence of specified instructions, Proxies so received will be voted for the named nominees to the Company's Board of Directors (the "Board") and in favor of each of the other proposals indicated on the Proxy.
The business to be conducted at the Meeting includes the approval of a Plan of Complete Liquidation and Dissolution of the Company (the "Plan"), a copy of which is attached as Exhibit A to this Proxy Statement. Pursuant to the Plan, the Company will sell such of its assets as are not to be distributed in kind to its stockholders and, subject to paying or providing for all claims, obligations and expenses of the Company, will be completely liquidated (i) by cash and in-kind distributions to stockholders pro rata and (ii) if required by the Plan or deemed necessary by the Board of Directors, by a final liquidating distribution of its then remaining assets to a liquidating trust established for the benefit of the then stockholders. The Board may, in its discretion, also distribute assets to any such liquidating trust, from time to time, as an interim distribution of assets. Should the Board determine that a liquidating trust is required by the Plan or is otherwise necessary, appropriate or desirable, approval of the Plan will constitute stockholder approval of the appointment by the Board of one or more liquidating trustees and the execution of a liquidating trust agreement with the trustees on such terms and conditions as the Board, in its absolute discretion, shall determine. In addition, approval of the Plan will constitute stockholder approval of any and all sales of assets of the Company approved by the Board or, if applicable, the trustees of any liquidating trust. See "Proposed Plan of Complete Liquidation and Dissolution" for a complete description of the Plan and "Asset Purchase Agreement" for a discussion of an agreement to sell certain assets with respect to which separate stockholder approval is being sought.
A second proposal to be acted upon at the Meeting is the approval of an Asset Purchase Agreement, dated as of January 11, 1996 (the "Asset Purchase Agreement"), among Cabot Court, Inc. ("Orbitsub"), a wholly-owned subsidiary of Orbit International Corp. ("International"), International, the Company and Behlman Electronics, Inc. ("Behlman"), a wholly-owned subsidiary of the Company. A copy of the Asset Purchase Agreement is attached as Exhibit B to this Proxy Statement. Pursuant to the Asset Purchase Agreement, the Company will sell to Orbitsub certain assets relating to its Defense Electronics Division and Behlman will sell to Orbitsub certain of its assets. Approval of the Asset Purchase Agreement is contingent upon stockholder approval of the Plan. However, approval of the Plan is not contingent upon stockholder approval of the Asset Purchase Agreement. See "Asset Purchase Agreement."
Except as described in this Proxy Statement, the Board does not know of any other matters that may be brought before the Meeting nor does it foresee or have reason to believe that Proxy holders will have to vote for substitute or alternate nominees. In the event that any other matter should come before the Meeting or any nominee is not available for election, the persons named in the enclosed Proxy will have discretionary authority to vote all Proxies not marked to the contrary with respect to such matters in accordance with their best judgment. A Proxy may be revoked at any time before being voted by written notice to such effect received by the Company at the address set forth above, attn: Corporate Secretary, by delivery of a subsequently dated Proxy or by a vote cast in person at the Meeting. The
Company will pay the entire expense of soliciting Proxies, which solicitation primarily will be by use of the mails, but certain Directors, officers and employees of the Company may solicit Proxies in person or by telephone, telecopier or telegram, without special compensation.
The total number of shares of Common Stock of the Company outstanding and entitled to vote as of December 5, 1995 was 4,586,986. The shares of Common Stock are the only class of securities of the Company entitled to vote, each share being entitled to one noncumulative vote. A majority of the shares outstanding and entitled to vote as of December 5, 1995, or 2,293,494 shares, must be present at the Meeting in person or by Proxy in order to constitute a quorum for the transaction of business. Only stockholders of record as of the close of business on December 5, 1995 will be entitled to vote. With regard to the election of Directors, votes may be cast in favor or withheld; votes that are withheld will have no effect as Directors shall be elected by a plurality of the votes cast in favor. Abstentions and broker non-votes will be counted for purposes of determining the presence or absence of a quorum for the transaction of business. Abstentions are counted as present in the tabulation of the votes cast on the proposals presented to stockholders. Since the approval of the proposed Plan and the approval of the Asset Purchase Agreement each requires the approval of a majority of the outstanding shares, abstentions will have the effect of a negative vote. Broker non-votes are not counted as present for purposes of determining whether a particular proposal has been approved. Accordingly, they will also have the effect of a negative vote with respect to the approval of the Plan and the approval of the Asset Purchase Agreement. Since the proposed ratification of the appointment of Richard A. Eisner & Company, LLP as the Company's independent auditors for the fiscal year ending June 30, 1996 requires the approval of a majority of the shares present and entitled to vote at the Meeting, abstentions will have the effect of a negative vote while broker non-votes will have no effect.
A list of stockholders entitled to vote at the Meeting will be available for examination by any stockholder, for any purpose germane to the Meeting, during ordinary business hours, at the Company's offices, 6 Nevada Drive, Lake Success, New York, for a period of ten days prior to the Meeting and will also be available at the Meeting. The Company's telephone number is (516) 328-1600.
PROPOSED PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
The Company is proposing a Plan of Complete Liquidation and Dissolution for approval by the stockholders at the Meeting. A copy of the Plan is attached as Exhibit A to this Proxy Statement. The material features of the Plan are summarized below; this summary does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the Plan. STOCKHOLDERS ARE URGED TO READ THE PLAN IN ITS ENTIRETY.
BACKGROUND AND REASONS FOR THE PLAN; DIRECTORS' RECOMMENDATIONS
In furtherance of the Company's objective to maximize values realized by its stockholders, the Board of Directors of the Company reviewed and considered the potential liquidation value of the Company in relation to the market trading value of its Common Stock as well as the Company's financial condition and results of its operations. It is the view of the Board that the Company's Common Stock historically has traded at a discount from the net value of the Company's assets. This view is based upon a comparison of the historical market value of the Company's Common Stock with the value of the Company's assets. In this connection, management, with the assistance of the Board, estimated the value of the Company's liquid assets as set forth below. In addition, management, with the assistance of the Board and the Company's financial advisor (see "Disposition of Certain Assets-Financial Advisor"), estimated the asset values of the Company's two operating divisions and of its wholly-owned subsidiary, Behlman, as discussed below.
The value of the Company's liquid assets was estimated based on the Company's balance sheet as of September 30, 1995 as follows:
The estimated value of the Company's liquid assets of $38,399,000 was, therefore, approximately 88% of its total assets of $43,855,000 as of September 30, 1995.
The balance of the Company's assets of approximately $5,456,000 are primarily associated with the Company's operating divisions and subsidiary (non-liquid and non-operating assets, consisting of prepaid expenses, long-term investments, goodwill and other assets, totaled approximately $1,405,000 as of September 30, 1995). In order to assist management and the Board in determining the value of the Company's Industrial Automation Division and Behlman operations, on February 15, 1995, OEM Capital Corp. ("OEM"), an investment banking firm, was retained as a financial advisor. On August 31, 1995, the Company retained OEM as a financial advisor in order to assist management and the Board in determining the value of its Defense Electronics Division. See "Disposition of Certain Assets-Financial Advisor." At the direction of the Company and Behlman, OEM undertook to determine the identity of third parties interested in acquiring any or all of the operations of the divisions and subsidiary and to estimate the sale values thereof based on asset values and other factors such as historical and estimated sales, earnings and market position. Following such action, at the request of the Company and Behlman, OEM managed a competitive bidding process with respect to the sale of such operations. Based upon such process, the Company determined that the aggregate of the purchase prices obtainable with regard to the divisions and subsidiary was not significantly in excess of the aggregate book value of their operating assets (approximately $4,051,000 as of September 30, 1995 with regard to inventory and fixed assets).
As discussed under "Conflict of Interest of Certain Members of the Board of Directors," three members of the Board may be deemed to have a conflict of interest in recommending approval of the adoption of the Plan. Notwithstanding such fact, the Board did not find it necessary to obtain an independent fairness opinion with regard to the Plan or an appraisal of the Company's assets based upon the following factors: (i) approximately 88% of the Company's assets are liquid assets whose value is readily determinable; (ii) the competitive bidding process managed by OEM satisfactorily established, in the Board's view, the approximate value of the Company's operations; and (iii) the three Board members who may be deemed to have a conflict of interest in recommending approval of the Plan are also the three principal stockholders of the Company and, accordingly, have an interest in seeking the maximization of stockholder value.
Prior to adopting the Plan, the Board explored various alternatives to the liquidation of the Company, including the possibility of the Company continuing its operations. Since its inception, the Company's primary business has been in defense electronics. The Company's revenues in this area have been declining since the fiscal year ended June 30, 1992 and, due to a continuing decline in defense budgets, severe price competition from low cost geographical areas and corporate consolidations, the prospects for the Company as a stand-alone defense business are not promising. In addition, high fixed overhead costs necessitated by defense contracts, coupled with a declining business base, have been tending to make the Company non-competitive. Although the prospects for some of the Company's commercial products are promising, the revenues would not be sufficient in the near future to sustain the Company.
The Board believes that it is in the best interests of the Company's stockholders to distribute to them the Company's net assets primarily through cash distributions. Certain assets may be distributed in kind, either directly or via a liquidating trust. The Board believes that the liquidation value per share of the Company's Common Stock is likely to exceed its probable trading value in the foreseeable future absent the proposed liquidation. No assurances can be given as to the foregoing. In addition, no assurances can be given that, as a consequence of the liquidation, holders of the Company's Common Stock will receive aggregate value which exceeds the prices at which the Company's Common Stock has generally traded. In the event of insufficient liquidation proceeds, stockholders could be adversely affected. See "Contingent Liabilities; Contingency Reserve; Liquidating Trust" and "Pro Forma Liquidating Balance Sheet."
In adopting the Plan, the Board recognized that stockholders, depending on the tax basis in their shares, may be required to recognize gain for tax purposes upon receipt of distributions in liquidation and upon the transfer of the assets to a liquidating trust. See "Certain Federal Income Tax Consequences."
The high and low sale prices of a share of the Company's Common Stock on October 31, 1995, the date preceding the public announcement of the proposed Plan, were $4 1/4 and $4 1/8, respectively.
BASED UPON THE FOREGOING, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL OF THE PLAN. AS INDICATED ABOVE, CERTAIN MEMBERS OF THE BOARD OF DIRECTORS MAY BE DEEMED TO HAVE A CONFLICT OF INTEREST IN RECOMMENDING APPROVAL OF THE PLAN. SEE "CONFLICT OF INTEREST OF CERTAIN MEMBERS OF THE BOARD OF DIRECTORS." SUCH DIRECTORS, WHO, AS OF THE MEETING RECORD DATE, HAD OR SHARED VOTING POWER WITH RESPECT TO AN AGGREGATE OF APPROXIMATELY 1,965,518 SHARES OF COMMON STOCK OF THE COMPANY (APPROXIMATELY 43% OF THE THEN ISSUED AND OUTSTANDING SHARES OF COMMON STOCK), HAVE INDICATED THAT THEY INTEND TO VOTE "FOR" APPROVAL OF THE PLAN. SEE "RECOMMENDATION AND VOTE" AND "PRINCIPAL STOCKHOLDERS."
If the Plan is not approved by the stockholders, the Board of Directors will explore the alternatives then available for the future of the Company.
CONFLICT OF INTEREST OF CERTAIN MEMBERS OF THE BOARD OF DIRECTORS
In connection with their employment as executive officers of the Company, three Directors (Seymour Barth, Elliot Bergman and Gilbert Steinberg) are parties to employment agreements (the "Employment Agreements") which do not have fixed termination dates and which require that the Company give three years' notice of termination. Depending on the final date of liquidation, these Directors may be entitled to payments of up to approximately $2,245,000 in the aggregate over such three year period notwithstanding that their responsibilities in liquidating and dissolving the Company may be less than their present responsibilities. Hence, these members of the Board of Directors may be deemed to have a conflict of interest with respect to approval of the Plan. See "Executive Compensation and Certain Transactions-Employment Agreements."
PRINCIPAL PROVISIONS OF THE PLAN; ABANDONMENT OR AMENDMENT
The Plan provides for the following:
(a) The Company will distribute to its stockholders in kind or sell or otherwise dispose of all its property and assets. The determination of which assets will be sold and which will be distributed to the Company's stockholders in kind, and the timing of such sales and distributions, will be based upon management's judgment as to whether and/or when the sale or distribution of a particular asset will result in realization of the highest value to the Company's stockholders. Sales of the Company's assets will be made on such terms as are approved by the Board. See "Asset Purchase Agreement" with regard to the proposed sale by the Company of certain assets of its Defense Electronics Division and by Behlman of certain of its assets. Consummation of the Asset Purchase Agreement is subject to the approval of the provisions thereof, as well as of the Plan, by the stockholders of the Company. Also see
"Disposition of Certain Assets--Operating Divisions and Subsidiary" with regard to a contemplated sale by the Company of certain assets of its Industrial Automation Division. Unsold assets, if any (other than property distributed in kind to stockholders) may be transferred to a liquidating trust at any time in the discretion of the Board. Unsold and undistributed assets must be transferred to a liquidating trust by the fourth anniversary of the approval of the Plan by the Company's stockholders and thereafter would be sold or otherwise disposed of on terms approved by its trustees. No further stockholder votes will be solicited with respect to approval of specific terms of sales of assets approved by the Board of Directors or, if applicable, the trustees of any such liquidating trust.
(b) Subject to payment or provision for payment of the Company's indebtedness and other obligations, including tax liabilities, the cash proceeds of any such sales, together with other available cash, will be distributed from time to time pro rata to the holders of the Company's Common Stock on record dates selected by the Board for such distributions. The Company has no current or long-term indebtedness. The Company may establish a contingency reserve in an amount determined by the Board to be sufficient to satisfy the liabilities, expenses and obligations of the Company not otherwise paid, provided for or discharged (the "Contingency Reserve"). The net balance, if any, of any such Contingency Reserve remaining after payment, provision or discharge of all such liabilities, expenses and obligations (including interest earned on cash in the Contingency Reserve) also will be distributed to the Company's stockholders pro rata or to the liquidating trust. No assurances can be given that available cash, amounts received on the sale of assets and interest income will be adequate to provide for the Company's obligations, liabilities, expenses and claims and to make cash distributions to stockholders. Furthermore, the Company may, as authorized by the Board of Directors, repurchase shares of Common Stock from stockholders in open market purchases. Such purchases would decrease amounts distributable to remaining stockholders if the Company were to pay amounts in excess of the per share values ultimately distributable in respect of the shares purchased and would increase amounts distributable to remaining stockholders if the Company were to pay amounts less than the per share values ultimately distributable in respect of such shares. See "Liquidating Distributions," "Contingent Liabilities; Contingency Reserve; Liquidating Trust" and "Pro Forma Liquidating Balance Sheet."
(c) As indicated above, if all the Company's assets are not sold or distributed prior to the fourth anniversary of the approval of the Plan by the Company's stockholders, the Company must transfer the assets not sold or distributed (including any Contingency Reserve) to a liquidating trust. Prior to the fourth anniversary of the approval of the Plan by the Company's stockholders, the Company may, in its discretion, transfer such of its assets as have not been previously sold or distributed (including the Contingency Reserve) to such a liquidating trust. In the event a liquidating trust is established, the Company would distribute pro rata to the then holders of its Common Stock beneficial interests in such liquidating trust ("Interests"). It is anticipated that the Interests will not be freely transferable; hence, although the recipients of the Interests will be treated for tax purposes as having received their pro rata share of property transferred to the liquidating trust and will thereafter take into account for tax purposes their allocable portion of any income, expense, gain or loss realized by such trust, the recipients of the Interests will not realize the value thereof unless and until such trust distributes cash or other assets to them, which will be solely in the discretion of the trustee.
(d) The Company will close its transfer books on the earlier to occur of the final liquidating distribution or the date on which the Company ceases to exist under Delaware law, and thereafter will not record any further transfers of its Common Stock nor issue any new stock certificates, other than replacement certificates. See "Listing and Trading of the Common Stock and Interests in the Liquidating Trust" and "Final Record Date."
(e) A Certificate of Dissolution will be filed with the State of Delaware completing the liquidation and dissolution process. Except for compliance with applicable rules and regulations of the Securities and Exchange Commission (the "SEC") in connection with distribution by the Company to its stockholders of securities held by the Company, no federal or state regulatory requirements must be complied with or approvals obtained in connection with the liquidation.
Under the Plan, if the Board of Directors determines that liquidation and dissolution are not in the best interests of the Company or its stockholders, the Board may direct that the Plan be abandoned. The Company nevertheless may cause the performance, without further stockholder approval, of any contract for the sale of assets theretofore executed which the Board of Directors deems to be in the best interests of the Company (except that the Company shall not consummate the Asset Purchase Agreement without stockholder approval thereof). The Board also may amend or modify the Plan if it determines such action to be in the best interests of the Company or its stockholders, without the necessity of further stockholder approval.
Although the Board has not established a firm timetable for distributions to stockholders if the Plan is approved, the Board will, subject to exigencies inherent in winding up the Company's business, make such distributions as promptly as practicable consistent with maximizing stockholder value. The Company anticipates making the first cash distribution in 1996. The Board is, however, currently unable to predict the precise amount of any distributions of cash pursuant to the Plan. The actual amount and timing of, and record date for, all distributions will be determined by the Board of Directors, in its sole discretion, and will depend in part upon the Board's determination as to whether particular assets are to be distributed in kind or otherwise disposed of, and the amounts deemed necessary by the Board to pay or provide for all the Company's liabilities and obligations. The Company does not plan to satisfy all of its liabilities and obligations prior to making distributions to its stockholders, but instead will reserve assets deemed by management to be adequate to provide for satisfying such liabilities and obligations. See "Contingent Liabilities; Contingency Reserve; Liquidating Trust." Management believes that the Company has sufficient cash to pay its current and accrued obligations without the sale of any of its assets. Uncertainties as to the net value of assets and the ultimate amount of liabilities make it impracticable to predict the aggregate net values ultimately distributable to stockholders. Claims, liabilities and expenses from operations (including operating costs, salaries, income taxes, payroll, local taxes and miscellaneous office expenses) will continue to accrue following approval of the Plan, and the Company anticipates that expenses for professional fees and other expenses of liquidation will be significant. These expenses will reduce the amount of assets available for ultimate distribution to stockholders. While the Company does not believe that a precise estimate of those expenses can presently be made, management believes that available cash, interest income and the amounts which will be received on the sale of assets will be adequate to provide for the Company's obligations, liabilities, expenses and claims (including contingent liabilities) and to make cash distributions to stockholders. However, no assurances can be given as to the foregoing. See "Pro Forma Liquidating Balance Sheet." Also see "Contingent Liabilities; Contingency Reserve; Liquidating Trust" for a discussion of certain circumstances under which a stockholder could be held liable to creditors of the Company for the payment of expenses and liabilities (such obligation to be limited to the amounts received by the stockholder as distributions from the Company or the liquidating trust).
If securities held by the Company are distributed to stockholders, applicable rules and regulations of the SEC will be complied with.
The Plan gives to the Board of Directors of the Company the power to sell all the assets of the Company. As of the date hereof, no sale of any assets of the Company has been consummated. See, however, "Operating Divisions and Subsidiary" below for a discussion of a letter of intent entered into by the Company with respect to the sale of one of its divisions. Any sale, including the one contemplated by such letter of intent, will only be made after the Board of Directors has determined that such sale is in the best interest of the stockholders. In addition, see "Asset Purchase Agreement" for a discussion of an agreement entered into by the Company and Behlman with respect to the sale of certain of their assets.
Following are the principal assets of the Company, together with a brief description of the Company's current plans to sell or distribute them.
As of September 30, 1995, the Company had approximately $11,678,000 in marketable securities (valued at the lower of cost or market). These are primarily short and intermediate term liquid instruments such as U.S. Treasury obligations which will be sold or held to maturity to maximize stockholder value, as determined by the Board of Directors. In addition, as of such date, the Company had approximately $11,924,000 in long-term U.S. Treasury Notes which also will be sold or held to maturity, as determined by the Board.
As of September 30, 1995, the Company had accounts receivable (net of a reserve for doubtful accounts) of approximately $2,468,000. Both the letter of intent referred to above and the Asset Purchase Agreement contemplate that such accounts receivable will be retained as assets of the Company and Behlman. Pursuant to the Asset Purchase Agreement, Orbitsub is obligated to collect, on behalf of the Company and Behlman, all accounts receivable of the businesses to be acquired. Subject to the terms of the Asset Purchase Agreement, the Company and Behlman have retained the right to collect any accounts receivable that are overdue. Pursuant to the Asset Purchase Agreement, Orbitsub shall have the right to purchase the accounts receivable of the businesses to be acquired on a dollar-for-dollar basis.
The Company's two operating divisions, Defense Electronics Division ("Defense") and Industrial Automation Division ("Industrial"), and wholly-owned subsidiary, Behlman, have been offered for sale.
The Company has entered into a letter of intent with North Atlantic Instruments, Inc. (the "Letter of Intent") with regard to the sale of certain assets of Industrial, including its inventory and equipment, for a cash purchase price of approximately $705,000 (subject to certain adjustments based upon a valuation of the subject assets at closing). The consummation of the transaction contemplated by the Letter of Intent is subject to a number of conditions, including the execution of a definitive purchase agreement. No assurances can be given that the transaction will be completed on the above terms or otherwise. The consummation of the sale of Industrial's assets, as described above, is contingent upon stockholder approval of the Plan but not upon approval of any agreement embodying the terms thereof.
See "Asset Purchase Agreement" for a discussion of the proposed sale of certain assets of Defense and Behlman. The consummation of the sale of such assets pursuant to the Asset Purchase Agreement is contingent upon stockholder approval of the Plan and the Asset Purchase Agreement; however, approval of the Plan is not contingent upon stockholder approval of the Asset Purchase Agreement.
In the event the Asset Purchase Agreement and/or Letter of Intent are not consummated and an alternate sales price is not obtained which, in the opinion of the Board of Directors and its financial advisor, maximizes stockholder value, the Board may, in its sole discretion, decide to liquidate the divisions and subsidiary over a period of time which maximizes stockholder value.
The Company has engaged OEM as its exclusive financial advisor with respect to the possible sale of the divisions and Behlman and has agreed to pay OEM a graduated percentage (ranging between 5% and 1%) of the sales consideration.
The Company reviewed and interviewed a number of financial advisors and selected OEM as its exclusive financial advisor primarily due to its expertise in evaluating small and medium-size high technology electronics companies. Discussions with a number of OEM's previous clients indicated a high degree of satisfaction with its expertise and diligence.
The Company has been advised that OEM and its predecessor have operated for more than ten years, conducting investment banking transactions on behalf of companies in electronics-related industries. Its principals have all had extensive experience as investment bankers to these industries. In addition, the Company has been advised that both principals who are performing services for the Company have technical degrees as well as experience managing similar companies.
OEM's services have included financial advice in connection with estimating the value of the Company's operating divisions and Behlman, preparing descriptive memoranda of the divisions and subsidiary, developing a list of prospective bidders, coordinating competitive bidding for the divisions and subsidiary and assisting the Company in evaluating the bids received. No written reports were requested or received from OEM with regard to asset values or other matters relating to the contemplated sales other than weekly status reports with regard to prospective bidders.
The Company currently owns 32.3% of the Common Stock of AstroPower, Inc. ("AstroPower"). Assuming certain convertible Preferred Stock is converted into Common Stock by stockholders of AstroPower other than the Company, the Company's interest in AstroPower would be reduced to 22.8%. The Company has a zero basis in its AstroPower Common Stock. As there is currently no public market for the AstroPower Common Stock and there are certain restrictions on the transferability of such shares, the Board, in its sole discretion, will consider placing the Company's AstroPower Common Stock into a liquidating trust or will seek such alternate method or methods of sale, disposition or distribution as will maximize stockholder value.
In 1983, the Company acquired a 16-year license (the "License") from the University of Delaware covering a new process for the manufacture of solar cells. In connection with the acquisition of the License, the Company issued a $20,000,000 nonrecourse note (the "Note"), originally due in 1993 and bearing interest at the rate of 14% per year. The Note is secured by the Company's rights under the License and is to be paid prior to its due date solely on the basis of 4% of sales of products developed by this process, subject to certain minimum quarterly payments of $11,250 to $12,500. To date, there have been no sales of products developed by the solar cell process covered by the License. An amendment to the license agreement (the "License Agreement") extended its term to 2006; concurrently, the due date of the Note was extended to May 1999. As consideration for the amendment, the Company paid $115,000 in cash, which was charged to operations for the year ended June 30, 1994, and transferred 35,000 shares of Common Stock of AstroPower to the University of Delaware. The Company, for financial reporting purposes, has not recorded the Note and charges operations with any payments.
The Board will consider alternative methods of maximizing the value of the License for the benefit of the Company's stockholders.
At September 30, 1995, $8,193,000 of deferred taxes relating primarily to the License Agreement was classified as a long-term liability. The Company will retain an amount in the Contingency Reserve necessary to satisfy deferred taxes which will fluctuate based on the future taxable income of the Company. See "Contingent Liabilities; Contingency Reserve; Liquidating Trust."
CONDUCT OF THE COMPANY FOLLOWING ADOPTION OF THE PLAN
It is anticipated that the present Directors and executive officers of the Company will continue to serve in such capacities following adoption of the Plan. Such Directors and officers will receive compensation for the duties then being performed as determined by the Board of Directors. The Board of Directors has not established specific guidelines for determination of the compensation to be paid to Directors and officers of the Company following approval of the Plan. Such compensation will be determined by an evaluation of all relevant factors, including, without limitation, the efforts of such individuals in successfully implementing the Plan and compensation payable in the financial community to individuals exercising similar authority and bearing similar responsibilities. Pursuant to the Plan, the Company may, in the absolute discretion of the Board, pay to the Company's officers, Directors, employees, agents and representatives, or any of them, compensation or additional compensation above their regular compensation, in money or other property, in recognition of the extraordinary efforts they, or any of them, will be required to undertake, or actually undertake, in connection with the implementation of the Plan. Approval of the Plan shall also constitute the approval by the Company's stockholders of the payout of any such compensation. See "Conflict of Interest of Certain Members of the Board of Directors" with respect to certain Employment Agreements in effect between the Company and certain executive officers, and certain termination notice provisions therein.
Following approval of the Plan by the Company's stockholders, the Company's activities will be limited to winding up its affairs and taking such action as may be necessary to preserve the value of its assets. The Company will seek to liquidate all of its assets in such manner and upon such terms as the Board of Directors determines to be in the best interests of the Company's stockholders. The prices at which the Company will be able to sell its various assets depend largely on factors beyond the Company's control, including, without limitation, the rate of inflation, changes in interest rates, the condition of financial markets, the availability of financing to prospective purchasers of the assets and governmental regulatory approvals. The Company may not obtain as high a price for a particular property as it might secure if the Company were not in liquidation. See "Disposition of Certain Assets--Operating Divisions and Subsidiary" and "Pro Forma Liquidating Balance Sheet."
In November 1995, pursuant to the provisions of the Company's lease with regard to its executive offices and manufacturing operations located at 6 Nevada Drive, Lake Success, New York, the Company advised the lessor that it was terminating the lease effective February 29, 1996. In taking such action, the Company anticipated that the sales contemplated by the Asset Purchase Agreement and the Letter of Intent will be consummated by such date. No assurances can be given as to the foregoing. In the event such transactions are not timely consummated and the Company is unable to negotiate an extension of the lease, the ability of the Company to sell its operations as a going concern would be materially adversely affected and/or the Company may find it necessary to incur substantial relocation costs.
Pursuant to the Plan, the Company shall indemnify its officers, Directors, employees, agents and representatives for actions taken in connection with the Plan and the winding up of the affairs of the Company. The Company's obligation to indemnify such persons may also be satisfied out of assets of any liquidating trust established.
CONTINGENT LIABILITIES; CONTINGENCY RESERVE; LIQUIDATING TRUST
Under Delaware law, the Company is required, in connection with its dissolution, to pay or provide for payment of all of its liabilities and obligations. Following approval of the Plan by the Company's stockholders, the Company will pay, or set aside as a Contingency Reserve assets which it believes adequate for payment of, all expenses and fixed and other known liabilities. The Company is currently unable to estimate with precision the extent of any Contingency Reserve which may be required, but any such sum (in addition to any assets contributed to a liquidating trust, if one is utilized) will be deducted before the determination of amounts available for distribution to stockholders. See "Disposition of Certain Assets--Solar Cell License" for a discussion of a certain deferred tax liability of the Company. Also see "Pro Forma Liquidating Balance Sheet" and "Asset Purchase Agreement."
The actual size of the Contingency Reserve will be based upon estimates and opinions of management derived from consultations with outside experts and review of the Company's estimated operating expenses, including, without limitation, anticipated compensation payments, estimated investment banking, legal and accounting fees, rent, payroll and other taxes payable, miscellaneous office expenses and accrued expenses. There can be no assurance that the Contingency Reserve will be sufficient. Subsequent to its establishment, the Company will distribute to its stockholders any portions of the Contingency Reserve which it deems no longer to be required. After the liabilities, expenses and obligations for which the Contingency Reserve had been established have been satisfied in full, the Company will distribute to its stockholders any remaining portion of the Contingency Reserve.
If necessary for any reason in order to complete the liquidation and distribution of the Company's assets to the Company's stockholders, the Company may at any time transfer to a liquidating trust, as a final liquidating distribution or from time to time prior to a final liquidating distribution, any assets of the Company. If all the Company's assets are not sold or distributed prior to the fourth anniversary of the approval of the Plan by the Company's stockholders, pursuant to the provisions of the Plan, the Company must transfer the assets not sold or distributed (including the Contingency Reserve) to such a liquidating trust. The sole purpose of the trust will be to liquidate on terms satisfactory to the liquidating trustees and distribute the proceeds of the assets formerly owned by the Company, after paying any remaining liabilities of the Company, to the Company's then stockholders of record. The liquidating trust will be obligated to pay any expenses and liabilities of the Company which remain unsatisfied. If the Contingency Reserve transferred to the liquidating trust is exhausted, such expenses and liabilities will be satisfied out of the liquidating trust's other unsold assets.
The Plan authorizes the Board of Directors to appoint one or more individuals or corporate persons to act as trustee or trustees of the liquidating trust and to cause the Company to enter into a liquidating trust agreement with such trustee or trustees on such terms and conditions as the Board of Directors determines. Approval of the Plan will constitute the approval by the Company's stockholders of any such appointment and liquidating trust agreement.
In the event the Company fails to create an adequate Contingency Reserve for payment of its expenses and liabilities, or should such Contingency Reserve and the assets held by the liquidating trust be exceeded by the amount ultimately found payable in respect of expenses and liabilities, each stockholder could be held liable for the payment to creditors of such stockholder's pro rata share of such excess, limited to the amounts theretofore received by such stockholder from the Company or the liquidating trust.
If a court holds at any time that the Company has failed to make adequate provision for its expenses and liabilities or if the amount ultimately required to be paid in respect of such liabilities exceeds the amount available from the Contingency Reserve and the assets of the liquidating trust, a creditor of the Company could seek an injunction against the making of distributions under the Plan on the ground that the amounts to be distributed are needed to provide for the payment of the Company's expenses and liabilities. Any such action could delay or substantially diminish the cash distributions to be made to stockholders and/or holders of Interests under the Plan.
The stock transfer books of the Company will be closed on the earlier to occur of (i) the close of business on the record date fixed by the Board for the final liquidating distribution or (ii) the date on which the Company ceases to exist under Delaware law (following any post-dissolution continuation period), and thereafter no further transfers will be recorded on the Company's books, and no further stock certificates will be issued, other than replacement certificates. It is anticipated that no further trading of the Company's shares will occur after such date (the "Final Record Date"). See "Listing and Trading of the Common Stock and Interests in the Liquidating Trust" below. All liquidating distributions from the Company on or after the Final Record Date will be made to stockholders according to their stockholdings as of the Final Record Date. Prior or subsequent to the Final Record Date, the Company may, at its election, require stockholders to surrender certificates representing their shares of the Company's Common Stock in order to receive subsequent distributions. Stockholders should not forward their stock certificates before receiving instructions to do so. If surrender of stock certificates should be required, all distributions otherwise payable by the Company or the liquidating trust, if any, to stockholders who have not surrendered their stock certificates may be held in trust for such stockholders, without interest, until the surrender of their certificates (subject to escheat pursuant to the laws relating to unclaimed property).
LISTING AND TRADING OF THE COMMON STOCK AND INTERESTS IN THE LIQUIDATING TRUST
The Company currently intends to close its transfer books on the Final Record Date and at such time cease recording stock transfers and issuing stock certificates (other than replacement certificates). Accordingly, it is expected that trading in the shares will cease on such date. Prior to such time, it is anticipated that the market price of the Company's Common Stock will decline as distributions are made to stockholders. Such price reduction may have a material adverse affect upon the marketability of the outstanding shares of Common Stock as many investors, as a matter of policy, avoid investment in (or, in the case of institutional investors, are restricted from acquiring) low-priced securities. In addition, a variety of brokerage house policies and practices tend to discourage individual brokers within those firms from dealing in low-priced stocks or recommending such securities to their clients. Further, the structure of trading commissions tends to have an adverse impact upon holders of low-priced stocks because the brokerage commission on a sale of such securities generally represents a higher percentage of the sale price than the commission on a relatively higher-priced issue. Moreover, as a result of the adoption of the Plan and/or the resulting reduction in both the market price of the Company's Common Stock and the Company's assets and stockholders' equity following stockholder distributions, the Common Stock may no longer satisfy the requirements for continued listing on the NASDAQ National Market System ("NMS") (or listing on the NASDAQ Small Cap Market). In the event the listing of the Company's Common Stock on NASDAQ NMS is terminated and the Company does not meet the requirements for listing on the NASDAQ Small Cap Market, the marketability of the shares of Common Stock may be adversely affected to a material degree.
No determination yet has been made whether the Interests in the liquidating trust, if any, will be transferable. Such determination will be made by the Board of Directors of the Company prior to the transfer of assets to the liquidating trust and will be based on, among other things, the Board's estimate of the value of the assets being transferred to the liquidating trust, tax matters and the impact of compliance with applicable securities laws. If the Interests are not transferable, ownership may be assigned only by operation of law or upon death.
As stockholders will be deemed to have received a liquidating distribution equal to their pro rata share of the value of the net assets distributed to an entity which is treated as a liquidating trust for tax purposes (see "Certain Federal Income Tax Consequences--The Liquidating Trust"), the distribution to the trust of assets could result in immediate tax liability to the holders of Interests without their readily being able to realize the value of such Interests to pay such taxes or otherwise. Should the
Interests be transferable, the Company plans to distribute an information statement with respect to the liquidating trust at the time of the transfer of assets and the liquidating trust may be required to comply with the periodic reporting and proxy requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The costs of compliance with such requirements would reduce the amount which otherwise could be distributed to holders of Interests. Even if transferable, the Interests are not expected to be listed on a national securities exchange or quoted through NASDAQ and the extent of any trading market therein cannot be predicted. Moreover, the Interests may not be accepted by commercial lenders as security for loans as readily as more conventional securities with established trading markets.
Under Delaware law, the stockholders of the Company are not entitled to appraisal rights for their shares of the Company's stock in connection with the transactions contemplated by the Plan or to any similar rights of dissenters under Delaware law.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material Federal income tax consequences to the Company and its stockholders relevant to the Plan, but does not purport to be a complete analysis of all the potential tax effects. The discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue Service (the "IRS") rulings, and judicial decisions now in effect, all of which are subject to change at any time; any such changes may be applied retroactively. The following discussion has no binding effect on the IRS or the courts and assumes that the Company will liquidate substantially in accordance with the Plan. Distributions pursuant to the Plan may occur at various times and in more than one tax year. No assurances can be given that the tax treatment described herein will remain unchanged at the time of such distributions.
After the approval of the Plan and until the winding up of its affairs is completed and the Company ceases to exist, the Company will continue to be subject to tax on its taxable income. The Company will generally recognize gain or loss on sales of its property pursuant to the Plan. Upon any distribution of property to stockholders or to a liquidating trust pursuant to the Plan, the Company will generally recognize gain or loss as if such property was being sold to the stockholders at its fair market value.
Stockholders will recognize gain or loss equal to the difference between (i) the sum of the amount of cash distributed to them and the fair market value (at the time of distribution) of property distributed to them, and (ii) their tax basis for their shares of the Company's Common Stock. A stockholder's tax basis in his or her shares will depend upon various factors including the method of acquisition of such shares and the amount and nature of any distributions received with respect thereto.
Gain or loss will be computed on a "per share" basis. The Company expects to make more than one liquidating distribution, each of which will be allocated proportionately to each share of stock owned by a stockholder. Gain will be recognized by reason of a liquidating distribution only to the extent that the aggregate value of such distribution and any prior liquidating distribution(s) received by a stockholder with respect to a share exceeds his or her tax basis for that share. Any loss will generally be recognized only when the final distribution from the Company has been received and then only if the aggregate value of the liquidating distribution with respect to a share is less than the stockholder's tax basis for that share, as adjusted for prior distributions. Gain or loss recognized by a stockholder will be capital gain or loss provided the shares are held as capital assets.
Upon any distribution of property, the stockholder's tax basis in such property will be the fair market value of such property at the time of distribution. The gain or loss recognized upon a future sale of that property will be measured by the difference between the stockholder's tax basis in the property at the time of such sale and the sales proceeds.
After the close of its taxable year, the Company will provide stockholders and the IRS with a statement of the amount of cash distributed to the stockholders and its best estimate as to the value of the property distributed to them during that year. In the case of property which consists of stock or other securities which are traded in a public market, the fair market value will be based on the prices at which such stocks or securities are so traded at the time of distribution. In the case of other property, the fair market value will be determined by the Board of Directors. In making such determination, the Board may rely upon reports by independent appraisers. There is no assurance that the IRS would not challenge such valuation. As a result of such a challenge, the amount of gain or loss recognized by stockholders (as well as the Company) might be changed.
If a liquidating trust is used, stockholders will be treated for tax purposes at the time of transfer as having received their pro rata share of property transferred to the liquidating trust, reduced by the amount of known liabilities assumed by the liquidating trust or to which the property transferred is subject. The liquidating trust itself should not be subject to tax. After formation of the trust, the stockholders must take into account for Federal income tax purposes their allocable portion of any income, expense, gain or loss recognized by the trust. As a result of the transfer of property to the trust and the ongoing operations of the trust, stockholders should be aware that they may be subject to tax, whether or not they have received any actual distributions from the liquidating trust with which to pay such tax.
TAXATION OF NON-UNITED STATES STOCKHOLDERS
Foreign corporations or persons who are not citizens or residents of the United States should consult their tax advisors with respect to the U.S. and non-U.S. tax consequences of the Plan.
STATE AND LOCAL INCOME TAX CONSEQUENCES
Stockholders may also be subject to liability for state and local taxes with respect to the receipt of liquidating distributions and their Interests in the liquidating trust.
THE COMPANY RECOMMENDS THAT EACH STOCKHOLDER CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE PLAN.
PRO FORMA LIQUIDATING BALANCE SHEET
PRO FORMA LIQUIDATING BALANCE SHEET
The following pro forma unaudited liquidating balance sheet reflects the financial position of the Company and its subsidiaries as if the Plan was approved and adopted on September 30, 1995, and carried out through the estimated liquidation date of June 1999. In addition, it assumes the sale of the Company's operating divisions and subsidiary as discussed under "Disposition of Certain Assets-- Operating Divisions and Subsidiary." The pro forma unaudited liquidating balance sheet assumes no material value for the Company's holdings of AstroPower, Inc. for which the Company's carrying value at September 30, 1995 is zero. See "Disposition of Certain Assets--AstroPower, Inc." In the opinion of management of the Company, all adjustments necessary to present fairly such pro forma unaudited liquidating balance sheet have been made.
The pro forma unaudited liquidating balance sheet should be read in conjunction with the notes thereto and the Company's financial statements included in the Company's Annual Report on Form 10-KSB for the year ended June 30, 1995. The pro forma unaudited liquidating balance sheet is not necessarily indicative of what the actual financial position of the Company would have been had the transactions contemplated in the Plan occurred at September 30, 1995, nor does it purport to represent the future financial position of the Company.
The historical condensed balance sheet included within the pro forma unaudited liquidating balance sheet is extracted from the Company's unaudited September 30, 1995 financial statements. In management's opinion, it includes all normal recurring adjustments necessary to a fair presentation.
NOTES TO PRO FORMA LIQUIDATING BALANCE SHEET
(1) Adjustment to record management's estimate of the proceeds from the sale and liquidation of the three operating units.
(2) Assumes the exercise of all outstanding options at prices of $2.88 to $4.00 per share.
(3) Net estimated loss on disposition of the assets.
(4) Establishment at September 30, 1995 of a contingency reserve, which the Company believes will be adequate for payment of all expenses and other known liabilities and possible contingent obligations, as well as an amount estimated to be required to carry out the Plan.
(5) Assumes no material value for the Company's holdings of AstroPower, Inc.
Approval of the Plan requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY, AFTER CAREFUL REVIEW AND CONSIDERATION OF THE TERMS OF THE PLAN, BELIEVES THAT THE LIQUIDATION IS IN THE BEST INTEREST OF THE COMPANY'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF APPROVAL OF THE ADOPTION OF THE PLAN. CERTAIN MEMBERS OF THE BOARD OF DIRECTORS MAY BE DEEMED TO HAVE A CONFLICT OF INTEREST IN RECOMMENDING APPROVAL OF THE PLAN. SEE "CONFLICT OF INTEREST OF CERTAIN MEMBERS OF THE BOARD OF DIRECTORS." SUCH DIRECTORS, WHO, AS OF THE MEETING RECORD DATE, HAD OR SHARED VOTING POWER WITH RESPECT TO AN AGGREGATE OF APPROXIMATELY 1,965,518 SHARES OF COMMON STOCK OF THE COMPANY (APPROXIMATELY 43% OF THE THEN ISSUED AND OUTSTANDING SHARES OF COMMON STOCK), HAVE INDICATED THAT THEY INTEND TO VOTE "FOR" APPROVAL OF THE PLAN. SEE "PRINCIPAL STOCKHOLDERS."
The Company is proposing that, at the Meeting, the stockholders approve the Asset Purchase Agreement, dated as of January 11, 1996, among Orbitsub, International, the Company and Behlman. Approval of the Asset Purchase Agreement is also contingent upon stockholder approval of the Plan; however, approval of the Plan is not contingent upon stockholder approval of the Asset Purchase Agreement. A copy of the Asset Purchase Agreement is attached as Exhibit B to this Proxy Statement. The material features of the Asset Purchase Agreement are summarized below; this summary does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the Asset Purchase Agreement. STOCKHOLDERS ARE URGED TO READ THE ASSET PURCHASE AGREEMENT IN ITS ENTIRETY.
BACKGROUND AND REASONS FOR THE ASSET PURCHASE AGREEMENT; DIRECTORS'
See "Proposed Plan of Liquidation and Dissolution--Background and Reasons for the Plan; Directors' Recommendations" for a discussion of the background and reasons for the determination by the Board of Directors of the Company to sell the operating assets of Defense and Behlman.
As discussed under "Proposed Plan of Liquidation and Dissolution--Financial Advisor," the Company has engaged OEM as its exclusive financial advisor with regard to the possible sale of the Company's divisions and Behlman. In connection with the possible sales of the operating assets of Defense and Behlman, OEM assisted in the preparation of memoranda describing their operations. A one page summary of the memoranda (not identifying the Company) was sent to approximately 150 entities identified by OEM and the Company. Based on responses and follow-up telephone calls and subject to the receipt of executed confidentiality agreements, memoranda were sent to interested parties. Subsequently, plant visits were made by twelve qualified and interested parties, including International, and bids were received from five of such parties and negotiated where appropriate. Following a determination by the Boards of Directors of the Company and Behlman (collectively, the "Sellers") that the consideration for the assets to be transferred and other terms set forth in the Asset Purchase Agreement were fair to the Company and Behlman, the Asset Purchase Agreement was executed and delivered by the respective companies.
BASED UPON THE FOREGOING, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL OF THE ASSET PURCHASE AGREEMENT. CERTAIN MEMBERS OF THE BOARD OF DIRECTORS MAY BE DEEMED TO
HAVE A CONFLICT OF INTEREST IN RECOMMENDING APPROVAL OF THE ASSET PURCHASE AGREEMENT. SEE "CONFLICT OF INTEREST OF CERTAIN MEMBERS OF THE BOARD OF DIRECTORS." SUCH DIRECTORS, WHO, AS OF THE MEETING RECORD DATE, HAD OR SHARED VOTING POWER WITH RESPECT TO AN AGGREGATE OF APPROXIMATELY 1,965,518 SHARES OF COMMON STOCK OF THE COMPANY (APPROXIMATELY 43% OF THE THEN ISSUED AND OUTSTANDING SHARES OF COMMON STOCK), HAVE INDICATED THAT THEY INTEND TO VOTE "FOR" APPROVAL OF THE ASSET PURCHASE AGREEMENT. SEE "RECOMMENDATION AND VOTE" AND "PRINCIPAL STOCKHOLDERS."
If the Asset Purchase Agreement is not approved by the stockholders, the Board of Directors will explore the alternatives then available with respect to Defense and Behlman. In such event, subject to stockholder approval of the Plan, no further stockholder approval will be sought with regard to the specific terms of any dispositions of the assets of Defense and/or Behlman approved by the Boards of Directors of the Company and/or Behlman or, if applicable, the trustees of any liquidating trust. Approval of the Plan shall constitute approval of any and all such dispositions.
CONFLICT OF INTEREST OF CERTAIN MEMBERS OF THE BOARD OF DIRECTORS
For the reasons discussed under "Proposed Plan of Complete Liquidation and Dissolution-- Conflict of Interest of Certain Members of the Board of Directors," three Directors (Messrs. Barth, Bergman and G. Steinberg) may be deemed to have a conflict of interest with respect to approval of the Asset Purchase Agreement. See "Executive Compensation and Certain Transactions--Employment Agreements."
PRINCIPAL PROVISIONS OF THE ASSET PURCHASE AGREEMENT; TERMINATION AND AMENDMENT
The Asset Purchase Agreement provides for, among other matters, the following:
(a) Transfer of Assets. The Company will transfer to Orbitsub certain assets which are primarily related to, or are primarily used or held in connection with, the business of Defense. In addition, Behlman will transfer to Orbitsub certain of its assets. The assets to be transferred include, among other things, inventory, certain equipment and certain contract rights. The Asset Purchase Agreement indicates that assets not being transferred include cash, cash equivalents, accounts receivable and marketable securities, among others.
(b) Assumption of Liabilities. Pursuant to the Asset Purchase Agreement, Orbitsub shall assume and thereafter pay, perform, satisfy and discharge, among others, the liabilities and obligations of the Sellers under certain contracts and permits as well as after-sale and warranty obligations with respect to products manufactured and sold by Defense and/or Behlman prior to the closing (see "Warranty Obligations").
(c) Purchase Price. In consideration for the sale and transfer of the assets and the Sellers' covenant not to compete as set forth below, Orbitsub has agreed to pay in cash at the closing the sum of $3,706,700 (the "Purchase Price").
(d) Adjustment to Purchase Price. The Asset Purchase Agreement provides for an adjustment in the Purchase Price based upon the net book value of the fixed assets, inventory and goodwill of the Sellers as of the closing. The parties have agreed that the goodwill valuation shall be $1,031,700.
(e) Representations and Warranties. Pursuant to the Asset Purchase Agreement, the Sellers, Orbitsub and International have made a number of representations and warranties to each other which are customary in transactions of this nature.
(f) Covenants Generally. In addition, pursuant to the Asset Purchase Agreement, the parties have agreed to take, or refrain from taking, certain actions prior to the closing of the transaction or the termination of the Asset Purchase Agreement. Such covenants are also customary in transactions of this nature.
(g) Restrictive Covenants. The Asset Purchase Agreement provides that each of the Sellers, as well as Messrs. Barth, Bergman and G. Steinberg (collectively, the "Principal Stockholders"), will not, for a period of three years following the closing, engage or participate in, directly or indirectly, or lend its or his name to, any business which is or, as a result of the Sellers' or Principal Stockholders' engagement or participation would become, competitive with the business of Defense or Behlman as currently conducted by the Sellers. The Asset Purchase Agreement, among other matters, also provides that, during such time period, the Sellers and Principal Stockholders will not solicit, interfere with or endeavor to entice away from Orbitsub or otherwise deal, directly or indirectly, in a competitive manner with any customers doing business with Orbitsub as a successor to the business of Defense and Behlman.
(h) Sales Taxes. Any sales taxes resulting from the transactions contemplated by the Asset Purchase Agreement shall be borne by Orbitsub.
(i) Occupancy Agreement. Pursuant to the Asset Purchase Agreement, Orbitsub shall be entitled to use the Lake Success premises of the Sellers, and obtain certain support services from the Sellers (for which they are entitled to be compensated), until the lease termination date of February 29, 1996.
(j) Warranty Obligations. The Sellers and Orbitsub have agreed that Orbitsub, on behalf of the Sellers, shall perform all repairs as required pursuant to warranty repair obligations with respect to products sold by the Sellers prior to the closing. In consideration for such services, the Sellers have agreed to reimburse Orbitsub for its labor and material costs at an agreed upon rate.
(k) Conditions to Closing. The respective obligations of the parties to consummate the transactions contemplated by the Asset Purchase Agreement are subject to a number of conditions, including, among others, approval of the Plan and Asset Purchase Agreement by the Company's stockholders, the continuing accuracy of the representations and warranties and compliance with all covenants and obligations of the respective parties.
(l) Indemnification; Escrow. Each of the Sellers, on the one hand, and Orbitsub and International, on the other, have agreed to indemnify and hold harmless the other against and in respect of any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs, damages, losses, liabilities, taxes and deficiencies and penalties and interest thereon resulting from, among other matters, any misrepresentation, breach of warranty or nonfulfillment of any covenant or agreement on their part. All representations and warranties of the parties shall survive the execution and delivery of the Asset Purchase Agreement and shall continue in full force and effect for two years after the closing date. No indemnity shall be payable based upon, arising out of or otherwise in respect of any inaccuracy or any breach of representation or warranty (i) with respect to any loss of less than $2,500 and (ii) unless and until the aggregate of all losses due Orbitsub or Sellers, as the case may be, exceed $50,000 at which point all losses so due shall be payable in full. Pursuant to the Asset Purchase Agreement, the total indemnification obligation of the Sellers thereunder shall be limited to an amount, in the aggregate, not to exceed the Purchase Price, as adjusted. In addition, pursuant to the Asset Purchase Agreement, the Company has agreed that it will maintain its corporate existence until the expiration of the survival period referred to above and that, during such period, it shall maintain a net worth (calculated on a non- liquidation basis) at least equal to the Purchase Price, as adjusted. Further, as security for their indemnification obligation, pursuant to the Asset Purchase Agreement, at the closing, the Sellers are to deliver to counsel to Orbitsub, to be held in escrow, $1,000,000 of the Purchase Price (of which $500,000 shall be released and delivered to the Sellers one year following the closing, subject to any pending claims by Orbitsub against the Sellers). The balance of any escrow amount is to be released to the Sellers two years following the closing, subject to any such pending claims.
(m) Termination; Amendment. The Asset Purchase Agreement may be terminated and the transactions contemplated thereby may be abandoned (i) by mutual consent of the Sellers and Orbitsub; (ii) by Sellers or Orbitsub by notice to the other if the closing shall not have occurred on or before April 30, 1996; or (iii) by Sellers if the conditions to the obligation of Orbitsub to consummate the transaction shall have been satisfied or waived and Orbitsub shall be unable or unwilling to close on the terms and conditions of the Asset Purchase Agreement on or before February 15, 1996. In the event of any termination of the Asset Purchase Agreement, such agreement shall become void and have no further force and effect and there shall be no liability on the part of any of the parties except for, among other matters, willful failure to consummate the transactions contemplated thereby.
If the Board of Directors determines that consummation of the transactions contemplated by the Asset Purchase Agreement is not in the best interests of the Company or its stockholders, subject to the provisions of the Asset Purchase Agreement, the Board may direct that it be terminated. In the event of the termination of the Asset Purchase Agreement for any reason whatsoever, subject to stockholder approval of the Plan, no further stockholder approval will be sought with regard to the specific terms of any dispositions of the assets of Defense and/or Behlman approved by the Boards of Directors of the Company and/or Behlman or, if applicable, the trustees of any liquidating trust. Approval of the Plan shall constitute approval of any and all such dispositions.
Subject to the provisions of the Asset Purchase Agreement, the Board also may amend or modify the Asset Purchase Agreement if it determines such action to be in the best interests of the Company or its stockholders, without the necessity of further stockholder approval.
(n) Expenses. The parties to the Asset Purchase Agreement shall bear their respective expenses incurred in connection with the preparation, execution and performance thereof and the transactions contemplated thereby, except that, (i) in the event that such transactions are not consummated due to the failure of the Company to obtain the approval of the Asset Purchase Agreement and the Plan by the Company's stockholders, the Sellers generally shall be obligated to reimburse Orbitsub for all expenses incurred in connection with the preparation and negotiation of the Asset Purchase Agreement and the transactions contemplated thereby and (ii) in the event the conditions to the obligation of Orbitsub to consummate the transaction shall have been satisfied or waived and the closing shall not have occurred on or before April 15, 1996 due to the inability or unwillingness of Orbitsub to close on the terms and conditions of the Asset Purchase Agreement, Orbitsub generally shall be obligated to reimburse the Sellers for all expenses incurred in connection with the preparation and negotiation of the Asset Purchase Agreement and the transactions contemplated thereby. The Sellers shall bear the fees and expenses of OEM. See "Proposed Plan of Complete Liquidation and Dissolution--Financial Advisor."
(o) Guarantee. Pursuant to the Asset Purchase Agreement, the performance of the obligations of Orbitsub thereunder and in connection therewith has been guaranteed by International.
(p) Bridge Financing. Pursuant to the Asset Purchase Agreement, the parties have agreed to negotiate in good faith the terms and conditions of a 90-day bridge loan of up to $500,000 from the Company to Orbitsub, which loan, if successfully negotiated, would be funded at the closing.
Under Delaware law, the stockholders of the Company are not entitled to appraisal rights for their shares of the Company's stock in connection with the transactions contemplated by the Asset Purchase Agreement or to any similar rights of dissenters under Delaware law.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material Federal income tax consequences to the Company relevant to the Asset Purchase Agreement, but does not purport to be a complete analysis of all the potential tax effects. The discussion is based upon the Code, Treasury Regulations, IRS rulings, and judicial decisions now in effect, all of which are subject to change at any time; any such changes may be applied retroactively. The following discussion has no binding effect on the IRS or the courts and assumes that the Company will consummate the Asset Purchase Agreement substantially in accordance with its terms.
The Company will recognize taxable gain or deductible loss on the sale of each asset pursuant to the Asset Purchase Agreement. The amount of such gain or loss will be the difference between the Company's adjusted tax basis for each asset and the amount of consideration received for that asset (reduced by the costs of the transaction allocable to that asset).
It is anticipated that the net taxable income recognized by the Company as a result of the sale of its assets pursuant to the Asset Purchase Agreement will not create a current regular Federal income tax liability because of (a) the Company's anticipated level of operating losses and severance expenses for the year ending June 30, 1996 and (b) the Company's net operating loss carry forwards.
The Company also anticipates that its level of operating losses and severance expenses for the year ending June 30, 1996 will cause it to have no alternative minimum taxable income for such year for purposes of the Federal alternative minimum tax ("AMT"). Since, under the AMT, only 90% of alternative minimum taxable income can be reduced by net operating loss carry forwards, if the Company has alternative minimum taxable income for the year ending June 30, 1996 (without regard to net operating carry forwards), it would have to pay Federal alternative minimum tax on a portion of the net taxable income recognized as a result of the sale of its assets pursuant to the Asset Purchase Agreement. It is anticipated that such tax will not exceed 2% of any such income.
STATE AND LOCAL INCOME TAX CONSEQUENCES
The Company may also be subject to liability for state and local taxes with respect to the consummation of the Asset Purchase Agreement.
Approval of the Asset Purchase Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY, AFTER CAREFUL REVIEW AND CONSIDERATION OF THE TERMS OF THE ASSET PURCHASE AGREEMENT, BELIEVES THAT ITS CONSUMMATION IS IN THE BEST INTEREST OF THE COMPANY'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF APPROVAL OF THE ASSET PURCHASE AGREEMENT. CERTAIN MEMBERS OF THE BOARD OF DIRECTORS MAY BE DEEMED TO HAVE A CONFLICT OF INTEREST IN RECOMMENDING APPROVAL OF THE ASSET PURCHASE AGREEMENT. SEE "CONFLICT OF INTEREST OF CERTAIN MEMBERS OF THE BOARD OF DIRECTORS." SUCH DIRECTORS, WHO, AS OF THE MEETING RECORD DATE, HAD OR SHARED VOTING POWER WITH RESPECT TO AN AGGREGATE OF APPROXIMATELY 1,965,518 SHARES OF COMMON STOCK OF THE COMPANY (APPROXIMATELY 43% OF THE THEN ISSUED AND OUTSTANDING SHARES OF COMMON STOCK), HAVE INDICATED THAT THEY INTEND TO VOTE "FOR" APPROVAL OF THE PLAN. SEE "PRINCIPAL STOCKHOLDERS."
Five Directors are to be elected at the Annual Meeting of Stockholders to serve for a term of one year or until their respective successors have been elected and have qualified.
The following table sets forth the positions and offices presently held with the Company by each nominee for election as Director, his age, and the number of shares of Common Stock of the Company beneficially owned by him, as of December 5, 1995. Proxies not marked to the contrary will be voted in favor of their election.
(1) For purposes of the above table, the number of shares of Common Stock owned and outstanding for a particular person is deemed to include options held by such person which are exercisable currently or within sixty days and shares issuable through December 5, 1995 pursuant to the Company's 401(k) Plan as discussed below.
(2) Includes for each of Messrs. Barth, G. Steinberg and Bergman 134,775 shares over which they have voting power as trustees under the Company's 401(k) Plan (including 6,085, 5,754 and 5,754 shares allocated to the accounts of Messrs. Barth, G. Steinberg and Bergman, respectively).
(3) Includes 471,607 shares issuable pursuant to options which are currently exercisable. Also includes 250,000 shares held in trust for the benefit of Mr. Barth's family, as to which trust Mr. Barth serves as co-trustee. Excludes 110,000 shares held in trust for the benefit of Mr. Barth's children, as to which shares Mr. Barth disclaims any beneficial interest.
(4) Includes 474,769 shares issuable pursuant to options which are currently exercisable.
(5) Includes 490,921 shares issuable pursuant to options which are currently exercisable. Also includes 225,000 shares held in various trusts for the benefit of Mr. Bergman's family, as to which trusts Mr. Bergman serves as co-trustee.
Seymour Barth has served as President of the Company since 1964 and as a Director of the Company since its inception in 1959.
Gilbert H. Steinberg has served as a Director, Vice President and Treasurer of the Company since 1964.
Elliot J. Bergman has served as a Director, Vice President and Secretary of the Company since 1964.
Walter A. Steinberg has been an independent engineering consultant for more than the past five years.
Elliot D. Spiro has served as Chairman and Chief Executive Officer of Branch Insurance Agency, a property/casualty and financial services insurance agency, for more than the past five years.
The Board held four meetings during the fiscal year ended June 30, 1995 ("Fiscal 1995"). Each incumbent Director who then served on the Board attended all four meetings. The Board also acted on one occasion during Fiscal 1995 by unanimous written consent in lieu of a meeting.
The Audit Committee of the Board is charged with the review of the activities of the Company's independent auditors, including the fees, services, and scope of such audit. The Committee is composed of Messrs. G. Steinberg, W. Steinberg and Spiro. Such Committee did not meet during Fiscal 1995.
The Stock Option Committee of the Board reviews and implements appropriate action with respect to all matters pertaining to stock options granted under the Company's Amended and Restated 1981 Stock Option Plan (which expired by its terms in April 1991, but under which options are still outstanding) and 1991 Stock Option Plan. The Committee, which is currently composed of Messrs. W. Steinberg and Spiro, did not meet during Fiscal 1995.
The Company has neither a nominating committee, charged with the search for and recommendation to the Board of potential nominees for Board positions, nor a compensation committee, charged with periodically reviewing the compensation of the Company's officers and employees. These functions are performed by the Board as a whole. The Board will consider stockholder recommendations for Board positions which are made in writing to the Company's President.
Messrs. W. Steinberg and Spiro are entitled to receive $5,000 per year for their services as a Director. No other Directors receive compensation for their services as such.
There is no family relationship among any of the executive officers and Directors of the Company.
To the Company's knowledge, based solely on a review of the copies of Forms 5 furnished to the Company and written representations that no other reports were required during Fiscal 1995, all Section 16(a) filing requirements applicable to the Company's officers, Directors and 10% stockholders were complied with, except that Messrs. Barth, G. Steinberg and Bergman did not file their respective Forms 5 timely. Each Form 5 reported the acquisition of shares of Common Stock of the Company pursuant to its 401(k) Plan.
EXECUTIVE COMPENSATION AND CERTAIN TRANSACTIONS
The following table sets forth the compensation paid by the Company during the fiscal years ended June 30, 1995, 1994 and 1993 to each executive officer of the Company:
(1) Represents 1,079, 1,030 and 1,030 shares contributed by the Company to the accounts of Messrs. Barth, Bergman and G. Steinberg, respectively, for Fiscal 1995 pursuant to the terms of its 401(k) Plan.
(2) Represents 1,071, 752 and 752 shares contributed by the Company to the accounts of Messrs. Barth, Bergman and G. Steinberg, respectively, for Fiscal 1994 pursuant to the terms of its 401(k) Plan.
(3) Represents 673, 779 and 779 shares contributed by the Company to the accounts of Messrs. Barth, Bergman and G. Steinberg, respectively, for Fiscal 1993 pursuant to the terms of its 401(k) Plan.
No options were granted to Mr. Barth, Mr. Bergman or Mr. G. Steinberg during Fiscal 1995.
Fiscal Year End Option Value Table
The following table sets forth information concerning the values of unexercised options held by each executive officer of the Company as of June 30, 1995:
No options were exercised by Mr. Barth, Mr. Bergman or Mr. G. Steinberg during Fiscal 1995.
The Company and Messrs. Barth, G. Steinberg and Bergman are parties to a Stock Retirement Agreement which requires the Company, upon the death of any of such persons, to purchase 30% of all shares of Common Stock of the Company included in the gross estate of the deceased stockholder at a price equal to the greater of the average market price of such shares over the six months preceding the date of death or the book value thereof. At June 30, 1995, the Company carried term life insurance in the amounts of $2,000,000, $1,250,000 and $1,000,000 upon the lives of Messrs. Barth, G. Steinberg and Bergman, respectively.
Effective April 18, 1994, the Company entered into Employment Agreements with each of Messrs. Barth, G. Steinberg and Bergman which provide for, among other things, the following: (i) minimum annual compensation of $304,116 for Mr. Barth and $214,008 for each of Messrs. G. Steinberg and Bergman (effective September 5, 1994, the annual compensation payable to Messrs. Barth, G. Steinberg and Bergman was increased to $310,807, $218,716 and $218,716, respectively); (ii) a term ending upon the earliest to occur of the following: the employee's death or incapacity; "cause", as defined in the Employment Agreement; at the election of the Company, upon not less than three years prior written notice to the employee; or at the election of the employee, upon not less than six months prior written notice to the Company; and (iii) in the event the employee's employment shall terminate as a result of death or incapacity, the Company shall be obligated to make annual payments to the employee or his estate or representative for a period of three years in an amount equal to 50% of the compensation paid or payable to the employee with respect to the fiscal year immediately preceding the fiscal year in which his employment terminated.
The following table sets forth, to the knowledge of the Company, certain information regarding the Company's outstanding Common Stock beneficially owned as of December 5, 1995 (i) by each person who is known by the Company to own beneficially or exercise voting or dispositive control over more than 5% of the Company's Common Stock, (ii) by each of the Company's Directors, and (iii) by all executive officers and Directors as a group:
(1) For purposes of the above table, the number of shares of Common Stock owned and outstanding for a particular person is deemed to include options held by such person which are exercisable currently or within sixty days and shares issuable through December 5, 1995 pursuant to the Company's 401(k) Plan as discussed below.
(2) Includes for each of Messrs. Barth, G. Steinberg and Bergman 134,775 shares over which they have voting power as trustees under the Company's 401(k) Plan (including 6,085, 5,754 and 5,754 shares allocated to the accounts of Messrs. Barth, G. Steinberg and Bergman, respectively).
(3) Includes 471,607 shares issuable pursuant to options which are currently exercisable. Also includes 250,000 shares held in trust for the benefit of Mr. Barth's family, as to which trust Mr. Barth serves as co-trustee. Excludes 110,000 shares held in trust for the benefit of Mr. Barth's children, as to which shares Mr. Barth disclaims any beneficial interest.
(4) Includes 474,769 shares issuable pursuant to options which are currently exercisable.
(5) Includes 490,921 shares issuable pursuant to options which are currently exercisable. Also includes 225,000 shares held in various trusts for the benefit of Mr. Bergman's family, as to which trusts Mr. Bergman serves as co-trustee.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Richard A. Eisner & Company, LLP to serve as the Company's independent auditors for the fiscal year ending June 30, 1996 ("Fiscal 1996") and proposes ratification by the stockholders of the selection. Such firm has acted as independent auditors of the Company's accounts since 1967.
If the stockholders do not ratify the reappointment of Richard A. Eisner & Company, LLP, the selection of independent auditors will be reconsidered by the Board.
It is anticipated that a representative of Richard A. Eisner & Company, LLP will attend the Meeting. Such representative will be afforded the opportunity to make a statement if he so desires and will be available to respond to appropriate questions.
Ratification of the selection of Richard A. Eisner & Company, LLP as the Company's independent auditors for Fiscal 1996 requires the affirmative vote of the holders of a majority of the Common Stock present in person or by Proxy at the Meeting. As of the Meeting Record Date, the three Principal Stockholders of the Company, who are executive officers and Directors of the Company, had or shared voting power with respect to an aggregate of approximately 1,965,518 shares of Common Stock of the Company (approximately 43% of the then issued and outstanding shares of Common Stock). Such persons have indicated that they intend to vote in favor of the ratification of the selection of Richard A. Eisner & Company, LLP as the Company's independent auditors for Fiscal 1996. See "Principal Stockholders."
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION OF SUCH FIRM.
Stockholder proposals intended to be presented at the Company's next Annual Meeting of Stockholders pursuant to the provisions of Rule 14a-8 of the SEC, promulgated under the Securities Exchange Act of 1934, as amended, must be received by the Company at its principal executive offices by September 14, 1996 for inclusion in the Company's Proxy Statement and form of Proxy relating to such meeting.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Proxy Statement is accompanied by a copy of the Company's Annual Report to Stockholders for Fiscal 1995 and Quarterly Report on Form 10-QSB for the period ended September 30, 1995.
The Company hereby incorporates by reference into this Proxy Statement the following documents as filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act:
(i) the Company's Form 10-KSB for Fiscal 1995, as amended; and
(ii) the Company's Quarterly Report on Form 10-QSB for the period ended September 30, 1995.
A copy of the Company's Form 10-KSB for Fiscal 1995, as filed with the SEC (excluding exhibits), will be forwarded, without charge, to any stockholder of the Company entitled to vote at the Meeting, upon written request to the Company at 6 Nevada Drive, Lake Success, New York 11042, Attention: Treasurer.
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION OF ASTROSYSTEMS, INC.
This Plan of Complete Liquidation and Dissolution (the "Plan") of Astrosystems, Inc., a Delaware corporation (the "Company"), is intended to accomplish the complete liquidation and dissolution of the Company in accordance with the Delaware General Corporation Law and Section 331 of the Internal Revenue Code of 1986, as amended (the "Code"), as follows:
1. The Board of Directors of the Company has adopted this Plan and called a meeting of the Company's stockholders to take action on this Plan. If at said meeting of the Company's stockholders a majority of the outstanding Common Stock, par value $.10 per share (the "Common Stock"), of the Company votes for the adoption of this Plan, the Plan shall constitute the adopted Plan of the Company as of the date on which such stockholder approval is obtained (the "Adoption Date").
2. After the Adoption Date, the Company shall not engage in any business activities except to the extent necessary to preserve the values of its assets, wind up its business and affairs, and distribute its assets in accordance with this Plan.
No later than thirty (30) days following the Adoption Date, the Company shall file Form 966 with the Internal Revenue Service.
3. From and after the Adoption Date, the Company shall complete the following corporate actions:
(a) The Company shall collect, sell, exchange or otherwise dispose of all of its property and assets in one or more transactions upon such terms and conditions and for such consideration, which may consist in whole or in part of money or other property, as the Board of Directors, in its absolute discretion, deems expedient and in the best interests of the Company and its stockholders. In connection with such collection, sale, exchange and other disposition, the Company shall marshall its assets and collect or make provision for the collection of all accounts receivable, debts and claims owing to the Company. As part of the foregoing, the Company shall cause its wholly-owned subsidiaries to liquidate and dissolve in a manner consistent with this Plan.
(b) The Company shall pay or, as determined by the Board of Directors, make reasonable provision to pay, all claims and obligations of the Company, including all contingent, conditional or unmatured
claims known to the Company and all claims which are known to the Company but for which the identity of the claimant is unknown.
(c) The Company shall distribute pro rata to the Company's stockholders all its remaining property and assets, including the proceeds of any sale, exchange or disposition, except such property or assets as are required for paying or making provision for the claims and obligations of the Company. Such distribution may occur all at once or in a series of distributions and may be in cash or in kind, in such manner, and at such time or times, as the Board of Directors, in its absolute discretion, may determine. If and to the extent deemed necessary, appropriate or desirable by the Board of Directors, in its absolute discretion, the Company may establish and set aside a reasonable amount (the "Contingency Reserve") to satisfy claims against the Company (other than claims of a stockholder in its capacity as such), including, without limitation, tax obligations, and all expenses of the sale of the Company's property and assets, of the collection and defense of the Company's property and assets, and of the liquidation and dissolution provided for in this Plan. The Contingency Reserve may consist of cash and/or property.
4. The distributions to the Company's stockholders pursuant to Section 3 hereof shall be in complete redemption and cancellation of all of the outstanding Common Stock of the Company. As a condition to receipt of any distribution to the Company's stockholders, the Board of Directors, in its absolute discretion, may require stockholders to (i) surrender their certificates evidencing the Common Stock to the Company or its agent for recording of such distributions thereon or (ii) furnish the Company with evidence satisfactory to the Board of Directors of the loss, theft or destruction of their certificates evidencing the Common Stock, together with such surety bond or other security or indemnity as may be required by and satisfactory to the Board of Directors ("Satisfactory Evidence and Indemnity"). As a condition to receipt of any final distribution to the Company's stockholders, the Board of Directors, in its absolute discretion, may require stockholders to (i) surrender their certificates evidencing the Common Stock to the Company or its agent for cancellation or (ii) furnish the Company with Satisfactory Evidence and Indemnity.
The Company will finally close its stock transfer books and discontinue recording transfers of Common Stock on the earlier to occur of (i) the close of business on the record date fixed by the Board of Directors for the final liquidating distribution, or
(ii) the date on which the Company ceases to exist under the Delaware General Corporation Law (following any post-dissolution continuation period thereunder), and thereafter certificates representing Common Stock will not be assignable or transferable on the books of the Company except by will, intestate succession, or operation of law.
5. If any distribution to a stockholder cannot be made, whether because the stockholder cannot be located, has not surrendered its certificates evidencing the Common Stock as required hereunder or for any other reason, the distribution to which such stockholder is entitled (unless transferred to the Trust established pursuant to Section 6 hereof) shall be transferred, at such time as the final liquidating distribution is made by the Company, to the official of such state or other jurisdiction authorized by applicable law to receive the proceeds of such distribution. The proceeds of such distribution shall thereafter be held solely for the benefit of and for ultimate distribution to such stockholder as the sole equitable owner thereof and shall be treated as abandoned property and escheat to the applicable state or other jurisdiction in accordance with applicable law. In no event shall the proceeds of any such distribution revert to or become the property of the Company.
6. If deemed necessary, appropriate or desirable by the Board of Directors, in its absolute discretion, in furtherance of the liquidation and distribution of the Company's assets to the Company's stockholders, as a final liquidating distribution or from time to time, the Company shall transfer to one or more liquidating trustees, for the benefit of the Company's stockholders (the "Trustees"), under a trust (the "Trust"), any assets of the Company which are (i) not reasonably susceptible to distribution to the Company's stockholders, including assets held on behalf of the Company's stockholders (a) who cannot be located or who do not tender their certificates evidencing the Common Stock to the Company or its agent as hereinabove required or (b) to whom distributions may not be made based upon restrictions under contract or law, including, without limitation, restrictions of the federal securities laws and regulations promulgated thereunder or (ii) held as the Contingency Reserve.
The Board of Directors is hereby authorized to appoint one or more individuals, corporations, partnerships or other persons, or any combination thereof, including, without limitation, any one or more officers, directors, employees, agents or representatives of the Company, to act as the Trustee or Trustees for the benefit of the Company's stockholders and to receive any assets of the Company. Any Trustees appointed as provided in the preceding sentence shall succeed to all right, title and interest of the Company of any kind and character with respect to such transferred assets and, to the extent of the assets so transferred, shall assume all of the liabilities and obligations of the Company, including, without limitation, any unsatisfied claims and unascertained or contingent liabilities. Further, the Trustees shall have the full power to liquidate, deal with, give receipt for and manage all of the property and assets conveyed to the Trustees by the Company, to the exclusion of the Company and its officers and directors, and any conveyance of assets to the Trustees shall be deemed to be a distribution of property and assets by the Company to its stockholders for the purposes of Section 3 of this Plan. Any such conveyance to the Trustees shall be in trust for the stockholders of the Company (who shall be considered the owners of the Trust within the meaning of Subpart E of Subchapter J of the Code) and not for the use or benefit of the Trustees or any other person and any assumption of liabilities and obligations of the Company by the Trustees shall be solely in their capacity as Trustee. The Company, subject to this Section 6 and as authorized by the Board of Directors, in its absolute discretion, may enter into a liquidating trust agreement with the Trustees, on such terms and conditions as the Board of Directors, in its absolute discretion, may deem necessary, appropriate or desirable. Adoption of this Plan by a majority of the outstanding Common Stock shall constitute the approval of the Company's stockholders of any such appointment and any such liquidating trust agreement as their act and as a part hereof as if herein written.
7. Whether or not a Trust shall have been established pursuant to Section 6, in the event it should not be feasible for the Company to make the final distribution to stockholders of all assets and properties of the Company prior to the date which is four years after the Adoption Date, then, on or before such date, the Company shall be required to establish a Trust pursuant to Section 6 and transfer any remaining assets and properties (including, without limitation, any uncollected claims, contingent assets and the Contingency Reserve) to the Trustees as set forth in Section 6.
8. After the Adoption Date, the officers of the Company shall, at such time as the Board of Directors, in its absolute discretion, deems necessary, appropriate or desirable, obtain any certificates required from the Delaware tax authorities and, upon obtaining such certificates, the Company shall file with the Secretary of State of the State of Delaware a certificate of dissolution (the "Certificate of Dissolution") in accordance with Section 275 of the Delaware General Corporation Law.
9. Adoption of this Plan by a majority of the outstanding Common Stock shall constitute the approval of the Company's stockholders of the sale, exchange or other disposition in liquidation of all of the property and assets of the Company not otherwise distributed to the stockholders in kind, whether such sale, exchange or other disposition occurs in one transaction or a series of transactions, and shall constitute ratification of all contracts for sale, exchange or other disposition which are conditioned on adoption of this Plan.
10. In connection with and for the purpose of implementing and assuring completion of this Plan, the Company may, in the absolute discretion of the Board of Directors, pay any brokerage, agency, professional and other fees and expenses of persons rendering services to the Company in connection with the collection, sale, exchange or other disposition of the Company's property and assets and the implementation of this Plan.
11. In connection with and for the purpose of implementing and assuring completion of this Plan, the Company may, in the absolute discretion of the Board of Directors, pay to the Company's officers, directors, employees, agents and representa- tives, or any of them, compensation or additional compensation above their regular compensation, in money or other property, in recognition of the extraordinary efforts they, or any of them, will be required to undertake, or actually undertake, in connection with the implementation of this Plan. Adoption of this Plan by a majority of the outstanding Common Stock shall constitute the approval of the Company's stockholders of the payment of any such compensation.
12. The Company shall continue to indemnify its officers, directors, employees, agents and representatives in accordance with its certificate of incorporation, as amended, and by-laws and any contractual arrangements, for actions taken in connection with this Plan and the winding up of the affairs of the Company. The Company's obligation to indemnify such persons may be satisfied out of the assets of the Trust. The Board of Directors and the Trustees, in their absolute discretion, are authorized to obtain and maintain insurance as may be necessary to cover the Company's obligations hereunder.
13. Notwithstanding authorization or consent to this Plan and the transactions contemplated hereby by the Company's stockholders, the Board of Directors may modify, amend or abandon this Plan and the transactions contemplated hereby without further action by the Company's stockholders to the extent permitted by the Delaware General Corporation Law.
14. The Board of Directors of the Company is hereby authorized, without further action by the Company's stockholders, to do and perform or cause the officers of the Company, subject to approval of the Board of Directors, to do and perform, any and all acts, and to make, execute, deliver or adopt any and all agreements, resolutions, conveyances, certificates and other documents of every kind which are deemed necessary, appropriate or desirable, in the absolute discretion of the Board of Directors, to implement this Plan and the transactions contemplated hereby, including, without limiting the foregoing, all filings or acts required by any state or federal law or regulation to wind up its affairs.
As of January 11, 1996
ASSET PURCHASE AGREEMENT made as of the 11th day of January, 1996 by and among Astrosystems, Inc., a Delaware corporation ("Astrosystems"), Behlman Electronics, Inc., a New York corporation and wholly-owned subsidiary of Astrosystems ("Behlman" and collectively with Astrosystems, the "Sellers"), Orbit International Corp. ("Orbit"), a Delaware corporation, and Cabot Court, Inc., a Delaware corporation ("Buyer").
W I T N E S S E T H: - - - - - - - - - -
WHEREAS, Sellers are engaged, among other things, in the manufacture of power supplies, AC power sources, frequency converters, UPS and associated analytical equipment and other electronic equipment;
WHEREAS, upon the terms and conditions set forth herein, Sellers desire to sell and Buyer desires to purchase certain of the assets, and to assume certain of the liabilities, of each of the Sellers, as specified herein; and
WHEREAS, Orbit has agreed to guarantee Buyer's obligations.
NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows:
1. Certain Definitions. The following terms, as used herein, have the following meanings:
"Affiliate" means any individual, corporation, partnership or other entity directly or indirectly controlling, controlled by or under common control with a party.
"Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York on which banking institutions located in such state are closed.
"Closing Date" shall have the meaning set forth in Section 5 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means all executory contracts, commitments, agreements or arrangements, leases, licenses, notes, purchase orders, letters of credit, instruments, obligations, commitments, purchase and sales orders, options and quotations (whether any of the foregoing shall be written or oral, express or implied) relating primarily to the Acquired Businesses (as hereinafter defined), to which either Seller is a party and pursuant to which any of the Assets (as hereinafter defined) is bound.
"ERISA" means the Employee Retirement and Income Security Act of 1974,
"Governmental Authority" means administrative agency, bureau, board, commission, office, authority, department or other governmental body or agency.
"Liens" means any mortgage, pledge, security interest, title defect or objection, lien, charge or encumbrance of any kind, including, without limitation, any lease, license or other right of occupancy, possession or use, or any conditional sales contract or other title or interest retention arrangement.
"Permits" means all permits, licenses, franchises, approvals, consents or orders of, filings with, or notifications to, all governmental authority, whether federal, state, local or foreign or any other person relating primarily to the Acquired Businesses.
"Permitted Liens" means Liens for current Taxes (as hereinafter defined) not yet due.
"Required Consents" means (i) the Shareholder Approval (as defined in Section 6.3 hereof), and (ii) the consent to the assignment of such Contracts, if any, as are listed on the "Required Consents" section of Schedule 6.3 hereof.
2. Purchase and Sale of Assets.
2.1 Purchase and Sale of Assets. Upon the terms and subject to the conditions set forth in this Agreement, at the closing (the "Closing") of the transactions contemplated hereby on the Closing Date:
(a) Astrosystems shall sell, transfer, convey, assign and deliver to Buyer, and Buyer shall purchase and acquire from Astrosystems, free and clear of any and all Liens (other than Permitted Liens), certain of the assets of Astrosystems relating to its Military division (the "Military Division"), as set forth below as the same shall exist on the Closing Date (collectively, the "Military Assets"). The Military Assets shall include all of Astrosystems' right, title and interest in and to the following items to the extent that such items primarily relate to, or are primarily used or held in connection with, the business of the Military Division:
(i) Fixtures, Furniture, Equipment, etc. All fixtures, furniture, furnishings, machinery, accessories, computers and peripheral devices, testing equipment and office and other equipment, whether fully or partially depreciated, appliances, vehicles and any replacement and spare parts for any such assets, other than any of the foregoing identified on Schedule 2.2 hereof (collectively, "Military Fixed Assets");
(ii) Inventory and Supplies. All (A) raw materials, work in process and finished products, (B) stock in trade, goods, supplies and other products, (C) office supplies and similar materials, and (D) wrapping, supply and packaging items, promotional materials and similar items, wherever located
(iii) Permits. All of Astrosystems' rights under all Permits, including, without limitation, the Permits listed on Schedule 6.12 hereof (to the extent transfer is permitted by law and by the terms of such
(iv) Contracts and Agreements, etc. The Contracts entered into by Astrosystems which primarily relate to the Military Division which are set forth on Schedule 2.1(a)(iv) attached hereto.
(v) Claims Against Third Parties. All claims against third parties for inventory sold on or after the Closing Date under any manufacturer's or vendor's warranties and insurance claims and proceeds;
(vi) Goodwill. All of the goodwill and going concern value relating to the Military Division or any of the Military Assets;
(vii) Copyrights, Patents and Trademarks. All Intellectual Property (as defined in Section 6.15 hereof) relating to the Military Division;
(viii) Drawings. All drawings ("Military Drawings") and bills of material ("Military Bills of Material") relating to products manufactured by the
(ix) Other Assets. All other intangible and tangible assets of Astrosystems primarily relating to the Military Division and relevant to Buyer's continued operation of the Military Division following the Closing (other than the Excluded Assets, as hereinafter defined), including, without limitation, all computer software and software codes and electronic data; all supplier information; all customer lists and customer correspondence; all sales records; all research, statistical, production, marketing and promotional materials, records, files, reports and other documents and data; all distribution records; all business post office boxes and business telephone listings; all research results and other know-how; and all other materials, records, files and data, in whatever form contained.
(b) Behlman shall sell, transfer, convey, assign and deliver to Buyer, and Buyer shall purchase and acquire from Behlman, free and clear of any and all Liens, other than Permitted Liens, certain of its assets as set forth below, as the same shall exist on the Closing Date (collectively, the "Behlman Assets" and together with the Military Assets, the "Assets"). The Behlman Assets shall include all of Behlman's right, title and interest in and to the following:
(i) Fixtures, Furniture, Equipment, etc. All fixtures, furniture, furnishings, machinery, accessories, computers and peripheral devices, testing equipment and office and other equipment, whether fully or partially depreciated, appliances, vehicles and any replacement and spare parts for any such assets, other than any of the foregoing identified on Schedule 2.2 hereof (collectively, the "Behlman Fixed Assets", and together with the Military Fixed Assets, the "Fixed Assets");
(ii) Inventory and Supplies. All (A) raw materials, work in process and finished products, (B) stock in trade, goods, supplies and other products, (C) office supplies and similar materials, and (D) wrapping, supply and packaging items, promotional materials and similar items, wherever located (collectively, the "Behlman Inventory", and together with the Military
(iii) Permits. All of Behlman's rights under all Permits, including, without limitation, the Permits listed on Schedule 6.12 hereof (to the extent transfer is permitted by law and by the terms of such Permits);
(iv) Contracts and Agreements, etc. The Contracts entered into by Behlman which are set forth on Schedule 2.1(a)(iv) attached hereto.
(v) Claims Against Third Parties. All claims against third parties for inventory sold on or after the Closing Date under any manufacturer's or vendor's warranties and insurance claims and proceeds;
(vi) Name. The name "Behlman", and any rights relating thereto;
(vii) Goodwill. All of the goodwill and going concern value relating to the business of Behlman or any of the Behlman Assets;
(viii) Copyrights, Patents and Trademarks. All Intellectual Property (as defined in Section 6.15 hereof) relating to Behlman; and
(1) Drawings. All drawings (together with the Military Drawings, the "Drawings") and bills of material (together with the Military Bills of Material, the "Bills of Material") relating to products manufactured by (2) Other Assets. All other intangible and tangible assets relevant to Buyer's continued operation of the business of Behlman following the Closing, including, without limitation, all computer software and software codes and electronic data; all supplier information; all customer lists and customer correspondence; all sales records; all research, statistical, production, marketing and promotional materials, records, files, reports and other documents and data; all distribution records; all business post office boxes and business telephone listings; all research results and other know-how; and all other materials, records, files and data, in whatever form contained.
2.2 Excluded Assets. Notwithstanding any other provision of this Agreement, Sellers shall not sell, assign or transfer to Buyer, and Buyer shall not purchase from Sellers, any of the following assets (collectively, the "Excluded Assets"):
(a) This Agreement. All rights of Sellers under this Agreement and any documents delivered or received in connection herewith;
(b) Corporate Records. (i) All books, records and other assets of Sellers relating primarily to corporate level activities, including, without limitation, those relating to filings with the SEC and the IRS and those relating to accounting and tax functions, (ii) any corporate minute books, stock ledgers and other corporate books and records of either Seller, (iii) all books and records relating to the Industrial Products Division of Astrosystems, and
(iv) all books and records not relating to the Assets or the Assumed
(c) Name. The name "Astrosystems", and any rights thereto, including, without limitation, any trademark registrations, subject to the provisions of Section 8.16 hereof;
(d) Third Party Claims. All claims against third parties for inventory sold prior to the Closing, including, without limitation, rights under any manufacturer's or vendor's warranties and insurance claims and proceeds with respect to such inventory, and all other claims against third parties arising from or in connection with the Acquired Businesses or the Assets prior to the
(e) Cash, Accounts Receivable, and Cash Equivalents All of the cash, funds on deposit with financial institutions and in checking accounts, marketable and other securities, accounts receivable and other cash equivalents
(f) Tax Refunds. All federal, state and local income tax refunds due
(g) Real Property. Title to any real property owned by Sellers and all buildings and other structures located on such real property, and leasehold interests in and to any real property;
(h) Security Deposits and Bonds. Sellers' right in and to all security deposits with third parties and all security bonds;
(i) Prepaid Expenses, etc. All prepaid expenses and rentals;
(j) Equipment. Sellers' right, title and interest in and to certain furniture, fixtures and equipment identified on Schedule 2.2 hereof;
(k) Industrial Products Division. Astrosystems' right, title and interest in and to all of its intangible and tangible assets that primarily relate to, or are primarily used or held in connection with, the business of its
(l) AstroPower. Astrosystems' right, title and interest in and to all intangible and tangible assets that primarily relate to AstroPower, Inc., including, without limitation, its shares of Common Stock therein and its right, title and interest in and to a certain License Agreement with the University of Delaware and a certain Sublicense Agreement with AstroPower, Inc.
3.1 Assumption of Liabilities by Buyer. At the Closing, Buyer shall assume and thereafter pay, perform, satisfy and discharge only the following obligations and liabilities of Sellers (collectively, the "Assumed Liabilities"):
(a) Obligations Under Certain Agreements. The liabilities and obligations of Sellers under (i) the Contracts and Permits that are listed on
Schedules 2.1(a)(iv) and 6.12 hereof, and (ii) the Contracts and Permits that are entered into in the ordinary course of the business of the Military Division and the business of Behlman (such businesses, collectively, the "Acquired Businesses") in accordance with past practice or not required to be so listed on the aforesaid Schedules, to the extent that such Contracts are wholly or partially executory on the Closing Date ((i) and (ii) collectively referred to herein as the "Assumed Contracts");
(b) Employee Obligations. The liabilities and obligations assumed by Buyer pursuant to Section 8.11 hereof; and
(c) Liabilities After Closing. All liabilities and obligations arising from or in connection with the Acquired Businesses or the Assets on or after the Closing Date as a result of the conduct of the business of the Acquired Businesses after such date. Buyer will develop and implement a procedure for marking or otherwise identifying (e.g., by serial number) products to facilitate identification of such products as sold on or after the Closing Date.
(d) Warranty Obligations. All after-sale and warranty obligations with respect to products manufactured and sold by the Acquired Businesses prior to the Closing Date.
3.2 Excluded Liabilities. Buyer is not assuming or agreeing to pay, perform, assume or discharge, or otherwise be responsible for, any liabilities of Sellers, fixed or contingent, known or unknown, accrued or unaccrued other than the Assumed Liabilities, whether arising before or after the Closing Date (collectively, the "Excluded Liabilities").
3.3 Novation. Buyer shall use its reasonable efforts in cooperating with Sellers to cause all third parties to those Contracts set forth on Schedule 2.1(a)(iv) to enter into novation or similar agreements pursuant to which Sellers will be relieved from all liability thereunder.
4. Consideration for Transfer of the Assets.
4.1 Purchase Price. In consideration for the sale and transfer of the Assets and Sellers' covenant not to compete set forth in Section 8.14(a) hereof, on the terms and subject to the conditions set forth in this Agreement, Buyer agrees to (i) pay in cash to Sellers by wire transfer of immediately available funds, at Closing, the sum of $3,706,700 subject to adjustment pursuant to Section 8.24 hereof (the "Purchase Price") and (ii) assume the Assumed Liabilities. A portion of the Purchase Price equal to $1,000,000 (the "Escrowed Amount") shall be delivered by Sellers to the Escrow Agent (as hereinafter defined) pursuant to Section 4.2 hereof.
4.2 Escrow. At the Closing, Sellers shall deliver the Escrowed Amount to Squadron, Ellenoff, Plesent & Sheinfeld, LLP, as escrow agent (the "Escrow Agent") pursuant to an Escrow Agreement (the "Escrow Agreement"), in form and substance reasonably satisfactory to the parties. Upon the first anniversary of the Closing Date, the Escrow Agent, pursuant to the terms of the Escrow Agreement, shall release to Sellers $500,000 (subject to the terms of the Escrow Agreement). The remainder of the Escrowed Amount shall be released to Sellers on the second anniversary of the Closing Date (subject to the terms of the Escrow Agreement). The Escrowed Amount shall be held by the Escrow Agent pursuant to the terms of the Escrow Agreement. The fees of the Escrow Agent shall be borne equally by Sellers, on the one hand, and Buyer and Orbit, on the other hand.
4.3 Closing Adjustment. On the day immediately prior to the Closing Date, a physical inventory of the Inventory shall be taken by the employees of Sellers in accordance with past practices and mutually agreed upon procedures, subject to the supervision of Sellers and Buyer and their respective accountants. A final statement (the "Final Statement") shall be prepared by Sellers and Sellers' accountants based upon and from the results of such physical inventory and the books and records of Sellers as of 11:59 p.m., New York time, on the day prior to the Closing Date. Such Final Statement shall set forth (a) the net book value of (i) the Fixed Assets (the "Final Fixed Assets Valuation"), and (ii) the Inventory ("Final Inventory Valuation Amount" and, together with the Final Fixed Assets Valuation and the "Goodwill Valuation" (as hereinafter defined), the "Final Valuation Amount") as of 11:59 p.m., New York time, on the day prior to the Closing Date and (b) the location of each item of Inventory as of such time. The Final Statement shall be prepared in accordance with generally accepted accounting principles applied on a basis consistent with the Financial Statements (as hereinafter defined) heretofore delivered to Buyer and Sellers' past practices. The reserves for damaged, obsolescent and excess inventory set forth on the Final Statement shall be determined consistent with past practices utilized in connection with the preparation of such Financial Statements. Sellers and Buyer hereby acknowledge that the "Goodwill Valuation" is $1,031,700. Sellers shall deliver to Buyer the Final Statement not later than thirty (30) days after the Closing Date. In the event of a dispute between Buyer and Sellers as to the proper treatment or reporting of any matters set forth in the Final Statement, within five Business Days following delivery of such Final Statement to Buyer, such dispute shall be referred for determination in New York, New York by a third party nationally recognized firm of independent public accountants mutually acceptable to Buyer and Sellers. In connection with its review, such third party accounting firm shall have the right to undertake such auditing procedures as it may deem appropriate and to examine all work papers utilized in connection with the accounting and preparation of the Final Statement. Upon delivery to Buyer and Sellers of a statement in writing setting forth the conclusions of the third party accounting firm's opinion of the disputed item or items and the effect of such conclusions on the Final Statement, such determinations (in the absence of manifest error) shall be final and binding upon Buyer and Sellers without any further right of appeal. Costs and fees of such third party accounting firm shall be borne equally by Buyer, on the one hand, and Sellers, on the other hand.
When the Final Valuation Amount is finally determined pursuant to this Section 4.3, the Purchase Price shall be adjusted in the following manner:
(i) If the Final Valuation Amount is greater than the Purchase Price, Buyer shall pay an amount equal to such excess to Sellers in accordance
(ii) If the Final Valuation Amount is less than the Purchase Price, Sellers shall pay an amount equal to the difference to Buyer in accordance with Section 4.4 hereof.
For purposes of this Agreement, the "Adjusted Purchase Price" shall mean the Purchase Price minus any shortfall amount paid by Sellers to Buyer or plus any excess amount paid by Buyer to Sellers, as the case may be.
Amounts to be paid by Sellers to Buyer or Buyer to Sellers, as the case may be, pursuant to Section 4.3 hereof (the "Adjustment Payment") shall be paid by delivery of a certified or official bank check or wire transfer of immediately available funds within 15 days of delivery to Buyer of the Final Statement or settlement of any disputes with regard to the Final Statement. Any Adjustment Payment not made within such period shall bear interest at the rate of two percent (2%) above the prime rate as reported from time to time in The Wall Street Journal (the "Default Rate"); provided, however, that in the event that there is a dispute with regard to the Final Statement which is resolved in accordance with Section 4.3 hereof, the Adjustment Payment shall bear interest at the rate of six percent (6%) from the date of the Final Statement until the 15th day following the resolution of the dispute and thereafter at the Default Rate.
4.5 Allocation of Purchase Price. The parties to this Agreement agree to allocate the Purchase Price and the Adjusted Purchase Price in accordance with the rules under Section 1060 of the Code, and the Treasury Regulations promulgated thereunder, and in accordance with the Final Statement (as adjusted pursuant to the provisions of Section 4.3 hereof) and no party shall take a position inconsistent therewith.
5. Closing. Upon the terms and conditions set forth herein, the Closing shall take place at the offices of Squadron, Ellenoff, Plesent & Sheinfeld LLP, 551 Fifth Avenue, New York, New York 10176, at 10:00 a.m. local time on the Business Day following the day on which all conditions to each party's obligation to close hereunder shall have been satisfied or waived or such later date as mutually agreed to by the parties. The parties agree that time is of the essence and will take all actions reasonably necessary to effectuate the Closing at the earliest practicable date. The date upon which the Closing occurs is referred to herein as the "Closing Date."
6. Representations and Warranties of Sellers. Sellers hereby jointly and severally represent and warrant to Buyer and Orbit as follows:
6.1 Sellers' Organization and Authority. Each Seller is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has all requisite corporate power and lawful authority to carry on its business as it is currently being conducted and all necessary licenses and permits material to its business as it is currently being conducted, and to own, operate and lease the Assets. Each Seller is duly qualified or licensed to do business as a foreign corporation and is in good standing as a foreign corporation in each jurisdiction in which the ownership, operation or lease of the Assets or the conduct of its business or location of its properties requires qualification or licensing to do business as a foreign corporation and in which the failure so to qualify could have a material adverse effect on either Seller or the Assets.
6.2 Authorization. Each Seller has all requisite corporate power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform fully its obligations hereunder except for the approval of the Plan of Complete Liquidation and Dissolution of Astrosystems (the "Plan") and this Agreement by the holders of a majority of all outstanding shares of Astrosystems entitled to vote thereon ("Shareholder Approval"). The execution, delivery and performance of this Agreement by each Seller and the consummation by each Seller of the transactions contemplated hereby have been duly authorized by all necessary corporate action of each Seller except for the Shareholder Approval, and no other board of directors, shareholder or other corporate proceeding by or on behalf of either Seller is necessary to authorize the execution, delivery or performance of this Agreement, or the consummation of the transactions contemplated hereby. This Agreement constitutes, and each document and instrument contemplated by this Agreement to be executed by either Seller, when executed and delivered in accordance with the provisions hereof, shall constitute, the valid and legally binding obligations of Sellers, enforceable against each of them in accordance with its terms, subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors' rights generally; (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity); and (iii) the Shareholder Approval.
6.3 Freedom to Contract. Subject to receipt of the consents and approvals described in Schedule 6.3 hereto, the execution, delivery and performance of this Agreement by each Seller and the consummation by each Seller of the transactions contemplated hereby will not: (i) violate or conflict with any provision of the certificate of incorporation or by-laws of either Seller, (ii) violate any of the terms, conditions or provisions of any law, rule, statute, regulation, order, writ, injunction, judgment or decree of any court, governmental authority or regulatory agency, or (iii) conflict with or result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, indenture, debenture, security agreement, trust agreement, Lien, mortgage, lease, agreement, license, franchise, permit, guaranty, joint venture agreement or other agreement, instrument or obligation, oral or written, to which either Seller is a party (whether as an original party or as an assignee or successor) or by which it or any of its properties is bound. Except as set forth on Schedule 6.3 hereto, no authorization, approval, order, license, permit, franchise or consent, and no registration, declaration or filing with any court or Governmental Authority, is required in connection with either Seller's execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby.
(a) The consolidated balance sheets of Sellers as at June 30, 1993, 1994 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended June 30, 1993, 1994, and 1995, including the footnotes thereto, certified by Richard A. Eisner & Co., independent certified public accountants to Sellers, which have been delivered to Buyer (the "Financial Statements") have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis, and fairly present in all material respects the financial condition, results of operations and cash flows of Sellers as of the dates thereof and for the periods presented.
(b) The accounting and financial records of Sellers have been prepared and maintained in accordance with sound bookkeeping practices. Sellers maintain systems of internal accounting controls sufficient to provide reasonable assurance 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 GAAP and to maintain asset accountability by division, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability by division for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
6.5 Absence of Undisclosed Liabilities. Neither Seller has any direct or indirect material indebtedness, liability, claim, loss, damage, deficiency, obligation or responsibility, known or unknown, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued or unaccrued, absolute, contingent or otherwise, relating to the Acquired Businesses, including, without limitation, liabilities on account of Taxes, other governmental charges or lawsuits brought, whether or not of a kind required by GAAP to be set forth on a financial statement ("Liabilities"), other than Liabilities that (i) were fully and adequately reflected on the Financial Statements or (ii) were incurred since June 30, 1995 in the ordinary course of business. Neither Seller has any knowledge of any circumstances, conditions, events or arrangements which may hereafter give rise to any Liabilities of either Seller or any successor to the Acquired Businesses except in the ordinary course of the Acquired Businesses, which may affect the Acquired Businesses following the Closing.
6.6 No Material Adverse Change. Since June 30, 1995, except as described in the SEC Documents (as hereinafter defined), there has been no material adverse change in the assets, properties, business or condition, financial or otherwise, of either the Military Division or Behlman, and neither Seller knows of any such change which is threatened, nor has there been any damage, destruction or loss materially affecting the assets, properties, business or condition of either the Military Division or Behlman whether or not covered by insurance.
6.7 Title to and Condition of Assets; Encumbrances, etc. Sellers have good title to all of the Assets, free and clear of all Liens, except for Permitted Liens. The instruments of transfer required to be executed and delivered by Sellers at the Closing pursuant to Section 9.1 hereof will be effective to vest in Buyer good title to the Assets, free and clear of any and all Liens, other than Permitted Liens. Schedule 6.7(b) hereto sets forth a true and complete listing of each of the Assets, other than Inventory and Intellectual Property, owned by (a) Astrosystems and used in its Military Division and (b) Behlman, having a net book value as of June 30, 1995 in excess of $1,000. Schedule 6.7(c) sets forth, as of a recent date, the locations where Inventory is located and the approximate amount at each such location. All such Assets are the property of Sellers, except as disclosed on Schedule 6.7(c). No third party has any rights to purchase any of the Assets, or any interest therein or portion thereof, including rights of first offer or first refusal.
6.8 Absence of Certain Changes. Except as set forth on Schedule 6.8 hereto, since June 30, 1995:
(a) Astrosystems has operated the business of the Military Division and Behlman has operated its business in the ordinary course consistent with
(b) Neither Seller has entered into any transaction, commitment, contract or agreement relating to the Acquired Businesses except in the ordinary course of business consistent with past practice;
(c) Neither Seller has been engaged in a dispute with (i) any third party with regard to any Contract or (ii) a material customer.
(d) There has not been any event that would materially impair Sellers' ability to perform their respective obligations under this Agreement;
(e) Neither Seller has entered into any transaction affecting the Acquired Businesses with any director, officer or 5% shareholder of either Seller or with any Affiliate.
(f) Neither Seller has sold, assigned, leased or transferred any Assets, other than the sale of inventory in the ordinary course of business
(g) Neither Seller has (i) incurred any severance or termination pay liability to any employee of the Military Division or Behlman except as set forth in Schedule 6.8 hereof; (ii) entered into any employment, deferred compensation or other similar agreement (or any amendment to any such existing agreement) with any employee of the Military Division or Behlman or (iii) granted any increase in compensation, bonus or other benefits payable to any employee of the Military Division or Behlman;
(h) There has not been any material damage, destruction or other casualty loss (whether or not covered by insurance) affecting the Acquired
(i) Neither Seller has written down the value of any tangible assets of the Acquired Businesses or made any other write-downs or write-offs with respect to the Acquired Businesses, except write-downs and write-offs in the ordinary course of business in accordance with GAAP and consistent with past practice, as reflected on the Financial Statements, or made any change in its accounting methods or practices with respect to the Acquired Businesses, or made any change in depreciation or amortization policies or rates adopted by it;
(j) Neither Seller has cancelled, waived or released any right or claim relating to the Acquired Businesses;
(k) Neither Seller has mortgaged, pledged or encumbered any Asset;
(l) Neither Seller has materially changed any of its business policies with respect to the Acquired Businesses, including, without limitation, advertising, marketing, pricing, purchasing, personnel, sales, returns or
(m) Neither Seller has agreed to do any of the foregoing.
(a) Schedule 6.9 hereto contains a complete and accurate list of the following Contracts, in each case, to which either Astrosystems, on behalf of the Military Division, or Behlman is a party and which primarily relate to the Acquired Businesses:
(i) Contracts for the purchase or sale of goods or other personal or intangible property, or for the furnishing or receipt of services, involving in any individual Contract or a group of related Contracts more than $10,000 in connection with the purchase or sale of Inventory and $5,000 for any
(ii) Contracts for the lease of any personal property involving in any individual Contract or a group of related Contracts rental obligations in excess of $1,000 per month;
(iii) Contracts involving a license with third parties;
(iv) Contracts directly or indirectly restricting the ability of Seller to compete in any line of business with any person or entity;
(v) Contracts with distributors, agents, salesmen and sales representatives or involving the payment of commissions or other consideration or discounts with respect to the sale of Sellers' products;
(vi) Contracts with any Governmental Authority;
(vii) Contracts with an advertising or public relations agency, as well as any Contracts relating to marketing or co-marketing or tie-ins with
(viii) Contracts containing any exclusive arrangements which (A) are in favor of either Seller, or (B) restricting either Seller;
(ix) Contracts containing secrecy, non-competition or similar arrangements between either Seller and any of its current or former employees or
(x) Contracts between either Seller and any Affiliate thereof;
(xi) Contracts with importers, customs or other brokers, warehouse operators, designers and manufacturers; and
(xii) Contracts not entered into the ordinary course of the Acquired Businesses in accordance with past practice.
Sellers have heretofore delivered or made available to Buyer true and complete copies of all written Contracts listed on Schedule 6.9, and a summary of the material terms of each oral Contract listed on such Schedule.
(b) Each Seller has complied with and performed in all material respects all of its obligations required to be performed under all of the Contracts listed on Schedule 6.9 hereof to which it is a party, and is not in default in any material respect under any of them; and no event has occurred which, with or without the giving of notice, lapse of time or both, would constitute a default thereunder in any material respect. Neither Seller has received written notice cancelling, terminating or repudiating or exercising any option under any Contract to which it is a party and has no knowledge that any party has failed to comply with or perform all of its obligations required to be performed under any such Contract or that an event has occurred which, with or without the giving of notice, lapse of time or both, would constitute a default by such party thereunder, in any case which would have a material adverse effect on the Acquired Businesses. Neither Seller has any knowledge that the award or validity of any Contract is being contested by a third party. In addition, neither Seller has any knowledge (i) that the products and services called for by an unfinished contract having material value cannot be supplied by or to the Seller who is a party to such Contract in accordance with the time specifications of such Contract and (ii) of any facts or circumstances which make a default by any party to any such Contract likely to occur subsequent to the date hereof.
(c) Except to the extent that third-party consents are required for the assignment of any Contract to Buyer, as disclosed on Schedule 6.3 hereto, all Contracts listed on Schedule 6.9 hereof are currently enforceable and shall be enforceable after the Closing by Buyer in accordance with their respective terms, subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors' rights generally; and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).
(a) Except as set forth on Schedule 6.10(a) hereto, neither Seller currently, or has within the last two years, for the benefit of current or former employees of the Military Division or Behlman, maintains, administers or contributes to any: (i) "employee benefit plans" ("Benefit Plans") within the meaning of Section 3(3) of ERISA; (ii) employment contracts (and any related agreements); (iii) severance arrangements, (iv) bonus or other incentive compensation arrangements; (v) fringe benefit or perquisite plans or arrangements; (vi) deferred compensation arrangements; (vii) non-competition arrangements; and (viii) other material remunerative arrangements, and Seller has provided Buyer copies or descriptions of such plans, contracts and arrangements. All Benefit Plans set forth on Schedule 6.10(a) are and have been maintained in full compliance with their terms and all requirements of applicable law.
(b) There are no collective bargaining or other agreements between either Seller and any union or other employee organizations relating to employees of the Military Division or Behlman (collectively, the "Companies").
(c) Except as set forth in Schedule 6.10(c) hereof, neither Seller nor any member of Sellers' Group has, within the preceding six years, contributed to, or had an obligation to contribute to, any "employee pension benefit plan" within the meaning of Section 3(2) of ERISA which is subject to Title IV of ERISA. As used in the preceding sentence, "Sellers' Group" includes any person who is, or was at the relevant time, a member of the same "controlled group of corporations" as either Seller (within the meaning of Section 414(b) of the Code), or under "common control" with either Seller (within the meaning of Section 414(c) of the Code). Neither Seller has, within the preceding six years, maintained or contributed to a multiemployer pension plan, as defined in Section 3(37) of ERISA, is not liable for any withdrawal or partial withdrawal liability with respect to any multiemployer or pension plan and neither Seller nor Buyer will become liable therefor as a result of the transactions contemplated by this Agreement.
(d) (i) Each Seller is in compliance in all material respects with all applicable laws relating to the employment practices, terms and conditions of employment and wages and hours with respect to the current employees of each of the Military Division and Behlman (the "Employees"); (ii) there are no material controversies pending or, to Seller's knowledge, threatened, between either Seller and any employees, prospective employees, former employees or retirees of the Military Division or Behlman, except as set forth on Schedule 6.10(d) hereto; (iii) no unfair labor practice complaints have been filed against either Seller or with the National Labor Relations Board (the "NLRB") relating to Employees, and neither Seller has received any notice or communication reflecting an intention or a threat to file any such complaint; (iv) there is no labor strike, dispute, slow-down or stoppage pending or, to Sellers' knowledge, threatened against either Seller relating to Employees; (v) no representation petition is pending or threatened with the NLRB against either Seller relating to Employees; (vi) except as disclosed on Schedule 6.10(d) attached hereto, each Seller has paid in full to all Employees all wages, salaries, commissions, bonuses, benefits and other compensation due and payable to such employees, including those arising under any policy, practice, agreement, program, statute or other law; and (vii) except as set forth on Schedule 6.10(d) hereto, neither Seller has closed any facility, effectuated any layoffs of employees or implemented any early retirement, separation or window program within its past three fiscal years, in each case with respect to Employees, nor has either Seller planned or announced any such action or program for the future.
(e) Schedule 6.10(e) hereto contains a correct and complete list of (i) the names and current annual salary rates of all Employees; (ii) the names and amounts, if any, paid, accrued or to be paid to Employees under any bonus, incentive or similar plans on and after January 1, 1995; and (iii) all vacation and sick pay accrued or anticipated to be accrued in respect of obligations of Sellers to Employees up to and including the Closing Date. Except as disclosed on Schedule 6.10(e) hereto no Employee will be entitled to any severance or other payments under any plan, agreement or arrangement maintained, administered or contributed to by Sellers solely as a result of the transactions contemplated hereby.
6.11 Litigation. Except as set forth in Schedule 6.11 hereto, there is no action, suit, inquiry, litigation or proceeding by or before any referee, mediator or arbitrator, or any court or governmental or other regulatory or administrative agency or commission, pending or, to either Seller's knowledge, threatened, nor, to either Seller's knowledge, is any investigation pending by or before any such Governmental Authority, against either Seller or relating to the Assets or the Acquired Businesses nor, to either Seller's knowledge, are there any facts which would provide a basis for any such action, suit, inquiry, litigation, proceeding or investigation, which, in each case if adversely determined, could have a material adverse effect on the Acquired Businesses or the Assets or which in any manner challenges or seeks injunctive or other non- monetary relief or seeks to prevent, enjoin, alter or delay any of the transactions contemplated hereby. Neither Seller is subject to any judgment, order or decree entered in any lawsuit or proceeding that might adversely affect Buyer's ability to conduct the business of the Acquired Businesses or Buyer's rights in the Assets after the Closing Date. Except as set forth on Schedule 6.11 attached hereto, neither Seller has any knowledge that a third party is contesting any Contract to which either Seller is a party nor is either Seller contesting the award of a contract to a third party.
6.12 Permits. Schedule 6.12 hereto lists all Permits necessary or required in connection with the Acquired Businesses as presently conducted and the ownership by Sellers of the Assets. Sellers have obtained each such Permit and each such Permit is in full force and effect. Neither Seller has received notice that revocation is being considered with respect to any such Permit. Each Seller has made all filings with, or notifications to, all Governmental Authorities necessary or required in connection with the Acquired Businesses as presently conducted and the ownership by Sellers of the Assets.
6.13 Compliance with Law. To the best knowledge of Sellers, neither Seller is in violation, with respect to the Acquired Businesses, of any applicable federal, state, local or foreign law, rule, regulation, or ordinance, or any judgment, writ, decree, injunction, order or any other requirement of any court, Governmental Authority or arbitral or other dispute resolution body or agency, in each case which would have a material adverse effect on the Acquired Businesses, and no notice has been received by either Seller alleging any such violation.
6.14 SEC Filings. Securities and Exchange Commission Documents. Astrosystems has furnished to Buyer a true and complete copy of each statement, report and registration statement filed by Astrosystems with the Securities and Exchange Commission ("SEC") since January 1, 1994 (the "SEC Documents"), which are all of the documents (other than preliminary material) that Astrosystems was required to file with the SEC during such period. As of their respective filing dates, with respect to the Acquired Businesses, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading in any material respect, except to the extent corrected by a subsequently filed SEC Document.
6.15 Intellectual Property. Schedule 6.15 hereto lists or describes, with respect to the Acquired Businesses: (a) all unexpired United States and foreign copyright registrations and pending applications; (b) all unexpired United States and foreign patents and patent applications; (c) all United States and foreign trademarks, service marks, imprints, logos, trade dress, corporate, trade, assumed and other names, including those at common law and all registrations or applications to register the foregoing; and (d) all know-how, processes or trade secrets susceptible of legal protection; which (with respect to (a) through (d) above) (A) are owned by either Seller; or (B) are licensed to or by either Seller (collectively, the "Intellectual Property"). Except as set forth on Schedule 6.15 hereto, Sellers own or, in the case of any licenses, Sellers possess adequate, enforceable and assignable licenses or other rights to use all of the Intellectual Property, and all Drawings, including all part numbers designated by the United States government, free and clear of all Liens, without any conflict with the rights of others. Except as set forth on Schedule 6.15, all registrations for the Intellectual Property are valid and subsisting and in full force and effect. There are no existing or, to either Seller's knowledge, threatened, claims of any third party for infringement of the copyrights, patents or trademarks of others by either Seller, or unfair competition based on the use by, or challenging the ownership of or the right to use by, either Seller of any of the Intellectual Property. None of the Intellectual Property has been abandoned by Sellers or is subject to any outstanding order, decree, judgment, stipulation, injunction, written restriction or agreement restricting the scope or use thereof. To the Sellers' knowledge, there are no material infringing or diluting uses of the Intellectual Property.
(a) For purposes of this Agreement, (i) "Taxes" shall mean all foreign, federal, state and local income, profits, franchise, gross receipts, payroll, sales, employment, use, property, transfer, excise, estimated, stamp, alternative or add-on minimum, environmental, withholding and any other taxes, duties, assessments, governmental charges or levies, together with all interest, penalties and other additions imposed with respect to such amounts; and (ii) "Tax Return" shall mean any return, declaration, report, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
(b) All Tax Returns required to be filed on or before the Closing Date by either Seller or any member of an affiliated group (within the meaning of Section 1504 of the Code) or other combined group of which either Seller is, or has been or will be a member on or before the Closing Date (an "Affiliated Group Member") have been or shall be timely filed (taking into account all properly granted extensions), and all Taxes indicated as due on such returns have been or shall be paid or accrued within the prescribed period or any extension thereof.
(c) There are no Liens for taxes upon any property of Seller except for Liens for current Taxes not yet due. All amounts required to be withheld by
Sellers from employees for income taxes, social security and other payroll Taxes have been collected and withheld, and paid to the respective governmental agencies, or set aside in accounts for such purpose or accrued, reserved against and entered upon the books and records of the employer.
(d) Neither Seller nor any Affiliated Group Member has executed or filed with any taxing authority any agreement extending the period for the assessment or collection of any Taxes, is a party to or has received any notice with respect to any threatened or pending action by any taxing authority for assessment or collection of Taxes, or is a party to any dispute or threatened dispute, in which an adverse determination would have a material adverse effect upon the Assets of the Acquired Businesses, and no such claim for assessment or collection of Taxes has been made upon Sellers or any Affiliated Group Member.
6.17 Plant and Equipment. The Fixed Assets are adequate and suitable for the uses to which they are being put and constitute all of the fixed assets including, without limitation, equipment, necessary for the operation of the Acquired Businesses as they are currently being operated. To either Seller's knowledge, no condition exists with respect to any such Fixed Assets which would prevent, or require repair or modification thereof as a prerequisite to, Buyer's use thereof in the ordinary conduct of the Acquired Businesses except with respect to ordinary wear and tear and scheduled maintenance and repair that are not in the aggregate material in nature or in cost.
6.18 Brokers. Except as set forth on Schedule 6.18, Sellers have not, directly or indirectly, employed or utilized the services of any investment banker, broker, finder, consultant or other intermediary in connection with this Agreement or the transactions contemplated hereby.
6.19 Insurance. Each Seller maintains insurance coverage and performance bonds on its properties and assets and with respect to the Employees and operations, covering risks which are customarily insured against by businesses similar to the Acquired Businesses. Schedule 6.19 hereto contains a correct and complete description of all such performance bonds, policies or binders of insurance with respect to the Acquired Businesses held by or on behalf of Sellers, or providing coverage for any of their respective properties or assets (in each case specifying the insurer, the amount of coverage, the type of insurance, the risks insured, the expiration date, and the policy number). To Sellers' knowledge, no state of fact exists and no event has occurred which reasonably might form the basis of any claim against either Seller or relating to the Acquired Business which might substantially increase the insurance premiums payable under or result in the cancellation or nonrenewal of any of the policies or binders listed on Schedule 6.19 hereto.
6.20 Advertising, etc. To Sellers' knowledge, neither the advertising nor the promotional material used at any time by either Seller contained or contains any material untrue or misleading statements or claims.
6.21 Transactions with Affiliates. Neither Seller nor any of their Affiliates owns, directly or indirectly, or has an interest, either of record or beneficially, in, any business, corporate or otherwise, which is a party to any agreement, business arrangement or course of dealing with either Seller relating to the Acquired Businesses, or any property or asset which is the subject of any agreement, business arrangement or course of dealing with either Seller relating to the Acquired Businesses.
6.22 Restrictions. Neither Seller nor any of their Affiliates is party to any agreement, commitment or arrangement which would, following the Closing, directly or indirectly restrict Buyer from carrying on the Acquired Businesses or any aspect thereof as is conducted immediately prior to Closing anywhere in the world.
6.23 Full Disclosure. All documents and other papers delivered by or on behalf of Sellers in connection with this Agreement and the transactions contemplated hereby are true and complete in all material respects and authentic. The information furnished by or on behalf of Sellers to Buyer in connection with this Agreement and the transactions contemplated hereby does not contain any untrue statement of a material fact and does not omit to state any material fact necessary to make the statements made, in the context in which made, not false or misleading. Except as described in the SEC Documents, there is no fact which Sellers have not disclosed to Buyer which adversely affects, or to the knowledge of Sellers is likely to adversely affect, the business or condition (financial or other) of the Acquired Businesses or the ability of Sellers to perform this Agreement.
6.24 Prohibited Payments. Neither Sellers nor any of Sellers' respective officers, directors, employees, agents or Affiliates has, directly or indirectly, (a) offered, paid or given, or agreed to pay or to give, to any person or entity, including any governmental official, employee, or agent or solicited, received or agreed to receive from any such person or entity, directly or indirectly, any money or anything of value (however characterized) for the purpose of or with the intent of obtaining or maintaining business or otherwise affecting, or in any manner relating to, the business, assets, condition (financial or otherwise), operations or prospects of either Seller or (b) established or maintained any unrecorded fund or asset for any purpose or made any false entry on the books and records of Sellers for any reason, made or agreed to make, a reimbursement of any political gift or contribution made by any other person, to any candidate for federal, state, local or foreign office, which, with respect to both (a) and (b) above, is in violation of any law, or any rule, regulation or ordinance thereunder, of any federal, state local or foreign jurisdiction or not properly and correctly recorded or disclosed on the Financial Statements.
(a) To the best knowledge of Sellers, each of Behlman and Astrosystems with respect to the Military Division is in material compliance with all Environmental Laws (as hereinafter defined). Neither Seller has received any written communication from a governmental authority, citizens' group, employee or otherwise, that alleges that the Miliary Division or Behlman is not in such material compliance, and to Sellers' knowledge, there are no circumstances that are reasonably likely to prevent or interfere with such material compliance in the future. All material permits and other governmental authorizations required pursuant to the Environmental Laws relating to any property currently owned or operated by Sellers relating to the Acquired
Businesses ("Sellers' Facilities") have been obtained and are currently in force, and all such material permits and other governmental authorizations are identified in Schedule 6.25.
(b) There are no Environmental Claims (as hereinafter defined) relating to any of Sellers' Facilities pending or, to either Seller's knowledge, threatened against or involving Sellers or, to either Seller's knowledge, against any person or entity whose liability for any Environmental Claim relating to any of Sellers' Facilities either Seller has retained or assumed either contractually or by operation of law.
(c) True and correct copies of the Environmental Reports (as hereinafter defined) have been made available to Buyer and a list of all such reports, audits and assessments is set forth on Schedule 6.25.
(d) "Environmental Laws" shall mean all applicable federal, state, district and local laws, all rules or regulations promulgated thereunder, and all orders, consent orders or judgments issued, promulgated or entered pursuant thereto, relating to pollution or protection of the environment (including, without limitation, ambient air, surface water, ground water, land surface, or subsurface strata), including, without limitation, (i) laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, industrial materials, wastes or other hazardous or toxic substances into the environment and (ii) laws relating to the identification, generation, manufacture, processing, distribution, use, treatment, storage, disposal, recovery, transport or other handling of pollutants, contaminants, chemicals, industrial materials, wastes or other hazardous or toxic substances.
(e) "Environmental Claims" shall mean all accusations, allegations, notices of violation, Liens, claims, demands, suits, or causes of action for any damage, including, without limitation, personal injury, property damage (including, without limitation, any depreciation or diminution of property values), lost use of property or consequential damages, based upon Environmental Laws or principles of common law relating to pollution or exposure to hazardous substances.
(f) "Environmental Reports" shall mean any and all written analyses, summaries or explanations, in the possession or control of Sellers, of (a) the condition of the environment on or about Sellers' Facilities or (b) the compliance by the Acquired Businesses with Environmental Laws.
6.26 Accounts Receivable, etc. Schedule 6.26 hereto accurately sets forth the aging of the accounts receivable with respect to the Acquired Businesses as of November 30, 1995.
(a) Schedule 6.27(a) hereto sets forth a list of the ten largest customers of Behlman by dollar volume of revenues and each customer of the Military Division who, individually, constituted 10% or more of the Military Division's revenues, for the fiscal years ended June 30, 1995, 1994 and 1993 and for the three months ended September 30, 1995. Schedule 6.27(a) also sets forth a list of the ten largest suppliers of the Acquired Businesses by dollar volume of purchases for the fiscal year ended June 30, 1995 and for the three months ended September 30, 1995. Except as set forth on Schedule 6.27(b) attached hereto, since June 30, 1995, there has not been any material adverse change in the business relationship of Seller with respect to any such customer.
(b) Except as set forth on Schedule 6.27(b) attached hereto, no single supplier or customer is of material importance to the business of the Acquired Businesses. Except as set forth on Schedule 6.27(b) attached hereto, the relationships of Sellers with the suppliers and customers of the Acquired Businesses are good commercial working relationships and during the last 12 months no supplier or customer of the Acquired Businesses has cancelled or otherwise terminated, or threatened in writing to cancel or otherwise terminate, its relationship with either Seller or has decreased materially, or threatened to decrease or limit materially, its services, supplies or materials to Sellers or its usage of Sellers' services or products, as the case may be. Except as set forth on Schedule 6.27(b) attached hereto, neither Seller has any notice that any such supplier or customer intends to cancel or otherwise modify its relationship with Sellers or to decrease materially or limit its services, supplies or materials to Sellers or its usage of the services or products of Sellers, and the acquisition of the Acquired Businesses by Buyer will not, to either Seller's knowledge, adversely affect the relationship of Buyer with any such supplier or customer.
6.28 Orders and Commitments. The backlog as at November 30, 1995 for all accepted and unfulfilled orders of the Acquired Businesses and anticipated delivery dates are set forth in Schedule 6.28 annexed hereto. Except as set forth on Schedule 6.28, there is no merchandise in the hands of Sellers' customers under a specific understanding with either Seller that such merchandise would be returnable.
6.29 Correspondence. Schedule 6.29 accurately set forth a list of all correspondence since January 1, 1994 between either Seller and any federal, state or local Governmental Authority or lobbyist which relates to the Acquired Businesses (other than invoices and correspondence with regard to Sellers' fulfillment of their respective obligations under existing contracts with any federal, state or local governmental Authority).
7. Representations and Warranties of Buyer and Orbit. Buyer and Orbit, jointly and severally, represent and warrant to, and covenant and agree with, Sellers as follows:
7.1 Organization and Authority. Each of Buyer and Orbit is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the full corporate power and lawful authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform its obligations under this Agreement.
7.2 Authorization of Agreement. The execution, delivery and performance of this Agreement by each of Buyer and Orbit and the consummation by Buyer and Orbit of the transactions contemplated hereby have been duly authorized by all necessary corporate action by or on behalf of Buyer and Orbit, and no other board of directors, stockholder or other corporate proceedings by or on behalf of Buyer or Orbit is necessary to authorize the execution, delivery or performance of this Agreement or the performance of the transactions contemplated hereby. This Agreement constitutes, and each document and instrument contemplated by this Agreement to be executed by Buyer and Orbit, when executed and delivered in accordance with the provisions hereof shall be, the valid and legally binding obligations of each of Buyer and Orbit, enforceable against each of Buyer and Orbit in accordance with its terms, subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors' rights generally; and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).
7.3 Brokers. Neither Buyer nor Orbit has, directly or indirectly, employed or utilized the services of any investment banker, broker, finder, consultant or other intermediary, in connection with this Agreement or the transactions contemplated hereby.
7.4 Freedom to Contract. The execution, delivery and performance of this Agreement by each of Buyer and Orbit and the consummation by each of Buyer and Orbit of the transactions contemplated hereby will not (i) violate or conflict with any provisions of the certificate of incorporation or by-laws, each as amended, of each of Buyer and Orbit, (ii) violate any of the terms, conditions or provisions of any law, rule, statute, regulation, order, writ, injunction, judgment or decree of any court, governmental authority or regulatory agency, or (iii) conflict with or result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, indenture, debenture, security agreement, trust agreement, Lien, mortgage, lease, agreement, license, franchise, permit, guaranty, joint venture agreement or other agreement, instrument or obligation, oral or written, to which either Buyer or Orbit is a party (whether as an original party or as an assignee or successor) or by which it or any of its properties is bound. No authorization, approval, order, license, permit, franchise or consent, and no registration, declaration or filing with any court or Governmental Authority is required in connection with either Buyer's or Orbit's execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby.
8. Further Agreements of the Parties.
8.1 Conduct of Business Pending Closing. From the date hereof until the Closing Date or earlier termination of this Agreement, each Seller will:
(a) maintain its existence in good standing:
(b) maintain the general character of the business of the Acquired Businesses and conduct such business in the ordinary and usual manner;
(c) maintain proper business and accounting records;
(d) maintain the properties used in the business of the Acquired Businesses in good repair and condition, subject to normal wear and use; and
(e) use its reasonable commercial efforts to preserve the business of the Acquired Businesses intact, to keep available to Sellers the services of their respective present officers and employees and to preserve the goodwill of their respective suppliers, customers and others having business relations with the Acquired Businesses.
8.2 Prohibited Actions Pending Closing.
(a) Unless otherwise provided for herein or approved by Buyer in writing, from the date hereof until the Closing Date or earlier termination of this Agreement, neither Seller will:
(i) amend or otherwise change its certificate of incorporation, By-Laws or other governing documents;
(ii) mortgage, pledge or subject to Lien any of its material properties owned or used in connection with the business of the Acquired Businesses, or agree to do so;
(iii) enter into or agree to enter into any agreement, contract or commitment (other than purchase and sale orders and other agreements, contracts and commitments incurred in the ordinary course of business which are consistent with historical business and pricing practices and which have a value of less than $10,000) with respect to the business of the
(iv) increase, or agree to increase, the compensation of any of its officers, directors or employees primarily engaged in the business of the Acquired Businesses by means of salary increase, bonus or otherwise (other than annual cost of living increases consistent with past practice);
(v) sell or otherwise dispose of, or agree to sell or dispose of, any of its material assets or properties with respect to the business of the Acquired Businesses (other than purchase and sale orders incurred in the ordinary course of business); or
(vi) amend or terminate any Contract to which either Seller is a party (other than in the ordinary course of business) or take action or fail to take any action, constituting any event of default thereunder.
(b) From the date hereof through the Closing Date or earlier termination of this Agreement, neither Seller nor Buyer shall permit any of their respective officers, directors or employees to make any public statement or issue any press release with respect to (i) Sellers or their operations with respect to the business of the Acquired Businesses without the prior written approval of each party hereto, or (ii) the transactions contemplated hereby, unless such statement or release shall be jointly issued by Sellers and Buyer or such statements are required by law, rule or regulation (provided that the other party shall, to the extent practicable, be given an opportunity to review and consent to such statement or release).
8.3 Insurance. From the date hereof through the Closing Date or earlier termination of this Agreement, Sellers shall maintain in force (including necessary renewals thereof) the insurance policies listed on any Schedule hereto relating to the Acquired Businesses, except to the extent that they may be replaced with equivalent policies appropriate to insure the assets, properties and business of Seller to the same extent as currently insured at the same or lower rates or at rates approved by Buyer.
8.4 Continued Effectiveness of Representations and Warranties of Sellers. From the date hereof through the Closing Date or earlier termination of this Agreement, each Seller shall conduct its business in such a manner so that the representations and warranties contained in Section 6 shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date, and Buyer shall promptly be given notice of any event, condition or circumstance occurring from the date hereof through the Closing Date that would constitute a violation or breach of this Agreement.
8.5 Authorization. Sellers will use their respective best efforts to obtain, and shall deliver to Buyer at Closing evidence satisfactory to Buyer as to, the authorization of its shareholders (with respect to Astrosystems) and Board of Directors with respect to the execution, delivery and performance of this Agreement by Sellers, including, without limitation, the transfer to Buyer of the Assets upon the terms and conditions set forth in this Agreement. In connection therewith, Astrosystems shall, as soon as practicable following the execution of this Agreement, prepare and file with the SEC any necessary amended proxy materials in connection with a special or annual meeting of the shareholders of Astrosystems to be called to approve, among other matters, this Agreement and the transactions contemplated hereby. Buyer acknowledges receipt of the preliminary proxy materials of Astrosystems filed with the SEC on January 3, 1996. Astrosystems shall provide Buyer with a draft of any such further preliminary versions of such amended proxy materials as promptly as possible, but in no event later than the date of their submission to the SEC and, with respect to the drafts of any final amended versions thereof, not later than the Business Day prior to their submission to the SEC. Such proxy materials shall comply as to form in all material respects with the Securities and Exchange Act of 1934, as amended, and subject to the fiduciary duties of the Board of Directors of Astrosystems, include a statement that (i) the Board of Directors of Astrosystems recommends to its shareholders approval of the transaction provided for by the terms of this Agreement, and (ii) to Astrosystems' knowledge, shares owned beneficially and of record by the directors and executive officers of Astrosystems will be voted for the proposal relating to the approval of this Agreement and the transactions contemplated hereby. Astrosystems shall diligently pursue clearance of such preliminary proxy materials by the SEC and, as soon as practicable after such clearance is obtained, hold such shareholders' meeting.
8.6 Corporate Examinations and Investigations. Prior to the Closing Date or earlier termination of this Agreement, Buyer shall be entitled, through its employees and representatives, including, without limitation, Squadron, Ellenoff, Plesent & Sheinfeld, LLP and Richard A. Eisner & Co. to make such investigation of the Assets, properties, business and operations of Astrosystems and Behlman, and such examination of the books, records and financial condition of Sellers relating to the Acquired Businesses as Buyer reasonably requests. Any such investigation and examination shall be conducted at reasonable times and under reasonable circumstances, and Sellers shall cooperate fully therein. Buyer shall reimburse Sellers for any reasonable professional (legal and accounting) fees incurred by Sellers in connection with such investigation; provided, however, that Buyer shall not be responsible for fees and expenses of Sellers' internal legal and accounting staff. No investigation by Buyer shall diminish or obviate any of the representations, warranties, covenants or agreements of Sellers under this Agreement. In order that Buyer may have full opportunity to make such business, accounting and legal review, examination or investigation as it may wish of the business and affairs of Sellers, Sellers shall furnish to the representatives of Buyer during such period all such information and copies of such documents concerning the affairs of the Acquired Businesses as such representatives may reasonably request and cause its officers, employees, consultants, agents, accountants and attorneys to cooperate fully with such representatives in connection with such review and examination and to make full disclosure to Buyer of all material facts affecting the financial condition and business operations of the Acquired Businesses.
8.7 Consent to Jurisdiction and Service of Process. Subject to the provisions of Section 12.10 hereof, any legal action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby may be instituted in any state or federal court located in New York County, State of New York, and each party agrees not to assert, by way of motion, as a defense, or otherwise, in any such action, suit or proceeding, any claim that it is not subject personally to the jurisdiction of such courts, that its property is exempt or immune from attachment or execution, that the action, suit or proceeding is brought in an inconvenient forum, that the venue of the action, suit or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and hereby waives any offsets or counterclaims in any such action, suit or proceeding. Each party further irrevocably submits to the jurisdiction of any such court in any such action, suit or proceeding. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any party if given personally or by registered or certified mail, return receipt requested, or by any other means of mail that requires a signed receipt, postage prepaid, mailed to such party as herein provided, or by personal service on such party with a copy of such process mailed to such party by first class mail or registered or certified mail, return receipt requested, postage prepaid. Nothing herein contained shall be deemed to affect the right of any party to serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed against any other party in any jurisdiction other than New York in connection with actions initiated by third parties in such other jurisdictions.
8.8 Expenses. The parties to this Agreement shall bear their respective expenses incurred in connection with the preparation, execution and performance of this Agreement and the transactions contemplated hereby, including, without limitation, all fees and expenses of agents, representatives, counsel and accountants. Sellers shall bear all fees and expenses of OEM Capital.
8.9 Indemnification for Fees of Brokers and Finders. Buyer, on the one hand, and Sellers, on the other, agree to indemnify and save the other harmless from any claim or demand for commission or other compensation by any broker, finder, agent or similar intermediary claiming to have been employed by or on behalf of Buyer, on the one hand, or Sellers, on the other, and to bear the cost of legal expenses incurred in defending against any such claim.
(a) Sellers and Buyer shall use their respective best efforts to obtain at the earliest practicable date, by instruments in form and substance reasonably satisfactory to Buyer, all consents and approvals referred to in Schedule 6.3 hereto (Buyer hereby acknowledging that the Shareholder Approval process is provided for in Section 8.5 hereof). If any consent is not obtained, Sellers shall, to the extent reasonably possible, keep the agreement in effect and shall give Buyer the benefit of the agreement to the same extent as if Sellers had not been excluded from assigning such agreement to Buyer, and Buyer shall perform the obligations and assume the Liabilities under the agreement relating to the benefit obtained by Buyer. Nothing in this Agreement shall be construed as an attempt to assign any agreement or other instrument that is by its terms not assignable without the consent of the other party.
(b) Buyer hereby acknowledges and agrees that all sales representative agreements and commission agreements between either Seller, on the one hand, and third parties, on the other hand, as such relate to the Acquired Businesses, have been, or will be, terminated by Sellers prior to or following the Closing.
(a) Between the date of this Agreement and the Closing Date, Buyer shall offer employment, at base salaries comparable to their present base salaries, to all persons listed on Schedule 6.10(e) who are Employees on the Closing Date none of whom are employees governed by a collective bargaining agreement, except any such Employees who are on lay-off, leave of absence (other than maternity or family leave, sick leave or short-term disability) or long- term disability ("Eligible Employees"). Such employment would commence on the Closing Date, except with respect to any such Employees on maternity or family leave, sick leave or short-term disability, in which case the employment with Buyer would commence on the date such person returns to work. Those employees of Sellers accepting an offer and commencing employment with Buyer are herein referred to as "Transferred Employees."
(b) Sellers shall assume, retain responsibility for and continue to pay, in accordance with the terms of the applicable employer plans, any hospital, medical or other health care, life insurance, short and long term disability, travel accident or other plan benefits and expenses for each employee or former employee of Sellers (including each Transferred Employee) with respect to claims incurred by such employee or his or her covered dependents prior to the Closing Date or other costs in respect of any such plan coverage for periods prior to the Closing Date (including, without limitation, any residual deficits due Blue Cross, Blue Shield or otherwise), and, with respect to such employees who are not Transferred Employees (and their covered dependents), claims incurred whether before, on or after the Closing Date to the extent provided under the terms of the applicable plans or by law. Buyer shall be responsible for and pay, in accordance with the terms of any applicable employer plan (to the extent, if any, Buyer maintains any such plans after the Closing Date) any hospital, medical or other health care, life insurance, short and long term disability, travel accident or other plan benefits and expenses for each Transferred Employee with respect to claims incurred by such Transferred Employee or his or her covered dependents on or after the Closing Date. For purposes of this Section 8.11(b), any hospital, medical or other health care or dental claim will be deemed incurred when the services giving rise to the claim are first performed and any other claim will be deemed incurred when the event that is the basis of the claim first occurred. With respect to any employee of Sellers or his or her covered dependent who is on short or long term disability or hospitalized on the Closing Date, Sellers shall assume, retain responsibility for and pay, in accordance with the terms of the applicable plan, all salary continuation benefits and expenses of such person until the end of any such disability and all benefits and expenses incurred by such employee or covered dependent in connection with such hospitalization, as the case may be. Notwithstanding the foregoing provisions of this Section 8.11(b), Sellers shall cooperate upon Buyer's request to provide for Buyer to assume any employer welfare benefit plan (and any underlying insurance policy used to fund such plan) applicable to Transferred Employees as in Buyer's sole discretion it deems appropriate.
(c) Sellers shall be liable for any amounts to which any employee of Sellers becomes entitled under any severance policy, plan, agreement, arrangement or program (whether or not covered by ERISA) maintained by Sellers which exists or arises or may be deemed to exist or arise under the terms thereof or any applicable law in respect of the period prior to and on the Closing Date. Buyer shall be solely responsible for the payment of any severance amounts due to Transferred Employees.
(d) Sellers shall assume, retain responsibility for and shall make payments of any vacation or sick pay or compensatory pay in respect of Employees for the period up to and including the Closing Date, whether or not such Employees are Transferred Employees. Specifically, all payments for any accrued vacation time for the Transferred Employees prior to the Closing Date shall be satisfied by Sellers prior to the Closing.
(e) Nothing in this Agreement shall be construed as creating an express or implied contract of employment or a guarantee of employment with Buyer or any of its affiliates for any period of time after the Closing Date, nor shall anything in this Agreement confer upon any Transferred Employee any right to continue in the employ of Buyer or any of its affiliates after the Closing Date or interfere with, or restrict in any way, the rights of Buyer, which are hereby expressly reserved, to terminate the employment of any employee at any time for any reason whatsoever.
(f) Sellers shall be responsible for all obligations and liabilities under the Workers Adjustment and Retirement Notification Act of 1988, as amended, and each similar state law ("WARN"), with respect to Employees by reason of their severance or other termination of employment prior to the Closing Date and Buyer shall be responsible for all such obligations and liabilities under WARN with respect to Employees by reason of their severance or other termination of employment on or after the Closing Date.
(g) Buyer shall establish medical and dental plans which will, or cause its existing medical and dental plans to, (i) immediately, and without any waiting period, be available to cover each Transferred Employee (and dependents and beneficiaries thereof) as of the Closing Date, and (ii) waive any limitation on coverage due to pre-existing conditions for Transferred Employees (and dependents and beneficiaries thereof) who previously participated in Sellers' medical plan or any HMO offered by Sellers.
(h) Sellers shall remain obligated to offer COBRA continuation coverage to its covered employees (other than the Transferred Employees), former employees and their qualified beneficiaries to the extent required by applicable law, and Sellers agree to jointly and severally indemnify and hold Buyer harmless from any claims for COBRA continuation coverage made by or on behalf of such employees and their qualified beneficiaries who are (i) receiving COBRA continuation coverage at the Closing, or (ii) with respect to whom a qualifying event occurred prior to the Closing and for which the applicable election period for COBRA continuation coverage has not expired as of the Closing Date or (iii) with respect to whom a qualifying event occurs as a result of the Closing of the transaction contemplated by this Agreement; in each case, other than claims for COBRA continuation coverage under Buyer's group health plans arising in connection with any termination of a Transferred Employee's employment with Buyer or its Affiliates after the Closing Date.
8.12 Further Assurances. The parties shall cooperate and use reasonable efforts to cause all conditions to the Closing hereunder to be satisfied as promptly as practicable. From and after the Closing, Sellers, on the one hand, and Buyer, on the other hand, agree to execute and deliver such further documents and instruments and to do such other acts and things as Buyer or Sellers, as the case may be, may reasonably request in order to effectuate the transactions contemplated by this Agreement. In the event any party shall be involved in litigation, threatened litigation or government inquiries with respect to a matter involving either Seller, the other parties shall also make available to such first party, at reasonable times and subject to the reasonable requirements of its or his own business, such of its or his personal information relevant to the matters, provided such first party shall reimburse the providing party for its or his reasonable costs for employee time incurred in connection therewith if more than one business day is required. Following the Closing, the parties will cooperate with each other in connection with tax audits and in the defense of any legal proceedings, consistent with the other provisions for defense of claims provided in Article 10 to the extent such cooperation does not cause unreasonable expense, unless such expense is borne by the requesting party.
8.13 Notices of Certain Events.
(a) Sellers and Buyer shall promptly notify the other of:
(i) any notice or other communication of which any party has knowledge from any person alleging that the consent of such person is or may be required in connection with this Agreement and the transactions contemplated
(ii) any notice or other communication of which any party has knowledge from any governmental or regulatory agency or authority in connection with this Agreement and the transactions contemplated hereby;
(iii) any actions, suits, charges, complaints, claims, investigations or proceedings commenced or, to any party's knowledge, threatened against, relating to, involving or otherwise affecting, the Assets or the business of the Acquired Businesses which, if pending on the date of this Agreement, would have been required to be disclosed pursuant to Section 6.13 hereof or which relate to the consummation of the transactions contemplated
(iv) any material adverse change in the Assets or the Acquired Businesses or of any event that would materially impair either Seller's ability to perform its obligations under this Agreement; and
(v) any notice of termination, voiding or reduction of any insurance policy, as described in Section 8.3 hereof, or any written notice regarding any material insurance claim.
(b) Sellers shall promptly notify Buyer of any adverse change in order backlog or sales prospects of either Seller.
(a) Noncompetition. Each of the Sellers and Seymour Barth, Elliot Bergman and Gilbert Steinberg (collectively, the "Principal Stockholders") will not, for a period of three years following the Closing (the "Noncompetition Period"), (i) engage or participate in, directly or indirectly (whether as a lender, investor, shareholder, consultant or partner, or in any other manner or capacity), or lend its name (or any part or variant thereof) to, any business which is, or as a result of Sellers' or Principal Stockholders' engagement or participation would become, competitive with the business of the Acquired Businesses as currently conducted by Sellers, including, in any event, any business involving the manufacture or sale of power supplies, AC power sources, frequency converters, UPS and associated analytical equipment or other electronic equipment which are the same as or similar to those manufactured by the Acquired Businesses; provided, however, that Astrosystems may continue to engage in any business (other than the business of the Acquired Businesses) conducted by Astrosystems prior to the date hereof; (ii) solicit, interfere with or endeavor to entice away from Buyer or otherwise deal, directly or indirectly, in a competitive manner with any customers doing business with Buyer as the successor to the business of the Acquired Businesses; (iii) employ, hire, solicit, be associated with or otherwise interfere with or endeavor to entice away any officer, director, employee, or agent of Buyer; (iv) engage in or participate in, directly or indirectly, any business conducted under any name that shall be the same as or similar to any trade name used by Buyer (including the name "Behlman"); or (v) materially interfere with the operation by Buyer of the Acquired Businesses or engage in any act that would be injurious to Buyer's business reputation or detract from the goodwill acquired pursuant hereto. Notwithstanding the foregoing, it is expressly understood and agreed that ownership for investment of less than 5% of the outstanding shares of capital stock of a corporation listed on a national securities exchange or actively traded in the over-the-counter market that would otherwise be prohibited by clause (i) above shall not be deemed to constitute a breach of such provision, provided that Seller shall not be in a control position with regard to any corporation described in clause (i) above. Sellers and Principal Stockholders are entering into the foregoing covenant to assure Buyer of the transfer of the goodwill of the business of the Acquired Businesses and in order to induce Buyer to consummate the transactions contemplated by this Agreement.
(b) Nondisclosure. Neither Sellers nor any of their respective officers or directors shall, at any time after the date of this Agreement, divulge, furnish or make accessible to anyone the following information ("Proprietary Information"): any confidential knowledge or information with respect to confidential plans, ideas or know-how of the Acquired Businesses or any other confidential or secret aspects of the business of the Acquired Businesses (including, without limitation, customer lists, lists of suppliers, or any pricing or commission arrangements); provided, however, that the foregoing provision shall not apply to any information which is or becomes generally available to the public through no breach of this Agreement or which, in the opinion of counsel, is required by law, rule or regulation to be disclosed. If at any time Sellers or any of their respective officers, directors or employees is requested or required (by oral questions, interrogatories, requests for information or documents, subpoenas or similar legal process) to disclose any Proprietary Information, Sellers shall promptly notify Buyer and shall refrain from making such disclosure so that Buyer may, at its own expense, seek an appropriate protective order in a prompt manner and/or waive compliance with the provisions hereof. If, in the absence of a protective order or the receipt of a waiver hereunder, in the reasonable written opinion of counsel to Sellers, disclosure of Proprietary Information to any tribunal or any governmental agency is required to avoid liability for contempt or any other penalty, then Sellers or their respective officers, directors or employees, as applicable, may disclose such Proprietary Information to such tribunal or agency without liability hereunder; provided, however, that Buyer shall promptly be notified of such decision. Sellers are aware that material and irreparable injury would be done to Buyer if either such party would divulge Proprietary Information to competitors of Buyer. Sellers recognize and acknowledge that the Proprietary Information constitutes a valuable, special and unique asset of the business of the Acquired Businesses.
(c) If either Seller breaches, or threatens to commit a breach of, any of the provisions of Sections 8.14(a) or 8.14(b) (the "Restrictive Covenants"), Buyer shall have the following rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and each of which is in addition to, and not in lieu of, any other rights and remedies available to Buyer under law or in equity:
(i) The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to Buyer and that money damages would not provide an adequate remedy to Buyer.
(ii) The right and remedy to require Sellers to account for and pay over to Buyer all compensation, profits, monies, accruals, increments or other benefits derived or received by Sellers as the result of any transactions constituting a breach of the Restrictive Covenants.
(d) Sellers acknowledge and agree that the Restrictive Covenants are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions.
8.15 Access to Records. After the Closing Date, Buyer, on the one hand, and Sellers, on the other hand, shall give, or cause to be given, to the other party, during normal business hours at their premises, reasonable access to the personnel, properties, contracts, books, records, files and documents of or relating to Sellers (with respect to the Acquired Businesses), on the one hand, and the Acquired Businesses, on the other hand, and shall allow the other party (at the expense of the other party) to make copies of all titles, contracts, books, records, files and documents, as is reasonably necessary for the other party's legitimate business purposes. No party will destroy any such contracts, books, records, files or documents without first notifying the other parties in writing and providing them with the opportunity to take possession thereof.
8.16 Use of "Astrosystems" Name. Astrosystems hereby grants to Buyer the personal, nontransferable, non-exclusive right to use the name "Astrosystems" in connection with Buyer's operation of the Acquired Businesses for a period of one year following the Closing Date.
8.17 Bulk Sales Law. The transactions contemplated hereby shall be consummated without compliance with Bulk Sales Laws. If by reason of any applicable Bulk Sales Law, any claims are asserted by creditors of Sellers, such claims shall be the responsibility of Buyer in the case of claims arising under any of the Assumed Liabilities, or the responsibility of Sellers in the case of claims arising under any other liabilities other than the Assumed Liabilities.
8.18 SEC Filings. Prior to the Closing Date or earlier termination of this Agreement, Astrosystems shall, to the extent practicable, deliver to Buyer, not later than the Business Day prior to the filing thereof, any document proposed to be filed with the SEC.
8.19 Accounts Receivable. Following the Closing, Buyer shall collect, on Sellers' behalf, all accounts receivable of Sellers. Buyer shall remit to Sellers all such amounts it collects on Sellers' behalf within 10 days following receipt thereof. The foregoing shall not be construed to limit Sellers' right to collect any and all accounts receivable that are overdue; provided, however, that with regard to any accounts receivable which are disputed, for a period of one year following the date of the invoice related to the disputed receivable, Sellers shall not turn over such receivable to a collection agency without the consent of Buyer. Buyer shall have the option, exercisable up to the first anniversary of the date of the invoice relating to a receivable, to purchase, on a dollar-for-dollar basis, Sellers' then outstanding accounts receivable which relate to the Acquired Businesses. Sellers and Buyer hereby agree that with regard to invoices relating to the accounts receivable which may be billed by Sellers between the date hereof and the Closing Date, such accounts receivable shall be for the account of Buyer if the inventory relating to such receivable is not shipped prior to the Closing Date. Sellers represent that, as of the date hereof, there are no outstanding accounts receivable for which inventory has not been shipped. In such event, if any such receivables are collected prior to the Closing Date, the Purchase Price shall be reduced dollar-for-dollar by an amount equal to such collected receivables. If such accounts receivable are collected following the Closing Date, Sellers shall promptly remit any such amounts to Buyer.
8.20 Exclusivity. Prior to the earlier of termination of this Agreement or February 15, 1996, neither Seller shall, directly or indirectly, through any officer, director, employee, agent or otherwise (including through any investment banker, attorney or accountant retained by any of the foregoing), solicit, initiate any discussions or negotiations regarding, or furnish to any other person or entity any information with respect to, or otherwise cooperate in any way with, any proposal or offer from any such person or entity (including any agents or representatives thereof) relating to any acquisition of all or a portion of the Acquired Businesses (including any acquisition structured as a stock purchase, merger, consolidation or share exchange).
8.21 Sales Taxes. Any sales taxes resulting from the transactions contemplated hereby shall be borne by Buyer.
8.22 Shared Space Arrangement. Following the Closing Date and through February 29, 1996 (the "Period"), Astrosystems agrees that it shall permit Buyer to use the premises located at 6 Nevada Drive, Lake Success, New York (the "Premises") on the following terms and conditions:
(a) During the Period, Astrosystems agrees to:
(i) maintain telephone, heat, light and janitorial services;
(ii) provide work space to all Transferred Employees in a manner consistent with that currently provided to them; and
(iii) use its best efforts to retain the Astrosystems support staff employees listed on Schedule 8.22 attached hereto (the "Support Employees") (such best efforts obligation not to include the granting of any additional remuneration or other benefits).
The Support Employees shall perform such services for the benefit of Buyer as are related to the department in which they are a member, as set forth on Schedule 8.22. Schedule 8.22 also reflects the weekly salary for each Support Employee as well as the anticipated percentage of time that each Support Employee shall perform services for the benefit of Buyer. Astrosystems' best efforts obligation as set forth above shall continue throughout the Period with regard to each Support Employee until such time as a particular Support Employee voluntarily leaves Astrosystems' employment or Astrosystems is notified by the
Buyer that retention of the particular Support Employee is no longer required.
(b) In consideration for the foregoing, if Buyer elects to use the Premises, Buyer agrees as follows:
(i) Buyer promptly will pay to Astrosystems the sum of $10,000 per week in advance for as long as any Transferred Employee uses the Premises. A proportionate amount thereof shall be due and payable for any partial week of use.
(ii) Buyer promptly will reimburse Astrosystems for all direct pay of Support Employees and will, in addition, pay to Astrosystems a sum equal to 25% of all direct pay due. The parties acknowledge and agree that the percentages set forth on Schedule 8.22 are estimates only and, accordingly, shall not be determinative of the amount due from Buyer to Astrosystems hereunder. For the purpose of determining the amount due from Buyer hereunder, Astrosystems shall supply to Buyer on a weekly basis copies of the time cards of the Support Employees for the preceding week. Any time spent by Support Employees on matters not relating to either of the Acquired Businesses will be excluded from the calculation of amounts due.
(iii) Buyer will be liable for and will pay all wages, payroll benefits, payroll taxes and other employment costs and obligations attributable to the employment of Transferred Employees.
(iv) Buyer will vacate the Premises promptly upon expiration of the Period.
8.23 Maintenance of Existence. For a period of two years following the Closing Date, Astrosystems shall maintain its corporate existence in good standing. During such period, Astrosystems shall also maintain a net worth (computed on a non-liquidation basis) equal to no less than the Adjusted Purchase Price (it being acknowledged and agreed that, in calculating net worth, the Escrowed Amount, together with interest thereon, shall be a part thereof).
8.24 Progress Payments. Set forth on Schedule 8.24 attached hereto are all progress payments heretofore received by either Seller with respect to any Contract assumed by Buyer pursuant to Section 3.1(a) hereof. Sellers and Buyer hereby agree that the Purchase Price shall be decreased, on a dollar-for-dollar basis, by the aggregate amount of such progress payments.
8.25 Warranty Obligations. For a period of one year following the Closing Date, with respect to the fulfillment by Buyer of the warranty obligations being assumed by Buyer pursuant to Section 3.1(d) hereof, Sellers shall reimburse Buyer, within 10 business days following receipt of a written invoice from Buyer, for any materials at cost and for labor at the rate of $40 per hour, which are incurred by Buyer in connection with such warranty obligations. Buyer shall perform all warranty obligations in accordance with generally accepted commercial warranty practice.
8.26 Orbit Guaranty. Subject to Orbit's right to assert any defenses, counterclaims or setoffs which Buyer may have against Sellers, Orbit hereby unconditionally, absolutely and irrevocably guarantees to Sellers (the "Orbit Guaranty"), and their successors and assigns, the full and prompt payment, performance, satisfaction and discharge of each agreement, indebtedness, liability and obligation of Buyer (collectively, the "Buyer's Obligations") under this Agreement and the Escrow Agreement, including, without limitation, the following: (a) the payment of the Adjusted Purchase Price; (b) the payment, performance, satisfaction and discharge of Assumed Liabilities and any liabilities and obligations arising out of the Assumed Contracts; (c) the payment of any amounts due from Buyer to Astrosystems pursuant to Section 8.22 and Section 11.4 hereof; and (d) the payment of any amounts due from Buyer to Sellers as indemnification under this Agreement.
Orbit guarantees that Buyer's Obligations will be paid and performed strictly in accordance with the terms and provisions of this Agreement. Nothing herein is intended to create any obligation or liability on the part of Orbit if no such obligation or liability exists on the part of Buyer. Nothing herein shall be construed to eliminate or adversely affect the availability to Orbit of any defenses, counterclaims or setoffs which Buyer may have against Sellers.
Sellers, in their sole discretion, may proceed against Orbit in the first instance to collect or enforce any or all of Buyer's Obligations, without first proceeding against Buyer or resorting to any other remedies at the same or at different times, provided that Sellers will consent to the joinder of Buyer, at Orbit's or Buyer's request, in any action brought to enforce its right under the Orbit Guaranty. The liability of Orbit hereunder shall not be affected by an acceptance by Sellers of any security for, or other guarantees upon, any of Buyer's Obligations, or by an act, delay or omission of Sellers in enforcing Buyer's Obligations or right hereunder. This Orbit Guaranty is a continuing guaranty which may be enforced before, after or concurrently with proceeding against Buyer. This Orbit Guaranty is a guaranty of payment and performance and not of collectability and, except as herein provided, is in no way conditioned or contingent.
Orbit hereby consents that Sellers, from time to time, before or after any default by Buyer, with or without any further notice to Orbit, may, without affecting the liability of Orbit, and upon such terms and conditions as Sellers may deem advisable: (1) extend in whole or in part (by renewal or otherwise), modify, accelerate, change or release any of Buyer's Obligations, or waive any default with respect thereto; or (2) settle or compromise any claim of Sellers against Buyer. Orbit hereby ratifies any such action, agrees that the same shall be binding upon Orbit and waives any defenses, counterclaims or offsets which Orbit may have by reason thereof, except such defenses, counterclaims and offsets as may be available to Buyer.
8.27 Bridge Financing. Between the date hereof and the Closing Date, the parties agree to negotiate in good faith the terms and conditions of a 90-day bridge loan (the "Bridge Loan") of up to $500,000 from Astrosytems to Buyer, which Bridge Loan, if successfully negotiated, will be funded at the Closing. Any such Bridge Loan shall bear interest and shall be fully secured by certain assets of Orbit and Buyer. The rate of interest and the nature of the collateral shall be negotiated in good faith by the parties.
9.1 Conditions Precedent to Obligations of Buyer and Orbit. The obligations of Buyer and Orbit to consummate the transactions contemplated hereby are subject to the fulfillment, prior to or at the Closing, of each of the following conditions (any or all of which may be waived by Buyer or Orbit):
(a) all representations and warranties of Sellers and contained herein or in any list, certificate, document or statement furnished by Sellers to Buyer in connection with the negotiation, execution or performance of this Agreement shall, in each case, be true and correct in all material respects at and as of the Closing Date with the same effect as though those representations and warranties had been made at and as of that time;
(b) Sellers shall have performed and complied with, in all material respects, all obligations and covenants required by this Agreement to be performed or complied with by any such party prior to or at the Closing;
(c) Buyer shall have been furnished with a certificate from each Seller (dated the Closing Date and in form and substance reasonably satisfactory to Buyer) executed by the Chairman of the Board of Directors, the President or a Vice President of each Seller certifying to the fulfillment of the conditions specified in Sections 9.1(a) and 9.1(b) hereof;
(d) Buyer shall have been furnished with an opinion of Certilman Balin Adler & Hyman, LLP, counsel to Sellers, in form and substance reasonably
(e) there shall be no judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding which prohibits, restricts or delays consummation of the transactions contemplated by this Agreement; there shall be no pending lawsuit, claim or legal action relating to the transactions contemplated hereby which would materially adversely affect such transactions or Buyer or Orbit;
(f) Buyer shall have received from Sellers copies of all Required Consents or Sellers shall confirm their agreement to act in accordance with
(g) Buyer shall have received a copy of resolutions adopted by the Board of Directors and, if required, the shareholders, of each Seller authorizing the execution, delivery and performance of this Agreement by each such Seller, and a certificate of the Secretary or an Assistant Secretary of each Seller, dated the Closing Date, stating that such resolutions were duly adopted and are in full force and effect at such date and setting forth the incumbency of each person executing this Agreement or any other document delivered pursuant to this Agreement on behalf of each Seller;
(h) Sellers shall have executed and delivered to Buyer a Bill of Sale in form and substance reasonably satisfactory to Buyer (the "Bill of Sale");
(i) each Seller shall have executed and delivered to Buyer an
Assignment of Intellectual Property in form and substance reasonably satisfactory to Buyer (the "Assignments of Intellectual Property");
(j) subject to the provisions of Section 8.10 hereof, each Seller shall have executed and delivered to Buyer an Assignment of Contracts in form and substance reasonably satisfactory to Buyer (the "Assignments of Contracts");
(k) Sellers shall deliver to Buyer evidence satisfactory to Buyer that all Liens (other than Permitted Liens) on the Assets have been cancelled,
(l) this Agreement and the transactions contemplated hereby as well as the Plan, shall have been approved and adopted by the affirmative vote of holders of the majority of all outstanding shares of Astrosystems entitled to vote for the transactions contemplated by this Agreement; and
(m) Sellers shall have executed and delivered to Buyer and Orbit the Escrow Agreement.
9.2 Conditions Precedent to Obligations of Sellers. The obligations of Sellers to consummate the transactions contemplated by this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions (any or all of which may be waived by Sellers):
(a) all representations and warranties of Buyer and Orbit to Sellers shall be true and correct in all material respects at and as of the Closing Date with the same effect as though those representations and warranties had been made at and as of that time;
(b) Buyer and Orbit shall have performed, and complied in all material respects with, all obligations and covenants required by this Agreement to be performed or complied with by them, respectively, prior to or at the
(c) Sellers shall have been furnished with certificates dated the Closing Date and in form and substance reasonably satisfactory to the Sellers executed by the Chairman of the Board of Directors, the President or a Vice President of each of Buyer and Orbit and certifying to the fulfillment of the conditions specified in Sections 9.2(a) and 9.2(b) hereof;
(d) Sellers shall have been furnished with an opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP, counsel to Buyer and Orbit, in form and substance reasonably satisfactory to Sellers:
(e) there shall be no judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding which prohibits, restricts or delays consummation of the transactions contemplated by this Agreement; there shall be no pending lawsuit, claim or legal action relating to the transactions contemplated by this Agreement which would materially adversely affect such transactions or Sellers;
(f) Sellers shall have received a copy of resolutions adopted by the
Board of Directors of each of Buyer and Orbit authorizing the execution, delivery and performance of this Agreement by each of Buyer and Orbit, and a certificate of the Secretary or an Assistant Secretary of Buyer, dated the Closing Date, stating that such resolutions were duly adopted and are in full force and effect at such date, and setting forth the incumbency of each person executing this Agreement, or any other documents delivered pursuant to this Agreement on behalf of each of Buyer and Orbit;
(g) Buyer shall have executed and delivered to Sellers an Assumption Agreement in form and substance reasonably acceptable to Sellers (the
(h) this Agreement and the transactions contemplated hereby, as well as the Plan, shall have been approved and adopted by the affirmative vote of holders of a majority of all outstanding shares of Astrosystems entitled to vote for the transactions contemplated hereby;
(i) the Required Consents shall have been obtained; and
(j) Buyer and Orbit shall have executed and delivered to Sellers the Escrow Agreement.
10.1 Indemnification by Sellers. Sellers shall jointly and severally indemnify Buyer and hold it harmless at all times from and after the Closing Date against and in respect of any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs, damages, losses, liabilities, taxes and deficiencies and penalties and interest thereon and costs and expenses, including reasonable attorneys' fees (collectively, "Losses") resulting from (a) any misrepresentation, breach of warranty, or nonfulfillment of any covenant or agreement of either Seller in this Agreement, or (b) the Excluded Liabilities.
(a) Buyer shall indemnify Sellers and hold each of them harmless at all times from and after the Closing Date against and in respect of any and all Losses resulting from (i) any misrepresentation, breach of warranty or nonfulfillment of any covenant (including the provisions of Section 8.22 hereof) or agreement of Buyer in this Agreement, (ii) the Assumed Liabilities; or (iii) any Losses resulting from Buyer's actual use of the Premises during the Period and which were not caused by either Seller.
(b) Orbit shall indemnify Sellers and hold each of them harmless at all times from and after the Closing Date against and in respect of any and all Losses resulting from any misrepresentation or breach of warranty in this Agreement.
10.3 Period of Indemnity. All representations and warranties of the parties contained in this Agreement or in any document delivered pursuant to this Agreement, shall survive the execution and delivery of this Agreement and shall continue in full force and effect for two years after the Closing Date and thereafter shall terminate; provided, however, that if at the expiration of the appropriate period any claim for indemnification has been asserted but not fully determined, such period will be extended as to such claim until it is finally determined. All covenants or agreements which by their terms are to be performed after the Closing Date shall survive until fully discharged.
10.4 Limitations. No indemnity shall be payable to the Buyer with respect to any claim under Section 10.1(a), or to the Sellers with respect to any claim under Sections 10.2(a)(i) or 10.2(b), based upon, arising out of or otherwise in respect of any inaccuracies in or any breach of any representation or warranty (i) with respect to any Loss of less than $2,500, and (ii) unless and until the aggregate of all Losses due from Buyer and Orbit or Sellers, as the case may be, exceed $50,000, at which point all Losses so due shall be paid in full by Sellers or Buyer and Orbit, as the case may be. In addition, the total indemnification to which Buyer shall be entitled under this Agreement shall be limited to an amount, in the aggregate, not to exceed the Adjusted Purchase Price.
10.5 Notice to the Indemnitor. Promptly after the assertion of any claim by a third party or occurrence of any event which may give rise to a claim for indemnification from an indemnitor (the "Indemnitor") under this Section, an indemnified party (the "Indemnified Party") shall notify the Indemnitor in writing of such claim (the "Claims Notice"). The Claims Notice shall describe the asserted liability in reasonable detail, and shall indicate the amount (estimated, if necessary and to the extent feasible) of the Loss that has been or may be suffered by the Indemnified Party. Failure by the Indemnified Party to give a Claims Notice to the Indemnitor in accordance with the provisions of this Section 10.5 shall not relieve the Indemnitor of its obligations hereunder except to the extent that the Indemnitor has been actually prejudiced by such failure.
10.6 Rights of Parties to Settle or Defend. The Indemnitor may elect to compromise or defend, at its own expense, by its own counsel and to the extent an election with respect to such compromise or defense is available to the Indemnified Party, any asserted liability. If the Indemnitor elects to compromise or defend such asserted liability, it shall within 30 calendar days (or sooner, if the nature of the asserted liability so requires) notify the Indemnified Party of its intent to do so, and the Indemnified Party shall cooperate, at the expense of the Indemnitor, in the compromise of, or defense against, such asserted liability. If the Indemnitor elects to defend any claim, the Indemnified Party shall make available to the Indemnitor any books, records or other documents within its control that are necessary or appropriate for such defense. If the Indemnitor elects not to compromise or defend the asserted liability, fails to notify the Indemnified Party of its election as herein provided or contests its obligation to indemnify under this Agreement, the Indemnified Party may pay, compromise or defend (at the expense of the Indemnitor) such asserted liability as the Indemnified Party considers appropriate. The parties agree to cooperate fully with one another in the defense, settlement or comprise of any asserted liability. Notwithstanding the foregoing, neither the Indemnitor nor the Indemnified Party may settle or compromise any claim over the objection of the other; provided that consent to settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnified Party and the Indemnitor may participate, at their own expense, in the defense of such asserted liability.
10.7 Exclusive Remedies. The parties hereto acknowledge that the indemnity rights set forth in Article 10 and in Section 8.9 hereof are intended to be their exclusive monetary remedies in connection with this Agreement and the transactions contemplated hereby; provided that nothing in this Section 10.7 shall limit in any way the availability of specific performance, injunctive relief or other equitable remedies to which a party may otherwise be entitled.
11.1 Termination. This Agreement may be terminated and the transactions contemplated herein may be abandoned (a) by mutual consent of Sellers and Buyer; or (b) by Sellers or Buyer by notice to the other parties if the Closing shall not have occurred on or before April 30, 1996, or (c) by Sellers if the conditions to the obligation of Buyer to consummate the transactions contemplated hereby, as set forth in Section 9.1, shall have been satisfied or waived and Buyer shall be unable or unwilling to close on the terms and conditions provided for in this Agreement on or before February 15, 1996.
11.2 No Liabilities in Event of Termination. In the event of any termination of this Agreement as provided in Section 11.1 above, this Agreement shall forthwith become wholly void and of no further force and effect, and, except as provided in Sections 11.3 and 11.4 hereof, there shall be no liability on the part of any of the parties hereto or their respective affiliates, officers or directors by reason of the execution hereof; provided that such termination shall not preclude any party from suing another party for material breach of any covenant or agreement contained in the last sentence of Section 8.2 hereof or in Section 8.5 hereof or the willful failure to consummate the transactions contemplated hereby.
11.3 Lack of Shareholder Approval. In the event that the transactions contemplated hereby are not consummated due to Astrosystems' failure to obtain Shareholder Approval, Sellers shall reimburse Buyer for all legal, accounting and other expenses incurred by Buyer in connection with the preparation and negotiation of this Agreement and the transactions contemplated hereby. Buyer shall use its reasonable efforts to ensure that any such expenses are commercially reasonable. The foregoing shall not be deemed a limitation on the right of Buyer to recover damages for the breach of any provision of this Agreement.
11.4 Failure of Buyer to Close. In the event that (a) the conditions to the obligation of Buyer to consummate the transactions contemplated hereby, as set forth in Section 9.1, shall have been satisfied or waived and (b) the Closing shall not have occurred on or before April 10, 1996 due to the inability or unwillingness of Buyer to close on the terms and conditions provided for in this Agreement, Buyer shall reimburse Sellers for all legal, accounting and other expenses incurred by Sellers in connection with the preparation and negotiation of this Agreement and the transactions contemplated hereby. Sellers shall use its reasonable efforts to ensure that any such expenses are commercially reasonable. The foregoing shall not be deemed a limitation on the right of Sellers to recover damages for the breach of any provision of this Agreement.
12.1 Entire Agreement. This Agreement (together with the Schedules hereto) contains, and is intended as, a complete statement of all of the terms of the arrangements between the parties with respect to the matters provided for, and supersedes any previous agreements and understandings between the parties with respect to those matters. Notwithstanding the foregoing, the provisions of that certain confidentiality agreement, dated July 17, 1995, between Astrosystems and Orbit shall continue in full force and effect and all information and documents provided pursuant to this Agreement shall be covered by the terms of such confidentiality agreement.
12.2 Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with the laws of the State of New York, without regard to its principles of conflicts of law.
12.3 Headings. The section headings of this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this Agreement.
12.4 Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally, mailed by registered mail, return receipt requested, sent by recognized overnight delivery service or, to the extent receipt is confirmed, by telecopy, telefax, or other electronic transmission service to the parties at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision):
If to Buyer or to Orbit, to such party in care of
Squadron, Ellenoff, Plesent & Sheinfeld, LLP New York, New York 10176 Attention: Michael R. Kleinerman, Esq.
Certilman Balin Adler & Hyman, LLP Attention: Fred S. Skolnik, Esq.
12.5 Separability. If at any time any of the covenants or the provisions contained herein shall be deemed invalid or unenforceable by the laws of the jurisdiction wherein it is to be enforced, by reason of being vague or unreasonable as to duration, geographic scope, scope of activities restricted or for any other reason, such covenants or provisions shall be considered divisible as to such portion and such covenants or provisions shall become and be immediately amended and reformed to include only such covenants or provisions as are enforceable by the court or other body having jurisdiction of this Agreement; and the parties agree that such covenants or provisions, as so amended and reformed, shall be valid and binding as though the invalid or unenforceable portion had not been included herein.
12.6 Amendment; Waiver. No provision of this Agreement may be amended or modified except by an instrument or instruments in writing signed by the parties hereto. Any party may waive compliance by another with any of the provisions of this Agreement. No waiver of any provision hereof shall be construed as a waiver of any other provision. Any waiver must be in writing.
12.7 Assignment and Binding Effect. None of the parties hereto may assign any of its or his rights or delegate any of its or his duties under this Agreement without the prior written consent of the others; provided, that Buyer may assign any of its rights or delegate any of its duties to any entity controlled by Buyer. Any such delegation shall not relieve Buyer of its obligations under this Agreement. All of the terms and provisions of this Agreement shall be binding on, and shall inure to the benefit of, the respective successors and permitted assigns of the parties.
12.8 No Benefit to Others. The representations, warranties, covenants and agreements contained in this Agreement are for the sole benefit of the parties hereto and their respective successors and assigns and they shall not be construed as conferring and are not intended to confer any rights on any other persons.
12.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and each party thereto may become a party hereto by executing a counterpart hereof. This Agreement and any counterpart so executed shall be deemed to be one and the same instrument.
(a) Except with regard to Section 4.2 hereof and any other matters that are not a proper subject of arbitration, all disputes between the parties hereto concerning the performance, breach, construction or interpretation of this Agreement or any portion thereof, or in any manner arising out of this Agreement or the performance thereof, shall be submitted to binding arbitration, in accordance with the rules of the American Arbitration Association, which arbitration shall be carried out in the manner hereinafter set forth.
(b) Within twenty (20) days after written notice by one party to the other of its demand for arbitration, which demand shall set forth the name and address of its arbiter, the other party shall select its arbiter and so notify the demanding party. Within twenty (20) days thereafter, the two arbiters so selected shall select the third arbiter. The dispute shall be heard by the arbiters within sixty (60) days after selection of the third arbiter. The decision of the arbiters shall be rendered within thirty (30) days after the hearing. The decision of any two (2) arbiters shall be binding upon the parties. In default of either side naming its arbiter as aforesaid or in default of the selection of the said third arbiter as aforesaid, the American Arbitration Association shall designate such arbiter upon the application of either party. The arbitration proceeding shall take place at a mutually agreeable location.
(c) A party who files a notice of demand for arbitration must assert in the demand all claims then known to that party on which arbitration is permitted to be demanded. When a party fails to include a claim through oversight, inadvertence or excusable neglect, or when a claim has matured or been acquired subsequently, the arbiters may permit amendment. No demand for arbitration shall be made after the date when institution of legal or equitable proceedings based on such claim would be barred by the applicable statute of limitations.
(d) The award rendered by the arbiters shall be final, binding and conclusive, and judgment may be entered upon it in accordance with applicable law in the appropriate court in the State of New York.
(e) Each party shall pay its own expenses of arbitration, and the expenses of the arbiters and the arbitration proceeding shall be equally shared; provided, however, that, if, in the opinion of a majority of the arbiters, any claim or defense was unreasonable, the arbiters may assess, as part of their award, all or any part of the arbitration expenses of the other party (including reasonable attorneys' fees) and of the arbiters and the arbitration proceeding against the party raising such unreasonable claim or defense.
12.11 Schedules. Any information, data or other disclosure given or made pursuant to a particular schedule to this Agreement shall be deemed given and made in each and every other schedule to this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Asset Purchase Agreement as of the date first above written.
For Purposes of Section 8.14
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints SEYMOUR BARTH and ELLIOT J. BERGMAN as Proxies, each with the power to appoint his substitute, and hereby authorizes them, and each of them, to represent and vote, as designated below, all the Common Stock of Astrosystems, Inc. (the "Company") held of record by the undersigned at the close of business on December 5, 1995 at the Annual Meeting of Stockholders to be held on February 2, 1996 or any adjournment thereof.
1. Proposal to approve the adoption of a Plan of Complete Liquidation and Dissolution.
FOR / / AGAINST / / ABSTAIN / /
2. Proposal to approve the Asset Purchase Agreement dated as of January 11, 1996 among Cabot Court, Inc., Orbitsub International Corp., the Company and its wholly-owned subsidiary, Behlman Electronics, Inc.
FOR / / AGAINST / / ABSTAIN / /
FOR all nominees listed below WITHHOLD AUTHORITY to vote for all (except as marked to the nominees listed below. / /
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE SUCH NOMINEE'S NAME FROM THE LIST BELOW.)
Seymour Barth Gilbert H. Steinberg Elliot J. Bergman Walter A. Steinberg Elliot D. Spiro
4. Proposal to ratify the appointment of Richard A. Eisner & Company, LLP as the Company's independent auditors for the fiscal year ending June 30, 1996.
FOR / / AGAINST / / ABSTAIN / /
5. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.
(Continued and to be Signed on Reverse)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4 AND IN FAVOR OF ANY PROPOSAL TO ADJOURN THE MEETING IN ORDER TO ALLOW THE COMPANY ADDITIONAL TIME TO OBTAIN SUFFICIENT PROXIES WITH REGARD THERETO.
shares are held by joint tenants, both should sign. please give full title as by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
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DEF 14A
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DEF 14A
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0000950168-96-000043
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0000950168-96-000043_0006.txt
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Due 9 Months or more from Date of Issue
MASTER UNITED STATES DISTRIBUTION AGREEMENT
To the Agents listed on Exhibit A hereto and to each additional person that shall become an Agent as provided in Section 12 of this Agreement.
NationsBank Corporation, a North Carolina corporation (the "Corporation"), confirms its agreement with each of you (individually, as "Agent" and collectively, the "Agents") with respect to the issue and sale by the Corporation of its Senior Medium-Term Notes, Series E (the "Senior Notes") and its Subordinated Medium-Term Notes, Series E (the "Subordinated Notes," and together with the Senior Notes, the "Notes"). The Senior Notes are to be issued pursuant to an Indenture dated as of January 1, 1995 between the Corporation and First Trust of New York, N.A. (the "Senior Trustee") as successor trustee to BankAmerica National Trust Company (the "Senior Indenture"). The Subordinated Notes are to be issued pursuant to an Indenture dated as of January 1, 1995 between the Corporation and The Bank of New York (the "Subordinated Trustee"), as trustee (the "Subordinated Indenture). The Senior Trustee and the Subordinated Trustee are collectively referred to herein as the "Trustees," and the Senior Indenture and the Subordinated Indenture are collectively referred to herein as the "Indentures."
This Agreement provides both for the sale of Notes (i) by the Corporation directly to purchasers using Agents to solicit purchasers in their capacity as agents of the Corporation and (ii) by the Corporation to one or more of the Agents as principal for resale to purchasers.
The Corporation has filed with the Securities and Exchange Commission (the "SEC") a registration statement on Form S-3 (No. 33-63097) for the registration of debt securities (both senior and subordinated), preferred shares, depositary shares and common shares under the Securities Act of 1933, as amended (the "1933 Act"), and the offering thereof from time to time in accordance with Rule 415 of the rules and regulations of the SEC under the 1933 Act (the "1933 Act Regulations"). Such registration statement has been declared effective by the SEC, and the Trustees have been qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act"). Such registration statement (and any further registration statements which may be filed by the Corporation for the purpose of registering additional Notes and in connection with which this Agreement is included or incorporated by reference as an exhibit) and the prospectus constituting a part thereof, and any prospectus supplements relating to the Notes, including all documents incorporated therein by reference, as from time to time amended or supplemented by the filing of documents pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"), or the 1933 Act or otherwise, are referred to herein as the "Registration Statement" and the "Prospectus," respectively, except that if any revised prospectus shall be provided to the Agents by the Corporation for use in connection with the offering of the Notes which is not required to be filed by the Corporation pursuant to Rule 424(b) of the 1933 Act Regulations, the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Agent for such use.
SECTION 1. Appointment as Agent.
(a) Appointment. Subject to the terms and conditions stated herein including the reservation by the Corporation of the right to sell Notes directly on its own behalf as set forth in Section 3(b) hereof, the Corporation hereby appoints the Agents named herein or appointed hereunder as agents in connection with the sale of the Notes. The Agents are authorized to engage the services of any other broker or dealer in connection with the offer or sale of the Notes purchased by an Agent as principal for resale to others, but are not authorized to appoint sub-agents in connection with the sale of Notes through an Agent as agent.
(b) Sale of Notes. The Corporation shall not sell or approve the solicitation of purchases of Notes in excess of the amount which shall be authorized by the Corporation from time to time or in excess of the principal amount of Notes registered pursuant to the Registration Statement. The Agents will have no responsibility for maintaining records with respect to the aggregate principal amount of Notes sold, or otherwise monitoring the availability of Notes for sale under the Registration Statement.
(c) Purchases as Principal. The Agents shall not have any obligation to purchase Notes from the Corporation as principal, but an Agent and the Corporation may agree from time to time that such Agent shall purchase Notes as principal. Any such purchases of Notes by an Agent as principal shall be made in accordance with Section 3(a) hereof.
(d) Solicitations as Agent. If agreed upon by an Agent and the Corporation, the Agent, acting solely as agent for the Corporation and not as principal, will solicit purchases of the Notes. All Notes sold through an Agent as agent will be sold at 100% of their principal amount unless otherwise agreed to by the Corporation and such Agent. Such Agent will communicate to the Corporation, orally, each offer to purchase Notes solicited by such Agent on an agency basis, other than those offers rejected by the Agent. The Agent shall have the right, in its discretion reasonably exercised, to reject any proposed purchase of Notes by persons solicited by the Agent, as a whole or in part, and any such rejection shall not be deemed a breach of the Agent's agreement contained herein. The Corporation may accept or reject any proposed purchase of the Notes, in whole or in part, and any such rejection shall not be deemed a breach of the Corporation's agreement herein. The Agent shall make reasonable efforts to assist the Corporation in obtaining performance by each purchaser whose offer to purchase Notes has been solicited by such Agent and accepted by the Corporation. The Agent shall not have any liability to the Corporation in the event any such agency purchase is not consummated for any reason other than the negligence of the Agent. If the Corporation shall default on its obligation to deliver Notes to a purchaser whose offer it has accepted, the Corporation shall (i) hold the Agent for such purchase harmless against any loss, claim or damage arising from or as a result of such default by the Corporation and (ii) notwithstanding such default, pay to such Agent any commission to which it would be entitled in connection with such sale.
The Corporation reserves the right, in its sole discretion, to suspend solicitation of purchases of the Notes through the Agents, as agent, commencing at any time for any period of time or permanently. Upon receipt of instructions from the Corporation, the Agents will forthwith suspend solicitation of purchases from the Corporation until such time as the Corporation has advised the Agents that such solicitation may be resumed.
For those offers to purchase Notes accepted by the Corporation, the Agent shall be paid a commission. Unless otherwise agreed between the Corporation and the Agent, such commission shall be an amount equal to the applicable percentage of the principal amount of each Note sold by the Corporation as a result of a solicitation made by such Agent as set forth in Exhibit C hereto.
(e) Reliance. The Corporation and the Agents agree that any Notes the placement of which an Agent arranges shall be placed by such Agent in reliance on the representations, warranties, covenants and agreements of the Corporation contained herein and on the terms and conditions and in the manner provided herein.
SECTION 2. Representations and Warranties.
(a) The Corporation represents and warrants to the Agents as of the date hereof, as of the date of each acceptance by the Corporation of an offer for the purchase of Notes (whether through an Agent as agent or to an Agent as principal), as of the date of each delivery of Notes (whether through an Agent as agent or to an Agent as principal) (the date of each such delivery to an Agent as principal being hereafter referred to as a "Settlement Date"), and as of any time that the Registration Statement or the Prospectus shall be amended or supplemented or there is filed with the SEC any document incorporated by reference into the Prospectus (other than any Current Report on Form 8-K relating exclusively to the issuance of debt securities under the Registration Statement) (each of the times referenced above being referred to herein as a "Representation Date") as follows:
(i) The Corporation meets the requirements for use of Form S-3 under the 1933 Act and has filed with the SEC the Registration Statement, which has become effective. Such Registration Statement meets the requirements of Rule 415(a)(1) under the 1933 Act and complies in all other material respects with said Rule.
(ii) As of the date hereof, when the Prospectus as supplemented with respect to the Notes is first filed pursuant to Rule 424 under the 1933 Act, when any amendment to the Registration Statement becomes effective (including the filing of any document incorporated by reference in the Registration Statement) and as of the applicable Representation Date, (a) the Registration Statement, as amended or supplemented as of any such time, the Prospectus, when filed, and the applicable Indenture will comply in all material respects with the applicable requirements of the 1933 Act, the 1939 Act and the 1934 Act and the respective rules thereunder, (b) the Registration Statement, as amended as of any such time, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading, and (c) the Prospectus, as amended or supplemented as of any such time, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Corporation makes no representations or warranties as to (x) that part of the Registration Statement which shall constitute the Statement of Eligibility and Qualification of the Trustee (Form T-1) under the 1939 Act of either of the Trustees or (y) the information contained in or omitted from the Registration Statement or the Prospectus or any amendment thereof or supplement thereto in reliance upon and in conformity with information furnished in writing to the Corporation by or on behalf of any Agent specifically for use in connection with the preparation of the Registration Statement and the Prospectus.
(iii) The Corporation has complied and will comply with all the provisions of Florida H.B. 1771, codified as Section 517.075 of the Florida Statutes, 1987, as amended, and all regulations promulgated thereunder relating to issuers doing business in Cuba; provided, however, that in the event that such Section 517.075 shall be repealed, or amended such that issuers shall no longer be required to disclose in
prospectuses information regarding business activities in Cuba or that a broker, dealer or agent shall no longer be required to obtain a statement from issuers regarding such compliance, then this representation and agreement shall be of no further force and effect.
(b) Additional Certifications. Any certificate signed by any director or officer of the Corporation and delivered to an Agent or to counsel for such Agent in connection with an offering of Notes or the sale of Notes to an Agent as principal shall be deemed a representation and warranty by the Corporation to such Agent as to the matters covered thereby on the date of such certificate and at each Representation Date subsequent thereto.
SECTION 3. Purchases as Principal; Etc.
(a) Purchases as Principal. In the event that an Agent and the Corporation shall expressly so agree, Notes shall be purchased by such Agent as principal. Each purchase of Notes, unless otherwise agreed, shall be at a discount equivalent to the applicable commissions set forth in Exhibit C hereto. Such purchases shall be made in accordance with terms agreed upon by the Agent and the Corporation (which shall be agreed upon orally, with written confirmation prepared by the Agent and delivered to the Corporation within two business days of such oral agreement). In the absence of a separate written agreement, the Agent's commitment to purchase Notes as principal shall be deemed to have been made on the basis of the representations, warranties and covenants of the Corporation herein contained and shall be subject to the terms and conditions in the manner set forth herein, including Section 11(b) hereof. An Agent may engage the services of any other broker or dealer in connection with the resale of the Notes purchased as principal and may reallow any portion of the discount received in connection with such purchases from the Corporation to such brokers and dealers.
(b) Corporation Sales to Unsolicited Purchasers. Notwithstanding any provision herein to the contrary, the Corporation reserves the right to (i) sell Notes, at any time, directly on its own behalf to any unsolicited purchaser, whether directly to such purchaser or through the agent of such purchaser, and (ii) accept offers to purchase Notes through additional agents on substantially the same terms and conditions as would apply to the Agents hereunder. Upon the sale of any Notes to an unsolicited purchaser, no Agent named herein shall be entitled to any commission pursuant to this Agreement.
(c) Administrative Procedures. The purchase price, interest rate, maturity date and other terms of the Notes (as applicable) specified in Exhibit B hereto shall be agreed upon by the Corporation and the applicable Agent and set forth in a pricing supplement to the Prospectus to be prepared following each acceptance by the Corporation of an offer for the purchase of
Notes. Administrative procedures with respect to the sale of Notes shall be agreed upon from time to time by the Agents and the Corporation (the "Procedures"). Initial Administrative Procedures dated January 10, 1996 shall remain in effect until changed by the Agents and the Corporation. The Agents and the Corporation agree to perform the respective duties and obligations specifically provided to be performed by them in the Procedures.
SECTION 4. Covenants of the Corporation.
The Corporation covenants with the Agents as follows:
(a) Notice of Certain Events. The Corporation will notify the Agents immediately (i) of the effectiveness of any amendment to the Registration Statement, (ii) of the transmittal to the SEC for filing of any supplement to the Prospectus or any document to be filed pursuant to the 1934 Act which will be incorporated by reference in the Prospectus, (iii) of the receipt of any comments from the SEC with respect to the Registration Statement or the Prospectus (other than with respect to a document filed with the SEC pursuant to the 1934 Act which will be incorporated by reference in the Registration Statement and the Prospectus), (iv) of any request by the SEC for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information relating thereto (other than such a request with respect to a document filed with the SEC pursuant to the 1934 Act which will be incorporated by reference in the Registration Statement and the Prospectus), and (v) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose. The Corporation will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment.
(b) Notice of Certain Proposed Filings. The Corporation will give the Agents notice of its intention to file or prepare any additional registration statement with respect to the registration of additional Notes or any amendment to the Registration Statement or any amendment or supplement to the Prospectus (other than an amendment or supplement providing solely for a change in the interest rates or maturity dates of Notes or similar changes or an amendment or supplement effected by the filing of a document with the SEC pursuant to the 1934 Act) and, upon request, will furnish the Agents with copies of any such registration statement or amendment or supplement proposed to be filed or prepared a reasonable time in advance of such proposed filing or preparation, as the case may be, and will not file any such registration statement or amendment or supplement in a form to which the Agents or their counsel shall reasonably object.
(c) Copies of the Registration Statement and the Prospectus and 1934 Act Filings. The Corporation will deliver to the Agents as many signed and conformed copies of the Registration Statement
(as originally filed) and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated by reference in the Prospectus) as the Agents may reasonably request. The Corporation will furnish to the Agents as many copies of the Prospectus (as amended or supplemented) as the Agents shall reasonably request so long as the Agents are required to deliver a Prospectus in connection with sales or solicitations of offers to purchase the Notes under the Act. The Corporation will furnish to the Agents copies of any Annual Report on Form 10-K, Quarterly Report on Form 10-Q or Current Report on Form 8-K filed by the Corporation with the Commission pursuant to the 1934 Act as soon as practicable after the filing thereof.
(d) Preparation of Pricing Supplements. The Corporation will prepare, with respect to any Notes to be sold through or to an Agent pursuant to this Agreement, a Pricing Supplement with respect to such Notes in a form previously approved by the Agents and will file such Pricing Supplement with the SEC pursuant to Rule 424(b) under the 1933 Act not later than the close of business on the second business day after the date on which such Pricing Supplement is first used.
(e) Revisions of Prospectus -- Material Changes. Except as otherwise provided in subsection (k) of this Section, if at any time during the term of this Agreement any event shall occur or condition exist as a result of which it is necessary, in the reasonable opinion of counsel for the Agents or counsel for the Corporation, to further amend or supplement the Prospectus in order that the Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, or if it shall be necessary, in the reasonable opinion of either such counsel, to amend or supplement the Registration Statement or the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, immediate notice shall be given, and confirmed in writing, to the Agents to cease the solicitation of offers to purchase the Notes in the Agents' capacity as agent and to cease sales of any Notes any Agent may then own as principal, and the Corporation will promptly prepare and file with the SEC such amendment or supplement, whether by filing documents pursuant to the 1934 Act, the 1933 Act or otherwise, as may be necessary to correct such untrue statement or omission or to make the Registration Statement and Prospectus comply with such requirements.
(f) Prospectus Revisions -- Periodic Financial Information. Except as otherwise provided in subsection (k) of this Section, on or prior to the date on which there shall be released to the general public interim financial statement information related to the Corporation with respect to each of the first three quarters of any fiscal year or preliminary financial statement information with respect to any fiscal year, the Corporation shall furnish such information to the Agents, confirmed in writing, and thereafter shall cause the Prospectus to be amended or supplemented to include or incorporate by reference financial information with respect thereto, as well as such other information and explanations as shall be necessary for an understanding thereof, as may be required by the 1933 Act or the 1934 Act or otherwise.
(g) Prospectus Revisions -- Audited Financial Information. Except as otherwise provided in subsection (k) of this Section, on or prior to the date on which there shall be released to the general public financial information included in or derived from the audited financial statements of the Corporation for the preceding fiscal year, the Corporation shall furnish such information to the Agents and thereafter shall cause the Registration Statement and the Prospectus to be amended to include or incorporate by reference such audited financial statements and the report or reports, and consent or consents to such inclusion or incorporation by reference, of the independent accountants with respect thereto, as well as such other information and explanations as shall be necessary for an understanding of such financial statements, as may be required by the 1933 Act or the 1934 Act or otherwise.
(h) Earnings Statements. The Corporation will make generally available to its security holders as soon as practicable, but not later than 90 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering each twelve-month period beginning, in each case, not later than the first day of the Corporation's fiscal quarter next following the "effective date" (as defined in such Rule 158) of the Registration Statement with respect to each sale of Notes.
(i) Blue Sky Qualification. The Corporation will endeavor, in cooperation with the Agents, to qualify the Notes for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Agents may designate and will maintain such qualifications in effect for as long as may be required for the distribution of the Notes; provided, however, that the Corporation shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified. The Corporation will file such statements and reports as may be required by the laws of each jurisdiction in which the Notes have been qualified as above provided. The Corporation will promptly advise the Agents of the receipt by the Corporation of any notification with respect to the suspension of the qualification of the Notes for sale in any such state or jurisdiction or the initiating or threatening of any proceeding for such purpose.
(j) 1934 Act Filings. The Corporation, during the period when the Prospectus is required to be delivered under the 1933 Act, will file promptly all documents required to be filed with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act.
(k) Suspension of Certain Obligations. The Corporation shall not be required to comply with the provisions of subsections (e), (f) or (g) of this Section during any period from the time (i) the Agents shall have suspended solicitation of purchases of the Notes in their capacity as agent pursuant to a request from the Corporation and (ii) the Agents shall not then hold any Notes as principal purchased from the Corporation, to the time the Corporation shall determine that solicitation of purchases of the Notes should be resumed or shall subsequently agree for the Agents to purchase Notes as principal.
SECTION 5. Conditions of Obligations.
The obligations of an Agent to solicit offers to purchase the Notes as agent of the Corporation, the obligations of any purchasers of the Notes sold through any Agent as agent and any obligation of an Agent to purchase Notes as principal or otherwise will be subject to the accuracy of the representations and warranties on the part of the Corporation herein and to the accuracy of the statements of the Corporation's officers made in any certificate furnished pursuant to the provisions hereof, to the performance and observance by the Corporation of all its covenants and agreements herein contained and to the following additional conditions precedent:
(a) Legal Opinions. On the date hereof, the Agents shall have received the following legal opinions, dated as of the date hereof and in form and substance satisfactory to the Agents:
(1) Opinion of Corporation Counsel. The opinion of Smith Helms Mulliss & Moore, L.L.P., counsel to the Corporation, to the effect of paragraphs (i) and (iv) through (x) below, and the opinion of Paul J. Polking, Executive Vice President and General Counsel to the Corporation, to the effect of paragraphs (ii) and (iii) below:
(i) The Corporation is a duly organized and validly existing corporation in good standing under the laws of the State of North Carolina, has the corporate power and authority to own its properties and conduct its business as described in the Prospectus and is duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended; each of NationsBank, National Association (South), NationsBank of Texas, National Association, and NationsBank, National Association (or the successors to such entities) (collectively, the "Subsidiaries"), is a national banking association formed under the laws of the United States and authorized thereunder to transact business.
(ii) Except for those jurisdictions specifically enumerated in such opinion, to the best of such counsel's knowledge, neither the Corporation nor any of the Subsidiaries is required to be qualified or licensed to do business as a foreign corporation in any jurisdiction.
(iii) All the outstanding shares of capital stock of each Subsidiary have been duly and validly authorized and issued and are fully paid and (except as provided in 12 U.S.C. ss. 55, as amended) nonassessable, and, except as otherwise set forth in the Prospectus, all outstanding shares of capital stock of the Subsidiaries (except directors' qualifying shares) are owned, directly or indirectly, by the Corporation free and clear of any perfected security interest and, to the knowledge of such counsel, after due inquiry, any other security interests, claims, liens or encumbrances.
(iv) This Agreement has been duly authorized, executed and delivered by the Corporation and constitutes a legal, valid and binding agreement of the Corporation, enforceable against the Corporation in accordance with its terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or other similar laws affecting the rights of creditors now or hereafter in effect, and to equitable principles that may limit the right to specific enforcement of remedies, and except insofar as the enforceability of the indemnity and contribution provisions contained in this Agreement may be limited by federal and state securities laws, and further subject to 12 U.S.C. ss. 1818(b)(6)(D) and similar bank regulatory powers and to the application of principles of public policy underlying all such laws).
(v) Each of the Indentures has been duly authorized, executed and delivered, has been duly qualified under the 1939 Act, as applicable, and constitutes a legal, valid and binding instrument enforceable against the Corporation in accordance with its terms, and the Notes have been duly authorized and, when the terms of the Notes have been established and when the Notes have been completed, executed, authenticated and delivered in accordance with the provisions of the applicable Indenture, the applicable Board Resolutions and this Agreement against payment of the consideration therefor, will constitute legal, valid and binding obligations of the Corporation entitled to the benefits of such Indenture, subject (with respect to each of the Indentures and the Notes) as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or other similar laws affecting the rights of creditors now or
hereafter in effect, and to equitable principles that may limit the right to specific enforcement of remedies, and further subject to 12 U.S.C. ss. 1818(b)(6)(D) and similar bank regulatory powers and to the application of principles of public policy underlying all such laws.
(vi) The forms of Notes attached to the Secretary's Certificate delivered to the Agents conform in all material respects to the description thereof contained in the Prospectus, as supplemented or amended.
(vii) The Registration Statement has become effective under the 1933 Act; to the best knowledge of such counsel no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or threatened; the Registration Statement, the Prospectus and each amendment thereof or supplement thereto (other than the financial statements and other financial and statistical information contained therein or incorporated by reference therein, as to which such counsel need express no opinion) comply as to form in all material respects with the applicable requirements of the 1933 Act and the 1934 Act and the respective rules thereunder.
(viii) To the best knowledge of such counsel, except as disclosed in the Registration Statement or the Prospectus, there is no pending or threatened action, suit or proceeding before or by any court or governmental agency, authority or body or any arbitrator involving the Corporation or any of the Subsidiaries, of a character required to be disclosed in the Registration Statement, which is not adequately disclosed in the Prospectus, and there is no franchise, contract or other document of a character required to be described in the Registration Statement or the Prospectus, or to be filed as an exhibit, which is not described or filed as required.
(ix) To the best knowledge of such counsel, neither the issuance and sale of the Notes, the consummation of any other of the transactions contemplated by this Agreement nor the fulfillment of the terms thereof will conflict with, result in a breach of, or constitute a default under the Restated Articles of Incorporation or the Amended and Restated Bylaws of the Corporation or, to the best of such counsel's knowledge, the terms of any material indenture or other agreement or instrument known to such counsel and to which the Corporation or any of the Subsidiaries is a party or bound, or any order or regulation known to such counsel to be applicable to the Corporation or any of the Subsidiaries of any court, regulatory body, administrative agency, governmental body
or arbitrator having jurisdiction over the Corporation or any of the Subsidiaries.
(x) To the best knowledge of such counsel, no authorization, order, approval or consent of, or filing with, any court or governmental authority or agency is necessary or required in connection with the sale of the Notes hereunder, except such as have been obtained under the 1933 Act or the 1933 Act Regulations and such as may be required under foreign or state securities or insurance laws in connection with the distribution of the Notes.
In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the State of North Carolina or the United States, to the extent deemed proper and specified in such opinion, upon counsel for the Agents or upon the opinion of other counsel of good standing believed to be reliable and who are satisfactory to counsel for the Agents; and (B) as to matters of fact, to the extent deemed proper, on certificates of responsible officers of the Corporation and the Subsidiaries and public officials.
(2) Opinion of Counsel to the Agents. The opinion of Stroock & Stroock & Lavan, counsel to the Agents, covering the matters referred to in subparagraph (1) under the subheadings (iv) through (vii), inclusive, above.
In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the State of New York or the United States, to the extent deemed proper and specified in such opinion, upon counsel for the Corporation or upon the opinion of other counsel of good standing believed to be reliable and who are satisfactory to counsel for the Corporation; and (B) as to matters of fact, to the extent deemed proper, on certificates of responsible officers of the Corporation and the Subsidiaries and public officials.
(3) In giving their opinions required by subsections (a)(1) and (a)(2) of this Section, but without opining in connection therewith, Smith Helms Mulliss & Moore, L.L.P. and Stroock & Stroock & Lavan shall each additionally state that although they have not independently verified, are not passing upon and assume no responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement, such counsel has no reason to believe that the Registration Statement or any amendment thereof at the time it became effective, or that the Prospectus, as amended or supplemented, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made, not misleading.
(b) Officer's Certificate. On the date hereof, the Agents shall have received a certificate of the Chairman and Chief Executive Officer or a Senior Vice President and the Chief Financial or Chief Accounting Officer of the Corporation, dated as of the date hereof, to the effect that the signers of such certificate have carefully examined the Registration Statement, the Prospectus and this Agreement and that to the best of their knowledge (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Corporation and its subsidiaries considered as one enterprise, whether or not arising from transactions in the ordinary course of business, except as set forth or contemplated in the Prospectus, as supplemented or amended, (ii) the other representations and warranties of the Corporation contained in Section 2 hereof are true and correct in all material respects with the same force and effect as though expressly made at and as of the date of such certificate, (iii) the Corporation has performed or complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the date of such certificate, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or threatened by the SEC.
(c) Comfort Letter. On the date hereof, the Agents shall have received a letter from Price Waterhouse LLP ("Price Waterhouse") dated as of the date hereof and in form and substance satisfactory to the Agents, to the effect that:
(i) They are independent public accountants with respect to the Corporation and its subsidiaries within the meaning of the 1933 Act and the 1933 Act Regulations.
(ii) In their opinion, the consolidated financial statements of the Corporation and its subsidiaries audited by them and included or incorporated by reference in the Registration Statement and Prospectus comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations with respect to registration statements on Form S-3 and the 1934 Act and the 1934 Act Regulations.
(iii) On the basis of procedures (but not an audit in accordance with generally accepted auditing standards) consisting of:
(a) Reading the minutes of the meetings of the shareholders, the board of directors, executive committee
and audit committee of the Corporation and the boards of directors and executive committees of its subsidiaries as set forth in the minute books through a specified date not more than five business days prior to the date of delivery of such
(b) Performing the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in SAS NO. 71, Interim Financial Information, on the unaudited condensed consolidated interim financial statements of the Corporation and its consolidated subsidiaries included or incorporated by reference in the Registration Statement and Prospectus and reading the unaudited interim financial data, if any, for the period from the date of the latest balance sheet included or incorporated by reference in the Registration Statement and Prospectus to the date of the latest available interim financial data; and
(c) Making inquiries of certain officials of the Corporation who have responsibility for financial and accounting matters regarding the specific items for which
nothing has come to their attention as a result of the foregoing procedures that caused them to believe that:
(1) the unaudited condensed consolidated interim financial statements, included or incorporated by reference in the Registration Statement and Prospectus, do not comply as to form in all material respects with the applicable accounting requirements of the 1934 Act and the published rules and
(2) any material modifications should be made to the unaudited condensed consolidated interim financial statements, included or incorporated by reference in the Registration Statement and Prospectus, for them to be in conformity with
(3) (i) at the date of the latest available interim financial data and at the specified date not more than five business days prior to the date of the delivery of such letter, there was any change in the capital stock or the long-term debt (other than scheduled repayments of such debt) or any decreases in shareholders' equity of the Corporation and the subsidiaries on a consolidated basis as compared with the amounts shown in the latest balance sheet included or incorporated by reference in the Registration Statement and the Prospectus or (ii) for the period from the date of the latest available financial data to a specified date not more
business days prior to the delivery of such letter, there was any change in the capital stock or the long-term debt (other than scheduled repayments of such debt) or any decreases in shareholders' equity of the Corporation and the subsidiaries on a consolidated basis, except in all instances for changes or decreases which the Registration Statement and Prospectus discloses have occurred or may occur, or Price Waterhouse shall state any specific changes or decreases.
(iv) The letter shall also state that Price Waterhouse has carried out certain other specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information which are included or incorporated by reference in the Registration Statement and Prospectus and which are specified by the Agents and agreed to by Price Waterhouse, and has found such amounts, percentages and financial information to be in agreement with the relevant accounting, financial and other records of the Corporation and its subsidiaries identified in such letter.
(d) Other Documents. On the date hereof and on each Settlement Date with respect to any purchase of Notes by an Agent as principal, counsel to the Agents shall have been furnished with such documents and opinions as such counsel may reasonably require for the purpose of enabling such counsel to pass upon the issuance and sale of Notes as herein contemplated, or in order to evidence the accuracy and completeness of any of the representations and warranties, or the fulfillment of any of the conditions, contained herein; and all proceedings taken by the Corporation in connection with the issuance and sale of Notes as herein contemplated shall be satisfactory in form and substance to such Agent and to counsel to the Agents.
If any condition specified in this Section 5 shall not have been fulfilled in all material respects when and as required to be fulfilled, this Agreement may be terminated by the Agents by notice to the Corporation at any time and any such termination shall be without liability of any party to any other party, except that the covenant regarding provision of an earnings statement set forth in Section 4(h) hereof, the provisions concerning payment of expenses under Section 9 hereof, the indemnity and contribution agreements set forth in Section 8 hereof, the provisions concerning the representations, warranties and agreements to survive delivery set forth in Section 10 hereof and the provisions regarding parties set forth under Section 15 hereof shall remain in effect.
SECTION 6. Delivery of and Payment for Notes Sold through the Agents.
Delivery of Notes sold through an Agent as agent shall be made by the Corporation to such Agent for the account of any purchaser only against payment therefor in immediately available funds. In the event that a purchaser shall fail either to accept delivery of or to make payment for a Note on the date fixed for settlement, the Agent shall promptly notify the Corporation and deliver the Note to the Corporation, and, if the Agent has theretofore paid the Corporation for such Note, the Corporation will promptly return such funds to the Agent. If such failure occurred for any reason other than default by the Agent in the performance of its obligations hereunder, the Corporation will reimburse the Agent on an equitable basis for its loss of the use of the funds for the period such funds were credited to the Corporation's account. Unless otherwise agreed between the Corporation and the Agent, all Notes will be issued in book-entry only form and will be represented by one or more fully registered global securities.
SECTION 7. Additional Covenants of the Corporation.
The Corporation covenants and agrees with the Agents that:
(a) Reaffirmation of Representations and Warranties. Each acceptance by it of an offer for the purchase of Notes, and each delivery of Notes to an Agent pursuant to a sale of Notes to such Agent as principal, shall be deemed to be an affirmation that the representations and warranties of the Corporation contained in this Agreement and in any certificate theretofore delivered to such Agent pursuant hereto are true and correct at the time of such acceptance or sale, as the case may be, and an undertaking that such representations and warranties will be true and correct at the time of delivery to the purchaser or his agent, or to such Agent, of the Note or Notes relating to such acceptance or sale, as the case may be, as though made at and as of each such time (and it is understood that such representations and warranties shall relate to the Registration Statement and Prospectus as amended and supplemented to each such time).
(b) Subsequent Delivery of Certificates. Each time that (i) there is filed with the SEC any Quarterly Report on Form 10-Q or Annual Report on Form 10-K that is incorporated by reference into the Prospectus, or (ii) if required by the Agents, the Registration Statement or the Prospectus shall be amended or supplemented (other than by an amendment or supplement providing solely for a change in the interest rates or maturity dates of Notes or similar changes, an amendment or supplement which relates exclusively to an offering of securities other than the Notes or, except as hereinbefore described, an amendment or supplement resulting from the filing of any document incorporated by reference therein), the Corporation shall furnish or cause to be furnished to the Agents forthwith a certificate of the Chairman and Chief Executive Officer, any Senior
Vice President, the Chief Financial Officer, the Chief Accounting Officer or Treasurer of the Corporation dated the date of filing with the SEC of such supplement or document or the date of effectiveness of such amendment, as the case may be, in form satisfactory to the Agents to the effect that the statements contained in the certificate referred to in Section 5(b) hereof which was last furnished to the Agents are true and correct at the time of such filing, amendment or supplement, as the case may be, as though made at and as of such time (except that such statements shall be deemed to relate to the Registration Statement and the Prospectus as amended and supplemented to such time) or, in lieu of such certificate, a certificate of the same tenor as the certificate referred to in said Section 5(b), modified as necessary to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of delivery of such certificate.
(c) Subsequent Delivery of Legal Opinions. Each time that (i) there is filed with the SEC any Annual Report on Form 10-K, (ii) if required by the Agents, there is filed any Quarterly Report on Form 10-Q, or (iii) if required by the Agents, the Registration Statement or the Prospectus shall be amended or supplemented (other than by an amendment or supplement providing solely for a change in the interest rates or maturity dates of the Notes or similar changes or solely for the inclusion of additional financial information, an amendment or supplement which relates exclusively to an offering of securities other than the Notes or, except as hereinbefore described, an amendment or supplement resulting from the filing of any document incorporated by reference therein), the Corporation shall furnish or cause to be furnished forthwith to the Agents and to counsel to the Agents the written opinions of Smith Helms Mulliss & Moore, L.L.P., counsel to the Corporation, and Paul J. Polking, General Counsel to the Corporation, or other counsel satisfactory to the Agents, dated the date of filing with the SEC of such supplement or document or the date of effectiveness of such amendment, as the case may be, in form and substance satisfactory to the Agents, of the same tenor as the opinions referred to in Section 5(a)(1) hereof, but modified, as necessary, to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of delivery of such opinions; or, in lieu of such opinions, counsel last furnishing such opinions to the Agents shall furnish the Agents with a letter substantially to the effect that the Agents may rely on such last opinion to the same extent as though it was dated the date of such letter authorizing reliance (except that statements in such last opinion shall be deemed to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of delivery of such letter authorizing reliance).
(d) Subsequent Delivery of Comfort Letters. Each time that (i) there is filed with the SEC any Annual Report on Form 10-K, (ii) if required by the Agents, there is filed with the SEC any Quarterly Report on Form 10-Q or (iii) if required by the Agents, the Registration Statement or the Prospectus shall be amended or supplemented to include additional financial information (other than an amendment or supplement resulting from the filing of a Current Report on Form 8-K that is incorporated by reference therein), the Corporation shall cause Price Waterhouse forthwith to furnish the Agents a letter, dated the date of effectiveness of such amendment, supplement or document filed with the SEC, as the case may be, in form satisfactory to the Agents, of the same tenor as the portions of the letter referred to in clauses (i) and (ii) of Section 5(c) hereof but modified to relate to the Registration Statement and Prospectus, as amended and supplemented to the date of such letter, and of the same general tenor as the portions of the letter referred to in clauses (iii) and (iv) of said Section 5(c) with such changes as may be necessary to reflect changes in the financial statements and other information derived from the accounting records of the Corporation; provided, however, that if the Registration Statement or the Prospectus is amended or supplemented solely to include financial information as of and for a fiscal quarter, Price Waterhouse may limit the scope of such letter to the unaudited financial statements included in such amendment or supplement. If any other information included therein is of an accounting, financial or statistical nature, the Agents may request procedures be performed with respect to such other information. If Price Waterhouse is willing to perform and report on the requested procedures, such letter should cover such other information. Any letter required to be provided by Price Waterhouse hereunder shall be provided within five business days of the filing of the Annual Report on Form 10-K or, with respect to any letter required by the Agents pursuant to subparagraph (ii) or (iii) hereof, the request by the Agents.
SECTION 8. Indemnification and Contribution.
(a) The Corporation agrees to indemnify and hold harmless each Agent and each person who controls any Agent within the meaning of either the 1933 Act or the 1934 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 1933 Act, the 1934 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 Registration Statement as originally filed or in any amendment thereof, or arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Prospectus, or any amendment or supplement thereof, or arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and agrees to reimburse each such indemnified party 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 (i) the Corporation 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 made therein in reliance upon and in conformity with written information furnished to the Corporation by or on behalf of any Agent specifically for use in connection with the preparation thereof, and (ii) such indemnity with respect to the Prospectus shall not inure to the benefit of any Agent (or any person controlling such Agent) from whom the person asserting any such loss, claim, damage or liability purchased the Notes which are the subject thereof if such person did not receive a copy of the Prospectus as amended or supplemented in connection with the sale of such Notes excluding documents incorporated therein by reference at or prior to the confirmation of the sale of such Notes to such person in any case where such delivery is required by the 1933 Act and the untrue statement or omission of a material fact contained in the Prospectus was corrected in the Prospectus as amended or supplemented. This indemnity agreement will be in addition to any liability which the Corporation may otherwise have.
(b) Each Agent severally agrees to indemnify and hold harmless the Corporation, each of its directors, each of its officers who signs the Registration Statement and each person who controls the Corporation within the meaning of either the 1933 Act or the 1934 Act, to the same extent as the foregoing indemnity from the Corporation to each Agent, but only with reference to written information relating to such Agent furnished to the Corporation by or on behalf of such Agent specifically for use in the preparation of the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any Agent may otherwise have. The Corporation acknowledges that the statements set forth in the last two paragraphs on the cover page and under the heading "Plan of Distribution" in the Prospectus, as supplemented or amended, constitute the only information furnished in writing by or on behalf of the several Agents for inclusion in the documents referred to in the foregoing indemnity, and you, as the Agents, confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under this Section 8 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 8, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 8. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and, to the extent that it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved by the Agent in the case of subparagraph (a), representing the indemnified parties under subparagraph (a) who are parties to such action), (ii) 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 commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party; and except that if clause (i) or (iii) is applicable, such liability shall be only in respect of the counsel referred to in such clause (i) or (iii).
(d) To provide for just and equitable contribution in circumstances in which the indemnification provided for in paragraph (a) of this Section 8 is due in accordance with its terms but is for any reason held by a court to be unavailable from the Corporation on the grounds of policy or otherwise, the Corporation and the Agents shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) to which the Corporation and one or more of the Agents may be subject in such proportion so that each Agent is responsible for that portion represented by the percentage that the total commissions and underwriting discounts received by such Agent bears to the total sales price from the sale of Notes sold to or through the Agents to the date of such liability, and the Corporation is responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person who controls any Agent within the meaning of the 1933 Act shall have the same rights to contribution as such Agent, and each person who controls the Corporation within the meaning of either the 1933 Act or the 1934 Act, each officer of the Corporation who shall have signed the Registration Statement and each director of the Corporation shall have the same rights to contribution as the Corporation, subject in each case to the provisions of this paragraph (d). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this paragraph (d), notify such party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise than under this paragraph (d).
SECTION 9. Payment of Expenses.
The Corporation will pay all expenses incident to the performance of its obligations under this Agreement, including:
(a) The preparation and filing of the Registration Statement and all amendments thereto and the Prospectus and any amendments or
(b) The preparation, filing and reproduction of this
(c) The preparation, printing, issuance and delivery of the Notes, including any fees and expenses relating to the use of book-
(d) The fees and disbursements of the Corporation's accountants and counsel, of the Trustees and their counsel, and of any registrar, transfer agent, paying agent or calculation agent;
(e) The reasonable fees and disbursements of counsel to the Agents incurred from time to time in connection with the
(f) The qualification of the Notes under state securities or insurance laws in accordance with the provisions of Section 4(i) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Agents in connection therewith and in connection with the preparation of any Blue Sky Survey and any Legal Investment Survey;
(g) The printing and delivery to the Agent in quantities as hereinabove stated of copies of the Registration Statement and any amendments thereto, and of the Prospectus and any amendments or supplements thereto, and the delivery by
Prospectus and any amendments or supplements thereto in connection with solicitations or confirmations of sales of the Notes;
(h) The preparation, printing, reproducing and delivery to the Agents of copies of the Indentures and all supplements and
(i) Any fees charged by rating agencies for the rating of the
(j) The fees and expenses incurred in connection with the listing of the Notes on any securities exchange;
(k) The fees and expenses, if any, incurred with respect to any filing with the National Association of Securities Dealers,
(l) Any advertising and other out-of-pocket expenses of the Agents incurred with the approval of the Corporation;
(m) The cost of providing any CUSIP or other identification numbers for the Notes; and
(n) The fees and expenses of any depository and any nominees thereof in connection with the Notes.
SECTION 10. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Corporation submitted pursuant hereto shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Agent or any controlling person of any Agent, or by or on behalf of the Corporation, and shall survive each delivery of and payment for any of the Notes.
(a) Termination of this Agreement. This Agreement (excluding any agreement hereunder by an Agent to purchase Notes as principal) may be terminated for any reason, with respect to one or more, or all, of the Agents, at any time by either the Corporation or one or more of the Agents upon the giving of 30 days' written notice of such termination to the other party hereto. Any termination by the Corporation of this Agreement with respect to one or more, but less than all, of the Agents shall be effective with respect to such designated Agents only, and the Agreement will remain in force and effect with respect to any other Agents who remain parties hereto.
(b) Termination of Agreement to Purchase Notes as Principal. An Agent may terminate any agreement hereunder by such Agent to purchase Notes as principal, immediately upon notice to the
Corporation at any time prior to the Settlement Date relating thereto, (i) if there has been, since the date of such agreement or since the respective dates as of which information is given in the Registration Statement, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Corporation and its subsidiaries considered as one enterprise, or (ii) if there shall have occurred, since the date of such agreement, any outbreak or material escalation of hostilities or other national or international calamity or crisis the effect of which is such as to make it, in the judgment of such Agent, impracticable to market the Notes or enforce contracts for the sale of the Notes, or (iii) if, since the date of such agreement, trading in securities generally on the New York Stock Exchange shall have been suspended or limited, or (iv) if, since the date of such agreement, a banking moratorium shall have been declared by either Federal or New York authorities.
If, after the date of an agreement hereunder to purchase Notes as principal and prior to the Settlement Date with respect to such agreement, the rating assigned by Standard & Poor's Ratings Group, a division of McGraw Hill, Inc. or Moody's Investors Service, Inc. as the case may be, to any debt securities of the Corporation shall have been lowered or if either of such rating agencies shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any debt securities of the Corporation, then the Corporation and the Agent mutually shall determine whether the terms of such agreement to purchase Notes shall need to be renegotiated and, if so, shall so negotiate in good faith the revised terms of such agreement to purchase Notes. In the event that the Corporation and the Agent reasonably fail to agree on any such revised terms, then either the Corporation or the Agent may terminate such agreement to purchase Notes.
(c) General. In the event of a termination under this Section 11, or following the Settlement Date in connection with a sale to or through an Agent appointed on a one-time basis, neither party will have any liability to the other party hereto, except that (i) the Agents shall be entitled to any commission earned in accordance with the third paragraph of Section 1(d) hereof, (ii) if at the time of termination (a) any Agent shall own any Notes purchased by it as principal with the intention of reselling them or (b) an offer to purchase any of the Notes has been accepted by the Corporation but the time of delivery to the purchaser or his agent of the Note or Notes relating thereto has not occurred, the covenants set forth in Sections 4 and 7 hereof shall remain in effect until such Notes are so resold or delivered, as the case may be, and (iii) the covenant set forth in Section 4(h) hereof, the provisions of Section 9 hereof, the indemnity and contribution agreements set forth in Section 8 hereof, and the provisions of Sections 10, 14 and 15 hereof shall remain in effect.
The Corporation may from time to time designate additional agents to participate in the sale of Notes as principal or agent hereunder. Such agency participation may be either on an on-going basis or on a one time basis for a single transaction. Such agents shall become a party to this Agreement and shall thereafter be subject to the provisions hereof and entitled to the benefits hereunder upon the execution of a counterpart hereof or other form of acknowledgement of its appointment hereunder, including the form of letter attached hereto as Exhibit D, and delivery to the Corporation of addresses for notice hereunder and under the Procedures. After the time an Agent is appointed, the Corporation shall deliver to the Agent copies of these documents earlier delivered to other Agents under Sections 5(a), 5(b) and 5(c) and, if such appointment is on an on-going basis, Sections 7(b), 7(c) and 7(d) hereof.
Unless otherwise provided herein, all notices required under the terms and provisions hereof shall be in writing, either delivered by hand, by mail or by telex, telecopier or telegram. Notices to the Corporation shall be delivered to it at the address specified below and notices to any Agent shall be delivered to it at the address set forth on Exhibit A.
Attention: John E. Mack, Treasurer
Smith Helms Mulliss & Moore, L.L.P. Attention: Boyd C. Campbell, Jr.
or at such other address as such party may designate from time to time by notice duly given in accordance with the terms of this Section 13.
SECTION 14. Governing Law; Counterparts.
This Agreement and all the rights and obligations of the parties shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in such State. This Agreement may be executed in counterparts and the executed counterparts shall together constitute a single instrument.
This Agreement shall inure to the benefit of and be binding upon the Agents and the Corporation and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the parties hereto and their respective successors and the controlling persons and officers and directors referred to in Section 8 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the parties hereto and respective successors and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Notes shall be deemed to be a successor by reason merely of such purchase.
If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Corporation a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement between the Agents and the Corporation in accordance with its terms.
Title: Senior Vice President and Accepted:
Name: Richard N. Doyle, Jr.
MORGAN STANLEY & CO., INC.
Stroock & Stroock & Lavan New York, New York 10004
New York, New York 10285 - 1200
Merrill Lynch & Co., as representative of the Agents Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower - 10th Floor New York, New York 10281-1310
Morgan Stanley & Co. Incorporated 1221 Avenue of the Americas New York, New York 10048 Attention: Managing Director of Debt Syndicate
New York, New York 10048
The following terms, if applicable, shall be agreed to by an Agent and the Corporation in connection with each sale of Notes:
(or principal amount of foreign currency)
If Fixed Rate Note, Interest Rate:
Spread or Spread Multiplier, if any: Interest Rate Reset Month(s): Interest Payment Month(s): Index Maturity for Initial Interest Rate (if different): Index Maturity: Index Maturity for Final Interest Payment Period (if different): Maximum Interest Rate, if any: Minimum Interest Rate, if any: Interest Rate Reset Period: Interest Payment Period: Interest Payment Date: Calculation Agent:
As compensation for the services of an Agent hereunder, the Corporation shall pay it, on a discount basis, a commission for the sale of each Note by such Agent which, unless otherwise agreed between the Corporation and Agent, shall be equal to the principal amount of such Note multiplied by the appropriate percentage set forth below:
The commission for Notes with a maturity more than 30 years or sold to one or more Agents as principal also is subject to negotiation between the Corporation and the Agent at the time of sale.
[Name and Address of Agent]
Re: Issuance of $_________________ Medium Term Senior/Subordinated Notes, Series E, by NationsBank Corporation
The Master United States Distribution Agreement dated December __, 1995 (the "Agreement"), among NationsBank Corporation ("NationsBank") and the Agents named therein, provides for the issue and sale by NationsBank of its Medium Term Notes, Series E.
Subject to and in accordance with the terms of the Agreement and accompanying Administrative Procedures, NationsBank hereby appoints you as Agent (as such term is defined in the Agreement) in connection with the purchase of Notes as described in the accompanying Pricing Supplement No. ___, dated ___________, 199__, (the "Notes") but only for this one reverse inquiry transaction. Your appointment is made subject to the terms and conditions applicable to Agents under the Agreement and terminates upon payment for the Notes or other termination of this transaction. Accompanying this letter is a copy of the Agreement, the provisions of which are incorporated herein by reference. Copies of the officer's certificate, opinions of counsel, and auditors' letter described in the Agreement are not enclosed but are available upon your request.
This letter agreement, like the Agreement, is governed by and construed in accordance with the laws of the State of New York.
If the above is in accordance with your understanding of our agreement, please sign and return this letter to us on or before settlement date. This action will confirm your appointment and your acceptance and agreement to act as Agent in connection with the issue and sale of the above described Notes under the terms and conditions of the Agreement.
NATIONSBANK CORPORATION [Name of Agent]
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8-K
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EX-99
| 1996-01-12T00:00:00
| 1996-01-12T15:18:58
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0000930661-96-000014
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0000930661-96-000014_0000.txt
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PURSUANT TO SECTION 13 OR 15(d) OF THE
Date of Report (Date of Earliest Event Reported) JANUARY 4, 1996
(Exact Name of Registrant as Specified in Charter)
(State of (Commission (IRS Employer incorporation) File Number) Identification No.)
8080 NORTH CENTRAL EXPRESSWAY, SUITE 1100, DALLAS, TEXAS 75206 (Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (214) 891-8600
As previously disclosed in Sterling Software, Inc.'s ("Sterling Software") Annual Report on Form 10-K for the fiscal year ended September 30, 1995, on October 25, 1995, Sterling Software entered into settlement agreements to resolve two shareholder class action lawsuits pending against KnowledgeWare, Inc. ("KnowledgeWare") -- In re: KnowledgeWare, Inc. Shareholder Litigation, Master File No. 1:92-CV-1651-JTC ("KnowledgeWare I"), and In re: KnowledgeWare, Inc., Civil Action File No. 1:94-CV-2301-MHS ("KnowledgeWare II"). Consummation of the settlement agreements was subject to final court approval. On January 4, 1996, the United States District Court for the Northern District of Georgia, Atlanta Division (the "Court"), granted final approval to the settlement of KnowledgeWare II. On the same day, the Court also granted final approval to the settlement of KnowledgeWare I.
In addition, Sterling Software has entered into settlement agreements to resolve several other lawsuits pending against KnowledgeWare in connection with KnowledgeWare's restatement of its financial results for the first three quarters of its 1994 fiscal year, its financial results for its full 1994 fiscal year, and other alleged events. On December 19, 1995, Sterling Software entered into a settlement agreement to resolve three lawsuits pending in the United States District Court for the District of Minnesota, Fourth Division (collectively, the "Minnesota Actions"):
Klein v. KnowledgeWare, Inc., United States District Court, District of Minnesota, Fourth Division; Civil Action File No. 4-95-CV-226;
Klein v. KnowledgeWare, Inc., United States District Court, District of Minnesota, Fourth Division; Civil Action File No. 4-95-CV-227; and
Compass Investors v. KnowledgeWare, Inc., United States District Court, District of Minnesota, Fourth Division; Civil Action File No. 4-95-CV-439.
On December 26, 1995 Sterling Software entered into a settlement agreement to resolve two lawsuits pending in the United States District Court for the Southern District of Iowa, Central Division (collectively, the "Iowa Actions"):
Ecta Corporation v. KnowledgeWare, Inc., United States District Court, Southern District of Iowa, Central Division; Civil Action File No. 4-94-CV- 80587 (the "Ecta Suit"); and
Caussade v. KnowledgeWare, Inc., United States District Court, Southern District of Iowa, Central Division; Civil Action File No. 4-95-CV-80301.
As part of the settlement of the Iowa Actions, Sterling Software will satisfy all remaining payment obligations with respect to the assets purchased by KnowledgeWare from the plaintiffs in the Ecta suit, including product royalty obligations.
Unless appeals are filed in the actions described above, upon final consummation of the settlements, all pending private civil actions against KnowledgeWare filed in connection with KnowledgeWare's restatement of its financial results for the first three quarters of its 1994 fiscal year and its financial results for its full 1994 fiscal year will have been resolved. The Securities and Exchange Commission continues its formal investigation.
Sterling Software's management believes that, after giving effect both to Sterling Software's right to indemnification from the escrow established in connection with Sterling Software's acquisition of KnowledgeWare and to applicable reserves, the ultimate resolution of these actions does not and will not materially affect the financial condition or results of operations of Sterling Software.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
By /s/ JEANNETTE P. MEIER Executive Vice President, Secretary and
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8-K
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8-K
| 1996-01-12T00:00:00
| 1996-01-12T13:39:31
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0000950130-96-000094
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0000950130-96-000094_0001.txt
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The information contained herein has been prepared and compiled from publicly available sources, Trump Hotels & Casino Rsorts, Inc., and Taj Mahal Holding Corp. and is intended exclusively for discussion purposes. Neither Rothschild Inc. nor any of its officers, directors, employees, affiates or agents makes any representation or warranty as to the accuracy or completeness of any materials contained herein.
Section 4 Gem Business Considerations
B Discounted Cash Flow Analysis D Estimated Valuation of Realty Corp.'s E Valuation of THCR Warrant F Management Financial Projections - Base Case G Management Financial Projections - Expansion Case H Adjusted Management Financial Projections - Base Case J Gem Excess Cash Analysis K Market Multiple Analysis I L Market Multiple Analysis II M Analysis of Selected Comparable Acquisitions N Cost of Capital Analysis O Atlantic City Casino Stock Index Price/Volume Run of Gem's 11.35% Mortgage Bonds
(dollar amounts in millions except per share data)
. Merger of Gem into THCR ("Merger Transaction").
. Gem's Class A shareholders receive $30.00 per share in cash or in THCR shares.
. At a $21.75 THCR share price (1/5/96 market close), exchange ratio of 1.38 shares per Class A share.
. Donald Trump ("DJT") receives:
. Restricted shares which when valued at the full trading price of unrestricted stock would equate to $30.00 per share in THCR shares and,
. Master warrant to purchase 1.8 million shares in THCR. This warrant will not be transferable and will entitle DJT to purchase 600,000 shares at $30.00 per share for 3 years, another 600,000 shares at $35.00 per share for 4 years, and a third 600,000 shares at $40.00 per share for 5 years. The warrant will be acquired "for investment" and DJT's registration rights will be limited to the underlying shares of the common.
- Based on a $100.0 Equity Offering (at an assumed price of $21.75 per share) and a Debt Offering of $750.0, and assuming the exercise of the warrant, proforma ownership approximately 38%.
(dollar amounts in millions except per share data)
. Gem's Class B shareholders receive $0.50 per share in cash.
. Gem's First Mortgage Bonds redeemed at par plus accrued interest.
. NatWest Debt assumed by New Gem.
. First Fidelity receives $50.0 in cash and $10.0 in THCR shares in consideration for the release of guarantee and the purchase of the Realty Corp.'s specified parcels.
. Banker's Trust receives $10.0 in cash in consideration for its consent to the Merger Transaction and release of its liens on (i) DJT's direct and indirect equity investments in TTMA and, (ii) the TTMI note.
(dollar amounts in millions except per share data)
Purchase of Class A, B, C Shares $81.4
Redemption of Debt and Other Obligations $853.7 THCR Equity to First Fidelity 10.0
Transaction Value as a multiple of: 1995E Proforma EBITDA 141.3 (1) 6.79 x 1996F Proforma EBITDA 161.4 (1) 5.94
1995E Proforma EBIT $97.4 (1) 9.85 x 1996F Proforma EBIT $107.1 (1) 8.95
(1) Addback of Realty rent, Gem Services Agreement Fee and CRDA write down.
(dollar amounts in millions except per share data)
(a) After deducting proceeds from the exercise of options and warrants, if applicable. (b) Offer value + Net Debt and Other Consideration; includes estimated transaction expenses.
(dollar amounts in millions except per share data)
Scenario: Class A Share Purchase
(dollar amounts in millions except per share data)
(1) Assumes $100.0 million of new equity is sold to the public.
FY 1996 AND FY 1997 Pro Forma Accretion / (Dilution) Analysis (dollar amounts in millions except per share data)
Scenario: Class A Share Purchase
(1) Excludes the exercise of the THCR warrant.
(dollar amounts in millions except per share data)
. Creates a multi-property gaming enterprise with a dominant presence in Atlantic City.
. Eliminates DJT's potential conflict of interest among two of his largest properties.
. Provides Gem's Class A shareholders liquidity through THCR shares or cash.
. A block of 300,000 shares of Gem's Class A common stock was recently traded at $22.00 per share (net of transaction costs).
. A block of approximately 90,000 shares of Gem's Class A common stock is currently being offered at $23.00 per share.
. Payment to Bankers Trust.
. "Cleans up" Gem's equity. . THCR will not go forward with proposed transaction if Gem is subject to secured lien on 50% of its equity. . Bankers Trust will not release lien without being compensated as proposed in Merger Transaction.
(dollar amounts in millions except per share data)
. Termination of Taj Services Agreement.
. Elimination of fees which amounted to approximately $1.9 million, $1.4 million, and $1.6 million during the years ended 1995, 1994, and 1993, respectively.
. Purchase of Realty Corp.'s parcels.
. Enables Gem to implement expansion plans on property essential to the entire operation. . Eliminates $2.7 million annual lease payment. . Repayment of First Fidelity Loan at a significant discount. . Gem gains title free and clear of liens and security interests. . Upon redemption of the NatWest Loan, Realty Corp. would be entitled to supplemental rent equal to $416,666.67 per month plus an amount equal to 16.5% of the remaining EACF Amount. . Removes situation where Realty Corp. gains control of improvements on specified parcels upon expiration of lease.
(dollar amounts in millions except per share data)
. Purchase of Realty Corp.'s parcels (continued).
. According to First Fidelity's First Amendment to Amended and Restated Time Loan Agreement, First Fidelity will release the specified parcels at the following prices:
Hutt Parcel: $ 1.0 million Social Security Parcel: 4.6 million "3.7 acre" Tract: 18.1 million Presbyterian Ave. Parcel: 1.8 million Kramer Warehouse Parcel: 1.8 million
(dollar amounts in millions except per share data)
. Purchase of Realty Corp.'s parcels (continued).
. Aggregate release value is significantly above the value being proposed to First Fidelity in the Merger Transaction.
. Appraisal Group International's March 1994 appraisal indicated current land prices for casino development ranging from $200 to $300 per square foot.
- Rothschild estimates the present value of the First Fidelity payment stream and the residual value of Realty Corp.'s land and improvements ranging from approximately $64 million to $85 million.
. Termination Right - THCR Common Stock.
. THCR: market value of the THCR Common Stock shall be $20.00 or more.
(dollar amounts in millions except per share data)
. Gem's First Mortgage Bonds taken out at par plus accrued.
. Refinancing provides extension of maturity. . Provides flexibility for expansion of Gem, which otherwise would not be allowed under the existing indenture unless a bondholder consent is given. . Elimination of the cash sweep mechanism on the public bonds. . Elimination of future payments in-kind.
. Reduce Gem's long-term debt from $839 million to $796 million.
. Obtain potential operational synergies between properties and possible cross- marketing benefits.
(dollar amounts in millions except per share data)
. Atlantic City continues to experience an improved regulatory environment.
. For the year ended 1995, Atlantic City casino revenues were $3.7 billion, an increase of approximately 10% compared to the year-ago period.
. At the end of 1994, the twelve Atlantic City casinos contained 9,227 guest rooms. Over the next two years, approximately 3,600 rooms, excluding Gem, will be constructed, resulting in approximately 40% increase in capacity.
- Expanded hotel accommodations should enhance future revenue growth in the Atlantic City market as well as promote a destination weekend resort atmosphere.
. Casino yields from overnight guests are approximately 3.0 to 3.5 times greater than that for a drive-in patron.
- Potential Mirage Resorts/Circus Circus project would be the single- largest addition to the market since the opening of Gem and could significantly increase the size of the Atlantic City market. Mirage would effectively dilute existing property's fair share (based on casino sq. ft.) by approximately 16%, assuming all properties will have expanded their operations according to announced proposals. Excluding Gem, six casinos plan to expand their casino space by approximately 160,000 square feet, resulting in an approximately 20% increase in total floor space.
(dollar amounts in millions except per share data)
. The December 7, 1995 research report by Deutsche Morgan Grenfell/C.J. Lawrence advanced the assumption that market revenues would grow approximately 11% in 1995, 4% in 1996, 5% in 1997, 18% in 1998, 13% in 1999, and 12% in 2000.
. Atlantic City is a regional market that competes with facilities in the Northeastern and Mid-Atlantic regions and to a lesser extent with gaming enterprises nationwide in addition to facilities operated by Native American tribes.
. A proposal to allow casino operations in Bridgeport, Connecticut was recently defeated by that state's senate
(dollar amounts in millions except per share data)
. Gem is considered the premier hotel casino in Atlantic City that focuses on first class service and accommodations that has successfully responded to industry trends and patron's preferences.
. Gem's estimated gross operating income for the fiscal year 1995 is up approximately 12% compared to the year-ago period.
. 1995 fiscal year's estimated gross operating income is the highest in the property's history.
. Management continues to expand its table and slots marketing programs to differentiate the property from competing Atlantic City casinos.
. Since 1992, Gem has increased its relative market share of table wins.
. Gem should experience improved slots performance as a result of its recent investment in new machines and expanded marketing programs.
(dollar amounts in millions except per share data)
. Gem's marketing initiatives :
. In 1995, Gem will have replaced 1,250 slot machines and expect to replace an additional 1,050 in 1996. All machines will be equipped with state-of- the-art technology and built-in bill changers.
. Recent opening of the "Dragon Room" in response to a growing Asian clientele.
. Conversion of the Casbah Lounge into a high-end slot area and club.
. Expected opening of Sultan's Place which will provide the most exclusive gaming area in Atlantic City.
. Expected additions of The Rain Forest, All Star, and Hard Rock Cafe restaurants will provide additional entertainment opportunities to complement the property's existing operation.
(dollar amounts in millions except per share data)
. Key Assumptions to Financial Projections:
- 1996 based on Gem business plan.
- Gaming and other revenue growth of 5.0% in 1997, 5.5% in 1998, 4.0% in 1999, 4.5% in 2000. - Promotional allowances growth of 5.0% in 1997, 5.5% in 1998, 4.0% in 1999, 4.5% in 2000. - Operating expense growth of approximately 3.25% per year beginning in 1997. - Realty Corp. lease expense of $2.7 million per year. - Taj Services Agreement's fee as a percentage of revenues. - Capital expenditures of $25.0 million per year. - CRDA investment ranging from $7.0 to $8.0 million per year with a write down equal to 50% of investment. - Partnership capital distributions of approximately $1.7 million per year. - Additionally, Rothschild assumed working capital requirements of $1 million per year and assumed a blended tax provision of 42% on pre-tax earnings.
. These forecasts do not reflect the expansion program because absent a Transaction or consent by the public bondholders, Gem would be unable to finance such a program.
(dollar amounts in millions except per share data)
. Key Assumptions to Financial Projections (continued):
- For purposes of our preliminary valuation analyses, we felt that it was prudent to be slightly more conservative than management's financial projections. - In developing our financial projections for 1997 and beyond, we made the following assumptions:
. Net revenue growth of 4% per year. . Without any incremental competition, Atlantic City revenues should be expected to grow at a pace of 3% to 4% per year, tracking the level of anticipated inflation. Since 1989, market revenues have grown at compounded annual growth rate of approximately 3.5% and over past ten years, Atlantic City has experienced an annualized rate of approximately 5.5%. . All other assumptions were consistent with management's projections.
- Operating results are sensitive to small fluctuations in revenues; for instance, a 1% divergence in revenues during the 1997-2000 time period would have a cumulative change in EBITDA of approximately $20 million.
(dollar amounts in millions except per share data)
. Rothschild employed three valuation methodologies: (i) Market Capitalization Analysis, (ii) Discounted Cash Flow Analysis, and, (iii) Comparable Transaction Analysis. The range of values per Class A share is unadjusted for the possible dilution from the 14% payment. These analyses do not reflect the expansion program because absent a transaction or consent by public bondholders, Gem would be unable to finance such a program.
- Rothschild's analysis of current valuation multiples were based on the seven publicly traded enterprises that have operations in Atlantic City: Aztar, Bally Entertainment., Hollywood Casino, Harrah's Entertainment, Griffin Gaming & Entertainment, Showboat, and THCR.
. These companies are currently trading at 5.5 times estimated 1996 and 6.0 times estimated 1995 EBITDA. Implied range of values are as follows:
(a) Guarantee valued at face amount. (b) Guarantee valued at a discount to face amount.
(dollar amounts in millions except per share data)
. Discounted Cash Flow Analysis:
- Based on Management's and Adjusted Management's projections, Rothschild estimated the present value of (i) the future cash flows of Gem that could be expected over a five-year time period without consideration to any benefits from an expansion of the property, and (ii) the year 5 terminal value - determined by multiplying year 5 EBITDA by a range of valuation multiples (4.5 to 5.5) - using discount rates ranging from 12% to 15%. Implied range of values are as follows:
(a) Guarantee valued at face amount. (b) Guarantee valued at a discount to face amount.
(dollar amounts in millions except per share data)
- Rothschild analyzed ten selected acquisitions in the gaming industry over the past five years. Two of the transactions consisted of companies that operated properties in the Atlantic City market.
. Total enterprise value as a multiple of latest twelve months EBITDA and EBIT ranged from approximately 4.5 to 9.5 and 5.0 to 13.0, respectively. ITT Corporation acquired Caesar's World, Inc. at a 60% premium over trading levels 30 days prior to the announcement of the transaction. Based on Gem's estimated 1995 and 1996 EBITDA levels, the implied range of values is as follows:
(a) Guarantee valued at face amount. (b) Guarantee valued at a discount to face amount.
(dollar amounts in millions except per share data)
(a) Represents estimated cash balances (12/31/95) net of reserves for cage cash, working capital, and accrued cash interest on the Mtg. Bonds. (b) Estimated as of December 31, 1995, including accrued interest on the Mtg Bonds payable in kind. (c) Includes $30.0 First Fidelity Guarantee. (d) Book Value is unadjusted to the extent that the 11.35% bonds are net of unamortized discount.
(dollar amounts in millions except per share data)
(a) Represents estimated cash balances (12/31/95) net of reserves for cage cash, working capital, and accrued cash interest on the Mtg. Bonds (b) Estimated as of December 31, 1995, including accrued interest on the Mtg Bonds payable in kind. (c) Includes First Fidelity Guarantee valued at a discount to face amount. (d) Book Value is unadjusted to the extent that the 11.35% bonds are net of unamortized discount.
(dollar amounts in millions except per share data)
(a) Represents estimated cash balances (12/31/95) net of reserves for cage cash, working capital, and accrued cash interest on the Mtg. Bonds. (b) Estimated as of December 31, 1995, including accrued interest on the Mtg Bonds payable in kind. (c) Excludes $30.0 First Fidelity Guarantee. (d) Book Value is unadjusted to the extent that the 11.35% bonds are net of unamortized discount.
(dollar amounts in millions except per share data)
Valuation as of December 31, 1995 (a) Earnings before interest, taxes, depreciation and amortization; post Realty rent and Gem Services Agreement Fee. (b) Includes $30.0 First Fidelity Guarantee.
(dollar amounts in millions except per share data)
VALUATION AS OF DECEMBER 31, 1995 (a) Earnings before interest, taxes, depreciation and amortization; post Realty rent and Gem Services Agreement Fee. (b) Includes First Fidelity Guarantee valued at a discount to face amount.
(dollar amounts in millions except per share data)
VALUATION AS OF DECEMBER 31, 1995 (a) Earnings before interest, taxes, depreciation and amortization; post Realty rent and Gem Services Agreement Fee. (b) Excludes $30.0 First Fidelity Guarantee.
(dollar amounts in millions except per share data)
VALUATION AS OF DECEMBER 31, 1995 (a) Earnings before interest, taxes, depreciation and amortization; post Realty rent and Gem Services Agreement Fee. (b) Includes $30.0 First Fidelity Guarantee.
(dollar amounts in millions except per share data)
VALUATION AS OF DECEMBER 31, 1995 (a) Earnings before interest, taxes, depreciation and amortization; post Realty rent and Gem Services Agreement Fee. (b) Includes First Fidelity Guarantee valued at a discount to face amount.
(dollar amounts in millions except per share data)
VALUATION AS OF DECEMBER 31, 1995 (a) Earnings before interest, taxes, depreciation and amortization; post Realty rent and Gem Services Agreement Fee. (b) Excludes $30.0 First Fidelity Guarantee.
Analysis of Selected Comparable Acquisitions (U.S. dollar amounts in millions, except per share data)
VALUATION MATRIX BASED ON ANALYSIS OF SELECTED ACQUISITION COMPARABLES
(a) Imputed Equity Value = Imputed Market Capitalization + Cash & Marketable Securities - Long-Term Debt - Short-Term Debt - Preferred Equity at Liquidation Value - Minority Interest. (b) Includes $30.0 First Fidelity Guarantee.
Analysis of Selected Comparable Acquisitions (U.S. dollar amounts in millions, except per share data)
VALUATION MATRIX BASED ON ANALYSIS OF SELECTED ACQUISITION COMPARABLES
(a) Imputed Equity Value = Imputed Market Capitalization + Cash & Marketable Securities - Long-Term Debt - Short-Term Debt - Preferred Equity at Liquidation Value - Minority Interest. (b) Includes First Fidelity Guarantee valued at a discount to face amount.
Analysis of Selected Comparable Acquisitions (U.S. dollar amounts in millions, except per share data)
VALUATION MATRIX BASED ON ANALYSIS OF SELECTED ACQUISITION COMPARABLES
(a) Imputed Equity Value = Imputed Market Capitalization + Cash & Marketable Securities - Long-Term Debt - Short-Term Debt - Preferred Equity at Liquidation Value - Minority Interest. (b) Excludes $30.0 First Fidelity Guarantee.
Estimated Valuation of Realty Corp.'s Specified Parcels and Lease (dollar amounts in millions except per share data)
(1) Assume that NatWest Loan is redeemed in November 1999.
11.0% 11.5% 12.0% 12.5% 13.0% ----- ----- ----- ----- ----- Realty Corp Lease Payment $23.4 $22.6 $21.8 $21.0 $20.3 Trump Service Agreement 4.9 4.8 4.6 4.4 4.3 Supplemental Rent ("NatWest") 27.9 26.5 25.1 23.9 22.7 ----- ----- ----- ----- ----- Sub-Total $56.3 $53.8 $51.5 $49.3 $47.3 ===== ===== ===== ===== ===== Residual Value: Land $22.8 $20.1 $17.7 $15.6 $13.8 Improvements 5.5 4.9 4.3 3.8 3.3
Total $84.6 $78.8 $73.5 $68.7 $64.4 ----- ----- ----- ----- -----
(dollar amounts in millions except per share data)
Tranche 1 0.6 $30.00 3.0 5.2% Tranche 2 0.6 35.00 4.0 5.3% Tranche 3 0.6 40.00 5.0 5.4%
Current THCR Stock Price $21.75
Proforma Shares Outstanding 26.4 (4)
(1) Based on the warrant being exercisable into investment letter stock. (2) Reflects the illiquidity of the warrant. (3) Based on the trading of THCR stock for the past 30 days. (4) Before exercise of warrants.
I II III I II III ----- ----- ----- ---- ---- ---- Tranche 1 $4.08 $1.75 $1.13 $2.4 $1.0 $0.7 Tranche 2 $4.30 $1.95 $1.27 2.6 1.2 0.8 Tranche 3 $4.56 $2.18 $1.42 2.7 1.3 0.9
Scenario I: Based on a hypothetical valuation basis assuming the warrants are fully marketable. Scenario II: Based on a discount to THCR's current share price. Scenario III: Reflects a haircut to the values attributable in scenario II.
(dollar amounts in millions except per share data)
(dollar amounts in millions except per share data)
Proforma Gem Cash Flow Statement (dollar amounts in millions except per share data)
(a) Includes CRDA Investment and Partnership distribution.
(dollar amounts in millions except per share data)
(dollar amounts in millions except per share data)
Proforma Gem Cash Flow Statement (dollar amounts in millions except per share data)
(a) Includes CRDA Investment and Partnership distribution.
(dollar amounts in millions except per share data)
(dollar amounts in millions except per share data)
Proforma Gem Cash Flow Statement (dollar amounts in millions except per share data)
(a) Includes CRDA Investment and Partnership distribution.
(dollar amounts in millions except per share data)
Gem Class A 1.35 38.8%
Class A Class B Class C Fst Fidelity
Cash $0.0 $0.4 $0.0 - Debt 0.0 0.0 0.0 - Common 40.5 0.0 40.5 10.0 Total $40.5 $0.4 $40.5 $10.0
THCR exchange ratio 1.38 0.00 1.38 -
Assumed THCR price per share $21.750
Gem Class A - - 1.86 7.3% Gem Class B - - 0.00 0.0% Gem Class C - - 1.86 7.3% First Fidelity - - 0.46 1.8% DJT 6.67 39.7% 6.67 26.1% Public 10.14 60.3% 10.14 39.6% New THCR to the Public - - 4.60 18.0% Total (1) 16.80 100.0% 25.59 100.0%
(1) Excludes the warrant issued to DJT.
SCENARIO: CLASS A SHARE PURCHASE
Cash on-hand $71.5 Payment to First Fidelity $50.0 New Notes 750.0 Payment to Bankers Trust 10.0 New Common 191.0 (1) Redeem Mtg Bonds 793.7 Purchase/Exchange A & C share 81.0 THCR Equity to First Fidelity 10.0 (1) Assumes $100.0 million of new equity is sold to the public.
As of March 31, 1996 Proforma Proforma % of THCR Gem Adjust. As Adjust. Capital. ------ ------ -------- ---------- -------- Excess Cash $8.5 $82.9 ($71.5) $19.9 Restricted Cash 5.5 25.0 30.5 Total $14.0 $107.9 ($71.5) $50.4 THCR 10.875% Mtg Bonds $330.0 $330.0 21.4% THCR 15.500% Snr Sec Nts 155.0 155.0 10.1% THCR Cap Lease & Other 45.2 45.2 2.9% Gem 11.350% Mtg Bonds 793.7 (793.7) 0.0 0.0% Gem NatWest Loan 45.5 0.0 45.5 3.0% Gem New Mtg Bonds 750.0 750.0 48.7% Gem New Expand. Nts 0.0 0.0 0.0% Gem New Other 0.0 0.0 0.0% ------ ------ -------- -------- ------- Total $530.2 $839.2 ($43.7) $1,325.7 86.0% ====== ====== ======== ======== ======= Shareholders' Equity $47.0 $29.0 $139.1 $215.1 14.0% ------ ------ -------- -------- ------- Total Capitalization $577.2 $868.2 $95.4 $1,540.8 100.0% ====== ====== ======== ======== =======
Gem Expansion? No Transaction Fees and Expenses Gem New Mtg Bonds 12.000% Expensed $12.5 Gem Credit Facility 12.000% Capitalized 27.5 Gem New Other Debt 10.000% Total $40.0 Redeem NatWest Debt No Amortization per year (10 years) $2.8
(dollar amounts in millions except per share data)
Scenario: Class A Share Purchase / No Gem Expansion
(b) Post Mgmt fees and Realty rent. (c) Proforma for full year results. (d) Represents the addback of Realty Rent and Gem Services Agreement Fee.
(dollar amounts in millions except per share data)
Scenario: Class A Share Purchase / No Gem Expansion
(b) Post Mgmt fees and Realty rent. (c) Represents the addback of Realty Rent and Gem Services Agreement Fee.
(dollar amounts in millions except per share data)
(dollar amounts in millions except per share data)
Cage Cash and Working Capital ($25.0) ($25.0)
Excess Cash Balance $65.0 $82.9 Adjustments: Accrued Interest on 11.35s ($9.1) ($27.4)
Excess Cash Availability $55.8 $55.5
Analysis of Selected Atlantic City Casinos
(dollar amount in millions except per share data)
MARKET MULTIPLE ANALYSIS FOR SELECTED INDUSTRY COMPARABLES
* Not included in summary multiples (a) Market Capitalisation = Market Value + Preferred Equity at Liquidation Value (incl. Redeemable) + Short-Term Debt + Long-Term Debt + Minority Interest - Cash & Marketable Securities. (b) Summary Multiples exclude numbers that are Negative, Not Available, Not Meaningful, and (*) figures.
Analysis of Selected Atlantic City Casinos
(dollar amounts in millions except per share data)
MARKET MULTIPLE ANALYSIS FOE SELECTED INDUSTRY COMPARABLESS
(a) Market Capitalization = Market Value + Preferred Equity at Liquidation Value (Incl. Redeemable) + Short-Term Debt + Long Term Debt + Minority Interest - Cash & Marketable Securities. (b) Earnings Estimates were obtained from I/B/E/S. (c) Cash Flow = Income Available to Common + Depreciation, Depletion & Amortization + Deferred Taxes - Unremitted Earnings of Unconsolidated Subsidiaries. (d) Summary Multiples exlcude members that are Negative, Not Available, Not Meaningful, and figures which are considered ouliers(*) (e) Adj. Mean excludes the high, low and negative numbers.
Analysis of Selected Atlantic City Casinos
(dollar amounts in millions except per share data)
SUMMARY DATA FOR SELECTED INDUSTRY COMPARABLES
SUMMARY RATIOS FOR SELECTED INDUSTRY COMPARABLES
(a) Earnings Estimates were obtained from I/B/E/S (b) Cash Flow = Income Available to Common + Depreciation, Depletion & Amortization + Deferred Taxes - Unremitted Earnings of Unconsolidated Subsidiaries.
Historical Sales & EBITDA Trading Multiples 8 Historical EBIT & Net Income Trading Multiples 9 Historical Shares & Net Income Information 10 Historical Share Prices & Market Values 11 Historical Minority Interest Information 14 Historical Equity Invest. & Market Capitalizations 16 "IBES, Value Line & S&P 500 PEs" 17 Business Description & SIC Codes 19
This document has been prepared as a medium for discussion. No representations are made or should be inferred as to its accuracy or completeness.
(a) Adjusted Mean excludes the high, low and negative numbers.
DEPRECIATION & AMORITIZATION INFORMATION Page 5
HISTORICAL SALES & EBITDA TRADING MULTIPLES
HISTORICAL EBIT & NET INCOME TRADING MULTIPLES
SHARES OUTSTANDING & NET INCOME INFORMATION
HISTORICAL SHARE PRICE & MARKET VALUE INFORMATION
HISTORICAL EQUITY INVESTMENTS & ADJUSTED MARKET CAPITALIZATIONS
IBES, VALUE LINE & S&P 500 PEs
Ticker Company Industry SIC Business Description
azr+ AZTAR CORP. 7,000 MISC AMUSEMENT & REC SERVICE bly+ BALLY ENTERTAINMENT 7,000 MISC AMUSEMENT & REC SERVICE hwcc+ HOLLYWOOD CASINO 'A' 7,000 MISC AMUSEMENT & REC SERVICE het+ HARRAH'S ENTERTAIN. 7,000 MISC AMUSEMENT & REC SERVICE gge+ GRIFFIN GAMING & ENT 7,000 MISC AMUSEMENT & REC SERVICE sbo+ SHOWBOAT, INC. 7,000 MISC AMUSEMENT & REC SERVICE djt+ TRUMP HOTELS & CASINO N/A MISC AMUSEMENT & REC SERVICE
cir+ CIRCUS CIRCUS ENTERP 7,000 MISC AMUSEMENT & REC SERVICE mir+ MIRAGE RESORTS 7,000 MISC AMUSEMENT & REC SERVICE
* Most of the information contained in this analysis is from the Value Line Database. Compustat is used to download information which is not provided from Value Line. * Forecasts are Value Line estimates, unless otherwise noted. * EBDIT = Earnings before depreciation, amortization, interest, taxes, other non-operating costs and extraordinary charges; EBIT = Earnings before interest, other non-operating costs, taxes and EBT = Earnings before taxes and extraordinary charges. * Market Value = Common shares outstanding * share price. Any adjustments will be noted. * Adjusted Market Capitalization = Market Value + total debt including capitalized leases + redeemable preferred and other preferred + minority interests (all @ book value unless otherwise stated) - cash and cash equivalents - equity investments (@ book unless otherwise stated). Any adjustments will be noted. * The current indicated annual dividend used in determining the current dividend yield is derived by taking the latest quarter's dividend and multiplying it by 4. * Historical market value multiples are derived by taking the year end stock price and multiplying it by the year end number of shares. * Historical adjusted market capitalization multiples are derived by taking the year end market value and adding the year end debt, preferred and minority interest balances and subtracting the year end cash and equity investment balances.
Analysis of Selected Comparable Acquisitions (U.S. dollar amounts in millions except per share data)
(a) Cash Flow = Income Available to Common + Depreciation, Depletion & Amortization + Deferred Taxes - Unremitted Earnings of Unconsolidated Subsidiaries. (b) Summary Multiples exclude numbers that are Negative, Not Available, Not Meaningful, and figures which are considered outliers (*).
(dollar amounts in millions, exceptions noted)
(1) 173.5 millions of mortgage notes payable included. (2) Tax rate is assumed to be: 40.0% (3) Excludes Maximum and Minimum
Atlantic City Casino Stock Index Relative to S&P 500
Casino SP50 S&P 500 STOCK INDEX
Avg DATE VOLUME HIGH LOW CLOSE Index
1.00 12/19/94 458.800 456.640 457.910 1.00 1.01 12/20/94 458.450 456.370 457.100 1.00 1.00 12/21/94 461.700 457.100 459.610 1.00 1.00 12/22/94 461.210 459.330 459.670 1.00 1.03 12/23/94 461.320 459.390 459.830 1.00 1.02 12/27/94 462.730 459.830 462.470 1.01 1.01 12/28/94 462.490 459.000 460.860 1.01 0.99 12/29/94 461.810 460.360 461.160 1.01 1.04 12/30/94 462.120 459.240 459.270 1.00 1.04 1/03/95 459.270 457.200 459.110 1.00 1.06 1/04/95 460.720 457.560 460.710 1.01 1.12 1/05/95 461.300 459.750 460.340 1.01 1.15 1/06/95 462.490 459.470 460.680 1.01 1.14 1/09/95 461.770 459.740 460.830 1.01 1.13 1/10/95 464.590 460.830 461.680 1.01 1.11 1/11/95 463.610 458.650 461.660 1.01 1.10 1/12/95 461.930 460.630 461.640 1.01 1.10 1/13/95 466.430 461.640 465.970 1.02 1.12 1/16/95 470.390 465.970 469.380 1.03 1.15 1/17/95 470.150 468.190 470.050 1.03 1.20 1/18/95 470.430 468.030 469.720 1.03 1.20 1/19/95 469.720 466.400 466.950 1.02 1.19 1/20/95 466.990 463.990 464.780 1.02 1.21 1/23/95 466.230 461.140 465.810 1.02 1.19 1/24/95 466.880 465.470 465.860 1.02 1.21 1/25/95 469.510 464.400 467.440 1.02 1.18 1/26/95 468.620 466.900 468.320 1.02 1.16 1/27/95 471.360 468.320 470.390 1.03 1.18 1/30/95 470.520 467.490 468.510 1.02 1.18 1/31/95 471.030 468.180 470.420 1.03 1.19 2/01/95 472.750 469.290 470.400 1.03 1.20 2/02/95 472.790 469.950 472.780 1.03 1.21 2/03/95 479.910 472.780 478.640 1.05 1.23 2/06/95 481.950 478.360 481.140 1.05 1.22 2/07/95 481.320 479.690 480.810 1.05 1.23 2/08/95 482.600 480.400 481.190 1.05 1.29 2/09/95 482.000 479.910 480.190 1.05 1.33 2/10/95 481.960 479.530 481.460 1.05 1.32 2/13/95 482.860 481.070 481.650 1.05 1.35 2/14/95 482.940 480.890 482.550 1.05 1.43 2/15/95 485.540 481.770 484.540 1.06 1.39 2/16/95 485.220 483.050 485.220 1.06 1.35 2/17/95 485.220 481.970 481.970 1.05 1.40 2/21/95 482.720 482.720 482.720 1.05 1.39 2/22/95 486.150 482.450 485.070 1.06 1.38 2/23/95 489.190 485.070 486.910 1.06 1.39 2/24/95 488.220 485.700 488.110 1.07 1.35 2/27/95 488.110 483.180 483.810 1.06 1.38 2/28/95 487.440 483.770 487.390 1.06 1.37 3/01/95 487.830 484.920 485.650 1.06 1.35 3/02/95 485.710 483.190 485.130 1.06 1.34 3/03/95 485.420 483.070 485.420 1.06 1.34 3/06/95 485.700 481.520 485.630 1.06 1.31 3/07/95 485.630 479.700 482.120 1.05 1.35 3/08/95 484.080 481.570 483.140 1.06 1.33 3/09/95 483.740 482.050 483.160 1.06 1.33 3/10/95 490.370 483.160 489.570 1.07 1.32 3/13/95 491.280 489.350 490.050 1.07 1.32 3/14/95 493.690 490.050 492.890 1.08 1.32 3/15/95 492.890 490.830 491.880 1.07 1.34 3/16/95 495.740 491.780 495.410 1.08 1.34 3/17/95 496.670 494.950 495.520 1.08 1.34 3/20/95 496.610 495.270 496.150 1.08 1.38 3/21/95 499.190 494.040 495.070 1.08 1.37 3/22/95 495.670 493.670 495.670 1.08 1.41 3/23/95 496.770 494.190 495.950 1.08 1.46 3/24/95 500.970 495.950 500.970 1.09 1.45 3/27/95 503.200 500.930 503.200 1.10 1.50 3/28/95 503.910 501.830 503.900 1.10 1.51 3/29/95 508.150 500.960 503.120 1.10 1.51 3/30/95 504.660 501.000 502.220 1.10 1.50 3/31/95 502.220 495.700 500.710 1.09 1.55 4/03/95 501.910 500.200 501.850 1.10 1.62 4/04/95 505.260 501.820 505.240 1.10 1.71 4/05/95 505.570 503.170 505.570 1.10 1.81 4/06/95 507.100 505.000 506.080 1.11 1.75 4/07/95 507.190 503.590 506.420 1.11 1.77 4/10/95 507.010 504.610 507.010 1.11 1.76 4/11/95 508.850 505.290 505.530 1.10 1.77 4/12/95 507.170 505.070 507.170 1.11 1.76 4/13/95 509.830 507.170 509.230 1.11 1.73 4/17/95 512.030 505.430 506.130 1.11 1.70 4/18/95 507.650 504.120 505.370 1.10 1.72 4/19/95 505.890 501.190 504.920 1.10 1.70 4/20/95 506.500 503.440 505.290 1.10 1.73 4/21/95 508.490 505.290 508.490 1.11 1.72 4/24/95 513.020 507.440 512.890 1.12 1.73 4/25/95 513.540 511.320 512.100 1.12 1.76 4/26/95 513.040 510.470 512.660 1.12 1.84 4/27/95 513.620 511.630 513.550 1.12 1.94 4/28/95 515.290 510.900 514.710 1.12 1.89 5/01/95 515.600 513.420 514.260 1.12 1.88 5/02/95 515.180 513.030 514.860 1.12 1.84 5/03/95 520.540 514.860 520.480 1.14 1.82 5/04/95 525.400 519.440 520.540 1.14 1.80 5/05/95 522.350 518.280 520.120 1.14 1.88 5/08/95 525.150 519.140 523.960 1.14 1.89 5/09/95 525.990 521.790 523.560 1.14 1.94 5/10/95 524.400 521.530 524.360 1.15 1.90 5/11/95 524.890 522.700 524.370 1.15 1.91 5/12/95 527.050 523.300 525.550 1.15 1.90 5/15/95 527.740 525.000 527.740 1.15 1.91 5/16/95 529.080 526.450 528.190 1.15 1.89 5/17/95 528.420 525.380 527.070 1.15 1.81 5/18/95 527.070 519.580 519.580 1.13 1.80 5/19/95 519.580 517.070 519.190 1.13 1.86 5/22/95 524.340 519.190 523.650 1.14 1.86 5/23/95 528.590 523.650 528.590 1.15 1.86 5/24/95 531.910 525.570 528.610 1.15 1.85 5/25/95 529.040 524.890 528.590 1.15 1.80 5/26/95 528.590 522.510 523.650 1.14 1.78 5/30/95 525.580 521.380 523.580 1.14 1.80 5/31/95 533.410 522.170 533.400 1.16 1.79 6/01/95 534.210 530.050 533.490 1.17 1.76 6/02/95 536.910 529.550 532.510 1.16 1.78 6/05/95 537.730 532.470 535.600 1.17 1.85 6/06/95 537.090 535.140 535.550 1.17 1.84 6/07/95 535.550 531.660 533.130 1.16 1.83 6/08/95 533.560 531.650 532.350 1.16 1.82 6/09/95 532.350 526.000 527.940 1.15 1.88 6/12/95 532.540 527.940 530.880 1.16 1.87 6/13/95 536.230 530.880 536.050 1.17 1.84 6/14/95 536.480 533.830 536.470 1.17 1.87 6/15/95 539.070 535.560 537.120 1.17 1.90 6/16/95 539.980 537.120 539.830 1.18 1.90 6/19/95 545.220 539.830 545.220 1.19 1.94 6/20/95 545.440 543.430 544.980 1.19 1.93 6/21/95 545.930 543.900 543.980 1.19 1.95 6/22/95 551.070 543.980 551.070 1.20 1.97 6/23/95 551.070 548.230 549.710 1.20 1.94 6/26/95 549.790 544.060 544.130 1.19 1.87 6/27/95 547.070 542.190 542.430 1.18 1.86 6/28/95 546.330 540.720 544.730 1.19 1.85 6/29/95 546.250 540.790 543.870 1.19 1.87 6/30/95 546.820 543.510 544.750 1.19 1.80 7/03/95 547.100 544.430 547.090 1.19 1.77 7/05/95 549.980 546.280 547.260 1.20 1.75 7/06/95 553.990 546.590 553.990 1.21 1.78 7/07/95 556.570 553.050 556.370 1.22 1.81 7/10/95 558.480 555.770 557.190 1.22 1.81 7/11/95 557.190 553.800 554.780 1.21 1.82 7/12/95 561.560 554.270 560.890 1.22 1.83 7/13/95 562.000 559.070 561.000 1.23 1.86 7/14/95 561.000 556.410 559.890 1.22 1.89 7/17/95 562.940 559.450 562.720 1.23 1.86 7/18/95 562.720 556.860 558.460 1.22 1.76 7/19/95 558.460 542.510 550.980 1.20 1.79 7/20/95 554.430 549.100 553.540 1.21 1.83 7/21/95 554.730 550.910 553.620 1.21 1.82 7/24/95 557.210 553.620 556.630 1.22 1.85 7/25/95 561.750 556.340 561.100 1.23 1.85 7/26/95 563.780 560.850 561.610 1.23 1.90 7/27/95 565.330 561.610 565.220 1.23 1.90 7/28/95 565.400 562.040 562.930 1.23 1.97 7/31/95 563.490 560.060 562.060 1.23 1.92 8/01/95 562.110 556.670 559.640 1.22 1.92 8/02/95 565.620 557.870 558.800 1.22 1.88 8/03/95 558.800 554.100 558.750 1.22 1.90 8/04/95 559.570 557.910 558.940 1.22 1.91 8/07/95 561.240 558.940 560.030 1.22 1.93 8/08/95 561.530 558.320 560.390 1.22 1.91 8/09/95 561.590 559.290 559.710 1.22 1.91 8/10/95 560.630 556.050 557.450 1.22 1.89 8/11/95 558.500 553.040 555.110 1.21 1.88 8/14/95 559.740 554.760 559.740 1.22 1.87 8/15/95 559.980 555.220 558.570 1.22 1.87 8/16/95 559.980 557.370 559.970 1.22 1.87 8/17/95 559.970 557.420 559.040 1.22 1.89 8/18/95 561.240 558.340 559.210 1.22 1.89 8/21/95 563.340 557.890 558.110 1.22 1.90 8/22/95 559.520 555.870 559.520 1.22 1.90 8/23/95 560.000 557.080 557.140 1.22 1.90 8/24/95 558.630 555.200 557.460 1.22 1.89 8/25/95 561.310 557.460 560.100 1.22 1.91 8/28/95 562.220 557.990 559.050 1.22 1.90 8/29/95 560.010 555.710 560.000 1.22 1.90 8/30/95 561.520 559.490 560.920 1.22 1.91 8/31/95 562.360 560.490 561.880 1.23 1.90 9/01/95 564.620 561.010 563.840 1.23 1.91 9/05/95 569.200 563.840 569.170 1.24 1.91 9/06/95 570.530 569.000 570.170 1.25 1.90 9/07/95 571.110 569.230 570.290 1.25 1.86 9/08/95 572.680 569.270 572.680 1.25 1.81 9/11/95 575.150 572.680 573.910 1.25 1.82 9/12/95 576.510 573.110 576.510 1.26 1.80 9/13/95 579.720 575.470 578.770 1.26 1.79 9/14/95 583.990 578.770 583.610 1.27 1.77 9/15/95 585.070 581.790 583.350 1.27 1.74 9/18/95 583.370 579.360 582.770 1.27 1.72 9/19/95 584.240 580.750 584.200 1.28 1.71 9/20/95 586.770 584.180 586.770 1.28 1.71 9/21/95 586.790 580.910 583.000 1.27 1.71 9/22/95 583.000 578.250 581.730 1.27 1.70 9/25/95 582.140 579.500 581.810 1.27 1.68 9/26/95 584.660 580.650 581.410 1.27 1.65 9/27/95 581.420 574.680 581.040 1.27 1.64 9/28/95 585.880 580.690 585.870 1.28 1.68 9/29/95 587.610 584.000 584.410 1.28 1.64 10/02/95 585.050 580.540 581.720 1.27 1.62 10/03/95 582.340 578.480 582.340 1.27 1.61 10/04/95 582.340 579.910 581.470 1.27 1.57 10/05/95 582.630 579.580 582.630 1.27 1.58 10/06/95 584.540 582.100 582.490 1.27 1.53 10/09/95 582.490 576.350 578.370 1.26 1.55 10/10/95 586.030 571.550 577.520 1.26 1.57 10/11/95 579.520 577.080 579.460 1.27 1.65 10/12/95 583.120 579.460 583.100 1.27 1.66 10/13/95 587.390 583.100 584.500 1.28 1.63 10/16/95 584.860 582.630 583.030 1.27 1.59 10/17/95 586.780 581.900 586.780 1.28 1.62 10/18/95 589.770 586.270 587.440 1.28 1.68 10/19/95 590.660 586.340 590.650 1.29 1.68 10/20/95 590.660 586.780 587.460 1.28 1.67 10/23/95 587.460 583.730 585.060 1.28 1.69 10/24/95 587.310 584.750 586.540 1.28 1.64 10/25/95 587.190 581.410 582.470 1.27 1.59 10/26/95 582.630 572.530 576.720 1.26 1.62 10/27/95 579.700 573.210 579.700 1.27 1.63 10/30/95 583.790 579.700 583.250 1.27 1.63 10/31/95 586.710 581.500 581.500 1.27 1.64 11/01/95 584.240 581.040 584.220 1.28 1.65 11/02/95 589.720 584.220 589.720 1.29 1.67 11/03/95 590.570 588.650 590.570 1.29 1.68 11/06/95 590.640 588.310 588.460 1.29 1.68 11/07/95 588.460 584.240 586.320 1.28 1.69 11/08/95 591.710 586.320 591.710 1.29 1.69 11/09/95 593.900 590.890 593.260 1.30 1.69 11/10/95 593.260 590.390 592.720 1.29 1.66 11/13/95 593.720 590.580 592.300 1.29 1.66 11/14/95 592.300 588.980 589.290 1.29 1.66 11/15/95 593.970 588.360 593.960 1.30 1.66 11/16/95 597.910 593.520 597.340 1.30 1.63 11/17/95 600.140 597.300 600.070 1.31 1.63 11/20/95 600.400 596.170 596.850 1.30 1.63 11/21/95 600.280 595.420 600.240 1.31 1.63 11/22/95 600.710 598.400 598.400 1.31 1.62 11/24/95 600.240 598.400 599.970 1.31 1.62 11/27/95 603.350 599.970 601.320 1.31 1.61 11/28/95 606.450 599.020 606.450 1.32 1.64 11/29/95 607.660 605.470 607.640 1.33 1.65 11/30/95 608.690 605.370 605.370 1.32 1.66 12/01/95 608.110 605.370 606.980 1.33 1.68 12/04/95 613.830 606.850 613.680 1.34 1.71 12/05/95 618.480 613.140 617.680 1.35 1.68 12/06/95 621.110 616.690 620.180 1.35 1.68 12/07/95 620.190 615.210 616.170 1.35 1.68 12/08/95 617.820 614.320 617.480 1.35 1.64 12/11/95 620.900 617.140 619.520 1.35 1.62 12/12/95 619.550 617.680 618.780 1.35 1.63 12/13/95 622.020 618.270 621.690 1.36 1.64 12/14/95 622.880 616.130 616.920 1.35 1.64 12/15/95 617.720 614.460 616.340 1.35 1.61 12/18/95 616.340 606.130 606.810 1.33 1.61 12/19/95 611.940 605.050 611.930 1.34 1.62 12/20/95 614.270 605.930 605.940 1.32 1.59 12/21/95 610.520 605.940 610.490 1.33 1.62 12/22/95 613.500 610.450 611.960 1.34 1.61 12/26/95 614.500 611.960 614.300 1.34 1.58 12/27/95 615.730 613.750 614.530 1.34 1.59 12/28/95 615.500 612.400 614.120 1.34 1.62 12/29/95 615.930 612.360 615.930 1.35 1.67 1/02/96 620.740 613.170 620.730 1.36 1.67 1/03/96 623.250 619.560 621.320 1.36 1.70 1/04/96 624.520 613.960 617.700 1.35 1.70 1/05/96 617.700 612.020 616.710 1.35
Casino index consists of AZR, BLY, GGE, HET, HWCC, and SBO.
DATE VOLUME HIGH LOW CLOSE ------- ------- ------ ------ ------
6/07/95 1582100 14.250 14.000 14.000 6/08/95 838300 14.125 14.000 14.000 6/09/95 322700 14.125 14.000 14.000 6/12/95 273400 14.125 14.000 14.000 6/13/95 213300 14.125 14.000 14.000 6/14/95 453300 14.125 13.250 13.250 6/15/95 178100 13.250 12.750 12.875 6/16/95 80600 12.875 12.750 12.750 6/19/95 300100 12.750 11.625 11.625 6/20/95 60400 12.250 11.375 12.125 6/21/95 243400 13.250 12.250 12.625 6/22/95 53600 12.875 12.625 12.750 6/23/95 19600 12.875 12.750 12.875 6/26/95 55400 13.000 12.875 13.000 6/27/95 29300 13.125 13.000 13.000 6/28/95 56200 13.250 13.125 13.125 6/29/95 29900 13.375 13.125 13.375 6/30/95 37900 13.500 13.375 13.375 7/03/95 55100 13.375 13.125 13.125 7/05/95 19200 13.250 13.000 13.125 7/06/95 22400 13.250 13.125 13.125 7/07/95 78200 13.125 13.000 13.000 7/10/95 75800 14.000 13.125 13.750 7/11/95 20900 13.750 13.500 13.625 7/12/95 138700 14.375 13.500 14.125 7/13/95 29200 14.000 13.875 13.875 7/14/95 121300 14.375 13.875 14.375 7/17/95 82400 14.375 14.125 14.250 7/18/95 18800 14.125 14.125 14.125 7/19/95 20700 14.125 13.875 13.875 7/20/95 21900 14.125 13.875 14.125 7/21/95 33900 14.250 14.000 14.125 7/24/95 49900 14.250 14.000 14.125 7/25/95 20000 14.250 14.125 14.250 7/26/95 71000 15.125 14.250 15.125 7/27/95 115000 15.500 15.000 15.250 7/28/95 17400 15.250 15.000 15.125 7/31/95 24500 15.125 14.750 15.000 8/01/95 28000 14.875 14.625 14.875 8/02/95 81800 15.750 14.875 15.625 8/03/95 164900 16.250 15.250 16.125 8/04/95 109200 16.625 16.125 16.250 8/07/95 57100 16.375 15.750 15.750 8/08/95 37500 15.875 15.625 15.750 8/09/95 193700 17.000 16.125 16.875 8/10/95 257900 18.000 17.125 17.750 8/11/95 293900 19.250 17.750 19.125 8/14/95 146700 19.750 19.375 19.500 8/15/95 99200 19.750 18.875 19.000 8/16/95 56600 19.125 19.000 19.125 8/17/95 64700 19.750 19.250 19.750 8/18/95 41200 19.750 19.250 19.250 8/21/95 29300 19.625 19.000 19.000 8/22/95 28600 18.875 18.500 18.625 8/23/95 33900 19.125 18.375 19.125 8/24/95 25400 19.125 18.875 19.000 8/25/95 35100 19.000 18.875 19.000 8/28/95 17200 19.125 18.875 19.125 8/29/95 13400 19.125 18.750 18.875 8/30/95 23700 18.875 18.750 18.750 8/31/95 9400 18.875 18.750 18.875 9/01/95 9900 18.750 18.625 18.750 9/05/95 13300 18.750 18.375 18.500 9/06/95 36900 19.000 18.375 19.000 9/07/95 6400 19.000 18.875 19.000 9/08/95 8900 19.000 18.750 18.750 9/11/95 12000 18.750 18.500 18.500 9/12/95 45000 18.625 18.250 18.250 9/13/95 28400 18.250 17.750 17.750 9/14/95 76700 17.625 17.000 17.500 9/15/95 84700 17.375 17.000 17.125 9/18/95 90700 18.500 16.875 18.500 9/19/95 19000 18.500 18.125 18.250 9/20/95 57300 18.625 18.250 18.500 9/21/95 18900 18.500 18.250 18.375 9/22/95 23700 18.500 18.125 18.500 9/25/95 7700 18.500 18.125 18.125 9/26/95 34400 18.125 17.750 17.875 9/27/95 59300 17.750 17.000 17.125 9/28/95 63700 17.125 16.500 16.875 9/29/95 33000 17.125 16.750 17.000 10/02/95 27900 17.875 17.125 17.625 10/03/95 14100 17.750 17.375 17.500 10/04/95 74800 17.500 17.250 17.250 10/05/95 9400 17.250 17.000 17.125 10/06/95 2900 17.250 17.000 17.125 10/09/95 38200 17.125 16.375 16.750 10/10/95 468400 16.625 16.000 16.125 10/11/95 58800 16.500 15.625 16.125 10/12/95 14600 16.625 16.250 16.500 10/13/95 16100 17.000 16.625 17.000 10/16/95 11000 17.125 16.625 16.750 10/17/95 20000 16.750 16.250 16.375 10/18/95 16100 16.375 16.125 16.125 10/19/95 53800 16.500 16.000 16.125 10/20/95 5700 16.500 16.250 16.250 10/23/95 87900 16.500 16.375 16.375 10/24/95 4200 16.375 16.250 16.250 10/25/95 9200 16.125 15.750 15.750 10/26/95 33700 15.750 15.250 15.250 10/27/95 259200 15.000 14.000 14.750 10/30/95 61600 16.500 14.875 16.500 10/31/95 31900 17.250 16.500 17.000 11/01/95 29400 17.125 16.625 16.750 11/02/95 120000 17.750 16.750 17.750 11/03/95 14300 18.000 17.500 17.625 11/06/95 45100 17.875 17.125 17.375 11/07/95 44100 17.625 17.375 17.375 11/08/95 14600 17.750 17.250 17.625 11/09/95 24200 18.500 18.125 18.250 11/10/95 11700 18.125 17.750 17.875 11/13/95 3300 17.750 17.750 17.750 11/14/95 4900 17.750 17.500 17.750 11/15/95 20200 18.375 17.625 18.375 11/16/95 42700 18.250 17.625 17.625 11/17/95 47200 17.625 17.375 17.625 11/20/95 48300 18.750 17.875 18.125 11/21/95 21600 18.125 17.750 17.750 11/22/95 10200 17.750 17.500 17.500 11/24/95 1500 17.625 17.625 17.625 11/27/95 8700 17.625 17.500 17.625 11/28/95 17600 18.000 17.500 17.875 11/29/95 6900 18.125 17.875 18.000 11/30/95 38800 19.250 18.000 19.000 12/01/95 118400 19.500 19.000 19.375 12/04/95 95500 20.000 19.000 19.750 12/05/95 163600 21.000 19.875 21.000 12/06/95 173100 21.125 19.500 20.375 12/07/95 145700 21.125 20.375 20.875 12/08/95 51400 20.875 20.625 20.875 12/11/95 66300 21.625 20.750 21.500 12/12/95 28400 21.500 21.125 21.125 12/13/95 52100 21.625 20.750 21.500 12/14/95 24200 21.625 20.750 20.750 12/15/95 43600 20.625 20.250 20.500 12/18/95 14600 20.250 20.000 20.000 12/19/95 20200 20.500 20.000 20.375 12/20/95 19000 20.375 20.250 20.250 12/21/95 33300 20.500 20.125 20.375 12/22/95 6800 21.000 20.500 21.000 12/26/95 29400 21.500 21.125 21.375 12/27/95 85300 21.500 21.250 21.375 12/28/95 67400 21.500 21.250 21.375 12/29/95 65500 21.500 21.250 21.500 1/02/96 58200 22.375 21.750 21.750 1/03/96 79700 21.750 21.125 21.750 1/04/96 64300 21.625 21.375 21.500 1/05/96 62100 22.000 21.500 21.750
Price/Volume Run of Gem's 11.35% Mortgage Bonds
DATE VOLUME HIGH LOW CLOSE ------ ------ ---- --- ------ 12/19/94 125 64.375 63.375 63.500 12/20/94 116 63.500 63.000 63.250 12/21/94 65 64.500 63.750 64.000 12/23/94 20 64.750 64.625 64.750 12/27/94 100 66.500 66.000 66.000 12/28/94 225 67.750 66.125 66.125 12/29/94 97 66.875 66.000 66.875 12/30/94 10 67.000 66.000 67.000 1/03/95 15 67.000 66.000 67.000 1/04/95 255 68.875 68.000 68.000 1/05/95 128 68.750 68.000 68.750 1/06/95 304 68.750 68.125 68.250 1/09/95 206 68.625 68.375 68.625 1/10/95 761 70.000 68.625 68.625 1/11/95 824 69.375 68.750 68.750 1/12/95 435 69.250 68.500 69.250 1/13/95 336 69.375 69.000 69.250 1/16/95 350 70.375 69.250 70.250 1/17/95 136 72.375 70.750 72.375 1/18/95 610 72.750 70.000 70.500 1/19/95 57 70.500 70.250 70.250 1/20/95 864 70.375 69.625 69.625 1/23/95 98 70.250 69.000 70.250 1/24/95 91 69.750 69.500 69.500 1/25/95 90 69.250 69.250 69.250 1/26/95 133 69.500 69.125 69.250 1/27/95 38 69.500 69.000 69.250 1/30/95 53 69.500 68.500 69.500 1/31/95 60 69.375 68.750 69.375 2/01/95 72 69.875 69.375 69.500 2/02/95 452 70.000 68.000 68.000 2/03/95 127 68.750 67.875 68.625 2/06/95 472 69.000 68.375 69.000 2/07/95 90 69.500 69.250 69.500 2/08/95 115 69.500 69.000 69.250 2/09/95 62 69.750 69.000 69.375 2/10/95 223 69.750 69.500 69.750 2/13/95 109 70.250 70.000 70.000 2/14/95 40 70.750 70.000 70.750 2/15/95 101 72.000 71.000 71.875 2/16/95 92 71.750 71.250 71.500 2/17/95 60 71.375 71.250 71.375 2/21/95 152 71.875 71.375 71.375 2/22/95 171 71.500 71.000 71.250 2/23/95 18 71.625 71.500 71.500 2/24/95 30 71.000 71.000 71.000 2/27/95 100 71.000 70.000 71.000 2/28/95 96 71.500 71.000 71.500 3/01/95 406 73.750 72.500 73.250 3/02/95 322 74.000 73.250 73.750 3/03/95 20 73.750 73.750 73.750 3/06/95 206 73.000 72.500 72.500 3/07/95 375 73.000 72.000 72.000 3/08/95 166 72.875 72.250 72.875 3/09/95 110 74.000 73.000 73.750 3/10/95 55 75.000 73.750 73.750 3/13/95 108 74.000 73.500 74.000 3/14/95 70 73.750 73.500 73.750 3/15/95 93 74.000 73.750 74.000 3/16/95 97 75.000 73.750 75.000 3/17/95 196 75.000 74.000 74.250 3/20/95 39 74.250 74.000 74.000 3/21/95 77 74.250 73.750 74.250 3/22/95 123 74.250 73.500 73.500 3/23/95 55 74.500 74.125 74.500 3/24/95 75 75.000 74.500 74.500 3/27/95 101 76.500 75.000 75.500 3/28/95 35 75.500 75.500 75.500 3/29/95 5 75.125 75.125 75.125 3/30/95 143 75.750 75.500 75.500 3/31/95 145 76.000 75.750 76.000 4/03/95 127 75.500 75.500 75.500 4/04/95 85 76.875 76.000 76.500 4/05/95 93 76.250 75.500 76.250 4/06/95 318 77.500 76.000 77.000 4/07/95 55 78.000 77.250 78.000 4/10/95 70 78.000 77.500 78.000 4/11/95 46 77.750 77.500 77.500 4/12/95 49 77.500 77.375 77.375 4/13/95 64 78.000 77.250 78.000 4/17/95 6 77.500 77.500 77.500 4/19/95 7 77.375 77.375 77.375 4/20/95 18 77.500 77.000 77.000 4/21/95 227 77.250 77.000 77.250 4/24/95 103 78.000 77.125 77.875 4/25/95 369 72.250 72.000 72.000 4/26/95 71 72.000 71.625 71.750 4/27/95 262 72.000 71.000 72.000 4/28/95 8 72.000 71.000 72.000 5/01/95 21 71.875 71.000 71.000 5/02/95 11 71.625 71.000 71.625 5/03/95 195 72.000 71.750 72.000 5/04/95 269 74.250 73.000 74.000 5/05/95 130 74.500 74.250 74.500 5/08/95 152 75.000 74.500 75.000 5/09/95 135 76.000 75.000 75.000 5/10/95 57 75.250 74.500 74.500 5/11/95 48 75.000 74.750 75.000 5/12/95 154 76.000 75.000 76.000 5/15/95 93 76.750 74.500 75.000 5/16/95 25 76.000 76.000 76.000 5/17/95 131 77.000 76.000 76.000 5/18/95 707 77.750 76.000 76.000 5/19/95 28 76.000 75.500 76.000 5/22/95 14 76.000 75.500 75.500 5/23/95 35 76.500 76.500 76.500 5/24/95 218 77.000 75.750 76.000 5/25/95 244 76.000 75.750 75.750 5/26/95 46 76.250 75.500 75.500 5/30/95 68 76.000 75.625 75.625 5/31/95 236 76.500 74.500 74.500 6/01/95 367 75.500 74.500 75.500 6/02/95 78 76.000 75.500 76.000 6/05/95 263 78.250 76.500 78.000 6/06/95 163 80.500 79.000 79.375 6/07/95 315 83.000 82.000 82.750 6/08/95 88 82.500 81.000 81.875 6/09/95 18 81.000 79.000 79.000 6/12/95 161 79.625 78.250 79.625 6/13/95 47 80.000 79.000 80.000 6/14/95 5 79.625 79.625 79.625 6/15/95 27 78.500 78.500 78.500 6/16/95 182 77.500 77.000 77.250 6/19/95 114 77.250 76.750 77.250 6/20/95 46 77.000 76.500 76.500 6/21/95 95 77.500 77.250 77.500 6/22/95 89 79.000 78.000 79.000 6/23/95 607 80.000 79.500 80.000 6/26/95 10 79.000 79.000 79.000 6/27/95 231 81.000 79.750 80.500 6/30/95 25 80.500 80.500 80.500 7/05/95 152 81.000 79.000 79.000 7/06/95 57 81.000 80.500 81.000 7/07/95 94 82.000 81.750 82.000 7/10/95 36 82.500 82.000 82.000 7/11/95 41 82.500 82.500 82.500 7/12/95 6 82.500 82.500 82.500 7/13/95 35 83.000 82.000 82.000 7/17/95 10 82.250 82.250 82.250 7/18/95 44 82.500 81.250 81.250 7/19/95 142 82.000 79.500 80.500 7/20/95 131 81.000 80.750 81.000 7/21/95 448 83.000 81.500 82.750 7/24/95 202 83.750 82.750 83.750 7/25/95 75 86.500 83.750 86.500 7/26/95 20 86.000 85.000 85.000 7/27/95 65 85.750 84.000 84.000 7/31/95 23 85.000 85.000 85.000 8/01/95 74 85.750 85.500 85.750 8/02/95 36 87.000 86.500 86.500 8/03/95 68 87.000 86.000 86.500 8/04/95 72 86.750 86.375 86.500 8/07/95 43 86.500 86.500 86.500 8/08/95 20 86.750 86.500 86.750 8/09/95 25 86.750 86.000 86.750 8/10/95 41 86.000 85.000 85.000 8/11/95 17 85.500 85.000 85.000 8/14/95 50 86.000 86.000 86.000 8/15/95 5 86.000 86.000 86.000 8/16/95 38 85.000 84.625 84.625 8/17/95 236 84.625 84.000 84.250 8/18/95 11 84.500 84.000 84.500 8/21/95 15 84.375 84.000 84.375 8/22/95 239 84.500 83.750 84.000 8/23/95 54 83.750 83.625 83.625 8/24/95 43 84.000 83.000 83.625 8/25/95 28 83.750 83.250 83.750 8/28/95 77 84.000 83.500 83.750 8/29/95 100 84.500 84.125 84.125 8/30/95 162 84.250 84.000 84.250 8/31/95 192 84.250 83.750 84.250 9/05/95 118 84.500 84.000 84.500 9/06/95 347 84.500 84.250 84.375 9/07/95 373 84.750 84.125 84.125 9/08/95 85 85.250 85.000 85.000 9/11/95 15 84.500 84.500 84.500 9/12/95 606 87.500 85.500 87.500 9/13/95 444 88.000 87.000 88.000 9/14/95 250 88.500 87.500 87.500 9/15/95 250 88.500 88.000 88.500 9/18/95 58 88.500 87.500 87.750 9/19/95 39 88.250 88.000 88.250 9/20/95 378 89.000 87.500 88.500 9/21/95 658 89.250 88.750 88.750 9/22/95 104 88.750 88.500 88.750 9/25/95 75 88.750 88.625 88.625 9/26/95 242 89.500 89.000 89.500 9/27/95 155 89.500 89.000 89.000 9/28/95 198 89.500 89.000 89.375 9/29/95 190 89.750 89.000 89.750 10/02/95 190 90.000 89.375 89.625 10/03/95 406 89.625 89.000 89.500 10/04/95 143 89.000 87.875 87.875 10/05/95 268 88.750 87.750 88.750 10/06/95 49 88.625 88.500 88.500 10/09/95 88 90.000 88.500 89.500 10/10/95 802 89.500 89.000 89.250 10/11/95 118 89.875 89.000 89.875 10/12/95 178 89.875 89.250 89.375 10/13/95 156 91.000 89.750 90.000 10/16/95 210 90.250 90.250 90.250 10/17/95 101 90.250 90.000 90.250 10/18/95 28 90.250 89.500 89.500 10/19/95 266 90.250 89.750 89.875 10/20/95 116 89.750 89.250 89.625 10/23/95 251 90.000 89.500 89.875 10/24/95 32 89.750 89.000 89.750 10/25/95 216 89.750 89.000 89.250 10/26/95 61 89.500 89.250 89.250 10/27/95 56 90.000 89.250 90.000 10/30/95 344 87.000 85.000 86.000 10/31/95 110 86.125 85.500 85.500 11/01/95 100 86.000 85.500 86.000 11/02/95 831 87.000 85.750 86.500 11/03/95 52 87.000 86.750 86.750 11/06/95 55 87.000 86.750 87.000 11/07/95 44 87.000 86.375 86.875 11/08/95 109 87.500 87.000 87.500 11/09/95 59 87.500 87.500 87.500 11/10/95 58 87.500 87.250 87.500 11/13/95 123 87.375 86.250 87.250 11/14/95 69 87.250 86.500 87.250 11/15/95 147 87.000 86.500 87.000 11/16/95 43 87.000 86.250 86.500 11/17/95 181 87.000 86.250 86.500 11/20/95 188 88.250 87.375 87.500 11/21/95 5 87.750 87.125 87.125 11/22/95 92 87.875 87.000 87.500 11/27/95 41 88.250 88.000 88.000 11/28/95 44 87.750 87.000 87.750 11/29/95 62 87.875 87.125 87.125 11/30/95 15 87.875 87.125 87.125 12/01/95 10 88.000 87.875 88.000 12/04/95 303 88.875 88.000 88.875 12/05/95 6 89.500 89.500 89.500 12/06/95 154 91.500 90.250 91.500 12/07/95 112 90.875 90.625 90.625 12/08/95 484 92.000 91.000 91.500 12/11/95 172 91.000 90.875 90.875 12/12/95 6 91.000 91.000 91.000 12/13/95 681 92.750 91.375 92.500 12/14/95 91 92.625 92.000 92.625 12/15/95 86 93.000 92.500 92.500 12/18/95 656 92.875 92.500 92.500 12/19/95 94 93.000 92.500 92.500 12/20/95 220 93.500 93.000 93.500 12/21/95 145 96.000 94.750 96.000 12/26/95 70 95.500 95.000 95.000 12/27/95 349 95.750 95.500 95.625 12/28/95 395 96.500 95.750 95.750 12/29/95 21 96.250 96.000 96.250 1/02/96 532 97.000 96.125 97.000 1/03/96 309 98.000 97.125 98.000 1/04/96 155 98.000 96.500 96.500 1/05/96 254 98.000 97.500 97.875
|
SC 13E3
|
EX-99.17.(B)(2)
| 1996-01-12T00:00:00
| 1996-01-11T17:58:48
|
0000845613-96-000001
|
0000845613-96-000001_0000.txt
|
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
For the quarterly period ended MARCH 31, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE CHANGE ACT OF 1934
For the transition period from TO
FRANKLIN SELECT REAL ESTATE INCOME FUND (Exact name of registrant as specified in its charter)
CALIFORNIA 94-3095938 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
P. O. BOX 7777, SAN MATEO, CALIFORNIA 94403-7777 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 312-2000
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Common Stock Shares Outstanding as of March 31, 1995, Series A: 5,383,439 Common Stock Shares Outstanding as of March 31, 1995, Series B: 185,866
PART I - FINANCIAL INFORMATION
and Analysis of Financial Condition
Management's discussion and analysis of financial condition and results of operations should be read in conjunction with the Financial Statements and Notes thereto.
COMPARISON OF THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
Net income for the three month period ended March 31, 1995 increased $42,000, or 11%, compared to 1994 due to the following factors: an increase in rental revenue of $11,000; an increase in interest and dividends of $41,000; an increase in depreciation and amortization of $12,000; a decrease in operating expenses of $18,000; an increase in related party expenses of $24,000; and a decrease in general and administrative expense of $8,000. Explanations of the material changes are as follows:
Rental revenue for the three months period ended March 31, 1995 increased $11,000, or 1%, primarily due to increased rental revenue at the Shores Office Complex, as a result of an increase in average occupancy at the property. The average occupancy rate at the Shores Office Complex during the three month period ended March 31, 1995 and 1994 was 98% and 90%, respectively. The occupancy rate at the Data General Building was 100% for both periods.
Interest and dividend income for the three month period ended March 31, 1995 increased $41,000, or 54%, due to higher yields realized on investments in mortgage-backed securities, and due to a higher average investment balance
Total expenses for the three month period ended March 31, 1995, increased by $10,000, or 1%, from $816,000 in 1994 to $826,000. The increase in total expenses is attributable to the following factors: an increase in depreciation and amortization of $12,000, or 13%; a decrease in operating expenses of $18,000, or 6%; an increase in related party expenses of $24,000, or 28%; and a decrease in general and administrative expense of $8,000, or 13%.
Depreciation and amortization increased $12,000 for the three month period ended March 31, 1995, reflecting tenant improvement costs at the Shores Office Complex related to new leases commencing late in 1994.
Operating expenses for the three month period ended March 31, 1995 decreased $18,000, primarily due to a decrease in property tax expense at the Data General Building.
Related party expense for the three months period ended March 31, 1995 increased $24,000, primarily due to an increase in advisory fees related to the conversion of the Company to an infinite life REIT on October 1, 1994.
General and administrative expense for the three month period ended March 31, 1995 decreased $8,000 primarily due to a decrease in nonrecurring costs associated with listing the Company's stock on the American Stock Exchange in January, 1994 of $9,000.
PART I - FINANCIAL INFORMATION
and Analysis of Financial Condition
The Company's principal source of capital for the acquisition and major renovation of properties has been the proceeds from the initial public offering of its stock. The Company's funds from operations have been its principal source of capital for minor property improvements, leasing costs and the payment of quarterly dividends. At March 31, 1995, the Company's cash reserves, including mortgage-backed securities, aggregated $8,265,000.
The Company is currently examining the possibility of raising additional capital through arranging debt financing on its existing portfolio. Any capital raised in this manner would be used to acquire additional properties and for other corporate purposes.
As of March 31, 1995, the Company had no formal borrowing arrangements with a bank and has no long-term debt. Each of the Company's properties is owned free and clear of mortgage indebtedness.
Management continues to evaluate other properties for acquisition by the Company. In the short-term and in the long term, management believes that the Company's current sources of capital will continue to be adequate to meet both its operating requirements and the payment of dividends.
Net cash flow provided by operating activities for the three month period ended March 31, 1995 and 1994 was $809,000 and $629,000, respectively. While $42,000 of the increase can be attributed to an increase in net income, the remainder is substantially due to changes in accounts receivable and accounts payable.
Funds from Operations for the three month period ended March 31, 1995 increased to $793,000 compared it $739,000 for the same period in 1994. The increase of $54,000, or 7%, is primarily due to the improvement in net income as described under "Results of Operations" above. The Company believes that Funds from Operations is helpful in understanding a property portfolio in that such calculation reflects income from operating activities and the properties' ability to support general operating expenses and interest expense before the impact of certain activities, such as gains and losses from property sales and changes in the accounts receivable and accounts payable. However, it does not measure whether income is sufficient to fund all of the Company's cash needs including principal amortization, capital improvements and distributions to shareholders. Funds from Operations should not be considered an alternative to net income or any other GAAP measurement of performance or as an alternative to cash flows from operating, investing, or financing activities as a measure of liquidity. As defined by the National Association of Real Estate Investment Trusts, Funds from Operations is net income ( computed in accordance with GAAP ), excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization, and after adjustment for unconsolidated joint ventures.
PART I - FINANCIAL INFORMATION
and Analysis of Financial Condition
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The Company's management believes that inflation may have a positive effect on the Company's property portfolio, but this effect generally will not be fully realized until such properties are sold or exchanged. The Company's policy of negotiating leases which incorporate operating expense "pass-through" provisions is intended to protect the Company against increased operating costs resulting from inflation.
Dividends are declared quarterly at the discretion of the Board of Directors. The Company's present dividend policy is to at least annually evaluate the current dividend rate in light of anticipated tenant turnover over the next two or three years, the estimated level of associated improvements and leasing commissions, planned capital expenditures, any debt service requirements and the Company's other working capital requirements. After balancing these considerations, and considering the Company's earnings and cash flow, the level of its liquid reserves and other relevant factors, the Company seeks to establish a dividend rate which:
i) provides a stable dividend which is sustainable despite short term fluctuations in property cash flows; ii) maximizes the amount of cash flow paid out as dividends consistent with the above listed objective; and iii) complies with the Internal Revenue Code requirement that a REIT annually pay out as dividends not less than 95% of its taxable income.
During the three-month period ended March 31, 1995, the Company declared dividends totaling $592,000.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FRANKLIN SELECT REAL ESTATE INCOME FUND
|
10-Q/A
|
10-Q
| 1996-01-12T00:00:00
| 1996-01-11T21:13:40
|
0000909230-96-000001
|
0000909230-96-000001_0010.txt
|
THE DREYFUS FAMILY OF FUNDS
Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"), requires that the Board of an investment company desiring to offer multiple classes pursuant to said Rule adopt a plan setting forth the separate arrangement and expense allocation of each class, and any related conversion features or exchange privileges. The Board, including a majority of the non-interested Board members, of each of the investment companies, or series thereof, listed on Schedule A attached hereto (each, a "Fund") which desires to offer multiple classes has determined that the following plan is in the best interests of each class individually and the Fund as a whole: 1. Class Designation: Fund shares shall be divided into Investor Class and Class R. 2. Differences in Services: The services offered to shareholders of each Class shall be substantially the same, except for certain services provided to the Investor Class pursuant to a Service Plan. 3. Differences in Distribution Arrangements: Investor Class shares shall be offered at net asset value to any investor. Class R shares shall be offered at net asset value only to institutional investors acting for themselves or in a fiduciary, advisory, agency, custodial or similar capacity, such as banks and qualified or non-qualified employee benefit plans or other programs, including pension, profit-sharing and other deferred compensation plans, whether established by corporations, partnerships, non-profit entities or state and local governments. Neither Class shall be subject to any front-end or contingent sales charges. Investor Class shares shall be subject to an annual distribution and service fee at the rate of .25% of the value of the average daily net assets of the Investor Class pursuant to a Service Plan adopted in accordance with Rule 12b-1 under the 1940 Act. 4. Expense Allocation. The following expenses shall be allocated, to the extent practicable, on a Class-by-Class basis: (a) fees under the Service Plan; (b) printing and postage expenses related to preparing and distributing materials, such as shareholder reports, prospectuses and proxies, to current shareholders of a specific Class; (c) Securities and Exchange Commission and Blue Sky registration fees incurred by a specific Class; (d) the expense of administrative personnel and services as required to support the shareholders of a specific Class; (e) litigation or other legal expenses relating solely to a specific Class; (f) transfer agent fees identified by the Fund's transfer agent as being attributable to a specific Class; and (g) Board members' fees incurred as a result of issues relating to a specific Class. 5. Exchange Privileges. Shares of a Class shall be exchangeable only for (a) shares of the same Class of other investment companies managed or administered by The Dreyfus Corporation and (b) shares of certain other investment companies specified from time to time.
|
485BPOS
|
EX-99
| 1996-01-12T00:00:00
| 1996-01-12T15:34:02
|
0000720875-96-000001
|
0000720875-96-000001_0001.txt
|
<DESCRIPTION>AMENDED AND RESTATED 1992 STOCK OPTION PLAN
1.03. Eligibility for Participation 3 1.04. Types of Awards Under Plan 4 1.05. Aggregate Limitation on Awards 4 1.06. Effective Date and Term of Plan 4
ARTICLE II STOCK OPTIONS 5
2.01. Award of Stock Options 5 2.02. Stock Option Agreements 5 2.03 Stock Option Price 5 2.04. Term and Exercise 5 2.05 Manner of Payment 5 2.06 Delivery of Certain Shares 6 2.07. Death of Optionee 6 2.08 Retirement or Disability 6 2.09 Termination for Other Reasons 6
ARTICLE III INCENTIVE STOCK OPTIONS 6
3.01 Award of Incentive Stock Options 6 3.02 Incentive Stock Option Agreements 7 3.03 Incentive Stock Option Price 7 3.04 Term and Exercise 7 3.05 Maximum Amount of Incentive Stock Option Grant 7 3.06 Death of Optionee 7 3.07 Retirement or Disability 8 3.08 Termination for Other Reasons 8 3.09 Applicability of Stock Options Sections 3.10 Employee/Ten Percent Shareholders 9
4.04. Right to Terminate Employment 10 4.06. Rights as a Shareholder 10 4.08. Leaves of Absence and Performance Targets 12 4.09. Newly Eligible Employees 12 4.11. Amendment of the Plan 12 4.12. General Terms and Conditions of Options 13 4.13. Effects of Headings 18
The purposes of this Amended and Restated 1992 Stock Option Plan (the "Plan") are to: (1) closely associate the interests of the management and employees of Dynatronics Corporation, a Utah corporation, formerly known as Dynatronics Laser Corporation, (referred to as the "Company") with the shareholders of the Company by reinforcing the relationship between participants' rewards and shareholder gains; (2) provide management and employees with an equity ownership in the Company commensurate with Company performance, as reflected in increased shareholder value; (3) maintain competitive compensation levels; (4) provide an incentive to management and employees to remain in continuing employment with the Company and to put forth maximum efforts for the success of its business; and (5) amend and restate the Company's current 1992 Stock Option Plan to provide, among other things, for issuance of both nonstatutory stock options and Incentive Stock Options, to authorize and reserve for issuance pursuant to the Plan an additional 500,000 shares of the Company's Common Stock, and to allow a 3 month period after termination of employment within which to exercise Options granted pursuant to the Plan.
(a) Pursuant to Utah Code Annotated Section 16-10a- 624, the Board of Directors of Dynatronics Corporation, (the "Board") shall appoint a Committee consisting of two or more disinterested directors to administer the Plan (the "Committee"), as constituted from time to time. Any Committee member shall also be a member of the Board. During the one year prior to commencement of service on the Committee, the Committee members will not have participated in, and while serving and for one year after serving on the Committee, such members shall not be eligible for selection as persons to whom stock may be allocated or to whom Options may be granted under the Plan or any other discretionary plan of the Company under which participants are entitled to acquire Options or Stock Appreciation Rights of the Company.
Provided, however, that each Committee member will receive each year, pursuant to a separate plan herein for Committee members, automatically and without further action by the Board or the Committee, a nonstatutory stock option as more particularly described in Article II below, to purchase 3,000 shares of Common Stock. However, if a Director serves as a member of the Committee during the first year of his service on the board of directors, then such Director shall instead receive a nonstatutory stock option to purchase a total of 15,000 shares of Common Stock for such first year. Options so granted to Committee members shall be subject in each instance to the same adjustments and substitutions as provided elsewhere in this Plan for all Options granted under the Plan. Such grants shall be made at the first meeting of the Board of Directors of the Company following the annnual meeting of the shareholders of the Company. Before any Options may be automatically granted to Committee members hereunder, the following two preconditions must be satisfied:
(i) On the financial statements of the Company for the fiscal year ended on the 30th of June preceeding the Board Meeting at which options may be granted to Committee Members, there must be shown a net profit for the Company;
(ii) On the date of the Board Meeting at which Options may be granted to Committee members, the sum of the Company shares underlying the outstanding and unexercised Options granted under the Plan plus the shares underlying the Options to be granted on such date to Committee members shall be less than fifteen percent (15%) of the total issued and outstanding shares of the Company.
Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase or change the size of the Committee, and appoint new members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, or remove all members of the Committee; provided, however, that at no time shall any person administer the Plan who is not otherwise "disinterested" as that term is defined in Rule 16 b- 3(c)(2)(i) promulgated under the Securities Exchange Act of 1934 (the "1934 Act").
(b) The Committee shall have the authority without limitation, in its sole discretion, subject to and not inconsistent with the express provisions of the Plan, and from time to time, to:
(i) administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan;
(ii) designate the employees or classes of employees eligible to participate in the Plan from among those described in Section 1.03 below;
(iii) grant awards provided in the Plan in such form, amount and under such terms as the
(iv) determine the purchase price of shares of Common Stock covered by each Option (the "Option
(v) determine the Fair Market Value of Common Stock for purposes of Options;
(vi) determine the time or times at which
(vii) determine the terms and provisions of the various Option Agreements (none of which need be identical or uniform) evidencing Options granted under the Plan and to impose such limitations, restrictions and conditions upon any such award as the Committee shall deem appropriate; and
(viii) interpret the Plan, adopt, amend and rescind rules and regulations relating to the Plan, and make all other determinations and take all other action necessary or advisable for the implementation and administration of the Plan.
The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable.
(c) All decisions, determinations and interpretations of the Committee on all matters relating to the Plan shall be in its sole discretion and shall be final, binding and conclusive on all Optionees and the Company.
(d) One member of the Committee shall be elected by the Board as chairman. The Committee shall hold its meetings at such times and places as it shall deem advisable. All determinations of the Committee shall be made by a majority of its members either present in person or participating by conference telephone at a meeting or by written consent. The Committee may appoint a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. (e) No member of the Board or Committee shall be liable for any action taken or decision or determination made in good faith with respect to any Option, the Plan, or any award thereunder.
Participants in the Plan shall be selected by the Committee, and awards under the Plan, as described in Section 1.04 below, may be granted to directors, officers and employees of the Company; provided, however, that Incentive Stock Options may only be granted to employees of the Company who have an employee relationship with the Company determined in accordance with the withholding tax rules of Section 3401(c) of the Internal Revenue Code (the "Code"). A person to whom an award has been granted is sometimes referred to herein as an "Optionee." An Optionee shall be eligible to receive more than one Option during the term of the Plan, but only on the terms and subject to the restrictions hereinafter set forth.
1.04. Types of Awards Under Plan.
Awards under the Plan may be in the form of any one or more of the following:
(i) "Stock Options" which are nonqualified stock options, the tax consequences of which are governed by the provisions of Section 83 of the Code, as described in Article II.
(ii) "Incentive Stock Options" which are statutory stock options, the tax consequences of which are governed by Section 422 of the Code, as described in Article III.
1.05. Aggregate Limitation on Awards.
Except as may be adjusted pursuant to Section 4.12(h) below, shares of stock which may be issued upon exercise of Options under the Plan shall be authorized and unissued or treasury shares of Common Stock, no par value, of Dynatronics Corporation ("Common Stock"). The number of shares of Common Stock Dynatronics Corporation shall reserve for issuance upon exercise of Options to be granted from time to time under the Plan, and the maximum number of shares of Common Stock which may be issued under the Plan, in addition to the shares reserved for issuance upon exercise of the then outstanding 253,000 stock options as of August 18, 1992, shall not exceed in the aggregate 1,000,000 shares. In the absence of an effective registration statement under the Securities Act of 1933 (the "Act"), all Options granted and shares of Common Stock subject to their exercise will be restricted as to subsequent resale or transfer, pursuant to the provisions of Rule 144, promulgated under the Act.
1.06. Effective Date and Term of Plan.
(a) The amendments to the Plan shall become effective as of the 28th day of November, 1995, the date the amendments to the Plan are adopted by a majority of the Board (the "Effective Date"), but shall be subject to approval by the holders of a majority of the issued and outstanding shares of Dynatronics Corporation Common Stock present in person or by proxy and entitled to vote at the earlier of either a Special Meeting of Shareholders called for that purpose or the 1995 Annual Meeting of Shareholders of Dynatronics Corporation, which meeting shall in any event, be held not more than twelve (12) months after adoption on the Effective Date. Once amended, the Plan shall remain effective as of its original effective date: August 18, 1992.
(b) No awards shall be granted under the Plan after or on the 17th day of August, 2002, which date is ten (10) years after the original effective date (the "Plan Termination Date"). Provided, however, that the Plan and all awards made under the Plan prior to such Plan Termination Date shall remain in effect until such awards have been satisfied or terminated in accordance with the Plan and the terms of such awards.
2.01. Award of Stock Options.
The Committee may from time to time, and subject to the provisions of the Plan, and such other terms and conditions as the Committee may prescribe, grant to any participant in the Plan one or more options to purchase for cash the number of shares of Common Stock allotted by the Committee ("Stock Options"). The date a Stock Option is granted shall mean the date selected by the Committee as of which the Committee allots a specific number of shares to a participant pursuant to the Plan.
The grant of a Stock Option shall be evidenced by a written Stock Option Agreement, executed by the Company and the holder of a Stock Option (the "Optionee"), stating the number of shares of Common Stock subject to the Stock Option evidenced thereby, and in such form as the Committee may from time to time determine.
The Option Price per share of Common Stock deliverable upon the exercise of a Stock Option shall be 100% of the Fair Market Value of a share of Common Stock on the date the Stock Option is granted.
Each Stock Option shall be fully exercisable at any time within the period beginning not earlier than six months after the date of its grant and, unless a shorter period is provided by the Committee or by another Section of this Plan, ending not later than ten years after the date of grant thereof (the "Option Term"). No Stock Option shall be exercisable after the expiration of its Option Term.
Each Stock Option Agreement shall set forth the procedure governing the exercise of the Stock Option granted thereunder, and shall provide that, upon such exercise in respect of any shares of Common Stock subject thereto, the Optionee shall pay to the Company, in full, the Option Price for such shares in cash.
As soon as practicable after receipt of payment, the Company shall deliver to the Optionee a certificate or certificates for such shares of Common Stock. Upon receipt of such certificate(s), the Optionee shall become a shareholder of the Company with respect to Common Stock represented by share certificates so issued and as such shall be fully entitled to receive dividends, to vote and to exercise all other rights of a shareholder.
(a) Upon the death of the Optionee while either in the Company's employ or within not more than 6 months after termination of Optionee's employment, any rights to the extent exercisable on the date of death may be exercised by the Optionee's estate, or by a person who acquires the right to exercise such Stock Option by bequest or inheritance or by reason of the death of the Optionee, provided that such exercise occurs within both the remaining effective term of the Stock Option and one year after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the fact that the Optionee's employment may have terminated prior to death, but only to the extent of any rights exercisable on the date of death.
Upon termination of the Optionee's employment by reason of retirement or permanent disability (as each is determined by the Committee), the Optionee may, within 36 months from the date of termination, exercise any Stock Options to the extent such options are exercisable during such 36-month period.
2.09 Termination for Other Reasons.
Except as provided in Sections 2.07 and 2.08, or except as otherwise determined by the Committee, all Stock Options shall terminate 6 months after the termination of the Optionee's employment.
ARTICLE III INCENTIVE STOCK OPTIONS
3.01 Award of Incentive Stock Options.
The Committee may, from time to time and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, grant to any participant in the Plan one or more "incentive stock options" which are intended to qualify as such under the provisions of Section 422 of the Code, to purchase for cash the number of shares of Common Stock allotted by the Committee ("Incentive Stock Options"). The date an Incentive Stock Option is granted shall mean the date selected by the Committee as of which the Committee shall allot a specific number of shares to a participant pursuant to the Plan.
3.02 Incentive Stock Option Agreements.
The grant of an Incentive Stock Option shall be evidenced by a written Incentive Stock Option Agreement, executed by the Company and the holder of an Incentive Stock
Option (the "Optionee"), stating the number of shares of Common Stock subject to the Incentive Stock Option evidenced thereby, and in such form as the Committee may from time to time determine.
3.03 Incentive Stock Option Price.
Except as provided in Section 3.10 below, the Option Price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall be 100% of the Fair Market Value of a share of Common Stock on the date the Incentive Stock Option is granted.
Except as provided in Section 3.10 below, each Incentive Stock Option shall be fully exercisable at any time within the period beginning not earlier than six months after the date of its grant and, unless a shorter period is provided by the Committee or another Section of this Plan, ending not later than ten years after the date of grant thereof (the "Option Term"). No Incentive Stock Option shall be exercisable after the expiration of its Option Term.
3.05 Maximum Amount of Incentive Stock Option Grant.
The aggregate Fair Market Value (determined on the date the Incentive Stock Option is granted) of Common Stock subject to an Incentive Stock Option granted to any Optionee by the Committee in any calendar year shall not exceed $100,000. Multiple Incentive Stock Options may be granted to an Optionee in any calendar year, which Multiple Incentive Stock Options may in the aggregate exceed such $100,000 Fair Market Value limitation, so long as each such Incentive Stock Option within the Multiple Incentive Stock Option award does not exceed such $100,000 Fair Market Value limitation and so long as no two such Incentive Stock Options may be exercised by the Optionee in the same calendar year.
(a) Upon the death of the Optionee while in the Company's employ or within not more than 3 months after termination of Optionee's employment, any Incentive Stock Option exercisable on the date of death may be exercised by the Optionee's estate or by a person who acquires the right to exercise such Incentive Stock Option by bequest or inheritance or by reason of the death of the Optionee, provided that such exercise occurs within both the remaining Option Term of the Incentive Stock Option and one year after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the fact that the Optionee's employment may have terminated prior to death, but only to the extent of any Incentive Stock Options exercisable on the date of death.
Upon the termination of the Optionee's employment by reason of retirement or permanent disability (as each is determined by the Committee), the Optionee may, within 36 months from the date of such termination of employment, exercise any Incentive Stock Options to the extent such Incentive Stock Options were exercisable at the date of such termination of employment. Notwithstanding the foregoing, the tax treatment available pursuant to Section 422 of the Code, upon the exercise of an Incentive Stock Option will not be available to an Optionee who exercises any Incentive Stock Options more than (i) 12 months after the date of termination of employment due to permanent disability or (ii) three months after the date of termination of employment due to retirement.
3.08 Termination for Other Reasons.
Except as provided in Sections 3.06 and 3.07 or except as otherwise determined by the Committee, all Incentive Stock Options shall terminate three months after the date of termination of the Optionee's employment.
3.09 Applicability of Stock Options Sections and Other Restrictions.
Sections 2.05, Manner of Payment applicable to Stock Options, shall apply equally to Incentive Stock Options. Said Sections are incorporated by reference in this Article III as though fully set forth herein. In addition, in order to obtain the favorable tax treatment available for Incentive Stock Options under Section 422 of the Code, the Optionee is prohibited from the sale, exchange, transfer, pledge, hypothecation, gift or other disposition of the shares of Common Stock underlying the Incentive Stock Options until the later of either two (2) years after the date of granting the Incentive Stock Option or one (1) year after the transfer to the Optionee of such underlying Common Stock after the Optionee's exercise of such Incentive Stock
Options. In the event the Optionee chooses to make a premature disposition of such underlying Common Stock contrary to such restrictions, the Options related to such underlying Common Stock shall be treated as Stock Options pursuant to the terms of Article II of the Plan from the date of grant which, in particular, shall cause the Optionee to be taxed upon the fair market value of the underlying shares on the date of exercise.
In the event the Committee determines to grant an Incentive Stock Option to an employee who is also a Ten Percent Stockholder, as defined in 4.07(g) below, (i) the Option Price shall not be less than 110% of the Fair Market Value of the shares of Common Stock of the Company on the date of grant of such Incentive Stock Option, and (ii) the exercise period shall not exceed 5 years from the date of grant of such Incentive Stock Option. Fair Market Value shall be as defined in 4.07(d) below.
Each award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or Federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the grantee of an award with respect to the disposition of shares of Common Stock, is necessary or desirable as a condition of, or in connection with, the granting of such award or the issue or purchase of shares of Common Stock thereunder, such award may not be exercised or consummated in whole or in part unless and until such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee.
No award under the Plan shall be assignable or transferable by the recipient thereof, except by Will or by the laws of descent and distribution or pursuant to the terms of a qualified domestic relations order as defined in the U.S. Internal Revenue Code. During the life of the recipient, such award shall be exercisable only by such person or by such person's guardian or legal representative.
Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall, to the extent permitted or required by law, have the right to require the grantee, as a condition of issuance or exercise of its Options, to remit to the Company no later than the date of issuance or exercise, or make arrangements satisfactory to the Committee regarding payment of, any amount sufficient to satisfy any Federal, state and/or local taxes of any kind, including, but not limited to, withholding tax requirements prior to the delivery of any certificate or certificates for such shares. If the participant fails to pay the amount required by the Committee, the Company shall have the right to withhold such amount from other amounts payable by the Company to the participant, including but not limited to, salary, fees or benefits, subject to applicable law. Alternatively, the Company may issue or transfer such shares of Common Stock net of the number of shares sufficient to satisfy any such taxes, including, but not limited to, the withholding tax requirements. For withholding tax purposes, the shares of Common Stock shall be valued on the date the withholding obligation is incurred.
4.04. Right to Terminate Employment.
Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any participant the right to continue in the employment of the Company or effect any right which the Company may have to terminate the employment of such participant.
The Committee's determinations under the Plan (including without limitation determinations of the persons to receive awards, the form, amount and timing of such awards, the terms and provisions of such awards and the agreements evidencing same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, awards under the Plan, whether or not such persons are similarly situated.
4.06. Rights as a Shareholder.
The recipient of any award under the Plan shall have no rights as a shareholder with respect thereto unless and until certificates for shares of Common Stock are issued to him or her.
As used in this Plan, the following words and phrases shall have the meanings indicated in the following definitions: (a) "AFFILIATE" means any person or entity which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Dynatronics' Corporation.
(b) "DISABILITY" shall mean an Optionee's inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than one year.
(c) "EMPLOYEE" shall mean members of the Board of Directors, executive officers and all other employees of the Company.
(d) "FAIR MARKET VALUE" per share in respect of any share of Common Stock as of any particular valuation date shall be determined pursuant to Regulation Section 20.2031-2 of the Code and shall mean: (i) If there is a market for the Common Stocks on a stock exchange, in an over- the-counter market, or otherwise, the mean between the closing bid and ask price on the valuation date is the fair market value per share. (ii) If there were no sales on the valuation date but there were sales on dates within a reasonable period both before and after the valuation date, the fair market value is determined by taking the average of the means between the closing bid and ask price on the nearest date before and the nearest date after the valuation date. The average is to be weighted inversely by the respective numbers of trading days between the selling dates and the valuation date. (iii) If the Common Stocks are listed on more than one exchange, the records of the exchange where the stocks are principally dealt in should be employed if such records are available in a generally available listing or publication of general circulation. In the event that such records are not so available and such common stocks are listed on a composite listing
of combined exchanges available in a generally available listing or publication of general circulation, the records of such combined exchanges should be employed. (iv) If the shares of Common Stock are not then listed on a national securities exchange or traded in an over-the- counter market, such value as the Committee in its discretion may determine in any such other manner as the Committee may deem appropriate. In no event shall the Fair Market Value of any share of Common Stock be less than its par value. In the case of Incentive Stock Options, the Fair Market Value shall not be discounted for restrictions, lack of marketability and other such limitations on the enjoyment of the Common Stock. In the case of other type of Options, the Fair Market Value of the Common Stock shall be so discounted.
(e) "OPTION" means Stock Option or Incentive Stock Option.
(f) "OPTION PRICE" means the purchase price per share of Common Stock deliverable upon the exercise of an Option.
(g) "TEN PERCENT STOCKHOLDER" shall mean an Optionee who, at the time an Incentive Stock Option is granted, is an employee of the Company who owns, directly or indirectly pursuant to the stock ownership attribution rules of Section 424(d) of the Code, stock (not counting shares underlying unexercised stock option) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of its Parent or Subsidiary Corporations.
4.08. Leaves of Absence and Performance Targets.
The Committee shall be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect of any leave of absence taken by the recipient of any award. Without limiting the generality of the foregoing, the Committee shall be entitled to determine (i) whether or not any such leave of absence shall constitute a termination of employment within the meaning of the Plan and (ii) the impact, if any, of such leave of absence on awards under the Plan theretofore made to any recipient who takes such leave of absence. The Committee shall also be entitled to make such determination of performance targets, if any, as it deems appropriate.
The Committee shall be entitled to make such rules, regulations, determinations and awards as it deems appropriate in respect of any employee who becomes eligible to participate in the Plan or any portion thereof, after the commencement of an award or incentive period.
In the event of any change in the outstanding Common Stock by reason of a stock dividend or distribution, combination, exchange of shares or the like, the Committee may appropriately adjust the number of shares of Common Stock which may be issued under the Plan, the number of shares of Common Stock subject to Options theretofore granted under the Plan, the Option Price of Options theretofore granted under the Plan, the performance targets referred to in Section 4.08 and any and all other matters deemed appropriate by the Committee.
4.11. Amendment of the Plan.
(a) The Committee may, without further action by the shareholders and without receiving further consideration from the participants, amend this Plan or condition or modify awards under this Plan in response to changes in securities, tax or other laws or rules, regulations or regulatory interpretations thereof applicable to this Plan or to comply with stock exchange rules or requirements.
(b) The Committee may at any time and from time to time terminate or modify or amend the Plan in any respect, except that without shareholder approval the Committee may not (i) increase the maximum number of shares of Common Stock which may be issued under the Plan (other than increases pursuant to Section 4.10), (ii) extend the period during which any award may be granted or exercised, or (iii) extend the term of the Plan. The termination or any modification or amendment of the Plan, except as provided in subsection (a), shall not without the consent of a participant, affect his other rights under an award previously granted to him or her.
4.12. General Terms and Conditions of Options.
Each Option shall be evidenced by a written Option Agreement between the Company and the Optionee, which agreement, unless otherwise stated in Articles II or III of the Plan, shall comply with and be subject to the following terms and conditions:
(a) Number of Shares. Each Option Agreement shall state the number of shares of Common Stock to which the Option relates.
(b) Type of Option. Each Option Agreement shall specifically identify the portion, if any, of the Option which constitutes an Incentive Stock Option and the portion, if any, which constitutes a Non-qualified Stock Option.
(c) Option Price. Each Option Agreement shall state the Option Price, which (except to the extent provided in Article III above) shall be not less than 100% of the undiscounted Fair Market Value of the shares of Common Stock of the Company on the date of grant of the Option. The Option Price shall be subject to adjustment as provided in 4.12(h) hereof. The date on which the Committee adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted. Except as provided in Section 3.10 above, no Options shall be granted under the Plan more than 10 years after the August 18, 1992 date of original adoption of the Plan by the Board, but the validity of Options previously granted may extend and be validly exercised beyond that date. Except as provided in Section 3.10 above, Options granted under the Plan shall be for a period determined by the Committee as provided in Section 4.12(e), below.
(d) Medium and Time of Payment. The Option Price shall be paid in full at the time of exercise in cash.
(e) Term and Exercise of Options. Options shall be exercisable over the exercise period as and at the times and upon the conditions that the Committee may determine, as reflected in the Option Agreement; provided, however, that the Committee shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances, as it, in its sole discretion, deems appropriate. The exercise period shall be determined by the Committee for all Options; provided, however that except as provided in Section 3.10 above, such exercise period shall not exceed 10 years from the date of grant of such Option. The exercise period shall be subject to earlier termination as provided in Sections 2.07, 2.08, 3.06, 3.07 and 4.12(f) hereof. An Option may be exercised, as to any or all full shares of
Common Stock as to which the Option has become exercisable, by giving written notice of such exercise to the Secretary or Treasurer of the Company; provided, however, that an Option may not be exercised at any one time as to fewer than 100 shares (or such number of shares as to which the Option is then exercisable if such number of shares is less than 100).
(f) Termination. Except as provided in Section 4.12(e) and in this Section 4.12(f) hereof, an Option may not be exercised unless the Optionee is then in the employ of the Company as director or other employee (or a corporation issuing or assuming the Option in a transaction to which Code Section 424(a) applies), and unless the Optionee has remained continuously so employed since the date of grant of the Option. If the employment of an Optionee shall terminate (other than by reason of death, disability or retirement), all Options of such Optionee that are exercisable at the time of such termination may, unless earlier terminated in accordance with their terms, be exercised within three months after such termination; provided, however, that if the employment of an Optionee shall terminate for cause, all Options theretofore granted to such Optionee shall, to the extent not theretofore exercised, terminate forthwith. Nothing in the Plan or in any Option shall limit the Company's rights under Section 4.04 above. No Option may be exercised after the expiration of its term.
(g) Non-transferability of Options. Options granted under the Plan shall not be transferable otherwise than (i) by will; (ii) by the laws of descent and distribution; or (iii) to a revocable inter vivos trust for the primary benefit of the Optionee and his or her spouse. Options may be exercised, during the lifetime of the Optionee, only by the Optionee, his or her guardian, legal representative or the Trustee of an above described trust. Except as permitted by the preceding sentences, no Option granted under the Plan or any of the rights and privileges thereby conferred shall be transferred, assigned, pledged, or hypothecated in any way (whether by operation of law or otherwise), and no such Option, right, or privilege shall be subject to execution, attachment, or similar process. Upon any transfer, assignment, pledge, hypothecation, or other disposition of the Option, or of any right or privilege conferred thereby, contrary to the provisions of this Plan, or upon the levy of any attachment or similar process upon such Option, right,
or privilege, the Option and such rights and privileges shall immediately become null and void.
(h) Effect of Certain Changes.
(A) If there is any change in the number of shares of Common Stock through the declaration of stock dividends, or through recapitalization resulting in stock splits, or combinations or exchanges of such shares, the number of shares of Common Stock available for awards under the Plan pursuant to Section 1.05 above, the number of such shares covered by the outstanding Options and the price per share of such Options shall be proportionately adjusted by the Committee to reflect any increase or decrease in the number of issued shares of Common Stock; provided, however, that any fractional shares resulting from such adjustment shall be eliminated.
(B) In the event of the proposed dissolution or liquidation of the Company, in the event of any corporate separation or division, including, but not limited to split-up, split-off or spin-off, or in the event of a merger, consolidation or other reorganization of the Corporation with another corporation, the Committee may provide that the holder of each Option then exercisable shall have the right to exercise such Option (at its then Option Price) solely for the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such dissolution, liquidation, or corporate separation or division, or merger, consolidation or other reorganization by a holder of the number of shares of Common Stock for which such Option might have been exercised immediately prior to such dissolution, liquidation, or corporate separation or division, or merger, consolidation or other reorganization; or the Committee may provide, in the alternative, that each Option granted under the Plan shall terminate as of a date to be fixed by the Committee; provided, however, that not less than 90-days' written notice of the date so fixed shall be given to each Optionee, who shall have the right, during the period of 90 days preceding such termination, to exercise the Options as to all or any part of the shares of Common Stock covered thereby, including shares as to which such Options would
not otherwise be exercisable; provided, further, that failure to provide such notice shall not invalidate or affect the action with respect to which such notice was required.
(C) If while unexercised Options remain outstanding under the Plan, the stockholders of the Corporation approve a definitive agreement to merge, consolidate or otherwise reorganize the Company with or into another corporation or to sell or otherwise dispose of all or substantially all of its assets, or adopt a plan of liquidation (each, a "Disposition Transaction"), then the Committee may: (i) make an appropriate adjustment to the number and class of shares available for awards under the Plan pursuant to Section 1.05 above, and to the amount and kind of shares or other securities or property (including cash) receivable upon exercise of any outstanding options after the effective date of such transaction, and the price thereof, or, in lieu of such adjustment, provide for the cancellation of all options outstanding at or prior to the effective date of such transaction; (ii) provide that exercisability of all Options shall be accelerated, whether or not otherwise exercisable; or (iii) in its discretion, permit Optionees to surrender outstanding options for cancellation.
(D) Paragraphs (B) and (C) of this Section 4.12(h) shall not apply to a merger, consolidation or other reorganization in which the Company is the surviving corporation and shares of Common Stock are not converted into or exchanged for stock, securities of any other corporation, cash or any other thing of value. Notwithstanding the preceding sentence, in case of any consolidation, merger or other reorganization of another corporation into the Company in which the Company is the surviving corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the shares of Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in such shares into two or more classes or series of shares), the Committee may provide that the holder of each Option then exercisable shall have the right to
exercise such Option solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect parent of the Company), property, cash or any combination thereof receivable upon such reclassification, change, consolidation or merger by the holder of the number of shares of Common Stock for which such Option might have been exercised.
(E) In the event of a change in the Common Stock of the Company as presently constituted which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan.
(F) To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive, provided that each Incentive Stock Option granted pursuant to Article III of this Plan shall not be adjusted in a manner that causes such option to fail to continue to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code.
(G) Except as hereinbefore expressly provided in this Section 4.12(h), the Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock or any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any or other reorganization or spin-off of assets or stock of another corporation; and any issue by the Company of shares of stock of any class shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to the Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structures or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or part of its business or assets.
(i) Rights as a Shareholder. An Optionee or a transferee of an Option shall have no right as a shareholder with respect to any shares covered by the Option until the date of the issuance of a certificate evidencing such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution of other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 4.12(h) hereof.
(j) Other Provisions. The Option Agreement authorized under the Plan shall contain such other provisions, including, without limitation, (A) the imposition of restrictions upon the exercise of an Option; (B) in the case of an Incentive Stock Option, the inclusion of any condition not inconsistent with such Option qualifying as an Incentive Stock Option; and (C) conditions relating to compliance with applicable federal and state securities laws, as the Committee shall deem advisable.
The Section and Subsection headings contained herein are for convenience only and shall not affect the construction hereof.
ADOPTED BY RESOLUTION OF THE BOARD OF DIRECTORS THE 28th DAY OF NOVEMBER, 1995.
|
S-8 POS
|
EX-4.5
| 1996-01-12T00:00:00
| 1996-01-12T13:26:18
|
0000736822-96-000002
|
0000736822-96-000002_0000.txt
|
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For Quarter Ended : November 30, 1995
_ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number : 0-14820
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
3130 Gateway Drive P.O. Box 5625 Norcross, Georgia 30091-5625 (Address of principal executive offices) (Zip Code)
Registrant's telephone number : (770) 441-2051
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
As of January 12, 1996: Common Stock, $.10 Par Value - 7,903,075
Cash and cash equivalents $19,103,690 $18,741,681 Accounts receivable, net 8,366,548 8,009,967 Income tax receivable 34,030 76,455 Deferred income taxes 249,290 250,387 Total current assets 34,789,690 33,269,048
Property, plant & equipment at cost 5,837,625 5,222,975 less accumulated depreciation (2,786,999) (2,364,503)
Excess of cost over net tangible
Income taxes payable 244,356 519,708 Accrued salaries and wages 552,987 683,032 Other accrued liabilities 160,325 298,101 Total current liabilities 4,042,381 4,167,990
Common stock, $.10 par value 1,001,473 981,780 Additional paid-in capital 28,154,797 27,031,185 Cost of shares held in treasury (8,466,284) (8,455,035) Cumulative translation adjustment (790,775) (747,291)
Three Months Ended Six Months Ended November 30,November 30, November 30, November 30,
Net sales $7,282,304 $7,052,529 $14,758,231 $14,241,759 Cost of sales 2,712,022 2,905,948 5,474,253 5,798,927 Gross profit 4,570,282 4,146,581 9,283,978 8,442,832
Instrument 106,917 186,224 240,655 342,257 General 119,964 122,469 243,732 242,226 Selling, general & admin 3,381,301 3,077,015 6,703,860 6,001,123 Total operating expenses 3,608,182 3,385,708 7,188,247 6,585,606
Income from operations 962,100 760,873 2,095,731 1,857,226
Other income 206,064 158,743 384,051 311,887 Interest expense (75,329) (119,442) (169,328) (259,833) Total other 130,735 39,301 214,473 49,601
Inc before income taxes 1,092,835 800,174 2,310,204 1,906,827
Provision for income taxes 342,642 332,268 764,244 770,238
Net income $750,193 $467,906 $1,545,960 $1,136,589
& common equivalent share $0.09 $0.06 $0.18 $0.15
Weighted average number of common outstanding 8,705,134 7,775,207 8,759,651 7,761,528
Adjustments to reconcile net income to net cash provided by operations: Changes in assets and liabilities: Other current liabilities (543,173) 3,532
Cash provided by operating activities 861,620 1,669,247
Purchase of/deposits on property and
Cash used in investing activities (885,596) (314,820)
Proceeds from line of credit 5,871 Repayment of bank loans (717,002) (545,555) Exercise of stock options 1,132,056
Cash provided by/(used) in financing
Effect of exchange rate changes on cash (34,940) (41,805)
INCREASE IN CASH AND CASH EQUIVALENTS 362,009 767,067
AT BEGINNING OF PERIOD 18,741,681 18,303,252
AT END OF PERIOD $19,103,690 $19,070,319
1. In the opinion of management, the information furnished reflects all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. Revenues from product sales are recognized at the time of shipment.
2. Inventories are stated at the lower of first-in, first-out cost or market:
As of November 30, 1995 As of May 31, 1995
Raw materials and supplies $1,617,409 $1,551,354
Work in process 966,585 819,296
3. Net income per common share:
Net income per common share is computed using the weighted average number of common shares and dilutive common share equivalents outstanding during the respective periods. Common share and common share equivalents were 8,705,134 and 8,759,651 in the 1995 three and six month comparable periods, and 7,775,207 and 7,761,528 in the 1994 three and six month periods. There is no significant difference between primary and fully diluted per share amounts.
4. Domestic and foreign operations:
Information concerning the Company's domestic and foreign operations is summarized below:
Three Months Ended November 30, 1995:
Net Revenues United States Europe Eliminations Consolidated
Unaffiliated customers $3,710,658 $3,571,646 $7,282,304
Total 4,502,445 3,602,275 (822,416) 7,282,304
Income from operations 652,921 288,029 21,150 962,100
Identifiable assets 29,395,947 18,325,328 (2,036,288) 45,684,987
Six Months Ended November 30, 1995:
Net Revenues United States Europe Eliminations Consolidated
Unaffiliated customers $7,692,075 $7,066,156 $14,758,231
Total 9,426,911 7,116,014 (1,784,694) 14,758,231
Income from operations 1,647,959 444,808 2,964 2,095,731
Identifiable assets 29,395,947 18,325,328 (2,036,288) 45,684,987
Sales to affiliates are valued at market prices.
5. Accounting for income taxes:
The provision for income tax expense for the three months and six months ended November 30, 1995 was $342,642, and $764,244 respectively. The information required to determine the current and deferred portion of these provisions was not available.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
As of November 30, 1995, the Company's cash position totaled $19,103,690. For the six months ended November 30 1995, the Company generated cash from operating activities of $861,600 and repaid $717,000 (1,000,000 DM) of bank debt in Germany.
The Company does not have any material capital commitments. Management believes that the Company's current cash balance, internally generated funds, and amounts available under the lines of credit are sufficient to support operations for the foreseeable future. Management also believes additional credit lines would be available should the need arise.
Net sales for the three months ended November 30, 1995 totaled $7,282,300 versus $7,052,500 in the comparable prior year three month period. For the six months ended November 30, 1995, net sales were $14,758,200 compared to $14,241,800 in the prior year. Approximately one-half of the increase in sales during the three months ended November 30, 1995, compared to the same three month period in the prior year, was due to a weaker dollar as compared to last year, which increased the dollar equivalent of the Company's sales generated in German marks. The remaining increase was caused by higher sales of the Company's Capturer product line partially offset by a decline in the sales of more traditional blood bank reagents. Sales of traditional blood bank products declined due to continuing competitive pricing pressures in the health care environment.
As a percent of sales revenue, gross profit increased for the three month and six month period ended November 30, 1995, when compared to the same period ended November 30, 1994. The increase in gross profit margin can be attributed to favorable rates of foreign exchange in Germany, and higher sales of the Company's Capturer product line which have a higher gross profit than the more traditional blood bank reagent products.
Selling, general and administrative expense for the three and six month period ended November 30, 1995, increased $304,300 and $702,700 respectively, compared to the 1994 periods. The increase was principally caused by higher levels of sales and marketing related expenses, including advertising, increased sales staff in the U.S., and additional marketing personnel. Also, a weaker U.S. dollar caused an increase in the dollar equivalent of operating expenses incurred in German marks.
Interest expense declined $44,100 during the three months ended November 30, 1995, and $90,500 in the six months ended November 30,1995, as compared to the same three and six month periods last year. The decline in interest expense was primarily due to the Company reducing its outstanding principal loan balance in Germany (see Financial Condition and Liquidity.)
As a percent of pretax income, the provision for income taxes declined during the three months ended November 30, 1995, over the prior year, and a similar decline occurred for the six month period. The Company's operations in Europe generated a positive contribution to pretax income in the current year versus a loss in the prior year. However, no provision for income taxes was recorded in Europe in the current year as European operations had sufficient net operating loss carryforwards to offset the tax liability created by current year income.
PART II - OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders.
The annual meeting of shareholders of Immucor, Inc. was held on Thursday, December 7, 1995. The shareholders elected the following eight directors to constitute the Board of Directors and to serve until the next annual meeting and thereafter until their successors have been elected and have been qualified: Edward L. Gallup, Ralph A. Eatz, Richard J. Still, Daniel T. McKeithan, Didier Lanson, Dr. Gioacchino De Chirico, Josef Wilms, and G. Bruce Papesh.
Item 6. Exhibits and Reports on Form 8-K.
(a) The Company has filed the following exhibits with this report:
11.1 Statement re computation of per share earnings.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
/s/Edward L. Gallup_____________Edward L. Gallup, President
/s/Richard J. Still_______________ Richard J. Still, Senior Vice President -
|
10-Q
|
10-Q
| 1996-01-12T00:00:00
| 1996-01-12T15:46:07
|
0000950009-96-000030
|
0000950009-96-000030_0000.txt
|
Filed Pursuant to Rule 424(b)(3) Registration Nos. 33-55787 and 33-64179
PRICING SUPPLEMENT NO. 23, dated January 11, 1996 (To Prospectus dated December 20, 1995 and Prospectus Supplement dated December 20, 1995)
Due 9 Months or More From Date of Issue
Original Issue Date: January 17, 1996
Stated Maturity: February 2, 1998
Interest Payment Dates: February 15 and August 15
(If other than U.S. Dollars, see attachment hereto)
Option to Receive Payments in Specified Currency: [ ] Yes [ ] No (Applicable only if Specified Currency is other than U.S. Dollars)
(Applicable only if Specified Currency is other than U.S. Dollars)
Redemption: [X] The Notes cannot be redeemed prior to maturity. [ ] The Notes may be redeemed prior to maturity.
The Redemption Price shall initially be % of the principal amount of the Notes to be redeemed and shall decline at each anniversary of the initial Redemption Date by % of the principal amount to be redeemed until the Redemption Price is 100% of such principal amount.
Repayment: [X] The Notes cannot be repaid prior to maturity. [ ] The Notes can be repaid prior to maturity at the option of the holder of the Notes.
Discount Notes: [ ] Yes [X] No
Agent's Discount or Commission: .25%
Agent's Capacity: [X] Agent [ ] Principal
Net proceeds to Company (if sale to Agent as principal):
Agent: [ ] Merrill Lynch & Co. [ ] Salomon Brothers Inc
[X] Other: CS First Boston Corporation
|
424B3
|
424B3
| 1996-01-12T00:00:00
| 1996-01-12T15:19:42
|
0000950124-96-000212
|
0000950124-96-000212_0004.txt
|
<DESCRIPTION>AMEND NO. 1 TO NOTE CONV. AGREE.
The Note Conversion Agreement dated as of September 29th, 1995 by and between Rodman & Renshaw Capital Group, Inc. (the "Company") and Confia, S.A., Institucion de Banca Multiple, Abaco Grupo Financiero, a banking corporation incorporated under the laws of the United Mexican States ("Confia") is hereby amended as follows:
1.1 From and after the day hereof, the definition of the term "Note" in Section 1 is hereby amended to delete the date of "September 30, 1995" in clause (i) and to insert in lieu thereof "November 10, 1995."
1.2 From and after the day hereof, Section 2 is hereby amended to add the following sentence: "Confia further agrees to lend the Company an additional $10,000,000 on or prior to November 10, 1995."
2. Miscellaneous. This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, excluding that body of laws relating to conflict of laws. Except as specifically amended hereby, the Note Conversion Agreement shall remain in full force and effect in accordance with its existing terms, but each reference in the Note Conversion Agreement to "this Agreement," "hereunder," "hereof" or words of like import, and references to the Note Conversion Agreement in any and all instruments or documents in connection therewith shall, except where the context otherwise requires, be deemed a reference to the Note Conversion Agreement as amended hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above.
RODMAN & RENSHAW CAPITAL GROUP, INC.
By: /s/ Charles W. Daggs, III Name: Charles W. Daggs, III Title: President & Chief Executive Officer
CONFIA, S.A., INSTITUCION DE BANCA
By: /s/ Mario Velasco Coppel Name: Mario S. Velasco Coppel
|
SC 13D
|
EX-4
| 1996-01-12T00:00:00
| 1996-01-12T13:22:08
|
0000899243-96-000019
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0000899243-96-000019_0003.txt
|
This Gaia/Thor Royalty Agreement (hereinafter, this "Agreement") is made and entered into as of December ____, 1995 (the "Effective Date"), by and among Gaia Technologies, Inc., a Texas corporation ("Gaia"), North American Technologies Group, Inc., a Delaware corporation ("NATK," and together with Gaia, "Payor"), Gaia Holdings, Inc., a Delaware corporation ("GHI"), and Thor Ventures, L.C., a Texas limited liability company ("Thor", and together with GHI, "Payee").
1. Payor, Payee and others are parties to that one certain Asset Purchase Agreement (the "Purchase Agreement") of even or approximate date herewith whereby, among other things, GHI contracted to sell its assets to Gaia.
2. As partial consideration for the assets transferred to Gaia from GHI, the Purchase Agreement requires that Payor pay GHI certain royalties.
3. GHI has notified Payor that a portion of such royalties should be paid directly to Thor.
4. This Agreement constitutes the royalty agreement contemplated by the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements hereinafter set forth, the sum of $10.00, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties (as that term is defined below) hereby agree as follows:
The following terms shall have the following meanings for purposes of the Agreement:
1.1 "Affiliate" means "affiliate" and "insider" as those terms are defined in Section 24.002 of the Texas Business & Commerce Code, except that the term "debtor" shall be substituted with "Payor".
1.2 "Applicable Hard Goods" means (a) railroad cross-ties, oil field mats, marine structures, and other products all having advanced structural properties derived from or growing out of any Technology used to produce railroad cross- ties, and (b) roofing materials. "Applicable Hard Goods" does not include air conditioning pads.
1.3 "Equipment" shall mean that equipment (including prototypes) now or hereafter designed, engineered, acquired, created or employed for (a) the implementation or practice of the Technology, or (b) the manufacture, production or refinement of Products.
1.4 "Parties" shall mean Payor and Payee, and "Party" shall mean any of them.
1.5 "Patents" means (a) United States Patent Number 4,191,522, 4,033,408, 4,168,799 and 4,110,420 together with any modifications, improvements, corrections or substitutions thereto or thereof, and (b) any new patent applications, newly issued patents, patents pending or patent amendments, in any way associated therewith.
1.6 "Porous Pipe" means those Products, other than Applicable Hard Goods, which (a) are extruded, and (b) have a constant cross section, and (c) have porous walls.
1.7 "Porous Pipe Technology" means any portion of the Technology used in the production or manufacture of Porous Pipe.
1.8 "Products" means all tangible, marketable goods, including Applicable Hard Goods and Porous Pipe.
1.9. "Selected Parties" shall mean those entities listed on Exhibit "A" attached hereto and incorporated herein by this reference for all purposes, and their Affiliates.
1.10 "Technology" shall mean (a) the Patents, (b) the trade secrets, design, instrumentation, technology, method and know-how developed, conceived, owned, acquired and/or reduced to practice by Payor or its Affiliates for materials, processes and methods (including Equipment) to be used in the production, manufacture or refinement of Products, (c) any information, data, or experience relating to the foregoing, including such information, data, or experience relating to the operation and maintenance of Equipment and the method or procedural steps followed to practice of anything described in subparts (a), (b) or (d) hereof, and (d) any additions to or modifications of any of the foregoing, including, without limitation, additions to or modifications of (i) the methods or processes involved with the manufacturing of Products, (ii) the methods of use of Equipment or Products, (iii) the design of the Equipment or Products, (iv) the construction or fabrication of the Equipment or Products, (v) the operating procedures which improve the manufacture, design, or operation of the Equipment or Products, and (vi) any patent rights, new patent applications, newly issued patents, or patents pending associated with any such addition or modification.
2.1 Generally. Payor shall pay to Payee royalties ("Royalties" or "Royalty") as provided in this Article II. Royalties consist of both (a) ten percent (10%) of all Gross Margin (as defined below) received or receivable during the fifteen (15) year period beginning on the Effective Date, and (b) 10% of all License Fees (as defined below) received or receivable during the five (5) year period beginning on the Effective Date. Royalties shall be determined for each calendar quarter (or portion thereof) within ninety (90) days following the last day of each calendar quarter within which Royalties become due.
(a) The term "Gross Margin" means Revenues less Cost of Goods Sold.
(b) As used herein, the term "Revenues" includes all monies, instruments, assets and other things of value received or receivable by Payor or any of its Affiliates for (i) any Applicable Hard Goods sold or transferred by any of them, and (ii) any licensing, renting, sale, or transfer of all or any part of the Technology relating to the manufacture, production or refinement of Applicable Hard Goods. "Revenues" shall also include any distribution or other compensation received by Payor or any of its Affiliates from any company, partnership, joint venture or other entity to which all or any portion of the Technology relating to the manufacture, production or refinement of Applicable Hard Goods is contributed, but if such entity is an Affiliate of Payor, only to the extent that any such distribution or compensation from such Affiliate is not derived from Revenues on which Royalty has previously been paid. The term "Revenues" shall not include and shall, if necessary, be calculated to exclude (i) amounts paid by Payor to any third parties, who are not Affiliates of Payor, acting as sales representatives of Payor, which amounts are directly attributable to the sale of Applicable Hard Goods, (ii) accounts which, according to generally accepted accounting principles, are determined to be uncollectable, provided, however, such accounts have previously been credited to Payee as "Revenues" (but, any amounts received by Payor on any account previously determined to be uncollectable as aforesaid shall be treated as "Revenues"), (iii) governmental excise or sales taxes, tariffs, duties and similar changes added to the selling price of the item and paid by Payor directly to a government, and/or (iv) refunds or allowances to customers resulting from defects, failures or malfunctions not in excess of the original selling price of the item. Under no circumstances shall there be any deduction from Revenues by reason of Payor's being liable to pay any franchise tax, capital stock tax, income tax, or similar or dissimilar tax based upon Payor's income, capital structure, or profits.
(c) As used herein, the term "Cost of Goods Sold" means (i) direct material cost, direct labor cost, and factory or other relevant burden (including depreciation for equipment and facilities directly used in the manufacture of Applicable Hard Goods) incurred by Payor (or its Affiliate) directly associated with the manufacture of Applicable Hard Goods, and (ii) any payments made by Payor to Wolfgang Mack during any period in which Revenues are received or receivable by Payor. Administrative costs associated with procurement of materials, interest cost, advertising costs, sales costs, office costs and administrative costs shall not constitute a component of "Cost of Goods Sold." There shall be no "Cost of Goods Sold" associated with Revenue described in Section 2.2(b)(ii). Whether a particular expense not specifically listed should be treated as "Cost of Goods Sold" shall be resolved by application of generally accepted accounting principles.
2.3 License Fees. The term "License Fees" includes all monies, instruments, assets and other things of value received or receivable by Payor or any of its Affiliates from any of the Selected Parties for a right to manufacture, produce, sale or otherwise commercially exploit the Porous Pipe Technology. The term "License Fees" shall not include and shall, if necessary, be calculated to exclude (i) governmental excise or sales taxes, tariffs, duties and similar changes added to the selling price of the item and paid by Payor directly to a government or (ii) refunds or allowances to customers resulting from defects, failures or malfunctions not in excess of the original selling price of the item. Under no circumstances shall there by any deduction from License Fees by reason of Payor's being liable to pay any franchise tax, capital stock tax, income tax, or similar or dissimilar tax based upon Payor's income, capital structure, or profits.
2.4 Records. All Gross Margin (including Revenues and Cost of Goods Sold) and License Fees will be recorded in accordance with generally accepted accounting principles. Full and adequate records and books of account shall be accurately maintained by Payor on all business operations involving sale of Products and licensing the Technology. All books of account, records, sales slips, invoices, purchase orders, franchise tax returns, and federal income tax returns relating to Payor's operations will be retained by Payor for a period of three (3) years after preparation, and will be open to inspection by Payee (or Payee's representative) at all reasonable times.
2.5 Statements. Within ninety (90) days after the end of each calendar quarter during which Royalties are due, Payor will deliver to Payee a certified statement in form reasonably approved by Payee, signed and sworn to by Payor, accurately setting forth the amount of Gross Margin (together with an analysis of Revenues and Cost of Goods Sold) and License Fees received or receivable during said quarter, itemized in reasonable detail, and will contemporaneously therewith pay any Royalty due. Within 180 days after the end of each calendar year, Payor will furnish to Payee, according to the foregoing provisions, a statement of sales, costs and other transactions itemized in reasonable detail and in a form approved by Payee, accurately showing and reconciling Revenues, Costs of Goods Sold, and License Fees for the entire preceding year, certified by Payor to be true and correct. The Royalty payment (if any) due at the end of the second calendar quarter of any calendar year shall include an adjustment or additional payment (as the case may be) to reflect any uncollected receivables, to correct any mistakes, or as otherwise may be necessary to properly reflect Royalty for the preceding calendar year.
(a) Payee may, at any time or times during normal business hours designated by Payee upon three (3) days' prior written notice to Payor, have an audit made of any statement delivered pursuant to Section 2.5, and may examine Payor's sales reports, expense records and other relevant records for such period. Acceptance of any Royalty tendered by Payor shall not prejudice these rights.
(b) The cost of the first audit conducted by Payee pursuant to Section 2.6(a) shall be the sole cost and expense of Payee.
(c) Except as provided in Section 2.6(b), the cost of any audit shall be borne by Payee unless such audit shows that (i) Payor's statement was in error by five percent (5%) or more of the Gross Margin or License Fees for the relevant year, and (ii) such error arose out of a situation, matter, problem, method, approach or other criticism raised in any previous audit which demonstrated an error by 5% or more of Gross Margin or License Fees for the relevant quarter or year, in which event Payor will pay the cost of such audit.
2.7 Prohibited Transactions. Payor shall not, at any time, transfer (a) the Technology or any part thereof or (b) any commercial quantities of Applicable Hard Goods to any third party except in an arms length transaction where the value received by Payor has been established in good faith. Any transfer in violation of this Section 2.7 shall be void.
2.8 GAAP. Any reference herein to "generally accepted accounting principles" shall mean generally accepted accounting principles as applied consistently by Payor.
Thor owns and shall be entitled to receive 66.67% of all Royalty. GHI owns and shall be entitled to receive 33.33% of all Royalty. All Royalty paid by Payor pursuant to Article II shall be paid pro rata to Thor and GHI according to the foregoing percentages.
4.1 Governing Law. The construction and interpretation of this Agreement shall be in accordance with the laws of the State of Texas and the applicable laws of the United States of America.
4.2 Notice. Any payment, report, communication, request, or notice required or permitted by this Agreement shall be in writing and shall become effective at the time of receipt thereof and shall be addressed to the Parties as follows:
North American Technologies Group, Inc. Gaia Technologies, Inc. 4710 Bellaire Boulevard, Suite 301
3104 Edloe St., Suite 204
William T. Aldrich and Henry W. Sullivan Gaia Holdings, Inc. Thor Ventures, L.C. 4710 Bellaire Blvd., Suite 301
Crain, Caton & James, P.C.
Notice may be effected by hand delivery, U.S. mail, or telecopy. Each Party shall have the continuing right to change its address for notice at any time or times by giving ten (10) days' notice in the manner hereinabove described. Notices shall be deemed given only upon actual receipt; however, notice sent by U.S. mail, postage prepaid, certified, return receipt requested shall be deemed received three business days after deposited with the U.S. Postal Service.
4.3 Amendments. This Agreement shall not be modified, amended or otherwise varied by any oral agreement or representation and all modifications, amendments and variations shall be by an instrument in writing executed by the Parties hereto.
4.4 Successors and Assigns. This Agreement shall be binding on and inure to the benefit of the Parties hereto and their successors and assigns.
4.5 No Partnership. Nothing in this Agreement shall in any way be construed to make the Parties partners, joint venturers, agents, servants or employees of one another, and no such relationship is intended.
4.6 Joint and Several Obligations. NATK and Gaia are and shall be jointly and severally liable for the obligations of Payor hereunder. No assignment of all or any part of the Technology shall relieve Payor of any liability for any sums or obligations due hereunder.
4.7 Confidentiality. During the performance of each Party's obligation under this Agreement, each Party may obtain information of various types from the other Party. Each Party agrees that all such information, whether technical, financial, business or other nature shall be held in confidence and not used to the detriment of the disclosing Party by the non-disclosing Party nor disclosed to any third party by the non-disclosing Party. This Section 4.7 shall not apply to any information which (a) can be shown by a Party to have been in that Party's possession prior to the date hereof; (b) is now or hereafter (by operation of law) becomes information in the public domain, (c) can be shown by a Party to have been received on a non-confidential basis from a third party who did not acquire same, directly or indirectly, from the other Party, (d) can be shown by a Party to have been developed without access to any confidential information otherwise covered by this Section 4.7, (e) is required to be disclosed as a matter of law, or (f) is required to be disclosed pursuant to a written agreement between the parties.
4.8 Payee Representatives. Payor shall only be required to rely on instructions and directives from the President of either GHI and/or Thor with respect to their pro rata share of Royalty. In the event that GHI or Thor should dissolve or, alternatively, the rights to receive Royalty should otherwise be distributed to the shareholders or members of GHI or Thor (as the case may be), then Payor may rely on (a) a duly executed copy of the Agreement, Plan and/or Articles of Dissolution of GHI or Thor (as the case may be, in the case of dissolution) or (b) a duly executed assignment (in the case of distribution) to determine the ownership of the rights to receive Royalty. In addition, the members of Thor and/or the shareholders of Gaia shall each, unanimously, designate among themselves a representative, and thereafter Payor shall only be required to rely on instructions and directives from such representative. Payor shall have the right to request and rely on instructions from each such representative, provided such instructions do not impair the rights of any shareholders or members represented by the other representative.
4.9 Headings. The headings and subheadings that are in this Agreement are for convenience only and are not to be used in the interpretation of the provisions of this Agreement.
4.10 Integration. This Agreement represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements by the Parties with respect to the subject matter of this Agreement. There are no unwritten oral agreements between the Parties.
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be executed in duplicate by duly authorized persons.
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
By: /s/ Tim Tarrillion December 29, 1995
By: /s/ Tim Tarrillion December 29, 1995
By: /s/ Henry W. Sullivan December 29, 1995 Name: Henry W. Sullivan Date
A TEXAS LIMITED LIABILITY COMPANY
By: /s/ William T. Aldrich December 29, 1995 Name: William T. Aldrich Date
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8-K
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EX-10.2
| 1996-01-12T00:00:00
| 1996-01-12T16:52:02
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0000950005-96-000010
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0000950005-96-000010_0002.txt
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* * * * *
Harding Associates, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of Harding Associates, Inc. at a meeting duly held on August 22, 1995, adopted a resolution proposing and declaring advisable the following amendment to the Restated Certificate of Incorporation of said corporation:
RESOLVED, that the Restated Certificate of Incorporation of HARDING ASSOCIATES, INC. be amended by changing the First Article thereof so that, as amended, said Article shall be and read as follows:
THE NAME OF THIS CORPORATION IS HARDING LAWSON ASSOCIATES GROUP, INC.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, the annual meeting of the stockholders of said corporation was duly called and held on November 1, 1995 at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Harding Associates, Inc. has caused this certificate to be signed by Patricia A. England, its Secretary, this 2nd day of November, 1995.
By /s/ Patricia A. England
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10-Q
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EX-3.2
| 1996-01-12T00:00:00
| 1996-01-12T14:47:51
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0000912057-96-000432
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0000912057-96-000432_0001.txt
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For Immediate Release For Investor Inquiries, contact: December 28, 1995 Thomas K. Peck
DRE ANNOUNCES NEW ACQUISITIONS, EXPANSIONS AND PROPERTY SALE
INDIANAPOLIS - Duke Realty Investments, Inc. (DRE/NYSE) reported today that it has formed a joint venture with an institutional real estate investor and purchased 25 industrial buildings totaling approximately 2,250,000 square feet, primarily in Park 100 Business Park in Indianapolis, Indiana. Additionally, the Company announced two new expansion projects totaling 150,000 square feet and that it has purchased (i) the joint venture interest of its partner in Parkwood Crossing, a suburban office development in Indianapolis, Indiana; (ii) 50 acres of land at Earth City in St. Louis, Missouri; and (iii) two industrial buildings in Cincinnati, Ohio totaling approximately 116,000 square feet. Duke's total investment in the above, excluding land, is $92.7 million on which it anticipates earning a return of approximately 11 percent. The Company also invested an additional $11.2 million in its land purchases at Earth City and Parkwood Crossing. The 25 Indianapolis industrial properties acquired contain approximately 2,250,000 square feet and are 97 percent leased. Twenty-two of the new properties are located in Park 100 Business Park and three are in Hillsdale TechneCenter. All of the properties acquired were initially built by Duke and have been leased and managed by Duke since their construction. According to Thomas L. Hefner, President and Chief Executive Officer; "The alliance that was created to purchase these properties was a strategic move which allows us to further enhance our dominant market position by gaining control of the highest quality portfolio of Indianapolis industrial assets that we did not already own. Having built the new properties initially and having managed them for several years, we are very pleased with the synergy that will result from their addition to our portfolio." The Venture created to purchase the Indianapolis industrial properties was formed by Duke contributing at fair market value approximately 1.4 million square feet of recently developed or acquired industrial properties, 1.1 million square feet of property under development, 113 acres of recently acquired land and approximately $4.4 million of cash. The Company's joint venture partner, an institutional investor with a 10 year business relationship with Duke, contributed cash in the amount equal to the value of Duke's contribution. As a result, the Venture owns more than 3.6 million square feet of industrial properties encumbered by only $3.9 million of debt. Upon completion of the properties under development, the Venture will own approximately 4,750,000 square feet of industrial properties and 113 acres of industrially zoned land having a total value in excess of $170,000,000. Attached is a schedule showing the properties involved together with an outline of the joint venture terms. The new expansion projects announced today involve two distribution facilities that are also at Park 100 Business Park. Shepard Poorman Graphics has signed a 10 year lease for a 52,800 square foot expansion of Building 91. Day Dream Publishing, Inc., has signed an eight year lease for a 97,080 square foot expansion of the 98,000 square foot facility which was built for them by Duke in 1994. Both Shepard Poorman Graphics and Day Dream Publishing are affiliates of Shepard Poorman Communications Corporation.
Duke's acquisition of the remaining partnership interest in Parkwood Crossing involves two buildings and approximately 40 acres of land. The buildings include One Parkwood, a 108,000 square foot suburban office property which is 100 percent leased, and Two Parkwood a 93,000 square foot office building which is in the final stages of development and is 83 percent pre- leased. The acreage involved is zoned for approximately 650,000 square feet of additional suburban office buildings. The Cincinnati industrial acquisition includes two distribution buildings totaling 116,000 square feet. The two buildings are 82 percent leased in the aggregate and are located near Duke's World Park project in northern Cincinnati. The St. Louis land acquisition consists of 50 acres at Earth City, a 1,200 acre multi-use business park which contains approximately 6 million square feet of commercial properties. With this purchase, Duke now owns more than 150 acres at Earth City including the only large, contiguous land parcels remaining at this location on which it can construct more than 2.5 million square feet of future industrial property. The Company also announced today that it has sold Building 77, a 193,400 square foot warehouse facility located at Park 100 Business Park in Indianapolis. The property was sold pursuant to a tenant's purchase option. Duke will report a gain in the fourth quarter as a result of this sale. Duke Realty Investments is a fully integrated real estate company which owns interests in a diversified portfolio of 216 industrial, office and retail properties encompassing approximately 23.6 million square feet including today's announcements. These properties are primarily located in eight midwestern states with 196 properties located in the metropolitan areas of Indianapolis, Indiana; Columbus, Ohio; Cincinnati, Ohio; and St. Louis, Missouri. Duke Realty also owns approximately 1,100 acres of land for future development. The Company is a self-administered real estate investment trust which provides leasing, management, development, construction and other tenant-related services for its own properties and for approximately 10 million square feet of properties owned by third parties.
STRUCTURE: An Indiana limited liability company OWNERSHIP: DRE - 50.1 percent, Institutional Investor - 49.9 PROPERTY MGMT: Duke Realty Services Limited Partnership LEASING AGENT: Duke Realty Services Limited Partnership CONSTRUCTION SERVICES: Development and construction services provided on joint venture land or buildings will be provided by Duke. DEBT: Approximately $3.9 million secured by two Park Fletcher buildings. The remaining 44 buildings are unencumbered. DECISION MAKING: Routine decisions handled by Duke. Non-routine or material decisions agreed upon mutually. BREAK-UP PROVISION: 50/50 division of assets upon request of either
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8-K
|
EX-20
| 1996-01-12T00:00:00
| 1996-01-12T12:02:27
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0000922423-96-000018
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0000922423-96-000018_0000.txt
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MUTUAL FUND VARIABLE ANNUITY TRUST
Mutual Fund Variable Annuity Trust (the "Trust") is an open-end management investment company. The Trust consists of six portfolios (the "Portfolio(s)"), each of which has its own investment objectives and policies.
Shares of the Trust are issued and redeemed only in connection with investments in and payments under variable annuity contracts and may be sold to fund variable life contracts issued in the future. The contracts involve fees and expenses not described in this Prospectus and also may involve certain restrictions or limitations on the allocation of purchase payments or contract values to one or more series of the Trust. Certain Portfolios may not be available in connection with a particular contract. See the applicable contract prospectus for information regarding contract fees and expenses and any restrictions or limitations.
INTERNATIONAL EQUITY PORTFOLIO (the "International Equity Portfolio") seeks to provide a total return on assets from long-term growth of capital and from income principally through diversified holdings of marketable equity securities of established foreign companies organized in countries other than the United States and companies participating in foreign economies with prospects for growth.
CAPITAL GROWTH PORTFOLIO (the "Capital Growth Portfolio") seeks to provide long-term capital growth primarily through diversified holdings (i.e., at least 80% of its assets in normal circumstances) in common stocks. The Capital Growth Portfolio will invest all of its assets in the stocks of issuers (including foreign issuers) with small to medium capitalizations. The Adviser (as defined below) intends to utilize both quantitative and fundamental research to identify undervalued stocks with a catalyst for positive change. Dividend income, if any, is a consideration incidental to the Capital Growth Portfolio's investment objective of growth of capital. This investment policy involves the risks that the issues identified by the Adviser will not appreciate or appreciate as significantly as projected.
GROWTH AND INCOME PORTFOLIO (the "Growth and Income Portfolio") seeks to provide long-term capital appreciation and to provide dividend income primarily through diversified holdings (i.e., at least 80% of its assets under normal circumstances) of common stocks. The Growth and Income Portfolio will invest its assets in the stocks of issuers (including foreign issuers) ranging from small to medium to large capitalizations. For the most part, the Adviser will pursue a "contrary opinion" investment approach, selecting common stocks that are currently out of favor with investors in the stock market. These securities are usually characterized by a relatively low price/earnings ratio (using normalized earnings), a low ratio of market price to book value, or underlying asset values that the Adviser believes are not fully reflected in the current market price. The Adviser believes that the risk involved in this policy will be moderated somewhat by the anticipated dividend returns on the stocks to be held by the Growth and Income Portfolio.
ASSET ALLOCATION PORTFOLIO (the "Asset Allocation Portfolio") seeks to provide maximum total return through a combination of long-term growth of capital and current income by investing in diversified holdings of equity and debt securities, including common stocks, convertible securities and government and corporate fixed-income obligations. Under normal market conditions, between 35%-70% of the Asset Allocation Portfolio's total assets will be invested in common stocks and other equity investments and at least 25% of the Asset Allocation Portfolio's assets will be invested in fixed-income senior securities, defined for this purpose to include non-convertible corporate debt securities and preferred stock, and government obligations. The Adviser considers both the opportunity for gain and the risk of loss in making investments, and may alter the relative percentages of assets invested in equity and fixed income securities from time to time, depending on the judgment of the Adviser as to general market and economic conditions, trends and yields and interest rates and changes in fiscal and monetary policies.
U.S. TREASURY INCOME PORTFOLIO (the "Treasury Income Portfolio") seeks to provide monthly dividends as well as to protect the value of an investors' investment (i.e., to preserve principal) by investing at least 65% of its assets in debt obligations that are backed by the "full faith and credit" of the U.S. government as well as by using futures contracts on fixed income securities or indexes of fixed income securities and options on such futures contracts for the purpose of protecting (i.e., "hedging") the value of its portfolio. Neither the United States nor any of its agencies insures or guarantees the market value of shares of this Treasury Income Portfolio.
MONEY MARKET PORTFOLIO (the "Money Market Portfolio") seeks to provide maximum current income consistent with preservation of capital and maintenance of liquidity through investments in U.S. dollar denominated commercial paper, obligations of foreign governments, obligations guaranteed by U.S. banks, and securities issued by the U.S. government or its agencies.
Of course, there can be no assurance that the Portfolios will achieve their investment objectives. AN INVESTMENT IN EACH PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. INVESTMENTS IN A PORTFOLIO ARE SUBJECT TO RISK -- INCLUDING POSSIBLE LOSS OF PRINCIPAL -- AND MAY FLUCTUATE IN VALUE. Prospective investors should carefully consider the risks associated with an investment in a Portfolio. For a further discussion on the risks associated with an investment in a Portfolio, see "The Trust, Its Investment Objectives and Policies" in this Prospectus.
This Prospectus sets forth concisely the information a prospective investor ought to know before investing in the Trust. A Statement of Additional Information dated December 29, 1995 has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference and may be obtained upon request and without charge by telephoning 1-800-90-VISTA.
The Chase Manhattan Bank, N.A. ("Chase") is the investment adviser (the "Adviser"), custodian (the "Custodian") and administrator ("the Administrator") for each of the Portfolios described in this Prospectus. SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY THE CHASE MANHATTAN BANK, N.A. OR ANY OTHER FINANCIAL INSTITUTION, NOR ARE THEY FDIC INSURED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THE TRUST, ITS INVESTMENT OBJECTIVES AND POLICIES
The Trust, organized as a Massachusetts business trust on April 14, 1994, is an open-end management investment company. It was established to provide a funding medium for certain annuity contracts issued by the Variable Annuity Account Two, a separate account of Anchor National Life Insurance Company, organized under the laws of the State of California and FS Variable Annuity Account Two, a separate account of First SunAmerica Life Insurance Company, organized under the laws of the State of New York. Variable Annuity Account Two and FS Variable Annuity Account Two are referred to as the "Accounts" and Anchor National Life Insurance Company and First SunAmerica Life Insurance Company are referred to as the "Life Companies."
The Trust issues six separate series of shares (the "Portfolio(s)") each of which represents a separate managed portfolio of securities with its own investment objectives. The Board of Trustees may establish additional series in the future. The current Portfolios are the Growth and Income Portfolio, Capital Growth Portfolio, International Equity Portfolio, Asset Allocation Portfolio, U.S. Treasury Income Portfolio, and Money Market Portfolio. All shares of a Portfolio may be purchased or redeemed by the Account at net asset value without any sales or redemption charge. Withdrawals from the Accounts may incur fees or charges described more fully in the applicable contract prospectus.
Each Portfolio has investment objectives and certain policies set forth herein. There can be no guarantee that any Portfolio's investment objectives will be met or that the net return on an investment in a Portfolio will exceed that which could have been obtained through other investment or savings vehicles. Investors should carefully review the investment objectives and policies of a Portfolio and consider their ability to assume the risks involved before making an investment in a Portfolio. Each Portfolio also has certain fundamental investment restrictions, which are described in the Statement of Additional Information. A Portfolio's fundamental investment restrictions may not be changed without a majority vote of shares of that Portfolio. See "Shareholder Voting Rights." Except for its fundamental investment restrictions, each Portfolio's investment objective and policies are not fundamental and may be changed without a vote of the shareholders. If there is a change in a Portfolio's investment objective, shareholders should consider whether the Portfolio remains an appropriate investment in light of their then-current financial positions and needs.
Each Portfolio's investment objectives and a summary of the policies currently followed in attempting to achieve those objectives are set forth below. Please also refer, however, to the section following, captioned "Description of Securities and Investment Techniques," for a more detailed description of the characteristics and risks associated with the types of securities in which the various Portfolios invest. Reference is also made in the following sections to ratings assigned to certain types of securities by Standard & Poor's Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service, Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff & Phelps") and Thomson BankWatch, Inc., recognized independent securities ratings institutions. A description of the ratings categories assigned by S&P, Moody's, Fitch and Duff & Phelps is contained in the Statement of Additional Information.
In addition, each Portfolio will be managed so as to satisfy current Internal Revenue Service guidelines for the adequate diversification of investments underlying variable annuity contracts. This means that, after a one-year start-up period at the end of each calendar quarter, of the value of the total assets of each Portfolio, not more than 55% will be represented by any one investment; not more than 70% will be represented by any two investments; not more than 80% will be represented by any three investments; and not more than 90% will be represented by any four investments. For these purposes, all securities of the same issuer (and all interests in the same commodity) are treated as a single investment, but each U.S. government agency is treated as a separate issuer.
The investment objective of the International Equity Portfolio is to provide its shareholders with a total return on assets from long-term growth of capital and from income principally through diversified holdings of marketable equity securities of established foreign companies organized in countries other than the United States and foreign companies or foreign subsidiaries of U.S. companies participating in foreign economies with prospects for growth.
The International Equity Portfolio will invest its assets primarily in common stocks of established non-United States companies which have potential for growth of capital or income or both. However, there will be no requirement that the International Equity Portfolio invest exclusively in common stocks or other equity securities. The International Equity Portfolio may invest in any other type of investment grade security including, but not limited to, convertible securities, preferred stocks, bonds, notes and other debt securities of foreign issuers (Eurodollar securities), warrants, obligations of the United States or foreign governments and their political subdivisions, securities purchased directly or in the form of sponsored American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or other similar securities representing common stock of foreign issuers, and various derivative securities of such securities. At least 65% of the International Equity Portfolio's assets will be invested in equity securities, i.e., common stocks and securities convertible into common stocks.
The International Equity Portfolio may establish and maintain temporary cash balances up to 100% of its value for defensive purposes or to enable it to take advantage of buying opportunities. The International Equity Portfolio's temporary cash balances may be invested in United States, as well as foreign, short-term, high quality money market instruments, including, but not limited to, government obligations, certificates of deposit, bankers' acceptances, commercial paper, short-term corporate debt securities and repurchase agreements meeting the quality standards described under "Description of Securities and Investment Techniques."
The International Equity Portfolio will seek to diversify investments broadly among issuers in various countries and normally to have represented in the portfolio business activities of not less than three different countries other than the United States. The International Equity Portfolio may invest all or a substantial portion of its assets in one or more of such countries.
The International Equity Portfolio may purchase or sell forward foreign currency exchange contracts ("forward contracts") to attempt to minimize the risk from adverse changes in the relationship between the U.S. dollar and other currencies. The International Equity Portfolio's dealings in forward contracts will be limited to hedging, including cross-hedging, involving either specific transactions or portfolio positions. The International Equity Portfolio will not speculate in forward contracts. The International Equity Portfolio may not position hedge with respect to the currency of a particular country to an extent greater than the aggregate market value (at the time of making such sale) of the securities held by the International Equity Portfolio denominated or quoted in that particular foreign currency. In addition, the International Equity Portfolio may enter into forward contracts in order to protect against adverse changes in future foreign currency exchange rates. The International Equity Portfolio may engage in cross-hedging by using forward contracts in one currency to hedge against fluctuations in the value of securities denominated in a different currency if the Adviser determines that there is a pattern of correlation between the two currencies.
The International Equity Portfolio may seek to increase income by lending portfolio securities. However, the value of the securities loaned will not exceed 30% of the value of the International Equity Portfolio's total assets.
The International Equity Portfolio intends to invest in companies based in (or governments of or within) the Far East (Japan, Hong Kong, Singapore and Malaysia), Western Europe (United Kingdom, Germany, Netherlands, France, Switzerland), Australia, Canada and such other areas and countries as the Adviser may determine from time to time. However, investments may be made from time to time in companies in, or governments of, developing countries as well as developed countries.
In view of the planned integration of Hong Kong into China after 1997, there may be special risks of investing in Hong Kong issuers. However, the planned integration also calls for Hong Kong's capitalist system to remain intact for an additional 50 years after 1997.
Investment in securities of issuers based in developing countries entails certain risks which include (i) greater risks of expropriation, confiscatory taxation, nationalization, and less social, political and economic stability; (ii) the small current size of markets for securities of issuers based in developing countries and the currently low or non-existent volume of trading, resulting in a lack of liquidity and in price volatility; (iii) certain national policies which may restrict the investment opportunities including restrictions on investing in issuers or industries deemed sensitive to relevant national interest; (iv) the absence of developed legal structures governing private or foreign investment and private property; (v) currency blockage; and (vi) withholding of dividends at the source.
The International Equity Portfolio may enter into repurchase agreements which are instruments through which the International Equity Portfolio purchases a security from a bank or well established securities dealer with an agreement by the seller to repurchase the security at the same price, plus interest at a specified rate. The underlying securities will be limited to those which would otherwise qualify for investment by the International Equity Portfolio. See "Description of Securities and Investment Techniques".
Shareholder approval is not required to change any of the investment policies described above or in "Description of Securities and Investment Techniques". However, in the event of a change in the International Equity Portfolio's investment objective, shareholders will be given at least 30 days' prior written notice.
THE NET ASSET VALUE OF THE INTERNATIONAL EQUITY PORTFOLIO WILL FLUCTUATE BASED ON THE VALUE OF THE SECURITIES IN THE PORTFOLIO.
The investment objective of the Capital Growth Portfolio is to provide its shareholders with long-term capital growth. Dividend income, if any, is a consideration incidental to the Capital Growth Portfolio's objective of growth of capital. The Capital Growth Portfolio seeks to achieve its investment objective by investing primarily (i.e., at least 80% of its assets in normal circumstances) in common stocks. The Capital Growth Portfolio will invest all of its assets in the stocks of issuers (including foreign issuers) with small to medium capitalizations. The Adviser intends to utilize both quantitative and fundamental research to identify undervalued stocks with a catalyst for positive change. Dividend income, if any, is a consideration incidental to the Capital Growth Portfolio's investment objective of growth of capital. This investment policy involves the risks that the issues identified by the Adviser will not appreciate or appreciate as significantly as projected.
THE NET ASSET VALUE OF THE CAPITAL GROWTH PORTFOLIO WILL FLUCTUATE BASED ON THE VALUE OF THE SECURITIES IN THE PORTFOLIO.
The Capital Growth Portfolio normally will be substantially fully invested and, in normal circumstances, invest at least 80% of its assets in common stocks. The Portfolio may invest up to 20% of its net assets in stock of foreign issuers. However the Capital Growth Portfolio reserves the right to invest up to 100% of its assets in cash, cash equivalents and debt securities for temporary defensive purposes during periods which the Adviser considers to be particularly risky for investment in common stocks.
The Capital Growth Portfolio may enter into transactions in stock index futures contracts, options on stock index futures contracts, options on stock indexes and options on equity securities, for the purpose of hedging its portfolio. "Description of Securities and Investment Techniques" and the Statement of Additional Information contain a more complete description of the hedging instruments to be used, as well as further information concerning the investment policies and techniques of the Capital Growth Portfolio. In addition, the Statement of Additional Information includes a further discussion of the transactions in futures and option contracts to be entered into by the Capital
Portfolio. Although the Capital Growth Portfolio will enter into transactions in futures and option contracts for hedging purposes only, the use of such instruments does involve transaction costs and certain risks, which are discussed in the Statement of Additional Information.
Shareholder approval is not required to change any of the investment policies described above or in "Description of Securities and Investment Techniques". However, in the event of a change in the Capital Growth Portfolio's investment objectives, shareholders will be given at least 30 days' prior written notice.
The primary investment objective of the Growth and Income Portfolio is long-term capital appreciation. The Growth and Income Portfolio's secondary investment objective is to provide dividend income. The Growth and Income Portfolio seeks to achieve its investment objectives by investing primarily (i.e., at least 80% of its assets under normal circumstances) in common stocks. The Growth and Income Portfolio will invest its assets in stocks of issuers (including foreign issuers) ranging from small to medium to large capitalizations. For the most part, the Adviser will pursue a "contrary opinion" investment approach, selecting commons stocks that are currently out of favor with investors in the stock market. These securities are usually characterized by a relatively low price/earnings ratio (using normalized earnings), a low ratio of market price to book value, or underlying asset values that the Adviser believes are not fully reflected in the current market price. The Adviser believes that the market risk involved in this policy will be moderated somewhat by the anticipated dividend returns on the stocks to be held.
THE NET ASSET VALUE OF THE GROWTH AND INCOME PORTFOLIO WILL FLUCTUATE BASED ON THE VALUE OF THE SECURITIES IN THE PORTFOLIO.
The Growth and Income Portfolio normally will be substantially fully invested and, in normal circumstances, invest at least 80% of its assets in common stocks. The Portfolio may invest up to 20% of its net assets in stock of foreign issuers. However, the Growth and Income Portfolio reserves the right to invest up to 100% of its assets in cash, cash equivalents and debt securities for temporary defensive purposes during periods that the Adviser considers to be particularly risky for investment in common stocks.
The Growth and Income Portfolio may enter into transactions in stock index futures contracts, options on stock index futures contracts, options on stock indexes and options on equity securities, for the purpose of hedging its portfolio. "Description of Securities and Investment Techniques" and the Statement of Additional Information contain a more complete description of the hedging instruments to be traded, as well as further information concerning the investment policies and techniques of the Growth and Income Portfolio. In addition, the Statement of Additional Information includes a further discussion of futures and option contracts to be entered into by the Growth and Income Portfolio. Although the Growth and Income Portfolio will enter into futures and option contracts for hedging purposes only, the use of such instruments does involve transaction costs and certain risks, which are discussed in the Statement of Additional Information.
Shareholder approval is not required to change any of the investment policies described above or in "Description of Securities and Investment Techniques." However, in the event of a change in the Growth and Income Portfolio's investment objectives, shareholders will be given at least 30 days' prior written notice.
The primary investment objective of the Asset Allocation Portfolio is to maximize total return through a combination of long-term growth of capital and current income.
The Asset Allocation Portfolio seeks to achieve this objective through a policy of diversified investments in equity and debt securities, including common stocks, convertible securities and government and corporate fixed-income obligations. The Adviser considers both the opportunity for gain and the risk of loss in making investments, and may alter the relative percentages of assets invested in equity and fixed income senior securities from time to time, depending on the judgment of the Adviser as to general market and economic conditions, trends and yields and interest rates and changes in fiscal monetary policies.
Under normal market conditions, between 35%-70% of the Asset Allocation Portfolio's total assets will be invested in common stocks and other equity investments (which consists of convertible preferred stocks, convertible debt, warrants and other securities convertible into or exchangeable for common stocks). The majority of the Asset Allocation Portfolio's common stocks and other equity investments will be invested in well-known and established companies which have a market capitalization of at least $200 million and are traded on established securities markets or over-the-counter.
In addition, at least 25% of the Asset Allocation Portfolio's assets will be invested in fixed-income senior securities, defined for this purpose to include non-convertible corporate debt securities, non-convertible preferred stock, and government obligations. The average maturity of these investments will vary from time to time depending on the Adviser's assessment of the relative yields available on securities of different maturities. It is currently anticipated that the average maturity of the fixed income securities in the Asset Allocation Portfolio's portfolio will be between two and fifteen years under normal market conditions. Non-convertible corporate debt obligations held in the Asset Allocation Portfolio's portfolio will be rated, at the time of purchase, BBB or higher by S&P or Baa or higher by Moody's or, if unrated, determined to be comparable quality by the Adviser under criteria approved by the Board of Trustees. Bonds rated BBB by S&P or Baa by Moody's may possess speculative characteristics and may be sensitive to changes in the economy and the financial condition of issuers.
The Asset Allocation Portfolio may also purchase obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities, and may invest in high quality, short-term debt securities such as commercial paper rated A-1 by S&P or P-1 by Moody's. See "Description of Securities and Investment Techniques" for more information on the Asset Allocation Portfolio's investment policies.
THE NET ASSET VALUE FOR THE ASSET ALLOCATION PORTFOLIO WILL FLUCTUATE BASED ON THE VALUE OF THE SECURITIES IN THE PORTFOLIO.
The Asset Allocation Portfolio normally will be substantially fully invested. However, the Asset Allocation Portfolio reserves the right to invest up to 100% of its assets in cash, cash equivalents, high quality, short-term money market instruments, and in bills, notes or bonds issued by the U.S. Treasury Department or by other agencies of the U.S. government for temporary defensive purposes during periods that the Adviser considers to be unsuitable for the Asset Allocation Portfolio's normal investment strategies.
The Asset Allocation Portfolio may write covered call options on its equity securities for the purpose of hedging its portfolio. "Description of Securities and Investment Techniques" contain a more complete description of option contracts, as well as further information concerning the investment policies and techniques of the Asset Allocation Portfolio. In addition, the Statement of Additional Information includes a further discussion of option contracts to be entered into by the Asset Allocation Portfolio. Although the Asset Allocation Portfolio will enter into option contracts for hedging purposes only, the use of such instruments does involve transaction costs and certain risks, which are discussed in the Statement of Additional Information.
Shareholder approval is not required to change any of the investment policies described above or in "Description of Securities and Investment Techniques." However, in the event of change in the Asset Allocation Portfolio's investment objective, shareholders will be given at least 30 days' prior written notice.
The investment objective of the Treasury Income Portfolio is to provide its shareholders with monthly dividends as well as to protect the value of its shareholders' investment (i.e., to preserve principal).
The Treasury Income Portfolio seeks to achieve its investment objective by investing at least 65% of its assets in debt obligations that are backed by the "full faith and credit" of the U.S. government as well as by using futures contracts on fixed income securities or indexes of fixed income securities and options on such futures contracts for the purpose of protecting (i.e., "hedging") the value of its portfolio. Neither the United States nor any of its agencies insures or guarantees the market value of shares of the Treasury Income Portfolio.
The debt obligations in which the Treasury Income Portfolio's assets will be invested include: (1) U.S. Treasury obligations, which differ only in their interest rates, maturities and times of issuance, such as U.S. Treasury bills (maturity of one year or less), U.S. Treasury notes (maturities of one to 10 years), and U.S. Treasury bonds (generally maturities of greater than 10 years); (2) obligations issued or guaranteed by U.S. government agencies or instrumentalities if such obligations are backed by the "full faith and credit" of the U.S. Treasury, e.g., direct pass-through certificates of the Government National Mortgage Association ("GNMA"); and (3) securities issued or guaranteed as to principal and interest by the U.S. government or by agencies or instrumentalities thereof. For a description of such obligations, see "Description of Securities and Investment Techniques".
Although there is no credit risk involved in the purchase of debt obligations that are backed by the "full faith and credit" of the U.S. government, shares of the Treasury Income Portfolio are neither insured nor guaranteed by the U.S. government or its agencies or instrumentalities. MOREOVER, THE NET ASSET VALUE OF THE SHARES OF AN OPEN-END INVESTMENT COMPANY SUCH AS THE TREASURY INCOME PORTFOLIO, WHICH INVESTS IN FIXED INCOME SECURITIES, CHANGES AS THE GENERAL LEVELS OF INTEREST RATES FLUCTUATE. WHEN INTEREST RATES DECLINE, THE VALUE OF A PORTFOLIO CAN BE EXPECTED TO RISE. CONVERSELY, WHEN INTEREST RATES RISE, THE VALUE OF A PORTFOLIO CAN BE EXPECTED TO DECLINE.
The Treasury Income Portfolio may invest in repurchase agreements, "when-issued" securities and futures contracts. For a description of these types of investments, and further information regarding the investment policies and techniques of the Portfolio, see "Description of Securities and Investment Techniques". In addition, the Statement of Additional Information includes a further discussion of futures and option contracts to be entered into by the Treasury Income Portfolio. Although the Treasury Income Portfolio will enter into futures and option contracts for hedging purposes only, the use of such instruments does involve transaction costs and certain risks, which are discussed in the Statement of Additional Information.
Shareholder approval is not required to change any of the investment policies discussed above or in "Description of Securities and Investment Techniques".
The investment objective of the Money Market Portfolio is to seek as high a level of current income as is consistent with high stability and liquidity of capital.
The Money Market Portfolio seeks to achieve its investment objective by investing in (i) U.S. dollar-denominated high quality commercial paper and other short-term obligations, including floating and variable rate master demand notes of U.S. and foreign corporations; (ii) U.S. dollar-dominated obligations of foreign governments and supranational agencies (e.g. the International Bank for Reconstruction and Development); (iii) U.S. dollar-denominated obligations issued or guaranteed by U.S. banks with total assets exceeding $1 billion and by the 75 largest foreign commercial banks (including obligations of foreign branches of such banks) in terms of total assets as reported in recognized financial publications, or such other U.S. or foreign commercial banks which are judged by the Adviser to meet comparable credit standing criteria; (iv) securities issued or guaranteed as to principal and interest by the U.S. government or by agencies or instrumentalities thereof; and
(v) repurchase agreements related to these securities. The securities in which the Money Market Portfolio invests, described in greater detail under "Description of Securities and Investment Techniques" will be of high quality and present minimal credit risks. There can be no assurance that the Money Market Portfolio will achieve its investment objective or that it will be able to maintain the $1.00 net asset value per share.
It is anticipated that, in normal circumstances, the Money Market Portfolio's assets will include securities of issuers in at least three countries, including the United States. However, all of the Money Market Portfolio's investments will be in U.S. dollar-denominated securities with remaining maturities of 397 days or less. Securities in which the Money Market Portfolio will invest may not earn as high a level of current income as long-term or lower quality securities which generally have less liquidity, greater market risk and more fluctuation in market value. Certain instruments issued or guaranteed by issuers, including the U.S. government or agencies thereof, which have a variable rate of interest readjusted no less frequently than annually are deemed to have a maturity equal to the period remaining until the next readjustment of the interest rate. The dollar weighted average maturity of the Money Market Portfolio will be 90 days or less.
Shareholder approval is not required to change any of the investment policies discussed above or in "Description of Securities and Investment Techniques".
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
Each Fund, other than the Money Market Portfolio, may invest its assets in derivative and related instruments subject only to each Fund's investment objective and policies and the requirement that, to avoid leveraging the Fund, the Fund maintain segregated accounts consisting of liquid assets, such as cash, U.S. Government securities, or other high-grade debt obligations (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations under such instruments with respect to positions where there is no underlying portfolio asset.
The value of some derivative or similar instruments in which a Fund invests may be particularly sensitive to changes in prevailing interest rates or other economic factors, and -- like other investments of the Fund -- the ability to the Fund to successfully utilize these instruments may depend in part upon the ability of the Adviser to forecast interest rates and other economic factors correctly. If the Adviser incorrectly forecasts such factors and has taken positions in derivative or similar instruments contrary to prevailing market trends, the Fund could be exposed to the risk of a loss. A FUND MIGHT NOT EMPLOY ANY OR ALL OF THE INSTRUMENTS DESCRIBED HEREIN, AND NO ASSURANCE CAN BE GIVEN THAT ANY STRATEGY USED WILL SUCCEED.
To the extent permitted by the investment objectives and policies of each Fund, and as described more fully in the Fund's Statement of Additional Information, a Fund may:
- purchase, write and exercise call and put options on securities, securities indexes and foreign currencies (including using options in combination with securities, other options or derivative instruments);
- enter into futures contracts and options on futures contracts;
- employ forward currency and interest-rate contracts;
- purchase and sell mortgage-backed securities; and
- purchase and sell structured products.
As explained more fully in the Statement of Additional Information, there are a number of risks associated with the use of derivatives and related instruments, including:
- THERE CAN BE NO GUARANTEE THAT THERE WILL BE A CORRELATION BETWEEN PRICE MOVEMENTS IN A HEDGING VEHICLE AND IN THE PORTFOLIO ASSETS BEING HEDGED. As incorrect correlation could result in a loss on both the hedged assets in a Fund and the hedging vehicle so that the portfolio return might have been greater had hedging not been attempted. This risk is particularly acute in the case of "cross-hedges" between currencies.
- THE ADVISER MAY INCORRECTLY FORECAST INTEREST RATES, MARKET VALUES OR OTHER ECONOMIC FACTORS IN UTILIZING A DERIVATIVES STRATEGY. In such a case, the Fund may have been in a better position had it not entered into such strategy.
- HEDGING STRATEGIES, WHILE REDUCING RISK OF LOSS, CAN ALSO REDUCE THE OPPORTUNITY FOR GAIN. In other words, hedging usually limits both potential losses as well as potential gains.
- STRATEGIES NOT INVOLVING HEDGING MAY INCREASE THE RISK TO A FUND. Certain strategies, such as yield enhancement, can have speculative characteristics and may result in more risk to a Fund than hedging strategies using the same instruments.
- THERE CAN BE NO ASSURANCE THAT A LIQUID MARKET WILL EXIST AT A TIME WHEN A FUND SEEKS TO CLOSE OUT AN OPTION, FUTURES CONTRACT OR OTHER DERIVATIVE OR RELATED POSITION. Many exchanges and boards of trade limit the amount of fluctuation permitted in option or futures contract prices during a single day; once the daily limit has been reached on particular contract, no trades may be made that day at a price beyond that limit. In addition, certain instruments are relatively new and without a significant trading history. As a result, there is no assurance that an active secondary market will develop or continue to exist.
- ACTIVITIES OF LARGE TRADERS IN THE FUTURES AND SECURITIES MARKETS INVOLVING ARBITRAGE, "PROGRAM TRADING," AND OTHER INVESTMENT STRATEGIES MAY CAUSE PRICE DISTORTIONS IN THESE MARKETS.
- IN CERTAIN INSTANCES, PARTICULARLY THOSE INVOLVING OVER-THE-COUNTER TRANSACTIONS, FORWARD CONTRACTS, FOREIGN EXCHANGES OR FOREIGN BOARDS OF TRADE, THERE IS A GREATER POTENTIAL THAT A COUNTERPARTY OR BROKER MAY DEFAULT OR BE UNABLE TO PERFORM ON ITS COMMITMENTS. In the event of such a default, a Fund may experience a loss.
- IN TRANSACTIONS INVOLVING CURRENCIES, THE VALUE OF THE CURRENCY UNDERLYING AN INSTRUMENT MAY FLUCTUATE DUE TO MANY FACTORS, INCLUDING ECONOMIC CONDITIONS, INTEREST RATES, GOVERNMENTAL POLICIES AND MARKET FORCES.
REPURCHASE AGREEMENTS. The Portfolios may, when appropriate, enter into repurchase agreements (a purchase of and simultaneous commitment to resell a security at an agreed-upon price and date which is usually not more than seven days from the date of purchase) only with member banks of the Federal Reserve System and security dealers believed creditworthy and only if fully collateralized by U.S. government obligations or other securities in which a Portfolio is permitted to invest. In the event the seller fails to pay the agreed-to sum on the agreed-upon delivery date, the underlying security could be sold by a Portfolio, but the Portfolio might incur a loss in doing so, and in certain cases may not be permitted to sell the security. As an operating policy, a Portfolio, through its custodian bank, takes constructive possession of the collateral underlying repurchase agreements. Additionally, procedures have been established for the Portfolios to monitor, on a daily basis, the market value of the collateral underlying all repurchase agreements to ensure that the collateral is at least 100% of the value of the repurchase agreements. Not more than 10% of the total assets of a Portfolio will be invested in securities which are subject to legal or contractual restrictions on resale, including securities that are not readily marketable and repurchase agreements maturing in more than seven days.
SECURITIES LENDING. Although the Growth and Income Portfolio, Capital Growth Portfolio, International Equity Portfolio, and Treasury Income Portfolio would not intend to engage in such activity in the ordinary course of business, such Portfolios are permitted to lend securities to broker-dealers and other institutional investors in order to generate additional income. Such loans of portfolio securities may not exceed 30% of the value of a Portfolio's total assets. In connection with such loans, the Growth and Income Portfolio, Capital Growth Portfolio, International Equity Portfolio and Treasury Income Portfolio will receive collateral consisting of cash, cash equivalents, U.S. government securities or irrevocable letters of credit issued by financial institutions. Such collateral will be maintained at all times in an amount equal to at least 100% of the current market value of the securities loaned. A Portfolio may increase its income through the investment of such collateral. Each Portfolio will continue to be entitled to the interest payable or any dividend-equivalent payments received on a loaned security and, in addition, receive interest on the amount of the loan. However, the receipt of any dividend-equivalent payments by a Portfolio on a loaned security from the borrower will not qualify for the dividends-received deduction. Such loans will be terminable at any time upon specified notice. The Growth and Income Portfolio, Capital Growth Portfolio, International Equity Portfolio, and Treasury Income Portfolio might experience risk of loss if the institutions with which it has engaged in portfolio loan transactions breach their agreements with a Portfolio. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delays in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower experience financial difficulty. Loans will be made only to firms deemed by the Adviser to be of good standing and will not be made unless, in the judgment of the Adviser, the consideration to be earned from such loans justifies the risk.
WHEN-ISSUED OR FORWARD DELIVERY PURCHASES. The Treasury Income Portfolio and the Money Market Portfolio may purchase new issues of securities in which they are permitted to invest on a "when-issued" or, with respect to existing issues, on a "forward delivery" basis, which means that the securities will be delivered at a future date beyond the customary settlement time. Although there is no limit as to the amount of the commitments which may be made by a Portfolio to purchase securities on a "when-issued" or "forward delivery" basis, it is expected that under normal circumstances not more than 30% of a Portfolio's total assets will be committed to such purchases. A Portfolio does not pay for such obligations or start earning interest on them until the contractual settlement date. Although commitments to purchase "when-issued" or "forward delivery" securities will only be made with the intention of actually acquiring them, these securities may be sold before the settlement date if deemed advisable by the Adviser.
While it is not intended that such purchases would be made for speculative purposes, purchases of securities on a "when-issued" or "forward delivery" basis can involve more risk than other types of purchases. For example, when the time comes to pay for a "when-issued" or "forward delivery" security, the Treasury Income Portfolio's and the Money Market Portfolio's portfolio securities may have to be sold in order to meet payment obligations. Also, if it is necessary to sell the "when-issued" or "forward delivery" security before delivery, a Portfolio may incur a loss because of market fluctuations since the time that the commitment to purchase the "when-issued" or "forward delivery" security was made.
U.S. GOVERNMENT SECURITIES. For purposes of the International Equity Portfolio, U.S. government securities include (1) U.S. Treasury obligations, which differ in their interest rates, maturities and times of issuance: U.S. Treasury bills (maturities of one year or less), U.S. Treasury notes (maturities of one to ten years) and U.S. Treasury bonds (generally maturities of greater than ten years) and (2) obligations issued or guaranteed by U.S. government agencies and instrumentalities which are supported by any of the following: (a) the full faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow any amount limited to a specific line of credit from the U.S. Treasury, (c) discretionary authority of the U.S. government to purchase certain obligations of the U.S. government agency or instrumentality or (d) the credit of the agency or instrumentality. The International Equity Portfolio may also invest in any other security or agreement collateralized or otherwise secured by U.S. government securities. Agencies and instrumentalities of the U.S. government include but are not limited to: Federal Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal Intermediate Credit Banks, Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Student Loan Marketing Association, United States Postal Service, Chrysler Corporate Loan Guarantee Board, Small Business Administration, Tennessee Valley Authority and any other enterprise established or sponsored by the U.S. government.
Certain U.S. government securities purchased by the International Equity Portfolio and Treasury Income Portfolio, including U.S. Treasury bills, notes and bonds, Government National Mortgage Association ("GNMA") certificates and Federal Housing Administration debentures, are supported by the full faith and credit of the United States. Other U.S. government securities are issued or guaranteed by Federal agencies or government sponsored enterprises and are not supported by the full faith and credit of the United States. These securities include obligations that are supported by the right of the issuer to borrow from the U.S. Treasury, such as obligations of Federal Home Loan Banks, and obligations that are supported by the creditworthiness of the particular instrumentality, such as obligations of Federal National Mortgage Association or Federal Home Loan Mortgage Corporation.
If GNMA securities are purchased by a Portfolio at a premium above principal, the premium is not guaranteed by the issuing agency and a decline in the market value to par may result in a loss to the Portfolio of the premium, which may be particularly likely in the event of a prepayment. When and if available, U.S. government obligations may be purchased at a discount from face value. However, the Portfolios do not intend to hold such securities to maturity for the purpose of achieving potential capital gains, unless current yields on these securities remain attractive.
HIGH QUALITY DEBT SECURITIES. The International Equity Portfolio seeks to minimize investment risk by limiting its portfolio investments in debt securities to high quality debt securities. Accordingly, that portion of the International Equity Portfolio's investment in debt securities consists only of: (i) debt securities issued or guaranteed by the U.S. government, its agencies or instrumentalities; (ii) obligations issued or guaranteed by a foreign government or any of its political subdivisions, authorities, agencies or instrumentalities, or by supranational entities, all of which are rated AAA or AA by S&P or Aaa or Aa by Moody's ("High Quality Ratings") or, if unrated, determined by the Adviser to be of equivalent quality; (iii) corporate debt securities having at least one High Quality Rating, or, if unrated, determined by the Adviser to be of equivalent quality; (iv) certificates of deposit and bankers acceptances issued or guaranteed by, or time deposits maintained at, banks (including foreign branches of U.S. banks or U.S. or foreign branches of foreign banks) having total assets of more than $500 million and determined by the Adviser to be of high quality; and (v) commercial paper rated A1 or A2 by S&P, Prime-1 or Prime-2 by Moody's, Fitch-1 or Fitch-2 by Fitch or Duff 1 or Duff 2 by Duff and Phelps or, if not rated, issued by U.S. or foreign companies having outstanding debt securities rated AAA or AA by S&P, or Aaa or Aa by Moody's or determined by the Adviser to be of high quality.
CERTAIN INVESTMENT POLICIES. The Portfolios will not invest in illiquid securities if immediately after such investment more than 15% of a Portfolio's net assets (taken at market value) would be invested in such securities. For this purpose, illiquid securities include (a) private placements other than Rule 144A securities (Rule 144A securities may not, however, be as liquid as similar securities registered under the Securities Act of 1933 if, for example, qualified Rule 144A purchasers are not interested in purchasing particular Rule 144A securities from a Portfolio), (b) other securities which are subject to legal or contractual restrictions on resale or for which there is no readily available market (e.g., trading in the security is suspended or, in the case of unlisted securities, market makers do not exist or will not entertain bids or offers), (c) options purchased by a Portfolio over-the-counter and the cover for options written by the Portfolio over-the-counter, except with respect to such transactions entered into with primary dealers in U.S. government securities pursuant to an agreement requiring a closing purchase transaction at a formula price, and (d) repurchase agreements not terminable within seven days.
NON-U.S. SECURITIES. Investing in securities issued by foreign corporations and governments involves considerations and possible risks not typically associated with investing in securities issued by domestic corporations and the U.S. government. The values of foreign investments are affected by changes in currency rates or exchange control regulations, application of foreign tax laws, including withholding taxes, changes in governmental administration or economic or monetary policy (in the U.S. or other countries) or changed circumstances in dealing between countries. Costs are incurred in connection with conversions between various currencies. In addition, foreign brokerage commissions are generally higher than in the United States, and foreign securities markets may be less liquid, more volatile and less subject to governmental supervision than in the United States. Investments in foreign countries could be affected by other factors not present in the United States, including expropriation, confiscatory taxation, lack of uniform accounting and auditing standards and potential difficulties in enforcing contractual obligations and could be subject to extended settlement periods.
The International Equity Portfolio, Growth and Income Portfolio and Capital Growth Portfolio may invest in securities denominated in the ECU, which is a "basket" consisting of specified amounts of currencies of certain member states of the European Community. The specific amounts of currencies comprising the ECU may be adjusted by the Council of Ministers of the European Community to reflect changes in relative values of the underlying currencies. The Trustees do not believe that such adjustments will adversely affect holders of ECU-denominated securities or the marketability of such securities. European governments and supranational organizations (discussed below), in particular, issue ECU-denominated securities.
The International Equity Portfolio, Growth and Income Portfolio and Capital Growth Portfolio may invest in securities issued by supranational organizations such as: the World Bank, which was chartered to finance development projects in developing member countries; the European Community, which is a twelve-nation organization engaged in cooperative economic activities; the European Coal and Steel Community, which is an economic union of various European nations' steel and coal industries; and the Asian Development Bank, which is an international development bank established to lend funds, promote investment and provide technical assistance to member nations of the Asian and Pacific regions.
The International Equity Portfolio may invest its assets in securities of foreign issuers in the form of sponsored ADRs, EDRs, or other similar securities representing securities of foreign issuers. ADRs are receipts typically issued by an American bank or trust company evidencing ownership of the underlying foreign securities. EDRs are receipts issued by a European financial institution evidencing a similar arrangement. Generally, ADRs, in registered form, are designed for use in U.S. securities markets and EDRs, in bearer form are designed for use in European securities markets.
The Trust's Board of Trustees is responsible for the overall supervision of the operations of the Trust and performs various duties imposed on trustees of investment companies by the Investment Company Act of 1940, as amended (the "1940 Act").
The Chase Manhattan Bank, N.A. (the "Adviser") manages the assets of each Portfolio pursuant to an Investment Advisory Agreement dated August 23, 1994. Subject to such policies as the Board of Trustees may determine, the Adviser makes investment decisions for each Portfolio.
International Equity Portfolio. Joe DeSantis, Vice President of the Adviser, is responsible for the day-to-day management of the International Equity Portfolio. Mr. DeSantis joined Chase in 1990 with responsibility for research and compilation of international equity recommendations, among other things. Mr. DeSantis was formerly a director at Strategic Research
Institutional Research Services, Carl Marks & Company; a founding partner and director of Strategic Research International, Inc.; and a credit analyst at Moody's Municipal Research Department.
For its services under the Investment Advisory Agreement, the Adviser is entitled to receive an annual fee computed daily and paid monthly based at an annual rate equal to 0.80% of the Portfolio's average daily net assets. The fees paid to the Adviser or an affiliate thereof are higher than the fees paid by most other investment companies; however, the Board of Trustees believes that these fees are comparable to those of other investment companies with similar investment objectives. The Adviser may, from time to time, voluntarily waive all or a portion of its fees payable under the Advisory Agreement.
Capital Growth Portfolio. Dave Klassen, Vice President of the Adviser, is responsible for the day-to-day management of the Capital Growth Portfolio. Mr. Klassen joined Chase in March 1992 and, in addition to managing the Capital Growth Portfolio, is responsible for managing or co-managing several pooled equity funds including the Vista Capital Growth Fund. Prior to joining Chase, Mr. Klassen was a vice president and portfolio manager at Dean Witter Reynolds, responsible for managing several mutual funds and other accounts. For its services under the Investment Advisory Agreement, the Adviser receives an annual fee computed daily and paid monthly based at an annual rate equal to 0.60% of the Portfolio's average daily net assets. The Adviser may, from time to time, voluntarily waive all or a portion of its fees payable under the Advisory Agreement.
Growth and Income Portfolio. Dave Klassen and Greg Adams, Vice Presidents of the Advisor, co-manage the Growth and Income Portfolio. Mr. Klassen, Head of U.S. Equity Funds Management and Research for Chase, is also primarily responsible for the day-to-day management of the Capital Growth Portfolio, as well as several pooled equity funds. Mr. Klassen joined Chase in March of 1992. Prior to that he spent 11 years at Dean Witter Reynolds as Vice President and Portfolio Manager, responsible for a number of mutual funds and other accounts. Mr. Adams, Director of U.S. Equity Research for Chase, is also responsible for managing the Vista Equity Fund, the Vista Equity Income Fund, and co-managing the Vista Balanced Fund, as well as managing a number of Chase's pooled equity funds. Mr. Adams joined Chase in 1987 and has been responsible for overseeing the proprietary computer model program used in the U.S. equity selection process. For its services under the Investment Advisory Agreement, the Adviser will receive an annual fee computed daily and paid monthly based at an annual rate equal to 0.60% of the Portfolio's average daily net assets. The Adviser may, from time to time, voluntarily waive all or a portion of its fees payable under the Advisory Agreement.
Asset Allocation Portfolio. Greg Adams and Alex Powers, Vice Presidents of the Adviser, are responsible for the day-to-day management of the Asset Allocation Portfolio. Mr. Adams has been with Chase since 1987 and oversees the equity trading for the Portfolio. He also co-manages several pooled funds including the Vista Balanced Fund and Vista Equity Fund. Mr. Powers joined Chase in 1988, and is responsible for the fixed income trading for the Portfolio. Mr. Powers also manages the portfolio of the Chase Vista U.S. Government Securities Fund, as well as individual and institutional accounts. For its services under the Investment Advisory Agreement, the Adviser receives an annual fee computed daily and paid monthly based at an annual rate equal to 0.55% of the Portfolio's average daily net assets. The Adviser may, from time to time, voluntarily waive all or a portion of its fees payable under the Advisory Agreement.
Treasury Income Portfolio. Alex Powers, Vice President of the Adviser, is responsible for the day-to-day management of the Treasury Income Portfolio. Mr. Powers joined Chase in 1988, and is part of a team responsible for fixed income strategy, research and trading within Chase. Mr. Powers also manages the portfolio of the Chase Vista U.S. Government Securities Fund, as well as individual and institutional accounts. For its services under the Investment Advisory Agreement, the Adviser receives an annual fee computed daily and paid monthly based at an annual rate equal to 0.50% of the Portfolio's average daily net assets. The Adviser may, from time to time, voluntarily waive all or a portion of its fees payable under the Advisory Agreement.
Money Market Portfolio. Subject to such policies as the Board of Trustees may determine, the Adviser makes investment decisions for the Money Market Portfolio. For its services under the
Investment Advisory Agreement, the Adviser receives an annual fee computed daily and paid monthly based at an annual rate equal to 0.25% of the Portfolio's average daily net assets. However, the Adviser may, from time to time, voluntarily waive all or a portion of its fees payable under the Investment Advisory Agreement.
The Adviser, a wholly-owned subsidiary of The Chase Manhattan Corporation, a registered bank holding company, is a commercial bank offering a wide range of banking and investment services to customers throughout the United States and around the world. Its headquarters are at One Chase Manhattan Plaza, New York, NY 10081. The Adviser, including its predecessor organizations, has over 100 years of money management experience and renders investment advisory services to others. Also included among the Adviser's accounts are commingled trust funds and a broad spectrum of individual trust and investment management portfolios. These accounts have varying investment objectives.
In August 1995, The Chase Manhattan Corporation and Chemical Banking Corporation announced that they had entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which The Chase Manhattan Corporation will merge with Chemical (the "Holding Company Merger"). Under the terms of the Merger Agreement, Chemical will be the surviving corporation in the Holding Company Merger and will continue its corporate existence under Delaware law under the name "The Chase Manhattan Corporation". Subsequent to the Holding Company Merger, The Chase Manhattan Bank, N.A. (the "Adviser"), will be merged with and into Chemical Bank, a New York banking corporation (the "Bank Merger"). Both the Holding Company Merger and Bank Merger are subject to certain conditions, including certain regulatory approvals.
As required by the Investment Company Act of 1940, as amended (the "1940 Act"), the current advisory agreement (the "Current Agreement") between each Fund and the Adviser provides for its automatic termination upon its "assignment" (as defined in the 1940 Act). Consummation of the Holding Company Merger and the Bank Merger may be deemed to result in an assignment of each Current Agreement and, consequently, to terminate each Current Agreement in accordance with its terms. After the Holding Company Merger, the Adviser (or the successor thereto) will continue rendering services to the Funds under anticipated exemptive relief from the Securities and Exchange Commission and advisory services will not be impaired thereby. Shareholder approval of new advisory agreements will be solicited in the first quarter of 1996.
CERTAIN RELATIONSHIPS AND ACTIVITIES. The Adviser and its affiliates may have deposit, loan and other commercial banking relationships with the issuers of securities purchased on behalf of the Portfolios, including outstanding loans to such issuers which may be repaid in whole or in part with the proceeds of securities so purchased. The Adviser and its affiliates deal, trade and invest for their own accounts in U.S. government obligations, municipal obligations and commercial paper and are among the leading dealers of various types of U.S. government obligations and municipal obligations. The Adviser and its affiliates may sell U.S. government obligations and municipal obligations to, and purchase them from, other investment companies sponsored by affiliates of the Distributor. The Adviser will not invest the Portfolios' assets in any U.S. government obligations, municipal obligations or commercial paper purchased from itself or any affiliate, although under certain circumstances such securities may be purchased from other members of an underwriting syndicate in which the Adviser or an affiliate is a non-principal member. This restriction may limit the amount or type of U.S. government obligations, municipal obligations or commercial paper available to be purchased by the Portfolios. The Adviser has informed the Portfolios that in making its investment decisions, it does not obtain or use material inside information in the possession of any other division or department of the Adviser, including the division that performs services for the Portfolios as Custodian, or in the possession of any affiliate of the Adviser.
Pursuant to an Administration Agreement, dated as of August 23, 1994 (the "Administration Agreements"), Chase serves as administrator of the Trust. The administrative services, including, among other responsibilities, coordinating relationships with independent contractors and agents; preparing for signature by officers and filing of certain documents required for compliance with applicable laws and regulations excluding those of the securities laws of the various states; preparing financial statements; arranging for the maintenance of books and records; and providing office facilities necessary to carry out the duties thereunder. The Administrator receives from each Portfolio a fee computed daily and paid monthly at an annual rate equal to 0.05% of each Portfolio's average daily net assets. The Administrator may, from time to time, voluntarily waive all or a portion of its fees payable to it under the Administration Agreement. The Administrator shall not have any responsibility or authority for the Portfolio's investments, the determination of investment policy, or for any matter pertaining to the distribution of shares of a Portfolio.
GLASS-STEAGALL ACT. Chase has received the opinion of its legal counsel that it may provide the services described in the Investment Advisory and the Administration Agreements, as described above, and the Custodian Agreement with the Trust, as described below, without violating the federal banking law commonly known as the Glass-Steagall Act. The Act generally bars banks from publicly underwriting or distributing certain securities.
The U.S. Supreme Court in its 1981 decision in Board of Governors of the Federal Reserve System v. Investment Company Institute determined that, consistent with the requirements of the Act, a bank may serve as an investment adviser to a registered, closed-end investment company. Other decisions of banking regulators have supported the position that a bank may act as investment adviser to a registered, open-end investment company. Based on the advice of its counsel, the Adviser believes that the Court's decision and other decisions of federal banking regulators permit it to serve as investment adviser to a registered, open-end investment company.
Regarding the performance of custodial activities, the staff of the Office of the Comptroller of the Currency, which supervises national banks, has issued opinion letters stating that national banks may engage in custodial activities. Therefore, the Adviser and the Administrator believe, based on advice of counsel, that they may serve as Custodian to the Trust and render the services described below and as set forth in the Custodian Agreement, as an appropriate, incidental national banking function and as a proper adjunct to their serving as investment adviser and administrator to each Portfolio.
Industry practice and regulatory decisions also support a bank's authority to act as administrator for a registered investment company. Chase, on the advice of its counsel believes that it may render the services described in its Administration Agreement without violating the Glass-Steagall Act or other applicable banking laws.
Possible future changes in federal law or administrative or judicial interpretations of current or future law, however, could prevent the Adviser from continuing to perform investment advisory, custodial or other administrative services for each Portfolio. If that occurred, the Board of Trustees promptly would seek to obtain for each Portfolio the services of another qualified adviser, custodian or administrator, as necessary. Although no assurances can be given, the Trust believes that, if necessary, the transfer to a new adviser, custodian or administrator could be accomplished without undue disruption to the operations of the Portfolios.
Pursuant to a Sub-Administration Agreement, dated August 23, 1994 (the "Sub-Administration Agreement"), provides that Vista Broker-Dealer Services, Inc. ("VBDS") will provide certain sub-administration services, including providing officers clerical staff and office space. VBDS will receive a fee for sub-administration from each Portfolio at an annual rate equal to 0.15% of each Portfolio's average daily net assets, on an annualized basis for the Portfolio's then-current fiscal year.
State Street Bank and Trust Company ("State Street") acts as transfer agent and dividend disbursing agent (the "Transfer Agent") for the Trust. For its services as Transfer Agent, State Street receives such compensation as is from time to time agreed upon by the Trust and State Street. State Street's address is 1 Heritage Drive, Quincy, MA 02171. Pursuant to a Custodian Agreement, Chase acts as the custodian of the assets of each Portfolio for which Chase receives compensation as is from time to time agreed upon by the Trust and the Custodian. The Custodian's responsibilities include safeguarding and controlling the cash and securities of each Portfolio, handling the receipt and delivery of securities, determining income and collecting interest on each Portfolio's investments, maintaining books of original entry for the portfolio accounting and other required books and accounts, and calculating the daily net asset value of shares of each Portfolio. The Custodian may contract with other entities to perform certain services. In addition, Portfolio securities and cash may be held by sub-custodian banks under certain arrangements. The internal division of Chase which serves as Custodian does not determine the investment policies of the Portfolios or decide which securities will be bought or sold on behalf of each Portfolio or otherwise have access to or share material inside information with the internal division that performs advisory services for each Portfolio.
It is intended that each Portfolio will be fully managed by buying and selling securities, as well as holding securities to maturity. In managing each Portfolio, the Adviser seeks to take advantage of market developments, yield disparities and variations in the creditworthiness of issuers. However, the portfolio turnover rate of a Portfolio is not expected to exceed an annual rate of 100%. For a description of the strategies that may be used by the Adviser in managing each Portfolio, which may include adjusting the average maturity of a Portfolio in anticipation of a change in interest rates, see "Investment Objectives, Policies and Restrictions -- Investment Policies: Portfolio Management" in the Statement of Additional Information.
Generally, the primary consideration in placing securities transactions with broker-dealers for execution is to obtain, and maintain the availability of, execution at the most favorable prices and in the most effective manner possible. Since money market instruments are generally purchased in principal transactions, the Money Market Portfolio generally pays no brokerage commissions. For a complete discussion of securities transactions and brokerage allocation, see "Investment Objectives, Policies and Restrictions -- Investment Policies: Portfolio Transactions and Brokerage Allocation" in the Statement of Additional Information.
EFFECT OF RULE 2A-7 ON PORTFOLIO MANAGEMENT. The management of the Money Market Portfolio is intended to comply with the provisions of Rule 2a-7 under the 1940 Act (the "Rule") under which, if a fund meets certain conditions, it may use the "amortized cost" method of valuing its securities. Under the Rule, the maturity of an instrument is generally considered to be its stated maturity (or in the case of an instrument called for redemption, the date on which the redemption payment must be made), with special exceptions for certain kinds of instruments. Repurchase agreements and securities loan agreements are, in general, treated as having a maturity equal to the period remaining until they can be executed.
In accordance with the provisions of the Rule, the Money Market Portfolio must: (i) maintain a dollar weighted average portfolio maturity (see above) not in excess of 90 days; (ii) limit its investments, including repurchase agreements, to those instruments which are denominated in U.S. dollars, which the Board of Trustees determines present minimal credit risks, and which are of quality" as determined by at least two major rating services; or, in the case of any instrument that is split-rated or not rated, of comparable quality as determined by the Board; and (iii) not purchase any instruments with a remaining maturity (see above) of more than 397 days. The Rule also contains special provisions as to the maturity of variable rate and floating rate instruments.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
THE PORTFOLIOS. Each Portfolio intends to qualify as a regulated investment company by satisfying the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), concerning the diversification of assets, distribution of income, and sources of income. When a Portfolio qualifies as a regulated investment company and all of its taxable income is distributed in accordance with the timing requirements imposed by the Code, the Portfolio will not be subject to Federal income tax. If, however, for any taxable year a Portfolio does not qualify as a regulated investment company, then all of its taxable income will be subject to tax at regular corporate rates (without any deduction for distributions to the Accounts), and the receipt of such distributions will be taxable to the extent that the distributing Portfolio has current and accumulated earnings and profits.
Each Portfolio of the Trust is also subject to asset diversification regulations prescribed by the U.S. Treasury Department under the Code. These regulations generally provide that, as of the end of each calendar quarter, no more than 55% of the total assets of the Portfolio may be represented by any one investment, no more than 70% by any two investments, no more than 80% by any three investments, and no more than 90% by any four investments. For this purpose, all securities of the same issuer are considered a single investment, but each U.S. agency or instrumentality is treated as a separate issuer. If a Portfolio fails to comply with these regulations, the contracts invested in that Portfolio will not be treated as annuity, endowment or life insurance contracts for tax purposes.
PORTFOLIO DISTRIBUTIONS. It is the policy of each Portfolio to distribute to its shareholders substantially all of its ordinary income and net long-term capital gains realized during each fiscal year. All distributions are reinvested in shares of a Portfolio at net asset value unless the transfer agent is instructed otherwise. Distributions by each Portfolio are taxable, if at all, to the Accounts, and not to contract or policy holders. The Accounts will include distributions in its taxable income in the year in which they are received (whether paid in cash or reinvested).
SHARE REDEMPTIONS. Redemptions of the shares held by the Accounts generally will not result in gain or loss for the Accounts and will not result in gain or loss for the contract or policy holders.
SUMMARY. The foregoing discussion of Federal income tax consequences is based on tax laws and regulations in effect on the date of this Prospectus, and is subject to change by legislative or administrative action. The foregoing discussion also assumes that the Accounts are the owners of the shares and that policies or contracts qualify as life insurance policies or annuities, respectively, under the Code. If either of the foregoing requirements are not met then the contract or policy holders will be treated as recognizing income prior to actual receipt of monies under the contracts or policies. The foregoing discussion is for general information only; a more detailed discussion of Federal income tax considerations is contained in the Statement of Additional Information. In addition, contract or policy holders must consult the prospectuses of their respective contracts or policies for information concerning the Federal income tax consequences of owning such contracts or policies.
Shares of each Portfolio of the Trust are sold at the net asset value per share calculated once daily at the close of regular trading (currently 4:00 p.m., Eastern time; however, options are normally valued at 4:15 p.m., Eastern time) on each day the New York Stock Exchange is open. The current value of each Portfolio's total assets, less liabilities, is divided by the total number of shares outstanding, and the result is the net asset value per share. Assets are generally valued at their market value, where available, except that short-term securities with 60 days or less to maturity are valued on an amortized cost basis. For a complete description of the procedures involved in valuing various Portfolio assets, see the Statement of Additional Information.
Shares of the Trust currently are offered only to the Variable Annuity Account II, a separate account of Anchor National Life Insurance Company and FS Variable Annuity Account Two, a separate account of First SunAmerica Life Insurance Company (the "Life Companies"). At present, Trust shares are used as the investment vehicle for annuity contracts only. Shares of the Trust may be offered to separate accounts of other life insurance companies which are affiliates of the Life Companies.
All shares of each Portfolio may be purchased or redeemed by the Accounts without any sales or redemption charge at the next computed net asset value. Purchases and redemptions are made subsequent to corresponding purchases and redemptions of units of the Accounts without delay. Withdrawals from the Accounts will incur fees or charges described more fully in the applicable contract prospectus.
Except in extraordinary circumstances and as permissible under the 1940 Act, the redemption proceeds are paid on or before the seventh day following the request for redemption.
All shares of the Trust have equal voting rights and may be voted in the election of trustees and on other matters submitted to the vote of the shareholders. Shareholders' meetings ordinarily will not be held unless required by the 1940 Act. As permitted by Massachusetts law, there normally will be no shareholders' meetings for the purpose of electing trustees unless and until such time as fewer than a majority of the trustees holding office have been elected by shareholders. At that time, the trustees then in office will call a shareholders' meeting for the election of trustees. The trustees must call a meeting of shareholders for the purpose of voting upon the removal of any trustee when requested to do so by the record holders of 10% of the outstanding shares of the Trust. A trustee may be removed after the holders of record of not less than two-thirds of the outstanding shares have declared that the trustee be removed either by declaration in writing or by votes cast in person or by proxy. Except as set forth above, the trustees shall continue to hold office and may appoint successor trustees, provided that immediately after the appointment of any successor trustee, at least two-thirds of the trustees have been elected by the shareholders. Shares do not have cumulative voting rights. Thus, holders of a majority of the shares voting for the election of trustees can elect all the trustees. No amendment may be made to the Declaration of Trust without the affirmative vote of a majority of the outstanding shares of the Trust, except that amendments to conform the Declaration to the requirements of applicable federal laws or regulations or the regulated investment company provisions of be made by the trustees without the vote or consent of shareholders. If not terminated by the vote or written consent of a majority of its outstanding shares, the Trust will continue indefinitely.
The Life Companies are the legal owners of the shares and as such have the right to vote elect the trustees, to vote upon certain matters that are required by the 1940 Act to be approved or ratified by the shareholders of an investment company and to vote upon any other matter that may be voted upon at a shareholders' meeting. However, in accordance with their view of present applicable law, the Life Companies will vote the share of the Trust at special meetings of the Shareholders of the Trust in accordance with instructions received from owners.
In matters affecting only a particular Portfolio, the matter shall have been effectively acted upon by a majority vote of that Portfolio even though: (1) the matter has not been approved by a majority vote of any other Portfolio; or (2) the matter has not been approved by a majority vote of the Trust.
Shareholders of a Massachusetts business trust may, under certain circumstances, be held personally liable as partners for the obligations of the Trust. The risk of a shareholder incurring any financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations. The Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust and provides that notice of the disclaimer must be given in each agreement, obligation or instrument entered into or executed by the Trust or Trustees. The Declaration of Trust provides for indemnification of any shareholder held personally liable for the obligations of the Trust and also provides for the Trust to reimburse the shareholder for all legal and other expenses reasonably incurred in connection with any such claim or liability.
Shareholder inquiries should be directed to Anchor National Life Insurance Company, Service Center, P.O. Box 100330, Pasadena, California 91189-0001. For New York State residents, contact First SunAmerica Life Insurance Company, 733 3rd Avenue - 4th Fl, New York, New York, 10017. All telephone inquiries may be made to (800) 90-VISTA.
Further financial information can be found in the Statement of Additional Information, which is available by calling (800) 90-VISTA.
MUTUAL FUND VARIABLE ANNUITY TRUST 125 WEST 55TH STREET, NEW YORK, NEW YORK 10019
THIS IS NOT A PROSPECTUS. This Statement of Additional Information should be read in conjunction with the Prospectus for Mutual Fund Variable Annuity Trust which is referred to herein.
Capitalized terms used herein but not defined have the same meanings assigned to them in the Prospectus.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS DATED DECEMBER 29, 1995, CALL OR WRITE THE TRUST AT:
Anchor National Life Insurance Company
For New York State residents, write to: First SunAmerica Life Insurance Company 733 3rd Avenue - 4th Floor
All telephone inquiries may be made to (800) 90-VISTA
The Mutual Fund Variable Annuity Trust (the "Trust"), organized as a Massachusetts business trust on April 14, 1994, is an open-end management investment company. The Trust is comprised of six separate portfolios (the "Portfolios"). Shares of the Trust are issued and redeemed only for certain annuity contracts issued by the Variable Annuity Account Two, a separate account of Anchor National Life Insurance Company, organized under the laws of the State of California, and FS Variable Annuity Account Two, a separate account of First SunAmerica Life Insurance Company, organized under the laws of the State of New York. Variable Annuity Account Two and FS Variable Annuity Account Two are referred to as the "Accounts" and Anchor National Life Insurance Company and First SunAmerica Life Insurance Company are referred to as the "Life Companies."
The Board of Trustees of the Trust provides broad supervision over the affairs of the Trust, including the Portfolios. The Chase Manhattan Bank, N.A. ("Chase") is the investment adviser (the "Adviser") for each Portfolio. Chase also serves as the Trust's administrator (the "Administrator") and supervises the overall administration of the Trust, including the Portfolios. The Adviser continuously manages the investments of the Portfolios in accordance with the investment objective and policies of each Portfolio. The selection of investments for each Portfolio and the way in which they are managed depend on the conditions and trends in the economy and the financial marketplaces. Occasionally, communications to shareholders may contain the views of the investment adviser as to current market, economic trade and interest rate trends, as well as legislative, regulatory and monetary developments, and may include investment strategies and related matters believed to be of relevance to a Portfolio.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INTERNATIONAL EQUITY PORTFOLIO (the "International Equity Portfolio") seeks to provide a total return on assets from long-term growth of capital and income principally derived through diversified holdings of marketable securities of established foreign companies organized in countries other than the United States, and companies participating in foreign economies with prospects for growth.
CAPITAL GROWTH PORTFOLIO (the "Capital Growth Portfolio") aggressively seeks long-term capital growth, through a broad portfolio (at least 80%) in common stocks of issuers (including foreign issuers) with small to medium capitalizations. The Adviser intends to utilize both quantitative and fundamental research to identify undervalued stocks with a catalyst for positive change. Dividend income, if any, is a consideration incidental to the Portfolio s investment objective of growth of capital. This investment policy involves risks that the issues identified by the Adviser will not appreciate or appreciate as significantly as projected. As indicated in the Prospectus, this Portfolio is intended for investors who understand and are willing to accept the potential risks associated with the Portfolio's investment objective.
GROWTH AND INCOME PORTFOLIO (the "Growth and Income Portfolio") seeks long-term capital appreciation, with dividend income as a secondary objective, through investments primarily in common stocks.
ASSET ALLOCATION PORTFOLIO (the "Asset Allocation Portfolio") seeks maximum total return through a combination of long-term growth of capital and current income.
U.S. TREASURY INCOME PORTFOLIO (the "Treasury Income Portfolio") seeks to provide monthly dividends by investing at least 65% of its assets in obligations backed by the full faith and credit of the U.S. government. The Portfolio may also invest in obligations issued or guaranteed as to principal and interest by the U.S. government or by its agencies or instrumentalities thereof.
MONEY MARKET PORTFOLIO (the "Money Market Portfolio") seeks to provide maximum current income consistent with the preservation of capital and maintenance of liquidity, through investments in (i) U.S. Dollar denominated high quality commercial paper and other high quality short-term obligations, including floating and variable rate master demand notes of U.S. and foreign corporations; (ii) U.S. Dollar denominated obligations of foreign governments and supranational agencies (e.g., the International Bank for Reconstruction and Development); (iii) U.S. Dollar denominated obligations issued or guaranteed by U.S. banks with total assets exceeding $1 billion and by the 75 largest foreign commercial banks (including obligations of foreign branches of such banks) in terms of total assets, or such other U.S. or foreign commercial banks which are judged by the Portfolio's investment adviser to meet comparable credit criteria; (iv) securities issued or guaranteed by the U.S. government or by agencies and instrumentalities thereof; and (v) repurchase agreements.
The Money Market Portfolio is a diversified series of the Trust. The International Equity Portfolio, Capital Growth Portfolio, Growth and Income Portfolio, Asset Allocation Portfolio (collectively, the "Equity Portfolios") and Treasury Income Portfolio are non-diversified series of the Trust.
The Prospectus sets forth the various investment policies applicable to each Portfolio. For descriptions of the ratings of bonds and commercial paper (and short-term obligations permitted as investments) by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation ("Standard & Poor's"), Fitch Investors Service, Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and Thomson BankWatch, Inc. ("TBW"), see Appendix A.
The following information supplements and should be read in conjunction with the sections of the Prospectus entitled "The Trust, its Investment Objectives and Policies" and "Description of Securities and Investment Techniques."
U.S. GOVERNMENT SECURITIES -- As indicated in the Prospectus, the Portfolios, including the Equity Portfolios that invest primarily in common stocks, may also maintain cash reserves and invest in a variety of short-term debt securities, including obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities, which have remaining maturities not exceeding one year. Agencies and instrumentalities that issue or guarantee debt securities and have been established or sponsored by the U.S. government include the Bank for Cooperatives, the Export-Import Bank, the Federal Farm Credit System, the Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks, the Federal Land Banks, the Federal National Mortgage Association and the Student Loan Marketing Association. Certain of these securities may not be backed by the full faith and credit of the U.S. government.
BANK OBLIGATIONS -- Investments by the Equity Portfolios, in short-term debt securities as described above also include investments in obligations (including certificates of deposit and bankers' acceptances) of those U.S. banks which have total assets at the time of purchase in excess of $1 billion and the deposits of which are insured by either the Bank Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation.
A certificate of deposit is an interest-bearing negotiable certificate issued by a bank against funds deposited in the bank. A bankers' acceptance is a short-term draft drawn on a commercial bank by a borrower, usually in connection with an international commercial transaction. Although the borrower is liable for payment of the draft, the bank unconditionally guarantees to pay the draft at its face value on the maturity date.
COMMERCIAL PAPER -- Investments by the Equity Portfolios, in short-term debt securities also include investments in commercial paper, which represents short-term, unsecured promissory notes issued in bearer form by bank holding companies, corporations and finance companies. The commercial paper purchased for the above-referenced Portfolios will consist of direct obligations of domestic issuers which, at the time of investment, are (i) rated "P-1" by Moody's or "A-1" or better by Standard & Poor's, (ii) issued or guaranteed as to principal and interest by issuers or guarantors having an existing debt security rating of "Aa" or better by Moody's or "AA" or better by Standard & Poor's, or (iii) securities which, if not rated, are, in Chase's opinion, of an investment quality comparable to rated commercial paper in which the above-referenced Portfolios may invest. The rating "P-1" is the highest commercial paper rating assigned by Moody's and the ratings "A-1" and "A-1+" are the highest commercial paper ratings assigned by Standard & Poor's. Debt securities rated "Aa" or better by Moody's or "AA" or better by Standard & Poor's are generally regarded as high-grade obligations and such ratings indicate that the ability to pay principal and interest is very strong.
ZERO COUPON, PAYMENT IN KIND AND STRIPPED GOVERNMENT OBLIGATIONS -- The International Equity Portfolio may invest in zero coupon bonds, deferred interest bonds, bonds on which the interest is payable in kind ("PIK bonds") and U.S. Treasury bonds or notes and their unmatured interest coupons which have been separated or stripped. Zero coupon and deferred interest bonds are debt obligations which are issued at a significant discount from face value. The discount approximates the total amount of interest the bonds will accrue and compound over the period until maturity or the first interest accrual date at a rate of interest reflecting the market rate of the security at the time of issuance. While zero coupon bonds do not require the periodic payment of interest, deferred interest bonds provide for a period of delay before the regular payment of interest begins. Although this period of delay is different for each deferred interest bond, a typical period is approximately one-third of the bond's term to maturity. PIK bonds are debt obligations which provide that the issuer thereof may, at its option, pay interest on such bonds in cash or in the form of additional debt obligations. Such investments benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of such cash. Such investments experience greater volatility in market value due to changes in interest rates than debt obligations which provide for regular payments of interest. The Portfolio will accrue income on such investments for tax and accounting purposes, as required, which is distributable to shareholders and which because no cash is received at the time of accrual, may require the liquidation of other portfolio securities to satisfy the Portfolio's distribution obligations. Stripped obligations are created when the holder of U.S. Treasury bonds or notes, typically a custodian bank or investment brokerage firm, strips their unmatured interest coupons and resells each component separately. Stripped interest coupons have been marketed in custodial receipt programs under such names as "TIGRS" and "CATS." The underlying bonds and notes are sold and either held in book-entry form at a Federal
Reserve Bank or, in the case of bearer securities, in trust on behalf of the owners thereof. The International Equity Portfolio may invest up to 5% of its total assets in stripped obligations.
REPURCHASE AGREEMENTS -- Each Portfolio may, when appropriate, enter into repurchase agreements only with member banks of the Federal Reserve System and securities dealers believed creditworthy, and only if fully collateralized by U.S. government obligations or other securities in which such Portfolio is permitted to invest. Under the terms of a typical repurchase agreement, a Portfolio would acquire an underlying debt instrument for a relatively short period (usually not more than one week) subject to an obligation of the seller to repurchase the instrument and the Portfolio to resell the instrument at a fixed price and time, thereby determining the yield during the Portfolio's holding period. This procedure results in a fixed rate of return insulated from market fluctuations during such period. A repurchase agreement is subject to the risk that the seller may fail to repurchase the security. Repurchase agreements may be deemed under the 1940 Act to be loans collateralized by the underlying securities. All repurchase agreements entered into by a Portfolio will be fully collateralized at all times during the period of the agreement in that the value of the underlying security will be at least equal to the amount of the loan, including the accrued interest thereon, and the Portfolio or its custodian or sub-custodian will have possession of the collateral, which the Board of Trustees believes will give it a valid, perfected security interest in the collateral. Whether a repurchase agreement is the purchase and sale of a security or a collateralized loan has not been conclusively established. This might become an issue in the event of the bankruptcy of the other party to the transaction. In the event of default by the seller under a repurchase agreement construed to be a collateralized loan, the underlying securities would not be owned by the Portfolio, but would only constitute collateral for the seller's obligation to pay the repurchase price. Therefore, a Portfolio may suffer time delays and incur costs in connection with the disposition of the collateral. The Trust's Board of Trustees believes that the collateral underlying repurchase agreements may be more susceptible to claims of the seller's creditors than would be the case with securities owned by the Portfolio. A Portfolio will not be invested in a repurchase agreement maturing in more than seven days if any such investment together with securities subject to restrictions on transfer held by such Portfolio exceed 10% of its total net assets. (See paragraph 5 under "Investment Restrictions" below.) Repurchase agreements are also subject to the same risks described below with respect to stand-by commitments.
WHEN-ISSUED OR FORWARD DELIVERY PURCHASES -- As described in the Prospectus, each Portfolio (other than the Equity Portfolios) may purchase new issues of securities in which it is permitted to invest on a "when-issued" or, with respect to existing issues, on a "forward delivery" basis. In order to invest a Portfolio's assets immediately, while awaiting delivery of securities purchased on a "when-issued" or "forward delivery" basis, short-term obligations that offer same-day settlement and earnings (and, with respect to the Treasury Income Portfolio, that are backed by the full faith and credit of the U.S. government) will normally be purchased. When a commitment to purchase a security on a "when-issued" or "forward delivery" basis is made, procedures are established consistent with the General Statement of Policy of the Securities and Exchange Commission concerning such purchases. Since that policy currently recommends that an amount of the respective Portfolio's assets equal to the amount of the purchase be held aside or segregated to be used to pay for the commitment, a separate account of the Portfolio consisting of cash, cash equivalents or high quality debt securities equal to the amount of the Portfolio's commitments to purchase "when-issued" or "forward delivery" securities will be established at the Portfolio's custodian bank. For the purpose of determining the adequacy of the securities in the account, the deposited securities will be valued at market value. If the market value of such securities declines, additional cash, cash equivalents or highly liquid securities will be placed in the account daily so that the value of the account will equal the amount of such commitments by the respective Portfolio.
Although it is not intended that such purchases would be made for speculative purposes, purchases of securities on a "when-issued" or "forward delivery" basis may involve more risk than other types of purchases. Securities purchased on a "when-issued" or "forward delivery" basis and the securities held in the respective Portfolio's are subject to changes in value (both generally changing in the same way, that is, both experiencing appreciation when interest rates decline and depreciation when interest rates rise) based upon the public's perception of the creditworthiness of the issuer and changes, real or anticipated, in the level of interest rates. Purchasing securities on a "when-issued" or "forward delivery" basis can involve the risk that the yields available in the market when the delivery takes place may actually be higher or lower than those obtained in the transaction itself. On the settlement date of the "when-issued" or "forward delivery" securities, the respective Portfolio will meet its obligations from then available cash flow, sale of securities held in the separate account, sale of other securities or, although it would not normally expect to do so, from sale of the "when-issued" or "forward delivery" securities themselves (which may have a value greater or lesser than the Portfolio's payment obligations). The sale of securities to meet such obligations may result in the realization of capital gains or losses.
To the extent a Portfolio engages in "when-issued" or "forward delivery" transactions, it will do so for the purpose of acquiring securities consistent with its investment objective and policies and not for the purpose of investment leverage, and settlement of such transactions will be within 90 days from the trade date.
VARIABLE RATE SECURITIES AND PARTICIPATION CERTIFICATES -The variable rate demand instruments that may be purchased by the Money Market Portfolio provide for a periodic adjustment in the interest rate paid on the instrument and permit the holder to demand payment upon a specified number of days' notice of the unpaid principal balance plus accrued interest either from the issuer or by drawing on a bank letter of credit, a guarantee or insurance issued with respect to such instrument. While there is usually no established secondary market for issues of these types of securities, the dealer that sells an issue of such security frequently will also offer to repurchase the securities at any time at a repurchase price which varies and may be more or less than the amount the holder paid for them. The variable rate demand instruments in which the Money Market Portfolio may invest are payable on demand on not more than seven calendar days' notice.
The terms of these types of securities provide that interest rates are adjustable at intervals ranging from daily to up to six months and the adjustments are based upon the prime rate of a bank or other short-term rates, such as Treasury Bills or LIBOR (London Interbank Offered Rate), as provided in the respective instruments. The above Portfolio will decide which variable rate securities to purchase in accordance with procedures prescribed by Board of Trustees of the Trust in order to minimize credit risks.
The variable rate securities in which the above-referenced Portfolio may be invested include participation certificates, issued by a bank, insurance company or other financial institution, in variable rate securities owned by such institutions or affiliated organizations. A participation certificate gives the Portfolio an undivided interest in the variable rate security in the proportion that the Portfolio's participation interest bears to the total principal amount of the security and provides the demand feature described below. Each participation certificate is backed by an irrevocable letter of credit or guaranty of a bank (which may be the bank issuing the participation certificate, a bank issuing a confirming letter of credit to that of the issuing bank, or a bank serving as agent of the issuing bank with respect to the possible repurchase of the certificate of participation) or insurance policy of an insurance company that the Board of Trustees of the Trust has determined meets the prescribed quality standards for the Portfolio. The Portfolio has the right to sell the participation certificate back to the institution and draw on the letter of credit or insurance on demand after the prescribed notice period, for all or any part of the full principal amount of the Portfolio's participation interest in the security, plus accrued interest. The Portfolio will exercise the demand feature only (i) upon a default under the terms of the offering documentation of the security, (ii) as needed to provide liquidity to the Portfolio in order to make redemptions of Portfolio shares, or (iii) to maintain a high quality investment portfolio. The institutions issuing the participation certificates will retain a service and letter of credit fee and a fee for providing the demand feature, in an amount equal to the excess of the interest paid on the instruments over the negotiated yield at which the participation certificates were purchased by the Portfolio. The total fees generally range from 5% to 15% of the applicable prime rate or other short-term rate index. With respect to insurance, the Portfolio will attempt to have the issuer of the participation certificate bear the cost of the insurance, although the Portfolio retains the option to purchase insurance if necessary. The Adviser has been instructed by the Trust's Board of Trustees to monitor continually the pricing, quality and liquidity of the variable rate securities held by the above-referenced Portfolio, including the participation certificates, on the basis of published financial information and reports of the rating agencies and other bank analytical services to which the Portfolio may subscribe. Although these instruments may be sold by the Portfolio, it is intended that they be held until maturity, except under the circumstances stated above. No Portfolio will invest more than 5% of its total assets (taken at the greater of cost or market value) in participation certificates.
Past periods of high inflation, together with the fiscal measures adopted to attempt to deal with it, have seen wide fluctuations in interest rates, particularly "prime rates"* charged by banks. While the value of the underlying variable rate securities may change with changes in interest rates generally, the variable rate nature of the underlying variable rate securities should minimize changes in value of the instruments. Accordingly, as interest rates decrease or increase, the potential for capital appreciation and the risk of potential capital depreciation is less than would be the case with a portfolio of fixed income securities. The Portfolios may contain variable rate securities on which stated minimum or maximum rates, or maximum rates set by state law, limit the degree to which interest on such variable rate securities may fluctuate; to the extent it does, increases or decreases in value may be somewhat greater than would be the case without such limits. Because the adjustment of interest rates on the variable rate securities is made in relation to movements of the applicable banks' "prime rates" or other short-term rate adjustment indices, the variable rate securities are not comparable to long-term fixed rate securities. Accordingly, interest rates on the variable rate securities may be higher or lower than current market rates for fixed rate obligations of comparable quality with similar maturities.
The maturity of variable rate securities is deemed to be the longer of (i) the notice period required before a Portfolio is entitled to receive payment of the principal amount of the security upon demand or (ii) the period remaining until the security's next interest rate adjustment. The maturity of a variable rate demand instrument will be determined in the same manner for purposes of computing the Portfolio's dollar-weighted average portfolio maturity.
ILLIQUID SECURITIES -- Historically, illiquid securities have included securities subject to contractual or legal restrictions on resale because they have not been registered under the Securities Act of 1933, as amended ("Securities Act"), securities which are otherwise not readily marketable and repurchase agreements having a maturity of longer than seven days. Securities which have not been registered under the Securities Act are referred to as private placements or restricted securities and are
* The "prime rate" is generally the rate charged by a bank to its most creditworthy customers for short-term loans. The prime rate of a particular bank may differ from other banks and will be the rate announced by each bank on a particular day. Changes in the prime rate may occur with great frequency and generally become effective on the date announced.
purchased directly from the issuer or in the secondary market. Mutual funds do not typically hold a significant amount of these restricted or other illiquid securities because of the potential for delays on resale and uncertainty in valuation. Limitations on resale may have an adverse effect on the marketability of portfolio securities and a mutual fund might be unable to dispose of restricted or other illiquid securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemptions within seven days. A mutual fund might also have to register such restricted securities in order to dispose of them resulting in additional expense and delay. Adverse market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for certain securities that are not registered under the Securities Act, including repurchase agreements, commercial paper, foreign securities, municipal securities and corporate bonds and notes. Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or on an issuer's ability to honor a demand for repayment. The fact that there are contractual or legal restrictions on resale of such investments to the general public or to certain institutions may not be indicative of their liquidity.
Each Portfolio may invest up to 5% of its total assets in restricted securities issued under Section 4(2) of the Securities Act, which exempts from registration "transactions by an issuer not involving any public offering." Section 4(2) instruments are restricted in the sense that they can only be resold through the issuing dealer and only to institutional investors; they cannot be resold to the general public without registration. Restricted securities issued under Section 4(2) of the Securities Act will be treated as illiquid and subject to each Portfolio's overall 15% limitation on illiquid securities or the Money Market Portfolio s overall 10% limitation on illiquid securities.
The Securities and Exchange Commission has recently adopted Rule 144A, which allows a broader institutional trading market for securities otherwise subject to restriction on their resale to the general public. Rule 144A establishes a "safe harbor" from the registration requirements of the Securities Act for resales of certain securities to qualified institutional buyers. The Adviser anticipates that the market for certain restricted securities such as institutional commercial paper will expand further as a result of this new regulation and the development of automated systems for the trading, clearance and settlement of unregistered securities of domestic and foreign issuers, such as the PORTAL System sponsored by the National Association of Securities Dealers, Inc.
The Board of Trustees of the Portfolios, which has the ultimate responsibility for determinations as to liquidity of portfolio securities, has adopted guidelines and procedures for determining the liquidity of Rule 144A securities and monitoring the Adviser's implementation thereof.
PORTFOLIO MANAGEMENT -- It is intended that the Treasury Income Portfolio will be fully managed by buying and selling securities, as well as holding securities to maturity. In managing this Portfolio, the Adviser seeks to take advantage of market developments, yield disparities and variations in the creditworthiness of issuers, which may include use of the following strategies:
(1) shortening the average maturity of a portfolio in anticipation of a rise in interest rates so as to
(2) lengthening the average maturity of a portfolio in anticipation of a decline in interest rates so as to maximize the Treasury Income Portfolio's appreciation of
(3) selling one type of debt security (e.g., revenue bonds) or U.S. government obligation (e.g., Treasury bonds), as the case may be, and buying another (e.g., general obligation bonds or GNMA direct pass-through certificates, respectively, as the case may be) when disparities arise in the relative values of each; and
(4) changing from one debt security or U.S. government obligation, as the case may be, to an essentially similar debt security or U.S. government obligation when their respective yields are distorted due to market factors.
These strategies may result in increases or decreases in current income available for distribution to its shareholders and in the holding by the Portfolio of securities which sell at moderate to substantial premiums or discounts from face value. Moreover, if the expectation of changes in interest rates or the evaluation of the normal yield relationship between two securities proves to be incorrect, the Portfolio's income, net asset value per share and potential capital gain may be decreased, or its potential capital loss may be increased.
LOANS OF PORTFOLIO SECURITIES -- Certain securities dealers who make "short sales" or who wish to obtain particular securities for short periods may seek to borrow them from institutional investors such as the Portfolios. Each Portfolio reserves the right to seek to increase its income by lending its portfolio securities. Under present regulatory policies, including those of the Board of Governors of the Federal Reserve System and the Securities and Exchange Commission, such loans may be made only to member firms of the New York Stock Exchange, and are required to be secured continuously by collateral in cash, cash equivalents, or U.S. government securities maintained on a current basis in an amount at least equal to the market value of the securities loaned. Under a loan, a Portfolio has the right to call a loan and obtain the securities loaned at any time on five days' notice.
During the existence of a loan, a Portfolio continues to receive the equivalent of the interest or dividends paid by the issuer on the securities loaned and also receives compensation based on investment of the collateral. A Portfolio does not, however, have the right to vote any securities having voting rights during the existence of the loan, but can call the loan in anticipation of an important vote to be taken among holders of the securities or of the giving or withholding of their consent on a material matter affecting the investment.
As with other extensions of credit, there are risks of delay in recovery or even loss of rights in the collateral if the borrower of the securities experiences financial difficulty. However, the loans will be made only to dealers deemed by a Portfolio to be of good standing, and when, in the judgment of the Portfolio, the consideration that can be earned currently from securities loans of this type justifies the attendant risk. In the event a Portfolio makes securities loans, it is not intended that the value of the securities loaned would exceed 30% of the value of the Portfolio's total assets.
NON-DIVERSIFICATION -- Each Portfolio, other than the Money Market Portfolio, is a "non-diversified" investment company. However, each Portfolio is subject to diversification requirements under federal tax laws. At present, these requirements do not permit more than 25% of the value of a Portfolio's total assets to be invested in securities (other than various securities issued or guaranteed by the
United States or its agencies or instrumentalities) of any one issuer, at the close of any calendar quarter. Since a relatively high percentage of the assets of each Portfolio may be invested in the Equity Portfolio will invest in securities with issuers located in at least five different foreign countries at all times with no country representing more than 20% of the Portfolio's assets. An additional 15% of the Portfolio's assets may be invested in securities of issuers located in any one of the following countries: Australia, Canada, France, Japan, the United Kingdom or West Germany. This policy is not deemed a fundamental policy and therefore may be changed without shareholder approval.
ADDITIONAL POLICIES REGARDING DERIVATIVE AND RELATED TRANSACTIONS
As explained more fully below, several of the Vista Funds (the Funds ) employ derivative and related instruments as tools in the management of portfolio assets. Put briefly, a derivative instrument may be considered a security or other instrument which derives its value from the value or performance of other instruments or assets, interest or currency exchange rates, or indexes. For instance, derivatives include futures, options, forward contracts, structured notes and various over-the-counter instruments.
Like other investment tools or techniques, the impact of using derivatives strategies or similar instruments depends to a great extent on how they are used. Derivatives are generally used by portfolio managers in three ways: First, to reduce risk by hedging (offsetting) an investment position. Second, to substitute for another security particularly where it is quicker, easier and less expensive to invest in derivatives. Lastly, to speculate or enhance portfolio performance. When used prudently, derivatives can offer several benefits, including easier and more effective hedging, lower transaction costs, quicker investment and more profitable use of portfolio assets. However, derivatives also have the potential to significantly magnify risks, thereby leading to potentially greater losses for a Fund.
Each Fund, other than the Money Market Portfolio may invest its assets in derivative and related instruments subject only to the Fund s investment objective and policies and the requirement that the Fund maintain segregated accounts consisting of liquid assets, such as cash, U.S. Government securities, or other high-grade debt obligations (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations under such instruments with respect to positions where there is no underlying portfolio asset so as to avoid leveraging the Fund.
The value of some derivative or similar instruments in which the Funds invest may be particularly sensitive to changes in prevailing interest rates or other economic factors, and--like other investments of the Funds--the ability of a Fund to successfully utilize these instruments may depend in part upon the ability of the Adviser to forecast interest rates and other economic factors correctly. If the Adviser incorrectly forecasts such factors and has taken positions in derivative or similar instruments contrary to prevailing market trends, the Funds could be exposed to the risk of a loss. THE FUNDS MIGHT NOT EMPLOY ANY OR ALL OF THE STRATEGIES DESCRIBED HEREIN, AND NO ASSURANCE CAN BE GIVEN THAT ANY STRATEGY USED WILL SUCCEED.
Set forth below is an explanation of the various derivatives strategies and related instruments the Funds may employ along with risks or special attributes associated with them. This discussion is intended to supplement the Funds current prospectuses as well as provide useful information to prospective investors.
To the extent permitted by the investment objectives and policies of each Fund, and as described more fully below, a Fund may:
o purchase, write and exercise call and put options on securities, securities indexes and foreign currencies (including using options in combination with securities, other options or derivative instruments);
o enter into futures contracts and options on futures
o employ forward currency and interest-rate contracts;
o purchase and sell mortgage-backed and asset-backed
o purchase and sell structured products.
As explained more fully below and in the discussions of particular strategies or instruments, there are a number of risks associated with the use of derivatives and related instruments:
o THERE CAN BE NO GUARANTEE THAT THERE WILL BE A CORRELATION BETWEEN PRICE MOVEMENTS IN A HEDGING VEHICLE AND IN THE PORTFOLIO ASSETS BEING HEDGED. As incorrect correlation could result in a loss on both the hedged assets in a Fund and the hedging vehicle so that the portfolio return might have been greater had hedging not been attempted. This risk is particularly acute in the case of cross-hedges between currencies.
o THE ADVISER MAY INCORRECTLY FORECAST INTEREST RATES, MARKET VALUES OR OTHER ECONOMIC FACTORS IN UTILIZING A DERIVATIVES STRATEGY. In such a case, the Fund may have been in a better position had it not entered into such strategy.
o HEDGING STRATEGIES, WHILE REDUCING RISK OF LOSS, CAN ALSO REDUCE THE OPPORTUNITY FOR GAIN. In other words, hedging usually limits both potential losses as well as potential gains.
o STRATEGIES NOT INVOLVING HEDGING MAY INCREASE THE RISK TO A FUND. Certain strategies, such as yield enhancement, can have speculative characteristics and may result in more risk to a Fund than hedging strategies using the same instruments.
o THERE CAN BE NO ASSURANCE THAT A LIQUID MARKET WILL EXIST AT A TIME WHEN A FUND SEEKS TO CLOSE OUT AN OPTION, FUTURES CONTRACT OR OTHER DERIVATIVE OR RELATED POSITION. Many exchanges and boards of trade limit the amount of fluctuation permitted in option or futures contract prices during a single day; once the daily limit has been reached on particular contract, no trades may be made that day at a price beyond that limit. In addition, certain instruments are relatively new and
significant trading history. As a result, there is no assurance that an active secondary market will develop or continue to exist. Finally, over-the-counter instruments typically do not have a liquid market. Lack of a liquid market for any reason may prevent a Fund from liquidating an unfavorable position.
o ACTIVITIES OF LARGE TRADERS IN THE FUTURES AND SECURITIES MARKETS INVOLVING ARBITRAGE, PROGRAM TRADING, AND OTHER INVESTMENT STRATEGIES MAY CAUSE PRICE DISTORTIONS IN THESE MARKETS.
o IN CERTAIN INSTANCES, PARTICULARLY THOSE INVOLVING OVER-THE-COUNTER TRANSACTIONS, FORWARD CONTRACTS, FOREIGN EXCHANGES OR FOREIGN BOARDS OF TRADE, THERE IS A GREATER POTENTIAL THAT A COUNTERPARTY OR BROKER MAY DEFAULT OR BE UNABLE TO PERFORM ON ITS COMMITMENTS. In the event of such a default, a Fund may experience a loss.
o IN TRANSACTIONS INVOLVING CURRENCIES, THE VALUE OF THE CURRENCY UNDERLYING AN INSTRUMENT MAY FLUCTUATE DUE TO MANY FACTORS, INCLUDING ECONOMIC CONDITIONS, INTEREST RATES, GOVERNMENTAL POLICIES AND MARKET FORCES.
Set forth below are explanations of the Funds use of various strategies involving derivatives and related instruments.
OPTIONS ON SECURITIES, SECURITIES INDEXES, CURRENCIES AND DEBT INSTRUMENTS. The Funds may PURCHASE, SELL or EXERCISE call and put options on:
Although in most cases these options will be exchange-traded, the Funds may also purchase, sell or exercise over-the-counter options. Over-the-counter options differ from exchange-traded options in that they are two-party contracts with price and other terms negotiated between buyer and seller. As such, over-the-counter options generally have much less market liquidity and carry the risk of default or nonperformance by the other party.
One purpose of purchasing put options is to protect holdings in an underlying or related security against a substantial decline in market value. One purpose of purchasing call options is to protect against substantial increases in prices of securities the Fund intends to purchase pending its ability to invest in such securities in an orderly manner. A Fund may also use combinations of options to minimize costs, gain exposure to markets or take advantage of price disparities or market movements. For example, a Fund may sell put or call options it has previously purchased or purchase put or call options it has previously sold. These transactions may result in a net gain or loss depending on whether the amount realized on the sale is more or less than the premium and other transaction costs paid on the put or call option which is sold. A Fund may write a call or put option in order to earn the related premium from such transactions. Prior to exercise or expiration, an option may be closed out by an offsetting purchase or sale of a similar option.
In addition to the general risk factors noted above, the purchase and writing of options involve certain special risks. During the option period, a fund writing a covered call (i.e., where the underlying securities are held by the fund) has, in return for the premium on the option, given up the opportunity to profit from a price increase in the underlying securities above the exercise price, but has retained the risk of loss should the price of the underlying securities decline. The writer of an option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying securities at the exercise price.
If a put or call option purchased by the Fund is not sold when it has remaining value, and if the market price of the underlying security, in the case of a put, remains equal to or greater than the exercise price or , in the case of a call, remains less than or equal to the exercise price, the Fund will lose its entire investment in the option. Also, where a put or call option on a particular security is purchased to hedge against price movements in a related security, the price of the put or call option may move more or less than the price of the related security. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. Furthermore, if trading restrictions or suspensions are imposed on the options markets, a Fund may be unable to close out a position.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Funds may purchase or sell:
o stock index futures contracts;
o foreign currency futures contracts;
o futures contracts on specified instruments; and
o options on these futures contracts (futures options).
The futures contracts and futures options may be based on various securities in which the Funds may invest such as foreign currencies, certificates of deposit, Eurodollar time deposits, securities indices, economic indices (such as the Consumer Price Indices compiled by the U.S. Department of Labor) and other financial instruments and indices.
These instruments may be used to hedge portfolio positions and transactions as well as to gain exposure to markets. For example, a Fund may sell a futures contract--or buy a futures option--to protect against a decline in value, or reduce the duration, of portfolio holdings. Likewise, these instruments may be used where a Fund intends to acquire an instrument or enter into a position. For example, a Fund may purchase a futures contract--or buy a futures option--to gain immediate exposure in a market or otherwise offset increases in the purchase price of securities or currencies to be acquired in the future. Futures options may also be written to earn the related premiums.
When writing or purchasing options, the Funds may simultaneously enter into other transactions involving futures contracts or futures options in order to minimize costs, gain exposure to markets, or take advantage of price disparities or market movements. Such strategies may entail additional risks in certain instances. Funds may engage in cross-hedging by purchasing or selling futures or options on a security or currency different from the security or currency position being hedged to take advantage of relationships between the two securities or currencies.
Investments in futures contracts and options thereon involve risks similar to those associated with options transactions discussed above. The Funds will only enter into futures contracts or options or futures contracts which are standardized and traded on a U.S. or foreign exchange or board of trade, or similar entity, or quoted on an automated quotation system.
FORWARD CONTRACTS. Funds may use foreign currency and interest-rate forward contracts for various purposes as described below.
Foreign currency exchange rates may fluctuate significantly over short periods of time. They generally are determined by the forces of supply and demand in the foreign exchange markets and the relative merits of investments in different countries, actual or perceived changes in interest rates and other complex factors, as seen from an international perspective. All Funds that may invest in securities denominated in foreign currencies may, in addition to buying and selling foreign currency futures contracts and options on foreign currencies and foreign currency futures, enter into forward foreign currency exchange contracts to reduce the risks or otherwise take a position in anticipation of changes in foreign exchange rates. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be a fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. By entering into a forward foreign currency contract, the Fund locks in the exchange rate between the currency it will deliver and the currency it will receive for the duration of the contract. As a result, a Fund reduces its exposure to changes in the value of the currency it will deliver and increases its exposure to changes in the value of the currency it will exchange into. The effect on the value of a Fund is similar to selling securities denominated in one currency and purchasing securities denominated in another. Transactions that use two foreign currencies are sometimes referred to as cross-hedges.
A Fund may enter into these contracts for the purpose of hedging against foreign exchange risk arising from the Fund s investments or anticipated investments in securities denominated in foreign currencies. A Fund may also enter into these contracts for purposes of increasing exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another.
A Fund may also use forward contracts to hedge against changes in interest-rates, increase exposure to a market or otherwise take advantage of such changes. An interest-rate forward contract involves the obligation to purchase or sell a specific debt instrument at a fixed price at a future date.
MORTGAGE-BACKED SECURITIES. The Funds may purchase mortgage-backed securities--i.e., securities representing an ownership interest in a pool of mortgage loans issued by lenders such as mortgage bankers, commercial banks and savings and loan associations. Mortgage loans included in the pool--but not the security itself--may be insured by the Government National Mortgage Association or the Federal Housing Administration or guaranteed by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Veterans Administration. Mortgage-backed securities provide investors with payments consisting of both interest and principal as the mortgage pools are paid off. ALTHOUGH PROVIDING THE POTENTIAL FOR ENHANCED RETURNS, MORTGAGE-BACKED SECURITIES CAN ALSO BE VOLATILE AND RESULT IN UNANTICIPATED LOSSES.
The average life of a mortgage-backed security is likely to be substantially less than the original maturity of the mortgage pools underlying the securities. Prepayments of principal by mortgagors and mortgage foreclosures will usually result in the return of the greater part of the principal invested far in advance of the maturity of the mortgages in the pool. THE ACTUAL YIELD OF A MORTGAGE-BACKED SECURITY MAY BE ADVERSELY AFFECTED BY THE PREPAYMENT OF MORTGAGES INCLUDED IN THE MORTGAGE POOL UNDERLYING THE SECURITY.
The Funds may also invest in securities representing interests in collateralized mortgage obligations (CMOs), real estate mortgage investment conduits (REMICs) and in pools of certain other asset-backed bonds and mortgage pass-through securities. Like a bond, interest and prepaid principal are paid, in most cases, semi-annually. CMOs are collateralized by portfolios of mortgage pass-through securities guaranteed by the U.S. Government, or U.S. Government-related, entities, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated maturity. Actual maturity and average life will depend upon the prepayment experience of the collateral. Monthly payment of principal received from the pool of underlying mortgages, including prepayments, is first returned to investors holding the shortest maturity class. Investors holding the longer maturity classes receive principal only after the first class has been retired. An investor is partially protected against a sooner than desired return of principal because of the sequential payments.
REMICs include governmental and/or private entities that issue a fixed pool of mortgages secured by an interest in real property. REMICs are similar to CMOs in that they issue multiple classes of securities. REMICs issued by private entities are not U.S. Government securities and are not directly guaranteed by any government agency. They are secured by the underlying collateral of the private issuer.
STRUCTURED PRODUCTS. The Funds may purchase interests in entities organized and operated solely for the purpose of restructuring the investment characteristics of certain debt obligations, thereby creating structured products. The cash flow on the underlying instruments may be apportioned among the newly issued structured products to create securities with different investment characteristics such as varying maturities, payment priorities and interest rate provisions. THE EXTENT OF THE PAYMENTS MADE WITH RESPECT TO STRUCTURED PRODUCTS IS DEPENDENT ON THE EXTENT OF THE CASH FLOW ON THE UNDERLYING INSTRUMENTS.
The Fund may also invest in other types of structured products, including among others, spread trades and notes linked by a formula (e.g., a multiple) to the price of an underlying instrument or currency. A spread trade is an investment position relating to a difference in the prices or interest rates of two securities or currencies where the value of the investment position is determined by movements in the difference between the prices or interest rates, as the case may be, of the respective securities or currencies.
INVESTMENTS IN STRUCTURED PRODUCTS GENERALLY ARE SUBJECT TO GREATER VOLATILITY THAN AN INVESTMENT DIRECTLY IN THE UNDERLYING MARKET OR SECURITY. In addition, because structured products are typically sold in private placement transactions, there currently is no active trading market for structured products.
RESTRICTIONS ON THE USE OF FUTURES AND OPTION CONTRACTS
Regulations of the CFTC require that the Portfolios enter into transactions in futures contracts and options thereon for hedging purposes only, in order to assure that they are not deemed to be a "commodity pools" under such regulations. In particular, CFTC regulations require that all short futures positions be entered into for the purpose of hedging the value of securities held in a portfolio, and that all long futures positions either constitute bona fide hedging transactions, as defined in such regulations, or have a total value not in excess of an amount determined by reference to certain cash and securities positions maintained for the Portfolio, and accrued profits on such positions. In addition, a Portfolio may not purchase or sell such instruments if, immediately thereafter, the sum of the amount of initial margin deposits on its existing futures positions and premiums paid for options on futures contracts would exceed 5% of the market value of the Portfolio's total assets.
When a Portfolio purchases a futures contract, an amount of cash or cash equivalents or high quality debt securities will be deposited in a segregated account with the Portfolio's custodian so that the amount so segregated, plus the initial deposit and variation margin held in the account of its broker, will at all times equal the value of the futures contract, thereby insuring that the use of such futures is unleveraged.
The Portfolio's ability to engage in the hedging transactions described herein may be limited by the current federal income tax requirement that a Portfolio derive less than 30% of its gross income from the sale or other disposition of stock or securities held for less than three months.
In addition to the foregoing requirements, the Board of Trustees has adopted an additional restriction on the use of futures contracts and options thereon, requiring that the aggregate market value of the futures contracts held by a Portfolio not exceed 50% of the market value of its total assets. Neither this restriction nor any policy with respect to the above-referenced restrictions, would be changed by the Trust's Board of Trustees without considering the policies and concerns of the various federal and state regulatory agencies.
Shareholder approval is not required to change any of the investment policies discussed above, except as otherwise noted herein and in the Prospectus.
The Portfolios have adopted the following investment restrictions which may not be changed without approval by a "majority of the outstanding shares" of a Portfolio which, as used in this Statement of Additional Information, means the vote of the lesser of (i) 67% or more of the shares of the Portfolio present at a meeting, if the holders of more than 50% of the outstanding shares of the Portfolio are present or represented by proxy, or (ii) more than 50% of the outstanding shares of the Portfolio.
(1) borrow money or pledge, mortgage or hypothecate its assets, except that, as a temporary measure for extraordinary or emergency purposes (with respect to all of the Portfolios) it may borrow in an amount not to exceed 1/3 of the current value of its net assets including the amount borrowed, and may pledge, mortgage or hypothecate not more than 1/3 of such assets to secure such borrowings (it is intended that money would be borrowed by a Portfolio only from banks and only to accommodate requests for the
repurchase of shares of the Portfolio while effecting an orderly liquidation of portfolio securities), provided that collateral arrangements with respect to a Portfolio's permissible futures and options transactions, including initial and variation margin, are not considered to be a pledge of assets for purposes of this restriction; no Portfolio will purchase investment securities if its outstanding borrowing, including repurchase agreements, exceeds 5% of the value of the Portfolio's total assets; for additional related restrictions, see clause (i) under the caption "State and Federal Restrictions" hereafter, provided, however that for liquidity and cash management, the Money Market Portfolio may enter into reverse repurchase agreements to the extent permitted by the 1940 Act and other applicable
(2) purchase any security or evidence of interest therein on margin, except that such short-term credit may be obtained as may be necessary for the clearance of purchases and sales of securities and except that, with respect to a Portfolio's permissible options and futures transactions, deposits of initial and variation margin may be made in connection with the purchase, ownership, holding or sale of
(3) underwrite securities issued by other persons except insofar as the Portfolio may technically be deemed an underwriter under the Securities Act of 1933 in selling a portfolio security;
(4) write, purchase or sell any put or call option or any combination thereof, provided that this shall not prevent (i) with respect to the Growth and Income Portfolio and the Capital Growth Portfolio only, the purchase, ownership, holding or sale of warrants where the grantor of the warrants is the issuer of the underlying securities, (ii) with respect to all of the Portfolios, the writing, purchasing or selling of puts, calls or combinations thereof with respect to U.S. government securities or (iii) with respect to a Portfolio's permissible futures and options transactions, the writing, purchasing, ownership, holding or selling of futures and options positions or of puts, calls or combinations thereof with respect to
(5) knowingly invest in securities which are subject to legal or contractual restrictions on resale (including securities that are not readily marketable, but not including repurchase agreements maturing in not more than seven days) if, as a result thereof, more than 15% of the Portfolio's total assets (taken at market value) would be so invested (including repurchase agreements maturing in more than
(6) purchase or sell real estate (including limited partnership interests but excluding securities secured by real estate or interests therein), interests in oil, gas or mineral leases, commodities or commodity contracts in the ordinary course of business, other than (i) with respect to a Portfolio's permissible futures and options transactions or (ii) with respect to the Growth and Income Portfolio, the Capital Growth Portfolio, and International Equity Portfolio only, forward purchases and sales of foreign currencies or securities (each Portfolio reserves the freedom of action to hold and to sell real estate acquired as a result of its ownership of securities);
(7) purchase securities of any issuer if such purchase at the time thereof would cause more than 10% of the voting securities of such issuer to be held by the Portfolio or, with respect to the Money Market Portfolio only, purchase any voting securities;
(8) make short sales of securities or maintain a short position; except that all Portfolios other than the Money Market Portfolio, may only make such short sales of securities or maintain a short position if when a short position is open such Portfolio owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short, and unless not more than 10% of the Portfolio's net assets (taken at market value) is held as collateral for such sales at any one time (it is the present intention of management to make such sales only for the purpose of deferring realization of gain or loss for federal income tax purposes; such sales would not be made of securities subject
(9) concentrate its investments in any particular industry, except that, with respect to a Portfolio's permissible futures and options transactions, positions in options and futures shall not be subject to this restriction, and except that the Money Market Portfolio may invest more than 25% of its total assets in obligations issued by banks, including U.S. banks, and in obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; or
(10) issue any senior security (as that term is defined in the 1940 Act) if such issuance is specifically prohibited by the 1940 Act or the rules and regulations promulgated thereunder, provided that collateral arrangements with respect to a Portfolio's permissible options and futures transactions, including deposits of initial and variation margin, are not considered to be the issuance of a senior security for purposes of this restriction.
Each Portfolio is not permitted to make loans to other persons, except (i) through the lending of its portfolio securities and provided that any such loans not exceed 30% of the Portfolio's total assets (taken at market value), (ii) through the use of repurchase agreements or the purchase of short-term obligations and provided that not more than 10% of the Portfolio's total assets will be invested in repurchase agreements maturing in more than seven days, or (iii) by purchasing, subject to the limitation in paragraph 5 above, a portion of an issue of debt securities of types commonly distributed privately to financial institutions, for which purposes the purchase of short-term commercial paper or a portion of an issue of debt securities which are part of an issue to the public shall not be considered the making of a loan.
The Asset Allocation Portfolio may not purchase the securities of other investment companies except as part of a merger, consolidation or other acquisition involving such Portfolio.
The Treasury Income Portfolio has also adopted a fundamental policy which provides that at least 65% of its assets will be invested in obligations that are backed by the full faith and credit of the U.S. government or in repurchase agreements fully collateralized by U.S. government obligations, except that up to 5% of the Portfolio's assets may be invested in futures contracts (and related options thereon) based on U.S. government obligations, including any index of government obligations that may be available for trading. The Treasury Income Portfolio may also invest in obligations issued or guaranteed by U.S. government agencies or instrumentalities which are backed by the full faith and credit of the U.S. Treasury, as well as securities issued or guaranteed as to principal and interest by the U.S. government or by its agencies or instrumentalities thereof.
In addition, the Portfolios that are permitted to enter into repurchase agreements have adopted the following operating policy with respect to such activity, which is not fundamental and which may be changed without shareholder approval. Such Portfolios may enter into repurchase agreements (a purchase of and a simultaneous commitment to resell a security at an agreed-upon price on an agreed-upon date) only with member banks of the Federal Reserve System and securities dealers believed creditworthy and only if fully collateralized by U.S. government obligations or other securities in which such Portfolios are permitted to invest. If the vendor of a repurchase agreement fails to pay the sum agreed to on the agreed-upon delivery date, a Portfolio would have the right to sell the securities constituting the collateral; however, the Portfolio might thereby incur a loss and in certain cases may not be permitted to sell such securities. Moreover, as noted above in paragraph 5, a Portfolio that is permitted to invest in repurchase agreements may not, as a matter of fundamental policy, invest more than 10% (15% with respect to the Asset Allocation Portfolio) of its total assets in repurchase agreements maturing in more than seven days.
The Portfolios have no current intention of engaging in the following activities in the foreseeable future: (i) writing, purchasing or selling puts, calls or combinations thereof with respect to U.S. government securities; (ii) making short sales of securities or maintaining a short position; or other than with respect to the Equity Portfolios, (iii) purchasing voting securities of any issuer.
OTHER RESTRICTIONS: In order to comply with certain federal and state statutes and regulatory policies, as a matter of operating policy, each Portfolio will not: (i) sell any security which it does not own unless by virtue of its ownership of other securities the Portfolio has at the time of sale a right to obtain securities, without payment of further consideration, equivalent in kind and amount to the securities sold and provided that if such right is conditional the sale is made upon the same conditions, (ii) invest for the purpose of exercising control or management, (iii) purchase securities issued by any registered investment company except by purchase in the open market where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission, or except when such purchase, though not made in the open market, is part of plan of merger or consolidation; provided, however, that the securities of any registered investment company will not be purchased on behalf of the Portfolio if such purchase at the time thereof would cause more than 5% or 10% of the Portfolio's total assets (taken at the greater of cost or market value) to be invested in the securities of such issuer or the securities of registered investment companies, respectively, or would cause more than 3% of the outstanding voting securities of any such issuer to be held by the Portfolio; and provided, further, that securities issued by any open-end investment company shall not be purchased on behalf of the Portfolio, (iv) invest more than 15% of the Portfolio's, or 10% in the case of the Money Market Portfolio, total assets (taken at the greater of cost or market value) in securities that are not readily marketable, (v) as to 50% of a Portfolio's total assets, except that with respect to Money Market Portfolio as to 100% of such Portfolio's total assets, purchase securities of any issuer if such purchase at the time thereof would cause the Portfolio to hold more than 10% (5% for Money Market Portfolio) of any class of securities of such issuer, for which purposes all indebtedness of an issuer shall be deemed a single class and all preferred stock of an issuer shall be deemed a single class, (vi) invest more than 5% of the Portfolio's assets in companies which, including predecessors, have a record of less than three years continuous operation, (vii) invest in warrants valued at the lower of cost or market, in excess of 5% of the value of the Portfolio's net assets, and no more than 2% of such value may be warrants which are not listed on the New York or American Stock Exchanges, or (viii) purchase or retain in the Portfolio any securities issued by an issuer any of whose officers, directors, trustees or security holders is an officer or Trustee of the Trust or Portfolio, or is an officer or director of the Adviser, if after the purchase of the securities of such issuer by the Portfolio one or more of such persons owns beneficially more than 1/2 of 1% of the shares or securities, or both, all taken at market value, of such issuer, and such persons owning more than 1/2 of 1% of such shares or securities together own beneficially more than 5% of such shares or securities, or both, all taken at market value. These policies are not fundamental and may be changed by the Trust's or Portfolio Board of Trustees without shareholder approval.
PERCENTAGE AND RATING RESTRICTIONS: If a percentage or rating restriction on investment or utilization of assets set forth above or referred to in the Prospectus is adhered to at the time an investment is made or assets are so utilized, a later change in percentage resulting from changes in the value of the portfolio securities or a later change in the rating of a portfolio security of a Portfolio will not be considered a violation of policy.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
Specific decisions to purchase or sell securities for the Portfolios that invest in equity and debt securities are made by a portfolio manager who is an employee of the Adviser to such Portfolios and who is appointed and supervised by senior officers of such Adviser. Changes in the Portfolios' investments are reviewed by the Board of Trustees. The portfolio managers may serve other clients of the Adviser in a similar capacity. Money market instruments are generally purchased in principal transactions; thus, the Money Market Portfolio generally would pay no brokerage commissions.
The frequency of a Portfolio's, other than the Money Market Portfolio's, portfolio transactions -- the portfolio turnover rate -- will vary from year to year depending upon market conditions. Because a high turnover rate may increase transaction costs and the possibility of taxable short-term gains (see "Tax Matters" in the Prospectus), the Adviser will weigh the added costs of short-term investment against anticipated gains.
The primary consideration in placing portfolio security transactions with broker-dealers for execution is to obtain and maintain the availability of execution at the most favorable prices and in the most effective manner possible. The Adviser attempts to achieve this result by selecting broker-dealers to execute portfolio transactions on behalf of the Portfolios and other clients of the Adviser on the basis of their professional capability, the value and quality of their brokerage services, and the level of their brokerage commissions. Debt securities are traded principally in the over-the-counter market through dealers acting on their own account and not as brokers. In the case of securities traded in the over-the-counter market (where no stated commissions are paid but the prices include a dealer's markup or markdown), the Adviser normally seeks to deal directly with the primary market makers unless, in its opinion, best execution is available elsewhere. In the case of securities purchased from underwriters, the cost of such securities generally includes a fixed underwriting commission or concession. From time to time, soliciting dealer fees are available to the Adviser on the tender of the portfolio securities in so-called tender or exchange offers. Such soliciting dealer fees are in effect recaptured for the Portfolios by the Adviser.
Under the Portfolios' Investment Advisory Agreements and as permitted by Section 28(e) of the Securities Exchange Act of 1934, the Adviser may cause the Portfolios to pay a broker-dealer which provides brokerage and research services to the Adviser an amount of commission for effecting a securities transaction for the Portfolios in excess of the amount other broker-dealers would have charged for the transaction if the Adviser determines in good faith that the greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of either a particular transaction or the Adviser's overall responsibilities to the Portfolios or to its clients. Not all of such services are useful or of value in advising the Portfolios.
The term "brokerage and research services" includes advice as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or of purchasers or sellers of securities, furnishing analyses and reports concerning issues, economic factors and trends, portfolio strategy and the performance of accounts, and effecting securities transactions and performing functions incidental thereto such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of the Adviser, be reasonable in relation to the value of the brokerage services provided, commissions exceeding those which another broker might charge may be paid to broker-dealers who were selected to execute transactions on behalf of the Portfolios and the Adviser's other clients as part of providing advice as to the availability of securities or of purchasers or sellers of securities and services in effecting securities transactions and performing functions incidental thereto, such as clearance and settlement.
Broker-dealers may be willing to furnish statistical research and other factual information or services ("Research") to the Adviser for no consideration other than brokerage or underwriting commissions.
The Adviser's investment management personnel will attempt to evaluate the quality of Research provided by brokers. Results of this effort are sometimes used by the Adviser as a consideration in the selection of brokers to execute portfolio transactions. However, the Adviser may be unable to quantify the amount of commissions which are paid as a result of such Research because a substantial number of transactions are effected through brokers which provide Research but which are selected principally because of their execution capabilities.
The management fees that the Portfolios pay to the Adviser will not be reduced as a consequence of the Adviser's receipt of brokerage and research services. To the extent the Portfolios' portfolio transactions are used to obtain such services, the brokerage commissions paid by the Portfolios may exceed those that might otherwise be paid, by an amount which cannot be presently determined. Such services may be useful and of value to the Adviser in serving one or more of the Portfolios and other clients and, conversely, such services obtained by the placement of brokerage business of other clients may be useful to the Adviser in carrying out its obligations to a Portfolio. While such services are not expected to reduce the expenses of the Adviser, the Adviser may, through use of the services, avoid the additional expenses which would be incurred if it should attempt to develop comparable information through its own staff.
In certain instances, there may be securities that are suitable for one or more of the Portfolios as well as one or more of the Adviser's other clients. Investment decisions for the Portfolios and for the Adviser's other clients are made with a view to achieving their respective investment objectives. It may develop that the same investment decision is made for more than one client or that a particular security is bought or sold for only one client even though it might be held by, or bought or sold for, other clients. Likewise, a particular security may be bought for one or more clients when one or more clients are selling that same security. Some simultaneous transactions are inevitable when several clients receive investment advice from the same investment adviser, particularly when the same security is suitable for the investment objectives of more than one client. When two or more Portfolios or other clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed to be equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as the Portfolios are concerned. However, it is believed that the ability of the Portfolios to participate in volume transactions will generally produce better executions for the Portfolios.
No portfolio transactions are executed with the Adviser, or with any affiliate of the Adviser acting either as principal or as broker.
A Portfolio's total rate of return for any period will be calculated by (a) dividing (i) the sum of the net asset value per share on the last day of the period and the net asset value per share on the last day of the period of shares purchasable with dividends and capital gains declared during such period with respect to a share held at the beginning of such period and with respect to shares purchased with such dividends and capital gains distributions, by (ii) the public offering price per share on the first day of such period, and (b) subtracting 1 from the result. The average annual rate of return quotation will be calculated by (x) adding 1 to the period total rate of return quotation as calculated above, (y) raising such sum to a power which is equal to 365 divided by the number of days in such period, and (z) subtracting 1 from the result.
Any current "yield" quotation of the Shares of a Portfolio, other than the Money Market Portfolio, consist of an annualized hypothetical yield, carried at least to the nearest hundredth of one percent, based on a thirty calendar day period and shall be calculated by (a) raising to the sixth power the sum of 1 plus the quotient obtained by dividing the Portfolio's net investment income earned during the period by the product of the average daily number of shares outstanding during the period that were entitled to receive dividends and the maximum offering price per share on the last day of the period, (b) subtracting 1 from the result, and (c) multiplying the result by 2.
Any current "yield" of the Shares of a Money Market Portfolio which is used in such a manner as to be subject to the provisions of Rule 482(d) under the Securities Act of 1933, as amended, shall consist of an annualized historical yield, carried at least to the nearest hundredth of one percent, based on a specific seven calendar day period and shall be calculated by dividing the net change in the value of an account having a balance of one Share at the beginning of the period by the value of the account at the beginning of the period and multiplying the quotient by 365/7. For this purpose, the net change in account value would reflect the value of additional Shares purchased with dividends declared on the original Share and dividends declared on both the original Share and any such additional Shares, but would not reflect any realized gains or losses from the sale of securities or any unrealized appreciation or depreciation on portfolio securities. In addition, any effective yield quotation of the Shares of the Money Market Portfolio so used shall be calculated by compounding the current yield quotation for such period by multiplying such quotation by 7/365, adding 1 to the product, raising the sum to a power equal to 365/7, and subtracting 1 from the result.
Because of the changes and deduction imposed by the Accounts the total rate of return and yield realized by owners in the subdivisions of the Accounts will be lower than the total rate of return and yield for the corresponding Portfolio, the Trust.
DETERMINATION OF NET ASSET VALUE
Each Portfolio determines its net asset value per Share each day (2:00 p.m., Eastern time for the Money Market Portfolio, and as of the regular close of the Exchange, or 4:15 p.m., Eastern time for the Portfolio holding options, in the case of the Treasury Income Portfolio or Equity Portfolio) during which the New York Stock Exchange is open for trading (a "Portfolio Business Day"), by dividing the value of its net assets (i.e., the value of its securities and other assets less its liabilities, including expenses payable or accrued) by the number of its shares outstanding at the time the determination is made. (As of the date of this Statement of Additional Information, the New York Stock Exchange is open for trading every weekday except for the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas.) Purchases and redemptions will be effected at the time of determination of net asset value next following the receipt of any purchase or redemption order. (See "Purchases and Redemptions of Shares" in the Prospectus.)
The Money Market Portfolio's securities are valued at their amortized cost. Amortized cost valuation involves valuing an instrument at its cost and thereafter accruing interest and accreting discounts at a constant rate to maturity less the amortization of any premium. Pursuant to the rules of the Securities and Exchange Commission, the Board of Trustees has established procedures to stabilize the net asset value of the Money Market Portfolio at $1.00 per share. These procedures include a review of the extent of any deviation of net asset value per share, based on available market rates, from the $1.00 amortized cost price per share. If fluctuating interest rates cause the market value of the Money Market Portfolio's to approach a deviation of more than 1/2 of 1% from the value determined on the basis of amortized cost, the Board of Trustees will consider what action, if any, should be initiated. Such action may include redemption of shares in kind (as described in greater detail below), selling portfolio securities prior to maturity, reducing or withholding dividends and utilizing a net asset value per share as determined by using available market quotations. The Money Market Portfolio will maintain a dollar-weighted average portfolio maturity of 90 days or less, will not purchase any instrument with a remaining maturity greater than 397 days or subject to a repurchase agreement having a duration of greater than one year, will limit portfolio investments, including repurchase agreements, to those U.S. dollar-denominated instruments that are determined by the Board of Trustees to present minimal credit risks and will comply with certain reporting and record-keeping procedures. The Money Market Portfolio has also established procedures to ensure that their portfolio securities meet their high quality criteria. (See "Investment Objectives, Policies and Restrictions -- Investment
Equity securities in a Portfolio are valued at the last sale price on the exchange on which they are primarily traded or on the NASDAQ system for unlisted national market issues, or at the last quoted bid price for securities in which there were no sales during the day or for unlisted securities not reported on the NASDAQ system. Bonds and other fixed income securities (other than short-term obligations, but including listed issues) in a portfolio are valued on the basis of valuations furnished by a pricing service, the use of which has been approved by the Board of Trustees. In making such valuations, the pricing service utilizes both dealer-supplied valuations and electronic data processing techniques that take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon quoted prices or exchange or over-the-counter prices, since such valuations are believed to reflect more accurately the fair value of such securities. Short- Term obligations which mature in 60 days or less are valued at amortized cost, which constitutes fair value as determined by the Board of Trustees. Futures and option contracts that are traded on commodities or securities exchanges are normally valued at the settlement price on the exchange on which they are traded. Portfolio securities (other than short-term obligations) for which there are no such quotations or valuations are valued at fair value as determined in good faith by or at the direction of the Board of Trustees.
Interest income on long-term obligations in a Portfolio is determined on the basis of interest accrued plus amortization of discount (generally, the difference between issue price and stated redemption price at maturity) and premiums (generally, the excess of purchase price over stated redemption price at maturity). Interest income on short-term obligations is determined on the basis of interest and discount accrued less amortization of premium.
Subject to compliance with applicable regulations, each Portfolio has reserved the right to pay the redemption price of its Shares, either totally or partially, by a distribution in kind of portfolio securities (instead of cash). The securities so distributed would be valued at the same amount as that assigned to them in calculating the net asset value for the shares being sold. If a shareholder received a distribution in kind, the shareholder could incur brokerage or other charges in converting the securities to cash.
The following is only a summary of certain additional tax considerations generally affecting each Portfolio and its shareholders that are not described in the Prospectus. No attempt is made to present a detailed explanation of the tax treatment of each Portfolio or its shareholders, and the discussions here and in the Prospectus are not intended as substitutes for careful tax planning.
The holders of the variable insurance or annuity contracts should not be subject to tax with respect to distributions made on, or redemptions of, Portfolio shares, assuming that the variable insurance and annuity contracts qualify under the Internal Revenue Code of 1986, as amended (the "Code"), as life insurance or annuities, respectively, and that the Accounts are treated as the owners of the Portfolio shares. See "Qualifications of Segregated Asset Accounts." The summary describes tax consequences to the owner of the Portfolio shares, (i.e. the Accounts) and the Portfolio itself. It does not describe the tax consequences to a holder of a life insurance contract or annuity contract as a result of the ownership of such policies or contracts. Contract or policy holders must consult the prospectuses of their respective contracts or policies for information concerning the Federal income tax consequences of owning such contracts or policies.
Qualification as a Regulated Investment Company
Each Portfolio has elected to be taxed as a regulated investment company under Subchapter M of the Code. As a regulated investment company, a Portfolio is not subject to federal income tax on the portion of its net investment income (i.e., taxable interest, dividends and other taxable ordinary income, net of expenses) and capital gain net income (i.e., the excess of capital gains over capital losses) that it distributes to shareholders, provided that it distributes at least 90% of its investment company taxable income (i.e., net investment income and the excess of net short-term capital gain over net long-term capital loss) for the taxable year (the "Distribution Requirement"), and satisfies certain other requirements of the Code that are described below. Distributions by a Portfolio made during the taxable year or, under specified circumstances, within twelve months after the close of the taxable year, will be considered distributions of income and gains of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment company must: (1) derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business of investing in stock or securities) and other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies (the "Income Requirement"); and (2) derive less than 30% of its gross income (exclusive of certain gains on designated hedging transactions that are offset by realized or unrealized losses on offsetting positions) from the sale or other disposition of stock, securities or foreign currencies (or options, futures or forward contracts thereon) held for less than three months (the "Short-Short Gain Test"). Foreign currency gains, including those derived from options, futures and forwards, will not be characterized as Short-Short Gain if they are directly related to the regulated investment company's investments in stock or securities (or options or futures thereon). Because of the Short-Short Gain Test, a Portfolio may have to limit the sale of appreciated securities that it has held for less than three months. However, the Short-Short Gain Test will not prevent a Portfolio from disposing of investments at a loss, since the recognition of a loss before the expiration of the three-month holding period is disregarded for this purpose. Interest (including original issue discount) received by a Portfolio at maturity or upon the disposition of a security held for less than three months will not be treated as gross income derived from the sale or other disposition of such security within the meaning of the Short-Short Gain Test. However, income attributable to realized market appreciation will be treated as such income.
In general, gain or loss recognized by a Portfolio on the disposition of an asset will be a capital gain or loss. However, gain recognized on the disposition of a debt obligation purchased by a Portfolio at a market discount (generally, at a price less than its principal amount) will be treated as ordinary income to the extent of the portion of the market discount which accrued during the period of time the Portfolio held such obligation. In addition, under the rules of Code Section 988, gain or loss recognized on the disposition of a debt obligation denominated in a foreign currency or an option with respect thereto (but only to the extent attributable to changes in foreign currency exchange rates), and gain or loss recognized on the disposition of a foreign currency forward contract, futures contract, option or similar financial instrument, or of foreign currency itself, except for regulated futures contracts or non-equity options subject to Code Section 1256 (unless a Portfolio elects otherwise), will generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss recognized by a Portfolio on the disposition of an asset is long-term or short-term, the holding period of the asset may be affected if (1) the asset is used to close a "short sale" (which includes for certain purposes the acquisition of a put option) or is substantially identical to another asset so used, (2) the asset is otherwise held by the Portfolio as part of a "straddle" (as defined) or (3) the asset is stock and the Portfolio grants an in-the-money qualified covered call option with respect thereto. (However, for purposes of the Short-Short Gain Test, the holding period of the asset disposed of may be reduced only in the case of clause (1) above.) In addition, the Portfolio may be required to defer the recognition of a loss on the disposition of an asset held as part of a straddle to the extent of any unrecognized gain on the offsetting position.
Any gain recognized by a Portfolio on the lapse of, or any gain or loss recognized by a Portfolio from a closing transaction with respect to, an option written by the Portfolio will be treated as a short-term capital gain or loss. For purposes of the Short-Short Gain Test, the holding period of an option written by a Portfolio will commence on the date it is written and end on the date it lapses or the date a closing transaction is entered into. Accordingly, a Portfolio may be limited in its ability to write options which expire within three months and to enter into closing transactions at a gain within three months of the writing of options.
Transactions that may be engaged in by a Portfolio (such as regulated futures contracts, certain foreign currency contracts, and options on stock indexes and futures contracts) will be subject to special tax treatment as "Section 1256 contracts." Section 1256 contracts are treated as if they are sold for their fair market value on the last business day of the taxable year, even though a taxpayer's obligations (or rights) under such contracts have not terminated (by delivery, exercise, entering into a closing transaction or otherwise) as of such date. Any gain or loss recognized as a consequence of the year-end deemed disposition of Section 1256 contracts is taken into account for the taxable year together with any other gain or loss that was previously recognized upon the termination of Section 1256 contracts during the year. Any capital gain or loss for the taxable year with respect to Section 1256 contracts (including any capital gain or loss arising as a consequence of the year-end deemed sale of such contracts) is generally treated as 60% long-term and 40% short-term capital gain or loss. A Portfolio, however, may elect not to have this special tax treatment apply to Section 1256 contracts that are part of a "mixed straddle" with other investments of the Portfolio that are not Section 1256 contracts. Deemed gains from constructive sales of Section 1256 contracts under Code Section 1256 will be treated for purposes of the Short-Short Gain Test as being derived from securities held for not less than three months.
Each Portfolio may purchase securities of certain foreign investment funds or trusts which constitute passive foreign investment companies ("PFICs") for federal income tax purposes. If a Portfolio invests in a PFIC, it may elect to treat the PFIC as a qualifying electing fund (a "QEF") in which event the Portfolio will each year have ordinary income and long-term capital gain equal to its respective pro rata share of the PFIC's ordinary earnings and net capital gain for the year, regardless of whether the Portfolio receives distributions of any such ordinary earning or capital gain from the PFIC. If the Portfolio does not (because it is unable to, chooses not to or otherwise) elect to treat the PFIC as a QEF, then in general (1) any gain recognized by the Portfolio upon a sale or other disposition of its interest in the PFIC or any "excess distribution" (as defined) received by the Portfolio from the PFIC will be allocated ratably over the Portfolio's holding period of the underlying PFIC stock, (2) the portion of such gain or excess distribution so allocated to the year in which the gain is recognized or the excess distribution is received shall be included in the Portfolio's gross income for such year as ordinary income (and the distribution of such portion by the Portfolio to the Accounts will be treated as an ordinary income dividend, but such portion will not be subject to tax at the Portfolio level), (3) the Portfolio shall be liable for tax on the portions of such gain or excess distribution so allocated to prior years in an amount equal to, for each such prior year, (i) the amount of gain or excess distribution allocated to such prior year multiplied by the highest corporate tax rate in effect for such prior year plus (ii) interest on the amount determined under clause (i) for the period from the due date for filing a return for such prior year until the date for filing a return for the year in which the gain is recognized or the excess distribution is received at the rates applicable to underpayments of tax for such period, and (4) the distribution by the Portfolio to the Accounts of such gain or excess distribution so allocated to prior years (net of the tax payable by the Portfolio thereon) will again be treated as the distribution of an ordinary income dividend.
Under proposed Treasury Regulations (not yet in effect) a Portfolio will be able to elect to recognize as gain the excess, if any, as of the last day of its taxable year, of the fair market value of each share of PFIC stock over the Portfolio's adjusted tax basis in such share ("mark to market gain"). Such gain will be included by a Portfolio as ordinary income and will not be subject to the Short-Short Gain Test; the Portfolio's holding period with respect to such PFIC stock will commence on the first day of the next taxable year. If a Portfolio makes such an election in the first taxable year it holds PFIC stock, it will not incur the tax described in the previous paragraph.
Treasury Regulations permit a regulated investment company, in determining its investment company taxable income and net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss) for any taxable year, to elect (unless it has made a taxable year election for excise tax purposes as discussed below) to treat all or any part of any net capital loss, any net long-term capital loss or any net foreign currency loss incurred after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, a Portfolio must satisfy an asset diversification test in order to qualify as a regulated investment company. Under this test, at the close of each quarter of its taxable year, at least 50% of the value of the Portfolio's assets must consist of cash and cash items, U.S. Government securities, securities of other regulated investment companies, and securities of other issuers (as to which the Portfolio has not invested more than 5% of the value of its total assets in securities of such issuer and as to which it does not hold more than 10% of the outstanding voting securities of such issuer), and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or in two or more issuers which the Portfolio controls and which are engaged in the same or similar trades or businesses. Generally, an option (call or put) with respect to a security is treated as issued by the issuer of the security and not the issuer of the option. For purposes of asset diversification testing, obligations issued or guaranteed by agencies or instrumentalities of the U.S. Government such as the Federal Agricultural Mortgage Corporation, the Farm Credit System Financial Assistance Corporation, a Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Government National Mortgage Corporation, and the Student Loan Marketing Association are treated as U.S. Government securities.
If for any taxable year a Portfolio does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions will be treated by the shareholders as ordinary dividends to the extent of the Portfolio's current and accumulated earnings and profits.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company that fails to distribute in each calendar year an amount equal to 98% of ordinary taxable income for the calendar year and 98% of capital gain net income for the one-year period ended on October 31 of such calendar year (or, at the election of a regulated investment company having a taxable year ending November 30 or December 31, for its taxable year (a "taxable year election")). The balance of such income must be distributed during the next calendar year.
Each Portfolio intends to make sufficient distributions or deemed distributions of its ordinary taxable income and capital gain net income prior to the end of each calendar year to avoid liability for the excise tax. However, investors should note that a Portfolio may in certain circumstances be required to liquidate portfolio investments to make sufficient distributions to avoid excise tax liability.
Qualification of Segregated Asset Accounts
A variable life insurance or annuity contract will not be treated as a life insurance contract or annuity, respectively, under the Code, if the segregated asset account upon which such contracts are based is not "adequately diversified." A segregated asset account will be "adequately diversified" if it satisfies one of two alternative tests set forth in the Treasury Regulations as of the end of each calendar quarter (or within 30 days thereafter). First, the Treasury Regulations provide that a segregated asset account will be adequately diversified if no more than 55% of the value of its total assets are represented by any one investment, no more than 70% by any two investments, no more than 80% by any three investments, and no more than 90% by any four investments. For this purpose, all securities of the same issuer are considered a single investment, and each U.S. Government agency and instrumentality is considered a separate issuer. As a safe harbor, a segregated asset account will be treated as adequately diversified if the diversification requirements under Subchapter M, as set forth above, are satisfied and no more than 55% of the value of the account's total assets are cash and cash items (including receivables), U.S. Government securities, and securities of other regulated investment companies. In addition, a segregated asset account with respect to a variable life insurance contract can also be considered adequately diversified if, instead of satisfying either of the above-noted tests, the segregated asset account, excluding U.S. Treasury securities, satisfies the general diversification percentages noted above increased by the product of (a) .5 and (b) the percentage of value of the total assets of the segregated asset account represented by the Treasury securities. The affect of this special test is that a segregated asset account is treated as adequately diversified to the extent it holds securities issued by the U.S. Treasury.
For purposes of these diversification tests, a segregated asset account invested in shares of a regulated investment company will be entitled to "look-through" the shares of the regulated investment company to its pro rata portion of the assets of the regulated investment company based on its stock ownership in the company, provided that the shares of the regulated investment company are generally held only by insurance companies, certain fund managers, and trustees of qualified pension or retirement plans (a "Closed Fund").
If the segregated asset account upon which a variable contract is based is not treated as "adequately diversified" under the foregoing rules for each calendar quarter, then (a) the variable contract is not treated as a life insurance policy or annuity contract under the Code for all subsequent periods and (b) the holders of such policy or contract must include as ordinary income the "income on the contract" for each taxable year. The "income on the contract" is generally the excess of (a) the sum of the increase in net surrender value of the contract during the taxable year and the cost of the life insurance protection provided under the contract during the year over (b) the premiums paid under the contract during the taxable year. In addition, it is also possible that if the Portfolio does not satisfy the requirements of a Closed Fund set forth above, the holders of the contracts and annuities, which invest in the Portfolio through the segregated asset account, will be treated as the owners of such shares and taxable with respect to distributions paid by the Portfolio, as described herein.
Each Portfolio anticipates distributing substantially all of its investment company taxable income for each taxable year. Such distributions are generally offset by deductible life insurance reserves and should therefore not be taxable to the Accounts. Contract or policy holders should consult the prospectuses of their respective contracts or policies concerning the tax treatment of the Accounts.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers and their principal occupations for at least the past five years are set forth below. Their titles may have varied during that period. Asterisks indicate those Trustees and officers that are "interested persons" (as defined in the 1940 Act). Unless otherwise indicated below, the address of each officer is 125 W. 55th Street, New York, New York 10019.
FERGUS REID, III - Chairman of the Board of Trustees; Chairman and Chief Executive Officer, Lumelite Corporation, since September 1985. Address: 971 West Road, New Canaan, Connecticut 06840.
RICHARD E. TEN HAKEN - Former District Superintendent of Schools, Monroe No. 2 and Orleans Counties, New York; Chairman of the Finance and the Audit and Accounting Committees, Member of the Executive Committee and Vice President, New York State Teachers' Retirement System. Address: 4 Barnfield Road, Pittsford, New York 14534.
WILLIAM J. ARMSTRONG - Vice President and Treasurer, Ingersoll-Rand Company (Woodcliff Lake, New Jersey). Address: 49 Aspen Way, Upper Saddle River, New Jersey 07458.
JOHN R.H. BLUM - Partner in the law firm of Richards, O'Neil & Allegaert; Commissioner of Agriculture - State of Connecticut. Address: 1 John Street, Millerton, New York 12546.
JOSEPH J. HARKINS* - Retired; Commercial Sector Executive and Executive Vice President of The Chase Manhattan Bank, N.A. from 1985 through 1989. He has been employed by Chase in numerous capacities and offices since 1954. Director of Blessings Corporation, Jefferson Insurance Company of New York, Monticello Insurance Company and Nationar. Address: 257 Plantation Circle South, Ponte Vedra Beach, FL 32082
H. RICHARD VARTABEDIAN* - Retired; Senior Investment Officer, Division Executive of the Investment Management Division of The Chase Manhattan Bank, N.A., 1980-1991; responsible for investment research, trading and portfolio management for commingled funds and high net worth individuals within the U.S. Employed by Chase in various investment oriented capacities since 1960, primarily as a senior portfolio manager for institutional, ERISA and high net worth portfolios. Address: P.O. Box 296, Beach Road, Hendrick's Head, Southport, Maine 04576.
STUART W. CRAGIN, JR. - President, Fairfeild Testing Laboratory, Inc. He has previously served in a variety of marketing, manufacturing and general management positions with Union Camp Corp., Trinity Paper & Plastics Corp., and Canover Industries.
IRVING L. THODE - Retired, Vice President of Quotron Systems. He has previously served in a number of executive positions with Control Data Corp., including President of their Latin American operations, and General Manager of their Data Services business.
Remuneration of Trustees and Certain Executive Officers:
Each Trustee is reimbursed for expenses incurred in attending each meeting of the Board of Trustees or any committee thereof. Each Trustee who is not an affiliate of the Adviser is compensated for his or her services according to a fee schedule which recognizes the fact that each Trustee also serves as a Trustee of other investment companies advised by the Adviser. Each Trustee receives a fee, allocated among all investment companies for which the Trustee serves, which consists of an annual retainer component and a meeting fee component. Effective August 21, 1995, each Trustee of the Vista Funds receives a quarterly retainer of $12,000 and an additional per meeting fee of $1,500. Prior to August 21, 1995, the quarterly retainer was $9,000 and the per-meeting fee was $1,000. The Chairman of the Trustees and the Chairman of the Investment Committee each receive a 50% increment over regular Trustee total compensation for serving in such capacities for all the investment companies advised by the Adviser.
Set forth below is information regarding compensation paid or accrued during the year ended December 31, 1995 for each Trustee of the Trust:
* Included in this amount is $15,000 Mr. Vartabedian receives per year for serving as Trustee of International Equity Portfolio, Global Fixed Income Portfolio, Growth and Income Portfolio and Capital Growth Portfolio.
(1) Data reflects total compensation earned during the period January 1, 1995 to December 31, 1995.
Vista Funds Retirement Plan for Eligible Trustees
Effective August 21, 1995, the Trustees also instituted a Retirement Plan for Eligible Trustees (the "Plan") pursuant to which each Trustee (who is not an employee of any of the Funds, the Adviser, Administrator or distributor or any of their affiliates) may be entitled to certain benefits upon retirement from the Board of Trustees. Pursuant to the Plan, the normal retirement date is the date on which the eligible Trustee has attained age 65 and has completed at least five years of continuous service with one or more of the investment companies advised by the Adviser (collectively, the "Covered Funds"). Each Eligible Trustee is entitled to receive from the Covered Funds an annual benefit commencing on the first day of the calendar quarter coincident with or following his date of retirement equal to 10% of the highest annual compensation received from the Covered Funds multiplied by the number of such Trustee's years of service (not in excess of 10 years) completed with respect to any of the Covered Funds. Such benefit is payable to each eligible Trustee in monthly installments for the life of the Trustee.
Set forth below in the table below are the estimated annual benefits payable to an eligible Trustee upon retirement assuming various compensation and years of service classifications. The estimated credited years of service for Messrs. Reid, Ten Haken, Armstrong, Blum, Harkins, Vartabedian, Cragin, and Thode are 11, 11, 8, 11, 3, 3 and 3 respectively.
Effective August 21, 1995, the Trustees instituted a Deferred Compensation Plan for Eligible Trustees (the "Deferred Compensation Plan") pursuant to which each Trustee (who is not an employee of any of the Funds, the Adviser, Administrator or Distributor or any of their affiliates) may enter into agreements with the Funds whereby payment of the Trustees' fees are deferred until the payment date elected by the Trustee (or the Trustee's termination of service). The deferred amounts are deemed invested in shares of the Fund on whose Board the Trustee sits. The deferred amounts are paid out in a lump sum or over a period of several years as elected by the Trustee at the time of deferral. If a deferring Trustee dies prior to the distribution of amounts held in the deferral account, the balance of the deferral account will be distributed to the Trustee's designated beneficiary in a single lump sum payment as soon as practicable after such deferring Trustee's death. It is anticipated that each Eligible Trustee will execute a deferred compensation agreement for the 1996 calendar year.
MARTIN R. DEAN* - Treasurer and Assistant Secretary of the Trust; Vice President, BYSYS Fund Group, Inc.
ANN BERGIN* - Secretary; Vice President, BYSYS Fund Group, Inc.; and Chief Compliance Officer and Secretary, Vista Broker-Dealer Services, Inc.
The Declaration of Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust, unless, as to liability to the Trust or its shareholders, it is finally adjudicated that they engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in their offices or with respect to any matter unless it is finally adjudicated that they did not act in good faith in the reasonable belief that their actions were in the best interest of the Trust. In the case of settlement, such indemnification will not be provided unless it has been determined by a court or other body approving the settlement or other disposition, or by a reasonable determination based upon a review of readily available facts, by vote of a majority of disinterested Trustees or in a written opinion of independent counsel, that such officers or Trustees have not engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of their duties.
The Portfolios pay no direct remuneration to any officer of the Trust. As of March 1, 1995, the Trustees and officers as a group owned of record less than 1% of each Portfolio's outstanding shares, all of which were acquired for investment purposes.
The Adviser manages the assets of each Portfolio pursuant to Investment Advisory Agreements, dated as of August 23, 1994 for each of the Portfolios (the "Advisory Agreements"). Subject to such policies as the Board of Trustees may determine, Chase makes investment decisions for each Portfolio. Pursuant to the terms of the Advisory Agreements, the Adviser provides each Portfolio with such investment advice and supervision as it deems necessary for the proper supervision of each Portfolio's investments. The Adviser continuously provides investment programs and determines from time to time what securities shall be purchased, sold or exchanged and what portion of each Portfolio's assets shall be held uninvested. The Adviser furnishes, at its own expense, all services, facilities and personnel necessary in connection with managing the investments and effecting portfolio transactions for the Portfolios. The Advisory Agreement for each Portfolio will continue in effect from year to year with respect to each Portfolio only if such continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of such Portfolio's outstanding voting securities and, in either case, by a majority of the Trustees who are not parties to the Advisory Agreement or interested persons of any such party, at a meeting called for the purpose of voting on such Advisory Agreement.
Pursuant to the terms of each of the Advisory Agreements, the Adviser is permitted to render services to others. Each Advisory Agreement is terminable without penalty by the Trust on behalf of each Portfolio on not more than 60 days, nor less than 30 days, written notice when authorized either by a majority vote of such Portfolio's shareholders or by a vote of a majority of the the Trust, or by the Adviser on not more than 60 days, nor less than 30 days, written notice, and will automatically terminate in the event of its "assignment" (as defined in the 1940 Act). Each Advisory Agreement provides that the Adviser under such Agreement shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of portfolio transactions for the respective Portfolio, except for willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties thereunder.
In consideration of the services provided by the Adviser pursuant to the Advisory Agreements, each Portfolio pays an investment advisory fee computed and paid monthly based on a rate equal to a specified percentage (.25% for the Money Market Portfolio; .50% for the Treasury Income Portfolio; .60% for the Growth and Income Portfolio and the Capital Growth Portfolio; .55% for the Asset Allocation Portfolio; and .80% for the International Equity Portfolio) with respect to each Portfolio's average daily net assets, on an annualized basis for such Portfolio's then-current fiscal year. However, each Adviser may voluntarily agree to waive a portion of the fees payable to it on a month-to-month basis.
Chase will serve as administrator of the Portfolios. Chase provides certain administrative services to the Portfolios, including, among other responsibilities, coordinating the negotiation of contracts and fees with, and the monitoring of performance and billing of, the Portfolio's independent contractors and agents; preparation for signature by an officer of the Portfolios of all documents required to be filed for compliance by the Portfolios with applicable laws and regulations excluding those of the securities laws of various states; arranging for the computation of performance data, including net asset value and yield; responding to shareholder inquiries; and arranging for the maintenance of books and records of the Portfolios and providing, at its own expense, office facilities, equipment and personnel necessary to carry out its duties. The administrator does not have any responsibility or authority for the management of the Portfolios, the determination of investment policy, or for any matter pertaining to the distribution of Portfolio shares.
Under the administration agreement, Chase renders administrative services to others. The administration agreement will continue in effect from year to year with respect to each Portfolio only if such continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of such Portfolio's outstanding voting securities and, in either case, by a majority of the Trustees who are not parties to the administration agreement or "interested persons" (as defined in the 1940 Act) of any such party. The administration agreement is terminable without penalty by the Trust on behalf of each Portfolio on 60 days' written notice when authorized either by a majority vote of such Portfolio's shareholders or by vote of a majority of the Board of Trustees, including a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Portfolios, or by the Administrator on 60 days' written notice, and will automatically terminate in the event of its "assignment" (as defined in the 1940 Act). The administration agreement also provides that Chase nor its personnel shall be liable for any error of judgment or mistake of law or for any act or omission in the administration or management of the Portfolios, except for willful misfeasance, bad faith or gross negligence in the performance of its or their duties or by reason of reckless disregard of its or their obligations and duties under the administration agreement.
In addition, the administration agreement provides that, in the event the operating expenses of any Portfolio, including all investment advisory, administration and sub-administration fees, but excluding brokerage commissions and fees, taxes, interest and extraordinary expenses such as for any fiscal year exceed the most restrictive expense limitation applicable to that Portfolio imposed by the securities laws or regulations thereunder of any state in which the shares of such Portfolio are qualified for sale, as such limitations may be raised or lowered from time to time, Chase shall reduce its administration fee (which fee is described below) to the extent of its share of such excess expenses. The amount of any such reduction to be borne by Chase shall be deducted from the monthly administration fee otherwise payable to Chase during such fiscal year; and if such amounts should exceed the monthly fee, Chase shall pay to such Portfolio its share of such excess expenses no later than the last day of the first month of the next succeeding fiscal year.
In consideration of the services provided by Chase pursuant to the administration agreement, Chase receives from each Portfolio a fee computed and paid monthly at an annual rate equal to .05% of each of the Portfolio's average daily net assets, on an annualized basis for the Portfolio's then-current fiscal year Chase may voluntarily waive a portion of the fees payable to it with respect to each Portfolio on a month-to-month basis.
The Trust has entered into a Sub-Administration Agreement (the "Sub-Administration Agreement") with Vista Broker-Dealer Services, Inc. ("VBDS"), pursuant to which VBDS provides certain administration services, including providing officers, clerical staff and office space. VBDS is a wholly-owned subsidiary of Concord Financial Group.
The Sub-Administration Agreement is currently in effect until August 23, 1996, and will continue in effect thereafter with respect to each Portfolio only if such continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of such Portfolio's outstanding voting securities and, in either case, by a majority of the Trustees who are not parties to the Sub-Administration Agreement or "interested persons" (as defined in the 1940 Act) of any such party. The Sub-Administration Agreement is terminable without penalty by the Trust on behalf of each Portfolio on 60 days' written notice when authorized either by a majority vote of such Portfolio's shareholders or by vote of a majority of the Board of Trustees of the Trust, including a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust, or by VBDS on 60 days' written notice, and will automatically terminate in the event of its "assignment" (as defined in the 1940 Act). The Sub-Administration Agreement also provides that neither VBDS nor its personnel shall be liable for any act or omission in the course of, or connected with, rendering services under the Sub-Administration Agreement, except for willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations or duties.
In consideration of the sub-administration services provided by VBDS pursuant to the Sub-Administration Agreement, VBDS receives an annual fee, payable monthly, of .15% of the net assets of each Portfolio. VBDS may voluntarily waive a portion of the fees payable to it under the Sub-Administration Agreement with respect to each Portfolio on a month-to-month basis.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036, as independent accountants of the Portfolios, provides the Portfolios with audit services, tax return preparation, and assistance and consultation with respect to the preparation of filings with the Securities and Exchange Commission.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
Mutual Fund Variable Annuity Trust is an open-end, management investment company organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts in 1994. Because certain Portfolios in the Trust are "non-diversified", more than 5% of any of the assets of any such Portfolio may be invested in the obligations of any single issuer, which may make the value of the shares in such a Portfolio more susceptible to certain risks than shares of a diversified mutual fund.
The Trust currently consists of six Portfolios of shares of beneficial interest without par value. The Trust has reserved the right to create and issue additional series or classes. Each share of a series or class represents an equal proportionate interest in that series or class with each other share of that series or class. The shares of each series or class participate equally in the earnings, dividends and assets of the particular series or class. Expenses of the Trust which are not attributable to a specific series or class are allocated among all the series in a manner believed by management of the Trust to be fair and equitable. Shares have no preemptive or conversion rights. Shares when issued are fully paid and non-assessable, except as set forth below. Shareholders are entitled to one vote for each share held. Shares of each series or class generally vote separately, for example to approve investment advisory agreements or distribution plans, but shares of all series and classes vote together, to the extent required under the 1940 Act, in the election or selection of Trustees and independent accountants. To the extent required by applicable law, shares of the Portfolios held by Accounts will be voted at meetings of the shareholders of the Trust in accordance with instructions received from persons having the voting interest in the Portfolios. Shares for which no instructions have been received will be voted in the same proportion as shares for which instructions have been received. The Trust does not hold regular meetings of shareholders.
The Trust is not required to hold annual meetings of shareholders but will hold special meetings of shareholders of a series or class when, in the judgment of the Trustees, it is necessary or desirable to submit matters for a shareholder vote. Shareholders have, under certain circumstances, the right to communicate with other shareholders in connection with requesting a meeting of shareholders for the purpose of removing one or more Trustees. Shareholders also have, in certain circumstances, the right to remove one or more Trustees without a meeting. No material amendment may be made to the Trust's Declaration of Trust without the affirmative vote of the holders of a majority of the outstanding shares of each Portfolio affected by the amendment. Shares have no preemptive or conversion rights. Shares, when issued, are fully paid and non-assessable, except as set forth below. Any series or class may be terminated (i) upon the merger or consolidation with, or the sale or disposition of all or substantially all of its assets to, another entity, if approved by the vote of the holders of two-thirds of its outstanding shares, except that if the Board of Trustees recommends such merger, consolidation or sale or disposition of assets, the approval by vote of the holders of a majority of the series' or class' outstanding shares will be sufficient, or (ii) by the vote of the holders of a majority of its outstanding shares, or (iii) by the Board of Trustees by written notice to the series' or class' shareholders. Unless each series and class is so terminated, the Trust will continue indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts business trust". Under Massachusetts law, shareholders of such a business trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the Trust's Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust and provides for indemnification and reimbursement of expenses out of the Trust property for any shareholder held personally liable for the obligations of the Trust. The Trust's Declaration of Trust also provides that the Trust shall maintain appropriate insurance (for example, fidelity bonding and errors and omissions insurance) for the protection of the Trust, its shareholders, Trustees, officers, employees and agents covering possible tort and other liabilities. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed and the Trust itself was unable to meet its obligations.
The Trust's Declaration of Trust further provides that obligations of the Trust are not binding upon the Trustees individually but only upon the property of the Trust and that the Trustees will not be liable for any action or failure to act, errors of judgment or mistakes of fact or law, but nothing in the Declaration of Trust protects a Trustee against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office.
The Board of Trustees has adopted a Code of Ethics addressing personal securities transactions by investment personnel and access persons and other related matters. The Code of Ethics substantially conforms to the recommendations made by the Investment Company Institute ("ICI") (except where noted) and includes such provisions as:
o Prohibitions on investment personnel acquiring securities o A requirement that access persons obtain prior to acquiring securities in a private placement and that the officer granting such approval have no interest in the issuer making the private placement; o A restriction on access persons executing transactions for securities on a recommended list until 14 days after o A prohibition on access persons acquiring securities that are pending execution by one of the Portfolios until 7 days after the transactions of the Portfolios are o A prohibition of any buy or sell transaction in a particular security in a 30-day period, except as may be permitted in certain hardship cases or exigent circumstances where prior approval is obtained. This provision differs slightly from the ICI recommendation; o A requirement for pre-clearance of any buy or sell transaction in a particular security after 30 days, o A requirement that any gift exceeding $75.00 from a customer must be reported to the appropriate compliance o A requirement that access persons submit in writing any request to serve as a director or trustee of a publicly o A requirement that all securities transactions in excess of $1,000 be pre-cleared, except that if a person has engaged in more than $10,000 of securities transactions
in a calendar quarter all securities of such person require pre-clearance (this de minimus exception differs slightly from the ICI recommendations); o A requirement that all access persons direct their broker-dealer to submit duplicate confirmation and customer statements to the appropriate compliance unit; o A requirement that all access persons sign a Code of Ethics acknowledgment, affirming that they have read and understood the Code and submit a personal security holdings report upon commencement of employment or status and a personal security transaction report within 10 days of each calendar quarter thereafter.
As of August 31, 1995, 100% of each of the Portfolios were beneficially owned by Variable Annuity Account Two, a separate account of Anchor National Life Insurance Company.
DESCRIPTION OF BOND AND COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc. _____ Bonds which are rated Aaa are judged to be the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong positions of such issues. Bonds which are rated Aa are judged to be of high quality by all standards. Together with Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Moody's applies numerical modifiers "1," "2" and "3" in each generic rating classification from Aa through B in its corporate bond rating system. The modifier "1" indicates that the security ranks in the higher end of its generic rating category; the modifier "2" indicates a mid-range ranking; and the modifier "3" indicates that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation_- Bonds rated AAA have the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from AAA issues only in small degree. Bonds rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of change in circumstances and economic conditions than bonds in higher rated categories.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly marketable, suitable for investment by trustees and fiduciary institutions liable to but slight market fluctuation other than through changes in the money rate. The prime feature of an AAA bond is showing of earnings several times or many times interest requirements, with such stability of applicable earnings that safety is beyond reasonable question whatever changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety virtually beyond question and are readily salable, whose merits are not unlike those of the AAA class, but whose margin of safety is less strikingly broad. The issue may be the obligation of a small company, strongly secured but influenced as to rating by the lesser financial power of the enterprise and more local type market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit quality with negligible risk factors; only slightly more than U.S. Treasury debt. Bonds rated Duff-2, 3 and 4 are judged by Duff to be of high credit quality with strong protection factors. Risk is modest but may vary slightly from time to time because of economic conditions.
Bonds rated TBW-1 are judged by Thomson BankWatch, Inc. to be of the highest credit quality with a very high degree of likelihood that principal and income will be paid on a timely basis.
Bonds rated TBW-2 offer a strong degree of safety regarding repayment. The relative degree of safety, however, is not as high as TBW-1.
Moody's Commercial Paper ratings are opinions of the ability of issuers to repay punctually promissory obligations. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers: Prime 1-Highest Quality; Prime 2-Higher Quality; Prime 3-High Quality.
A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment. Ratings are graded into four categories, ranging from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having the greatest capacity for timely payment. Issues in this category are delineated with the numbers 1, 2, and 3 to indicate the relative degree of safety. The designation A-1 indicates that the degree of safety regarding timely payment is either overwhelming or very strong. A "+" designation is applied to those issues rated "A-1" which possess safety characteristics. Capacity for timely payment on issues with the designation A-2 is strong. However, the relative degree of safety is not as high as for issues designated A-1. Issues carrying the designation A-3 have a satisfactory capacity for timely payment. They are, however, somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is the second highest commercial paper rating assigned by Fitch which reflects an assurance of timely payment only slightly less in degree than the strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper rated Duff-1 is regarded as having very high certainty of timely payment with excellent liquidity factors which are supported by ample asset protection. Risk factors are minor. Paper rated Duff-2 is regarded as having good certainty of timely payment, good access to capital markets and sound liquidity factors and company fundamentals. Risk factors are small.
Mutual Fund Variable Annuity Trust
Vista Broker-Dealer Services, Inc., distributor This report must be accompanied or preceded by a current prospectus for Vista Capital Advantage
Letter from the Chairman 3
Mutual Fund Variable Annuity Trust Statement of Assets & Liabilities 12 Statement of Changes in Net Assets 14 Selected Per Share Data and Ratios 15
Notes to Financial Statements 16-18
Report of Independent Accountants 19
INVESTMENTS IN VISTA CAPITAL ADVANTAGE ARE NOT INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT DEPOSITS OF, ENDORSED BY, OR GUARANTEED BY, CHASE. INVESTMENTS IN VISTA CAPITAL ADVANTAGE, INCLUDING THE UNDERLYING VARIABLE INVESTMENT OPTIONS, ARE SUBJECT TO RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
We are very pleased to provide you with performance and financial information on the Mutual Fund Variable Annuity Trust portfolios that underlie your Vista Capital Advantage variable annuity for the period from inception on March 1, 1995, through August 31, 1995. Look for a similar update and performance report from Vista Investment Services every six months.
U.S. INVESTORS WATCH MARKETS CLIMB
The U.S. equity and bond markets enjoyed a sustained rally during the period under review as a result of moderate economic growth and a change in the Federal Reserve's monetary policy from tightening to easing. The yield curve shifted dramatically lower from early March to the end of August, providing profits for bond investors. Declining interest rates and solid corporate earnings results enabled the equity markets to push higher, with all the major U.S. stock indices posting double-digit gains.
OVERSEAS MARKETS BUOYED BY ECONOMIC REPORTS
The overseas stock and bond markets benefited from the general downward trend in global interest rates and the strength in the U.S. equity and fixed income markets. The European securities markets were buoyed by economic reports showing a combination of moderate inflation and sustained, albeit tepid growth and expectations of monetary easing. In April, the U.S. dollar started to reverse its long-term decline against the yen, which contributed heavily to a resurgence in the Japanese equity market. The Latin American markets bounced back strongly from their sharp correction earlier this year, while the smaller Asian markets held on to early gains to also finish higher.
The commentaries beginning on page 4 provide brief summaries on individual portfolio performance from each fund manager's perspective. Also included is performance since inception for each portfolio.
In summary, your variable annuity portfolio's performance benefited from the positive climate for the global financial markets in recent months. As always, however, we recommend that you take a long- term, disciplined approach to investing -- a strategy that we believe will help deliver the strong investment returns you seek.
stocks that are currently out of favor with investors.
The GROWTH & INCOME PORTFOLIO'S performance for the fiscal period ended August 31, 1995, was helped by the U.S. stock market's record-breaking climb. We also benefited from our sector weighting decisions, including an emphasis on cyclical issues, and timely stock selection. The Portfolio achieved a 14.80% total return for the period since its inception on March 1, 1995, through August 31, 1995.
Contributing to the market's overall strength during the period were two main factors: 1) the Federal Reserve's decision to reverse interest rate policy in July 1995; and 2) strong corporate earnings. The Portfolio's total return was enhanced by its investments in cyclical issues and emphasis on such sectors as basic industry, capital goods, transportation and technology. Some exposure to small-capitalization issues also benefited the Portfolio.
We expect the economy to slow this autumn but believe it will pick up its pace in late 1995. We will remain focused on cyclical issues, which we believe have the potential to outperform other sectors.
[begin text in shaded box]
VISTA INVESTMENT SERVICES IS PLEASED TO PROVIDE THE PERFORMANCE AND COMMENTARIES FOR THE SIX PORTFOLIOS THAT UNDERLIE THE VISTA CAPITAL ADVANTAGE VARIABLE ANNUITY FOR THE PERIOD ENDED AUGUST 31, 1995. THE PERFORMANCE INFORMATION PROVIDED ON THE PORTFOLIOS INCLUDES TRUST EXPENSES, BUT DOES NOT INCLUDE INSURANCE COMPANY EXPENSES OR WITHDRAWAL CHARGES ASSOCIATED WITH YOUR VARIABLE ANNUITY. TOTAL RETURNS ARE NOT ANNUALIZED SINCE THE PORTFOLIOS HAVE BEEN IN EXISTENCE FOR LESS THAN ONE YEAR. ALL DIVIDENDS ARE ASSUMED TO BE REINVESTED.
PLEASE NOTE THAT PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S UNITS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
[end text in shaded box]
The CAPITAL GROWTH PORTFOLIO benefited during the fiscal period ended August 31, 1995, as the U.S. stock market rallied in a conducive environment for equity investing. For the period under review, the Portfolio achieved a 19.00% total return.
A number of factors contributed to the stock market's strong showing. Initially, the market reacted positively as the economy continued to slow to a sustainable pace while inflation remained moderate. In late spring of this year, however, concerns began to surface that the anticipated "soft landing" for the economy might not occur, with market watchers fearing a possible recession. However, the stock market rebounded when the Federal Reserve decided to reverse its monetary policy and began lowering interest rates in an effort to revive the sluggish economy. Toward the end of August, signs of economic strength reappeared throughout the economy and a wave of solid earnings reports also lent support to stocks.
The Portfolio benefited during the period from participating in such sectors as basic industry, capital goods, transportation and technology, which all performed well. Timely stock selection and the Portfolio's small- and mid-capitalization orientation also added to the total return.
We expect the economy to gain strength in late 1995. We also expect the Fed to continue to ease interest rates to spark economic growth. Given this scenario, we plan to emphasize cyclical issues, which tend to benefit from a growing economy.
The INTERNATIONAL EQUITY PORTFOLIO had a total return of 8.90% for the period ended August 31, 1995, as overseas equity markets posted strong gains in part due to declines in global interest rates and strength in the U.S. equity and fixed income markets.
of capital and income by prospects for growth.
international investing is subject to and political instability.
The overseas stock and bond markets benefited from the general downward trend in global interest rates and the strength in the U.S. equity and fixed income markets. The European securities markets were buoyed by economic reports showing a combination of moderate inflation and tepid growth, and expectations of monetary easing. In April, the U.S. dollar started to reverse its long-term decline against the yen, which contributed heavily to a resurgence in the Japanese equity market. The Latin American markets bounced back strongly from their sharp correction earlier this year, while the smaller Asian markets held on to early gains to also finish higher.
In the near term, international equities remain vulnerable to a possible correction on Wall Street. However, based on the current global economic and interest rate environment, this would represent an opportunity to add to the Portfolio's holdings. Europe is entering a period of transition from export-led to domestically-driven economic growth, and we will take advantage of this theme. We believe Japanese equities are likely to track movements in the yen/dollar exchange until a definitive bailout package to address Japan's bad debt situation is announced. However, we anticipate that an agreement will come sooner rather than later. Finally, we are comfortable with our positions in the smaller Asian markets, as the macroeconomic fundamentals remain solid, and, in our opinion, fair valuations exist.
The ASSET ALLOCATION PORTFOLIO benefited from strong performances overall in the U.S. stock and bond markets during the fiscal year ended August 31, 1995, achieving a 10.40% total return.
March began with relative stability for the U.S. bond market. However, signs began to emerge that the pace of economic activity was beginning to slow and downturns were registered in some sectors, such as construction spending and retail sales. To spark economic activity, the Federal Reserve lowered the Federal funds rate by 25 basis points on July 6.
A number of factors contributed to the stock market's strong showing during the period. Initially, the market reacted positively as the economy continued to slow while inflation remained moderate. In late spring of this year, however, concerns began to surface that the anticipated "soft landing" for the economy might not occur, with market watchers fearing a possible recession. However, the stock market rebounded when the Federal Reserve decided to reverse its monetary policy and began lowering interest rates in an effort to revive the sluggish economy. Toward the end of the fiscal year, signs of economic strength reappeared throughout the economy and a wave of solid earnings reports also lent support to stocks.
Going forward, we expect corporate profits to grow but with less momentum as the economy contracts. We also believe that the economy will re-accelerate in the fourth quarter -- with or without a catalyst from the Fed.
seeks a combination of long-term capital growth and current income by investing in common stocks, fixed-income obligations.
The yield curve shifted dramatically lower during the period under review, which benefited U.S. bond market participants. For the fiscal year ended August 31, 1995, the U.S. TREASURY INCOME PORTFOLIO had a total return of 6.90%.
The fiscal year began with relative stability for the U.S. bond market. However, signs began to emerge that the pace of economic activity was beginning to slow and downturns were registered in some sectors, such as construction spending and retail sales. To spark economic activity, the Federal Reserve lowered the Federal funds rate by 25 basis points on July 6. This rate cut pushed the price of bonds higher.
Going forward, we expect corporate profits to grow but with less momentum as the economy contracts. We also believe that the economy will slow in the near term but then re-accelerate in the fourth quarter -- with or without assistance from the Fed.
seeks current income as well principal by investing in debt obligations backed by the full faith and credit of the U.S. government.
shares of the portfolio are neither insured nor guaranteed by the U.S. government or any other entity.
seeks to preserve capital and maximum current income.
invests in obligations issued or securities issued by the U.S. government or its agencies, dollar- governments.
there is no assurance that the an NAV of $1.00 per share, nor is it insured or guaranteed by the U.S. government.
March began on a relatively stable note for the MONEY MARKET Portfolio, with declines in some rates, such as one-year Treasury bills. This decline occurred despite a 50 basis point increase in the Federal funds rate, to 6%, and a 50 basis point rise in the Fed's discount rate, to 5.25%, in February 1995.
A shift in investor psychology occurred at midyear as economic indicators began to show a possible slowing in the pace of activity. In some sectors, such as construction spending and retail sales, slight downturns were registered. Noting these developments, the Fed reduced the Federal funds rate by 25 basis points on July 6.
The Money Market Portfolio's 7-day current yield and total return as of August 31, 1995 was 5.30% and 2.79%, respectively.
Many market watchers contend that the Fed must ease interest rates again to prevent the economy from stalling. While the economy may slow in the near future, we expect it to gain momentum in the fourth quarter.
Portfolio of Investments August 31, 1995
# Security may only be sold to institutional buyers. *Non income producing securities. See NOTES TO FINANCIAL STATEMENTS.
Portfolio of Investments August 31, 1995
*Non-income producing securities. See NOTES TO FINANCIAL STATEMENTS.
Portfolio of Investments August 31, 1995
*Non-income producing securities. See NOTES TO FINANCIAL STATEMENTS.
Portfolio of Investments August 31, 1995
# Security may only be sold to institutional buyers. *Non income producing securities. See NOTES TO FINANCIAL STATEMENTS.
Portfolio of Investments August 31, 1995
Portfolio of Investments August 31, 1995
# Security may only be sold to institutional buyers. See NOTES TO FINANCIAL STATEMENTS. FRN = Floating Rate Notes: The maturity date shown is the next interest reset date and the interest rate shown is the rate in effect at August 31, 1995.
STATEMENT OF ASSETS & LIABILITIES
SEE NOTES TO FINANCIAL STATEMENTS.
MARCH 1, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH AUGUST 31, 1995
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF CHANGES IN NET ASSETS
MARCH 1, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH AUGUST 31, 1995
SEE NOTES TO FINANCIAL STATEMENTS.
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING MARCH 1, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH AUGUST 31, 1995
SEE NOTES TO FINANCIAL STATEMENTS. #SHORT PERIODS HAVE BEEN ANNUALIZED
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Mutual Fund Variable Annuity Trust (the "Trust") was organized on April 14, 1994 as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Trust was established to provide a funding medium for variable annuity contracts issued by life insurance companies. Shares of the Trust are issued only to insurance company separate accounts in connection with the variable annuity contracts. The Trust issues six separate series of shares (the "Portfolio(s)") each of which represents a separately managed portfolio of securities with its own investment objectives. The portfolios are the Growth and Income Portfolio ("GIP"), Capital Growth Portfolio ("CGP"), International Equity Portfolio ("IEP"), Asset Allocation Portfolio ("AAP"), U.S. Treasury Income Portfolio ("USTIP"), and Money Market Portfolio ("MMP").
THE FOLLOWING IS A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOLLOWED BY THE PORTFOLIOS:
A. Valuation of Investments Equity securities are valued at the last sale price on the exchange on which they are primarily traded, including the NASDAQ National Market. Securities for which sale prices are not available and other over-the-counter securities are valued at the last quoted bid price. Bonds and other fixed income securities (other than short-term obligations), including listed issues, are valued on the basis of valuations furnished by a pricing service. In making such valuations, the pricing service utilizes both dealer-supplied valuations and electronic data processing techniques that take into account appropriate factors such as institutional-sized trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon quoted prices. Short-term obligations are valued at amortized cost if acquired with fewer than 61 days to maturity, or at value , based on quoted exchange or over- the-counter prices, until the 61st day prior to maturity and thereafter by amortizing the value on the 61st day to par at maturity. Portfolio securities for which there are no such quotations or valuations are valued at fair value as determined in good faith by or at the direction of the Trustees.
B. Security Transactions and Investment Income Investment transactions are accounted for on the trade date (the date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date.
C. Repurchase agreements It is the Portfolios' policy that all repurchase agreements are fully collateralized by U.S. Treasury and Government agency securities. All collateral is held by the Trust's custodian bank, sub-custodian or a bank with which the custodian bank has entered into a sub-custodian agreement or is segregated in the Federal Reserve Book Entry System. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines, or if the seller enters into an insolvency proceeding, realization of the collateral by the Trust may be delayed or limited.
D. Foreign Currency Translations The books and records of the Portfolios are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the official exchange rates, or at the mean of the current bid and asked prices, of such currencies against the U.S. dollar last quoted by a major bank, on the following basis:
(a) Market value of investment securities and other assets and liabilities: at the closing rate of exchange at the balance sheet date.
(b) Purchases and sales of investment securities and income and expenses: at the rates of exchange prevailing on the respective dates of such transactions.
Reported realized foreign exchange gains or losses arise from disposition of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Portfolios' books on the transaction date and the U.S. dollar equivalent of the amounts actually received or paid. Unrealized foreign exchange gains and losses arise from changes (due to the changes in the exchange rate) in the value of foreign currency and other assets and liabilities denominated in foreign currencies which are held at period end.
E. Forward Foreign Currency Exchange Contracts A forward foreign currency contract is an obligation to purchase or sell a specific currency for an agreed price at a future date. Each day the forward contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market." When the forward contract is closed, or the delivery of the currency is made or taken, the Portfolio records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Portfolio's basis in the contract. The portfolios are subject to off balance sheet risk to the extent of the value of the contract for purchases of currency and in an unlimited amount for sales of currency.
F. Federal Income Tax Status It is the Trust's policy to comply individually for each Portfolio with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required.
G. Dividends and Distributions to Shareholders The Portfolios record dividends and distributions to shareholders on the record date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are considered either temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment. The reclassification made for IEP is as follows: accumulated undistributed net investment income was decreased by $2,690 and an offsetting increase was made to accumulated undistributed net realized gain (loss) on investment transactions. The difference arises due to different book and tax treatments for net realized gains (losses) on foreign currency transactions. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital.
H. Expenses Direct expenses of a Portfolio are charged to the respective Portfolio and Trust expenses are allocated on the basis of relative net assets or on another reasonable basis.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
A. Investment Advisory Fees The Chase Manhattan Bank, N.A. ("Chase"), a direct wholly-owned subsidiary of the Chase Manhattan Corporation (see Note 7.), is the Portfolios' investment adviser (the "Adviser") and custodian. The Adviser manages the assets of the Portfolios pursuant to an Advisory Agreement and, for such services, is paid an annual fee computed daily and paid monthly based on an annual rate equal to 0.80% of the International Equity Portfolio's, 0.60% of the Capital Growth and Growth and Income Portfolios', 0.55% of the Asset Allocation Portfolio's, 0.50% of the U.S. Treasury Income Portfolio's and 0.25% of the Money Market Portfolio's average daily net assets. For the period ended August 31, 1995, the Adviser voluntarily waived all or a portion of its fees as outlined in Note 2D below.
B. Administration Fee Pursuant to an Administration Agreement, Chase (the "Administrator") provides certain administration services to the Portfolios. For these services, the Administrator receives from each Portfolio a fee computed at an annual rate equal to 0.05% of the respective Portfolio's average daily net assets. For the period ended August 31, 1995, the Administrator voluntarily waived all or a portion of its fees as outlined in Note 2D below.
C. Sub-Administration fees Pursuant to a Sub-administration Agreement, Vista Broker-Dealer Services, Inc. ("VBDS" or the "Sub-administrator"), an indirect wholly-owned subsidiary of BISYS Group Inc., provides certain sub-administration services to the Portfolios, including providing officers, clerical staff and office space for an annual fee of 0.15% of the average daily net asssets of each Portfolio. For the period ended August 31, 1995, the Sub-administrator voluntarily waived all or a portion of its fees as outlined in Note 2D below.
D. Waivers of fees For the period ended August 31, 1995, the Administrator, Advisor, and Sub-administrator voluntarily waived fees and the Sub-administrator assumed expenses for the Portfolios as follows:
E. Other Chase provides portfolio custody and fund accounting services for all of the Portfolios, with the exception of the IEP for which it provides only the custody services. Compensation for such services from Chase are presented in the Statement of Operations as custodian fees.
During the year ended August 31, 1995, the Trust adopted an unfunded noncontributory defined benefit pension plan covering all indepedent directors of the Trust who have served as an independent director of the Trust or any of the other Vista funds for at least five years at the time of retirement. Benefits under this plan are based on compensation and years of service. Management has determined that the accrual for prior service costs is not material.
3. INVESTMENT TRANSACTIONS Purchases and Sales of Investments (excluding short-term investments) were as follows:
4. FEDERAL INCOME TAX MATTERS For Federal income tax purposes, the cost and unrealized appreciation/(depreciation) in value of the investment securities at August 31,1995 are as follows:
5. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Transactions in shares of beneficial interest for the period March 1, 1995* through August 31, 1995, were as follows:
6. OPEN FORWARD FOREIGN CURRENCY CONTRACTS The following forward foreign currency contracts were held by the International Equity Portfolio at August 31, 1995:
USD -- United States dollar
7. OTHER On August 27, 1995, the Chase Manhattan Corporation and Chemical Banking Corporation announced an agreement in principle to merge subject to the shareholder approval of the respective corporations. Shareholder vote on the agreement is expected to occur in the first quarter of 1996.
TO THE TRUSTEES AND SHAREHOLDERS OF MUTUAL FUND VARIABLE ANNUITY TRUST
In our opinion, the accompanying statement of assets and liabilities, including the portfolios of investments, and the related statements of operations and of changes in net assets and the selected per share data and ratios for a share of beneficial interest outstanding present fairly, in all material respects, the financial position of Growth and Income Portfolio, Capital Growth Portfolio, International Equity Portfolio, Asset Allocation Portfolio, U.S. Treasury Income Portfolio and Money Market Portfolio (separate portfolios constituting Mutual Fund Variable Annuity Trust, hereafter referred to as the "Trust") at August 31, 1995, and the results of each of their operations, the changes in each of their net assets and the selected per share data and ratios for a share of beneficial interest outstanding for the period March 1, 1995 (commencement of operations) through August 31, 1995, in conformity with generally accepted accounting principles. These financial statements and selected per share data and ratios for a share of beneficial interest outstanding (hereafter referred to as "financial statements") are the responsibility of the Trust's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 1995 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above.
1177 Avenue of the Americas
(C) The Chase Manhattan Bank, 1995 Vista Investment Services
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0000891020-96-000021
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0000891020-96-000021_0000.txt
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<DESCRIPTION>FORM 8-K - EARLIEST EVENT REPORTED 1/10/96
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation)
(Commission File Number) IRS Employer Identification No.
(Address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 663-0733
ITEM 5 - OTHER EVENTS
On January 10, 1996, Central Bancorporation ("Bancorporation"), Wenatchee, Washington and its subsidiaries Central Washington Bank and North Central Washington Bank ("Bank Subsidiaries") entered into an Agreement and Plan of Mergers ("Merger Agreement") with InterWest Bancorp, Inc. ("InterWest"), Oak Harbor, Washington and InterWest's subsidiary, InterWest Savings Bank, pursuant to which Bancorporation will be merged into InterWest. The Merger Agreement provides that Bancorporation's common stock will be exchanged for shares of InterWest common stock pursuant to a specified exchange ratio. The aggregate value of the consideration is approximately $34.5 million, subject to adjustments.
In connection with the Merger Agreement, Bancorporation and InterWest entered into a Stock Option Agreement dated January 10, 1996 ("Option Agreement") whereby Bancorporation granted InterWest an option to purchase 201,898 shares of Bancorporation's common stock at a price of $26.00 per share (such number of shares and price being subject to adjustment), under the circumstances, terms and conditions set forth in the Option Agreement. The Option Agreement is exercisable upon the occurrence of certain events, including (i) the acquisition by a third party of securities representing 15% or more of the voting shares of Bancorporation, (ii) the sale of 20% or more of the assets or deposits of Bancorporation and the Bank Subsidiaries, (iii) the issuance, sale or other disposition of securities representing 20% or more of the voting power of Bancorporation or the Bank Subsidiaries; or (iv) the agreement between Bancorporation and a third party to engage in a merger or consolidation.
Consummation of the acquisition is subject to several conditions, including receipt of applicable regulatory approval and approval by Bancorporation's and InterWest's shareholders. For information regarding the terms of the proposed transaction, reference is made to the Merger Agreement, Option Agreement and the press release dated January 11, 1996, which are attached hereto as Exhibits 2, 10 and 99, respectively, and incorporated herein by reference.
ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements - not applicable.
(b) Pro forma financial information - not applicable.
(2) Plan and Agreement of Mergers dated January
(10) Stock Option Agreement dated January 10, 1996
(99) Joint Press Release issued by Bancorporation
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
By /s/ Joseph E. Riordan
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0000950130-96-000108
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0000950130-96-000108_0018.txt
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<DESCRIPTION>FORM OF EMPLOYMENT PROTECTION AGREEMENT
THIS AGREEMENT between Loral Corporation, a New York corporation (the "Company"), and ______________________ (the "Executive"), dated as of this 7th day of January 1996.
W I T N E S S E T H :
WHEREAS, the Company and the Executive have agreed to enter into an agreement providing the Company and the Executive with certain rights upon the occurrence of a Change of Control (as defined below) to assure the Company of
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed by and between the Company and the Executive as follows:
1. Effective Date; Term. This Agreement shall be effective as of January 7, 1996. The Company may terminate this Agreement upon five (5) days advance written notice to the Executive; except that if this Agreement is in effect immediately prior to the date of a Change of Control (the "Effective Date"), it shall remain in effect for at least three (3) years following such Change of Control, and such additional time as may be necessary to give effect to the terms of this Agreement. This Agreement may also terminate as provided in Section 2(b) hereof.
2. Change of Control. (a) Except as provided in Section 2(b) hereof, for purposes of this Agreement, a "Change of Control" shall be deemed to have occurred if: (i) any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as used in Sections 13(d) and 14(d) thereof)), excluding the Company, any majority owned subsidiary of the Company (a "Subsidiary") and any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee), but including a "group" as defined in Section 13(d)(3) of the Exchange Act (a "Person"), becomes the beneficial owner of shares of the Company having at least 50% of the total number of votes that may be cast for the election of directors of the Company (the "Voting Shares") provided, however, that such an event shall not constitute a Change of Control if such acquisition has been approved by a majority of the Incumbent Directors (as defined in subsection 2(a)(iii)); (ii) the shareholders of the any merger or other business combination of the Company, sale of the Company's assets or combination of the foregoing transactions (a "Transaction") other than a Transaction involving only the Company and one or more of its Subsidiaries, a Transaction approved by a majority of the Incumbent Directors, or a Transaction immediately following which the shareholders of the Company immediately prior to the Transaction, excluding for this purpose any shareholder owning directly or indirectly more than 10% of the shares of the other company involved in the Transaction, continue to have a majority of the voting power in the resulting entity, or (iii) within any 24-month period beginning on or after January 7, 1996, the persons who were directors of the Company immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board of Directors of the Company (the "Board") or the board of directors of any successor to the Company, provided that any director who was not a director as of January 7, 1996 shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with the approval of, at least two- thirds of the directors who then qualified as Incumbent Directors either actually or by prior operation of this subsection 2(a)(iii).
(b) This Agreement shall terminate upon, and no Change of Control shall be deemed to occur as a result of, the successful consummation of the "Offer" (as defined in Section 1.1(a) of the Agreement and Plan of Merger Dated as of January 7, 1996 By and Among the Company, Lockheed Martin Corporation and LAC Acquisition Corporation), or upon the successful consummation of any transaction which is approved by the Incumbent Directors and as a result of which Lockheed Martin Corporation or a wholly owned subsidiary thereof acquires substantially all of the Company's voting securities or substantially all of the Company's defense businesses.
3. Retention Period. If the Executive is employed on the Effective Date, the Company agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company, for the period (the "Retention Period") commencing on the Effective Date and ending on the earliest to occur of (i) the third anniversary of the Effective Date, and (ii) the date of any termination of the Executive's employment in accordance with Section 6 of this Agreement.
Position and Duties. (a) No Reduction in Position. During the Retention Period, the Executive's position (including titles), authority and responsibilities shall be at least commensurate with the highest of those held or exercised by him at any time during the 90-day period immediately preceding the Effective Date.
(b) Business Time. During the Retention Period, the Executive shall devote his full business time during normal business hours to the business and affairs of the Company and use his best efforts to perform faithfully and efficiently the responsibilities assigned to him hereunder, to the extent necessary to discharge such responsibilities,
(i) reasonable time spent in serving on corporate, civic or charitable boards or committees of the nature similar to those on which the Executive served prior to the Change of Control, or otherwise approved by the Board, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled.
It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which he is serving or with which he is otherwise associated immediately preceding the Effective Date shall not be deemed to interfere with the performance of the Executive's services to the Company.
5. Compensation. (a) Base Salary. During the Retention Period, the Executive shall receive a base salary ("Base Salary") at a monthly rate at least equal to the monthly salary paid to the Executive by the Company and any of its affiliated companies immediately prior to the Effective Date. The Base Salary shall be reviewed at least once each year after the Effective Date, and may be increased (but not decreased) at any time and from time to time by action of the Board or any committee thereof or any individual having authority to take such action in accordance with the Company's regular practices. Neither payment of the Base Salary nor payment of any increased Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company hereunder. For purposes of the remaining provisions of this Agreement, the term "Base Salary" shall mean Base Salary as defined in this Section 5(a) or, if increased after the Effective Date, the Base Salary as so increased.
(b) Annual Bonus. In addition to the Base Salary, the Executive shall be awarded for each fiscal year of the Company ending during the Retention Period an annual bonus (either pursuant to a bonus plan or program of the Company or otherwise) in cash at least equal to the greater of the two most recent fiscal year bonuses (annualized, if awarded in respect of a partial year) awarded to the Executive prior to the Effective Date under the bonus program of the Company applicable to such Executive ("Annual Bonus"). If a fiscal year of the Company begins, but does not end, during the Retention Period, the Executive shall receive an amount with respect to such fiscal year at least equal to the amount of the Annual Bonus multiplied by a fraction, the numerator of which is the number of days in such fiscal year occurring during the Retention Period and the denominator of which is 365. Each amount payable in respect of the Executive's Annual Bonus shall be paid not later than 90 days after the fiscal year next following the fiscal year for which the Annual Bonus (or pro-rated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company may make available to the Executive, in which event such deferred amount shall be payable in accordance with the terms of such deferral program or arrangement. Neither the Annual Bonus nor any bonus amount paid in excess thereof after the Effective Date shall serve to limit or reduce any other obligation of the Company hereunder.
(c) Incentive and Savings Plans and Retirement Programs. In addition to the Base Salary and Annual Bonus payable as hereinabove provided, during the Retention Period, the Executive shall be entitled to participate in all incentive and savings plans and programs, including stock option plans and other equity based compensation plans, and in all retirement plans, on a basis providing him with the opportunity to receive compensation (without duplication of the amount payable as an Annual Bonus) and benefits equal to those provided by the Company to the Executive on an annualized basis under such plans and programs as in effect at any time during the 90-day period immediately preceding the Effective Date. With respect to participation in stock option plans, Executive shall receive annual grants during the Retention Period at least equal to the average annual grants made to Executive during the two fiscal years immediately preceding the Effective Date.
(d) Benefit Plans. During the Retention Period, the Executive and his family shall be entitled to participate in or be covered under all welfare benefit plans and programs of the Company and its affiliated companies, including all medical, dental, disability, group life, accidental death and travel accident insurance plans and programs, as in effect at any time during the 90-day period immediately preceding the Effective Date.
(e) Expenses. During the Retention Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect at any time during the 90-day period immediately preceding the Effective Date.
(f) Vacation and Fringe Benefits. During the Retention Period, the Executive shall be entitled to paid vacation and fringe benefits in accordance with the policies of the Company as in effect at any time during the 90-day period immediately preceding the Effective Date.
(g) Office and Support Staff. During the Retention Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive at any time during the 90-day period immediately preceding the Effective Date.
6. Termination. (a) Death or Disability. The Executive's employment shall terminate automatically upon his death. The Company may terminate Executive's employment during the Retention Period, after having established the Executive's Disability, by giving the Executive written notice of its intention to terminate his employment, and his employment with the Company shall terminate effective on the 90th day after receipt of such notice if, within 90 days after such receipt, the Executive shall fail to return to full-time performance of his duties. For purposes of this Agreement, "Disability" means disability which, after the expiration of more than 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or his legal representatives (such agreement to acceptability not to be withheld unreasonably).
(b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, the Executive may, upon not less than 30 days' written notice to the Company, voluntarily terminate employment during the Retention Period for any reason, provided that any termination by the Executive pursuant to Section 6(d) of this Agreement on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b).
(c) Cause. The Company may terminate the Executive's employment during the Retention Period for Cause. For purposes of this Agreement, "Cause" means (i) gross misconduct on the Executive's part which is demonstrably willful and deliberate and which results in material damage to the Company's business or reputation or (ii) repeated material violations by the Executive of his obligations under Section 4 of this Agreement which violations are demonstrably willful and deliberate.
(d) Good Reason. The Executive may terminate his employment during the Retention Period for Good Reason. For purposes of this Agreement, "Good Reason"
(i) a good faith determination by the Executive that, without his prior written consent, the Company or any of its officers has taken or failed to take any action (including, without limitation, (A) exclusion of the Executive from consideration of material matters within his area of responsibility, other than an insubstantial or inadvertent exclusion remedied by the Company promptly after receipt of notice thereof from the Executive, (B)
or actions which undermine the Executive's authority with respect to persons under his supervision or reduce his standing with his peers, other than an insubstantial or inadvertent statement or action which is remedied by the Company promptly after receipt of the notice thereof from the Executive, (C) a pattern of discrimination against or harassment of the Executive or persons under his supervision and (D) the subjection of the Executive to procedures not generally applicable to other similarly situated executives) which changes the Executive's position (including titles), authority or responsibilities under Section 4 of this Agreement or reduces the Executive's ability to carry out his duties and responsibilities under Section 4 of this Agreement;
(ii) any failure by the Company to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof from the Executive;
(iii) the Company's requiring the Executive to be employed at any location more than 35 miles further from his principal residence than the location at which the Executive was employed immediately preceding the
(iv) any failure by the Company to obtain the assumption of and agreement to perform this Agreement by a successor as contemplated by Section 14(b) of this Agreement.
(e) Notice of Termination. Any termination by the Company for Cause or by the Executive for Good Reason during the Retention Period shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15(c) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice given, in the case of a termination for Cause, within 10 business days of the Company's having actual knowledge of all of the events giving rise to such termination, and in the case of a termination for Good Reason, within 180 days of the Executive's having actual knowledge of the events giving rise to such termination, and which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his rights hereunder.
(f) Date of Termination. For purposes of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Retention Period.
7. Obligations of the Company upon Termination. (a) Death. If the Executive's employment is terminated during the Retention Period by reason of the Executive's death, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the date of his death, including, for this purpose (i) the Executive's full Base Salary through the Date of Termination, (ii) the product of the Annual Bonus and a fraction, the numerator of which is the number of days in the current fiscal year of the Company through the Date of Termination, and the denominator of which is 365 (the "Pro-rated Bonus Obligation"), (iii) any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company and (iv) any other amounts or benefits owing to the Executive under the then applicable employee benefit plans or policies of the Company (such amounts specified in clauses (i), (ii), (iii) and (iv) are hereinafter referred to as "Accrued Obligations"). Unless otherwise directed by the Executive (or, in the case of any employee benefit plan qualified (a "Qualified Plan") under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), as may be required by such plan), all such Accrued Obligations shall be paid to the Executive's legal representatives in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Executive's family shall be entitled to receive benefits at least equal to the most favorable level of benefits available to surviving families of executives of the Company and its affiliates under such plans, programs and policies relating to family death benefits, if any, of the Company and its affiliates in effect at any time during the 90-day period immediately preceding the Effective Date.
(b) Disability. If the Executive's employment is terminated by reason of the Executive's Disability, the Executive shall be entitled, after the Date of Termination until the date when the Retention Period would otherwise have terminated, to continue to participate in or be covered under the benefit plans and programs referred to in Section 5(d) of this Agreement or, at the Company's option, to receive equivalent benefits by alternate means at least equal to those provided in accordance with Section 5(d) of this Agreement. Unless otherwise directed by the Executive (or, in the case of any Qualified Plan, as may be required by such plan), the Executive shall also be paid all Accrued Obligations in a lump sum in cash within 30 days of the
Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Executive shall be entitled to receive disability and other benefits at least equal to the most favorable level of benefits available to disabled employees and/or their families in accordance with the plans, programs and policies maintained by the Company or its affiliates relating to disability at any time during the 90-day period immediately preceding the Effective Date.
(c) Cause and Voluntary Termination. If, during the Retention Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason), the Company shall pay the Executive the Accrued Obligations other than the Pro-rated Bonus Obligation. Unless otherwise directed by the Executive (or, in the case of any Qualified Plan, as may be required by such plan), the Executive shall be paid all such Accrued Obligations in a lump sum in cash within 30 days of the Date of Termination and the Company shall have no further obligations to the Executive under this Agreement.
(d) Termination by Company other than for Cause or Disability and Termination by Executive for Good Reason. (i) Lump Sum Payment. If, during the Retention Period, the Company terminates the Executive's employment other than for Cause or Disability, or the Executive terminates his employment for Good Reason, the Company shall pay to the Executive in a lump sum in cash within 15 days after the Date of Termination the aggregate of the following amounts:
(A) if not theretofore paid, the Executive's Base Salary through the Date of Termination at the rate specified in Section 5(a) of this Agreement;
(B) a cash amount equal to three times the sum of
(1) the Executive's annual Base Salary at the rate specified in Section 5(a) of this Agreement;
(2) the Annual Bonus; and
(3) an amount equal to the average annual compensation received by the Executive (determined as the sum of the amount includable as current income to the Executive for tax purposes plus any amount which would have been so includable but for a deferral election) under the Company's restricted stock plan over the three fiscal years prior to the Change of Control; and
(4) the present value, calculated using the annual federal short- term rate as determined under Section 1274(d) of the Code, of (without duplication) (x) the annual cost to the Company (based on the
premium rates or other costs to it) of obtaining coverage equivalent to the coverage under the plans and programs described in Section 5(d) of this Agreement, and (y) the annualized value of the fringe benefits described under Section 5(f) of this Agreement;
provided, however, that with respect to the life and medical insurance coverage referred to in Section 5(d) of this Agreement, at the Executive's election made prior to the Date of Termination, the Company shall use its best efforts to secure conversion coverage and shall pay the cost of such coverage in lieu of paying the lump sum amount attributable to such life or
(C) a cash amount equal to any amounts (other than amounts payable to the Executive under any Qualified Plans) described in Sections 7(a)(iii) and (iv) of this Agreement.
(ii) Discharge of Company's Obligations. Subject to the performance of its obligations under this Section 7(d), the Company shall have no further obligations to the Executive in respect of any termination by the Executive for Good Reason or by the Company other than for Cause or Disability, except to the extent expressly provided under any of the plans referred to in Section 5(c) or 5(d) of this Agreement.
8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any stock option or other plans or agreements with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program.
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes with respect to the Gross-Up Payment (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the payments.
(b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by
Coopers & Lybrand or such other nationally recognized accounting firm then auditing the accounts of the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, or is unwilling or unable to perform its obligations pursuant to this Section 9, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the potential uncertainty in the application of Section 4999 of the Code (or any successor provision) at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 20 business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by
(iii) cooperate with the Company in good faith in order effectively to
(iv) permit the Company to participate in any proceedings relating
provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others whether by reason of the subsequent employment of the Executive or otherwise. In no event shall the Executive be obligated to seek other employment by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and no amount payable under this Agreement shall be reduced on account of any compensation received by the Executive from other employment. In the event that the Executive shall in good faith give a Notice of Termination for Good Reason and it shall thereafter be determined by mutual consent of the Executive and the Company or by a tribunal having jurisdiction over the matter that Good Reason did not exist, the employment of the Executive shall, unless the Company and the mutually agree, be deemed to have terminated, at the date of giving such purported Notice of Termination, by mutual consent of the Company and the Executive and, except as provided in the last preceding sentence, the Executive shall be entitled to receive only those payments and benefits which he would have been entitled to receive at such date otherwise than under this Agreement.
11. Disputes; Legal Fees and Expenses. (a) Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively and finally by expedited arbitration, conducted before a single arbitrator in New York, New York, in accordance with the rules governing employment disputes then in effect of the American Arbitration Association and the procedures set forth on Exhibit A hereto. The arbitrator shall be approved by both the Company and the Executive. Judgment may be entered on the arbitrator's award in any court having jurisdiction.
(b) In the event that any claim by the Executive under this Agreement is disputed, the Company shall pay all reasonable legal fees and expenses incurred by the Executive in pursuing such claim, provided that the Executive is successful as to at least part of the disputed claim by reason of arbitration, settlement or otherwise.
12. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, (i) obtained by the Executive during his employment by the Company or any of its affiliated companies and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 12 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.
13. Employment Contract or Severance Benefits. Notwithstanding anything else in this Agreement to the contrary, any amount payment to the Executive hereunder on account of his termination of employment shall be reduced on a dollar for dollar basis by each dollar actually paid to the Executive with respect to such termination under the terms of any employment contract between the Executive and the Company or under any severance program or policy applicable to the Executive. Nothing in this Agreement shall be construed to require duplication of any compensation, benefits or other entitlements provided
Executive by the Company under the terms of any employment contract which may address similar matters.
14. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place.
15. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, applied without reference to principles of conflict of laws.
(b) Amendments. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(c) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: at the address listed below (with a copy to )
If to the Company: _____________________________
(with a copy to the attention
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee.
(d) Tax Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, State or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.
(e) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(f) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company has caused this Agreement to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Corporate Counsel, all as of the day and year first above written.
|
SC 14D1
|
EX-99.(C)(6)
| 1996-01-12T00:00:00
| 1996-01-12T17:26:30
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0000950110-96-000047
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0000950110-96-000047_0000.txt
|
CONSENT STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by registrant / /
Filed by a party other than the registrant /x/ / / Confidential, Check the appropriate box: (as permitted by / / Preliminary consent statement Rule 14a-6(e)(2))
/ / Definitive consent statement
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Consent Statement)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: (4) Proposed maximum aggregate value of transaction:
/x/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid: ____________
(2) Form, schedule or registration statement no.: _____________
Brooke Group is organizing a consent solicitation to seek the following resolutions:
Have the directors of RJR Nabisco ("RJRN") spin-off 80.5% of Nabisco to
Amend bylaw changes secretly made by management
o Brooke Group has stated that if RJRN unconditionally agrees to an immediate spin-off of Nabisco, Brooke Group will terminate all solicitation activity o RJR Nabisco is the world's sixth largest consumer products company
o R.J. Reynolds is the second largest cigarette manufacturer in the U.S. and third largest American-blend manufacturer worldwide
-- Revenues of $7.6 billion, EBITDA of $2.2 billion -- Brands include Camel, Winston and Salem -- 67% of operating income earned in U.S. -- Leading market shares: Domestic 26%, International 10%
o Nabisco is one of the world's largest food companies, with dominant brand positions in its U.S. market categories
-- Revenues of $8.1 billion, EBITDA of $1.4 billion -- Brands include Oreo, Chips Ahoy!, Ritz, Planters and A1 Steak Sauce -- 82% of operating income earned in U.S. -- U.S. market shares average three times those of nearest competitors:
o RJR Nabisco has been a tremendous underperformer since its IPO in February
COMPOUNDED ANNUAL RATES OF RETURN (FEBRUARY 1, 1991 - AUGUST 28, 1995)
(Period from RJR's IPO to Announcement of New Valley's Hart-Scott-Rodino Filing) o The underperformance worsened in the year prior to the announcement of New
ONE YEAR RATE OF RETURN (AUGUST 26, 1994 - AUGUST 28, 1995)
(New Valley's Hart-Scott-Rodino Filing was announced on August 29, 1995) o Management at RJRN has changed frequently -- RJRN's directors and officers own less than 0.5% of RJRN's common stock April 1989 KKR acquires RJRN; Louis Gerstner is appointed CEO; John Greeniaus President and CEO of Nabisco; James Johnston Chairman and CEO of R.J. Reynolds Tobacco Worldwide
May 1993 Charles Harper named CEO and Chairman
February 1995 Steve Goldstone appointed General Counsel
June 1995 Greeniaus named Vice Chairman of RJRN, given parent company oversight for RJR's domestic tobacco business and remains President and CEO of Nabisco; Johnston reassigned to oversight of RJR's International Tobacco business
October 1995 Goldstone named President of RJRN
November 1995 Greeniaus returns to Nabisco; Johnston renamed head of RJR
December 1995 Goldstone replaces Harper as CEO o RJRN's earnings projections have been repeatedly lowered during 1995
-- October 24, 1995: 1996 projections lowered
-- December 5, 1995: Goldstone stated that RJRN's bleak "earnings projections for 1996 haven't changed since they were lowered in October"
-- December 11, 1995: Analysts told that earnings projections were unchanged
-- December 19, 1995: Goldstone said RJRN's businesses "should blossom again in 1996"
COMPUTATION OF IMPLICIT LEBOW/ICAHN SPIN-OFF PREMIUM
RJRN Price at August 28, 1995 ............................ $ 26.750
Stock Price Decline on October Earnings Announcement ..... (2.625)
Implied Value of RJRN Common Stock ....................... $24.125
RJRN's management has tried and failed three times to increase the stock price
o In February 1993, RJRN's Board approved the issuance of Tracking Stock
o In January 1995, RJRN completed the sale of 19.5% of Nabisco and announced intent to begin paying a quarterly dividend of 37.5 cents per share
o In April 1995, RJRN completed a 1:5 reverse stock split
STILL, RJRN'S STOCK PRICE HAS CONTINUED TO LANGUISH
EVEN WITH THESE DISMAL RESULTS, THE BOARD STILL DOESN'T GET THE MESSAGE: "SPIN OFF NABISCO, NOW!"
o JOURNAL OF FINANCIAL ECONOMICS:
-- Spun-off companies' stocks rose an average of 52% over the two years
-- Spun-off companies' stocks rose an average of 76% over the three years
-- Parents of spun-off companies SIGNIFICANTLY outperformed comparable firms over next two years following spin-off
-- Spun-off companies outperformed overall stock market by 20% OVER NEXT
-- Parent companies outperformed the market by 5-6% between the announcement date and the date of the spin-off
-- Spun-off companies OUTPERFORMED THE S&P 500 IN 1994 BY 18.7%
o Recent spin-offs include those of SEARS ROEBUCK, SPRINT CORPORATION AND AT&T
BENEFITS OF SPIN-OFF TO RJRN
-- Nabisco can use "non-tainted" stock (of which 80.5% is now blocked for tax reasons) for stock acquisitions
-- Nabisco becomes more attractive takeover candidate
-- More focused management team at both RJRN and Nabisco
-- Able to respond to future challenges with greater flexibility and speed
-- Better able to attract and retain superior management
-- Nabisco is freed from the tobacco issues of RJRN
-- Analysts are better able to understand and value RJRN and Nabisco
RJRN STOCK COULD BE WORTH MORE THAN $40
o Gary Black of Sanford C. Bernstein & Co., Inc., Institutional Investor magazine's first-team All-American tobacco industry analyst, computed in his December 6, 1995 report:
-- A value of $41 per share of Common Stock, a 53% gain, if Nabisco is spun-off and RJRN's dividend is increased from the current level of $1.50 per share to $1.65 per share
o Diana Temple, a tobacco analyst at Salomon Brothers Inc. and an Institutional Investor runner-up, calculated in her September 26, 1995 report:
-- A value of $40.40 per share of Common Stock, a 51% gain, if Nabisco is spun-off, even without an increase in RJR Nabisco's dividend
o Ronald B. Morrow of Rodman & Renshaw, Inc. estimated in his September 26, 1995 report:
-- A value of $60.50 per share of Common Stock, a 126% gain, in a break-up
RJRN STOCK COULD BE WORTH MORE THAN $40
o The earnings multiple of Nabisco has been negatively impacted by the tobacco business. . .
MULTIPLE OF TOTAL ENTERPRISE VALUE TO EBITDA
Average (excl. Wrigley) = 10.5x
RJRN STOCK COULD BE WORTH MORE THAN $40
o The tobacco business also trades at a discount on an EBITDA basis. . .
MULTIPLE OF TOTAL ENTERPRISE VALUE TO EBITDA
RJ Reynolds (Implied Value) ....... 4.3x
RJRN STOCK COULD BE WORTH MORE THAN $40
o Based on an analysis of comparable food and tobacco companies, a spin-off could result in a value of $47 per share of RJR Nabisco common stock
RJRN STOCK COULD BE WORTH MORE THAN $40
SPIN-OFF ANALYSIS PER SHARE OF RJRN(1)
Spin-off Premium .....R.J. Reynolds Tobacco .... $ 6
Pre Spin-off .........R.J. Reynolds Tobacco .... $10
Post Spin-off ........R.J. Reynolds Tobacco .... $22 (1) Based on multiples of comparable food and tobacco companies of 10.5x LTM EBITDA for Nabisco, 7.5x LTM EBITDA for International Tobacco and 5.5x LTM EBITDA for Domestic Tobacco. (2) Assuming an acquisition of Nabisco at 12x EBITDA or $45.90 per share, a premium of 41% to the share price on December 29, 1995.
ARGUMENTS AGAINST THE SPIN-OFF ARE INVALID
o The "Potential Litigation" argument
o The "Financial Integrity and Binding Commitments" argument
ARGUMENTS AGAINST THE SPIN-OFF ARE INVALID
Number One: The "Potential Litigation" Argument
Current litigation environment is hostile to spin-off
Argument: Plaintiff counsels will argue that the spin-off will transfer assets to shareholders in the face of contingent claims that could exceed fair value of remaining assets and will seek an injunction of the spin-off, which could take years to resolve
TOBACCO PLAINTIFFS WOULD HAVE TO OBTAIN AN INJUNCTION, BASED UPON:
(i) The likelihood of obtaining a judgment against RJR Tobacco
More than 40 years of favorable litigation experience in defense
(ii) Showing that RJR Nabisco is incapable of paying the judgment in full because of the spin-off.
RJRN to have $15 B of assets . . .
(iii) The likelihood of "Piercing the corporate veil" of RJR Nabisco
RJRN is a real operating Company with expenditures of $100M/yr
ARGUMENTS AGAINST THE SPIN-OFF ARE INVALID
o Total market capitalization of the U.S. cigarette companies:
Philip Morris ....... $ 75.3 billion
ARGUMENTS AGAINST THE SPIN-OFF ARE INVALID
o Professor Harvey Goldschmidt of Columbia Law School is highly skeptical that fraudulent conveyance could be proven, noting that -- "RJR Nabisco has substantial assets, and the spin-off itself, per se, would not make the company insolvent at this time." (New York Times,
o Professor Kenneth Klee of Harvard Law School has stated that -- "It would be unusual for a court to grant an injunction." (New York Times, November 4, 1995)
o Gary Black of Sanford Bernstein & Co., Inc. commented in his December 6, -- "We cannot find a single case where a major, solvent, profitable company, with ample earned surplus and no judgments against it, was blocked from distributing subsidiary stock as a dividend to its shareholders."
o Deloitte & Touche LLP issued an unqualified report on January 30, 1995 that includes a statement that management believes that the outcome of all pending litigation will not have a material adverse effect on RJR Nabisco's
ARGUMENTS AGAINST THE SPIN-OFF ARE INVALID
What Will Improve the Litigation Environment in 1997 and 1998?
o Decertification of Castano class action? -- Plaintiff's bar has threatened "to file tens of thousands of individual lawsuits around the country" (The New York Times, November 4, 1995) and/or a new class action will be filed -- Whatever the decision, it will probably be appealed to the U.S. Supreme Court, delaying a spin-off for years
o State Medicaid suits may go away? -- Should we wait for all 50 states to file suits - and have them dismissed - before doing spin-off?
o FDA will choose not to pursue "tobacco as drug" classification? -- FDA classification is not a source of litigation in itself
o Does anyone really believe that the litigation and public policy environment is more likely to improve than worsen over the next three years?
ARGUMENTS AGAINST THE SPIN-OFF ARE INVALID
What Management Has Not Said
o The spin-off increases the risk of Directors' being found personally liable
-- Argument: By approving the transfer of assets to shareholders in the face of contingent claims that could exceed the fair value of the remaining assets, individual Board members have a risk of being found to have knowingly approved a fraudulent transfer and become personally
-- Response: Could only become possible if RJR Tobacco declared bankruptcy during the next seven years; Brooke will nominate a slate of Directors prepared to take this risk if management is not
ARGUMENTS AGAINST THE SPIN-OFF ARE INVALID
o RJRN'S BOARD OF DIRECTORS COMPLETED A $4.2 BILLION
TRANSFER OF ASSETS IN JUNE 1995
ARGUMENTS AGAINST THE SPIN-OFF ARE INVALID
o RJRN has already made a $4.2 billion distribution (transfer of assets) from RJRN without incurring litigation
-- January 19, 1995: RJRN sells 19.5% of Nabisco -- March 10, 1995: Nabisco files debt exchange offering -- March 15, 1995: KKR completes exit from RJRN -- June 5, 1995: Nabisco debt exchange completed
Step 4: Distribution to Creditors RJRN $1.8 billion Notes cancelled $2.4 billion to repay 1991 Credit Agreement -------------- and pay fees and expenses
$4.2 billion Repay intercompany debt debt at Nabisco at IPO
-------------- Step 2: New Borrowing at Nabisco $1.8 billion New Notes cancelled Nabisco $2.4 billion 1995 Nabisco Credit Agreement -- both structurally senior to tobacco -------------- litigants and free of bankruptcy risk
ARGUMENTS AGAINST THE SPIN-OFF ARE INVALID
Number Two: The "Financial Integrity and Binding Commitments" Argument
o A spin-off is contrary to Board resolutions announced in October 1994 and
-- Argument: As part of the Nabisco/RJRN debt exchange, the Board had made commitments to bondholders not to spin-off Nabisco until 1997 at the earliest; 1999 if RJRN or Nabisco would lose its investment grade rating
o Only a Board resolution was made, not a bond covenant or other legally
o Goldstone has confirmed the non-binding nature of these policies and stated that the Board would change the policies in response to changed business
o A vote by shareholders would be a change of circumstances at RJR
ARGUMENTS AGAINST THE SPIN-OFF ARE INVALID
o Post spin-off, both companies would continue to maintain strong credit -- Nabisco is already rated Baa2 by Moody's and BBB by Standard & Poor's
RJR Nabisco RJR Tobacco Nabisco
Net Debt .......................... $9,473 $5,133 $4,340 EBITDA ............................ $3,592 $2,282 $1,310 Interest Expense .................. $ 747 $ 424 $ 323
Net Debt/EBITDA ................... 2.6x 2.2x 3.3x EBITDA/Interest Expense ........... 4.8x 5.4x 4.1x EBITDA/Fixed Charges(1) ........... 4.1x 4.2x 4.1x
(1) Interest Expense plus Preferred Dividends.
o After meeting with Brooke Group, RJRN directors took action to silence shareholders:
-- Eliminated the stockholder's right to call a special meeting, but not
-- Imposed burdensome requirements for stockholders who seek to act by written consent without a meeting, granting itself a 20-day period to
o These Actions were taken unilaterally and in secrecy
o RJRN stockholders have the power to act by written consent to restore their
-- Restore stockholder's right to call a special meeting
-- Remove Board's 20-day period to set a record date
INTRODUCTION TO BROOKE GROUP LTD.
o Brooke Group has stated that if RJRN unconditionally agrees to an immediate spin-off of Nabisco, Brooke Group will terminate all solicitation
o Brooke Group understands tobacco litigation
o Brooke Group has successfully completed two prior spin-offs
o Brooke Group is principally engaged in: -- Manufacture and sale of cigarettes (Liggett Group, Inc.) -- Acquisition of operating companies (New Valley Corporation) -- Real estate and cigarette operations in Russia
o Liggett Group, Inc. is the #5 manufacturer of cigarettes in the U.S. -- Approximately 2.3% of domestic market -- Full-price branded cigarettes, including L&M, Chesterfield, Lark and Eve, as well as price/value cigarettes
o New Valley Corporation focuses on acquiring operating companies -- Ladenburg Thalmann & Co., Inc.
Brooke has achieved an impressive performance track record for its long-term investors as compared to the overall market and RJR Nabisco . . .
Brooke Group Ltd. ........................ 190.8 % 26.8 %
RJR Nabisco .............................. (12.0)% (18.1)%
S & P 500 ................................ 20.9 % 11.6 %
o Brooke Group is organizing a consent solicitation to:
1. Have RJRN spin-off 80.5% of Nabisco to RJRN shareholders, NOW!
2. Amend bylaw changes secretly made by management
o In order to be successful, the consent solicitation needs "yes" votes from a majority of all voting rights held by shareholders
o Brooke Group has stated that if RJRN unconditionally agrees to an immediate spin-off of Nabisco, Brooke Group will terminate all solicitation activity
Computation of Implicit LeBow/Icahn Spin-off Premium
RJRN Price at August 28, 1995 ................................. $26.750
Stock Price Decline on October Earnings Announcement .......... (2.625) Implied Value of RJRN Common Stock ............................ $24.125
o So please, RJRN Board, spin off Nabisco, and,
"It's easy for me -- I'll just sell my stock and go off into the sunset."
-- Charles Harper, November 2, 1995
(Pursuant to Rule 304 of Regulation S-T)
1. Page 5 contains a description in tabular form of a graph entitled "Compounded Annual Rates of Return" which represents the comparison of peer group members for the period commencing February 1, 1991 and ending August 28, 1995, which graph is contained in the paper format of this Additional Soliciting Material being delivered to stockholders.
2. Page 6 contains a description in tabular form of a graph entitled "One Year Rate of Return" which represents the comparison of peer group members for the one year period commencing August 26, 1994 and ending August 28, 1995, which graph is contained in the paper format of this Additional Soliciting Material being delivered to stockholders.
3. Page 15 contains a description in tabular form of a graph entitled "Multiple of Total Enterprise Value to EBITDA" which represents the comparison of food peer group members, which graph is contained in the paper format of this Additional Soliciting Material being delivered to stockholders.
4. Page 16 contains a description in tabular form of a graph entitled "Multiple of Total Enterprise Value to EBITDA" which represents the comparison of tobacco peer group members, which graph is contained in the paper format of this Additional Soliciting Material being delivered to stockholders.
5. Page 18 contains a description in tabular form of a graph entitled "Spin-off Analysis Per Share of RJRN" which represents per share values of RJRN (i) without the LeBow/Icahn Spin-off Premium, (ii) Pre Spin-off and (iii) Post Spin-off, which graph is contained in the paper format of this Additional Soliciting Material being delivered to stockholders.
6. Page 26 contains a description in tabular form of a flowchart diagram which represents the direction of Steps 1-4 described in such diagram, which diagram is contained in the paper format of this Additional Soliciting Material being delivered to stockholders.
|
DFAN14A
|
DFAN14A
| 1996-01-12T00:00:00
| 1996-01-12T15:54:32
|
0000950130-96-000094
|
0000950130-96-000094_0005.txt
|
<DESCRIPTION>AGREEMENT, DATED OCTOBER 6, 1995
TRUMP TAJ MAHAL FUNDING, INC. Atlantic City, New Jersey 08401
As of October 6, 1995
PUTNAM INVESTMENT MANAGEMENT SC FUNDAMENTAL VALUE FUND, L.P. One Post Office Square SC FUNDAMENTAL VALUE BVI LTD. Boston, Massachusetts 02109 512 Fifth Avenue New York, New York 10019 Attention: Mr. Robert M. Paine HAMILTON PARTNERS, L.P.
New York, New York 10292
Re: Taj Mahal Holding Corp. Class A Common Stock
Taj Mahal Holding Corp., Trump Taj Mahal Associates and Trump Taj Mahal Funding, Inc. (collectively, the "Trump Entities") have discussed with you the possibility that the Trump Entities may before April 30, 1996 effect a recapitalization (the "Recapitalization") of Trump Taj Mahal Associates ("Associates"). The terms of the Recapitalization have not been negotiated, but the Recapitalization is likely to involve the following steps:
(a) a transaction involving the purchase, redemption, exchange or defeasance of all 11.35% Mortgage Bonds, Series A, due 1999 (the "Old Bonds") issued by Trump Taj Mahal Funding, Inc. ("Taj Funding") (the
(b) the redemption, in accordance with the Certificate of Incorporation of Taj Mahal Holding Corp. ("Taj Holding Corp."), of each share of Class B Common Stock of Taj Holding Corp. (the "Class B Common Stock") in connection with the Bond Redemption; and
(c) a merger (the "Merger") of Taj Holdings Corp. and a newly formed subsidiary in which, among other matters, (i) each share of Class A Common Stock of Taj Holding Corp (the "Class A Common Stock")
and (ii) in the event the Merger is structured as a Stock Transaction (as defined below), each share of Class C Common Stock of Taj Holding Corp. (the "Class C Common Stock') would be converted into the right to receive the merger consideration described in the next paragraph of this letter agreement.
In anticipation of their negotiation of the terms of the Recapitalization and to induce each of you (the "Holders") (i) to agree to vote the shares of the Class A Common Stock now held by you in favor of the Merger and to approve any amendment to the Certificate of Incorporation of Taj Holding Corp. required in order to effectuate the Recapitalization (which amendment shall only be effective upon consummation of the Merger)(a "Charter Amendment), provided that such Recapitalization is to be consummated on or before April 30, 1996, and (ii) not to sell, transfer or otherwise dispose of such shares prior to April 30, 1996 except on the terms hereinafter provided, the Trump Entities hereby agree with each of you that they will, subject only to the conditions precedent outlined in the next sentence, seek to effect, as promptly as possible after the date hereof and no later than April 30, 1996, the Merger, in which each share of the Class A Common Stock will be converted into a right to receive, at the option of each Holder, either (1) cash in an amount not less than $30, or (2) shares of the publicly-traded Common Stock of Trump Hotels and Casino Resorts, Inc. ("Trump Hotels & Casinos") having a Market Value (as herein defined) of not less than $30 (the "Stock Transaction") in the event that such shares are made available by Trump Hotels & Casinos, in either event such Merger consideration to be paid on or before April 30, 1996. The obligation of the Trump Entities to consummate the Merger is subject to (a) the receipt by the Trump Entities of all necessary consents, approvals and authorizations of any governmental or administrative agency, having jurisdiction or other third parties, (b) if the Trump Entities seek to consummate the Stock Transaction, the approval by the Board of Directors of Trump Hotels & Casinos of a merger agreement providing for such transaction on terms acceptable to it and, if required by such Board, the receipt of an opinion of a nationally recognized investment banking firm as to the fairness, from a financial point of view, of such transaction to the common stockholders of Trump Hotels & Casinos, (c) the receipt by the Trump Entities of financing, on terms acceptable to the Trump Entities, in an amount sufficient to effectuate the Recapitalization, (d) the terms of the merger agreement and all other documentation required for the Recapitalization being satisfactory to the Trump Entities and (e) if required by the Class B Directors of Taj Holding Corp., the receipt of an opinion of a nationally recognized investment banking firm as to fairness, from a financial point of view, of the Merger to the holders of the Class A Common Stock.
Subject to the terms and conditions set forth below, each Holder covenants and agrees with the Trump Entities to vote, consent or otherwise cause its Owned Securities (as herein defined) to be voted in favor of the Merger and the Charter Amendment, if the vote thereon is taken as part of the Recapitalization to be consummated during the term of this letter agreement. Each Holder further covenants and agrees that it will not, without the written consent of the Trump Entities, (i) grant any proxies to any person authorizing such person to vote the Owned Securities on the First Merger or the Charter Amendment in any manner inconsistent with the consummation of the Recapitalization or (ii) sell, transfer or otherwise dispose of the Owned Securities, except pursuant to the terms of the Merger; provided; however, that the foregoing shall not restrict a sale, transfer or other disposition of any of the Owned Securities by a Holder to a party which agrees in writing with the Holder and the Trump Entities to be subject to the terms and conditions of this letter agreement.
Each of Putnam Investment Management (for the funds and accounts advised by it that hold Class A Common Stock), Hamilton Partners, L.P., Prudential Securities (for its accounts), Grace Brothers Ltd., SC Fundamental Value Fund, L.P. and SC Fundamental Value BVI Ltd. (each a "Holder"), represents and warrants to the Trump Entities that, as of the date hereof, (i) such Holder either (A) is the beneficial owner of not less than the number of shares of Class A Common Stock set forth below its signature (the "Owned Securities"), or (B) has investment or voting discretion with respect to such Owned Securities and has the power and authority to bind the beneficial owner of such Owned Securities to the terms of this letter agreement, and (ii) such Holder has full power and authority to vote and consent in favor of the Merger and Charter Amendment and to exchange, assign and transfer the Owned Securities upon the consummation of the Merger in exchange for the Merger consideration hereinabove described.
The foregoing covenants and agreements of the Holders are made upon the following terms and conditions:
1. Fee. As part of the consideration for each Holder's covenant and agreement not to sell its Owned Securities, all as herein provided, the Trump Entities shall pay or cause to be paid pro rata to the Holders an aggregate fee of $701,840 concurrently with the execution hereof and a further aggregate fee of $701,840 on March 15, 1996; provided; however, that such further fee need not be paid if, prior to that date, the Merger shall have been consummated.
2. Term and Termination. This letter agreement shall terminate, the foregoing covenants and agreements of the Holders shall cease to bind the Holders and the Trump Entities and the foregoing votes shall be deemed to be null and void, upon the earlier to occur of:
(i) April 30, 1996; or
(ii) the date upon which any default under the Indenture under the terms of which the 15 1/2% Senior Secured Notes due 2005 of Trump Hotels & Casino Resorts Holdings, L.P. and Trump Hotels & Casino Resorts Funding, Inc. are outstanding becomes an Event of Default, as that term is from time to time defined in that Indenture; or
(iii) default in payment of the fee on March 15, 1996, if the Merger has not been consummated prior to that date.
3. Condition Precedent. The obligations of each Holder to vote or consent or to cause the Owned Securities to be voted as herein provided is subject to the obtaining by the Trump Entities of all necessary consents, approvals and authorizations of any governmental or administrative agency or any other person or entity of any of the transactions contemplated in the restructuring, including without limitation the approval of the New Jersey Casino Control Commission and the declaration by the Securities and Exchange Commission of the effectiveness of any registration statement/merger proxy statement required in connection with the Recapitalization.
4. Counsel Fees; Indemnification. The Trump Entities shall promptly pay the reasonable fees and disbursements of the Holders' special counsel, Ropes & Gray, relating to the preparation of this letter agreement and to all actions of each Holder, including without limitation permitted sales of Owned Securities, taken in accordance with this letter agreement. The Trump Entities also shall indemnify each of the Holders, their respective directors, trustees, officers, counsel, special counsel, employees and agents and each other person, if any, who controls any of Putnam Investment Management, Hamilton Partners, L.P., Prudential Securities, Grace Brothers Ltd., SC Fundamental Value Fund, L.P. or SC Fundamental Value BVI Ltd. or the funds or accounts managed by it and to hold the Holders and such other persons harmless from and against all losses, claims, damages, liabilities and expenses (including expenses of litigation or preparation therefore, all collectively referred to as "Liabilities"), which the Holders or any such person in connection with or rising out of the matters referred to herein, except for Liabilities incurred under circumstances where the proposed indemnitee has been determined by a court of competent jurisdiction not to have acted in good faith or where the Liabilities arose primarily out of the gross negligence or willful misconduct of the indemnitee. For purposes of this indemnification covenant, any person or entity to whom a Holder transfers Owned Securities in accordance with the terms of this letter agreement shall be a Holder entitled to indemnification as hereinabove provided.
5. Market Value. If the Merger consideration for the Class A Common Stock is to be shares of the Class A Common Stock of Trump Hotels & Casinos (the "Holding Company Public Stock"), rather than cash, the Market Value of each share of Holding Company Public Stock shall be the average of the mean between the bid and asked prices per share of such stock on each of the fifteen trading days immediately preceding the consummation of the Merger.
6. Governing Law; Casino Control Act; Jurisdiction.
(a) This agreement and all amendments hereof and waivers and consents hereunder shall be governed by the internal law of the State of New York, without regard to the choice of law and conflict of laws principles thereof.
(b) Notwithstanding anything to the contrary contained in this agreement, this agreement shall be deemed to include all provisions required by the New Jersey Casino Control Act and the regulations promulgated thereunder (the "Act"). To the extent that any term or provision contained in this agreement shall be inconsistent with the Act, the provisions of the Act shall term or provision contained in this agreement shall be inconsistent with the Act, the provisions of the Act shall govern. All provisions of the Act, to the extent required by law to be included in this agreement, are incorporated herein by reference as if fully restated in this agreement.
(c) Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this agreement may be brought against any of the parties in the courts of the State of New York, or, if it has or can acquire jurisdiction, in the United States District Court for the Southern District of New York, and each of the parties hereby consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding, and waives any objection to venue laid therein.
7. Specific Performance. The parties acknowledge that the subject matter of this agreement is unique and that no adequate remedy of law would be available for breach of this agreement by the Holders. Accordingly, the Holders agree that the Trump Entities will be entitled to an appropriate decree of specific performance or other equitable remedies to enforce this Agreement (without any bond or other security being required), and each Holder waives the defense in any action or proceeding brought to enforce this Agreement and there exists an adequate remedy of law.
The parties hereto acknowledge and agree that nothing contained herein shall be deemed or construed to constitute any intention, agreement or understanding whatsoever of Trump Hotels & Casino Resorts, Inc. or any of its affiliates, including without limitation, Donald J. Trump with respect to his interest in any such entity, with respect to the Recapitalization or any other matter contemplated by this letter agreement.
If the foregoing terms accurately reflect our discussions and, to the extent aforesaid, your agreement, please execute a counterpart of this letter and return it to us.
By: /s/ Donald J. Trump
By: /s/ Donald J. Trump
TRUMP TAJ MAHAL FUNDING, INC.
By: /s/ Donald J. Trump
|
SC 13E3
|
EX-99.17.(C)(2)
| 1996-01-12T00:00:00
| 1996-01-11T17:58:48
|
0000950109-96-000200
|
0000950109-96-000200_0018.txt
|
WEISS TREASURY ONLY MONEY MARKET FUND
Statement of Assets and Liabilities
The accompanying notes are an integral part of this financial statement.
WEISS TREASURY ONLY MONEY MARKET FUND
Notes to Statement of Assets and Liabilities
Weiss Treasury Only Money Market Fund ("Fund") is a diversified series of Weiss Treasury Fund ("Trust"), an open-end management investment company registered under the Investment Company Act of 1940. The Trust was organized on August 10, 1995 as a Massachusetts business trust. The Board of Trustees of the Trust oversees the business affairs of the Trust and is responsible for significant decisions relating to each Fund's investment objective and policies. The Trustees delegate the day-to-day management of the Funds to the officers of the Trust.
2. Organization Costs and Transactions With Affiliates:
Organization expenses, except for certain expenses relating to State (Blue Sky) registration fees, are being amortized over a five year period from January 15, 1996. Such organizational expenses have been paid by the Investment Manager (Weiss Money Management, Inc.) and will be reimbursed by the Fund. If Weiss Money Management, Inc. or any other holder withdraws any portion of its $33,334 seed money prior to the end of the five year period beginning January 15, 1996, the redemption price of the seed money shares will be reduced by a pro rata share (based on the proportionate share of the original shares redeemed to the total number of original shares outstanding at the time of redemption) of the unamortized organizational expenses.
Weiss Money Management, Inc., (the "Manager"), is the investment adviser to Weiss Treasury Only Money Market Fund, and is responsible for the day-to-day management of the Fund's portfolio. Weiss Treasury Only Money Market Fund shares are sold on a continuous basis by Weiss Funds, Inc., a registered broker-dealer (the "Distributor") and wholly-owned subsidiary of the Manager.
Certain officers of the Trust are officers and / or employees of the Adviser, Administrator and Counsel to the Funds. Such individuals are not compensated by the Trust for services in their capacity as Trust officers.
Statement of Assets and Liabilities
The accompanying notes are an integral part of this financial statement.
Notes to Statement of Assets and Liabilities
Weiss Intermediate Treasury Fund ("Fund") is a diversified series of Weiss Treasury Fund ("Trust"), an open-end management investment company registered under the Investment Company Act of 1940. The Trust was organized on August 10, 1995 as a Massachusetts business trust. The Board of Trustees of the Trust oversees the business affairs of the Trust and is responsible for significant decisions relating to each Fund's investment objective and policies. The Trustees delegate the day-to-day management of the Funds to the officers of the Trust.
2. Organization Costs and Transactions With Affiliates:
Organization expenses, except for certain expenses relating to State (Blue Sky) registration fees, are being amortized over a five year period from January 15, 1996. Such organizational expenses have been paid by the Investment Manager (Weiss Money Management, Inc.) and will be reimbursed by the Fund. If Weiss Money Management, Inc. or any other holder withdraws any portion of its $33,333 seed money prior to the end of the five year period beginning January 15, 1996, the redemption price of the seed money shares will be reduced by a pro rata share (based on the proportionate share of the original shares redeemed to the total number of original shares outstanding at the time of redemption) of the unamortized organizational expenses.
Weiss Money Management, Inc., (the "Manager"), is the investment adviser to Weiss Intermediate Treasury Fund, and is responsible for the day-to-day management of the Fund's portfolio. Weiss Intermediate Treasury Fund shares are sold on a continuous basis by Weiss Funds, Inc., a registered broker- dealer (the "Distributor") and wholly-owned subsidiary of the Manager.
Certain officers of the Trust are officers and / or employees of the Adviser, Administrator and Counsel to the Funds. Such individuals are not compensated by the Trust for services in their capacity as Trust officers.
Statement of Assets and Liabilities
The accompanying notes are an integral part of this financial statement.
Notes to Statement of Assets and Liabilities
Weiss Treasury Bond Fund ("Fund") is a diversified series of Weiss Treasury Fund ("Trust"), an open-end management investment company registered under the Investment Company Act of 1940. The Trust was organized on August 10, 1995 as a Massachusetts business trust. The Board of Trustees of the Trust oversees the business affairs of the Trust and is responsible for significant decisions relating to each Fund's investment objective and policies. The Trustees delegate the day-to-day management of the Funds to the officers of the Trust.
2. Organization Costs and Transactions With Affiliates:
Organization expenses, except for certain expenses relating to State (Blue Sky) registration fees, are being amortized over a five year period from January 15, 1996. Such organizational expenses have been paid by the Investment Managers (Weiss Money Management, Inc.) and will be reimbursed by the Fund. If Weiss Money Management, Inc. or any other holder withdraws any portion of its $33,333 seed money prior to the end of the five year period beginning January 15, 1996, the redemption price of the seed money shares will be reduced by a pro rata share (based on the proportionate share of the original shares redeemed to the total number of original shares outstanding at the time of redemption) of the unamortized organizational expenses.
Weiss Money Management, Inc., (the "Manager"), is the investment adviser to Weiss Treasury Bond Fund, and is responsible for the day-to-day management of the Fund's portfolio. Weiss Treasury Bond Fund shares are sold on a continuous basis by Weiss Funds, Inc., a registered broker-dealer (the "Distributor") and wholly-owned subsidiary of the Manager.
Certain officers of the Trust are officers and / or employees of the Adviser, Administrator and Counsel to the Funds. Such individuals are not compensated by the Trust for services in their capacity as Trust officers.
|
N-1/A
|
EX-99.16
| 1996-01-12T00:00:00
| 1996-01-11T17:32:37
|
0000811831-96-000002
|
0000811831-96-000002_0000.txt
|
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (date of earliest event reported ) : 1/8/96
(exact name of registrant as specified in charter)
(State or other (Commission File (IRS Employer
489 Congress Street, Portland, Maine 04101 (Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (207) 772-8587
(Former name or former address, if changed since last report)
On Monday, January 8, 1996, the President of Bethel Bancorp (the "Company"), James D. Delamater, announced that the Company, subject to the receipt of necessary regulatory approvals, intends to merge the Company's two wholly-owned banking subsidiaries, Bethel Savings Bank F.S.B. and Brunswick Federal Savings Bank, F.A. (the "Bank Subsidiaries"). The proposed merger was approved by the Boards of Directors of the two Bank Subsidiaries on January 3, 1996. The resulting bank, which will be known as Northeast Bank, F. S. B. will have assets of over $200,000,000 and will operate eight branches in four Maine counties. The Bank Subsidiaries intend to apply to the Office of Thrift Supervision for approval of the proposed merger immediately.
On the same day, Mr. Delamater announced that the Company intends to change its name to Northeast Bancorp upon the merger of its two Bank Subsidiaries and at the same time to change the symbol under which its stock trades on The Nasdaq Stock Market to NEBC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
By: /s/ James D. Delamater
|
8-K
|
8-K
| 1996-01-12T00:00:00
| 1996-01-12T13:23:05
|
0000950115-96-000013
|
0000950115-96-000013_0003.txt
|
This AGREEMENT is made on the 11th day of August, 1995 by and among MEDIQ Imaging Services, Inc. and its wholly-owned subsidiaries American Cardiovascular Imaging Labs, Inc. and Southeastern Diagnostics, Inc., with offices located at One Mediq Plaza, Pennsauken, New Jersey 08110 (hereinafter referred to collectively as "Sellers") and NMC Diagnostics Services Inc., a Delaware corporation (hereinafter referred to as "Buyer").
W I T N E S S E T H:
WHEREAS, Sellers own and operate a diagnostic testing business throughout the United States (the "Business"); and WHEREAS, Sellers desire to sell to Buyer and Buyer desires to purchase from Sellers certain assets of the Business. NOW, THEREFORE, the parties agree as follows: I. Terms of Purchase and Sale A. Subject to the terms and conditions hereinafter set forth, Sellers hereby agree to sell, convey, transfer and deliver to Buyer, and Buyer agrees to purchase and accept from Sellers, all of Sellers' right, title and interest in and to the following assets of the Business (the "Assets") to the extent such Assets do not constitute Excluded Assets (hereinafter defined):
1. all inventory, wherever located, used or held for sale in connection with the conduct of the Business, including, without limitation, supplies, raw materials, scrap, containers, packaging materials 2. all machinery, equipment, parts, tooling, motor supplies, plant and office equipment and all other tangible personal property of the Business, wherever 3. all files and operating data and records primarily relating to the Business and the conduct of the Business, including, without limitation, all books, manuals, fixed assets records, documents,
computer software, operating procedures, customer lists, sales records, credit information, correspondence, literature, sales and advertising materials, designs and drawings, models, patterns, slogans and books of account; 4. all customer and supplier lists primarily relating to, or otherwise material to the conduct of, 5. the leases for real property for space solely occupied by Sellers set forth on Exhibit 6. leases, subleases and assignments (whether as lessee, sublessee, or assignee) of machinery, equipment and other personal property used primarily by the Business (the "Equipment Leases"); 7. all of the Business' accounts and notes receivable reflected on the books of the Sellers on the 8. all of the Sellers' cash, cash in banks, cash advance payments, prepaid items and expenses, deferred charges, rights of offset and credits and 9. all contracts and agreements of the Sellers relating to the operations of the Business (except as excluded herein); all purchase and sale orders (and orders evidenced solely by order acknowledgements), contracts and agreements of the Sellers relating to the purchase of products, materials or services used in connection with the conduct of the Business; all agreements of the Sellers with medical providers; the Leases; the Equipment Leases; and all other contracts and agreements entered into by Sellers in the conduct of the Business including, without limitation, all agreements set forth on Exhibit II.J, (except those contracts required to be included on Exhibit II.J, but which are not included if such contracts are not in compliance with laws in effect on the Closing
10. all intellectual property which is or has been used to conduct the Business, including, without limitation, all patents, patent applications, copyrights and copyright applications; registered and unregistered trademarks and service marks, trademark and service mark registrations, trademark and service mark applications for registration; all patent, trademark, service mark, trade name and know-how rights granted to the Business under licensing or other agreements; and all know-how, proprietary information, production methods, trade and business 11. all rights, claims or causes of action against third parties primarily relating to the Assets, Business or 12. all assignable third party warranties and guarantees with respect to any of the Assets; and 13. all franchises, approvals, permits, licenses, orders, abatements and other similar permits or rights and all pending applications therefor related to the Business ("Permits"), other than Medicare provider numbers but including such provider numbers for South Carolina and Colorado. B. Excluded Assets. Notwithstanding anything contained in Section I.A. hereof to the contrary, Sellers are not selling, assigning, transferring or conveying to Buyer any asset or item not described in Section I.A. Without limiting the foregoing, the following assets, rights and properties are excluded from the transactions contemplated in this Agreement (the "Excluded Assets"): 1. any equipment and other personal property, wherever located, owned by third parties who are not affiliated with Sellers, and any equipment and other personal property not presently used or being stored, prepared or repaired for use by Sellers primarily in
operation of the Business as it is currently being conducted.
2. the name "MEDIQ" and any derivation thereof: 3. to the extent not reflected as assets on the Closing Balance Sheet, refunds for taxes paid and any claim that Sellers or any of their affiliates may have, have had or will have against a third party with respect to any events or acts occurring prior to the 4. to the extent not reflected on the Closing Balance Sheet, accounts receivable from Sellers' affiliates, Sellers' pension, profit-sharing or other funded employee benefit plan assets or liabilities; 5. the capital stock of or owned or held by Sellers; 6. all corporate minute books and stock books and 7. the assets, properties and rights not primarily used in the Business owned or held by any affiliate of any Seller (other than any other Seller); 8. Sellers' Medicare and Medicaid provider numbers other than the provider numbers for South Carolina 9. banking or financial institution accounts or any deposit or concentration accounts or safety deposit boxes (but not the cash or cash equivalents in such 10. all bonds and letters of credit including, but not limited to, those posted to support Sellers' and the Business' workers' compensation obligations and general liability and other insurance obligations, 11. books and records that Sellers are required to retain pursuant to any statute, rule, regulation or 12. assets, properties and rights of any nature that are not reflected on the Closing Balance Sheet and either (i) are used by Sellers or their affiliates (including, without limitation, Mediq or any subsidiary or division thereof) in providing general
administrative services to divisions, subsidiaries or operating units of Sellers or their affiliates as well as to the Business or (ii) used by Sellers or their affiliates (including, without limitation, Mediq or any subsidiary or division thereof) in any business or businesses other than the Business. C. Obligations Under Assigned Contracts; Assumed Liabilities. 1. Subject to the terms and conditions of this Agreement, at the Closing, Sellers will assign and transfer to Buyer the Assigned Contracts, and Buyer will assume and in a timely fashion will pay, perform and/or discharge: (1) all of Sellers' obligations and liabilities under the Assigned Contracts (other than any such obligations and liabilities which were to be performed on or prior to the Closing Date ("Pre-Closing Performance") unless (x) if such Pre-Closing Performance involved the payment of money, such monetary obligation is reflected as a liability on the Closing Balance Sheet or (y) if such Pre-Closing Performance did not involve the payment of money, such obligation is of a nature arising in the ordinary course of the Business and does not constitute a violation of laws in effect on the Closing Date) and the assigned Permits in accordance with the respective terms thereof; (2) liabilities and expenses of the Sellers of a nature required to be set forth, and that are set forth on the Proposed Balance Sheet; (3) the Liens (as hereinafter defined); (4) the obligations and liabilities of the Business arising from events occurring after Closing; (5) accounts payable and accrued expenses to the extent set forth on the Closing Balance Sheet (6) to the extent of any Unused Basket Amount (as hereinafter defined), any other liabilities of the Sellers; (7) taxes to be paid by Buyer pursuant to Section I.D below and (8) the obligations and liabilities set forth on Exhibit I.C (collectively the liabilities and obligations described in
clauses (1) through (8) are referred to as the "Assumed Liabilities"). Buyer assumes no other liabilities of the Sellers unless specifically assumed by Buyer in this Agreement. Without limiting the foregoing, Buyer is not assuming any tax liability accruing prior to the Effective Date, and is not assuming any litigation based solely on events occurring prior to the Effective Date, is not assuming any liability of any nature under any of Sellers' pension plans (other than the obligation, if any, to pay the amount of any payable or expense expressly accrued on the Closing Balance Sheet). 2. Except as herein provided, to the extent that any lease, contract, license, permit, agreement, sales or purchase order, commitment, property interest, qualification or other Asset described in Section I.A, and not otherwise excluded in Section I.B, to be sold, assigned or conveyed to Buyer, cannot be sold, assigned or conveyed, without the approval, consent or waiver ("Consent") of any third person (including any landlord or any government or governmental unit), or if such sale, assignment or conveyance or attempted sale, assignment or conveyance would constitute a breach thereof or a violation of any law, decree, order, regulation or other governmental edict, this Agreement shall not (unless and until such Consent is obtained) constitute or require a sale, assignment or conveyance thereof, or an attempted sale, assignment or conveyance thereof. Buyer and Seller shall each use good faith efforts, and shall cooperate with each other, to obtain all Consents necessary to sell, assign or convey the Assets to Buyer as soon as practicable at no cost or liability to Sellers. If any of the Consents have not been obtained by Buyer or Sellers as of the Closing, (i) the Purchase Price set forth in Section I.E shall not be affected thereby and Buyer shall purchase all remaining Assets and (ii) the liabilities
and obligations assumed by Buyer pursuant to Section I.C shall not be affected thereby and Buyer shall assume, pay, perform and discharge the Assumed Liabilities in respect of all Assigned Contracts and Permits as if all consents had been obtained and all Assigned Contracts and Permits were sold, assigned and conveyed to Buyer. 3. In order, however, to provide Buyer the full realization and value of every Assigned Contract on and after the Closing Date the Sellers shall, by themselves or by their agents, at the request and expense of Buyer, and in such manner as Buyer shall reasonably specify and as shall be permitted by law and shall not be in violation of the Assigned Contracts, take all such reasonable action (including without limitation the appointment of the Buyer as attorney-in-fact for the Sellers or, upon receipt of indemnity from Buyer reasonably satisfactory to the Sellers, the subcontracting with Buyer to effect a "pass-through" of the rights and obligations that will remain with the Seller that is a primary party to such Assigned Contract) and do or cause to be done all such things as shall be necessary or proper (i) to assure that the rights and obligations of Sellers under such Assigned Contracts shall be preserved for the benefit of Buyer and (ii) to facilitate receipt of the consideration to be received by the Sellers in and under any such Assigned Contract, which consideration the Sellers shall hold for the benefit of, and upon request of Buyer shall deliver to, Buyer to the extent herein provided D. Payment of Taxes and Other Charges; Prorations. 1. At the Closing or thereafter at the request of Sellers, Buyer shall pay all real property transfer taxes, sales and use taxes, documentary stamp taxes, recording charges and other fees and taxes imposed
by any governmental entity in connection with the transfer of the Assets (the "Transactional Taxes"). Buyer shall (a) pay the cost of obtaining title insurance, if any, including, without limitation, all premiums and title closing costs required to be paid in connection therewith, and (b) pay the cost of all real property surveys and investigation, if any, obtained by Buyer in connection with the transactions contemplated hereunder and any costs associated with obtaining landlord or other consents to the transaction contemplated hereby; however, Sellers will be responsible for their internal costs of obtaining such consents. Buyer shall prepare and file, and Sellers shall fully cooperate with Buyer with respect to such preparation and filing of, any returns and other filings relating to any such taxes, fees, charges or transfers, as may be required. 2. Any and all taxes (other than sales and use, excise, payroll, income, franchise, corporate or similar taxes, including any taxes payable to local franchise authorities, which are imposed or assessed against either party based upon or measured by revenues of such party), rents, utilities, payments and receipts, rentals, costs, charges, fees or expenses connected with or used in the operations of the Business, and any and all revenues in connection with the Assumed Contracts shall be prorated between the parties as of the close of business on the date immediately preceding the Effective Date and Sellers shall bear their proportion of the costs and shall be entitled to their proportion of the revenues through the date immediately preceding the Effective Date and Buyer shall bear its proportion of the costs and shall be entitled to its proportion of the revenues from the Effective Date. Taxes (other than sales and use, excise, payroll, income, franchise, corporate or similar taxes, including any taxes payable to local franchise authorities, which are imposed or
assessed against either party based upon or measured by revenues of such party) shall be prorated on the basis of the taxable year of the authority levying such taxes as of the close of business on the date immediately preceding the Effective Date and all other amounts shall be prorated as of the close of business on the date immediately preceding the Effective Date based on a thirty (30) day month and a 360-day year. Each party agrees to promptly make payments to the other party in respect of amounts due and owing such other party for adjustments required by this Section as soon as such amounts are determined or determinable. Notwithstanding anything to the contrary herein, in no event shall Sellers have any liability to Buyer for prorations pursuant to this Section to the extent such prorations are reflected on the Closing Balance Sheet. E. The aggregate purchase price for the Assets and covenants not to compete hereunder (the "Purchase Price") shall be the sum of $19,400,000.00. The Purchase Price will be allocated as set forth in Exhibit I.E. The parties hereto agree to file all income, franchise and other tax returns in a manner consistent with such allocation. No party shall take any position with any taxing authority inconsistent with such allocation unless otherwise required by applicable law. F. No sooner than five business days nor later than one business day prior to the Closing Date, Sellers will provide to Buyer a proposed Closing Balance Sheet (as hereinafter defined), and a good faith estimate (the "Estimated Adjustment") of the "Purchase Price Adjustment" (as hereinafter defined) based on the Sellers' consolidated records at such date. Such proposed Closing Balance Sheet ("Proposed Balance Sheet") will be prepared by Sellers based upon Sellers' financial condition at May 31, 1995 updated to reflect an estimate of the results of operations for June 1995 (but without estimate of the results of operations for July 1995 even
though such results will be reflected in the Closing Balance Sheet). The Proposed Balance Sheet and Estimated Adjustment are attached hereto as Exhibit I.F(1). The "Purchase Price Adjustment" shall be the amount by which the Adjusted Book Value of the Sellers differs from $5,812,000 (the "Beginning Balance") (e.g. if the Adjusted Book Value exceeds the Beginning Balance, the Purchase Price will be increased by the amount of the excess, or if the Adjusted Book Value is less than the Beginning Balance, the Purchase Price will be decreased by the amount of such difference). As used herein, the "Adjusted Book Value" of the Sellers shall mean the amount by which (a) the aggregate amount of the assets reflected on the Closing Balance Sheet exceeds (b) the aggregate amount of the liabilities reflected on the Closing Balance Sheet, exclusive of goodwill, Sellers' inter-company payables and receivables, federal and state taxes and deferred taxes, all as reflected on the Closing Balance Sheet. The parties agree that the reserve for uncollectible accounts receivable to be used on the Proposed Balance Sheet and Closing Balance Sheet shall be calculated as set forth on Exhibit I.F(2). In the event Buyer collects more than the amount reflected on the Closing Balance Sheet net of such reserve in respect of accounts receivable of the Sellers outstanding on the Closing Date, Buyer shall promptly from time to time remit such excess to Sellers and in any event within twenty (20) days of receipt by Buyer of any applicable payment. G. As soon as practicable, but in any event within 60 days following the Closing Date, Sellers shall prepare and deliver to Buyer (x) a consolidated balance sheet of the Sellers prepared as of a point in time immediately prior to the close of business on the Effective Date (the "Closing Balance Sheet") prepared in accordance with generally accepted accounting principles ("GAAP") and reflecting accounting principles consistent with those used in the preparation of the Proposed Balance Sheet and the
consolidated balance sheet of Sellers attached hereto as Exhibit I.G (all such principles not in accordance with GAAP are detailed in notes to Exhibit I.G) (the "Accounting Principles") and (y) a calculation of the proposed final Purchase Price Adjustment (the "Purchase Price Adjustment Calculation"). Buyer acknowledges that the Proposed Balance Sheet was prepared assuming Closing occurred on June 30, 1995 and that the Closing Balance Sheet will be prepared as aforesaid as of the close of business on the actual Effective Date and accordingly will reflect the results of operations and change in financial condition arising between such dates in addition to any other adjustments that would have otherwise been made in preparing the Closing Balance Sheet. If Sellers have not obtained reactivation of existing provider numbers for Florida or New Jersey before the delivery of the Closing Balance Sheet, the receivables with respect to those states which Sellers are unable to collect without such reactivated provider numbers will not be included on the Closing Balance Sheet; provided, however, that at such time as Sellers obtain such reactivated provider numbers, Buyer will collect those receivables pursuant to Section IV.K for Sellers' account and shall promptly pay any such amounts collected to Sellers. Buyer shall give Sellers such access to the employees and books and records of the Business as may be necessary to allow Sellers to prepare the Closing Balance Sheet and the Purchase Price Adjustment Calculation. The Closing Balance Sheet and the Purchase Price Adjustment Calculation (and the resulting Purchase Price Adjustment), when delivered to Buyer, shall be deemed conclusive and binding on the parties, unless Buyer notifies Sellers, within 30 days after receipt of the Closing Balance Sheet, of its disagreement therewith (which notice shall state with reasonable specificity the reasons for any disagreement and the amounts in dispute). If there is a disagreement regarding the Purchase Price Adjustment
Purchase Price Adjustment) and Closing Balance Sheet, and such disagreement cannot be resolved by the parties within 30 days following receipt by Buyer of the Closing Balance Sheet and the Purchase Price Adjustment Calculation, the dispute shall be submitted to a nationally recognized firm of independent auditors acceptable to both Buyer and Sellers, and the determination by such independent auditing firm shall be binding and conclusive upon the parties. Buyer and Sellers shall each pay one-half of the cost of the fees and expenses of such independent auditing firm. Delivery and acceptance of the Closing Balance Sheet will not diminish Buyer's rights under Article V of this Agreement; provided, however, that the amounts accrued for an item on the Closing Balance Sheet will be taken into account in assessing the amount of any damages to which Buyer may be entitled pursuant to Article V. H. To the extent the Purchase Price Adjustment as finally determined pursuant to subsection G exceeds the Estimated Adjustment by a positive amount, Buyer shall pay the difference to Sellers. To the extent the Purchase Price Adjustment is less than the Estimated Adjustment or exceeds the Estimated Adjustment by a negative amount, Sellers shall pay the difference to Buyer. Any amount due pursuant to this Section shall be paid by Buyer to Sellers or by Sellers to Buyer, as the case may be, within 10 days after any disputes have been resolved and the final determination of the Purchase Price Adjustment is made. I. On the Closing Date, Buyer shall pay to Sellers by wire transfer the Purchase Price adjusted by the amount calculated in Section I.F.
II. Representations and Warranties of Sellers Sellers represent, warrant, and agree as follows: A. Sellers are corporations duly incorporated, validly existing and in good standing under the laws of their respective states
filed and paid all applicable annual reports and fees with the applicable Secretaries of State, and have the corporate power to own their respective properties and assets and carry on their respective business as is presently being conducted. Sellers have furnished to Buyer certified copies of Articles of Organization and By-Laws and a certificate of good standing certified by the applicable Secretary of State of their respective states of incorporation. These documents are contained in Exhibit II.A. B. Sellers are owned as shown on Exhibit II.B which exhibit sets forth the state of incorporation of each Seller. C. The execution and delivery of this Agreement do not, and the consummation of the purchase and sale will not, violate any provision of, or result in the acceleration of any obligation under any mortgage, lien, lease, agree- ment, instrument, order, license, arbitration award, judgment, or decree to which the Sellers are a party or by which each is bound (other than agreements, if any, wherein the consent of the other party thereto is required and the loan agreement with Congress Financial Corporation) in such a way as to have a material adverse effect on the Business taken as a whole (a "Material Adverse Effect"). D. Except as set forth on Exhibit II.F, Sellers have, or will have prior to the Closing Date, all permits and licenses necessary for the operation of Business as conducted at Closing, including valid Medicare provider numbers, and to receive private, state and federal government payment for furnishing diagnostic testing and related products and services other than any permits or licenses the failure of which to have would not have a Material Adverse Effect. A listing of all such licenses and permits and current license numbers has been provided to Buyer. E. There are now no pending or to Sellers' knowledge, threatened claims, suits, actions, assessments, arbitration awards or proceedings at law or in equity or before any governmental instrumentality or other agency which,
if adversely determined, would have a Material Adverse Effect to which Sellers are a party or which the Business is or may be subject except as described in Exhibit II.E attached hereto. No suits or actions by any referring physician of Sellers has been settled in the past year. Sellers are not in violation of or in default with respect to any judgment, order, award, writ, injunction or decree of any court, governmental department, commission, agency, instrumentality, arbitrator, administrative agency or governmental authority, where such violation or default, severally or in the aggregate, would have a Material Adverse Effect or will prevent the consummation of the transactions contemplated hereby. F. Except as disclosed on Exhibit II.F, to Sellers' knowledge, Sellers are not now nor have they ever been at any time during which a majority of their capital stock was owned directly or indirectly by Mediq Incorporated, a Delaware corporation ("Mediq"), investigated, charged or implicated in any violation of any state or federal statute or regulation involving fraudulent and abusive practices with respect to participation in state and/or federally sponsored reimbursement programs, including but not limited to fraudulent billing practices. The Business has properly billed all intermediaries and third party payors for all products supplied and services rendered by the Business and has maintained its records to reflect such billing practices except where any failure to do so would not have a Material Adverse Effect. No funds are now or will be withheld by any Medicare intermediary or other insurance carrier except those disclosed to Buyer on Exhibit II.F. All Medicare or third party overpayments have been properly reported and returned to the applicable party as required by law or contract except where any failure to do so would not have a Material Adverse Effect. G. The consolidated balance sheets of the Sellers as of January 31, 1995, and the related income statements for the period then ended, all attached hereto as Exhibit I.G, (the "Balance Sheet"), fairly present in all material
respects the financial position of the Sellers as of January 31, 1995 in accordance with GAAP (except that Buyer acknowledges that such financial statements do not reflect any effect that may result from the matters described in Exhibits II.E, II.F, or II.K). Except as set forth on Exhibit II.K, since January 31, 1995, the Business has been operated in the normal course of business in all material respects. H. Sellers have good and marketable title to and own free and clear of any liens or encumbrances, except for Liens, all the Assets. As used herein, "Liens" shall mean (a) minor imperfections of title, none of which, individually or in the aggregate, materially detracts from the value of or impairs the use of the affected item, affects Buyer's ability to sell the item (other than liens resulting from liabilities reflected on the Proposed Balance Sheet) or impairs the operations of the Business, (b) liens for current taxes not yet due and payable, (c) encumbrances for debts which will be released on or before the Closing Date, and (d) as disclosed on Exhibit II.H. No other warranties, express or implied, are made by Sellers, and Buyer waives all such warranties, other than as set forth expressly in this Agreement, regarding the title, value, condition and use of the Assets, including, but not limited to, warranties, of habitability, merchantability or fitness for a particular purpose. Buyer hereby affirms that Sellers, their agents, employees and/or attorneys have not made nor has Buyer relied upon any representation, warranty or promise with respect to the Assets or any other subject matter of this Agreement except as expressly set forth in this Agreement. The Assets include all of the assets and interests in assets of Sellers and their affiliates that are used in the operation of the Business as presently conducted, other than the Excluded Assets. I. The Leases and the copies of leases annexed to Exhibit II.I are true and complete copies of all real and all material personal property leases of the
Sellers. No other warranties, express or implied, are made by Sellers, and Buyer waives all such warranties, other than as set forth expressly in this Agreement regarding the title, value, condition and use of the real properties together with the leasehold improvements, fixtures, and equipment therein which are the subject of such Leases, including, but not limited to, warranties of habitability, merchantability or fitness for a particular purpose. Buyer hereby affirms that Sellers, their agents, employees and/or attorneys have not made nor has Buyer relied upon any representation, warranty or promise with respect to such real property or any other subject matter of this Agreement except as expressly set forth in this Agreement. No party to any Lease has sent written notice to the other claiming that such party is in default thereunder, which default remains uncured. There has not occurred any event which would constitute a breach of or default in the performance of any material covenant, agreement or condition contained in any Lease by Sellers and, to the best of Sellers' knowledge, any other party thereto which would have a Material Adverse Effect. Sellers are not obligated to pay any leasing or brokerage commission relating to any Lease which has not been paid prior to the date hereof, and does not have any enforceable obligation to pay any leasing or brokerage commission upon the renewal or extension of any Lease. Except as expressly set forth in the Leases, none of the Leases imposes any restrictions that would materially interfere with the continued operation of the Business as currently conducted. No renewal option under any Lease has been exercised unless the renewal notice is attached as Exhibit II.I. J. The contracts listed on Exhibit II.J and the copies of such contracts annexed to Exhibit II.J are true and complete copies of all contracts of Sellers relating to the operations of the Business of (i) all employment agreements, consulting agreements in amounts with payments exceeding
$40,000.00 per year (unless with a referring physician, all of which are attached), joint venture, and agency agreements to which the Sellers are a party and which would continue to bind the Sellers one year beyond the date hereof; (ii) with principal suppliers of the Business with payments exceeding $40,000.00 per year, $200,000 over the term of the contract or for a term in excess of two years; (iii) bonus, incentive compensation, profit-sharing, deferred compensation and post-termination obligations and trust agreements of the Sellers in effect or under which any amounts which exceed $40,000.00 remain unpaid on the date hereof or are to become effective after the date hereof; (iv) any contract limiting the freedom of the Business to compete in any line of business or with any entity; and (v) all other contracts, the loss of which would have a Material Adverse Effect, not otherwise set forth in other Exhibits hereto. To the best of Sellers' knowledge, except as set forth in Exhibit II.K, there is no existing breach or default by any other party to any Contract, and to the best of Sellers' knowledge, except as set forth in Exhibit II.K, no event has occurred which with the passage of time or giving of notice would constitute a breach or default by any party under an Assigned Contract, result in a loss of rights or result in the creation of any encumbrance under an Assigned Contract, except any of the foregoing which would not have a Material Adverse Effect. K. Except as set forth on Exhibit II.K, since January 31, 1995: 1. There has been no material adverse change in the financial condition, results of operations, assets, liabilities, licenses, permits, material agreements, method of accounting or manner of conducting the Business taken as a whole other than, in each case, changes in the ordinary course of business and other than changes relating to the economy in general or industry conditions. 2. There has been no damage, destruction or other
materially and adversely affecting the business, properties, financial condition or results of operations of the Business taken as a whole except any such loss which is covered by insurance. 3. There has been no increase in compensation payable or to become payable by the Sellers to any of its officers, employees or agents other than increases in the ordinary course of business. 4. The Sellers have not entered into any material contracts, agreements or licenses which would be required to be forth in Exhibit II.I or II.J other than those set forth in Exhibit II.I or II.J and previously delivered to Buyer. 5. The Sellers have not incurred any indebtedness for borrowed money or purchase money indebtedness other than in the ordinary course of business. L. There are no outstanding options or rights to purchase the stock of the Sellers that would affect this transaction. M. To Sellers' knowledge, as of January 31, 1995, all liabilities of Sellers required by GAAP to be set forth on a balance sheet that was prepared on and as of January 31, 1995, are reflected on the Balance Sheet (except that Buyer acknowledges that such Balance Sheet does not reflect any effect that may result from the matters described in Exhibits II.E, II.F, or II.K). Any and all attorneys' and accountants' fees and disbursements and other costs incurred on behalf of Sellers in connection with this Agreement and related agreements shall not become Assumed Liabilities. N. During each of the past ten calendar years, or such shorter period as such entity has been directly or indirectly majority owned by Mediq, the Sellers have been and presently are insured against the normal risks of their business on a claims-made basis, including, without limitation, professional liability, and general liability insurance in aggregate annual
less than $5,000,000.00, and with a deductible not exceeding $250,000.00. Sellers will, at Sellers' option, either maintain such claims-made coverage or purchase "tail" coverage affording professional liability and general liability insurance for a period of three years following the Effective Date. Certificates evidencing such policies that are currently in place (the "Insurance Policies") are attached as Exhibit II.N. All premiums due on the Insurance Policies or renewals thereof have been paid and to Sellers' knowledge, Sellers are not in default under any of the Insurance Policies. Sellers have not received any notice or other communication from any issuer of the Insurance Policies canceling or materially amending any of the Insurance Policies, materially increasing any deductibles or retained amounts thereunder, or materially increasing the annual or other premiums payable thereunder, and, to the best of Sellers' knowledge, no such cancellation, amendment or increase of deductibles, retainages or premiums is threatened. O. The present conduct of the Business by Sellers complies in all respects with the applicable provisions of federal, state, and local laws (including the Federal False Claims Act, the RICO Statute, 42 U.S.C. 1320a-7b, 42 U.S.C. 1395 nn, or any related state self-referral statutes) and all government licenses, permits, and other authorizations applicable thereto, except where failure to comply would not have a Material Adverse Effect. P. No work stoppages or other labor disputes involving the Business are pending or, to the best of Sellers' knowledge, threatened during the last 3 years. Sellers have no knowledge that any individual (other than Stephen Doppelt) having an annual salary in excess of $40,000.00 currently has an intention to terminate his/her employment except as set forth in Exhibit II.P. Sellers have no collective bargaining agreements currently in effect. Seller has no material arrearages in the payment of wages, taxes or worker's compensation assessments or penalties.
1. Exhibit II.P contains a complete list of Sellers' (i) current pension, profit sharing, stock bonus, deferred compensation, retirement or other "employee pension benefit plans," as that term is defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (the "Pension Plans"); (ii) current "employee welfare benefit plans" as that term is defined in Section 3(1) of ERISA, whether insured or otherwise (the "Welfare Benefit Plans"); and (iii) other material employee benefit plans, policies and practices including deferred compensation arrangements or other similar programs (the "Non-ERISA Plans"), maintained or contributed to with respect to any employee of the Business (all of such plans shall hereinafter be referred to collectively as "Employee Plans"). A copy of each Employee Plan has been furnished to Buyer. None of the Employee Plans are "voluntary employees' beneficiary associations" ("VEBAs") as described in Section 501(c)(9) of the Internal Revenue Code of 1986, as amended (the "Code"). 2. Sellers do not contribute, are not required to contribute, and have never been required to contribute to any multiemployer plan within the meaning of Section 3(37) of ERISA. 3. Except for medical insurance coverage required by law to be provided to former employees, no Employee Plan provides health or life insurance benefits for retirees. 4. No Employee Plan, any trust created thereunder, or, to the best of Sellers' knowledge, any trustee or fiduciary (as defined in Section 3(21) of ERISA) thereof, has engaged in a "prohibited transaction" as such term is defined in Section 4975 of the Code or Section 406 of ERISA which would have a Material Adverse Effect. 5. Sellers have made all contributions, paid all
all liabilities with respect to the Employee Plans which are payable as of the date hereof except any of the foregoing which would not have a Material Adverse Effect. Q. Sellers have filed all tax returns required to be filed by them commencing with the taxable period the Sellers were first majority-owned by Mediq through the fiscal year ended September 30, 1993, and has timely filed all extensions of time for the period ending September 30, 1994, and has paid, or has set up adequate reserves for or will have set up adequate reserves for the payment of all taxes (other than the Transactional Taxes) required to be paid in respect of the periods covered by such returns and extensions and, except as aforesaid, has set up adequate reserves for the payment of all income, franchise, property, sales, use, employment, Social Security, or other taxes anticipated to be payable in respect of the period subsequent to September 30, 1993 (including any federal, state or local income, sales or franchise tax or other taxes measured by income or profits arising out of, or attributable to, the transactions contemplated hereby) and, except as aforesaid, for the payment of all other taxes (including, without limitation, all employment taxes, sales or use taxes, or stamp taxes). Sellers are not delinquent in the payment of any tax, assessment or governmental charge nor, except as set forth on Exhibit II.Q, have the Sellers during the time directly or indirectly majority owned by Mediq requested any extensions of time within which to file any tax returns which have not since been filed other than the period ended September 30, 1994 except for those taxes whose nonpayment would not have a Material Adverse Effect. Except as set forth on Exhibit II.Q, no deficiencies for any tax, assessment or governmental charge have been proposed (tentatively or definitively), asserted or assessed against the Sellers during the time directly or indirectly majority-owned by Mediq, and no requests for waivers of the time to assess any such tax are pending.
Except as set forth on Exhibit II.Q, the federal, state, local or foreign income tax returns of the Sellers have never been audited by the Internal Revenue Service (or comparable state or foreign agency). Except as set forth on Exhibit II.Q, Sellers are not currently subject to any outstanding federal, state or local tax audit. For the purpose of this agreement, the term "tax" shall include all federal, state, local, and foreign taxes. Copies of all state and federal income tax returns of the Sellers for the preceding three years have been delivered to Buyer prior to Effective Date. R. Exhibit II.R hereto is a complete and accurate list as of the date hereof of the name, position and compensation of each current employee, including any individual on disability or leave of absence (whether paid or unpaid) of the Sellers. All individuals included on Exhibit II.R are herein referred to as the "Employees". S. The Sellers have no patents, trademarks, or applications for the same. To Sellers' knowledge, the Business is not infringing upon the valid patents, trademarks or copyrights of others. T. "Hazardous Substances" means (i) a pollutant or contaminant as defined in 42 U.S.C.ss.9601(33); (ii) any hazardous waste as defined in 40 C.F.R. Part 260 (iii) any "hazardous substance" as defined in 42 U.S.C.ss. 9601(14); (iv) any petroleum, crude oil, natural gas, synthetic gas, or fraction or compound thereof; (v) any radioactive substance; (vi) any radioactive material; or (vii) any other hazardous substance subject to any other law, regulation, or ordinance regulating or establishing standards of conduct concerning the protection of the environment each in effect as of the date hereof. "Environmental Law" means the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; statutes and regulations regulating radioactive material, and the state counterparts
of these laws and any regulations promulgated pursuant to such laws each in effect as of the date hereof. "Routine Business Activities" means the use of lubrication, cleaning, and other substances used in building maintenance; the use of office supplies in retail quantities; consumer products; the use of gardening supplies commonly used for normal landscaping and the use, handling, generation, transportation, treatment or disposal of Hazardous Substances in the ordinary course of the diagnostic testing business. The operations of the Company and Subsidiaries are in compliance with the terms of all applicable Environmental Laws and with all permits or orders issued to the Sellers pursuant to any Environmental Law except for such non-compliance which would not reasonably be expected to have a Material Adverse Effect. To the best of Sellers' knowledge, there has been no leak, spill, discharge or release in a reportable quantity of any Hazardous Substance which requires remediation at or from the real property owned or leased by Sellers while a direct or indirect majority-owned subsidiary of Mediq except as set forth on Exhibit II.T. To the best of Sellers' knowledge (other than those used in Routine Business Activities), there are not Hazardous Substances located on or at any of Sellers' business locations in material violation by Sellers of any applicable Environmental Law, nor, to the best of Sellers' knowledge, have there been any underground storage tanks located at any of any such business locations, except as set forth in Exhibit II.T. To the best of Sellers' knowledge, the Business' operating locations have not been used as a regulated hazardous waste site. U. The responses of Sellers contained in the correspondence from Sellers to Sellers' counsel attached hereto as Exhibit II.U are true in all material respects.
Buyer represents and warrants as follows: A. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has the corporate power to own the properties and assets to be conveyed herein to Buyer and carry on its business and the Business of Sellers as it is presently being conducted. Buyer has furnished to Sellers a copy of its Articles of Organization and a copy of a Certificate of Good Standing certified by the Secretary of State of Delaware. These documents are contained in Exhibit III.A. B. Buyer has the corporate power to enter into and to perform all of its obligations under this Agreement and all appropriate corporate action has been taken by Buyer to approve the execution, delivery, and performance by Buyer of this Agreement. The execution, delivery, and performance by Buyer of this Agreement have been approved by the Board of Directors of Buyer's parent company. The execution and delivery of this Agreement do not, and the consummation of this purchase and sale will not, violate any provision or result in the acceleration of any obligation under any mortgage, lien, lease, agreement, instrument, order, license, arbitration award, judgment or decree to which Buyer is a party or by which it is bound (other than agreements, if any, wherein the consent of the other party thereto is required) in such a way as to materially affect the Buyer and will not violate and conflict with any other material restriction of any kind or character to which the Buyer is subject. C. Buyer has available to it sufficient resources to pay in full the Purchase Price. The Guaranty by National Medical Care, Inc. ("NMC") set forth on the signature page hereto has been duly executed by NMC and is a legal and valid binding obligation of NMC enforceable against NMC in accordance with its terms.
D. There are no pending or to Buyer's knowledge threatened claims, suits, actions, assessments, arbitration awards or proceedings at law or in equity or before any governmental instrumentality or other agency to which Buyer is a party or to which it is subject which would reasonably be expected to restrain or prohibit the consummation of the transactions contemplated hereby. E. The balance sheet attached as Exhibit III.E fairly presents the financial condition of NMC. Buyer is an indirect wholly-owned subsidiary of NMC. IV. Covenants and Agreements of the Parties A. Sellers and Buyer represent and warrant that all negotiations relative to this Agreement have been carried out directly with each other, without the intervention of any person, other than each party's respective counsel, and other than KBL Healthcare, Inc. and Woodbury Associates, Inc. Sellers agree to indemnify and hold Buyer harmless against and in respect of any claim for brokerage or other commissions relative to this Agreement or to the purchase and sale contemplated hereby incurred by Sellers (including amounts owed to KBL Healthcare, Inc.) and also in respect of all expenses of any character incurred by the Sellers in connection with this Agreement or such purchase and sale other than any expenses accrued on the Closing Balance Sheet, to the extent accrued on the Closing Balance Sheet. Buyer agrees to indemnify and hold Sellers harmless against and in respect of any claim for brokerage or other commissions relative to this Agreement or to the purchase and sale contemplated hereby incurred by Buyer (including amounts owed to Woodbury Associates, Inc.) and also in respect of all expenses of any character incurred by the Buyer in connection with this Agreement or such purchase and sale. B. Sellers and Buyer shall cooperate to comply with any and all public health, health planning and licensure statutes and regulations and will, if required, notify the appropriate governmental agencies, either state or federal, of the
transactions contemplated by this Agreement, to the extent so required, in order to preserve and/or transfer to Buyer the state and federal approvals and any other permits and licenses of the Business included in the Assets. Sellers shall not be required to pay any third-party expenses or incur any liability in connection with their undertaking under this Section. Buyer will reimburse Sellers for reasonable third-party out-of-pocket expenses. C. Covenant Not to Disclose Trade Secrets Sellers acknowledge that in the course of owning the Assets and operating the Business, Sellers have become privy to various trade secrets of the Business. Sellers agree not to disclose to any person, firm or corporation any information known by Sellers to be trade secrets of the Business included in the Assets, including, but not limited to, information of the Business regarding: the identity and relationships of patients, employees, customers or vendors affiliated with the Business, compensation of employees or independent contractors, financial data, pricing information, regulatory approval and reimbursement strategies, marketing and sales programs, data, operations and clinical manuals and expansion of the Business' market, provided, however, Sellers shall not be prohibited from disclosing any such information to the extent Sellers are required to disclose such information by law, to the extent such information is publicly-known or becomes publicly-known through no unauthorized act or fault of Sellers or in connection with any lawsuit or other judicial or administrative proceeding. Covenant Not to Solicit Employees Sellers agree that the Business has invested substantial time and effort in assembling and training its present staff of personnel. In addition, as a result of employment by the Business such personnel have gained knowledge of the business affairs, marketing, patients and methods of operation of the Business. Accordingly, for a period of two years after the
Effective Date, Sellers will not directly or indirectly induce or solicit any of the Employees to leave their employment with the Buyer, provided, however, that Sellers may offer employment at any time to any of such Employees who approach any Seller seeking employment or who are no longer employed by Buyer at the time Sellers approach any such Employee. Nothing contained herein shall affect any right Buyer may have against any Employee pursuant to any agreement between Buyer and such Employee or otherwise. For a period of 7 years after the Effective Date, Sellers will not engage, directly or indirectly, through a parent, subsidiary or otherwise, either as principal, agent, proprietor, shareholder of more than 5% of the voting rights, owner or partner, or participate in the ownership, management, operation or control of any facility or business providing diagnostic testing of the types set forth on Exhibit IV.C within the United States. Notwithstanding anything to the contrary contained herein, the restrictions contained herein shall not restrict Sellers or any of their affiliates (including, without limitation, Mediq or any subsidiary or division thereof) from operating or owning any of their existing businesses or investments, provided that they do not expand into the foregoing prohibited activities. The restrictions contained in this paragraph shall not be binding upon any third party purchaser of any assets, stock, division or business unit of Mediq or any affiliate thereof or of Mediq; provided such purchaser is not more than 5% owned by Mediq. Sellers acknowledge that the foregoing restrictions are necessary for the protection of the Buyer and that any breach thereof may cause the Buyer irreparable damage. The Buyer shall be entitled to the issuance by a court of competent jurisdiction of an injunction in favor of the Buyer enjoining the breach or threatened breach of said restrictions. The
shall not constitute a waiver of any other remedies the Buyer may have in law or in equity. In the event a court of competent jurisdiction determines that the foregoing restrictions are unreasonable, then the restrictions shall be reduced by the court to the extent necessary to be enforced by the court. D. Buyer and Sellers will cooperate in securing all consents, approvals, waivers or permits relating to the sale and transfer of the Assets from each person or governmental authority whose consent, approval, waiver or permit is necessary to or for the operation and conduct of the Business after the Effective Date at no cost or liability to Sellers, including approvals required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"). Sellers shall not be required to pay any third-party expenses or incur any liability in connection with their undertaking under this Section. Buyer will reimburse Sellers for reasonable third-party out-of-pocket expenses. E. Subject to the provisions of Sections I.F and IV.K, Sellers and Buyer will cooperate to ensure the orderly transition of collection responsibility to Buyer for any Accounts Receivable outstanding as of the Closing Date at no cost or liability to Sellers. F. For the period of 3 years after the date hereof, Sellers and Buyer agree to keep the terms of this Agreement confidential and will not disclose the terms to any third persons or entity except in connection with claims asserted under this Agreement, as required by law (including, without limitation, any filing with any governmental agency or instrumentality) or for the operation of the Business and except that Sellers or their affiliates may issue press releases regarding this Agreement and the transactions contemplated hereby with Buyer's consent, which consent shall not be unreasonably withheld. G. Buyer and Sellers shall each, from time to time after the
request of the other and without further consideration, execute and deliver such further instruments of assignment, transfer or assumption and take such further action as the other may reasonably request in order more effectively to transfer, reduce to possession and record title to any of the Assets or to implement the assumption of Assumed Liabilities. Any and all out-of-pocket expenses involved in compliance with this Section shall be promptly reimbursed by the requesting party to the other. H. After the Closing Date, Buyer will make available to Sellers and their affiliates, accountants, attorneys and representatives upon reasonable request during normal business hours reasonable access to all records, data and personnel of the Business necessary in connection with Sellers' conduct of litigation and tax matters or as otherwise reasonably requested by Sellers, at no cost to Buyer other than Buyer's internal costs (e.g., Sellers will reimburse Buyer for reasonable third-party out-of-pocket expenses). Sellers will make available to Buyer upon reasonable request during normal business hours reasonable access to all records and data relating to the Business not transferred to Buyer as reasonably necessary to continue operations of the Business at no cost to Sellers other than Sellers' internal costs (e.g., Buyer will reimburse Sellers for reasonable third-party out-of-pocket expenses). I. Buyer shall use commercially reasonable efforts, and shall cooperate with Sellers, to (1) cause Buyer to be substituted in all respects for Sellers or any of their affiliates, effective as of the Effective Date, in respect of all obligations of Sellers and any such affiliate under any contract or agreement included in the Assumed Liabilities and under each of the guaranties, letters of credit, bonds and letters of comfort obtained by Sellers or any of such affiliates relating to the Assets (collectively, the "Guaranties") listed on Exhibit IV.I and (2) cause Sellers and their affiliates to be released from all Assumed Liabilities
agreements and Guaranties described in the preceding clause (1). J. Effective as of the Closing Date, Sellers' employment of the Employees shall cease. Effective as of the Closing Date, Buyer shall offer "at-will" employment to all of the Employees except Stephen Doppelt who shall be offered a consulting arrangement on the terms and conditions set forth on Exhibit IV.J. All Employees who accept Buyer's offer of employment are herein referred to as the "Transferred Employees". Buyer's offer of employment to the Transferred Employees shall be at the substantially similar salary or wage level as applicable to such Transferred Employees immediately before the Closing and on terms and conditions that are substantially similar to those provided by Buyer to its current employees of like rank and job title. Effective as of the Closing Date, Buyer shall designate a pre-existing group health insurance plan ("Buyer's Health Plan") that will provide coverage to all Transferred Employees and their dependents. Buyer's Health Plan shall not contain any exclusion or limitation with respect to any pre-existing condition of any Transferred Employees or their dependents. If any Transferred Employee becomes covered by any employee benefit plan, program or policy of the Buyer, such Transferred Employee shall be given credit under such plan, program or policy for all service with Sellers prior to the Closing Date for all purposes; provided, however, that such service shall not be credited for purposes of benefit accruals under any defined benefit pension plan. K. Commencing one month after the Effective Date, Buyer shall provide reports, monthly for the first three months following Closing and quarterly thereafter, to Sellers regarding the amounts collected on the accounts receivable of the Business outstanding as of the Effective Date (the "Accounts Receivable") and Buyer's efforts to collect such accounts. Buyer shall, at Buyer's election, either (i) apply at least the same efforts in the
collection of the Accounts Receivable as Buyer applies in the collection of its own accounts receivable or (ii) use the same personnel and procedures to collect the Accounts Receivable as were used by the Business immediately prior to the Effective Date, in the same positions, with the same responsibilities and at the same salaries and hours. The collection of all accounts receivable received from an account debtor of the Business as of the Effective Date shall be applied to the oldest outstanding invoice with such account debtor which is not then in dispute consistent with Buyer's general overpayment policies; provided, however, notwithstanding the foregoing, any payments made by an account debtor in respect of a designated account shall be applied to the account so designated. For purposes of the preceding sentence, a disputed invoice is an invoice that is the subject of a written dispute from the account debtor which is reasonably recognized by Buyer as disputed in accordance with its general policies; upon the resolution of any such dispute, such invoice shall no longer be considered disputed and collections from the account debtor shall be applied in accordance with the previous sentence as if such dispute had not arisen. Provided that Buyer has collected in respect of Accounts Receivable at least the amount set forth on the Closing Balance Sheet in respect of such Accounts Receivable net of the reserve calculated as herein set forth, promptly after the first anniversary of the Effective Date, Buyer shall transfer to Sellers, at no cost to Sellers, all Accounts Receivable that remain uncollected at such time. Following a transfer of any Accounts Receivable to Sellers, Buyer acknowledges that Sellers may collect such Accounts Receivable for Sellers' benefit in any manner Sellers deem appropriate, provided such efforts do not materially jeopardize Buyer's business relationship with the account debtor. Except as expressly provided in Section IV.K, Buyer makes no representation regarding its ability to collect the Accounts Receivable.
L. Provided that the failure to pay does not cause Buyer to breach any Assigned Contract, Buyer shall not pay any amounts in respect of bonuses accrued on the Proposed Balance Sheet or Closing Balance Sheet to any Employees until the earlier of (i) 90 days after Closing or (ii) such time as the parties have resolved the Closing Balance Sheet in accordance with Section I.G and any adjustment to the Purchase Price has been paid. M. Buyer acknowledges and agrees that the name and service mark "MEDIQ" and all derivations thereof (the "Name") is owned by Sellers and that by the sale of the Assets, or otherwise, Sellers are not relinquishing any interest in or rights to the Name, nor permitting Buyer (after the Effective Date) to use, license or otherwise have any rights in or to the Name, except on such terms as are expressly set forth in this Section. Sellers will permit use of the name by Buyer for transition purposes during a period not to exceed eight months subsequent to the Effective Date (the "Transition Period"), on the following terms and conditions: a. By the end of the Transition Period, Buyer shall have caused the removal of the Name from all of the Assets including any motor vehicles, stationery, business cards, and other documents. During the Transition Period Buyer shall not affix, or cause to be affixed, the Name to any of the Assets or its assets, vehicles, machinery or equipment. b. Within a reasonable period of time after the Effective Date, Buyer and the Business shall notify its customers, suppliers and others with whom the Buyer and the Business does business of the Business' change of name. c. Buyer may use the name solely in connection with the Business in accordance with this Section IV.M and shall have no right to license, assign or otherwise transfer any rights in or to the Name. V. Survival of Representations and Warranties; Indemnification
A. The representations and warranties made by any party hereto in this Agreement or in any Schedule, Exhibit, certificate or other document delivered by or on behalf of any party hereto pursuant to this Agreement shall be deemed to be continuing and shall survive the Effective Date, but shall expire on December 31, 1996, except matters with respect to Section II.Q (taxes) and Section II.P (employee benefits), which shall expire on the expiration of the applicable statute of limitations (the "Representation Expiration Date"), unless a specific claim in writing with respect to any such representation or warranty shall have been made, or any action at law or in equity shall have been commenced or filed in respect thereof, prior to such Representation Expiration Date. Nothing in this section shall terminate or affect the obligations and indemnities of the parties with respect to covenants and agreements contained or referenced in this Agreement that are to be performed by their specific terms, in whole or in part, after the Closing Date or the above-referenced Representation Expiration Date. B. Sellers shall indemnify, defend, save and hold harmless Buyer and its successors and assigns, and their employees, representatives, officers, directors and agents (collectively, the "Buyer Indemnified Parties") from and against any and all debts, losses, claims, damages, costs, demands, fines, judgments, penalties, obligations, payments and liabilities, including, without limitation, those arising out of any breach of warranty, representation or covenant, lawsuit, action or proceeding, together with any reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and out-of-pocket expenses) incurred in connection with any of the foregoing whether by a third party or a party to this Agreement (collectively, "Claims") resulting from (a) any breach of or inaccuracy in any representation or warranty made by Sellers in this Agreement, (b) any breach of any covenant of Sellers contained in this Agreement, (c) any
liability of the Business other than the Assumed Liabilities; (d) any amounts Buyer reasonably determines it is required to pay pursuant only to the express terms of, and actually does pay to Employees pursuant only to the express terms of, the agreements set forth on Exhibit V.A ("Key Employee Agreements") solely as a result of Buyer's termination of the employment of such Employee within 60 days of the Effective Date, or (e) enforcing any rights to indemnification under this section. For indemnification purposes, in determining whether a breach of any warranty, representation, or covenant has occurred; any language referring to a Material Adverse Effect or any materiality limits will not be considered. Notwithstanding the foregoing, Sellers shall not be liable for any Claims pursuant to section V.A or V.B until the aggregate amount of such Claims exceeds the Basket Amount and then only to the extent of such excess. The "Basket Amount" shall mean $50,000 less any amounts actually paid by Buyer in respect of liabilities of Sellers pursuant to Section I.C(6) and "Unused Basket Amount" shall mean the positive difference (if any) between $50,000 and the amount of any Claims for which Buyer would be entitled to indemnification pursuant to section V.A or V.B but for the preceding sentence. The Sellers indemnity obligation in respect of Section V.B(d) shall only arise to the extent Buyer reasonably determines an obligation to pay exists and actually does pay under any Key Employee Agreement, there is no modification of the Key Employee Agreements by Buyer and shall exist only to the extent that amounts payable to an Employee covered thereby are in excess of amounts such Employee would be entitled to under Buyer's severance policies as applicable to such Employee in accordance with the terms of this Agreement (and then only for the amount of such excess). The Sellers shall be liable for all other Claims, and the aggregate liability of all Sellers hereunder with respect to any and all Claims shall be limited to the Purchase Price; provided, however, that Buyer's right to
indemnification under clause (a) of this Section V.B shall expire on the Representation Expiration Date applicable to such claim unless Sellers shall have received written notice of a specific Claim prior to such expiration date, in which case such indemnification shall not expire with respect to such Claim until it is resolved. C. In addition to the indemnification set forth in Section V.B, Sellers shall indemnify, defend, save and hold harmless the Buyer Indemnified Parties from and against all Claims arising solely from or settlements of, and shall assume the defense and all expenses related thereto of the potential investigation and/or inquiry of the Department of Health and Human Services pending in the United States Attorney's Office in the Northern District of New Jersey. Buyer's right to indemnification under this Section V.C is conditioned upon Sellers' unconditional right, notwithstanding anything to the contrary contained in Section V.E, to assume the defense of the proceedings described in this Section V.C using counsel of Sellers' choice and to control the defense of and settlement of such proceedings without complying with the requirements set forth in Section V.E. unless Buyer becomes a party in the suit (in which case the provisions of Section V.E shall apply). Provided that such Employees are at the time employed by Buyer, Buyer will make available to Sellers such Employees and access to books and records as Sellers may reasonably request in connection with such proceedings, at no expense to Buyer. D. Buyer shall indemnify, defend, save and hold harmless Sellers and their successors and assigns, and their employees, representatives, officers, directors and agents (collectively the "Seller Indemnified Parties") from and against any and all Claims resulting from (a) any breach of or inaccuracy in any representation or warranty made by Buyer in this Agreement, or (b) any breach of any covenant of Buyer contained in this Agreement, or (c) the Assumed Liabilities, or any liabilities or obligations of the Business
accruing for acts or omissions taking place after the Effective Date, or (d) any guarantee or obligation to assure performance given or made by Sellers or any of their affiliates with respect to any obligation or liability of Sellers disclosed on Exhibit IV.I. Sellers' right to indemnification under clause (a) shall expire on the Representation Expiration Date unless Buyer shall have received written notice of a specific Claim prior to such expiration date, in which case such indemnification shall not expire with respect to such Claim. E. 1. A party seeking indemnification pursuant to this Article V (an "Indemnified Party") shall give prompt notice to the party from whom such indemnification is sought (the "Indemnifying Party") of the assertion of any matter reasonably anticipated to bring rise to a Claim by a third party or by the Indemnified Party in respect of which indemnity may be sought hereunder (a "Third Party Claim") and shall give the Indemnifying Party such information with respect thereto as the Indemnifying Party may reasonably request, but no failure to give such notice shall relieve the Indemnifying Party of any liability hereunder (except to the extent the Indemnifying Party has suffered actual prejudice thereby). If the Indemnifying Party establishes to the reasonable satisfaction of the Indemnified Party that the Indemnifying Party has (and will continue to have) adequate financial resources to satisfy and discharge such Claim, the Indemnifying Party shall have the right, exercisable by written notice (the "Notice") to the Indemnified Party (which notice shall state that the Indemnifying Party expressly agrees that as between the Indemnifying Party and the Indemnified Party, the Indemnifying Party shall be solely obligated to satisfy and discharge the Third Party Claim) within fourteen (14) days of receipt of notice from the Indemnified Party of the commencement of or assertion
Party Claim, to assume the defense of such Third Party Claim, using counsel selected by the Indemnifying Party and reasonably acceptable to the Indemnified Party; provided that the Indemnifying Party shall not have the right but has the obligation, to the extent set forth herein, if requested by the Indemnified Party to assume the defense of a Third Party Claim (A) seeking an injunction, restraining order, declaratory relief or other non-monetary relief or (B) if the named parties to any such action (including any impleaded parties) includes both the Indemnified Party and the Indemnifying Party, and the Indemnified Party shall have been advised in writing by counsel that under applicable standards of professional conduct (assuming no waiver of conflict is given) the Indemnified Party and Indemnifying Party may not be represented by the same counsel, in which case such Indemnified Party shall have the right to assume control of the defense of a Third Party Claim of the type set forth in clause (A) above and to participate in the defense of a Third Party Claim of the type set forth in clause (B) above and all Claims in connection therewith shall be reimbursed by the Indemnifying Party. In addition, if the Indemnifying Party fails to give the Indemnified Party the Notice complying with the provisions stated above within the stated time period, the Indemnified Party shall have the right to assume control of the defense of the Third Party Claim and all Claims in connection therewith shall be reimbursed by the Indemnifying Party upon demand of the Indemnified Party. 2. If at any time after the Indemnified Party assumes the defense of a Third Party Claim pursuant to Section E.1, the conditions set forth in clauses E.1 (A) or (B) above no longer exist, the Indemnifying Party shall have the right to assume the defense as set forth above as if the Indemnified Party never assumed the defense of such
3. The Indemnifying Party or the Indemnified Party, as the case may be, shall in any event have the right to participate, at its own expense, in the defense of any Third Party Claim which the other is defending. 4. The Indemnifying Party, if it shall have assumed the defense of any Third Party Claim in accordance with the terms hereof, shall have the right, upon thirty (30) days prior written notice to the Indemnified Party, to consent to the entry of judgment with respect to, or otherwise settle such Third Party Claim unless (i) the Third Party Claim involves equitable or other non-monetary damages or (ii) in the reasonable judgment of the Indemnified Party such settlement would have a Material Adverse Effect on the Indemnified Party's business (including any material impairment of its relationships with customers and suppliers) in which case such settlement only may be made with the written consent of the Indemnified Party, which consent shall not be unreasonably withheld. At the expense of the Indemnifying Party, the Indemnified Party shall have the sole and exclusive right to settle any Third Party Claim, on such terms and conditions as it deems reasonably appropriate, (x) if the Indemnifying Party fails to assume the defense in accordance with the terms hereof or (y) to the extent such Third Party Claim involves only equitable or other non-monetary relief or would have a Material Adverse Effect on the Indemnified Party's business, with the consent of the Indemnifying Party, which consent shall not be unreasonably withheld. 5. Whether or not the Indemnifying Party chooses to defend or prosecute any Claim involving a third party, all the parties hereto shall cooperate in the defense or prosecution thereof and shall
furnish such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith. F. 1. Buyer and Sellers acknowledge and agree that their sole and exclusive remedy with respect to any and all claims relating to the subject matter of this Agreement shall be pursuant to the indemnification provisions set forth in this Article V. In furtherance of the foregoing, Buyer and Sellers hereby waive, to the fullest extent permitted under applicable law, any and all rights, claims and causes of action (including rights of contribution, if any) it may have against Sellers or any of Sellers' affiliates (in the case of Buyer), or Buyer or any of Buyer's affiliates (in the case of Sellers) arising under or based upon any federal, state or local statute, law, ordinance, rule, regulation or judicial decision (including, without limitation, any such relating to environmental matters or arising under or based upon any securities law, common law or otherwise); provided, however, that no party waives its rights to commence proceedings to enforce its rights under this Article in accordance with the provisions of Section VIII.F. 2. The amount of any Claim for which indemnification is provided under this Article V shall be net of (i) any amounts recovered (less costs of collecting) by the Indemnified Party pursuant to any indemnification by or indemnification agreement with any third party who was primarily liable for the Claim (a "Collateral Source") and (ii) any benefit (including any tax benefit if and when realized) that accrues to Buyer or Sellers in respect of the matter for which a Claim is asserted. If the amount to be netted hereunder from any payment required in Section V.B, V.C or V.D is determined after payment by the Indemnifying Party
required to be paid to an Indemnified Party pursuant to this Article V, the Indemnified Party shall repay to the Indemnifying Party, promptly after such determination, any amount that the Indemnifying Party would not have had to pay pursuant to this Article V had such determination been made at the time of such payment. Indemnification under this Article V shall not be available to any Indemnified Party unless such Indemnified Party first seeks recovery from a Collateral Source for such Claim before making any claim for indemnification by the Indemnifying Party. Provided an Indemnifying Party has satisfied all Indemnification obligations to the Indemnified Party, any Indemnifying Party may, in its sole discretion, require any Indemnified Party to grant an assignment of the right of such Indemnified Party to assert a Claim against any Collateral Source. In the event of such assignment, the Indemnifying Party shall pursue such Claim at its own expense. G. Notwithstanding anything to the contrary contained herein, no Buyer Indemnified Party shall be entitled to indemnification hereunder for any "Claim" that arises in connection with (1) any cost in respect of a compliance program except with respect to, and to the extent of, the costs of implementing a compliance program that Buyer is required to institute solely as a result of actions of Sellers occurring prior to Closing and not as a result of any event or occurrence taking place after Closing or (2) any loss of business or revenues resulting from a future change in business practice required to comply with law or resulting from the litigation, investigation or inquiry referred to in Section V.C, to the extent the basis and claims of such litigation, investigation or inquiry have been disclosed to Buyer prior to the date hereof, or Buyer is otherwise aware of such basis and claims prior to the date hereof, or (3) any loss of business or revenues resulting from an amendment to any agreement or
doing business entered into or effected (x) prior to the date hereof that has been disclosed to Buyer by or on behalf of Sellers (or Buyer is otherwise aware of prior to the date hereof) or (y) after the date hereof by Buyer. Nothing in this Section V.G shall be taken to expand Sellers' indemnification obligations set forth in any other Section of this Agreement. A. The obligation of Buyer to complete Closing under this Agreement is subject to the waiver by Buyer or the fulfillment prior to, or on the Closing Date of each of the following conditions: 1. Sellers' representations and warranties contained in this agreement shall be true in all material respects on the Closing Date as though such representations and warranties were made at such time except that any such representation and warranty made as of a specified date shall have been true in all material respects on and as of such date. 2. The Sellers shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by them prior to or on the Closing Date. 3. Sellers shall have delivered to Buyer a certificate of Sellers executed by the President or any Vice President and the Chief Financial Officer, Treasurer or any Assistant Treasurer and dated as of the Closing Date certifying that the conditions specified in Sections VI.A.1 and VI.A.2 have been satisfied. 4. Sellers shall have delivered to Buyer a favorable opinion of the attorney for Sellers, dated as of the Closing Date and in the form attached as Exhibit VI.A, to the effect that: a. Sellers are duly incorporated and validly existing under the laws of the state where incorporated and are in good
standing in that state; that each of the Sellers has corporate power and authority to own all its property and assets; b. The execution and delivery of this Agreement and the consummation of the purchase and sale have been duly authorized by all necessary corporate action on the part of Sellers. 5. Sellers shall have accrued all benefits arising prior to Closing to employees of the Business up through the Effective Date. 6. No claim, action, suit, investigation or other proceeding shall be pending or threatened before any court or governmental agency which presents a substantial risk of the restraint or prohibition of the transactions contemplated by this Agreement. 7. All governmental filings, approvals and consents shall have been accomplished or obtained that are necessary in order that the transactions contemplated hereby may be accomplished in compliance with law and all waiting periods, including the waiting period under the HSR Act shall have expired without extensions or been earlier terminated, other than any such filings, approvals, consents or waiting periods as are not (in the aggregate) material. B. All obligations of Sellers to complete Closing under this Agreement are subject to the waiver by Sellers or the fulfillment prior to, or on, the Closing Date of each of the following conditions: 1. Buyer's representations and warranties contained in this Agreement shall be true in all material respects on the Closing Date as though such representations and warranties were made at such time except that any such representation and warranty made as of a specified date shall have been true in all material respects on and as of such date. 2. Buyer shall have performed and complied in all
with all agreements and conditions required by this Agreement to be performed or complied with by them prior to or on the Closing Date. 3. Buyer shall have paid the Purchase Price as adjusted pursuant to Section I.F to Sellers on the Closing Date. 4. Buyer shall have delivered to Sellers a favorable opinion of the attorney for Buyer dated as of the Closing Date and in the same form attached hereto as Exhibit VI.B. 5. Buyer shall have delivered to Sellers a certificate of Buyer executed by the President or any Vice President and the Treasurer or Assistant Treasurer of Buyer and dated as of the Closing Date certifying that the conditions specified in Sections VI.B.1 and VI.B.2 have been satisfied. 6. No claim, action, suit, investigation or other proceeding shall be pending or threatened before any court or governmental agency which presents a substantial risk of the restraint or prohibition of the transactions contemplated by this Agreement. 7. All governmental filings, approvals and consents shall have been accomplished or obtained that are necessary in order that the transactions contemplated hereby may be accomplished in compliance with law and all waiting periods, including the waiting period under the HSR Act shall have expired without extension or been earlier terminated, other than any such filings, approvals, consents or waiting periods as are not (in the aggregate) material. VII. Right To Proceed; Closing A. The purchase and sale hereby contemplated shall be consummated and closed (the "Closing") at the offices of counsel to Sellers at 10:00 a.m. local time on Friday, August 11, 1995, or at such time and place as the parties shall agree (the "Closing Date") and is effective as of the close of business on July 31, 1995 (the "Effective Date").
B. On the Effective Date, Sellers shall deliver to Buyer the following: All documents necessary to transfer the Assets to Buyer, including all documents to be attached as Exhibits hereto. 1. The certificate required by Section VI.A.3. 2. The opinion of counsel required by section VI.A.4. 3. Access to all records, and other instruments and documents held by Sellers relating to the Business, or the properties or business of the Business. 4. The Lease Assignments attached as Exhibit VII.B(4) (a), for the sites attached as Exhibit VII.B(4)(b). 5. The Assignment of Contracts attached as Exhibit VII. B(5). C. On the Closing Date, Buyer shall deliver to Sellers the following: 1. The Purchase Price as adjusted pursuant to Section I.F by wire transfer of immediately available funds to an account designated by Seller. 2. The opinion of counsel and certificates referred to in Section VI.B. 3. An Assumption Agreement in the form of Exhibit VII.C. A. Any notices or other circumstances required or permitted hereunder shall be sufficiently given if hand-delivered (by express delivery service or otherwise), sent by certified mail, express mail service or overnight delivery service, postage prepaid, addressed as follows: To Buyer:
c/o National Medical Care, Inc.
or such other address as shall be furnished in writing by either party, and such notice or communication shall be deemed to have been given when delivered if delivered by hand (by express delivery or otherwise), or five days after the date of mailing if mailed prepaid and properly addressed. B. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, heirs, and assigns, provided that this Agreement may not be assigned by either party without the consent of the other party. Any attempted assignment of this Agreement in violation of the provisions of this section is void. C. This Agreement may be amended with respect to any of the terms contained herein only by means of a writing signed by all the parties hereto. D. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. E. This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts. F. In the event that any dispute or controversy arises between
of or relating to this Agreement, a party shall notify the other party in writing of the existence of the dispute or controversy, and the parties shall meet and negotiate in good faith to attempt to resolve the matter. If such efforts do not resolve the dispute or controversy, each party shall appoint an arbitrator of choice from a list of arbitrators recognized by the American Arbitration Association. The appointed arbitrators will appoint a third arbitrator from the list to hear the parties and settle the dispute or controversy. The proceedings shall be governed by the Commercial Rules of the American Arbitration Association then in effect and shall be conducted in Philadelphia, Pennsylvania. The arbitrators shall have no power to award punitive or exemplary damages, to ignore or vary the terms of the Agreement, and shall be bound to apply controlling law. Arbitration shall be binding and the exclusive remedy for the settlement of the dispute or controversy. The party who prevails on entry of the award of judgment shall be entitled to its costs and expenses, including reasonable attorney's fees incurred in connection therewith. G. Whether the transactions contemplated by this Agreement are consummated or fail to be consummated for any reason whatsoever, each of the parties hereto shall pay its own expenses and the fees and expenses of its counsel and accountants and other experts, except as otherwise specifically provided herein. H. If any term, provision, covenant or restriction of this Agreement that is not material to the benefits to be received or obligations to be performed hereunder by either party hereto is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. I. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof and,
Agreement, supersedes all prior and contemporaneous agreements and understandings, oral or written, with respect to such transactions. J. As used in this Agreement, all references to "Seller's knowledge" shall mean the actual knowledge of Stephen Doppelt, David Perocchi, Nancy Pacious, Daniel Burneika, Mark Foley, Michael Sandler, John Mitchell, Daniel Nye, Susan Van Houten and Edward Crouch. All representations and warranties in this Agreement regarding or made by any Seller are made only with respect to time periods during which such Seller was directly or indirectly majority owned by Mediq. K. Any information disclosed in any Exhibit will be considered as disclosed in each of the Exhibits. The disclosure of any matter in the Exhibits should not be construed as indicating that such matter is required to be disclosed in order for any representation or warranty in this Agreement to be true and correct. L. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. All references to Sections or Articles contained herein mean Sections or Articles of this Agreement unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. M. It is understood and agreed that neither the specification of any dollar amount in the representations and warranties contained in this Agreement nor the inclusion of any specific item in the Schedules or Exhibits is intended to imply that such amounts or any higher or lower amount, or the items so included or other items, are or are not material, or are required to be included in the Exhibits, and neither party shall use the fact of the setting of such amounts or the fact of the inclusion of any such item in the Exhibits in any dispute or controversy between the parties as to whether any obligation, item or matter is or is not material or are
included in the Exhibits, for purposes of this Agreement. N. Except as expressly contemplated herein, nothing in this Agreement is intended (i) to confer any right or benefit on any person other than the parties to this Agreement and their respective successors and permitted assigns; or (ii) to modify or discharge the obligation or liability of any third person to any party to this Agreement, and no provision hereof shall give any third person any right of subrogation or action against any party to this Agreement. In no event shall Sellers be liable to third parties other than Buyer's successor, if any, in connection with any aspect of the transactions contemplated by this Agreement, nor shall any third party be or become a beneficiary of such rights, nor shall Buyer act or hold itself out as Sellers' agent in any activity including, but not limited to, dealings with any such third party.
IN WITNESS WHEREOF, this Agreement has been signed by the parties and each of the corporate parties has caused this Agreement to be executed by a duly authorized person, all as of the day first above written.
The performance of all of the covenants, liabilities and obligations of NMC Diagnostics Services, Inc. hereunder are unconditionally and irrevocably guaranteed as surety by National Medical Care, Inc., its parent.
The performance of all of the covenants, liabilities and obligations of Mediq Imaging Services, Inc., American Cardiovascular Imaging Labs, Inc. and Southeastern Diagnostics, Inc. hereunder are unconditionally and irrevocably guaranteed as surety by Mediq Incorporated, its parent and Mediq Incorporated agrees to be bound by the provisions of Section IV.C hereof.
Senior Vice President of Finance
|
10-K405
|
EX-2.4
| 1996-01-12T00:00:00
| 1996-01-12T11:57:13
|
0000950147-96-000014
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0000950147-96-000014_0002.txt
|
PARTIES: Borrower: CH MORTGAGE COMPANY, a Colorado corporation formerly known as American Western Mortgage Company.
Bank: BANK ONE, ARIZONA, NA, a national banking association.
A. Bank has extended to Borrower credit ("Loan") in the principal amount of $25,000,000.00 pursuant to the Amended and Restated Mortgage Warehousing Credit and Security Agreement, dated July 1, 1995 ("Credit Agreement"), and evidenced by the Replacement Revolving Line of Credit Promissory Note, dated July 1, 1995 ("Note"). The unpaid principal of the Loan as of the date hereof is $0.
B. The Loan is secured by, among other things, the collateral described in the Credit Agreement (the agreements, documents, and instruments securing the Loan and the Note are referred to individually and collectively as the "Security Documents") (The Note, the Credit Agreement, the Security Documents, any arbitration resolution, any environmental certification and indemnity agreement, and all other agreements, documents, and instruments evidencing, securing, or otherwise relating to the Loan are sometimes referred to individually and collectively as the "Loan Documents").
D. Borrower has requested that Bank modify the Loan and the Loan Documents as provided herein. Bank is willing to so modify the Loan and the Loan Documents, subject to the terms and conditions herein.
For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Bank agree as follows:
Borrower acknowledges the accuracy of the Recitals.
2. MODIFICATION OF LOAN DOCUMENTS.
2.1 The Loan Documents are modified, effective as of December 1, 1995, as follows:
2.1.1 The definition of Floating Rate, as set forth in Section 1.1 of the Credit Agreement, is hereby deleted
2.1.2 The "Maturity Date", as defined in Section 1.1 of the Credit Agreement, is hereby changed from December 1, 1995 to December 1, 1996.
2.1.3 Section 2.4(d) of the Credit Agreement is hereby amended as follows:
(a) The phrase "Floating Rate" is deleted and the phrase "Prime Rate" is substituted therefor.
(b) The following sentences are hereby added thereto, immediately after the first sentence:
Interest at the Default Rate shall be computed on the basis of a 360 day year and accrue on a daily basis for the actual number of days elapsed. The Default Rate will change on each day that the Prime Rate changes.
2.1.4 Section 2.4(e)(ii) of the Credit Agreement is hereby deleted.
2.1.5 Section 2.4(e)(iii) of the Credit Agreement is hereby deleted.
2.1.6 The following phrase is hereby added at the end of the last sentence of Paragraph 3.7 of the Credit Agreement: "except that Bank shall be responsible to pay the cost of shipping the Collateral Documents from Bank to an Approved Bailee pursuant to the terms of an Approved Bailee Agreement."
2.1.7 Section A(3) of Exhibit A to the Credit Agreement is hereby modified by inserting the phrase "If required by Bank" at the beginning of each of the first two (2) sentences thereof.
2.1.8 Exhibit B to the Credit Agreement is hereby amended in its entirety to mean that document attached hereto as Exhibit B.
2.2 Each of the Loan Documents is modified to provide that it shall be a default or an event of default thereunder if Borrower shall fail to comply with any of the covenants of Borrower herein or if any representation or warranty by Borrower herein or by any guarantor in any related Consent and Agreement of Guarantor(s) is materially incomplete, incorrect, or misleading as of the date hereof.
2.3 Each reference in the Loan Documents to any of the Loan Documents shall be a reference to such document as modified herein.
3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
The Loan Documents are ratified and affirmed by Borrower and shall remain in full force and effect as modified herein. Any property or rights to or interests in property granted as security in the Loan Documents shall remain as security for the Loan and the obligations of Borrower in the Loan Documents.
4. BORROWER REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Bank:
4.1 No default or event of default under any of the Loan Documents as modified herein, nor any event, that, with the giving of notice or the passage of time or both, would be a default or an event of default under the Loan Documents as modified herein has occurred and is continuing.
4.2 There has been no material adverse change in the financial condition of Borrower or any other person whose financial statement has been delivered to Bank in connection with the Loan from the most recent financial statement received by Bank.
4.3 Each and all representations and warranties of Borrower in the Loan Documents are accurate on the date hereof.
4.4 Borrower has no claims, counterclaims, defenses, or set-offs with respect to the Loan or the Loan Documents as modified herein.
4.5 The Loan Documents as modified herein are the legal, valid, and binding obligation of Borrower, enforceable against Borrower in accordance with their terms.
4.6 Borrower is validly existing under the laws of the State of its formation or organization and has the requisite power and authority to execute and deliver this Agreement and to perform the Loan Documents as modified herein. The execution and delivery of this Agreement and the performance of the Loan Documents as modified herein have been duly authorized by all requisite action by or on behalf of Borrower. This Agreement has been duly executed and delivered on behalf of Borrower.
5.1 Borrower shall execute, deliver, and provide to Bank such additional agreements, documents, and instruments as reasonably required by Bank to effectuate the intent of this Agreement.
5.2 Borrower fully, finally, and forever releases and discharges Bank and its successors, assigns, directors, officers, employees, agents, and representatives from any and all actions, causes of action, claims, debts, demands, liabilities, obligations, and suits, of whatever kind or nature, in law or equity of Borrower, whether now known or unknown to Borrower, (i) in respect of the Loan, the Loan Documents, or the actions or omissions of Bank in respect of the Loan or the Loan Documents and (ii) arising from events occurring prior to the date of this Agreement.
5.3 Contemporaneously with the execution and delivery of this Agreement, Borrower has paid to Bank:
5.3.1 All accrued and unpaid interest under the Note and all amounts, other than interest and principal, due and payable by Borrower under the Loan Documents as of the date hereof.
5.3.2 All the internal and external costs and expenses incurred by Bank in connection with this Agreement (including, without limitation, inside and outside attorneys, processing, filing, and recording costs, expenses, and fees).
5.3.3 A Commitment Fee of one-eighth of one percent (.125%) per annum of the Commitment amount (i.e., $31,250.00).
6. EXECUTION AND DELIVERY OF AGREEMENT BY BANK.
Bank shall not be bound by this Agreement until (i) Bank has executed and delivered this Agreement, (ii) Borrower has performed all of the obligations of Borrower under this Agreement to be performed contemporaneously with the execution and delivery of this Agreement, (iii) each guarantor(s) of the Loan, if any, has executed and delivered to Bank a Consent and Agreement of Guarantor(s), and (iv) if required by Bank, Borrower and any guarantor(s) have executed and delivered to Bank an arbitration resolution, an environmental questionnaire, and an environmental certification and indemnity agreement.
7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER.
The Loan Documents as modified herein contain the complete understanding and agreement of Borrower and Bank in respect of the Loan and supersede all prior representations, warranties, agreements, arrangements, understandings, and negotiations. No provision of the Loan Documents as modified herein may be changed, discharged, supplemented, terminated, or waived except in a writing signed by the parties thereto.
The Loan Documents as modified herein shall be binding upon and shall inure to the benefit of Borrower and Bank and their successors and assigns and the executors, legal administrators, personal representatives, heirs, devisees, and beneficiaries of Borrower, provided, however, Borrower may not assign any of its right or delegate any of its obligation under the Loan Documents and any purported assignment or delegation shall be void.
This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona, without giving effect to conflicts of law principles.
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. Signature pages may be detached from the counterparts and attached to a single copy of this Agreement to physically form one document.
DATED as of the date first above stated.
CH MORTGAGE COMPANY, a Colorado corporation formerly known as American
By: /s/ Julie E. Collins
By: /s/ Rhonda R. Williams
|
10-Q
|
EX-10.1
| 1996-01-12T00:00:00
| 1996-01-12T16:40:21
|
0000950168-96-000043
|
0000950168-96-000043_0003.txt
|
If the registered owner of this Note (as indicated below) is The Depository Trust Company (the "Depositary") or a nominee of the Depositary, this Note is a Global Security and the following legend is applicable. THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.1
THIS NOTE IS NOT A SAVINGS ACCOUNT OR A DEPOSIT, IS NOT AN OBLIGATION OF OR GUARANTEED BY ANY BANKING OR NONBANKING AFFILIATE OF THE CORPORATION AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
SERIES E CUSIP 63858S ____
NationsBank Corporation, a corporation duly organized and existing under the laws of the State of North Carolina (herein called the "Corporation," which term includes any successor corporation under the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to ________ or registered assigns, the principal sum of ___________________ DOLLARS on the Stated Maturity Date specified above (except to the extent redeemed or repaid prior to the Stated Maturity Date), and to pay interest on said principal sum, semiannually in arrears on ____________ and __________ of each year (each an "Interest Payment Date"), at the Interest Rate per annum specified above, until payment of such principal sum has been made or duly provided for, commencing on the first Interest Payment Date next succeeding the Original Issue Date specified above, unless the Original Issue Date occurs between a Regular Record Date, as defined below, and the next succeeding Interest Payment Date, in which case commencing on the Interest Payment Date following the next succeeding Regular Record Date, and on the Stated Maturity Date or Final Maturity Date 1 Applies only if this Note is a Global Note.
any Redemption Date as defined on the reverse hereof or any Optional Repayment Date with respect to which any such option has been exercised, each such Stated Maturity Date, Final Maturity Date, Redemption Date and Optional Repayment Date being herein referred to as a "Maturity Date" with respect to the principal payable on such date). Interest on this Note will accrue from the Original Issue Date specified above until the principal amount is paid and will be computed on the basis of a 360-day year of twelve 30-day months. Interest payments will be in the amount of interest accrued from and including the next preceding Interest Payment Date in respect of which interest has been paid or duly provided for or, if no interest has been paid, from the Original Issue Date specified above, to but excluding the Interest Payment Date or Maturity Date, as the case may be. If the Maturity Date or an Interest Payment Date falls on a day which is not a Business Day as defined below, principal or interest payable with respect to such Maturity Date or Interest Payment Date will be paid on the next succeeding Business Day with the same force and effect as if made on such Maturity Date or Interest Payment Date, as the case may be, and no additional interest shall accrue for the period from and after such Maturity Date or Interest Payment Date. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will be paid to the person in whose name this Note (or one or more predecessor Notes evidencing all or a portion of the same debt as this Note) is registered at the close of business on the Regular Record Date, which shall be the __________ or the __________, whether or not a Business Day, as the case may be, next preceding such Interest Payment Date; provided, however, that the first payment of interest on any Note with an Original Issue Date, as specified above, between a Regular Record Date and an Interest Payment Date or on an Interest Payment Date will be made on the Interest Payment Date following the next succeeding Regular Record Date to the person in whose name this Note is registered at the close of business on such next succeeding Regular Record Date; and provided, further, that interest payable on the Maturity Date will be payable to the person to whom the principal hereof shall be payable. Any interest not punctually paid or duly provided for shall be payable as provided in the Indenture. As used herein, "Business Day" means any day, other than a Saturday or Sunday, that is not a day on which banking institutions are generally authorized or obligated by law to close in The City of New York.
The principal of and interest on this Note are payable in immediately available funds in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts at the office or agency of the Corporation designated as provided in the Indenture; provided, however, that interest may be paid, at the option of the Corporation, by check mailed to the person entitled thereto at his address last appearing on the registry books of the Corporation relating to the Notes. Notwithstanding preceding sentence, payments of principal of and interest payable on the Maturity Date will be made by wire transfer of immediately available funds to a designated account maintained in the United States upon (i) receipt of written notice by the Issuing and Paying Agent from the holder hereof not less than one Business Day prior to the due date of such principal and (ii) presentation of this Note to The Bank of New York at 101 Barclay Street, New York, New York 10286 (the "Corporate Trust Office").
Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee or an Authenticating Agent on behalf of the Trustee by manual signature, this Note shall not be entitled to any benefit under such Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Corporation has caused this Instrument to be duly executed, by manual or facsimile signature, under its corporate seal or a facsimile thereof.
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
The Bank of New York, N.A.,
This Medium-Term Note is one of a duly authorized series of Securities of the Corporation unlimited in aggregate principal amount (herein called the "Notes") issued and to be issued under an Indenture dated as of January 1, 1995 (herein called the "Indenture"), between the Corporation and The Bank of New York, as Trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights thereunder of the Corporation, the Trustee and the holders of the Notes, and the terms upon which the Notes are, and are to be, authenticated and delivered. This Note is also one of the Notes designated as the Corporation's Subordinated Medium-Term Notes, Series E (herein called the "Notes"), limited in aggregate principal amount to $1,500,000,000. The Notes may bear different dates, mature at different times, bear interest at different rates and vary in such other ways as are provided in the Indenture.
THE INDEBTEDNESS OF THE CORPORATION EVIDENCED BY THE NOTES, INCLUDING THE PRINCIPAL THEREOF AND INTEREST THEREON, IS, TO THE EXTENT AND IN THE MANNER SET FORTH IN THE INDENTURE, SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO ITS OBLIGATIONS TO HOLDERS OF SENIOR INDEBTEDNESS, AS DEFINED IN THE INDENTURE, AND EACH HOLDER OF THE NOTES, BY THE ACCEPTANCE HEREOF, AGREES TO AND SHALL BE BOUND BY SUCH PROVISIONS OF THE INDENTURE.
This Note is not subject to any sinking fund.
This Note may be subject to repayment at the option of the holder on the Optional Repayment Date(s), if any, indicated on the face hereof. IF NO OPTIONAL REPAYMENT DATES ARE SET FORTH ON THE FACE HEREOF, THIS NOTE MAY NOT BE SO REPAID AT THE OPTION OF THE HOLDER HEREOF PRIOR TO THE STATED MATURITY DATE. On any Optional Repayment Date this Note shall be repayable in whole or in part in increments of $1,000 at the option of the holder hereof at a repayment price equal to 100% of the principal amount to be repaid, together with interest thereon payable to the date of repayment. For this Note to be repaid in whole or in part at the option of the holder hereof, this Note must be received, with the form entitled "Option to Elect Repayment" below duly completed, by the Issuing and Paying Agent at the Corporate Trust Office, or such other address of which the Corporation shall from time to time notify the holders of the Notes, not more than 60 nor less than 30 days prior to an Optional Repayment Date. Exercise of such repayment option by the holder hereof shall be irrevocable.
This Note may be redeemed at the option of the Corporation on any date on and after the Initial Redemption Date, if any, specified on the face hereof (the "Redemption Date"). IF NO INITIAL REDEMPTION DATE IS SET FORTH ON THE FACE HEREOF, THIS NOTE MAY NOT BE REDEEMED AT THE OPTION OF THE CORPORATION PRIOR TO THE STATED MATURITY DATE. On and after the Initial Redemption Date, if any, this Note may be redeemed at any time in whole or from time to time in part in increments of $1,000 at the option of the Corporation at the applicable Redemption Price (as defined below) together with interest thereon payable to the Redemption Date, on notice given not more than 60 nor less than 30 days prior to the Redemption Date. In the event of redemption of this Note in part only, a new Note for the unredeemed portion hereof shall be issued in the name of the holder hereof upon the surrender hereof.
If this Note is redeemable at the option of the Corporation, the "Redemption Price" shall initially be the Initial Redemption Percentage, specified on the face hereof, of the principal amount of this Note to be redeemed and shall decline at each anniversary of the Initial Redemption Date by the Annual Redemption Percentage Reduction, if any, specified on the face hereof, of the principal amount to be redeemed until the Redemption Price is 100% of such principal amount.
If an Event of Default (defined in the Indenture as certain events involving the bankruptcy of the Corporation) shall occur with respect to the Notes, the principal of all the Notes may be declared due and payable in the manner and with the effect provided in the Indenture. There is no right of acceleration provided in the Indenture in case of a default in the payment of interest or the performance of any other covenant by the Corporation.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Corporation and the rights of the holders of the Notes under the Indenture at any time by the Corporation with the consent of the holders of not less than 66 2/3% in aggregate principal amount of the Notes then outstanding and all other Securities then outstanding under the Indenture and affected by such amendment and modification. The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Notes then outstanding and all other Securities then outstanding under the Indenture and affected thereby, on behalf of the holders of all such Securities, to waive compliance by the Corporation with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the holder of this Note shall be conclusive and binding upon such holder and upon all future holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay the principal of and interest on this Note at the time, place and rate, and in the coin or currency, herein prescribed.
No recourse shall be had for the payment of the principal of or the interest on this Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Corporation or any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for issue hereof, expressly waived and released.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note may be registered on the registry books of the Corporation relating to the Notes, upon surrender of this Note for registration of transfer at the office or agency of the Corporation designated by it pursuant to the Indenture, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Corporation and the Trustee duly executed by, the holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Notes are issuable only as registered Notes without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture, and subject to certain limitations therein set forth, Notes are exchangeable for a like aggregate principal amount of Notes of different authorized denominations, as requested by the holder surrendering the same.
No service charge will be made for any such registration of transfer or exchange, but the Corporation may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment for registration of transfer of this Note, the Corporation, the Issuing and Paying Agent and any agent of the Corporation or the Issuing and Paying Agent may treat the entity in whose name this Note is registered as the absolute owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this
Note be overdue, and neither the Corporation, the Issuing and Paying Agent nor any such agent shall be affected by notice to the contrary.
All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
[NOTES ISSUED AND OUTSTANDING PURSUANT TO A BOOK-ENTRY SYSTEM SHALL BE DEEMED TO CONTAIN THE FOLLOWING PARAGRAPH: The Notes are being issued by means of a book-entry system with no physical distribution of certificates to be made except as provided in the Indenture. The book-entry system maintained by The Depository Trust Company ("DTC") will evidence ownership of the Notes, with transfers of ownership effected on the records of DTC and its participants pursuant to rules and procedures established by DTC and its participants. The Corporation will recognize Cede & Co., as nominee of DTC, while the registered Owner of the Notes, as the owner of the Notes for all purposes, including payment of principal and interest, notices and voting. Transfer of principal and interest to participants of DTC will be the responsibility of DTC, and transfer of principal and interest to beneficial owners of the Notes by participants of DTC will be the responsibility of such participants and other nominees of such beneficial owners. So long as the book-entry system is in effect, the selection of any Notes to be redeemed will be determined by DTC pursuant to rules and procedures established by DTC and its participants. The Corporation will not be responsible or liable for such transfers of payments or for maintaining, supervising or reviewing the records maintained by DTC, its participants or persons acting through such participants.]
The following abbreviations, when used in the inscription on the face of the within Note shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM-- as tenants in common TEN ENT-- as tenants by the entireties JT TEN-- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT--..........Custodian........... Under Uniform Gifts to Minors Act .................................
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, the undersigned hereby sell(s),
[PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE, OF ASSIGNEE]
Please Insert Social Security or Other Identifying Number of Assignee: ________________________
the within Note and all rights thereunder, hereby irrevocably constituting and appointing _____________________________________ Attorney to transfer said Note on the books of the Corporation, with full power of substitution in the premises.
NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within Note in every particular, without alteration or enlargement, or any change whatever and must be guaranteed.
The undersigned hereby irrevocably request(s) and instruct(s) the Corporation to repay this Note (or portion hereof specified below) pursuant to its terms at a price equal to the principal amount hereof together with interest to the repayment date, to the undersigned, at _________________________________ (Please print or typewrite name and address of the undersigned)
For this Note to be repaid, the Trustee (or the Paying Agent on behalf of the Trustee) must receive at __________________, or at such other place or places of which the Corporation shall from time to time notify the Holder of this Note, not more than 60 nor less than 30 days prior to an Optional Repayment Date, if any, shown on the face of this Note, this Note with this "Option to Elect Repayment" form duly completed.
If less than the entire principal amount of this Note is to be repaid, specify the portion hereof (which shall be in increments of $1,000) which the Holder elects to have repaid and specify the denomination or denominations (which shall be $__________ or an integral multiple of $l,000 in excess of $__________) of the Notes to be issued to the Holder for the portion of this Note not being repaid (in the absence of any such specification, one such Note will be issued for the portion not being repaid).
NOTICE: The signature on this Option to Elect Repayment must correspond with the name as written Date:________________ upon the face of this Note in every
|
8-K
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EX-4
| 1996-01-12T00:00:00
| 1996-01-12T15:18:58
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0000882377-96-000005
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0000882377-96-000005_0001.txt
|
<DESCRIPTION>POOLING AND SERVICING AGREEMENT SERIES 1995-Q10
Dated as of December 1, 1995
SECTION 1.01. Defined Terms........................................ 2 Certificate Account Deposit Date.................................... 5 Class B Prepayment Percentage....................................... 7 Class R Accrual Amount.............................................. 8
Class SB Accrual Amount............................................. 8 Excess Special Hazard Loss.......................................... 11 Initial Certificate Principal Balance............................... 14
Mortgage Loan Accrued Interest...................................... 15 Mortgage Loan Purchase Agreement.................................... 15 Outstanding Class SB Unpaid Interest Amount......................... 18 Primary Hazard Insurance Policy..................................... 21
Scheduled Principal and Net Recoveries.............................. 24
2.01. Conveyance of Mortgage Loans.......................... 30 2.02. Acceptance of the Trust Fund by the Covenants of the Master Servicer and the 2.04. Representations and Warranties of the 2.05. Issuance of Certificates Evidencing Interests in the Trust Fund............................ 37
3.01. Master Servicer to Act as Master Master Servicer and Sub-Servicers...................... 39 3.04. Liability of the Master Servicer....................... 40 3.05. No Contractual Relationship Between 3.06. Assumption or Termination of Sub- Servicing Agreements by Trustee........................ 41 3.07. Collection of Certain Mortgage Loan 3.09. Collection of Taxes, Assessments and Similar Items; Servicing Accounts...................... 42 3.11. Permitted Withdrawals From the 3.13. Maintenance of Primary Hazard 3.14. Enforcement of Due-on-Sale Clauses; 3.15. Realization Upon Defaulted Mortgage 3.16. Trustee to Cooperate; Release of 3.18. Maintenance of Certain Servicing 3.19. Annual Statement as to Compliance...................... 51 3.20. Annual Independent Public Accountants' 3.21. Access to Certain Documentation........................ 51 3.22. Title, Conservation and Disposition of
3.23. Additional Obligations of the Master 3.24. Additional Obligations of the Depositor................ 55 3.25 Excess Proceeds Account................................ 55
4.01. Certificate Account; Distributions..................... 58 4.02. Statements to Certificateholders....................... 68 4.03. Remittance Reports; Advances by the 4.04. Allocation of Realized Losses.......................... 71 4.05. Information Reports to be Filed by the
5.02. Registration of Transfer and Exchange of 5.03. Mutilated, Destroyed, Lost or Stolen 5.04. Persons Deemed Owners.................................. 81
THE DEPOSITOR AND THE MASTER SERVICER
6.01. Liability of the Depositor and the Master 6.02. Merger, Consolidation or Conversion of the Depositor or the Master Servicer................... 82 6.03. Limitation on Liability of the Depositor, the Master Servicer and Others......................... 82 6.04. Limitation on Resignation of the Master
7.01. Events of Default...................................... 84 7.03. Trustee to Act; Appointment of 7.04. Notification to Certificateholders..................... 87 7.05. Waiver of Events of Default............................ 88
8.01. Duties of Trustee...................................... 89 8.02. Certain Matters Affecting the Trustee.................. 90 8.03. Trustee Not Liable for Certificates or 8.04. Trustee May Own Certificates........................... 92 8.05. Master Servicer to Pay Trustee's Fees.................. 92 8.06. Eligibility Requirements for Trustee................... 92 8.07. Resignation and Removal of the Trustee................. 93 8.09. Merger or Consolidation of Trustee..................... 94 8.10. Appointment of Co-Trustee or Separate
9.01. Termination Upon Repurchase or Liquidation of All Mortgage Loans...................... 96 9.02. Additional Termination Requirements.................... 98
10.02. Prohibited Transactions and Activities.................102 10.03. Master Servicer and Trustee
11.03. Limitation on Rights of Certificate- 11.07. Successors and Assigns; Third Party 11.08. Article and Section Headings...........................106 11.09. Notice to Rating Agencies and
Exhibit A Form of Senior Certificate Exhibit B-1 Form of Class B Certificate Exhibit B-2 Form of Class SB Certificate Exhibit B-3 Form of Class R Certificate Exhibit C Form of Trustee Initial Certification Exhibit D Form of Trustee Final Certification Exhibit F-1 Request for Release Exhibit F-2 Request for Release for Mortgage Loans Paid in Full Exhibit G-1 Form of Investor Representation Letter Exhibit G-2 Form of Transferor Representation Letter Exhibit G-3 Transferor Affidavit and Agreement for Transfers Exhibit G-4 Transferee Affidavit and Agreement for Transfers Exhibit G-5 Form of Investor Representation Letter for Insurance Exhibit H Form of Rule 144A Investment Representation Exhibit I Mortgage Loan Schedule Exhibit J Seller Representations and Warranties Exhibit K Form of Notice Under Section 3.24
This Pooling and Servicing Agreement, dated and effective as of December 1, 1995, among DLJ Mortgage Acceptance Corp., as Depositor (the "Depositor"), Temple-Inland Mortgage Corporation, as Master Servicer (the "Master Servicer"), and Bankers Trust Company, as Trustee (the "Trustee").
The Depositor intends to sell mortgage pass-through certificates (collectively, the "Certificates"), to be issued hereunder in multiple classes, which in the aggregate will evidence the entire beneficial ownership interest in the Mortgage Loans (as defined herein). As provided herein, the Trustee will cause an election to be made to treat the entire segregated pool of assets subject to this Agreement (including the Mortgage Loans) as a real estate mortgage investment conduit (a "REMIC") for federal income tax purposes and such segregated pool of assets will be designated as the "Trust Fund." The Class SA, Class A-1, Class A-2, Class B-1, Class B-2 and Class SB Certificates will be the "regular interests" in the Trust Fund, and the Class R Certificates will be the "residual interests" in the Trust Fund, for purposes of the REMIC Provisions (as defined herein) under federal income tax law.
The following table sets forth the designation, initial Pass-Through Rate, aggregate Initial Certificate Principal Balance (as defined herein), and the approximate initial percentage for each Class of Certificates comprising the certificated interests in the Trust Fund created hereunder.
DESIGNATION TYPE RATE BALANCE PERCENTAGE ----------- ---- ------------ ----------------- ------------- Class SA Senior 1.615% N/A N/A Class A-1 Senior 6.178% $48,812,115.00 83.00% Class A-2 Senior 6.178% $ 5,439,905.00 9.25% Class B-1 Subordinate 6.178% $ 1,911,317.00 3.25% Class B-2 Subordinate 6.178% $ 2,646,440.86 4.50% Class SB Subordinate 1.250% N/A N/A Class R Residual 6.178% $ 0.00 0.00%
As of the Cut-off Date, the Mortgage Loans have an aggregate Stated Principal Balance equal to $58,809,777.86.
In consideration of the mutual agreements herein contained, the Depositor, the Master Servicer and the Trustee agree as follows:
Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the meanings specified in this Article.
"Accretion Termination Date": With respect to the Class SB Certificates, the Distribution Date on which the aggregate Class SB Accrual Amount distributed as principal to the Class A-1 Certificates, the Class A-2 Certificates, the Class B-1 Certificates and the Class B-2 Certificates in reduction of the Certificate Principal Balances thereof on such Distribution Date and all preceding Distribution Dates equals 3.50% times the aggregate Certificate Principal Balance of all Classes of the Certificates as of the Cut-off Date. With respect to the Class R Certificates, the Distribution Date on which the Certificate Principal Balances of the Class B-1 Certificates and Class B-2 Certificates are reduced to zero.
"Accrued Certificate Interest": With respect to each Distribution Date, as to any Class A-1 Certificate, Class A-2 Certificate, Class B-1 Certificate, Class B-2 Certificate or Class R Certificate, one month's interest accrued at the then applicable Pass-Through Rate on the Certificate Principal Balance thereof immediately prior to such Distribution Date. With respect to each Distribution Date, as to the Class SA Certificates and the Class SB Certificates, one month's interest accrued at the then applicable Pass-Through Rate on the Notional Amount immediately prior to such Distribution Date. Accrued Certificate Interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months. In each case Accrued Certificate Interest on any such Class of Certificates will be reduced by the amount of (i) Prepayment Interest Shortfalls, if any, which are not covered by payments by the Master Servicer pursuant to Section 3.23 with respect to such Distribution Date, (ii) the interest portion (adjusted to the Net Mortgage Rate) of Realized Losses (including Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses and Extraordinary Losses) not allocated solely to the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class SB Certificates or the Class R Certificates pursuant to Section 4.04, (iii) the interest portion of Advances previously made with respect to a Mortgage Loan or REO Property which remained unreimbursed following the Cash Liquidation or REO Disposition of such Mortgage Loan or REO Property that were made with respect to delinquencies that ultimately constituted Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses, (iv) any Deferred Interest allocated thereto as described in Section 4.01(h) and (v) any other interest shortfalls not covered by the subordination provided by the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class SB Certificates and the Class R Certificates, including interest that is not collectible from the Mortgagor pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, or similar legislation or regulations as in effect from time to time, with all such reductions allocated among all of the Certificates on a pro rata basis in proportion to their respective amounts of would have resulted absent such reductions. In addition to that portion of the reductions described in the preceding sentence that are allocated to the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class SB Certificates or the Class R Certificates, Accrued Certificate Interest on the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class SB Certificates or the Class R Certificates, as applicable, will be reduced by the interest portion (adjusted to the Net Mortgage Rate) of the portion of Realized Losses that are allocated solely to the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class SB Certificates or the Class R Certificates, as applicable, pursuant to Section 4.04. Furthermore, Accrued Certificate Interest on the Class R Certificates will be further reduced by any payments made to the Certificateholders pursuant to Sections 4.01(b)(xiii), (xiv), (xv) and (xvi).
"Advance": As to any Mortgage Loan, any advance made by the Master Servicer on any Distribution Date pursuant to Section 4.03.
"Agreement": This Pooling and Servicing Agreement and all amendments hereof.
"Anniversary": Each anniversary of December 1, 1995.
"Assignment": An assignment of Mortgage, notice of transfer or equivalent instrument, in recordable form, which is sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect of record the sale of the Mortgage.
"Assignment Agreement": The assignment agreement dated as of the Closing Date, between DLJMCI and the Depositor.
"Available Distribution Amount": With respect to any Distribution Date, an amount equal to (a) the sum of (i) the balance on deposit in the Custodial Account as of the close of business on the related Determination Date and (ii) the aggregate amount of any Advances made, all required transfers pursuant to Section 3.22 and all amounts required to be paid by the Master Servicer pursuant to Sections 3.13 and 3.23 by deposits into the Certificate Account on the immediately preceding Certificate Account Deposit Date, reduced by (b) the sum, as of the close of business on the related Determination Date, of (i) Monthly Payments collected but due during a Due Period subsequent to the Due Period ending on the first day of the month of the related Distribution Date, (ii) all interest or other income earned on deposits in the Custodial Account, (iii) any other amounts reimbursable or payable to the Depositor, the Trustee, the Master Servicer or any Sub-Servicer pursuant to Section 3.11, and (iv) Insurance Proceeds, Liquidation Proceeds, Principal Prepayments, REO Proceeds and the proceeds of Mortgage Loan purchases made pursuant to Section 2.02, 2.04 or 3.22, in each case received or made in the month of such Distribution Date.
"Bankruptcy Amount": As of any date of determination prior to December 1, 1996, an amount, equal to the excess, if any, of (A) $100,000.00 (the initial "Bankruptcy Amount"), over (B) the aggregate amount of Bankruptcy Losses allocated solely to the Class A-2
Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class SB Certificates or the Class R Certificates in accordance with Section 4.04. As of any date of determination on or after December 1, 1996, an amount equal to the excess, if any, of (1) the lesser of (a) the Bankruptcy Amount calculated as of the close of business on the Business Day immediately preceding the most recent Anniversary (for purposes of this definition, the "Relevant Anniversary") and (b) the greater of (i) 0.15% times the aggregate principal balance of the Mortgage Loans as of the Relevant Anniversary; and (ii) $100,000.00 over (2) the aggregate amount of Bankruptcy Losses allocated solely to the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class SB Certificates or the Class R Certificates, in accordance with Section 4.04 since the Relevant Anniversary.
The Bankruptcy Amount may be further reduced by the Depositor (including accelerating the manner in which such coverage is reduced) provided that prior to any such reduction, the Depositor shall obtain written confirmation from the Rating Agency that such reduction shall not adversely affect the then-current rating assigned to the Certificates by the Rating Agency and shall provide a copy of such written confirmation to the Trustee.
"Bankruptcy Code": The Bankruptcy Code of 1978, as amended.
"Bankruptcy Loss": With respect to any Mortgage Loan, a Realized Loss resulting from a Deficient Valuation or Debt Service Reduction.
"Book-Entry Certificate": Any Certificate registered in the name of the Depository or its nominee.
"Business Day": Any day other than a Saturday, a Sunday or a day on which banking institutions in California, New York or Texas (and such other state or states in which the Custodial Account or the Certificate Account are at the time located) or in the city in which the Corporate Trust Office of the Trustee is located are authorized or obligated by law or executive order to close.
"Cash Liquidation": As to any defaulted Mortgage Loan other than a Mortgage Loan as to which an REO Acquisition occurred, the final receipt by or on behalf of the Master Servicer of all Insurance Proceeds, Liquidation Proceeds and other payments or cash recoveries which the Master Servicer reasonably and in good faith expects to be finally recoverable with respect to such Mortgage Loan.
"Certificate": Any Class SA, Class A-1, Class A-2, Class B-1, Class B-2, Class SB or Class R Certificate.
"Certificate Account": The trust account or accounts created and maintained pursuant to Section 4.01, which shall be entitled "Bankers Trust Company, in trust for registered holders of Mortgage Pass-Through Certificates, Series 1995-Q10, and which account or accounts must each be an Eligible Account.
"Certificate Account Deposit Date": As to any Distribution Date, the Business Day prior thereto.
"Certificateholder" or "Holder": The Person in whose name a Certificate is registered in the Certificate Register, except that, neither a Disqualified Organization nor a nonUnited States Person shall be a Holder of a Class R Certificate for any purposes hereof and, solely for the purposes of giving any consent pursuant to this Agreement, any Certificate, other than a Class R Certificate, registered in the name of the Depositor or the Master Servicer or any affiliate thereof shall be deemed not to be outstanding and the Voting Rights to which it is entitled shall not be taken into account in determining whether the requisite percentage of Voting Rights necessary to effect any such consent has been obtained, except as otherwise provided in Section 11.01. The Trustee shall be entitled to rely upon a certification of the Depositor or the Master Servicer in determining if any Certificates are registered in the name of a respective affiliate. All references herein to "Holders" or "Certificateholders" shall reflect the rights of Certificate Owners as they may indirectly exercise such rights through the Depository and participating members thereof, except as otherwise specified herein; provided, however, that the Trustee shall be required to recognize as a "Holder" or "Certificateholder" only the Person in whose name a Certificate is registered in the Certificate Register.
"Certificate Owner": With respect to a Book-Entry Certificate, the Person who is the beneficial owner of such Certificate, as reflected on the books of an indirect participating brokerage firm for which a Depository Participant acts as agent, if any, and otherwise on the books of a Depository Participant, if any, and otherwise on the books of the Depository.
"Certificate Principal Balance": With respect to each Class A-1 Certificate or Class A-2 Certificate, on any date of determination, an amount equal to (i) the Initial Certificate Principal Balance of such Certificate as specified on the face thereof, plus (ii) the Deferred Interest, if any, allocated thereto for each Distribution Date prior to or coinciding with such date of determination in accordance with Section 4.01(h) minus (iii) the sum of (a) the aggregate of all amounts previously distributed with respect to such Certificates (or any predecessor Certificate) and applied to reduce the Certificate Principal Balance thereof pursuant to Section 4.01(b), and (b) the aggregate of all reductions in Certificate Principal Balance deemed to have occurred in connection with Realized Losses which were previously allocated to such Certificate (or any predecessor Certificate) pursuant to Section 4.04; provided, that if the Certificate Principal Balances of the Class B-1 Certificates, the Class B-2 Certificates and the Class R Certificates have been reduced to zero, the Certificate Principal Balance of each Class A-2 Certificate, at any given time, shall thereafter be an amount equal to (i) the Percentage Interest evidenced by such Certificate times (ii) the excess, if any of (a) the then aggregate Stated Principal Balance of the Mortgage Loans (or related REO Properties) over (b) the aggregate Certificate Principal Balance of the Class A-1 Certificates. With respect to each Class B-1 Certificate, on any date of determination, an amount equal to (i) the initial Certificate Principal Balance of such Class B-1 Certificate, as specified on the face thereof, plus (ii) the Deferred Interest, if any, allocated thereto for each Distribution Date prior to or coinciding with such date of determination in accordance with Section 4.01(h) minus (iii) the sum of (a) the aggregate of all amounts previously distributed with respect to such Certificate (or any predecessor Certificate) and applied to reduce the Certificate Principal Balance thereof pursuant to Section 4.01(b), and (b) the aggregate of all reductions in Certificate Principal Balance deemed to have occurred in connection with Realized Losses which were previously allocated to such Certificate (or any predecessor Certificate) pursuant to Section 4.04; provided that if the Certificate Principal Balances of the Class B-2 Certificates and the Class R Certificates have been reduced to zero, the Certificate Principal Balance of each Class B-1 Certificate, at any given time, shall thereafter be an amount equal to (i) the Percentage Interest evidenced by such Certificate times (ii) the excess, if any, of (a) the then aggregate Stated Principal Balance of the Mortgage Loans (or related REO Properties) over (b) the sum of the then aggregate Certificate Principal Balance of all of the Class A-1 Certificates and Class A-2 Certificates. With respect to each Class B-2 Certificate, on any date of determination, an amount equal to (i) the initial Certificate Principal Balance of such Class B-2 Certificate, as specified on the face thereof, plus (ii) the Deferred Interest, if any, allocated thereto for each Distribution Date prior to or coinciding with such date of determination in accordance with Section 4.01(h) minus (iii) the sum of (a) the aggregate of all amounts previously distributed with respect to such Certificate (or any predecessor Certificate) and applied to reduce the Certificate Principal Balance thereof pursuant to Section 4.01(b), and (b) the aggregate of all reductions in Certificate Principal Balance deemed to have occurred in connection with Realized Losses which were previously allocated to such Certificate (or any predecessor Certificate) pursuant to Section 4.04; provided that if the Certificate Principal Balance of the Class R Certificates has been reduced to zero, the Certificate Principal Balance of each Class B-2 Certificate, at any given time, shall thereafter be an amount equal to (i) the Percentage Interest evidenced by such Certificate times (ii) the excess, if any, of (a) the then aggregate Stated Principal Balance of the Mortgage Loans (or related REO Properties) over (b) the sum of the then aggregate Certificate Principal Balance of all of the Class A-1 Certificates, the Class A-2 Certificates and the Class B-1 Certificates. With respect to each Class R Certificate, on any date of determination, an amount equal to the Percentage Interest evidenced thereby multiplied by the excess, if any, of (x) the then aggregate Stated Principal Balance of the Mortgage Loans over (y) the then aggregate Certificate Principal Balances of the Senior Certificates and the Class B Certificates. The Class SA Certificates and Class SB Certificates have no principal balances.
"Certificate Register": The register maintained pursuant to Section 5.02(a).
"Class": Collectively, all of the Certificates bearing the same designation.
"Class A-1 Certificate": Any one of the Class A-1 Certificates executed, authenticated and delivered by the Trustee substantially in the form annexed hereto as Exhibit A, senior with respect to distributions and the allocation of Realized Losses as set forth in Section 4.04, and evidencing an interest designated as a "regular interest" in the Trust Fund for purposes of the REMIC Provisions.
"Class A-1 Percentage": With respect to any Distribution Date, the lesser of 100% and a fraction, expressed as a percentage, the numerator of which
Certificate Principal Balance of the Class A-1 Certificates immediately prior to such Distribution Date and the denominator of which is the aggregate Stated Principal Balance of all of the Mortgage Loans (or related REO Properties) immediately prior to such Distribution Date.
"Class A-2 Certificate": Any one of the Class A-2 Certificates executed, authenticated and delivered by the Trustee substantially in the form annexed hereto as Exhibit A, subordinate to the Class SA Certificates, Class A-1 Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.04, and evidencing an interest designated as a "regular interest" in the Trust Fund for purposes of the REMIC Provisions.
"Class A-2 Percentage": With respect to any Distribution Date, the lesser of 100% and a fraction, expressed as a percentage, the numerator of which is the aggregate Certificate Principal Balance of the Class A-2 Certificates immediately prior to such Distribution Date and the denominator of which is the aggregate Stated Principal Balance of all of the Mortgage Loans (or related REO Properties) immediately prior to such Distribution Date; provided, that if the Certificate Principal Balances of the Class B-1 Certificates, the Class B-2 Certificates and the Class R Certificates are reduced to zero, then thereafter the Class A-2 Percentage as of any date of determination shall be 100% minus the then applicable Class A-1 Percentage.
"Class B Certificate": Any one of the Class B-1 Certificates or the Class B-2 Certificates.
"Class B Percentage": With respect to any Distribution Date, the sum of the Class B-1 Percentage and the Class B-2 Percentage.
"Class B-1 Certificate": Any one of the Class B-1 Certificates executed, authenticated and delivered by the Trustee substantially in the form annexed hereto as Exhibit B-1, subordinate to the Senior Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.04, and evidencing an interest designated as a "regular interest" in the Trust Fund for purposes of the REMIC Provisions.
"Class B-1 Percentage": With respect to any Distribution Date, the lesser of 100% and a fraction, expressed as a percentage, the numerator of which is the aggregate Certificate Principal Balance of the Class B-1 Certificates immediately prior to such Distribution Date and the denominator of which is the aggregate Stated Principal Balance of all of the Mortgage Loans (or related REO Properties) immediately prior to such Distribution Date; provided, that if the Certificate Principal Balance of the Class B-2 Certificates and the Class R Certificates is zero on such Distribution Date, then the Class B-1 Percentage as of such date of determination shall be 100% minus the then applicable Senior Percentage.
"Class B Prepayment Percentage": With respect to any Distribution Date, 100% minus the Senior Prepayment Percentage for such Distribution Date.
"Class B-2 Certificate": Any one of the Class B-2 Certificates executed, authenticated and delivered by the Trustee substantially in the form annexed hereto as Exhibit B-1, subordinate to the Senior Certificates and the Class B-1 Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.04, and evidencing an interest designated as a "regular interest" in the Trust Fund for purposes of the REMIC Provisions.
"Class B-2 Percentage": With respect to any Distribution Date, the lesser of 100% and a fraction, expressed as a percentage, the numerator of which is the aggregate Certificate Principal Balance of the Class B-2 Certificates immediately prior to such Distribution Date and the denominator of which is the aggregate Stated Principal Balance of all of the Mortgage Loans (or related REO Properties) immediately prior to such Distribution Date; provided, that if the Certificate Principal Balance of the Class R Certificates is zero on such Distribution Date, then the Class B-2 Percentage as of such date of determination shall be 100% minus the sum of the then applicable Senior Percentage and the then applicable Class B-1 Percentage.
"Class R Accrual Amount": With respect to each Distribution Date on or before the related Accretion Termination Date, the amount of Accrued Certificate Interest on the Class R Certificates on such Distribution Date, to the extent such interest was not distributed to the Class R Certificates on such Distribution Date in accordance with Section 4.01(d).
"Class R Certificate": Any one of the Class R Certificates, executed, authenticated and delivered hereunder by the Trustee substantially in the form annexed hereto as Exhibit B-3, as further described in the recitals hereto, evidencing an interest designated as a "residual interest" in the Trust Fund for purposes of the REMIC Provisions.
"Class R Percentage": With respect to any Distribution Date, a percentage equal to 100% minus the sum of the then applicable Senior Percentage and the then applicable Class B Percentage.
"Class SA Certificate": Any one of the Class SA Certificates executed, authenticated and delivered by the Trustee substantially in the form annexed hereto as Exhibit A, senior with respect to distributions and to the allocation of Realized Losses as set forth in Section 4.04, and evidencing an interest designated as a "regular interest" in the Trust Fund for purposes of the REMIC Provisions.
"Class SB Accrual Amount": With respect to each Distribution Date on or before the related Accretion Termination Date, the amount of Accrued Certificate Interest on the Class SB Certificates on such Distribution Date, to the extent such interest was not distributed to the Class SB Certificates on such Distribution Date in accordance with Section 4.01(d).
"Class SB Certificate": Any one of the Class SB Certificates executed, authenti- cated and delivered by the Trustee substantially in the form annexed hereto as Exhibit B-2, subordinate to the Senior Certificates and the Class B Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.04, and evidencing an interest designated as a "regular interest" in the Trust Fund for purposes of the REMIC Provisions.
"Closing Date": December 28, 1995.
"Code": The Internal Revenue Code of 1986.
"Collateral Value": The appraised value of a Mortgaged Property based upon the lesser of (i) the appraisal (as reviewed and approved by the Seller) made at the time of the origination of the related Mortgage Loan, or (ii) the sales price of such Mortgaged Property at such time of origination. With respect to a Mortgage Loan the proceeds of which were used to refinance an existing mortgage loan, the appraised (as reviewed and approved by the Seller) value of the Mortgaged Property based upon the appraisal (as reviewed and approved by the Seller) obtained at the time of refinancing.
"Corporate Trust Office": The principal corporate trust office of the Trustee at which at any particular time its corporate trust business related to this Agreement shall be administered, which office at the date of the execution of this Agreement is located at Four Albany Street, New York, New York 10006, Attention: DLJ/Quality 1995-Q10.
"Custodial Account": The custodial account or accounts created and maintained pursuant to Section 3.10 in the name of a depository institution, as custodian for the holders of the Certificates, for the holders of certain other interests in mortgage loans serviced or sold by the Master Servicer and for the Master Servicer, into which the amounts set forth in Section 3.10 shall be deposited directly. Any such account or accounts shall be an Eligible Account.
"Cut-off Date": December 1, 1995.
"Debt Service Reduction": With respect to any Mortgage Loan, a reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of competent jurisdiction in a proceeding under the Bankruptcy Code, except such a reduction constituting a Deficient Valuation or any reduction that results in a permanent forgiveness of principal.
"Deferred Interest": With respect to each GPARM Loan as of any Due Date, the amount, if any, by which the Mortgage Loan Accrued Interest for such Due Date exceeds the Monthly Payment for such Due Date and which amount, pursuant to the terms of the Mortgage Note, is added to the principal balance of such GPARM Loan.
"Deficient Valuation": With respect to any Mortgage Loan, a valuation by a court of competent jurisdiction of the Mortgaged Property in an amount less than the then outstanding indebtedness under the Mortgage Loan, which valuation results from a proceeding initiated by the Mortgagor under the Bankruptcy Code.
"Definitive Certificate": Any definitive, fully registered Certificate.
"Depositor": DLJ Mortgage Acceptance Corp., or its successor in interest.
"Depository": The Depository Trust Company, or any successor Depository hereafter named. The nominee of the initial Depository for purposes of registering those Certificates that are to be Book-Entry Certificates is Cede & Co. The Depository shall at all times be a "clearing corporation" as defined in Section 8-102(3) of the Uniform Commercial Code of the Sate of New York and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
"Determination Date": The 15th day (or if such 15th day is not a Business Day, the Business Day immediately preceding such 15th day) of the month of the related Distribution Date.
"Disqualified Organization": Any of (i) the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing (other than an instrumentality which is a corporation if all of its activities are subject to tax and, except for the FHLMC, a majority of its board of directors is not selected by such governmental unit), (ii) any foreign government, any international organization, or any agency or instrumentality of any of the foregoing, (iii) any organization (other than certain farmers' cooperatives described in Section 521 of the Code) which is exempt from the tax imposed by Chapter 1 of the Code (unless such organization is subject to the tax imposed by Section 511 of the Code on unrelated business taxable income), or rural electric and telephone cooperatives described in Section 1381(a)(2)(C) of the Code and (iv) any other Person so designated by the Trustee based upon an Opinion of Counsel provided to the Trustee that the holding of an ownership interest in a Residual Certificate by such Person may cause the Trust Fund or any Person having an ownership interest in any Class of Certificates (other than such Person) to incur liability for any federal tax imposed under the Code that would not otherwise be imposed but for the transfer of an ownership interest in the Residual Certificate to such Person. The terms "United States", "State" and "international organization" shall have the meanings set forth in Section 7701 of the Code.
"Distribution Date": The 25th day of any month, or if such 25th day is not a Business Day, the Business Day immediately following such 25th day, commencing on January 25, 1996.
"DLJMCI": DLJ Mortgage Capital, Inc., a Delaware corporation.
"Due Date": The first day of the month of the related Distribution Date.
"Due Period": With respect to any Distribution Date, the period commencing on the second day of the month preceding the month of such Distribution Date (or, with respect to the first Due Period, the day following the Cut-off Date) and ending on the related Due Date.
"Duff & Phelps": Duff & Phelps Credit Rating Co. or its successor in interest.
"Eligible Account": An account maintained with a federal or state chartered depository institution (i) the short-term obligations of which are rated by each of the Rating Agencies in its highest rating at the time of any deposit therein, or (ii) insured by the FDIC (to the limits established by such Corporation), the uninsured deposits in which account are otherwise secured such that, as evidenced by an Opinion of Counsel (obtained by the Person requesting that the account be held pursuant to this clause (ii)) delivered to the Trustee prior to the establishment of such account, the Certificateholders will have a claim with respect to the funds in such account and a perfected first priority security interest against any collateral (which shall be limited to Permitted Instruments, each of which shall mature not later than the Business Day immediately preceding the Distribution Date next following the date of investment in such collateral or the Distribution Date if such Permitted Instrument is an obligation of the institution that maintains the Certificate Account or Custodial Account) securing such funds that is superior to claims of any other depositors or general creditors of the depository institution with which such account is maintained or (iii) a trust account or accounts maintained with a federal or state chartered depository institution or trust company with trust powers acting in its fiduciary capacity or (iv) an account or accounts of a depository institution acceptable to the Rating Agencies (as evidenced in writing by the Rating Agencies that use of any such account as the Custodial Account, the Excess Proceeds Account or the Certificate Account will not have an adverse effect on the then-current ratings assigned to the Classes of the Certificates then rated by the Rating Agencies). Eligible Accounts may bear interest.
"Event of Default": One or more of the events described in Section 7.01.
"Excess Bankruptcy Loss": Any Bankruptcy Loss, or portion thereof, which exceeds the then applicable Bankruptcy Amount.
"Excess Fraud Loss": Any Fraud Loss, or portion thereof, which exceeds the then applicable Fraud Loss Amount.
"Excess Proceeds": With respect to each Mortgage Loan as to which an REO Disposition has occurred, the proceeds that are specified as being "Excess Proceeds" in Section 3.22.
"Excess Proceeds Account": The separate account or accounts created and maintained pursuant to Section 3.25, which shall be entitled "Bankers Trust Company, in trust for registered holders of Mortgage Pass-Through Certificates, Series 1995-Q10, Excess Proceeds Account," and which account or accounts shall be an Eligible Account.
"Excess Special Hazard Loss": Any Special Hazard Loss, or portion thereof, that exceeds the then applicable Special Hazard Amount.
"Extraordinary Events": Any of the following conditions with respect to a Mortgaged Property or Mortgage Loan causing or resulting in a loss which causes the liquidation of such Mortgage Loan:
(a) losses which are of a type that would be covered by the fidelity bond and the errors and omissions insurance policy required to be maintained pursuant to Section 3.18, but are in excess of the coverage
(b) nuclear reaction or nuclear radiation or radioactive contamination, all whether controlled or uncontrolled, or remote or be in whole or in part caused by, contributed to or aggravated by a peril covered by the definition of the term "Special Hazard Loss";
(c) hostile or warlike action in time of peace or war, including action in hindering, combatting or defending against an actual, impending
1. by any government or sovereign power, de jure or de facto, or by any authority maintaining or using military, naval or air forces;
2. by military, naval or air forces; or
3. by an agent of any such government, power, authority or
(d) any weapon of war employing atomic fission or radioactive force whether in time of peace or war; or
(e) insurrection, rebellion, revolution, civil war, usurped power or action taken by governmental authority in hindering, combatting or defending against such an occurrence, seizure or destruction under quarantine or customs regulations, confiscation by order of any government or public authority; or risks of contraband or illegal transportation or trade.
"Extraordinary Losses": Any Realized Loss incurred on a Mortgage Loan caused by or resulting from an Extraordinary Event.
"FDIC": Federal Deposit Insurance Corporation or any successor.
"FHLMC": Federal Home Loan Mortgage Corporation or any successor.
"Fixed Strip Rate": 1.300% per annum.
"FNMA": Federal National Mortgage Association or any successor.
"Fraud Loss Amount": With respect to any date of determination after the Cut-off Date an amount equal to: (X) prior to the first Anniversary, an amount equal to 3.00% of the aggregate outstanding principal balance of all of the Mortgage Loans as of the Cut-off Date minus the aggregate amount of Fraud Losses allocated solely to the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class SB Certificates or the Class R Certificates in accordance with Section 4.04 since the Cut-off Date, (Y) from and including the first Anniversary to but not including the second Anniversary, an amount equal to (1) the lesser of (a) the Fraud Loss Amount as of the day immediately preceding the first Anniversary and (b) 2.00% of the aggregate outstanding principal balance of all of the Mortgage Loans as of the first Anniversary minus (2) the Fraud Losses allocated solely to the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class SB Certificates and the Class R Certificates, in accordance with Section 4.04 since the first Anniversary, and (Z) from and including the second Anniversary to but not including the fifth Anniversary, an amount equal to (1) the lesser of (a) the Fraud Loss Amount as of the most recent Anniversary and (b) 1.00% of the aggregate outstanding principal balance of all of the Mortgage Loans, as of the most recent Anniversary minus (2) the Fraud Losses allocated solely to the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class SB Certificates and the Class R Certificates, in accordance with Section 4.04 since the most recent Anniversary. On and after the fifth Anniversary the Fraud Loss Amount shall be zero.
"Fraud Losses": Realized Losses on Mortgage Loans as to which there was fraud in the origination of such Mortgage Loan.
"Funding Date": With respect to each Mortgage Loan, the date on which funds were advanced by or on behalf of the Seller and interest began to accrue thereunder.
"GPARM Loan": Each Mortgage Loan which contains a provision for negative amortization, as indicated on the Mortgage Loan Schedule.
"Gross Margin": With respect to each Mortgage Loan, the fixed rate set forth in the related Mortgage Note to be added to the related Index on each Rate Adjustment Date in accordance with the terms of the related Mortgage Note used to determine the Mortgage Rate for such Mortgage Loan. The Gross Margin as to each Mortgage Loan is set forth on the Mortgage Loan Schedule.
"High Cost Loan": The Mortgage Loans that are subject to special rules, disclosure requirements and other provisions that were added to the Federal Truth in Lending Act by the Home Ownership and Equity Protection Act of 1994.
"Index": With respect to the Mortgage Loans other than the GPARM Loans, the average of the interbank offered rates for six month United States dollar deposits in the London market based on quotations of major banks, as published in the Western Edition of THE WALL STREET JOURNAL, as most recently available as of the date 45 days prior to any Rate Adjustment Date. With respect to the GPARM Loans, the average of the interbank offered rates for one month United States dollar deposits in the London market based on quotations of major banks, as published in the Western Edition of THE WALL STREET JOURNAL, as most recently available as of the date 45 days prior to any Rate Adjustment Date. If either Index is not so published or is otherwise unavailable, the Master Servicer shall select an alternate index for mortgage loans on single family residential properties that is calculated and published or otherwise made available by an independent third party.
"Initial Certificate Principal Balance": With respect to each Class of Certificates, the Certificate Principal Balance of such Class of Certificates as of the Cut-off Date as set forth in the Preliminary Statement hereto.
"Initial Loss Coverage": The sum of (i) the aggregate Initial Certificate Principal Balance of the Class B Certificates and (ii) 3.50% times the aggregate Initial Certificate Principal Balance of all of the Certificates.
"Insurance Policy": With respect to any Mortgage Loan, any insurance policy which is required to be maintained from time to time under this Agreement in respect of such Mortgage Loan.
"Insurance Proceeds": Proceeds paid in respect of the Mortgage Loans pursuant to any Primary Hazard Insurance Policy, any title insurance policy or any other insurance policy covering a Mortgage Loan, to the extent such proceeds are not applied to the restoration of the related Mortgaged Property or released to the Mortgagor in accordance with the procedures that the Master Servicer would follow in servicing mortgage loans held for its own account.
"Late Collections": With respect to any Mortgage Loan, all amounts received during any Due Period, whether as late payments of Monthly Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise, which represent late payments or collections of Monthly Payments due but delinquent for a previous Due Period and not previously recovered.
"Liquidation Proceeds": Amounts (other than Insurance Proceeds) received by the Master Servicer in connection with the taking of an entire Mortgaged Property by exercise of the power of eminent domain or condemnation or in connection with the liquidation of a defaulted Mortgage Loan through trustee's sale, foreclosure sale or otherwise, other than amounts received in respect of any REO Property.
"Loan-to-Value Ratio": As of any date, the fraction, expressed as a percentage, the numerator of which is the current principal balance of the related Mortgage Loan at the date of determination and the denominator of which is the Collateral Value of the related Mortgaged Property.
"Master Servicer": Temple-Inland Mortgage Corporation, or any successor master servicer appointed as herein provided.
"Maximum Rate": With respect to each Mortgage Loan, the amount set forth in the Mortgage Note as the maximum Mortgage Rate thereunder.
"Minimum Rate": With respect to each Mortgage Loan, the amount set forth in the Mortgage Note as the minimum Mortgage Rate thereunder.
"Monthly Payment": With respect to any Mortgage Loan, the scheduled monthly payment of principal and interest on such Mortgage Loan which is payable by a Mortgagor from time to time under the related Mortgage Note as originally executed (after adjustment, if any, for Principal Prepayments and for Deficient Valuations occurring prior to such Due Date, and after any adjustment by reason of any bankruptcy or similar proceeding or any moratorium or similar waiver or grace period).
"Moody's": Moody's Investors Service, Inc. or its successor in interest.
"Mortgage": The mortgage, deed of trust or any other instrument securing the Mortgage Loan.
"Mortgage File": The mortgage documents listed in Section 2.01 pertaining to a particular Mortgage Loan and any additional documents required to be added to the Mortgage File pursuant to this Agreement; provided, that whenever the term "Mortgage File" is used to refer to documents actually received by the Trustee, such term shall not be deemed to include such additional documents required to be added unless they are actually so added.
"Mortgage Loan": Each of the mortgage loans, transferred and assigned to the Trustee pursuant to Section 2.01 or Section 2.03 and from time to time held in the Trust Fund, the Mortgage Loans originally so transferred, assigned and held being identified in the Mortgage Loan Schedule. As used herein, the term "Mortgage Loan" includes the related Mortgage Note and Mortgage.
"Mortgage Loan Accrued Interest": With respect to each GPARM Loan and each Due Date, the aggregate amount of interest accrued at the Mortgage Rate in respect of such GPARM Loan since the preceding Due Date (or in the case of the initial Due Date, since the Cut-off Date) to but not including such Due Date with respect to which the GPARM Loan Accrued Interest is being calculated in accordance with the terms of such GPARM Loan, after giving effect to any previous Principal Prepayments, Deficient Valuation or Debt Service Reduction in respect of such GPARM Loan.
"Mortgage Loan Purchase Agreement": With respect to any Mortgage Loan, the mortgage loan purchase agreements between the Seller and DLJMCI pursuant to sold such Mortgage Loan to DLJMCI and DLJMCI purchased such Mortgage Loan from the Seller.
"Mortgage Loan Schedule": As of any date of determination, the schedule of Mortgage Loans included in the Trust Fund. The initial schedule of Mortgage Loans with accompanying information transferred on the Closing Date to the Trustee as part of the Trust Fund for the Certificates, attached hereto as Exhibit I (and, for purposes of the Trustee's review of the Mortgage Files pursuant to Section 2.02, in computer-readable form as delivered to the Trustee), which list shall set forth the following information with respect to each Mortgage Loan:
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the
(iii) the initial Mortgage Rate;
(v) the original principal balance;
(vi) the first payment date;
(vii) the type of Mortgaged Property;
(viii) the Monthly Payment in effect as of the Cut-off Date;
(ix) the principal balance as of the Cut-off Date;
(xi) the next Rate Adjustment Date;
(xii) the Periodic Rate Cap;
(xiii) the Rate Adjustment Date frequency;
(xiv) the Mortgage Rate as of the Cut-off Date;
(xvi) the purpose of the Mortgage Loan;
(xvii) the Collateral Value of the Mortgaged Property;
(xviii) the original term to maturity;
(xix) whether or not the Mortgage Loan provides for a Principal
(xx) the first Rate Adjustment Date;
(xxi) with respect to each GPARM Loan, the first Payment
(xxii) the Minimum Rate and Maximum Rate;
(xxiii) the paid-through date of the Mortgage Loan;
(xxiv) the credit grade of the Mortgagor;
(xxv) the number of units in the Mortgaged Property;
(xxvi) whether or not the Mortgage Loan is a GPARM Loan;
(xxvii) whether or not the Mortgage Loan is a High Cost Loan; and
(xxviii) the Pool Strip Rate as of the Cut-off Date.
The Mortgage Loan Schedule shall also set forth the total of the amounts described under (ix) above for all of the Mortgage Loans. The Mortgage Loan Schedule may be in the form of more than one schedule, collectively setting forth all of the information required.
"Mortgage Note": The note or other evidence of the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgage Rate": With respect to any Mortgage Loan, the annual rate at which interest accrues on such Mortgage Loan, as adjusted from time to time in accordance with the provisions of the Mortgage Note.
"Mortgaged Property": The underlying property securing a Mortgage Loan.
"Mortgagor": The obligor or obligors on a Mortgage Note.
"Net Mortgage Rate": As to each Mortgage Loan, a per annum rate of interest equal to the Mortgage Rate as in effect from time to time minus the Servicing Fee Rate.
"Nonrecoverable Advance": Any Advance previously made or proposed to be made in respect of a Mortgage Loan which, in the good faith judgment of the Master Servicer, will not or, in the case of a proposed Advance, would not be
Late Collections, Insurance Proceeds, Liquidation Proceeds, REO Proceeds or amounts reimbursable to the Master Servicer pursuant to Section 4.01(b). The determination by the Master Servicer that it has made a Nonrecoverable Advance or that any proposed Advance would constitute a Nonrecoverable Advance, shall be evidenced by an Officers' Certificate delivered to the Depositor and the Trustee.
"Non-United States Person": Any Person other than a United States Person.
"Notional Amount": With respect to the Class SA Certificates and Class SB Certificates, as of any date of determination, the aggregate Stated Principal Balance of all of the Mortgage Loans and related REO Properties immediately prior to such date, except that the initial Notional Amount for the Class SA Certificates and Class SB Certificates shall be rounded down to the nearest dollar increment.
"Officers' Certificate": A certificate signed by the Chairman of the Board, the Vice Chairman of the Board, the President or a vice president and by the Treasurer, the Secretary, or one of the assistant treasurers or assistant secretaries of the Master Servicer or of the Sub-Servicer and delivered to the Depositor and Trustee.
"Opinion of Counsel": A written opinion of counsel, who may be counsel for the Depositor or the Master Servicer, reasonably acceptable to the Trustee; except that any opinion of counsel relating to (a) the qualification of any account required to be maintained pursuant to this Agreement as an Eligible Account, (b) qualification of the Trust Fund as a REMIC, (c) compliance with the REMIC Provisions or (d) resignation of the Master Servicer pursuant to Section 6.04 must be an opinion of counsel who (i) is in fact independent of the Depositor and the Master Servicer, (ii) does not have any direct financial interest or any material indirect financial interest in the Depositor or the Master Servicer or in an affiliate of either and (iii) is not connected with the Depositor or the Master Servicer as an officer, employee, director or person performing similar functions.
"Original Senior Percentage": 92.25%, which is the fraction, expressed as a percentage, the numerator of which is the aggregate Certificate Principal Balance of the Class A-1 Certificates and the Class A-2 Certificates as of the Closing Date and the denominator of which is the aggregate Stated Principal Balance of all of the Mortgage Loans as of the Closing Date.
"OTS": Office of Thrift Supervision or any successor.
"Outstanding Class SB Unpaid Interest Amount": As of any Distribution Date, an amount equal to (i) the aggregate of the Class SB Accrual Amounts for all preceding Distribution Dates minus (ii) the aggregate amount of all previous distributions to the Class SB Certificateholders pursuant to Section 4.01(b)(xxv).
"Outstanding Mortgage Loan": As to any Due Date, a Mortgage Loan (including an REO Property) which was not the subject of a Principal Prepayment or REO Disposition and which was not purchased prior to such Due Date pursuant to Sections 2.02, 2.03 or 2.04.
"Ownership Interest": As to any Certificate, any ownership or security interest in such Certificate, including any interest in such Certificate as the Holder thereof and any other interest therein, whether direct or indirect, legal or beneficial, as owner or as pledgee.
"Pass-Through Rate": With respect to each of the Class A-1 Certificates, the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates and the Class R Certificates, on each Distribution Date, a rate equal to the weighted average, expressed as a percentage, of the excess of the related Net Mortgage Rates over the sum of the Fixed Strip Rates and Pool Strip Rates of all Mortgage Loans included in the Trust Fund as of the Due Date in the month next preceding the month in which such Distribution Date occurs, weighted on the basis of the Stated Principal Balances of such Mortgage Loans, which Stated Principal Balances shall be the Stated Principal Balances of such Mortgage Loans at the close of business on the immediately preceding Distribution Date after giving effect to distributions thereon allocable to principal (or, in the case of the Pass-Through Rate for the initial Distribution Date, at the close of business on the Cut-off Date). With respect to the Class SA Certificates and any Distribution Date, a rate equal to the weighted average, expressed as a percentage, of the Pool Strip Rates of all Mortgage Loans included in the Trust Fund as of the Due Date in the month immediately preceding the month in which such Distribution Date occurs, weighted on the basis of the respective Stated Principal Balances of such Mortgage Loans, which Stated Principal Balances shall be the Stated Principal Balances of such Mortgage Loans at the close of business on the immediately preceding Distribution Date after giving effect to distributions thereon allocable to principal (or, in the case of the Pass-Through Rate for the initial Distribution Date, at the close of business on the Cut-off Date). With respect to the Class SB Certificates, the Fixed Strip Rate.
"Payment Adjustment Date": With respect to each GPARM Loan, the date set forth in the related Mortgage Note on which the Monthly Payment may change and each semi-annual anniversary of such date. The first Payment Adjustment Date as to each GPARM Loan is set forth in the Mortgage Loan Schedule.
"Percentage Interest": With respect to any Certificate (other than a Residual Certificate), the undivided beneficial ownership interest in the related Class evidenced by such Certificate, which as to each such Certificate shall be equal to the initial Certificate Principal Balance (or Notional Amount, as applicable) thereof divided by the aggregate initial Certificate Principal Balance (or Notional Amount, as applicable) of all of the Certificates of the same Class, expressed as a percentage carried to four decimal places. With respect to a Residual Certificate, the interest in distributions to be made with respect to such Class evidenced thereby, expressed as a percentage carried to four decimal places, as stated on the face of such Certificate.
"Periodic Rate Cap": The provision in each Mortgage Note (related to the Mortgage Loans other than the GPARM Loans) that limits permissible increases in the Mortgage Rate on any Rate Adjustment Date to not more than 1.00% or 1.50% above or below the Mortgage Rate in effect immediately prior to such Rate Adjustment Date.
"Permitted Instruments": Any one or more of the following:
(i) direct obligations of, or obligations fully guaranteed as to principal and interest by, the United States or any agency or instrumentality thereof, provided such obligations are backed by the full faith and credit of the United States;
(ii) repurchase obligations (the collateral for which is held by a third party or the Trustee) with respect to any security described in clause (i) above, provided that the long-term unsecured obligations of the party agreeing to repurchase such obligations are at the time rated by each Rating Agency in one of its two highest long-term rating categories;
(iii) certificates of deposit, time deposits, demand deposits and bankers' acceptances of any bank or trust company incorporated under the laws of the United States or any state thereof or the District of Columbia, provided that the short-term commercial paper of such bank or trust company (or, in the case of the principal depository institution in a depository institution holding company, the long-term unsecured debt obligations of the depository institution holding company) at the date of acquisition thereof has been rated by each Rating Agency in its highest short-term
(iv) mutual funds organized under the Investment Company Act of 1940 rated not less than "AAAm" by Standard & Poor's, not less than "P-1" by Moody's and not less than "D-1" by Duff & Phelps, if rated by Duff &
(v) commercial paper (having original maturities of not more than nine months) of any corporation incorporated under the laws of the United States or any state thereof or the District of Columbia which on the date of acquisition has been rated by each Rating Agency in its highest short-term
(vi) any other obligation or security acceptable to each Rating Agency (as certified by a letter from each Rating Agency to the Trustee) in respect of mortgage pass-through certificates rated in one of its two
provided, that no such instrument shall be a Permitted Instrument if such instrument evidences either (a) the right to receive interest only payments with respect to the obligations underlying such instrument or (b) both principal and interest payments derived from obligations underlying such instrument where the principal and interest payments with respect to such instrument provide a yield to maturity exceeding 120% of the yield to maturity at par of such underlying obligation.
"Permitted Transferee": Any transferee of a Class R Certificate other than a Non- United States Person or Disqualified Organization.
"Person": Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
"Pool Strip Rate": With respect to each Mortgage Loan, a fixed percentage equal to the greater of (i) the related Gross Margin minus 4.30% and (ii) 0.00%.
"Prepayment Assumption": A constant prepayment rate ("CPR") of 18% per annum, used solely for determining the rate of accrual of original issue discount, market discount and amortizable premium on the Certificates for federal income tax purposes. A CPR represents an annualized constant assumed rate of prepayment each month of a pool of mortgage loans relative to its then outstanding principal balance for the life of such mortgage loans.
"Prepayment Interest Shortfall": With respect to any Distribution Date, for each Mortgage Loan that was the subject of a partial Principal Prepayment or a Principal Prepayment in full during the related Prepayment Period, an amount equal to the amount of interest that would have accrued at the applicable Net Mortgage Rate on the principal balance of such Mortgage Loan immediately prior to such prepayment, or in the case of a partial Principal Prepayment on the amount of such prepayment, during the period commencing on the date of prepayment, or in the case of a Principal Prepayment in full the date as of which the prepayment is applied, and ending on the last day of the month of prepayment.
"Prepayment Period": As to any Distribution Date, the calendar month preceding the month in which such Distribution Date occurs.
"Primary Hazard Insurance Policy": Each primary hazard insurance policy required to be maintained pursuant to the first or the second paragraph of Section 3.13.
"Principal Prepayment": Any payment of principal made by the Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due Date and which is not accompanied by an amount of interest representing scheduled interest due on any date or dates in any month or months subsequent to the month of prepayment.
"Prospective Losses": As of any Determination Date, an amount equal to the sum of the following: (i) the product of (x) the aggregate Stated Principal Balance of the related Mortgage Loans delinquent from 31 to 60 days, (y) 25% and (z) the Loss Severity Percentage; (ii) the product of (x) the aggregate Stated Principal Balance of the related Mortgage Loans delinquent 61 to 90 days, (y) 50% and (z) the Loss Severity Percentage; and (iii) the product of (x) the aggregate Stated Principal Balance of the related Mortgage Loans delinquent 91 days or more plus the aggregate Stated Principal Balance of any related REO
Loss Severity Percentage. For purposes of calculating Prospective Losses, Mortgage Loans in foreclosure will be categorized based on their respective number of days of delinquency.
"Purchase Price": With respect to any Mortgage Loan (or REO Property) required to be purchased pursuant to Section 2.02 or 2.04 or that the Master Servicer is entitled to repurchase pursuant to Section 3.22, an amount equal to the sum of (i) 100% of the Stated Principal Balance thereof, (ii) unpaid accrued interest (or REO Imputed Interest) at the applicable Net Mortgage Rate on the Stated Principal Balance thereof outstanding during each Due Period that such interest was not paid or advanced, from the date through which interest was last paid by the Mortgagor or advanced and distributed to Certificateholders together with unpaid Servicing Fees from the date through which interest was last paid by the Mortgagor, in each case to the first day of the month in which such Purchase Price is to be distributed, plus (iii) the aggregate of all Advances made in respect thereof that were not previously reimbursed.
"Rate Adjustment Date": With respect to each Mortgage Loan, the date set forth in the related Mortgage Note on which the Mortgage Rate may change and each monthly (with respect to the GPARM Loans) or semi-annual (with respect to the Mortgage Loans other than the GPARM Loans) anniversary of such date. The first Rate Adjustment Date as to each Mortgage Loan is set forth in the Mortgage Loan Schedule.
"Rating Agency": Moody's and Duff & Phelps or their respective successors. If such agency and its successors are no longer in existence, "Rating Agency" shall be such nationally recognized statistical rating agency, or other comparable Person, designated by the Depositor, notice of which designation shall be given to the Trustee and Master Servicer. References herein to the two highest long term debt rating categories of Moody's shall mean "Aa2" or better and references herein to the highest short-term debt rating of Moody's shall mean "Prime - 1" and in the case of any other Rating Agency such references shall mean such rating categories without regard to any plus or minus.
"Realized Loss": With respect to each Mortgage Loan or REO Property as to which a Cash Liquidation or REO Disposition has occurred, an amount (not less than zero) equal to (i) the Stated Principal Balance of the Mortgage Loan as of the date of Cash Liquidation or REO Disposition, plus (ii) interest (and REO Imputed Interest, if any) at the Net Mortgage Rate from the Due Date as to which interest was last paid or advanced to Certificateholders up to the last day of the month in which the Cash Liquidation or REO Disposition occurred on the Stated Principal Balance of such Mortgage Loan outstanding during each Due Period that such interest was not paid or advanced, minus (iii) the proceeds, if any, received during the month in which such Cash Liquidation or REO Disposition occurred, to the extent applied as recoveries of interest at the Net Mortgage Rate and to principal of the Mortgage Loan, net of the portion thereof reimbursable to the Master Servicer or any Sub-Servicer with respect to related Advances not previously reimbursed. With respect to each Mortgage Loan which has become the subject of a Deficient Valuation, the difference between the principal balance of the Mortgage Loan outstanding immediately prior to such Deficient Valuation and the principal balance of the Mortgage
Loan as reduced by the Deficient Valuation. With respect to each Mortgage Loan which has become the subject of a Debt Service Reduction, the amount of such Debt Service Reduction.
"Record Date": The last Business Day of the month immediately preceding the month of the related Distribution Date.
"Regular Certificate": Any of the Certificates other than the Class R Certificates.
"REMIC": A "real estate mortgage investment conduit" within the meaning of Section 860D of the Code.
"REMIC Provisions": Provisions of the federal income tax law relating to real estate mortgage investment conduits, which appear at Sections 860A through 860G of Subchapter M of Chapter 1 of the Code, and related provisions, and proposed, temporary and final regulations and published rulings, notices and announcements promulgated thereunder, as the foregoing may be in effect from time to time.
"REO Acquisition": The acquisition by the Master Servicer on behalf of the Trustee for the benefit of the Certificateholders of any REO Property pursuant to Section 3.15.
"REO Disposition": The final receipt by or on behalf of the Master Servicer of all Insurance Proceeds, Liquidation Proceeds, REO Proceeds and other payments and recoveries (including proceeds of a final sale) which the Master Servicer expects to be finally recoverable from the sale or other disposition of the REO Property.
"REO Imputed Interest": As to any REO Property, for any period, an amount equivalent to interest (at the Mortgage Rate that would have been applicable to the related Mortgage Loan had it been outstanding net, with respect to a GPARM Loan, of amounts that would have been Deferred Interest, if any) on the unpaid principal balance of the Mortgage Loan as of the date of acquisition thereof (as such balance is reduced pursuant to Section 3.15 by any income from the REO Property treated as a recovery of principal and, with respect to a GPARM Loan, as such balance is increased by the addition of Deferred Interest).
"REO Proceeds": Proceeds, net of directly related expenses, received in respect of any REO Property (including, without limitation, proceeds from the rental of the related Mortgaged Property and of any REO Disposition) which proceeds are required to be deposited into the Custodial Account as and when received.
"REO Property": A Mortgaged Property acquired by the Master Servicer through foreclosure or deed-in-lieu of foreclosure in connection with a defaulted Mortgage Loan.
"Request for Release": A release signed by a Servicing Officer, in the form of Exhibits F-1 or F-2 attached hereto.
"Residual Certificate": Any of the Class R Certificates.
"Responsible Officer": When used with respect to the Trustee, the Chairman or Vice Chairman of the Board of Directors or Trustees, the Chairman or Vice Chairman of the Executive or Standing Committee of the Board of Directors or Trustees, the President, the Chairman of the Committee on Trust Matters, any vice president, any assistant vice president, the Secretary, any assistant secretary, the Treasurer, any assistant treasurer, the Cashier, any assistant cashier, any trust officer, any assistant trust officer, the Controller and any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject.
"Rule 144A": Rule 144A under the Securities Act of 1933, as amended, as in effect from time to time.
"Scheduled Principal and Net Recoveries": With respect to any Distribution Date, an amount equal to the aggregate of the following:
(1) the principal portion of each Monthly Payment on the Outstanding Mortgage Loans due on the related Due Date, whether or not received on or prior to the related Determination Date, less the principal portion of related Debt Service Reductions which constitute Excess Bankruptcy Losses;
(2) the Stated Principal Balance of any Mortgage Loan repurchased during the related Prepayment Period; and
(3) the principal portion of all Insurance Proceeds, Liquidation Proceeds and REO Proceeds received during the related Prepayment Period minus the aggregate amount of expenses incurred by the Master Servicer in connection with the liquidation of the related Mortgage Loans to the extent such expenses are not otherwise recoverable from such Insurance Proceeds, Liquidation Proceeds or REO Proceeds; but only to the extent that any such amounts either (A) were not received in connection with a Cash Liquidation or REO Disposition, or (B) were received in connection with a Cash Liquidation or REO Disposition which resulted in an Excess Special Hazard Loss, Excess Bankruptcy Loss, Excess Fraud Loss or Extraordinary Loss.
"Seller": Quality Mortgage USA, Inc., and its successors and assigns.
"Seller's Warranty Certificate": The Seller's Warranty Certificate dated the Closing Date and executed by the Seller with respect to the Mortgage Loans purchased under the Mortgage Loan Purchase Agreement dated April 28, 1995 between the Seller and DLJMCI.
"Senior Certificate": Any of the Class SA Certificates, the Class A-1 Certificates or the Class A-2 Certificates.
"Senior Percentage": With respect to any Distribution Date, the sum of the then applicable Class A-1 Percentage and the then applicable Class A-2 Percentage.
"Senior Prepayment Percentage": The Senior Prepayment Percentage shall equal, with respect to any Distribution Date, the percentage indicated below:
January 2006 through Senior Percentage, plus 70% of December 2006 the difference between 100% and the Senior
January 2007 through Senior Percentage, plus 60% of December 2007 the difference between 100% and the Senior
January 2008 through Senior Percentage, plus 40% of December 2008 the difference between 100% and the Senior
January 2009 through Senior Percentage, plus 20% of December 2009 the difference between 100% and the Senior
January 2010 and Senior Percentage;
provided, however, (i) that any scheduled reduction to the Senior Prepayment Percentage described above shall not occur as of any Distribution Date unless either (a)(1) the outstanding principal balance of Mortgage Loans delinquent 60 days or more (including foreclosure and REO Property) averaged over the last six months, as a percentage of the aggregate outstanding principal balance of all Mortgage Loans averaged over the last six months, does not exceed 2% and (2) Realized Losses on the Mortgage Loans to date for such Distribution Date if occurring during the eleventh, twelfth, thirteenth, fourteenth or fifteenth year (or any year thereafter) after December 1995 are less than 30%, 35%, 40%, 45% and 50%, respectively, of the sum of the Initial Certificate Principal Balances of the Class B-1 Certificates and the Class B-2 Certificates and 3.50% of the initial Certificate Principal Balances of all of the Certificates or (b)(1) the aggregate outstanding principal balance of the Mortgage Loans delinquent 60 days or more (including foreclosure and REO Property) averaged over the last six months, as a percentage of the aggregate outstanding principal balance of all Mortgage Loans averaged over the last six months, does not exceed 4% and (2) Realized Losses on the Mortgage Loans to date are less than 10% of the sum of the Initial Certificate Principal Balances of the Class B-1 Certificates and the Class B-2 Certificates and 3.50% of the initial Certificate Principal Balances of all of the Certificates and (ii) that for any Distribution Date on which the Senior Percentage is greater than the Original Senior Percentage, the Prepayment Percentage for such Distribution Date shall be 100%. Notwithstanding the foregoing, upon the reduction of the aggregate Certificate Principal Balance of the Senior Certificates to zero, the Senior Prepayment Percentage will equal 0%.
"Servicing Account": The account or accounts created and maintained pursuant to Section 3.09.
"Servicing Advances": All customary, reasonable and necessary "out of pocket" costs and expenses incurred in connection with a default, delinquency or other unanticipated event by the Master Servicer in the performance of its servicing obligations, including, but not limited to, the cost of (i) the preservation, restoration and protection of a Mortgaged Property, (ii) any enforcement or judicial proceedings, including foreclosures, (iii) the management and liquidation of any REO Property and (iv) compliance with the obligations under the second paragraph of Section 3.01 and Section 3.09.
"Servicing Fee": As to each Mortgage Loan, an amount, payable out of any payment of interest on the Mortgage Loan, equal to interest at the applicable Servicing Fee Rate on the Stated Principal Balance of such Mortgage Loan for the calendar month preceding the month in which the payment is due (alternatively, in the event such payment of interest accompanies a Principal Prepayment in full made by the Mortgagor, interest for the number of days covered by such payment of interest).
"Servicing Fee Rate": With respect to each Mortgage Loan, the per annum rate of 0.500%.
"Servicing Officer": Any officer of the Master Servicer involved in, or responsible for, the administration and servicing of the Mortgage Loans, whose name and specimen signature appear on a list of servicing officers furnished to the Trustee by the Master Servicer, as such list may from time to time be amended.
"Single Certificate": A Certificate of any Class evidencing an Initial Certificate Principal Balance of $1,000.
"Special Hazard Amount": As of any Distribution Date, an amount equal to $1,223,401.84 (the initial "Special Hazard Amount") minus the sum of (i) the aggregate amount of Special Hazard Losses allocated solely to the Class A-2
Certificates, the Class B-2 Certificates, the Class SB Certificates and the Class R Certificates in accordance with Section 4.04 and (ii) the Adjustment Amount (as defined below) as most recently calculated. For each Anniversary, the Adjustment Amount shall be calculated and shall be equal to the amount, if any, by which the amount calculated in accordance with the preceding sentence (without giving effect to the deduction of the Adjustment Amount for such Anniversary) exceeds the greater of (A) the product of the Special Hazard Percentage for such Anniversary multiplied by the outstanding principal balance of all the Mortgage Loans on such Anniversary and (B) twice the outstanding principal balance of the Mortgage Loan in the Trust Fund which has the largest outstanding principal balance on such Anniversary.
"Special Hazard Loss": Any Realized Loss suffered by a Mortgaged Property on account of direct physical loss, but not including (i) any loss of a type covered by a hazard insurance policy or a flood insurance policy required to be maintained in respect to such Mortgaged Property pursuant to Section 3.13 to the extent of the amount of such loss covered thereby, or (ii) any Extraordinary Loss.
"Special Hazard Percentage": As of each Anniversary, the greater of (i) 1% (or, if greater than 1%, the highest percentage of Mortgage Loans, by principal balance, in any California zip code area) times the aggregate principal balance of all of the Mortgage Loans on such Anniversary and (ii) twice the principal balance of the single Mortgage Loan having the largest principal balance.
"Standard & Poor's": Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc., or its successor in interest.
"Startup Day": The day designated as such pursuant to Article X hereof.
"Stated Principal Balance": With respect to any Mortgage Loan or related REO Property at any given time, (i) the principal balance of the Mortgage Loan outstanding as of the Cut-off Date, after application of principal payments due on or before such date, whether or not received, plus (ii) with respect to a GPARM Loan, any Deferred Interest added to the principal balance of such Mortgage Loan pursuant to the terms of the Mortgage Note, minus (iii) the sum of (a) the principal portion of the Monthly Payments due with respect to such Mortgage Loan or REO Property during each Due Period ending prior to the most recent Distribution Date which were distributed or with respect to which an Advance was distributed, and (b) all Principal Prepayments with respect to such Mortgage Loan or REO Property, and all Insurance Proceeds, Liquidation Proceeds and net income from a REO Property to the extent applied by the Master Servicer as recoveries of principal in accordance with Section 3.15 with respect to such Mortgage Loan or REO Property, which were distributed pursuant to Section 4.01 on any previous Distribution Date, and (c) any Realized Loss with respect thereto allocated pursuant to Section 4.04 for any previous Distribution Date.
"Sub-Servicer": Any Person with which the Master Servicer has entered into a Sub-Servicing Agreement and which meets the qualifications of a Sub-Servicer pursuant to Section 3.02.
"Sub-Servicer Remittance Date": The 18th day of each month, or if such day is not a Business Day, the immediately preceding Business Day.
"Sub-Servicing Account": An account established by a Sub-Servicer which meets the requirements set forth in Section 3.08 and is otherwise acceptable to the Master Servicer.
"Sub-Servicing Agreement": The written contract between the Master Servicer and a Sub-Servicer and any successor Sub-Servicer relating to servicing and administration of certain Mortgage Loans as provided in Section 3.02.
"Tax Returns": The federal income tax return on Internal Revenue Service Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return, including Schedule Q thereto, Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms, to be filed on behalf of the Trust Fund due to its classification as a REMIC under the REMIC Provisions, together with any and all other information, reports or returns that may be required to be furnished to the Certificateholders or filed with the Internal Revenue Service or any other governmental taxing authority under any applicable provisions of federal, state or local tax laws.
"Total Expected Losses": On any Distribution Date, the sum of (a) the aggregate amount of Realized Losses on the Mortgage Loans previously allocated solely to any of the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class R Certificates or the Class SB Certificates and (b) the Prospective Losses as of such Determination Date.
"Transfer": Any direct or indirect transfer, sale, pledge, hypothecation or other form of assignment of any Ownership Interest in a Certificate.
"Transferee": Any Person who is acquiring by Transfer of any Ownership Interest in a Certificate.
"Transferor": Any Person who is disposing by Transfer of any Ownership Interest in a Certificate.
"Trust Fund": The segregated pool of assets subject hereto, constituting the primary trust created hereby and to be administered hereunder, with respect to which a REMIC election is to be made, consisting of: (i) the Mortgage Loans (exclusive of payments of principal and interest due on or before the Cut-off Date, if any) as from time to time are subject to this Agreement and all payments under and proceeds of the Mortgage Loans (exclusive of any prepayment fees and late payment charges received on the Mortgage Loans), together with all documents included in the related Mortgage File, subject to Section 2.01; (ii) such funds or assets as from time to time are deposited in the Custodial Account, the Excess Proceeds Account or the Certificate Account; (iii) any REO Property; (iv) the Primary Hazard Insurance Policies, if any, and all other Insurance Policies with respect to the Mortgage Loans; and (v) the Depositor's interest in respect of the representations and warranties made by the Seller in each Mortgage Loan Purchase Agreement and in the Seller's Warranty Certificate, as assigned to the Trustee pursuant to Section 2.04 hereof.
"Trustee": Bankers Trust Company, or its successor in interest, or any successor trustee appointed as herein provided.
"Uninsured Cause": Any cause of damage to property subject to a Mortgage such that the complete restoration of such property is not fully reimbursable by the hazard insurance policies or flood insurance policies required to be maintained pursuant to Section 3.13.
"United States Person": A citizen or resident of the United States, a corporation, partnership or other entity created or organized in, or under the laws of, the United States or any political subdivision thereof, or an estate or trust whose income from sources without the United States is includible in gross income for United States federal income tax purposes regardless of its connection with the conduct of a trade or business within the United States. The term "United States" shall have the meaning set forth in Section 7701 of the Code or successor provisions.
"Voting Rights": The portion of the voting rights of all of the Certificates which is allocated to any Certificate. At all times during the term of this Agreement, 95% of all of the Voting Rights shall be allocated among Holders of the Class A-1 Certificates, the Class A-2 Certificates, the Class B-1 Certificates and the Class B-2 Certificates in proportion to the initial Certificate Principal Balances of their respective Certificates; and the Holders of the Class SA Certificates, the Class SB Certificates, Class R Certificates shall collectively be entitled to 2%, 2% and 1% respectively, of all of the Voting Rights, allocated among the Certificates of each such Class in accordance with their respective Percentage Interests.
SECTION 2.01. Conveyance of Mortgage Loans.
The Depositor, as of the Closing Date, and concurrently with the execution and delivery hereof, does hereby assign, transfer, sell, set over and otherwise convey to the Trustee without recourse all the right, title and interest of the Depositor in and to the Mortgage Loans identified on the Mortgage Loan Schedule (exclusive of any prepayment fees and late payment charges received thereon) and all other assets included or to be included in the Trust Fund for the benefit of the Certificateholders. Such assignment includes all principal and interest received by the Master Servicer on or with respect to the Mortgage Loans (other than payment of principal and interest due on or before the Cut-off Date).
In connection with such transfer and assignment, the Depositor has requested the Seller pursuant to each Mortgage Loan Purchase Agreement to deliver to, and deposit with the Trustee, as described in the related Mortgage Loan Purchase Agreement, the following documents or instruments:
(i) the original Mortgage Note, endorsed without recourse to the order of "Bankers Trust Company, as trustee" with all intervening endorsements showing a complete chain of endorsements from the originator to the Person endorsing it to the Trustee;
(ii) the original recorded Mortgage or, if the original Mortgage has not been returned from the applicable public recording office, a copy of the Mortgage certified by the Seller to be a true and complete copy of the original Mortgage submitted to the title insurance company for recording;
(iii) a duly executed original Assignment of the Mortgage in recordable form to "Bankers Trust Company, as trustee" or to "Bankers Trust Company, as trustee for the holders of DLJ Mortgage Acceptance Corp.
(iv) the original recorded Assignment or Assignments of the Mortgage showing a complete chain of assignment from the originator thereof to the Person assigning it to the Trustee or, if any such Assignment has not been returned from the applicable public recording office, a copy of such Assignment certified by the Seller to be a true and complete copy of the original Assignment submitted to the title insurance company for recording;
(v) the original lender's title insurance policy, or, if such policy has not been issued and if the Mortgage Loan was funded through a title
to escrow or closing instructions precluding the title insurance company or other comparable escrow or closing agent from funding until it is prepared to issue the required title insurance coverage, a copy of such escrow or
(vi) the original of any assumption, modification, extension or
(vii) the original or a copy of the preliminary title report (or equivalent thereof) on the Mortgage Property;
(viii) if any of the documents or instruments referred to above was executed on behalf of the Mortgagor by another Person, the original power of attorney or other instrument that authorized and empowered such Person to sign, or a copy thereof certified by the Seller (or by an officer of the applicable title insurance or escrow company) to be a true and correct copy
(ix) with respect to any High Cost Loan, the notice to assignees that the Mortgage Loan is subject to special truth in lending rules, to the extent required by applicable law.
The Seller is obligated pursuant to each Mortgage Loan Purchase Agreement to deliver to the Trustee: (a) either the original recorded Mortgage, or in the event such original cannot be delivered by the Seller, a copy of such Mortgage certified as true and complete by the appropriate recording office, in those instances where a copy thereof certified by the Seller was delivered to the Trustee pursuant to clause (ii) above; and (b) either the original Assignment or Assignments of the Mortgage, with evidence of recording thereon, showing a complete chain of assignment from the originator to the Seller, or in the event such original cannot be delivered by the Seller, a copy of such Assignment or Assignments certified as true and complete by the appropriate recording office, in those instances where copies thereof certified by the Seller were delivered to the Trustee pursuant to clause (iv) above. Notwithstanding anything to the contrary contained in this Section 2.01, in those instances where the public recording office retains the original Mortgage after it has been recorded, the Seller shall be deemed to have satisfied its obligations hereunder upon delivery to the Trustee of a copy of such Mortgage certified by the public recording office to be a true and complete copy of the recorded original thereof.
As promptly as practicable after the Closing Date, the Seller shall cause to be delivered to the appropriate public office for recordation in the real property records the Assignment referred to in clause (iii) and to the extent necessary in clause (iv) of this Section 2.01. While such Assignment to be recorded is being recorded, the Trustee shall retain a photocopy of such Assignment. If any Assignment is lost or returned unrecorded to the Trustee because of any defect therein, the Seller is required to prepare a substitute Assignment or cure such defect, as the case may be, and the Trustee shall cause such Assignment to be recorded in accordance with this paragraph.
The Seller is required under each Mortgage Loan Purchase Agreement to exercise its best reasonable efforts to deliver or cause to be delivered to the Trustee within 120 days of the Closing Date, or such other date as is set forth in such Mortgage Loan Purchase Agreement, the original or a photocopy of the title insurance policy with respect to each of the related Mortgage Loan, assigned to the Trustee pursuant to this Section 2.01.
All original documents relating to the Mortgage Loans which are not delivered to the Trustee, to the extent delivered by the Seller to the Master Servicer, are and shall be held by the Master Servicer in trust for the benefit of the Trustee on behalf of the Certificateholders.
Except as may otherwise expressly be provided herein, neither the Depositor, the Master Servicer nor the Trustee shall (and the Master Servicer shall ensure that no Sub-Servicer shall) assign, sell, dispose of or transfer any interest in the Trust Fund or any portion thereof, or permit the Trust Fund or any portion thereof to be subject to any lien, claim, mortgage, security interest, pledge or other encumbrance of, any other Person.
It is intended that the conveyance of the Mortgage Loans by the Depositor to the Trustee as provided in this Section be, and be construed as, a sale of the Mortgage Loans by the Depositor to the Trustee for the benefit of the Certificateholders. It is, further, not intended that such conveyance be deemed a pledge of the Mortgage Loans by the Depositor to the Trustee to secure a debt or other obligation of the Depositor. However, in the event that the Mortgage Loans are held to be property of the Depositor, or if for any reason this Agreement is held or deemed to create a security interest in the Mortgage Loans, then it is intended that, (a) this Agreement shall also be deemed to be a security agreement within the meaning of Articles 8 and 9 of the New York Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction; (b) the conveyance provided for in this Section shall be deemed to be (1) a grant by the Depositor to the Trustee of a security interest in all of the Depositor's right (including the power to convey title thereto), title and interest, whether now owned or hereafter acquired, in and to (A) the Mortgage Loans, including the Mortgage Notes, the Mortgages, any related insurance policies and all other documents in the related Mortgage Files, (B) all amounts payable to the holders of the Mortgage Loans in accordance with the terms thereof and (C) all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including without limitation all amounts from time to time held or invested in the Certificate Account or the Custodial Account, whether in the form of cash, instruments, securities or other property and (2) an assignment by the Depositor to the Trustee of any security interest in any and all of the Seller's right (including the power to convey title thereto), title and interest, whether now owned or hereafter acquired, in and to the property described in the foregoing clauses (1)(A) through (C) granted by the Seller to the Depositor pursuant to the related Mortgage Loan Purchase Agreements or granted by DLJMCI to the Depositor pursuant to the Assignment Agreement; (c) the possession by the Trustee or its agent of Mortgage Notes and such other items of property as constitute instruments, money, negotiable documents or chattel paper shall be deemed to be "possession by the secured party" or possession by a purchaser or a person designated by such secured party, for purposes of perfecting the security interest pursuant to the New York Uniform Commercial Code and the
Uniform Commercial Code of any other applicable jurisdiction (including, without limitation, Sections 9-305, 8-313 or 8-321 thereof); and (d) notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed notifications to, or acknowledgments, receipts or confirmations from, financial intermediaries, bailees or agents (as applicable) of the Trustee for the purpose of perfecting such security interest under applicable law. The Depositor and the Trustee at the Depositor's direction shall, to the extent consistent with this Agreement, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Mortgage Loans, such security interest would be deemed to be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of the Agreement.
SECTION 2.02. Acceptance of the Trust Fund by the Trustee.
The Trustee acknowledges receipt (subject to any exceptions noted in the Initial Certification described below) of the documents referred to in Section 2.01 above and all other assets included in the Trust Fund and declares that it holds and will hold such documents and the other documents delivered to it constituting the Mortgage Files, and that it holds or will hold such other assets included in the Trust Fund (to the extent delivered or assigned to the Trustee), in trust for the exclusive use and benefit of all present and future Certificateholders.
The Trustee agrees, for the benefit of the Certificateholders, to review each Mortgage File on or before the Closing Date to ascertain that all documents required to be delivered to it are in its possession, and the Trustee agrees to execute and deliver to the Depositor and the Master Servicer on the Closing Date an Initial Certification in the form annexed hereto as Exhibit C to the effect that, as to each Mortgage Loan listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any Mortgage Loan specifically identified in such certification as not covered by such certification), (i) all documents required to be delivered to it pursuant to this Agreement with respect to such Mortgage Loan are in its possession, (ii) such documents have been reviewed by it and appear regular on their face and relate to such Mortgage Loan and (iii) based on its examination and only as to the foregoing documents, the information set forth in items (i) - (vi), (x), (xii), (xiii) and (xx) of the definition of the "Mortgage Loan Schedule" accurately reflects information set forth in the Mortgage File. Neither the Trustee nor the Master Servicer shall be under any duty to determine whether any Mortgage File should include any of the documents specified in clause (vi) of Section 2.01. Neither the Trustee nor the Master Servicer shall be under any duty or obligation to inspect, review or examine said documents, instruments, certificates or other papers to determine that the same are genuine, enforceable or appropriate for the represented purpose or that they have actually been recorded or that they are other than what they purport to be on their face.
Within 90 days of the Closing Date the Trustee shall deliver to the Depositor and the Master Servicer a Final Certification in the form annexed hereto as Exhibit D evidencing the completeness of the Mortgage Files, with any applicable exceptions noted thereon.
If in the process of reviewing the Mortgage Files and preparing the certifications referred to above the Trustee finds any document or documents constituting a part of a Mortgage File to be missing or defective in any material respect, the Trustee shall promptly notify the Seller, the Master Servicer and the Depositor. The Trustee shall promptly notify the Seller of such defect and request that the Seller cure any such defect within 60 days from the date on which the Seller was notified of such defect, and if the Seller does not cure such defect in all material respects during such period, request that the Seller purchase such Mortgage Loan from the Trust Fund on behalf of the Certificateholders at the Purchase Price within 90 days after the date on which the Seller was notified of such defect. It is understood and agreed that the obligation of the Seller to cure a material defect in, or purchase any Mortgage Loan as to which a material defect in a constituent document exists shall constitute the sole remedy respecting such defect available to Certificateholders or the Trustee on behalf of Certificateholders. The Purchase Price for the purchased Mortgage Loan shall be deposited or caused to be deposited upon receipt by the Master Servicer in the Custodial Account and, upon receipt by the Trustee of written notification of such deposit signed by a Servicing Officer, the Trustee shall release or cause to be released to the Seller the related Mortgage File and shall execute and deliver such instruments of transfer or assignment, in each case without recourse, as the Seller shall require as necessary to vest in the Seller ownership of any Mortgage Loan released pursuant hereto and at such time the Trustee shall have no further responsibility with respect to the related Mortgage File.
SECTION 2.03. Representations, Warranties and Covenants of the Master Servicer and the Depositor.
(a) The Master Servicer hereby represents and warrants to and covenants with the Depositor and the Trustee for the benefit of Certificateholders that:
(i) The Master Servicer is, and throughout the term hereof shall remain, a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada (except as otherwise permitted pursuant to Section 6.02), the Master Servicer is, and shall remain, in compliance with the laws of each state in which any Mortgaged Property is located to the extent necessary to perform its obligations under this Agreement, and the Master Servicer is, and shall remain, approved to sell mortgage loans to and service mortgage loans for FNMA and FHLMC;
(ii) The execution and delivery of this Agreement by the Master Servicer, and the performance and compliance with the terms of this Agreement by the Master Servicer, will not violate the Master Servicer's charter or bylaws 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 breach of, any material agreement or other instrument to which it is a party or which is applicable to it or any of its assets;
(iii) The Master Servicer has the full power and authority to enter into and consummate all transactions contemplated by this Agreement, has
the execution, delivery and performance of this Agreement, and has duly executed and delivered this Agreement;
(iv) This Agreement, assuming due authorization, execution and delivery by the Depositor and the Trustee, constitutes a valid, legal and binding obligation of the Master Servicer, enforceable against the Master Servicer in accordance with the terms hereof, subject to (A) applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights generally, and (B) general principles of equity, regardless of whether such enforcement is considered in a proceeding in equity or at law;
(v) The Master Servicer is not in violation of, and its execution and delivery of this Agreement and its performance and compliance with the terms of this Agreement will not constitute a violation of, any law, any order or decree of any court or arbiter, or any order, regulation or demand of any federal, state or local governmental or regulatory authority, which violation is likely to affect materially and adversely either the ability of the Master Servicer to perform its obligations under this Agreement or the financial condition of the Master Servicer;
(vi) No litigation is pending or, to the best of the Master Servicer's knowledge, threatened against the Master Servicer which would prohibit its entering into this Agreement or performing its obligations under this Agreement or is likely to affect materially and adversely either the ability of the Master Servicer to perform its obligations under this Agreement or the financial condition of the Master Servicer;
(vii) The Master Servicer will comply in all material respects in the performance of this Agreement with all reasonable rules and requirements of each insurer under each Insurance Policy;
(viii) The execution of this Agreement and the performance of the Master Servicer's obligations hereunder do not require any license, consent or approval of any state or federal court, agency, regulatory authority or other governmental body having jurisdiction over the Master Servicer, other than such as have been obtained; and
(ix) No information, certificate of an officer, statement furnished in writing or report delivered to the Depositor, any affiliate of the Depositor or the Trustee by the Master Servicer will, to the knowledge of the Master Servicer, contain any untrue statement of a material fact or omit a material fact necessary to make the information, certificate, statement or report not misleading.
It is understood and agreed that the representations, warranties and covenants set forth in this Section 2.03(a) shall survive the execution and delivery of this Agreement, and shall inure to the benefit of the Depositor, the Trustee and the Certificateholders. Upon discovery by the Depositor, the Trustee or the Master Servicer of a breach of any of the foregoing representations, warranties and covenants that materially and adversely affects the interests of the Depositor or the Trustee, the party discovering such breach shall give prompt written notice to the other parties.
(b) The Depositor hereby represents and warrants to the Master Servicer and the Trustee for the benefit of Certificateholders that as of the Closing Date (or, if otherwise specified below, as of the date so specified):
(i) Assuming that representation (v) of the Seller set forth in Exhibit J hereto is true and correct, then immediately prior to the assignment of the Mortgage Loans to the Trustee, the Depositor had good title to, and was the sole owner of, each Mortgage Loan free and clear of any pledge, lien, encumbrance or security interest (other than rights to servicing and related compensation) and such assignment validly transfers ownership of the Mortgage Loans to the Trustee free and clear of any pledge, lien, encumbrance or security interest; and
(ii) The representations and warranties of the Seller with respect to the Mortgage Loans and the remedies therefor that are contained in the related Mortgage Loan Purchase Agreements are as set forth in Exhibit J hereto.
It is understood and agreed that the representations and warranties set forth in this Section 2.03(b) shall survive delivery of the respective Mortgage Files to the Trustee.
Upon discovery by either the Depositor, the Master Servicer or the Trustee of a breach of any representation or warranty set forth in this Section 2.03 which materially and adversely affects the interests of the Certificateholders in any Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties.
SECTION 2.04. Representations and Warranties of the Seller.
The Depositor hereby assigns to the Trustee for the benefit of the Certificateholders its interest in respect of the representations and warranties made by the Seller in each Mortgage Loan Purchase Agreement or the exhibits thereto and in the Seller's Warranty Certificate. Insofar as any Mortgage Loan Purchase Agreement or the Seller's Warranty Certificate relates to any such representations and warranties and any remedies provided thereunder for any breach of such representations and warranties, such right, title and interest may be enforced by the Trustee on behalf of the Certificateholders. Upon the discovery by the Depositor, the Master Servicer or the Trustee of a breach of any of the representations and warranties made in any Mortgage Loan Purchase Agreement or the Seller's Warranty Certificate in respect of any Mortgage Loan which are set forth in Exhibit J attached hereto which materially and adversely affects the interests of the Certificateholders in such Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties. The Trustee shall promptly notify the Seller of such breach and request that such Seller shall, within 90 days from the date that the Depositor, the Master Servicer or the Trustee was notified of such breach, either (i) cure such breach in all material respects or (ii) purchase such Mortgage Loan from the Trust Fund at the Purchase Price and in the manner set forth in Section 2.02. Except as expressly set forth herein neither the Trustee nor the Master Servicer is under any obligation to discover any breach of the above mentioned representations and warranties. It is understood and agreed that the obligation of the Seller to cure such breach or purchase such Mortgage Loan as to which such a breach has occurred and is continuing shall constitute the sole remedy respecting such breach available to Certificateholders or the Trustee on behalf of Certificateholders.
SECTION 2.05. Issuance of Certificates Evidencing Interests in the Trust Fund.
The Trustee acknowledges the assignment to it of the Mortgage Loans and the delivery of the Mortgage Files to it together with the assignment to it of all other assets included in the Trust Fund, receipt of which is hereby acknowledged. Concurrently with such delivery and in exchange therefor, the Trustee, pursuant to the written request of the Depositor, executed by an officer of the Depositor, has executed and caused to be authenticated and delivered to, or upon the order of, the Depositor the Certificates in authorized denominations which evidence ownership of the entire Trust Fund.
SECTION 3.01. Master Servicer to Act as Master Servicer.
The Master Servicer shall service and administer the Mortgage Loans in accordance with this Agreement, the related Mortgage Notes and Mortgages and the customary and usual standards of practice of prudent mortgage lenders in the respective states in which the Mortgaged Properties are located, and shall have full power and authority, acting alone and/or through Sub-Servicers as provided in Section 3.02, to do or cause to be done any and all things in connection with such servicing and administration that it may deem necessary or desirable. Without limiting the generality of the foregoing, the Master Servicer in its own name or in the name of a Sub-Servicer is hereby authorized and empowered by the Trustee when the Master Servicer believes it appropriate in its best judgment, to (i) execute and deliver, on behalf of the Certificateholders and the Trustee or any of them, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Mortgage Loans and the Mortgaged Properties, (ii) institute foreclosure proceedings or obtain a deed-in-lieu of foreclosure so as to convert the ownership of such properties, and (iii) hold or cause to be held title to such properties, on behalf of the Trustee and Certificateholders. The Master Servicer shall service and administer the Mortgage Loans in accordance with applicable state and federal law and shall provide to the Mortgagors any reports required to be provided to them thereby. Subject to Section 3.16, the Trustee shall execute based on the written request of the Master Servicer and furnish to the Master Servicer and any Sub-Servicer any special or limited powers of attorney and other documents necessary or appropriate to enable the Master Servicer and any Sub-Servicer to carry out their servicing and administrative duties hereunder. The Trustee shall not be liable for any action taken by the Master Servicer or any Sub-Servicer pursuant to the application of such special or limited powers of attorney.
In accordance with the standards of the preceding paragraph, the Master Servicer shall advance or cause to be advanced funds as necessary for the purpose of effecting the payment of taxes and assessments on the Mortgaged Properties, which advances shall be reimbursable in the first instance from related collections from the Mortgagors pursuant to Section 3.09, and further as provided in Section 3.11. No costs incurred by the Master Servicer or by Sub-Servicers in effecting the payment of taxes and assessments on the Mortgaged Properties shall, for the purpose of calculating distributions to Certificateholders, be added to the amount owing under the related Mortgage Loans, notwithstanding that the terms of such Mortgage Loans so permit.
It is expressly understood and agreed that in light of the underwriting criteria applicable to the Mortgage Loans, special servicing procedures are desirable in order to minimize the delinquency and loss experience of the Mortgage Loans. The Master Servicer hereby covenants that it will use reasonable efforts to prevent and to resolve delinquencies promptly and appropriately in light of the underwriting criteria applicable to the Mortgage Loans and that it will modify its procedures from time to time in accordance with the reasonable written request of the Depositor. Notwithstanding anything in this Agreement to the contrary, the Master Servicer shall not (unless the Mortgagor is in default with respect to the Mortgage Loan or such default is, in the judgment of the Master Servicer, reasonably foreseeable) make or permit any modification, waiver or amendment of any term of any Mortgage Loan that would both (i) effect an exchange or reissuance of such Mortgage Loan under Section 1001 of the Code (or final, temporary or proposed Treasury regulations promulgated thereunder) and cause the Trust Fund to fail to qualify as a REMIC under the Code or (ii) cause the imposition of any tax on "prohibited transactions" or "contributions" after the Startup Day under the REMIC Provisions.
The relationship of the Master Servicer (and of any successor to the Master Servicer under this Agreement) to the Trustee under this Agreement is intended by the parties to be that of an independent contractor and not that of a joint venturer, partner or agent.
SECTION 3.02. Sub-Servicing Agreements Between Master Servicer and Sub-Servicers.
(a) The Master Servicer may enter into Sub-Servicing Agreements with SubServicers for the servicing and administration of the Mortgage Loans and for the performance of any and all other activities of the Master Servicer hereunder. Each Sub-Servicer shall be either (i) an institution the accounts of which are insured by the FDIC or (ii) another entity that engages in the business of originating or servicing mortgage loans, and in either case shall be authorized to transact business in the state or states in which the related Mortgaged Properties it is to service are situated, if and to the extent required by applicable law to enable the SubServicer to perform its obligations hereunder and under the Sub-Servicing Agreement, and in either case shall be a FHLMC or FNMA approved mortgage servicer. Each Sub-Servicing Agreement must impose on the Sub-Servicer requirements conforming to the provisions set forth in Section 3.08 and provide for servicing of the Mortgage Loans consistent with the terms of this Agreement. With the consent of the Trustee, which consent shall not be unreasonably withheld, the Master Servicer and the Sub-Servicers may enter into Sub-Servicing Agreements and make amendments to the Sub-Servicing Agreements or enter into different forms of Sub-Servicing Agreements; provided, however, that any such amendments or different forms shall be consistent with and not violate the provisions of this Agreement, and that no such amendment or different form shall be made or entered into which could be reasonably expected to be materially adverse to the interests of the Certificateholders, without the consent of the Holders of Certificates entitled to at least 51% of the Voting Rights.
(b) As part of its servicing activities hereunder, the Master Servicer, for the benefit of the Trustee and the Certificateholders, shall enforce the obligations of each SubServicer under the related Sub-Servicing Agreement, including, without limitation, any obligation to make advances in respect of delinquent payments as required by a Sub-Servicing Agreement.
Such enforcement, including, without limitation, the legal prosecution of claims, termination of Sub-Servicing Agreements and the pursuit of other appropriate remedies, shall be in such form and carried out to such an extent and at such time as the Master Servicer, in its good faith business judgment, would require were it the owner of the related Mortgage Loans. The Master Servicer shall pay the costs of such enforcement at its own expense, but shall be reimbursed therefor only (i) from a general recovery resulting from such enforcement only to the extent, if any, that such recovery exceeds all amounts due in respect of the related Mortgage Loans or (ii) from a specific recovery of costs, expenses or attorneys' fees against the party against whom such enforcement is directed.
The Master Servicer shall be entitled to terminate any Sub-Servicing Agreement and the rights and obligations of any Sub-Servicer pursuant to any Sub-Servicing Agreement in accordance with the terms and conditions of such Sub-Servicing Agreement. In the event of termination of any Sub-Servicer, all servicing obligations of such Sub-Servicer shall be assumed simultaneously by the Master Servicer without any act or deed on the part of such Sub-Servicer or the Master Servicer, and the Master Servicer either shall service directly the related Mortgage Loans or shall enter into a Sub-Servicing Agreement with a successor Sub-Servicer which qualifies under Section 3.02. Each Sub-Servicing Agreement, if any, shall include the provision that such agreement may be immediately terminated by any successor Master Servicer without cause and without payment of any fee or penalty in the event that the Master Servicer shall, for any reason, no longer be the Master Servicer (including by reason of an Event of Default).
Any Sub-Servicing Agreement entered into by the Master Servicer shall include the provision that such agreement may be immediately terminated without cause and without any termination fee by any successor Master Servicer hereunder.
SECTION 3.04. Liability of the Master Servicer.
Notwithstanding any Sub-Servicing Agreement, any of the provisions of this Agreement relating to agreements or arrangements between the Master Servicer and a SubServicer or reference to actions taken through a Sub-Servicer or otherwise, the Master Servicer shall remain obligated and primarily liable to the Trustee and Certificateholders for the servicing and administering of the Mortgage Loans in accordance with the provisions of Section 3.01 without diminution of such obligation or liability by virtue of such Sub-Servicing Agreements or arrangements or by virtue of indemnification from the Sub-Servicer and to the same extent and under the same terms and conditions as if the Master Servicer alone were servicing and administering the Mortgage Loans. For purposes of this Agreement, the Master Servicer shall be deemed to have received payments on Mortgage Loans when the Sub-Servicer has received such payments. The Master Servicer shall be entitled to enter into any agreement with a SubServicer for indemnification of the Master Servicer by such Sub-Servicer and nothing contained in this Agreement shall be deemed to limit or modify such indemnification.
SECTION 3.05. No Contractual Relationship Between Sub-Servicers and Trustee or Certificateholders.
Any Sub-Servicing Agreement that may be entered into and any transactions or services relating to the Mortgage Loans involving a Sub-Servicer in its capacity as such and not as an originator shall be deemed to be between the Sub-Servicer and the Master Servicer alone, and the Trustee and Certificateholders shall not be deemed parties thereto and shall have no claims, rights, obligations, duties or liabilities with respect to the Sub-Servicer except as set forth in Section 3.06.
SECTION 3.06. Assumption or Termination of Sub-Servicing Agreements by Trustee.
In the event the Master Servicer shall for any reason no longer be the master servicer (including by reason of an Event of Default), the Trustee or its designee shall thereupon assume all of the rights and obligations of the Master Servicer under each Sub-Servicing Agreement that the Master Servicer may have entered into, unless the Trustee is then permitted and elects to terminate any Sub-Servicing Agreement in accordance with its terms. Subject to Section 3.03, the Trustee, its designee or the successor servicer for the Trustee shall be deemed to have assumed all of the Master Servicer's interest therein and to have replaced the Master Servicer as a party to each Sub-Servicing Agreement to the same extent as if the Sub-Servicing Agreements had been assigned to the assuming party, except that the Master Servicer shall not thereby be relieved of any liability or obligations under the Sub-Servicing Agreements, and the Master Servicer shall continue to be entitled to any rights or benefits which arose prior to its termination as master servicer.
The Master Servicer at its expense shall, upon request of the Trustee, deliver to the assuming party all documents and records relating to each Sub-Servicing Agreement and the Mortgage Loans then being serviced and an accounting of amounts collected and held by it and otherwise use its best efforts to effect the orderly and efficient transfer of the Sub-Servicing Agreements to the assuming party.
SECTION 3.07. Collection of Certain Mortgage Loan Payments.
The Master Servicer shall make reasonable efforts to collect all payments called for under the terms and provisions of the Mortgage Loans, and shall, to the extent such procedures shall be consistent with this Agreement and the terms and provisions of any related Insurance Policy, follow such collection procedures as it would follow with respect to mortgage loans comparable to the Mortgage Loans and held for its own account. The Master Servicer shall not be required to institute or join in litigation with respect to collection of any payment (whether under a Mortgage, Mortgage Note, Primary Hazard Insurance Policy or otherwise or against any public or governmental authority with respect to a taking or condemnation) if it reasonably believes that it is prohibited by applicable law from enforcing the provision of the Mortgage or other instrument pursuant to which such payment is required. Notwithstanding the foregoing, the Master Servicer may not waive any late payment charge or any prepayment charge or penalty interest in connection with the prepayment of a Mortgage Loan without the express written consent of the Seller, except as otherwise required under applicable law. The Master Servicer shall be responsible for preparing and distributing all information statements relating to payments on the Mortgage Loans, in accordance with all applicable federal and state tax laws and regulations.
In those cases where a Sub-Servicer is servicing a Mortgage Loan pursuant to a Sub-Servicing Agreement, the Sub-Servicer will be required to establish and maintain one or more accounts (collectively, the "Sub-Servicing Account"). The Sub-Servicing Account shall be an Eligible Account and shall otherwise be acceptable to the Master Servicer. All amounts held in a Sub-Servicing Account shall be held in trust for the Trustee for the benefit of the Certificateholders. The Sub-Servicer will be required to deposit into the Sub-Servicing Account no later than the first Business Day after receipt all proceeds of Mortgage Loans received by the Sub-Servicer, less its servicing compensation and any unreimbursed expenses and advances, to the extent permitted by the Sub-Servicing Agreement. On each Sub-Servicer Remittance Date the Sub-Servicer will be required to remit to the Master Servicer all funds held in the SubServicing Account with respect to any Mortgage Loan as of the Sub-Servicer Remittance Date, after deducting from such remittance an amount equal to the servicing compensation and unreimbursed expenses and advances to which it is then entitled pursuant to the related SubServicing Agreement, to the extent not previously paid to or retained by it. In addition, on each Sub-Servicer Remittance Date the Sub-Servicer will be required to remit to the Master Servicer any amounts required to be advanced pursuant to the related Sub-Servicing Agreement. The Sub-Servicer will also be required to remit to the Master Servicer, within one Business Day of receipt, the proceeds of any Principal Prepayment made by the Mortgagor and any Insurance Proceeds or Liquidation Proceeds.
SECTION 3.09. Collection of Taxes, Assessments and Similar Items; Servicing Accounts.
The Master Servicer and the Sub-Servicers shall establish and maintain one or more accounts (the "Servicing Accounts"), and shall deposit and retain therein all collections from the Mortgagors (or related advances from Sub-Servicers) for the payment of taxes, assessments, Primary Hazard Insurance Policy premiums, and comparable items for the account of the Mortgagors, to the extent that the Master Servicer customarily escrows for such amounts. Withdrawals of amounts so collected from a Servicing Account may be made only to (i) effect payment of taxes, assessments, Primary Hazard Insurance Policy premiums and comparable items; (ii) reimburse the Master Servicer (or a Sub-Servicer to the extent provided in the related Sub-Servicing Agreement) out of related collections for any payments made pursuant to Sections 3.01 (with respect to taxes and assessments), and 3.13 (with respect to Primary Hazard Insurance Policies); (iii) refund to Mortgagors any sums as may be determined to be overages; or (iv) clear and terminate the Servicing Account at the termination of this Agreement pursuant to Section 9.01. As part of its servicing duties, the Master Servicer or Sub-Servicers shall, if and to the extent required by law, pay to the Mortgagors interest on funds in Servicing Accounts from its or their own funds, without any reimbursement therefor.
(a) The Master Servicer shall establish and maintain one or more accounts (collectively, the "Custodial Account") in which the Master Servicer shall deposit or cause to be deposited on a daily basis, or as and when received from the Sub-Servicers, the following payments and collections received or made by or on behalf of it subsequent to the Cut-off Date, or received by it prior to the Cut-off Date but allocable to a period subsequent thereto (other than in respect of principal and interest on the Mortgage Loans due on or before the Cut-off Date):
(i) all payments on account of principal, including Principal Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, exclusive of any portion thereof representing interest in excess of the
(iii) all Insurance Proceeds, other than proceeds that represent reimbursement of costs and expenses incurred by the Master Servicer in connection with presenting claims under the related Insurance Policies, Liquidation Proceeds and REO Proceeds;
(iv) all proceeds of any Mortgage Loan or REO Property repurchased or purchased in accordance with Sections 2.02, 2.04, 3.22 or 9.01;
(v) any amounts required to be deposited pursuant to Sections 3.12 or
(vi) all amounts transferred from the Certificate Account to the Custodial Account in accordance with Section 4.01(b).
The foregoing requirements for deposit in the Custodial Account shall be exclusive. In the event the Master Servicer shall deposit in the Custodial Account any amount not required to be deposited therein, it may withdraw such amount from the Custodial Account, any provision herein to the contrary notwithstanding. The Custodial Account shall be maintained as a segregated account, separate and apart from trust funds created for mortgage pass-through certificates of other series, and the other accounts of the Master Servicer.
(b) Funds in the Custodial Account may be invested in Permitted Instruments in accordance with the provisions set forth in Section 3.12. The Master Servicer shall give notice to the Trustee and the Depositor of the location of the Custodial Account after any change thereof.
(c) Payments in the nature of prepayment fees and late payment charges received on the Mortgage Loans shall not be deposited in the Custodial Account, but rather shall be received and held by the Master Servicer solely for the benefit of and at the direction of the Seller. Upon receipt, such amounts shall be deposited by the Master Servicer into a separate account meeting the requirements for an Eligible Account, and such amounts shall be distributed by the Master Servicer to the Seller on a monthly basis. Such amounts shall not be applied or made available by the Master Servicer for any other purpose.
SECTION 3.11. Permitted Withdrawals From the Custodial Account.
The Master Servicer may, from time to time as provided herein, make withdrawals from the Custodial Account of amounts on deposit therein pursuant to Section 3.10 that are attributable to the Mortgage Loans for the following purposes:
(i) to make deposits into the Certificate Account in the amounts and in the manner provided for in Section 4.01;
(ii) to pay to itself, the Depositor, the Seller or any other appropriate person, as the case may be, with respect to each Mortgage Loan that has previously been purchased or repurchased pursuant to Sections 2.02, 2.04 or 9.01 all amounts received thereon and not yet distributed as of the date of purchase or repurchase;
(iii) to reimburse itself or any Sub-Servicer for Advances not previously reimbursed, the Master Servicer's or any Sub-Servicer's right to reimbursement pursuant to this clause (iii) being limited to amounts received which represent Late Collections (net of the Servicing Fees) of Monthly Payments on Mortgage Loans or REO Property with respect to which such Advances were made and as further provided in Section 3.15;
(iv) to reimburse itself, the Trustee or the Depositor for expenses incurred by or reimbursable to the Master Servicer, the Trustee or the Depositor pursuant to Sections 3.22, 6.03 or 10.01(c), except as otherwise provided in such Sections;
(v) to reimburse itself or any Sub-Servicer for costs and expenses incurred by or reimbursable to it relating to the prosecution of any claims pursuant to Section 3.13 that are in excess of the amounts so
(vi) to reimburse itself or any Sub-Servicer for unpaid Servicing Fees and unreimbursed Servicing Advances, the Master Servicer's or any Sub-Servicer's right to reimbursement pursuant to this clause (vi) with respect to any Mortgage Loan being limited to late recoveries of the payments for which such advances were made pursuant to Section 3.01 or Section 3.09 and any other related Late Collections;
(vii) to pay itself as servicing compensation (in addition to the Servicing Fee), on or after each Distribution Date, any interest or investment income earned on funds deposited in the Custodial Account for the period ending on such Distribution Date, subject to Section 8.05;
(viii) to reimburse itself or any Sub-Servicer for any Advance previously made which the Master Servicer has determined to be a Nonrecoverable Advance, provided that either (a) such Advance was made with respect to a delinquency that ultimately constituted an Excess Special Hazard Loss, Excess Fraud Loss, Excess Bankruptcy Loss or Extraordinary Loss or (b) the Certificate Principal Balances of the Class A-2, Class B-1, Class B-2 and Class R Certificates have been reduced to zero; and
(ix) to clear and terminate the Custodial Account at the termination of this Agreement pursuant to Section 9.01.
The Master Servicer shall keep and maintain separate accounting records on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any withdrawal from the Custodial Account pursuant to such clauses (ii), (iii), (iv), (vi), (vii) and (viii).
In connection with clause (viii) above, the Trustee shall notify the Master Servicer if and when the Certificate Principal Balances of the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates or the Class R Certificates have been reduced to zero.
Any institution maintaining the Custodial Account shall at the direction of the Master Servicer invest the funds in such account in Permitted Instruments, each of which shall mature not later than the Business Day immediately preceding the Certificate Account Deposit Date next following the date of such investment (except that if such Permitted Instrument is an obligation of the institution that maintains such account, then such Permitted Instrument shall mature not later than such Certificate Account Deposit Date) and shall not be sold or disposed of prior to its maturity. All income and gain realized from any such investment as well as any interest earned on deposits in the Custodial Account shall be for the benefit of the Master Servicer. The Master Servicer shall deposit in the Custodial Account (with respect to investments made hereunder of funds held therein) an amount equal to the amount of any loss incurred in respect of any such investment immediately upon realization of such loss without right of reimbursement.
SECTION 3.13. Maintenance of Primary Hazard Insurance.
(a) The Master Servicer shall cause to be maintained for each Mortgage Loan primary hazard insurance with extended coverage on the related Mortgaged Property in an amount equal to the replacement value of the improvements, as determined by the insurance company, on such Mortgaged Property. The Master Servicer shall also cause to be maintained on property acquired upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire insurance with extended coverage in an amount equal to the replacement value of the improvements thereon. Pursuant to Section 3.10, any amounts collected by the Master Servicer under any such policies (other than amounts to be applied to the restoration or repair of the related Mortgaged Property or property thus acquired or amounts released to the Mortgagor in accordance with the Master Servicer's normal servicing procedures) shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.11. Any cost incurred by the Master Servicer in maintaining any such insurance shall not, for the purpose of calculating monthly distributions to Certificateholders, be added to the amount owing under the Mortgage Loan, notwithstanding that the terms of the Mortgage Loan so permit. It is understood and agreed that no earthquake or other additional insurance is to be required of any Mortgagor or maintained on property acquired in respect of a Mortgage Loan other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. When the improvements securing a Mortgage Loan are located at any time during the life of such Mortgage Loan in a federally designated special flood hazard area, the Master Servicer shall cause flood insurance (to the extent available) to be maintained in respect thereof. Such flood insurance shall be in an amount equal to the lesser of (i) the replacement value of the improvements, which are part of such Mortgaged Property on a replacement cost basis and (ii) the maximum amount of such insurance available for the related Mortgaged Property under the national flood insurance program (assuming that the area in which such Mortgaged Property is located is participating in such program).
In the event that the Master Servicer shall obtain and maintain a blanket fire insurance policy with extended coverage insuring against hazard losses on all of the Mortgage Loans, it shall conclusively be deemed to have satisfied its obligations as set forth in the first two sentences of this Section 3.13, it being understood and agreed that such policy may contain a deductible clause, in which case the Master Servicer shall, in the event that there shall not have been maintained on the related Mortgaged Property a policy complying with the first two sentences of this Section 3.13 and there shall have been a loss which would have been covered by such policy, deposit in the Certificate Account the amount not otherwise payable under the blanket policy because of such deductible clause. Any such deposit by the Master Servicer shall be made on the Certificate Account Deposit Date next preceding the Distribution Date which occurs in the month following the month in which payments under any such policy would have been deposited in the Custodial Account. In connection with its activities as administrator and servicer of the Mortgage Loans, the Master Servicer agrees to present, on behalf of itself, the Trustee and Certificateholders, claims under any such blanket policy.
SECTION 3.14. Enforcement of Due-on-Sale Clauses; Assumption Agreements.
The Master Servicer will, to the extent it has knowledge of any conveyance or prospective conveyance by any Mortgagor of the Mortgaged Property (whether by absolute conveyance or by contract of sale, and whether or not the Mortgagor remains or is to remain liable under the Mortgage Note or the Mortgage), exercise or cause to be exercised its rights to accelerate the maturity of such Mortgage Loan under any "due-on-sale" clause applicable thereto; provided, however, that the Master Servicer shall not exercise any such rights if it reasonably believes that it is prohibited by law from doing so. If the Master Servicer is unable to enforce such "due-on-sale" clause (as provided in the previous sentence) or if no "due-on-sale" clause is applicable, the Master Servicer or the Sub-Servicer will enter into an assumption and modification agreement with the Person to whom such property has been conveyed or is proposed to be conveyed, pursuant to which such Person becomes liable under the Mortgage Note and, to the extent permitted by applicable state law, the Mortgagor remains liable thereon. The Master Servicer is also authorized to enter into a substitution of liability agreement with such Person, pursuant to which the original Mortgagor is released from liability and such Person is substituted as the Mortgagor and becomes liable under the Mortgage Note. Any fee collected by or on behalf of the Master Servicer for entering into an assumption or substitution of liability agreement will be retained by or on behalf of the Master Servicer as additional servicing compensation. In connection with any such assumption, no material term of the Mortgage Note (including but not limited to the Mortgage Rate, the amount of the Monthly Payment, the Maximum Rate, the Minimum Rate, the Gross Margin, the Periodic Rate Cap and any other term affecting the amount or timing of payment on the Mortgage Loan) may be changed. The Master Servicer shall not enter into any substitution or assumption if such substitution or assumption shall (i) constitute a "significant modification" effecting an exchange or reissuance of such Mortgage Loan under the Code (or final, temporary or proposed Treasury Regulations promulgated thereunder) and cause the Trust Fund to fail to qualify as a REMIC under the REMIC Provisions or (ii) cause the imposition of any tax on "prohibited transactions" or "contributions" after the Startup Day under the REMIC provisions. The Master Servicer shall notify the Trustee that any such substitution or assumption agreement has been completed by forwarding to the Trustee the original copy of such substitution or assumption agreement, which copy shall be added to the related Mortgage File and shall, for all purposes, be considered a part of such Mortgage File to the same extent as all other documents and instruments constituting a part thereof.
Notwithstanding the foregoing paragraph or any other provision of this Agreement, the Master Servicer shall not be deemed to be in default, breach or any other violation of its obligations hereunder by reason of any assumption of a Mortgage Loan by operation of law or any assumption that the Master Servicer may be restricted by law from preventing, for any reason whatsoever. For purposes of this Section 3.14, the term "assumption" is deemed to also include a sale of a Mortgaged Property that is not accompanied by an assumption or substitution of liability agreement.
SECTION 3.15. Realization Upon Defaulted Mortgage Loans.
The Master Servicer shall exercise reasonable efforts, consistent with the procedures that the Master Servicer would use in servicing loans for its own account, to foreclose upon or otherwise comparably convert (which may include an REO Acquisition) the ownership of properties securing such of the Mortgage Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments pursuant to Section 3.07, and which are not released from the Trust Fund pursuant to any other provision hereof. The Master Servicer shall use reasonable efforts to realize upon such defaulted Mortgage Loans in such manner as will maximize the receipt of principal and interest by Certificateholders, taking into account, among other things, the timing of foreclosure proceedings. The foregoing is subject to the provisions that, in any case in which Mortgaged Property shall have suffered damage from an Uninsured Cause, the Master Servicer shall not be required to expend its own funds toward the restoration of such property unless it shall determine in its sole discretion (i) that such restoration will increase the net proceeds of liquidation of the related Mortgage Loan to Certificateholders after reimbursement to itself for such expenses, and (ii) that such expenses will be recoverable by the Master Servicer through Insurance Proceeds or Liquidation Proceeds from the related Mortgaged Property, as contemplated in Section 3.11. The Master Servicer shall be responsible for all other costs and expenses incurred by it in any such proceedings; provided, however, that it shall be entitled to reimbursement thereof from the related property, as contemplated in Section 3.11.
The proceeds of any Cash Liquidation or REO Disposition, as well as any recovery resulting from a partial collection of Insurance Proceeds or Liquidation Proceeds or any income from an REO Property, will be applied in the following order of priority: first, to reimburse the Master Servicer or any Sub-Servicer for any related unreimbursed Servicing Advances, pursuant to Section 3.11(vi) or 3.22; second, to accrued and unpaid interest on the Mortgage Loan or REO Imputed Interest (less Deferred Interest, if any), at the Mortgage Rate, to the last day of the month in which the Cash Liquidation or REO Disposition occurred, or to the Due Date prior to the Distribution Date on which such amounts are to be distributed if not in connection with a Cash Liquidation or REO Disposition; and third, as a recovery of principal of the Mortgage Loan. If the amount of the recovery so allocated to interest is less than a full recovery thereof, that amount will be allocated as follows: first, to unpaid Servicing Fees; and second, to interest at the Net Mortgage Rate. The portion of the recovery so allocated to unpaid Servicing Fees shall be reimbursed to the Master Servicer or any Sub-Servicer pursuant to Section 3.11(vi). The portions of the recovery so allocated to interest at the Net Mortgage Rate and to principal of the Mortgage Loan shall be applied as follows: first, to reimburse the Master Servicer or any Sub-Servicer for any related unreimbursed Advances in accordance with Section 3.11(iii) or 3.22, and second, for distribution in accordance with the provisions of Section 4.01(b), subject to Section 3.22 with respect to certain recoveries from an REO Disposition constituting Excess Proceeds.
Notwithstanding any other provision of this Agreement, no REO Property shall be acquired by the Trust Fund in such circumstances or manner or pursuant to any terms that would (i) cause such REO Property to fail to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code (unless all such REO Property not treated as "foreclosure property" held by the REMIC at any given time constitutes not more than a DE MINIMIS amount of the assets of the REMIC within the meaning of Treasury regulation Section 1.860D-1(b)(3)(i) and (ii)), or (ii) subject the Trust Fund to the imposition of any federal income taxes under the Code, unless the Master Servicer has agreed to indemnify and hold harmless the Trust Fund with respect to the imposition of any such taxes.
SECTION 3.16. Trustee to Cooperate; Release of Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt by the Master Servicer of a notification that payment in full shall be escrowed in a manner customary for such purposes, the Master Servicer will immediately notify the Trustee by a certification (which certification shall include a statement to the effect that all amounts received or to be received in connection with such payment which are required to be deposited in the Custodial Account pursuant to Section 3.10 have been or will be so deposited) of a Servicing Officer and shall request delivery to it of the Mortgage File in the form of the Request for Release attached hereto as Exhibit F-2. Upon receipt of such certification and request, the Trustee shall promptly release the related Mortgage File to the Master Servicer. Subject to the receipt by the Master Servicer of the proceeds of such payment in full and the payment of all related fees and expenses, the Master Servicer shall arrange for the release to the Mortgagor of the original cancelled Mortgage Note. All other documents in the Mortgage File shall be retained by the Master Servicer to the extent required by applicable law. No expenses incurred in connection with any instrument of satisfaction or deed of reconveyance shall be chargeable to the Custodial Account, the Excess Proceeds Account or the Certificate Account.
From time to time and as appropriate for the servicing or foreclosure of any Mortgage Loan, including, for this purpose, collection under any insurance policy relating to the Mortgage Loan, the Trustee shall, upon request of the Master Servicer and delivery to the Trustee of a Request for Release in the form attached hereto as Exhibit F-1, release the related Mortgage File to the Master Servicer, and the Trustee shall execute such documents as the Master Servicer shall prepare and request as being necessary to the prosecution of any such proceedings. Such Request for Release shall obligate the Master Servicer to return each document previously requested from the Mortgage File to the Trustee when the need therefor by the Master Servicer no longer exists, unless the Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the Mortgage Loan have been deposited in the Custodial Account or the Mortgage File or such document has been delivered to an attorney, or to a public trustee or other public official as required by law, for purposes of initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged Property either judicially or non-judicially, and the Master Servicer has delivered to the Trustee a certificate of a Servicing Officer certifying as to the name and address of the Person to which such Mortgage File or such document was delivered and the purpose or purposes of such delivery. Upon receipt of a certification of a Servicing Officer in the form of the Request for Release attached hereto as Exhibit F-1, stating that such Mortgage Loan was liquidated and that all amounts received or to be received in connection with such liquidation which are required to be deposited into the Custodial Account have been or will be so deposited, or that such Mortgage Loan has become an REO Property, a copy of such Request for Release shall be released by the Trustee to the Master Servicer.
Upon written request of a Servicing Officer, the Trustee shall execute and deliver to the Master Servicer any court pleadings, requests for trustee's sale or other documents prepared by the Master Servicer that are necessary to the foreclosure or trustee's sale in respect of a Mortgaged Property or to any legal action brought to obtain judgment against any Mortgagor on the Mortgage Note or Mortgage or to obtain a deficiency judgment, or to enforce any other remedies or rights provided by the Mortgage Note or Mortgage or otherwise available at law or in equity. Each such request that such pleadings or documents be executed by the Trustee shall include a certification as to the reason such documents or pleadings are required and that the execution and delivery thereof by the Trustee will not invalidate or otherwise affect the lien of the Mortgage, except for the termination of such a lien upon completion of the foreclosure or trustee's sale.
As compensation for its activities hereunder, the Master Servicer shall be entitled to retain, from deposits to the Custodial Account of amounts representing payments or recoveries of interest, the Servicing Fees with respect to each Mortgage Loan (less any portion of such amounts retained by any Sub-Servicer). In addition, the Master Servicer shall be entitled to recover unpaid Servicing Fees out of related Late Collections to the extent permitted in Section 3.11.
The Master Servicer also shall be entitled pursuant to Section 3.11 to receive from the Custodial Account as additional servicing compensation interest or other income earned on deposits therein, subject to Section 3.23, as well as any assumption fees and reconveyance fees. The Master Servicer shall be required to pay all expenses incurred by it in connection with its servicing activities hereunder (including payment of the premiums for any blanket policy insuring against hazard losses pursuant to Section 3.13, servicing compensation of the SubServicers to the extent not retained by it and the fees and expenses of the Trustee), and shall not be entitled to reimbursement therefor except as specifically provided in Section 3.11. The Servicing Fee may not be transferred in whole or in part except in connection with the transfer of all of the Master Servicer's responsibilities and obligations under this Agreement.
SECTION 3.18. Maintenance of Certain Servicing Policies.
During the term of its service as Master Servicer, the Master Servicer shall maintain in force (i) a policy or policies of insurance covering errors and omissions in the performance of its obligations as servicer hereunder and (ii) a fidelity bond in respect of its officers, employees or agents. Each such policy or policies and bond shall, together, comply with the requirements from time to time of FNMA or FHLMC for persons performing servicing for mortgage loans purchased by such corporation. The Master Servicer shall prepare and present, on behalf of itself, the Trustee and Certificateholders, claims under any such errors and omissions policy or policies or fidelity bond in a timely fashion in accordance with the terms of such policy or bond, and upon the filing of any claim on any policy or bond described in this Section, the Master Servicer shall promptly notify the Trustee of any such claims and the Trustee shall notify the Rating Agency of such claim.
SECTION 3.19. Annual Statement as to Compliance.
The Master Servicer will deliver to the Trustee and the Depositor on or before April 30 of each year, beginning with April 30, 1996, an Officers' Certificate stating, as to each signatory thereof, that (i) a review of the activities of the Master Servicer during the preceding fiscal year and of its performance under this Agreement has been made under such officers' supervision, and (ii) to the best of such officers' knowledge, based on such review, the Master Servicer has fulfilled all of its obligations under this Agreement throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such officers and the nature and status thereof.
SECTION 3.20. Annual Independent Public Accountants' Servicing Statement.
On or before April 30 of each year, beginning with April 30, 1996, the Master Servicer at its expense shall furnish to the Depositor, the Trustee and the Seller (i) an opinion by a firm of independent certified public accountants on the financial position of the Master Servicer at the end of its fiscal year and the results of operations and changes in financial position of the Master Servicer for such year then ended on the basis of an examination conducted in accordance with generally accepted auditing standards, and (ii) if the Master Servicer is then servicing any Mortgage Loans, a statement from such independent certified public accountants to the effect that based on an examination of certain specified documents and records relating to the servicing of the Master Servicer's mortgage loan portfolio conducted substantially in compliance with the audit program for mortgages serviced for FNMA and FHLMC, the United States Department of Housing and Urban Development Mortgage Audit Standards, or the Uniform Single Attestation Program for Mortgage Bankers (the "Applicable Accounting Standards"), such firm is of the opinion that such servicing has been conducted in compliance with the Applicable Accounting Standards except for (a) such exceptions as such firm shall believe to be immaterial and (b) such other exceptions as shall be set forth in such statement. In rendering such statement, such firm may rely, as to matters relating to direct servicing of mortgage loans by Sub-Servicers, upon comparable statements for examinations conducted substantially in compliance with the Uniform Single Attestation Program for Mortgage Bankers or the audit program for mortgages serviced for FHLMC (rendered within one year of such statement) of independent public accountants with respect to the related Sub-Servicer. Copies of such statement shall be provided by the Trustee to any Certificateholder upon request at the Master Servicer's expense, provided such statement is delivered by the Master Servicer to the Trustee.
SECTION 3.21. Access to Certain Documentation.
(a) The Master Servicer shall provide to the OTS, the FDIC and other federal banking regulatory agencies, and their respective examiners, access to the documentation regarding the Mortgage Loans required by applicable regulations of the OTS, the FDIC and such other agencies. Such access shall be afforded without charge, but only upon reasonable and prior written request and during normal business hours at the offices of the Master Servicer designated by it. Nothing in this Section shall derogate from the obligation of the Master Servicer to observe any applicable law prohibiting disclosure of information regarding the Mortgagors and the failure of the Master Servicer to provide access as provided in this Section as a result of such obligation shall not constitute a breach of this section.
(b) The Master Servicer shall afford the Depositor and the Trustee, upon reasonable notice, during normal business hours access to all records maintained by the Master Servicer in respect of its rights and obligations hereunder and access to officers of the Master Servicer responsible for such obligations. Upon request, the Master Servicer shall furnish the Depositor and the Trustee with its most recent financial statements and such other information as the Master Servicer possesses regarding its business, affairs, property and condition, financial or otherwise to the extent related to the servicing of the Mortgage Loans. The Depositor may, but is not obligated to, enforce the obligations of the Master Servicer hereunder and may, but is not obligated to, perform, or cause a designee to perform, any defaulted obligation of the Master Servicer hereunder or exercise the rights of the Master Servicer hereunder; provided that the Master Servicer shall not be relieved of any of its obligations hereunder by virtue of such performance by the Depositor or its designee. The Depositor shall not have any responsibility or liability for any action or failure to act by the Master Servicer and is not obligated to supervise the performance of the Master Servicer under this Agreement or otherwise.
SECTION 3.22. Title, Conservation and Disposition of REO Property.
This Section shall apply only to REO Properties acquired for the account of the Trust Fund, and shall not apply to any REO Property relating to a Mortgage Loan which was purchased or repurchased from the Trust Fund pursuant to any provision hereof. In the event that title to any such REO Property is acquired, the deed or certificate of sale shall be issued to the Trustee, or to its nominee, on behalf of the Certificateholders. The Master Servicer, on behalf of the Trust Fund, shall either sell any REO Property within two years after the Trust Fund acquires ownership of such REO Property for purposes of Section 860G(a)(8) of the Code or, at the expense of the Trust Fund, request, more than 60 days before the day on which the two-year grace period would otherwise expire, an extension of the two-year grace period, unless the Master Servicer has delivered to the Trustee an Opinion of Counsel (which Opinion of Counsel shall not be an expense of the Trustee or the Trust Fund), addressed to the Trustee and the Master Servicer, to the effect that the holding by the Trust Fund of such REO Property subsequent to two years after its acquisition will not result in the imposition on the Trust Fund of taxes on "prohibited transactions" thereof, as defined in Section 860F of the Code, or cause the Trust Fund to fail to qualify as a REMIC under the REMIC Provisions or comparable provisions of the laws of the State of California at any time that any Certificates are outstanding. The Master Servicer shall manage, conserve, protect and operate each REO Property for the Certificateholders solely for the purpose of its prompt disposition and sale in a manner which does not cause such REO Property to fail to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) or result in the receipt by the Trust Fund of any "income from non-permitted assets" within the meaning of Section 860F(a)(2)(B) of the Code or income from foreclosure property" which is subject to taxation under the REMIC Provisions. Pursuant to its efforts to sell such REO Property, the Master Servicer shall either itself or through an agent selected by the Master Servicer protect and conserve such REO Property in the same manner and to such extent as is customary in the locality where such REO Property is located and may, incident to its conservation and protection of the interests of the Certificateholders, rent the same, or any part thereof, as the Master Servicer deems to be in the best interest of the Certificateholders for the period prior to the sale of such REO Property.
Any REO Disposition shall be for cash only (unless changes in the REMIC Provisions made subsequent to the Startup Day allow a sale for other consideration).
The Master Servicer shall segregate and hold all funds collected and received in connection with the operation of any REO Property separate and apart from its own funds and general assets. The Master Servicer shall deposit, or cause to be deposited, on a daily basis in the Custodial Account all revenues received with respect to the REO Properties, net of any directly related expenses incurred and funds withheld therefrom that are necessary for the proper operation, management and maintenance of the REO Property.
If as of the date of acquisition of title to any REO Property there remain outstanding unreimbursed Servicing Advances with respect to such REO Property or any outstanding Advances allocated thereto the Master Servicer, upon an REO Disposition, shall be entitled to reimbursement for any related unreimbursed Servicing Advances and any unreimbursed related Advances as well as any unpaid Servicing Fees from proceeds received in connection with the REO Disposition, as further provided in Section 3.15.
The REO Disposition shall be carried out by the Master Servicer at such price and upon such terms and conditions as the Master Servicer shall determine.
The Master Servicer shall deposit the proceeds from the REO Disposition, net of any payment to the Master Servicer as provided above, in the Custodial Account upon receipt thereof for distribution in accordance with Section 4.01; provided that any such net proceeds which are in excess of the applicable Stated Principal Balance plus all unpaid REO Imputed Interest thereon through the last day of the month in which the REO Disposition occurred ("Excess Proceeds") shall be deposited into the Excess Proceeds Account in accordance with the provisions of Section 3.25(a).
Notwithstanding the foregoing provisions of this Section 3.22, with respect to any Mortgage Loan as to which the Master Servicer has received notice of, or has actual knowledge of, the presence of any toxic or hazardous substance on the Mortgaged Property, the Master Servicer shall promptly request the Depositor to provide directions and instructions with respect to such Mortgage Loan and shall act in accordance with any such directions and instructions provided by the Depositor. Notwithstanding the preceding sentence of this Section 3.22, with respect to any Mortgage Loan described by such sentence, the Master Servicer shall not, on behalf of the Trustee, either (i) obtain title to the related Mortgaged Property as a result of or in lieu of foreclosure or otherwise, or (ii) otherwise acquire possession of, the related Mortgaged Property, unless (i) the Depositor and the Trustee jointly direct the Master Servicer to take such action and (ii) either (A) the Master Servicer has, at least 30 days prior to taking such action, obtained and delivered to the Depositor an environmental audit report prepared by a Person who regularly conducts environmental audits using customary industry standards or (B) the Depositor has directed the Master Servicer not to obtain an environmental audit report. If the Depositor has not provided directions and instructions to the Master Servicer in connection with any such Mortgage Loan within 30 days of a request by the Master Servicer for such directions and instructions, then the Master Servicer shall take such action as it deems to be in the best economic interest of the Trust Fund (other than proceeding against the Mortgaged Property) and is hereby authorized at such time as it deems appropriate to release such Mortgaged Property from the lien of the related Mortgage.
The cost of the environmental audit report contemplated by this Section 3.22 shall be advanced by the Master Servicer as an expense of the Trust Fund, and the Master Servicer shall be reimbursed therefor from the Custodial Account as provided in Section 3.11, any such right of reimbursement being prior to the rights of the Certificateholders to receive any amount in the Custodial Account.
If the Master Servicer determines, as described above, that it is in the best economic interest of the Trust Fund to take such actions as are necessary to bring any such Mortgaged Property in compliance with applicable environmental laws, or to take such action with respect to the containment, clean-up or remediation of hazardous substances, hazardous materials, hazardous wastes, or petroleum-based materials affecting any such Mortgaged Property, then the Master Servicer shall take such action as it deems to be in the best economic interest of the Trust Fund. The cost of any such compliance, containment, clean-up or remediation shall be advanced by the Master Servicer as an expense of the Trust Fund, and the Master Servicer shall be entitled to be reimbursed therefor from the Custodial Account as provided in Section 3.11, any such right of reimbursement being prior to the rights of the Certificateholders to receive any amount in the Custodial Account.
The Master Servicer shall have the option to purchase from the Trust Fund any Mortgage Loan that is 90 days or more delinquent (90 days or more delinquent shall mean delinquent as to 4 or more Monthly Payments) and that the Master Servicer determines in good faith will otherwise become subject to foreclosure proceedings (such determination to be evidenced by an Officer's Certificate of the Master Servicer delivered to the Trustee prior to purchase) for an amount equal to the Purchase Price. The Purchase Price for any Mortgage Loan purchased pursuant to this Section 3.22 shall be deposited in the Custodial Account, and upon receipt of written certification from the Master Servicer of such deposit, the Trustee shall release or cause to be released to the Master Servicer the related Mortgage File and shall execute and deliver such instruments of transfer or assignment, in each case without recourse, as the Master Servicer shall furnish and as shall be necessary to vest in the Master Servicer title to any Mortgage Loan released pursuant to this Section 3.22.
SECTION 3.23. Additional Obligations of the Master Servicer.
On each Certificate Account Deposit Date, the Master Servicer shall deliver to the Trustee for deposit in the Certificate Account from its own funds and without any right of reimbursement therefor, a total amount equal to the aggregate of the Prepayment Interest Shortfalls for such Distribution Date; provided that the Master Servicer's obligations under this subsection on any Distribution Date shall not be more than the total amount of its servicing compensation payable in such month.
SECTION 3.24. Additional Obligations of the Depositor.
The Depositor agrees that on or prior to the tenth day after the Closing Date, the Depositor shall provide the Trustee with a written notification, substantially in the form of Exhibit K attached hereto, relating to each Class of Certificates, setting forth (i) in the case of each Class of such Certificates, (a) if less than 10% of the aggregate Certificate Principal Balance of such Class of Certificates has been sold as of such date, the value calculated pursuant to clause (b)(iii) of Exhibit K hereto, or, (b) if 10% or more of such Class of Certificates has been sold as of such date but no single price is paid for at least 10% of the aggregate Certificate Principal Balance of such Class of Certificates, then the weighted average price at which the Certificates of such Class were sold and the aggregate percentage of Certificates of such Class sold, (c) the first single price at which at least 10% of the aggregate Certificate Principal Balance of such class of Certificates was sold, or (d) if any Certificates of each Class of Certificates are retained by the Depositor or an affiliate corporation, or are delivered to the Seller, the fair market value of such Certificates as of the Closing Date, (ii) the prepayment assumption used in pricing the Certificates, and (iii) such other information as to matters of fact as the Trustee may reasonably request to enable it to comply with its reporting requirements with respect to each Class of such Certificates to the extent such information can in the good faith judgment of the Depositor be determined by it.
SECTION 3.25 Excess Proceeds Account
(a) The Trustee shall establish and maintain one or more accounts (collectively, the "Excess Proceeds Account") in which the Master Servicer shall, on behalf of the Trust Fund, deposit or cause to be deposited on a daily basis, or as and when received from the Sub-Servicers, the Excess Proceeds, if any, with respect to each Mortgage Loan as to which an REO Disposition occurs. The Excess Proceeds Account shall be maintained as a segregated account, separate and apart from trust funds created for mortgage pass-through certificates of other series, from funds of investors, from funds or other assets of the Trustee, and from the other accounts of the Trustee.
(b) On or before 2:00 P.M. Los Angeles time on each Certificate Account Deposit Date, the Trustee shall withdraw or cause to be withdrawn from the Excess Proceeds Account, to the extent of the amount on deposit therein at such time, and deposit or cause to be deposited in the Certificate Account, by wire transfer of immediately available funds, an amount equal to the lesser of (i) the amount, if any, on deposit in the Excess Proceeds Account as of the close of business on the related Determination Date and (ii)(A) the sum of the aggregate amount of all Realized Losses allocated among the Certificates on any previous Distribution Date pursuant to Section 4.04 and the aggregate amount of all Realized Losses to be allocated among the Certificates on the related Distribution Date pursuant to Section 4.04 minus (B) the aggregate amount of all distributions allocated among the Certificateholders on any previous Distribution Date in accordance with Section 4.01(b)(xiii), (xiv), (xv), (xvi), (xxix), (xxx), (xxxi) or (xxxii) or in accordance with Section 4.01(f).
(c) If the amount on deposit in the Excess Proceeds Account as of the close of business on any Determination Date would exceed the product of 1.00% and the aggregate Certificate Principal Balance of all of the Certificates outstanding immediately after the close of business on the related Distribution Date, the Trustee shall, on or before 2:00 P.M. Los Angeles time on the related Certificate Account Deposit Date, withdraw or cause to be withdrawn from the Excess Proceeds Account, to the extent of the amount on deposit therein at such time, and deposit or cause to be deposited in the Certificate Account, by wire transfer of immediately available funds, the excess of such amount over such product.
(d) The Excess Proceeds Account shall be an Eligible Account in accordance with the definition of "Excess Proceeds Account" in Section 1.01. The Trustee shall, upon written request from the Master Servicer, invest or cause the institution maintaining the Excess Proceeds Account to invest the funds in the Excess Proceeds Account in one or more Permitted Instruments designated in the name of the Trustee for the benefit of the Certificateholders, each of which Permitted Instruments shall be held to maturity, unless payable on demand, and shall mature, unless payable on demand, not later than the Business Day immediately preceding the Certificate Account Deposit Date next following the date of such investment (except that if such Permitted Instrument is an obligation of the institution with which the Excess Proceeds Account is maintained, then such Permitted Instrument shall mature not later than such Certificate Account Deposit Date). All income and gain realized from any such investment as well as any interest earned on deposits in the Excess Proceeds Account shall be for the benefit of the Certificateholders and shall be held in the Excess Proceeds Account (or in Permitted Instruments in which the funds in the Excess Proceeds Account are invested) until transferred from the Excess Proceeds Account to the Certificate Account in accordance with Section 3.25(b) or (c). The amount of any loss incurred in respect of any such investment shall be borne by the Certificateholders without any right of reimbursement.
(e) As part of each Determination Date Report delivered to the Trustee in accordance with Section 4.03(a), the Master Servicer shall provide information with respect to the amount, if any, of Excess Proceeds deposited in the Excess Proceeds Account in respect of each Mortgage Loan as to which an REO Disposition occurred during the related Prepayment Period.
(f) The Trustee shall promptly provide notice to the Depositor and the Master Servicer of the initial location of the Excess Proceeds Account and shall provide notice to the Depositor and the Master Servicer of the location of the Excess Proceeds Account after any change in location of the Excess Proceeds Account.
SECTION 4.01. Certificate Account; Distributions.
(a) The Trustee shall establish and maintain a Certificate Account, in which the Master Servicer shall cause to be deposited on behalf of the Trustee on or before 2:00 P.M. Los Angeles time on each Certificate Account Deposit Date by wire transfer of immediately available funds an amount equal to the sum of (i) any Advance for the immediately succeeding Distribution Date, (ii) any amount required to be deposited in the Certificate Account pursuant to Sections 3.13, 3.22 or 3.23 and (iii) all other amounts constituting the Available Distribution Amount for the immediately succeeding Distribution Date.
(b) On each Distribution Date the Trustee shall distribute to the Master Servicer, in the case of a distribution pursuant to Section 4.01(b)(iii), (vi), (ix), (xii), (xxi) and (xxvi), and to each Certificateholder of record on the next preceding Record Date (other than as provided in Section 9.01 respecting the final distribution) either in immediately available funds (by wire transfer or otherwise) to the account of such Certificateholder at a bank or other entity having appropriate facilities therefor, if such Certificateholder has so notified the Trustee at least 5 Business Days prior to the related Record Date and such Certificateholder is the registered owner of Certificates the aggregate Initial Certificate Principal Balance of which is not less than $2,500,000 (or, with respect to the Class SA Certificates and the Class SB Certificates, is the registered owner of an aggregate initial Notional Amount of not less than $10,000,000 of the Class SA Certificates or the Class SB Certificates), or otherwise by check mailed to such Certificateholder at the address of such Holder appearing in the Certificate Register, such Certificateholder's share (based on the aggregate of the Percentage Interests represented by Certificates of the applicable Class held by such Holder) of the following amounts, in the following order of priority, in each case to the extent of the Available Distribution Amount:
(i) to the Class SA Certificateholders and the Class A-1 Certificateholders, on a pro rata basis, based on Accrued Certificate Interest payable thereon, Accrued Certificate Interest on such Class of Certificates for such Distribution Date, plus any Accrued Certificate Interest thereon remaining unpaid from any previous Distribution Date;
(ii) to the Class A-1 Certificateholders, the sum of the following amounts applied to reduce the Certificate Principal Balance thereof:
(A) the Class A-1 Percentage for such Distribution Date times the Scheduled Principal and Net Recoveries for such Distribution
(B) an amount equal to (1) the Class A-1 Percentage for such Distribution Date divided by the Senior Percentage for such Distribution Date times (2) the Senior Prepayment Percentage for such Distribution Date times the aggregate of all Principal Prepayments received in the related Prepayment Period;
(C) with respect to each Mortgage Loan for which a Cash Liquidation or an REO Disposition occurred during the related Prepayment Period and did not result in any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses, an amount equal to the lesser of (i) the then applicable Class A-1 Percentage of the Stated Principal Balance of such Mortgage Loan and (ii)(a) the Class A-1 Percentage for such Distribution Date divided by the Senior Percentage for such Distribution Date times (b) the Senior Prepayment Percentage for such Distribution Date times the related collections (including without limitation Insurance Proceeds, Liquidation Proceeds and REO Proceeds) to the extent applied by the Master Servicer as recoveries of principal of the related Mortgage Loan pursuant to Section 3.15; and
(D) any amounts described in this Section 4.01(b)(ii), as determined for any previous Distribution Date, which remain unpaid after application of amounts previously distributed pursuant to this clause (D) to the extent that any such amounts are not attributable to Realized Losses that were allocated to the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class SB Certificates or the Class R Certificates;
(iii) if the Certificate Principal Balances of the Class B-1 Certificates, the Class B-2 Certificates and the Class R Certificates have been reduced to zero and prior to the related Accretion Termination Date for the Class SB Certificates, to the Master Servicer or a Sub-Servicer, by remitting for deposit to the Custodial Account, to the extent of and in reimbursement for any Advances previously made with respect to any Mortgage Loan or REO Property which remain unreimbursed in whole or in part following the Cash Liquidation or REO Disposition of such Mortgage Loan or REO Property, minus any such Advances that were made with respect to delinquencies that ultimately constituted Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses;
(iv) to the Class A-2 Certificateholders, Accrued Certificate Interest on such Certificates for such Distribution Date, plus any Accrued Certificate Interest thereon remaining unpaid from any previous
(v) to the Class A-2 Certificateholders, the sum of the following amounts applied to reduce the Certificate Principal Balance thereof:
(A) the Class A-2 Percentage for such Distribution Date times the Scheduled Principal and Net Recoveries for such Distribution
(B) an amount equal to (1) the Class A-2 Percentage for such Distribution Date divided by the Senior Percentage for such Distribution Date times (2) the Senior Prepayment Percentage for such Distribution Date times the aggregate of all Principal Prepayments received in the related Prepayment Period;
(C) with respect to each Mortgage Loan for which a Cash Liquidation or an REO Disposition occurred during the related Prepayment Period and did not result in any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses, an amount equal to the lesser of (i) the then applicable Class A-2 Percentage of the Stated Principal Balance of such Mortgage Loan and (ii)(a) the Class A-2 Percentage for such Distribution Date divided by the Senior Percentage for such Distribution Date times (b) the Senior Prepayment Percentage for such Distribution Date times the related collections (including without limitation Insurance Proceeds, Liquidation Proceeds and REO Proceeds) to the extent applied by the Master Servicer as recoveries of principal of the related Mortgage Loan pursuant to Section 3.15; and
(D) any amounts described in this Section 4.01(b)(v), as determined for any previous Distribution Date, which remain unpaid after application of amounts previously distributed pursuant to this clause (D) to the extent that any such amounts are not attributable to Realized Losses that were allocated to the Class B-1 Certificates, the Class B-2 Certificates, the Class SB Certificates and the Class R
(vi) if the Certificate Principal Balance of the Class B-2 Certificates and the Class R Certificates have been reduced to zero and prior to the related Accretion Termination Date for the Class SB Certificates, to the Master Servicer or a Sub-Servicer, by remitting for deposit to the Custodial Account, to the extent of and in reimbursement for any Advances previously made with respect to any Mortgage Loan or REO Property which remain unreimbursed in whole or in part following the Cash Liquidation or REO Disposition of such Mortgage Loan or REO Property, minus any such Advances that were made with respect to delinquencies that ultimately constituted Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses;
(vii) to the Class B-1 Certificateholders, Accrued Certificate Interest on the Class B-1 Certificates for such Distribution Date, plus any Accrued Certificate Interest thereon remaining unpaid from any previous
(viii) to the Class B-1 Certificateholders, the sum of the following amount applied to reduce the Certificate Principal Balance thereof:
(A) the Class B-1 Percentage for such Distribution Date times the Scheduled Principal and Net Recoveries for such Distribution
(B) an amount equal to the (1) the Class B-1 Percentage for such Distribution Date divided by the Class B Percentage for such Distribution Date times (2) the Class B Prepayment Percentage times the aggregate of all Principal Prepayments received during the related
(C) such Class's pro rata share, based on the Certificate Principal Balance of the Class B-1 Certificates, the Class B-2 Certificates and the Class R Certificates, of all amounts received in connection with a Cash Liquidation or an REO Disposition (x) that occurred during the preceding calendar month and (y) that did not result in any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses, to the extent applied as recoveries of principal and to the extent not otherwise payable to the Senior Certificates; and
(D) any amounts described in this Section 4.01(b)(viii), as determined for any previous Distribution Date, which remain unpaid after application of amounts previously distributed pursuant to this clause (D) to the extent that such amounts are not attributable to Realized Losses which have been allocated to the Class B-2 Certificates, the Class SB Certificates and the Class R Certificates.
(ix) if the Certificate Principal Balance of the Class R Certificates has been reduced to zero and prior to the related Accretion Termination Date for the Class SB Certificates, to the Master Servicer or a Sub-Servicer, by remitting for deposit to the Custodial Account, to the extent of and in reimbursement for any Advances previously made with respect to any Mortgage Loan or REO Property which remain unreimbursed in whole or in part following the Cash Liquidation or REO Disposition of such Mortgage Loan or REO Property, minus any such Advances that were made with respect to delinquencies that ultimately constituted Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary
(x) to the Class B-2 Certificateholders, Accrued Certificate Interest on the Class B-2 Certificates for such Distribution Date, plus any Accrued Certificate Interest thereon remaining unpaid from any previous
(xi) to the Class B-2 Certificateholders, the sum of the following amount applied to reduce the Certificate Principal Balance thereof:
(A) the Class B-2 Percentage for such Distribution Date times the Scheduled Principal and Net Recoveries for such Distribution
(B) an amount equal to (1) the Class B-2 Percentage for such Distribution Date divided by the Class B Percentage for such Distribution Date times (2) the Class B Prepayment Percentage times the aggregate of all Principal Prepayments received during the related
(C) such Class's pro rata share, based on the Certificate Principal Balance of the Class B-1 Certificates, the Class B-2 Certificates and Class R Certificates, of all amounts received in connection with a Cash Liquidation or an REO Disposition (x) that occurred during the preceding calendar month and (y) that did not result in any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses, to the extent applied as recoveries of principal and to the extent not otherwise payable to the Senior Certificates; and
(D) any amounts described in this Section 4.01(b)(xi), as determined for any previous Distribution Date, which remain unpaid after application of amounts previously distributed pursuant to this clause (D) to the extent that such amounts are not attributable to Realized Losses which have been allocated to the Class SB Certificates and the Class R Certificates.
(xii) prior to the related Accretion Termination Date for the Class SB Certificates, to the Master Servicer or a Sub-Servicer, by remitting for deposit to the Custodial Account, to the extent of and in reimbursement for any Advances previously made with respect to any Mortgage Loan or REO Property which remain unreimbursed in whole or in part following the Cash Liquidation or REO Disposition of such Mortgage Loan or REO Property, minus any such Advances that were made with respect to delinquencies that ultimately constituted Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses;
(xiii) to the holders of the Class A-1 Certificates, the portion, if any, of the Available Distribution Amount remaining, but in no event more than the lesser of (A) the Accrued Certificate Interest otherwise payable on the Class SB Certificates, prior to the application of payments required under Sections 4.01(b)(xiii), (xiv), (xv) and (xvi) hereof and (B) the principal portion of Realized Losses previously allocated thereto and
(xiv) to the holders of the Class A-2 Certificates, the portion, if any, of the Available Distribution Amount remaining, but in no event more than the lesser of (A) the Accrued Certificate Interest otherwise payable on the Class SB Certificates, prior to the application of payments required under Sections 4.01(b)(xiii), (xiv), (xv) and (xvi) hereof and (B) the principal portion of Realized Losses previously allocated thereto and
(xv) to the holders of the Class B-1 Certificates, the portion, if any, of the Available Distribution Amount remaining, but in no event more than the lesser of (A) the Accrued Certificate Interest otherwise payable on the Class SB Certificates, prior to the application of payments required under Sections 4.01(b)(xiii), (xiv), (xv) and (xvi) hereof and (B) the principal portion of Realized Losses previously allocated thereto and
(xvi) to the holders of the Class B-2 Certificates, the portion, if any, of the Available Distribution Amount remaining, but in no event more than the lesser of (A) the Accrued Certificate Interest otherwise payable on the Class SB Certificates, prior to the application of payments required under Sections 4.01(b)(xiii), (xiv), (xv) and (xvi) hereof and (B) the principal portion of Realized Losses previously allocated thereto and
(xvii) to the Class A-1 Certificateholders, an amount, applied to reduce the Certificate Principal Balance thereof, equal to the Class A-1 Percentage for such Distribution Date divided by the Senior Percentage for such Distribution Date times the Class SB Accrual Amount for such
(xviii) to the Class A-2 Certificateholders, an amount, applied to reduce the Certificate Principal Balance thereof, equal to the Class A-2 Percentage for such Distribution Date divided by the Senior Percentage for such Distribution Date times the Class SB Accrual Amount for such
(xix) if the Certificate Principal Balances of the Class A-1 Certificates and the Class A-2 Certificates have been reduced to zero, to the Class B-1 Certificateholders, the Class B-1 Percentage divided by the Class B Percentage multiplied by the Class SB Accrual Amount for such Distribution Date, in reduction of the Certificate Principal Balance thereof, to the extent not distributed to the Class A-1 Certificates and
(xx) if the Certificate Principal Balances of the Class A-1 Certificates and the Class A-2 Certificates have been reduced to zero, to the Class B-2 Certificateholders, the Class B-2 Percentage divided by the Class B Percentage multiplied by the Class SB Accrual Amount for such Distribution Date, in reduction of the Certificate Principal Balance thereof, to the extent not distributed to the Class A-1 Certificates and
(xxi) on and after the related Accretion Termination Date for the Class SB Certificates, to the Master Servicer or a Sub-Servicer, by remitting for deposit to the Custodial Account, to the extent of and in reimbursement for any Advances previously made with respect to any Mortgage Loan or REO Property which remain unreimbursed in whole or in part following the Cash Liquidation or REO Disposition of such Mortgage Loan or REO Property, minus any such Advances that were made with respect to delinquencies that ultimately constituted Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses;
(xxii) on and after the related Accretion Termination Date, to the Class SB Certificateholders, Accrued Certificate Interest thereon for such Distribution Date, except for any portion thereof applied on the related Accretion Termination Date to satisfy the applicable condition in the definition of "Accretion Termination Date," plus
any such Accrued Certificate Interest thereon remaining unpaid from any previous Distribution Date occurring on and after the related Accretion
(xxiii) to the Class B-1 Certificateholders, the Class B-1 Percentage divided by the Class B Percentage multiplied by the portion, if any, of the Available Distribution Amount remaining after the foregoing distributions, applied to reduce the Certificate Principal Balance of the Class B-1 Certificates, but in no event more than the outstanding Certificate Principal Balance of the Class B-1 Certificates;
(xxiv) to the Class B-2 Certificateholders, the portion, if any, of the Available Distribution Amount remaining after the foregoing distributions, applied to reduce the Certificate Principal Balance of the Class B-2 Certificates, but in no event more than the outstanding Certificate Principal Balance of the Class B-2 Certificates;
(xxv) on and after the Accretion Termination Date for the Class R Certificates, to the Class SB Certificateholders, in reduction of the Outstanding Class SB Unpaid Interest Amount, until the Outstanding Class SB Unpaid Interest Amount has been reduced to zero;
(xxvi) to the Master Servicer or a Sub-Servicer, by remitting for deposit to the Custodial Account, to the extent of and in reimbursement for any Advances previously made with respect to any Mortgage Loan or REO Property which remain unreimbursed in whole or in part following the Cash Liquidation or REO Disposition of such Mortgage Loan or REO Property, minus any such Advances that were made with respect to delinquencies that ultimately constituted Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses;
(xxvii) on and after the related Accretion Termination Date, to the Class R Certificateholders, Accrued Certificate Interest thereon to the extent not added to the Certificate Principal Balance thereof on such Distribution Date in accordance with Section 4.01(d);
(xxviii) on and after the related Accretion Termination Date, to the Class R Certificates the portion, if any, of the Available Distribution Amount remaining after the foregoing distributions, applied to reduce the Certificate Principal Balance of the Class R Certificates, but in no event more than the outstanding Certificate Principal Balance of the Class R
(xxix) to the Class A-1 Certificateholders, the portion, if any, of the Available Distribution Amount remaining, but in no event more than the principal portion of Realized Losses previously allocated thereto and
(xxx) to the Class A-2 Certificateholders, the portion, if any, of the Available Distribution Amount remaining, but in no event more than the principal portion of Realized Losses previously allocated thereto and
(xxxi) to the Class B-1 Certificateholders, the portion, if any, of the Available Distribution Amount remaining, but in no event more than the principal portion of Realized Losses previously allocated thereto and
(xxxii) to the Class B-2 Certificateholders, the portion, if any, of the Available Distribution Amount remaining, but in no event more than the principal portion of Realized Losses previously allocated thereto and
(xxxiii) to the Class R Certificateholders, the balance, if any, of the Available Distribution Amount.
(c) The Trustee shall, upon written request from the Master Servicer, invest or cause the institution maintaining the Certificate Account to invest the funds in the Certificate Account in Permitted Instruments designated in the name of the Trustee for the benefit of the Certificateholders, which shall mature not later than the Business Day next preceding the Distribution Date next following the date of such investment (except that (i) any investment in obligations of the institution with which the Certificate Account is maintained may mature on such Distribution Date and (ii) any other investment may mature on such Distribution Date if the Trustee shall agree to advance funds on such Distribution Date to the Certificate Account in the amount payable on such investment on such Distribution Date, pending receipt thereof to the extent necessary to make distributions on the Certificates) and shall not be sold or disposed of prior to maturity. All income and gain realized from any such investment shall be for the benefit of the Master Servicer and shall be subject to its withdrawal or order from time to time. The amount of any losses incurred in respect of any such investments shall be deposited in the Certificate Account by the Master Servicer out of its own funds immediately as realized without right of reimbursement.
(d) On each Distribution Date prior to the related Accretion Termination Date, Accrued Certificate Interest on the Class SB Certificates for such Distribution Date that would otherwise be distributed on such Certificates on such Distribution Date shall instead be added to the Outstanding Class SB Unpaid Interest Amount (which amount will have the effect of increasing the Certificate Principal Balance of the Class R Certificates, to the extent provided by operation of the definition of Certificate Principal Balance). On or after the related Accretion Termination Date, the entire amount of Accrued Certificate Interest on the Class SB Certificates for such Distribution Date shall be payable to the Class SB Certificateholders to the extent that any portion of such Accrued Certificate Interest is not required to render such date the related Accretion Termination Date in accordance with the definition thereof.
On each Distribution Date prior to the related Accretion Termination Date, Accrued Certificate Interest on the Class R Certificates for such otherwise be distributed on such Certificates on such Distribution Date shall instead be added to the Certificate Principal Balance thereof, to the extent provided by operation of the definition of Certificate Principal Balance. On and after the related Accretion Termination Date, the entire amount of Accrued Certificate Interest on the Class R Certificates for such Distribution Date shall be payable to the Class R Certificateholders to the extent that any portion of such Accrued Certificate Interest is not required to retire the Class B-2 Certificates after application of all other amounts distributable under Section 4.01(b)(xxiv); any such portion of Accrued Certificate Interest not payable to the Class R Certificates on an Accretion Termination Date in accordance with the foregoing shall be added to the Certificate Principal Balance thereof on such date. On and after the related Accretion Termination Date, unpaid Accrued Certificate Interest, if any, on the Class R Certificates will not be added to the Certificate Principal Balance thereof.
(e) Except as otherwise provided in Section 9.01, whenever the Trustee expects that the final distribution with respect to any Class of Certificates will be made on the next Distribution Date, the Trustee shall, no later than five days after the Determination Date, mail to each Holder on such date of such Class of Certificates a notice to the effect that:
(i) the Trustee expects that the final distribution with respect to such Class of Certificates will be made on such Distribution Date but only upon presentation and surrender of such Certificates at the office of the Trustee therein specified, and
(ii) no interest shall accrue on such Certificates from and after the end of the related previous calendar month.
Any funds not distributed to any Holder or Holders of Certificates of such Class on such Distribution Date because of the failure of such Holder or Holders to tender their Certificates shall, on such date, be set aside and held in trust and credited to the account of the appropriate non-tendering Holder or Holders. If any Certificates as to which notice has been given pursuant to this Section 4.01(e) shall not have been surrendered for cancellation within six months after the time specified in such notice, the Trustee shall mail a second notice to the remaining non-tendering Certificateholders to surrender their Certificates for cancellation in order to receive the final distribution with respect thereto. If within six months after the second notice all such Certificates shall not have been surrendered for cancellation, the Trustee shall take reasonable steps as directed by the Depositor, or appoint an agent to take reasonable steps, to contact the remaining non-tendering Certificateholders concerning surrender of their Certificates. The costs and expenses of maintaining the funds in trust and of contacting such Certificateholders shall be paid out of the assets remaining in the Trust Fund. If within nine months after the second notice any such Certificates shall not have been surrendered for cancellation, the Class R Certificateholders shall be entitled to all unclaimed funds and other assets which remain subject hereto. No interest shall accrue or be payable to any Certificateholder on any amount held in trust as a result of such Certificateholder's failure to surrender its Certificate(s) for final payment thereof in accordance with this Section 4.01(e).
(f) On each Distribution Date, the Trustee shall distribute to each Certificateholder of record on the next preceding Record Date (other than as provided in Section 9.01 respecting the final distribution), in the manner set forth in Section 4.01(b), such Certificateholder's share (based on the aggregate of the Percentage Interests represented by the Certificates of the applicable Class held by such Certificateholder) of the amount transferred from the Excess Proceeds Account to the Certificate Account on the related Certificate Account Deposit Date in accordance with Section 3.25(b), in the following order of priority: first, to the Holders of the Class SA Certificates and the Class A-1 Certificates on a pro rata basis, to the extent of and in proportion to the interest portion of the aggregate amount of all Realized Losses allocated to the Certificates of such Classes on such Distribution Date or any previous Distribution Date in accordance with Section 4.04 and not subsequently recovered through any distribution in accordance with this Section 4.01(f), and then second, to the Holders of the Class A-1 Certificates, third, to the Holders of the Class A-2 Certificates, fourth, to the Holders of the Class B-1 Certificates, and fifth, to the Holders of the Class B-2 Certificates, in each case to the extent of the aggregate amount of all Realized Losses allocated to the Certificates of such Class on such Distribution Date or any previous Distribution Date in accordance with Section 4.04 and not subsequently recovered through any distribution in accordance with Section 4.01(b)(xiii), (xiv), (xv), (xvi), (xxix), (xxx), (xxxi) or (xxxii) or in accordance with this Section 4.01(f), and sixth, to the Holders of the Class SB Certificates, and then seventh, to the Holders of the Class R Certificates. The distribution of any amount in accordance with this Section 4.01(f) shall not have the effect of reducing the Certificate Principal Balance of any Certificate to which such distribution is allocated.
(g) On each Distribution Date, the Trustee shall distribute to each Class R Certificateholder of record on the next preceding Record Date (other than as provided in Section 9.01 respecting the final distribution), in the manner set forth in Section 4.01(b), such Class R Certificateholder's share (based on the aggregate of the Percentage Interests represented by the Class R Certificates held by such Class R Certificateholder) of the amount transferred from the Excess Proceeds Account to the Certificate Account on the related Certificate Account Deposit Date in accordance with Section 3.25(c). The distribution of any amount in accordance with this Section 4.01(g) shall not have the effect of reducing the Certificate Principal Balance of any Class R Certificate to which such distribution is allocated.
(h) On each Distribution Date, the aggregate amount of Deferred Interest added to the Stated Principal Balance of the Mortgage Loans on the Due Date occurring in the month in which such Distribution Date occurs will be allocated by operation of the payment provisions of 4.01(b) in reduction of Accrued Certificate Interest as follows: first, to the Class R Certificates, second, to the Class SB Certificates, third, to the Class B-2 Certificates, fourth, to the Class B-1 Certificates, fifth, to the Class A-2 Certificates, and sixth, to the Class A-1 Certificates, in each case to the extent of the Accrued Certificate Interest thereon as calculated under the above described provisions without regard to the allocation of Deferred Interest thereto. Deferred Interest allocated to a Class of Certificates on any Distribution Date will be added to the Certificate Principal Balance thereof (or, in the case of any Deferred Interest allocated to the Class SB Certificates, to the Certificate Principal Balance of the Class R
Certificates) on such Distribution Date and will thereafter bear interest at the then applicable Pass-Through Rate.
SECTION 4.02. Statements to Certificateholders.
On each Distribution Date the Trustee shall forward or cause to be forwarded by mail to each Holder of a Certificate and to the Depositor and the Master Servicer a statement as to such distribution setting forth:
(i) (a) the amount of such distribution to the Certificateholders of each Class applied to reduce the Certificate Principal Balance thereof, (b) the aggregate amount included therein representing Principal Prepayments, and (c) the Senior Prepayment Percentage and the Class B Prepayment Percentage applicable to such distribution;
(ii) the amount of such distribution to the Certificateholders of each Class allocable to interest, and the Class SB Accrual Amount and Class R Accrual Amount for such Distribution Date;
(iii) the amount of related servicing compensation received by or on behalf of the Master Servicer and any Sub-Servicers with respect to such Distribution Date and such other customary information as the Master Servicer deems necessary or desirable and supplies to the Trustee, or which a Certificateholder reasonably requests, to enable Certificateholders to
(iv) the aggregate amount of Advances included in such distribution on such Distribution Date;
(v) the number and aggregate Stated Principal Balance of the Mortgage Loans at the close of business on such Distribution Date;
(vi) the Certificate Principal Balance of a Single Certificate of such Class, the aggregate Certificate Principal Balance of the Class A-1 Certificates, the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates and the Class R Certificates, respectively, and the Senior Percentage, Class A-1 Percentage, Class A-2 Percentage, Class B-1 Percentage, Class B-2 Percentage and Class R Percentage, after giving effect to the amounts distributed on such Distribution Date separately identifying any reduction thereof due to Realized Losses other than pursuant to an actual distribution of principal;
(vii) the number and aggregate Stated Principal Balance of Mortgage Loans (a) delinquent 31 to 60 days, (b) delinquent 61 to 90 days, (c) delinquent 91 days or more;
(viii) the number and aggregate Stated Principal Balance of Mortgage Loans as to which foreclosure proceedings have been commenced in each case as of the related Determination Date and which are (a) delinquent 31 to 60 days, (b) delinquent 61 to 90 days, (c) delinquent 91 days or
(ix) the number and aggregate Stated Principal Balance of Mortgage Loans as to which bankruptcy proceedings have been commenced in each case as of the related Determination Date and which are (a) delinquent 31 to 60 days, (b) delinquent 61 to 90 days, (c) delinquent 91 days or
(x) with respect to any Mortgage Loan that became a REO Property during the preceding calendar month, the loan number and Stated Principal Balance of such Mortgage Loan as of the close of business on the Distribution Date in such month and the date of acquisition thereof;
(xi) the book value of any REO Property as of the close of business on the last Business Day of the calendar month preceding the
(xii) the Pass-Through Rate in effect for the preceding calendar month with respect to the Class SA Certificates, the Class A-1 Certificates, the Class A-2 Certificates, the Class B-1 Certificates, the Class B-2 Certificates and the Class R Certificates;
(xiii) the aggregate Accrued Certificate Interest remaining unpaid, if any, for each Class of Certificates, after giving effect to the distribution made on such Distribution Date;
(xiv) the Special Hazard Amount, Fraud Loss Amount and Bankruptcy Amount remaining available immediately after such Distribution Date;
(xv) the aggregate Realized Losses incurred since the Cut-off
(xvi) the aggregate Realized Losses allocated on such
(xvii) the amount of any Excess Proceeds distributed to each class of Certificates.
In the case of information furnished pursuant to subclauses (i)-(iii) above, the amounts shall also be expressed as a dollar amount per Single Certificate.
On each Distribution Date the Trustee shall prepare and forward, to each Holder of a Class R Certificate a statement setting forth the amounts actually distributed with respect to the Class R Certificates on such Distribution Date.
Within a reasonable period of time after the end of each calendar year, the Trustee shall prepare and forward, to each Person who at any time during the calendar year was a Holder of a Senior Certificate, a Class B Certificate, a Class SB Certificate or a Residual Certificate a statement containing the information set forth in subclauses (i) - (iii) above, aggregated for such calendar year or applicable portion thereof during which such person was a Certificateholder. Such obligation of the Trustee shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Trustee pursuant to any requirements of the Code and regulations thereunder as from time to time are in force.
SECTION 4.03. Remittance Reports; Advances by the Master Servicer.
(a) On the second Business Day following each Determination Date, the Master Servicer shall deliver to the Trustee a report, prepared as of the close of business on the Determination Date (the "Determination Date Report"), in the form of an electromagnetic tape or disk. The Determination Date Report and any written information supplemental thereto shall include such information with respect to the Mortgage Loans that is reasonably available to the Master Servicer and that is required by the Trustee for purposes of making the calculations referred to in the following paragraph, as set forth in written specifications or guidelines issued by the Trustee from time to time. Not later than 10:00 A.M. Los Angeles time on the Business Day preceding each Certificate Account Deposit Date, the Trustee shall furnish by telecopy to the Master Servicer a statement (the information in such statement to be made available to Certificateholders or the Depositor by the Master Servicer on request) setting forth (i) the Available Distribution Amount and (ii) the amounts required to be withdrawn from the Custodial Account and deposited into the Certificate Account on the immediately succeeding Certificate Account Deposit Date pursuant to clause (iii) of Section 4.01(a). The Trustee shall have no obligation to recompute, recalculate or verify any information provided to it by the Master Servicer. The determination by the Trustee of such amounts shall, in the absence of obvious error, be presumptively deemed to be correct for all purposes hereunder.
(b) Prior to the close of business on the Business Day preceding each Certificate Account Deposit Date, the Trustee shall notify the Master Servicer of the aggregate amount of Advances required to be made for the related Distribution Date, which shall be in an aggregate amount equal to the aggregate amount of Monthly Payments (net of the related Servicing Fees), less the amount of any related Debt Service Reductions or reductions in the amount of interest collectable from the Mortgagor pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940, on the Outstanding Mortgage Loans as of the related Due Date, which Monthly Payments were delinquent as of the close of business as of the related Determination Date; provided that following the reduction of the Certificate Principal Balances of the Class A-2 Certificates, the Class B Certificates and the Class R Certificates to zero and the occurrence of the Accretion Termination Date for the Class SB Certificates, no Advance shall be made if it would be a Nonrecoverable Advance. On or before 2:00 P.M. Los Angeles time on each Certificate Account Deposit Date, the Master Servicer shall either (i) deposit in the Certificate Account from its own funds, or funds received therefor from the Sub-Servicers, an amount equal to the Advances to be made by the Master Servicer in respect of the related Distribution Date,
(ii) withdraw from amounts on deposit in the Custodial Account and deposit in the Certificate Account all or a portion of the amounts held for future distribution in discharge of any such Advance, or (iii) make advances in the form of any combination of (i) and (ii) aggregating the amount of such Advance. Any portion of the amounts held for future distribution so used shall be replaced by the Master Servicer by deposit in the Certificate Account on or before 11:00 A.M. Los Angeles time on any future Certificate Account Deposit Date to the extent that funds attributable to the Mortgage Loans that are available in the Custodial Account for deposit in the Certificate Account on such Certificate Account Deposit Date shall be less than payments to Certificateholders required to be made on the following Distribution Date. The amount of any reimbursement pursuant to any clause under Section 4.01(b), in respect of outstanding Advances on any Distribution Date shall be allocated to specific Monthly Payments due but delinquent for previous Due Periods, which allocation shall be made, to the extent practicable, to Monthly Payments which have been delinquent for the longest period of time. Such allocations shall be conclusive for purposes of reimbursement to the Master Servicer from recoveries on related Mortgage Loans pursuant to Section 3.11. The determination by the Master Servicer that it has made a Nonrecoverable Advance or that any proposed Advance, if made, would constitute a Nonrecoverable Advance, shall be evidenced by a certificate of a Servicing Officer delivered to the Seller and the Trustee. The Trustee shall deposit all funds it receives pursuant to this Section 4.03 into the Certificate Account.
(c) In the event that the Master Servicer determines as of the Business Day preceding any Certificate Account Deposit Date that it will be unable to deposit in the Certificate Account an amount equal to the Advance required to be made for the immediately succeeding Distribution Date in the amount determined by the Trustee pursuant to paragraph (b) above, it shall give notice to the Trustee of its inability to advance (such notice may be given by telecopy), not later than 3:00 P.M., Los Angeles time, on such Business Day, specifying the portion of such amount that it will be unable to deposit. Not later than 5:30 P.M., Los Angeles time, on the Certificate Account Deposit Date, unless by such time the Master Servicer shall have directly or indirectly deposited in the Certificate Account the entire amount of the Advances required to be made for the related Distribution Date, pursuant to Section 7.01, the Trustee shall (a) terminate all of the rights and obligations of the Master Servicer under this Agreement in accordance with Section 7.01 and (b) assume the rights and obligations of the Master Servicer hereunder, including the obligation to deposit in the Certificate Account an amount equal to the Advance for the immediately succeeding Distribution Date; provided, however, that the Trustee's obligation to advance such amounts shall be as of the related Distribution Date.
SECTION 4.04. Allocation of Realized Losses.
Prior to each Distribution Date, the Master Servicer shall determine the total amount of Realized Losses, if any, that resulted from any Cash Liquidation, Debt Service Reduction, Deficient Valuation or REO Disposition that occurred during the related Prepayment Period. The amount of each Realized Loss shall be evidenced by an Officers' Certificate by the Master Servicer. Realized Losses shall be allocated among the various Classes of Certificates as determined by the Trustee in accordance with the following provisions. All other than Excess Special Hazard Losses, Extraordinary Losses, Excess Bankruptcy Losses or Excess Fraud Losses, shall be allocated first to the Class R Certificates, then to the Class SB Certificates (to the extent of the interest portions of such Realized Losses), then to the Class B-2 Certificates, then to the Class B-1 Certificates, then to the Class A-2 Certificates, in each case (other than for the Class SB Certificates) until the Certificate Principal Balance thereof has been reduced to zero, and, thereafter, the principal portion of any Realized Losses on the Mortgage Loans will be allocated to the Class A-1 Certificates and the interest portion thereof to the Class SA Certificates and Class A-1 Certificates on a pro rata basis. As used herein, an allocation of a Realized Loss on a "pro rata basis" among two or more specified Classes of Certificates means an allocation on a pro rata basis, without priority among the various Classes so specified, to each such Class of Certificates on the basis of the then outstanding Certificate Principal Balances thereof in the case of the principal portion of a Realized Loss or based on the Accrued Certificate Interest thereon in the case of an interest portion of a Realized Loss. Any allocation of the principal portion of Realized Losses (other than Debt Service Reductions) to a Certificate (except as follows) shall be made by reducing the Certificate Principal Balance thereof by the amount so allocated, which allocation shall be deemed to have occurred at the close of business on such Distribution Date. Any allocation of the principal portion of Realized Losses (other than Debt Service Reductions) to the most subordinate Class of Certificates outstanding, shall be made by operation of the definition of "Certificate Principal Balance," and by operation of the provisions of Section 4.01(b). Allocations of the interest portions of Realized Losses shall be made by operation of the definition of "Accrued Certificate Interest" and by operation of the provisions of Section 4.01(b). Allocations of the principal portion of Debt Service Reductions shall be made by operation of the provisions of Section 4.01(b). All Realized Losses and all other losses allocated to a Class of Certificates hereunder will be allocated among the Certificates of such Class in proportion to the Percentage Interests evidenced thereby. For purposes of the foregoing, the Trustee shall maintain records relating to the Bankruptcy Amount, Fraud Loss Amount and Special Hazard Amount as in effect from time to time.
SECTION 4.05. Information Reports to be Filed by the Master Servicer.
The Master Servicer or Sub-Servicers shall file information returns with respect to the receipt of mortgage interest received in a trade or business, reports of foreclosures and abandonments of any Mortgaged Property and cancellation of indebtedness income with respect to any Mortgaged Property as required by Sections 6050H, 6050J and 6050P of the Code, respectively, and promptly deliver upon such filing to the Trustee an Officer's Certificate stating that such reports have been filed. Such reports shall be in form and substance sufficient to meet the reporting requirements imposed by such Sections 6050H, 6050J and 6050P of the Code.
SECTION 4.06. Compliance with Withholding Requirements.
Notwithstanding any other provision of this Agreement, the Trustee shall comply with all federal withholding requirements respecting payments to Certificateholders of interest or original issue discount on the Mortgage Loans, and payments of interest or discount on amounts invested by the Trustee as agent for Certificateholders pursuant to an election made under Section 4.01 hereof, that the Trustee reasonably believes are applicable under the Code. The consent of Certificateholders shall not be required for such withholding. In the event the Trustee withholds any amount from interest or original issue discount payments or advances thereof to any Certificateholder pursuant to federal withholding requirements, the Trustee shall, together with its monthly report to such Certificateholders pursuant to Section 4.02 hereof, indicate such amount withheld.
(a) The Certificates will be substantially in the respective forms annexed hereto as Exhibits A, B-1, B-2 and B-3. The Certificates will be issuable in registered form only. Except as provided in Section 5.01(b), the Class SA Certificates and the Class A-1 Certificates shall be issuable in denominations evidencing initial Certificate Principal Balances or Notional Amounts, as applicable, of not less than $1.00 and integral multiples of $1.00 in excess thereof. The Class A-2 Certificates shall be issuable in denominations evidencing initial Certificate Principal Balances of not less than $25,000 and integral multiples of $1,000 in excess thereof, except that one Certificate of the Class A-2 Certificates may be issued in an amount evidencing the sum of the authorized minimum denomination thereof and the remainder of the aggregate initial Certificate Principal Balance of such Class. The Class B Certificates will be issuable in denominations evidencing initial Certificate Principal Balances of not less than $250,000 and integral multiples of $1,000 in excess thereof, except that one Certificate of each of the Class B Certificates may be issued in an amount evidencing the sum of the authorized minimum denomination thereof and the remainder of the aggregate initial Certificate Principal Balance of such Class. The Class SB Certificates will be issuable in denominations evidencing initial Notional Amounts of not less than $250,000 and integral multiples of $1,000 in excess thereof, except that one Certificate of the Class SB Certificates may be issued in an amount evidencing the sum of the authorized minimum denomination thereof and the remainder of the aggregate initial Notional Amount of such Class. The Residual Certificates will be issuable in denominations of any Percentage Interest representing 5.00% and multiples of 0.01% in excess thereof; provided, however, that one Class R Certificate may be issued to the "tax matters person" pursuant to Article X, in a minimum denomination representing a Percentage Interest of not less than 0.01%.
Upon original issue, the Certificates shall, upon the written request of the Depositor executed by an officer of the Depositor, be executed and delivered by the Trustee, authenticated by the Trustee and delivered to or upon the order of the Depositor upon receipt by the Trustee of the documents specified in Section 2.01. The Certificates shall be executed by manual or facsimile signature on behalf of the Trustee in its capacity as trustee hereunder by a Responsible Officer. Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Trustee shall bind the Trustee, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Certificates or did not hold such offices at the date of such Certificates. No Certificate shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates issued on the Closing Date shall be dated the Closing Date and any Certificates delivered thereafter shall be dated the date of their authentication.
(b) The Class SA Certificates and the Class A-1 Certificates shall initially be issued as one or more Certificates registered in the name of the Depository or its nominee and, except as provided below, registration of such Certificates may not be transferred by the Trustee except to another Depository that agrees to hold such Certificates for the respective Certificate Owners with Ownership Interests therein. The Certificate Owners shall hold their respective Ownership Interests in and to each of the Class SA Certificates and the Class A-1 Certificates through the book-entry facilities of the Depository and, except as provided below, shall not be entitled to Definitive Certificates in respect of such Ownership Interests. All transfers by Certificate Owners of their respective Ownership Interests in the Book-Entry Certificates shall be made in accordance with the procedures established by the Depository Participant or brokerage firm representing such Certificate Owner. Each Depository Participant shall transfer the Ownership Interests only in the Book-Entry Certificates of Certificate Owners it represents or of brokerage firms for which it acts as agent in accordance with the Depository's normal procedures.
The Trustee, the Master Servicer and the Depositor may for all purposes (including the making of payments due on the respective Classes of Book-Entry Certificates) deal with the Depository as the authorized representative of the Certificate Owners with respect to the respective Classes of Book-Entry Certificates for the purposes of exercising the rights of Certificateholders hereunder. The rights of Certificate Owners with respect to the respective Classes of Book-Entry Certificates shall be limited to those established by law and agreements between such Certificate Owners and the Depository Participants and brokerage firms representing such Certificate Owners. Multiple requests and directions from, and votes of, the Depository as Holder of any Class of Book-Entry Certificates with respect to any particular matter shall not be deemed inconsistent if they are made with respect to different Certificate Owners. The Trustee shall utilize the next available record date in connection with solicitations of consents from or voting by Certificateholders and shall give notice to the Depository of such record date.
If (i)(A) the Depositor advises the Trustee in writing that the Depository is no longer willing or able to properly discharge its responsibilities as Depository and (B) the Depositor is unable to locate a qualified successor or (ii) the Depositor at its option advises the Trustee in writing that it elects to terminate the book-entry system through the Depository, the Trustee shall notify all Certificate Owners, through the Depository, of the occurrence of any such event and of the availability of Definitive Certificates to Certificate Owners requesting the same. Upon surrender to the Trustee of the Book-Entry Certificates by the Depository, accompanied by registration instructions from the Depository for registration of transfer, the Trustee shall, at the Depositor's expense, issue the Definitive Certificates. The Definitive Certificates shall be issuable in denominations evidencing initial Certificate Principal Balances or Notional Amounts, as applicable, of $1,000 and integral multiples of $1.00 in excess thereof, except that any such Definitive Certificate that was represented by a Book-Entry evidencing an initial Certificate Principal Balance or Notional Amount of less than $1,000 immediately prior to the issuance of such Definitive Certificate shall be issued in a denomination, the initial Certificate Principal Balance or Notional Amount, as the case may be evidenced by such Book-Entry Certificate. Neither the Depositor, the Master Servicer nor the Trustee shall be liable for any actions taken by the Depository or its nominee, including, without limitation, any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Certificates, all references herein to obligations imposed upon or to be performed by the Depository in connection with the issuance of the Definitive Certificates pursuant to this Section 5.01 shall be deemed to be imposed upon and performed by the Trustee, and the Trustee and the Master Servicer shall recognize the Holders of the Definitive Certificates as Certificateholders hereunder.
SECTION 5.02. Registration of Transfer and Exchange of Certificates.
(a) The Trustee shall maintain a Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Trustee shall provide for the registration of Certificates and of transfers and exchanges of Certificates as herein provided.
(b) Except as provided in Section 5.02(c), no transfer, sale, pledge or other disposition of a Class SB Certificate or a Class R Certificate shall be made unless such transfer, sale, pledge or other disposition is exempt from the registration requirements of the Securities Act of 1933, as amended (the "Act"), and any applicable state securities laws or is made in accordance with said Act and laws. In the event that a transfer of a Class SB Certificate or a Class R Certificate is to be made under this Section 5.02(b), (i) the Depositor may direct the Trustee to require an Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee and the Depositor that such transfer shall be made pursuant to an exemption, describing the applicable exemption and the basis therefor, from said Act and laws or is being made pursuant to said Act and laws, which Opinion of Counsel shall not be an expense of the Trustee, the Depositor or the Master Servicer, provided that such Opinion of Counsel will not be required in connection with the initial transfer of any such Certificate by the Depositor or any affiliate thereof, to a non-affiliate of the Depositor and (ii) the Trustee shall require the transferee to execute a representation letter, substantially in the form of Exhibit G-1 hereto, and the Trustee shall require the transferor to execute a representation letter, substantially in the form of Exhibit G-2 hereto, each acceptable to and in form and substance satisfactory to the Depositor and the Trustee certifying to the Depositor and the Trustee the facts surrounding such transfer, which representation letters shall not be an expense of the Trustee, the Depositor or the Master Servicer; provided however that such representation letters will not be required in connection with any transfer of any such Certificate by the Depositor to an affiliate of the Depositor and the Trustee shall be entitled to conclusively rely upon a representation (which, upon the request of the Trustee, shall be a written representation) from the Depositor of the status of such transferee as an affiliate of the Depositor. Any such Certificateholder desiring to effect such transfer shall, and does hereby agree to, indemnify the Trustee, the the Master Servicer against any liability that may result if the transfer is not so exempt or is not made in accordance with such applicable federal and state laws.
(c) Transfers of Class SB and Class R Certificates may be made in accordance with this Section 5.02(c) if the prospective transferee of such a Certificate provides the Trustee and the Depositor with an investment letter substantially in the form of Exhibit H attached hereto, which investment letter shall not be an expense of the Trustee, the Depositor or the Master Servicer, and which investment letter states that, among other things, such transferee is a "qualified institutional buyer" as defined under Rule 144A. Such transfers shall be deemed to have complied with the requirements of Section 5.02(b) hereof; provided, however, that no Transfer of any of the Class SB and Class R Certificates may be made pursuant to this Section 5.02(c) by the Depositor. Any such Certificateholder desiring to effect such transfer shall, and does hereby agree to, indemnify the Trustee, the Depositor and the Master Servicer against any liability that may result if the transfer is not so exempt or is not made in accordance with such applicable federal and state laws.
(d) The Trustee shall require an Opinion of Counsel from a prospective transferee prior to the transfer of any Class A-2 Certificate, Class B-1 Certificate, Class B-2 Certificate, Class SB Certificate or Class R Certificate to any employee benefit plan or other retirement arrangement, including individual retirement accounts and Keogh plans, that is subject to Section 406 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or Section 4975 of the Code (any of the foregoing, a "Plan"), to a trustee or other Person acting on behalf of any Plan, or to any other person who is using "plan assets" of any Plan to effect such acquisition (including any insurance company using funds in its general or separate accounts that may constitute "plan assets"). Such Opinion of Counsel must establish to the satisfaction of the Depositor and the Trustee that such disposition will not violate the prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Code. Neither the Depositor, the Master Servicer nor the Trustee will be required to obtain such Opinion of Counsel on behalf of any prospective transferee. In the case of any transfer of the foregoing Certificates to an insurance company, in lieu of such Opinion of Counsel, the Trustee shall require a certification in the form of Exhibit G-5 (or in such other form as shall be mutually agreed upon by the Depositor and the Trustee) substantially to the effect that all funds used by such transferee to purchase such Certificates will be funds held by it in its general account which it reasonably believes do not constitute "plan assets" of any Plan (as defined above); provided however that such certification will not be required in connection with any transfer of any such Certificate by the Depositor to an affiliate of the Depositor and the Trustee shall be entitled to conclusively rely upon a representation (which, upon the request of the Trustee, shall be a written representation) from the Depositor of the status of such transferee as an affiliate of the Depositor. The permission of any transfer in violation of the restriction on transfer set forth in this paragraph shall not constitute a default or an Event of Default.
(e)(i) Each Person who has or who acquires any Ownership Interest in a Residual Certificate shall be deemed by the acceptance or acquisition of such Ownership Interest to have agreed to be bound by the following provisions and to have irrevocably authorized the Trustee or its designee under clause (iii)(A) below to deliver payments to a Person other than such Person and to negotiate the terms of any mandatory sale under clause (iii)(B) below and to execute all instruments of transfer and to do all other things necessary in connection with any such sale. The rights of each Person acquiring any Ownership Interest in a Class R Certificate are expressly subject to the following provisions:
(A) Each Person holding or acquiring any Ownership Interest in a Residual Certificate shall be a Permitted Transferee and shall promptly notify the Trustee of any change or impending change in its status as a Permitted Transferee.
(B) In connection with any proposed Transfer of any Ownership Interest in a Residual Certificate, the Trustee shall require delivery to it, and shall not register the Transfer of any Residual Certificate until its receipt of (I) an affidavit and agreement (a "Transfer Affidavit and Agreement" in the form attached hereto as Exhibit G-3) from the proposed Transferee, in form and substance satisfactory to the Master Servicer and the Trustee representing and warranting, among other things, that it is a Permitted Transferee, that it is not acquiring its Ownership Interest in the Residual Certificate that is the subject of the proposed Transfer as a nominee, trustee or agent for any Person who is not a Permitted Transferee, that for so long as it retains its Ownership Interest in a Residual Certificate, it will endeavor to remain a Permitted Transferee, and that it has reviewed the provisions of this Section 5.02 and agrees to be bound by them, and (II) a certificate, in the form attached hereto as Exhibit G-4, from the Holder wishing to transfer the Residual Certificate, in form and substance satisfactory to the Master Servicer and the Trustee representing and warranting, among other things, that no purpose of the proposed Transfer is to impede the assessment or collection of tax.
(C) Notwithstanding the delivery of a Transfer Affidavit and Agreement by a proposed Transferee under clause (B) above, if a Responsible Officer of the Trustee assigned to this transaction has actual knowledge that the proposed Transferee is not a Permitted Transferee, no Transfer of an Ownership Interest in a Residual Certificate to such proposed Transferee shall be effected.
(D) Each Person holding or acquiring any Ownership Interest in a Residual Certificate shall agree (x) to require a Transfer Affidavit and Agreement from any other Person to whom such Person attempts to transfer its Ownership Interest in a Residual Certificate and (y) not to transfer its Ownership Interest unless it provides a certificate to the Trustee in the form attached hereto as Exhibit G-4.
(E) Each Person holding or acquiring an Ownership Interest in a Residual Certificate, by purchasing an Ownership Interest in such Certificate, agrees to give the Trustee written notice that it is a "pass-through interest holder" within the meaning of Temporary Treasury Regulations Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an Ownership Interest in a Residual Certificate, if it is "a pass-through
or is holding an Ownership Interest in a Residual Certificate on behalf of a "pass-through interest holder."
(ii) The Trustee will register the Transfer of any Residual Certificate only if it shall have received the Transfer Affidavit and Agreement in the form attached hereto as Exhibit G-3, a certificate of the Holder requesting such transfer in the form attached hereto as Exhibit G-4 and all of such other documents as shall have been reasonably required by the Trustee as a condition to such registration. Transfers of the Residual Certificates to Non-United States Persons and Disqualified Organizations are prohibited.
(iii) (A) If any Disqualified Organization shall become a Holder of a Residual Certificate, then the last preceding Permitted Transferee shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Residual Certificate. If a Non-United States Person shall become a Holder of a Residual Certificate, then the last preceding Permitted Transferee shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Residual Certificate. If a transfer of a Residual Certificate is disregarded pursuant to the provisions of Treasury Regulations Section 1.860E-1 or Section 1.860G-3, then the last preceding Permitted Transferee shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Residual Certificate. The Trustee shall be under no liability to any Person for any registration of Transfer of a Residual Certificate that is in fact not permitted by this Section 5.02 or for making any payments due on such Certificate to the holder thereof or for taking any other action with respect to such holder under the provisions of this Agreement.
(B) If any purported Transferee shall become a Holder of a Residual Certificate in violation of the restrictions in this Section 5.02 and to the extent that the retroactive restoration of the rights of the Holder of such Residual Certificate as described in clause (iii)(A) above shall be invalid, illegal or unenforceable, then the Trustee shall have the right, without notice to the holder or any prior holder of such Residual Certificate, to sell such Residual Certificate to a purchaser selected by the Trustee on such terms as the Trustee may choose. Such purported Transferee shall promptly endorse and deliver each Residual Certificate in accordance with the instructions of the Trustee. Such purchaser may be the Trustee itself. The proceeds of such sale, net of the commissions (which may include commissions payable to the Trustee), expenses and taxes due, if any, will be remitted by the Trustee to such purported Transferee. The terms and conditions of any sale under this clause (iii)(B) shall be determined in the sole discretion of the Trustee, and the Trustee shall not be liable to any Person having an Ownership Interest in a Residual Certificate as a result of its exercise of such discretion.
(iv) The Trustee shall make available to the Internal Revenue Service and those Persons specified by the REMIC Provisions, all information necessary to compute any tax imposed (A) as a result of the transfer of an ownership interest in a Residual Certificate to any Person who is a Disqualified Organization, including the information regarding "excess inclusions" of such Class R Certificates required to be provided to the Internal Revenue Service and certain Persons as described in Treasury Regulations Sections 1.860D-1(b)(5) and 1.860E- 2(a)(5), and (B) as a result of any regulated investment company, real estate investment trust, common trust fund, partnership, trust, estate or organization described in Section 1381 of the Code that holds an Ownership Interest in a Residual Certificate having as among its record holders at any time any Person who is a Disqualified Organization. The Trustee may charge and shall be entitled to reasonable compensation for providing such information as may be required from those Persons which may have had a tax imposed upon them as specified in clauses (A) and (B) of this paragraph for providing such information.
(f) Subject to the preceding paragraphs, upon surrender for registration of transfer of any Certificate at the office of the Trustee maintained for such purpose, the Trustee shall execute and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Certificates of the same Class of a like aggregate initial Certificate Principal Balance. Every Certificate surrendered for transfer shall be accompanied by notification of the account of the designated transferee or transferees for the purpose of receiving distributions pursuant to Section 4.01 by wire transfer, if any such transferee desires and is eligible for distribution by wire transfer.
(g) At the option of the Certificateholders, Certificates may be exchanged for other Certificates of authorized denominations of the same Class of a like aggregate initial Certificate Principal Balance, upon surrender of the Certificates to be exchanged at the office of the Trustee. Whenever any Certificates are so surrendered for exchange the Trustee shall execute, authenticate and deliver the Certificates which the Certificateholder making the exchange is entitled to receive. Every Certificate presented or surrendered for transfer or exchange shall (if so required by the Trustee) be duly endorsed by, or be accompanied by a written instrument of transfer in the form satisfactory to the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing.
(h) No service charge shall be made to the Certificateholders for any transfer or exchange of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Certificates.
(i) All Certificates surrendered for transfer and exchange shall be canceled and retained by the Trustee in accordance with the Trustee's standard procedures.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Certificate, and (ii) there is delivered to the Trustee such security or indemnity as may be required by it to save it harmless, then, in the absence of notice to the Trustee that such Certificate has been acquired by a bona fide purchaser, the Trustee shall execute, authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of the same Class and initial Certificate Principal Balance. Upon the issuance of any new Certificate under this Section, the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Any replacement Certificate issued pursuant to this Section shall constitute complete and indefeasible evidence of ownership in the Trust Fund, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
The Depositor, the Master Servicer, the Trustee and any agent of any of them may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Section 4.01 and for all other purposes whatsoever, and neither the Depositor, the Master Servicer, the Trustee nor any agent of any of them shall be affected by notice to the contrary.
THE DEPOSITOR AND THE MASTER SERVICER
SECTION 6.01. Liability of the Depositor and the Master Servicer.
The Depositor and the Master Servicer each shall be liable in accordance herewith only to the extent of the obligations specifically imposed upon and undertaken by the Depositor and the Master Servicer herein.
SECTION 6.02. Merger, Consolidation or Conversion of the Depositor or the Master Servicer.
The Depositor and the Master Servicer each will keep in full effect its existence, rights and franchises as a corporation under the laws of the state of its incorporation, and each will obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement, the Certificates or any of the Mortgage Loans and to perform its respective duties under this Agreement.
Any Person into which the Depositor may be merged, consolidated or converted, or any corporation resulting from any merger or consolidation to which the Depositor shall be a party, or any Person succeeding to the business of the Depositor, shall be the successor of the Depositor hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding.
Any Person into which the Master Servicer may be merged, consolidated or converted, or any corporation resulting from any merger or consolidation to which the Master Servicer shall be a party, or any Person succeeding to the business of the Master Servicer (including by a transfer of servicing portfolio or operations by the Master Servicer), shall be the successor of the Master Servicer hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, however, that the successor or surviving Person to the Master Servicer must meet the criteria set forth in Section 7.03 for a successor Master Servicer and shall be qualified to sell mortgage loans to and service mortgage loans for FNMA or FHLMC.
SECTION 6.03. Limitation on Liability of the Depositor, the Master Servicer and Others.
Neither the Depositor, the Master Servicer nor any of the directors, officers, employees or agents of the Depositor or the Master Servicer shall be under any liability to the Trust Fund or the Certificateholders for any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Depositor or the Master Servicer (but this protect the above described persons) against any breach of warranties or representations made herein, or against any specific liability imposed on the Master Servicer pursuant to Section 3.01 or any other Section hereof; and provided further that this provision shall not protect the Depositor, the Master Servicer or any such person, against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or negligence in the performance of duties or by reason of reckless disregard of obligations and duties hereunder. The Depositor, the Master Servicer and any director, officer, employee or agent of the Depositor or the Master Servicer may rely in good faith on any document of any kind PRIMA FACIE properly executed and submitted by any Person respecting any matters arising hereunder. The Depositor, the Master Servicer and any director, officer, employee or agent of the Depositor or the Master Servicer shall be indemnified and held harmless by the Trust Fund against any loss, liability or expense incurred in connection with any legal action relating to this Agreement or the Certificates, other than any loss, liability or expense related to Master Servicer's servicing obligations with respect to any specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense shall be otherwise reimbursable pursuant to this Agreement) or related to the Master Servicer's obligations under Section 3.01, or any loss, liability or expense incurred by reason of willful misfeasance, bad faith or negligence in the performance of duties hereunder or by reason of reckless disregard of obligations and duties hereunder. Neither the Depositor nor the Master Servicer shall be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its respective duties under this Agreement and which in its opinion may involve it in any expense or liability; provided, however, that the Depositor or the Master Servicer may in its sole discretion undertake any such action which it may deem necessary or desirable with respect to this Agreement and the rights and duties of the parties hereto and the interests of the Certificateholders hereunder. In such event, the legal expenses and costs of such action and any liability resulting therefrom (except any action or liability related to the Master Servicer's obligations under Section 3.01) shall be expenses, costs and liabilities of the Trust Fund, and the Depositor and the Master Servicer shall be entitled to be reimbursed therefor from the Certificate Account as provided in Section 3.11, any such right of reimbursement being prior to the rights of Certificateholders to receive any amount in the Certificate Account.
SECTION 6.04. Limitation on Resignation of the Master Servicer.
The Master Servicer shall not resign from the obligations and duties hereby imposed on it except (a) upon appointment of a successor servicer and receipt by the Trustee of a letter from the Rating Agency that such a resignation and appointment will not, in and of itself, result in a downgrading of the Certificates or (b) upon determination that its duties hereunder are no longer permissible under applicable law. Any such determination permitting the resignation of the Master Servicer shall be evidenced by an Opinion of Counsel to such effect delivered to the Trustee. No such resignation shall become effective until the Trustee or a successor servicer shall have assumed the Master Servicer's responsibilities, duties, liabilities and obligations hereunder.
SECTION 7.01. Events of Default.
"Event of Default", wherever used herein, means any one of the following events:
(i) any failure by the Master Servicer to remit to the Trustee for distribution to the Certificateholders any payment (other than an Advance) required to be made under the terms of the Certificates or this Agreement which continues unremedied for a period of five days after the date upon which written notice of such failure, requiring the same to be remedied, shall have been given to the Master Servicer by the Depositor (with a copy to the Trustee) or the Trustee, or to the Master Servicer, the Depositor and the Trustee by the Holders of Certificates entitled to at least 25% of
(ii) any failure on the part of the Master Servicer duly to observe or perform in any material respect any other of the covenants or agreements on the part of the Master Servicer contained in the Certificates or in this Agreement (including any breach of the Master Servicer's representations and warranties pursuant to Section 2.03(a) which materially and adversely affects the interests of the Certificateholders) which continues unremedied for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Master Servicer by the Depositor (with a copy to the Trustee) or the Trustee, or to the Master Servicer, the Depositor and the Trustee by the Holders of Certificates entitled to at least 25% of the Voting Rights; or
(iii) a decree or order of a court or agency or supervisory authority having jurisdiction in an involuntary case under any present or future federal or state bankruptcy, insolvency or similar law or the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Master Servicer and such decree or order shall have remained in force undischarged or unstayed for a period of 60 consecutive days; or
(iv) the Master Servicer shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to the Master Servicer or of or relating to all or substantially all of its property; or
(v) the Master Servicer shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of or otherwise voluntarily commence a case or proceeding under any
reorganization or other similar statute, make an assignment for the benefit of its credi- tors, or voluntarily suspend payment of its obligations; or
(vi) the Master Servicer shall fail to deposit in the Certificate Account on any Certificate Account Deposit Date an amount equal to any required Advance.
If an Event of Default described in clauses (i) - (v) of this Section shall occur, then, and in each and every such case, so long as such Event of Default shall not have been remedied, the Depositor or the Trustee may, and at the direction of the Holders of Certificates entitled to at least 51% of the Voting Rights, the Trustee shall, by notice to the Master Servicer (and to the Depositor if given by the Trustee or to the Trustee if given by the Depositor) terminate all of the rights and obligations of the Master Servicer under this Agreement and in and to the Trust Fund, other than its rights as a Certificateholder hereunder. If an Event of Default described in clause (vi) hereof shall occur, the Trustee shall, by notice to the Master Servicer and the Depositor, terminate all of the rights and obligations of the Master Servicer under this Agreement and in and to the Trust Fund, other than its rights as a Certificateholder hereunder; provided, however, that if the Trustee determines that the failure by the Master Servicer to make any required Advance was due to circumstances beyond its control, and the required Advance was otherwise made, the Trustee shall not terminate the Master Servicer. On or after the receipt by the Master Servicer of such notice, all authority and power of the Master Servicer under this Agreement, whether with respect to the Certificates (other than as a holder thereof) or the Mortgage Loans or otherwise, shall pass to and be vested in the Trustee pursuant to and under this Section, and, without limitation, the Trustee is hereby authorized and empowered to execute and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement or assignment of the Mortgage Loans and related documents, or otherwise. The Master Servicer agrees to cooperate with the Trustee in effecting the termination of the Master Servicer's responsibilities and rights hereunder, including, without limitation, the transfer to the Trustee or its appointed agent for administration by it of all cash amounts which shall at the time be deposited by the Master Servicer or should have been deposited to the Custodial Account, the Excess Proceeds Account or the Certificate Account or thereafter be received with respect to the Mortgage Loans. The Trustee shall not be deemed to have breached any obligation hereunder as a result of a failure to make or delay in making any distribution as and when required hereunder caused by the failure of the Master Servicer to remit any amounts received on it or to deliver any documents held by it with respect to the Mortgage Loans. For purposes of this Section 7.01, the Trustee shall not be deemed to have knowledge of an Event of Default unless a Responsible Officer of the Trustee assigned to and working in the Trustee's Corporate Trust Division has actual knowledge thereof or unless notice of any event which is in fact such an Event of Default is received by the Trustee and such notice references the Certificates, the Trust Fund or this Agreement.
Notwithstanding any termination of the activities of Temple-Inland Mortgage Corporation ("TIMC") in its capacity as Master Servicer hereunder, TIMC shall be of any Late Collection of a Monthly Payment on a Mortgage Loan which was due prior to the notice terminating TIMC's rights and obligations as Master Servicer hereunder and received after such notice, that portion to which TIMC would have been entitled pursuant to Sections 3.11(ii), (iii), (iv), (v) and (viii) and Sections 4.01(b)(iii), (vi), (ix), (xii), (xxi) and (xxvi) as well as its Servicing Fee in respect thereof, and any other amounts payable to TIMC hereunder the entitlement to which arose prior to the termination of its activities hereunder.
The Trustee shall determine, beginning with the Determination Date in December 1996 and as determined by the Trustee annually thereafter based on information provided by the Master Servicer, whether the following tests are satisfied: (a) if such Determination Date is in or before December 2000, whether the related Total Expected Losses are greater than 50% of the Initial Loss Coverage or (b) if such Determination Date is after December 2000 and in or before December 2005, whether the related Total Expected Losses are greater than 75% of the Initial Loss Coverage. If either of the tests in the previous sentence are satisfied, a termination event (a "Termination Event") shall occur, and the Trustee shall give notice to the Certificateholders, the Depositor and the Master Servicer within 5 days of the occurrence of such Termination Event, and upon the direction of Holders of Certificates entitled to at least 51% of the Voting Rights, received within 90 days of such notice, the Trustee shall, by notice to the Master Servicer and the Depositor, terminate all of the rights and obligations of the Master Servicer under this Agreement and in and to the Trust Fund, other than its rights as a Certificateholder hereunder. On or after the receipt by the Master Servicer of such notice, all authority and power of the Master Servicer under this Agreement, whether with respect to the Certificates (other than as a holder thereof) or the Mortgage Loans or otherwise, shall pass to and be vested in the Trustee pursuant to and under this Section, and, without limitation, the Trustee is hereby authorized and empowered to execute and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement or assignment of the Mortgage Loans and related documents, or otherwise. The Master Servicer agrees to cooperate with the Trustee in effecting the termination of the Master Servicer's responsibilities and rights hereunder, including, without limitation, the transfer to the Trustee or its appointed agent for administration by it of all cash amounts which shall at the time be deposited by the Master Servicer or should have been deposited to the Custodial or the Certificate Account or thereafter be received with respect to the Mortgage Loans. The Trustee shall not be deemed to have breached any obligation hereunder as a result of a failure to make or delay in making any distribution as and when required hereunder caused by the failure of the Master Servicer to remit any amounts received on it or to deliver any documents held by it with respect to the Mortgage Loans.
SECTION 7.03. Trustee to Act; Appointment of Successor.
On and after the time the Master Servicer receives a notice of termination pursuant to Section 7.01 or Section 7.02, the Trustee or its appointed agent shall be the successor in all respects to the Master Servicer in its capacity as Master Servicer under this Agreement and the transactions set forth or provided for herein and shall be subject thereafter to all the responsibilities, duties and liabilities relating thereto placed on the Master Servicer including the obligation to make Advances which have been or will be required to be made (except for the responsibilities, duties and liabilities contained in Section 2.03 and its obligations to deposit amounts in respect of losses pursuant to Sections 3.12 and 4.01(c)) by the terms and provisions hereof; and provided further, that any failure to perform such duties or responsibilities caused by the Master Servicer's failure to provide information required by Section 4.03 shall not be considered a default by the Trustee hereunder. As compensation therefor, the Trustee shall be entitled to all funds relating to the Mortgage Loans which the Master Servicer would have been entitled to charge to the Custodial Account and the Certificate Account if the Master Servicer had continued to act hereunder. Notwithstanding the above, the Trustee may, if it shall be unwilling to so act, or shall, if it is unable to so act (exclusive of the obligations set forth in Section 4.03) or if the Holders of Certificates entitled to at least 51% of the Voting Rights so request in writing to the Trustee, appoint, or petition a court of competent jurisdiction to appoint, any mortgage loan servicing institution (acceptable to the Rating Agencies) having a net worth of not less than $10,000,000 (or other amount acceptable to the Rating Agencies) as the successor to the Master Servicer hereunder in the assumption of all or any part of the responsibilities, duties or liabilities of the Master Servicer hereunder. Pending appointment of a successor to the Master Servicer hereunder, the Trustee shall act in such capacity as hereinabove provided. In connection with such appointment and assumption, the Trustee may make such arrangements for the compensation of such successor out of payments on Mortgage Loans as it and such successor shall agree; provided, however, that no such compensation shall be in excess of that permitted the Master Servicer hereunder. The Seller, the Trustee and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession.
Any successor, including the Trustee, to the Master Servicer shall maintain in force during its term as master servicer hereunder policies and fidelity bonds to the same extent as the Master Servicer is so required pursuant to Section 3.18.
SECTION 7.04. Notification to Certificateholders.
(a) Upon any such termination or appointment of a successor to the Master Servicer, the Trustee shall give prompt notice thereof to Certificateholders.
(b) Within 60 days after the occurrence of any Event of Default, the Trustee shall transmit by mail to all Holders of Certificates notice of each such Event of Default hereunder known to the Trustee, unless such Event of Default shall have been cured or waived.
SECTION 7.05. Waiver of Events of Default.
The Holders representing at least 66% of the Voting Rights of Certificates affected by a default or Event of Default hereunder, may waive such default or Event of Default; PROVIDED, HOWEVER, that (a) a default or Event of Default under clause (i) of Section 7.01 may be waived only by all of the Holders of Certificates affected by such default or Event of Default and (b) no waiver pursuant to this Section 7.05 shall affect the Holders of Certificates in the manner set forth in the third paragraph of Section 11.01. Upon any such waiver of a default or Event of Default by the Holders representing the requisite percentage of Voting Rights of Certificates affected by such default or Event of Default, such default or Event of Default shall cease to exist and shall be deemed to have been remedied for every purpose hereunder. No such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon except to the extent expressly so waived.
SECTION 8.01. Duties of Trustee.
The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. If an Event of Default occurs and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. Any permissive right of the Trustee enumerated in this Agreement shall not be construed as a duty.
The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Agreement, shall examine them to determine whether they conform to the requirements of this Agreement. If any such instrument is found not to conform to the requirements of this Agreement in a material manner, the Trustee shall take action as it deems appropriate to have the instrument corrected.
The Trustee shall sign on behalf of the Trust Fund any tax return that the Trustee is required to sign pursuant to applicable federal, state or local tax laws.
The Trustee covenants and agrees that it shall perform its obligations hereunder in a manner so as to maintain the status of the Trust Fund as a REMIC under the REMIC Provisions and to prevent the imposition of any federal, state or local income, prohibited transaction, contribution or other tax on the Trust Fund to the extent that maintaining such status and avoiding such taxes are reasonably within the control of the Trustee and are reasonably within the scope of its duties under this Agreement.
The Trustee shall cooperate to the extent practicable, with the Depositor in the preparation of any information, for the Holder of any Certificate, which the Depositor in its sole discretion deems necessary and appropriate for purposes of satisfying applicable information reporting requirements under Rule 144A or otherwise.
No provision of this Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default, and after the curing of all such Events of Default which may have occurred, the duties and obligations of the Trustee shall be determined solely by the express provisions of this Agreement, the Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this Agreement, no implied covenants or obligations shall be read into this Agreement against the Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of Holders of Certificates entitled to at least 25% of the Voting Rights relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Agreement.
SECTION 8.02. Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(a) The Trustee may request and rely upon and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper
(b) The Trustee may consult with counsel and any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance therewith;
(c) The Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Agreement or to make any investigation of matters arising hereunder or to institute, conduct or defend any litigation hereunder or in relation hereto at the request, order or direction of any of the Certificateholders, pursuant to the provisions of this Agreement, unless such Certificateholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (which
cured), to exercise such of the rights and powers vested in it by this Agreement, and to use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs;
(d) The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement;
(e) Prior to the occurrence of an Event of Default hereunder and after the curing of all Events of Default which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing to do so by Holders of Certificates entitled to at least 25% of the Voting Rights; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Agreement, the Trustee may require reasonable indemnity against such expense or liability as a condition to taking any such action. The reasonable expense of every such reasonable examination shall be paid by the Master Servicer or, if paid by the Trustee, shall be repaid by the Master Servicer upon
(f) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys.
SECTION 8.03. Trustee Not Liable for Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates, other than the signature of the Trustee on the Certificates and the certificate of authentication, shall be taken as the statements of the Depositor or the Master Servicer, as the case may be, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations or warranties as to the validity or sufficiency of this Agreement or of the Certificates or of any Mortgage Loan or related document, other than the signature of the Trustee on the Certificates and the Certificate of Authentication. The Trustee shall not be accountable for the use or application by the Depositor or the Master Servicer of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Seller in respect of the Mortgage Loans or deposited in or withdrawn from the Custodial Account, the Excess Proceeds Account or the Certificate Account or any other account by or on behalf of the Depositor or the Master Servicer, other than any funds held by or on behalf of the Trustee in accordance with Section 3.10.
SECTION 8.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become the owner or pledgee of Certificates with the same rights it would have if it were not Trustee.
SECTION 8.05. Master Servicer to Pay Trustee's Fees.
The Master Servicer covenants and agrees to pay to the Trustee or any co-trustee appointed pursuant to Section 8.10 from time to time, and the Trustee and such co-trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee or any co-trustee of an express trust) for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder or of the Trustee or any co-trustee. Except as otherwise provided in this Agreement, the Trustee or any co-trustee and any director, officer, employee or agent of the Trustee or any co-trustee shall be indemnified by the Trust Fund and held harmless against any claim, loss, liability or expense incurred in connection with any Event of Default, any breach of this Agreement, any claim or legal action, including any pending or threatened claim or legal action relating to the acceptance or administration of its trusts hereunder or the Certificates, other than any claim, loss, liability or expense incurred in connection with a breach constituting willful misfeasance, bad faith or negligence of the Trustee or any co-trustee in the performance of its duties hereunder or by reason of reckless disregard of its obligations and duties hereunder. The provisions of this Section 8.05 shall survive the termination of this Agreement.
SECTION 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or a national banking association organized and doing business under the laws of any state or the United States of America or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal or state authority. In addition, the Trustee shall at all times be acceptable to the Rating Agency rating the Certificates. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 8.07. The corporation or national banking association serving as Trustee may have normal banking and trust relationships with the Seller and its affiliates or the Master Servicer and its affiliates; provided, however, that such corporation cannot be an affiliate of the Master Servicer other than the Trustee in its role as successor to the Master Servicer.
SECTION 8.07. Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged from the trusts hereby created by giving notice thereof to the Depositor, the Master Servicer and to all Certificateholders; provided, that such resignation shall not be effective until a successor trustee is appointed and accepts appointment in accordance with the following provisions. Upon receiving such notice of resignation, the Master Servicer shall promptly appoint a successor trustee who meets the eligibility requirements of Section 8.06 by written instrument, in duplicate, which instrument shall be delivered to the resigning Trustee and to the successor trustee. A copy of such instrument shall be delivered to the Certificateholders and the Master Servicer by the Depositor. If no successor trustee shall have been so appointed and have accepted appointment within 60 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee; provided, however, that the resigning Trustee shall not resign and be discharged from the trusts hereby created until such time as the Rating Agency rating the Certificates approves the successor trustee.
If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 8.06 and shall fail to resign after written request therefor by the Master Servicer, or if at any time the Trustee shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, or if the rating of the long-term debt obligations of the Trustee is not acceptable to the Rating Agency in respect of mortgage pass-through certificates having a rating equal to the then current rating on the Certificates, then the Master Servicer may remove the Trustee and appoint a successor trustee who meets the eligibility requirements of Section 8.06 by written instrument, in duplicate, which instrument shall be delivered to the Trustee so removed and to the successor trustee. A copy of such instrument shall be delivered to the Certificateholders and the Master Servicer by the Depositor.
The Holders of Certificates entitled to at least 51% of the Voting Rights may at any time remove the Trustee and appoint a successor trustee by written instrument or instruments, in triplicate, signed by such Holders or their attorneys-in-fact duly authorized, one complete set of which instruments shall be delivered to the Master Servicer, one complete set to the Trustee so removed and one complete set to the successor so appointed. A copy of such instrument shall be delivered to the Certificateholders and the Master Servicer by the Depositor.
Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section shall not become effective until acceptance of appointment by the successor trustee as provided in Section 8.08.
Any successor trustee appointed as provided in Section 8.07 shall execute, acknowledge and deliver to the Master Servicer and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with the like effect as if originally named as trustee herein. The predecessor trustee shall deliver to the successor trustee all Mortgage Files and related documents and statements held by it hereunder, and the Master Servicer and the predecessor trustee shall execute and deliver such instruments and do such other things as may reasonably be required for more fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 8.06.
Upon acceptance of appointment by a successor trustee as provided in this Section, the Master Servicer shall mail notice of the succession of such trustee hereunder to all Holders of Certificates at their addresses as shown in the Certificate Register. If the Master Servicer fails to mail such notice within ten days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Master Servicer.
SECTION 8.09. Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or converted or with which it may be consolidated or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 8.06, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding.
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Fund or property securing the same may at the time be located, the Depositor and the Trustee acting jointly shall have the power and shall execute and deliver all instruments to appoint one or more Persons approved by the Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or separate trustee or separate trustees, of all or any part of the Trust Fund, and to vest in such Person or Persons, in such capacity, such title to the Trust Fund, or any part thereof, and, subject to the other provisions of this Section 8.10, such powers, duties, obligations, rights and trusts as the Depositor and the Trustee may consider necessary or desirable. If the Depositor shall not have joined in such appointment within 15 days after the receipt by it of a request so to do, or in case an Event of Default shall have occurred and be continuing, the Trustee alone shall have the power to make such appointment. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 8.06 hereunder and no notice to Holders of Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be required under Section 8.08 hereof.
In the case of any appointment of a co-trustee or separate trustee pursuant to this Section 8.10 all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Master Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust Fund or any portion thereof in any such jurisdiction) shall be exercised and performed by such separate trustee or co-trustee at the direction of the Trustee.
Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article VIII. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee.
Any separate trustee or co-trustee may, at any time, constitute the Trustee, its agent or attorney-in-fact, with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee.
SECTION 9.01. Termination Upon Repurchase or Liquidation of All
Subject to Section 9.02, the respective obligations and responsibilities of the Depositor, the Master Servicer and the Trustee created hereby (other than the obligations of the Master Servicer to the Trustee pursuant to Section 8.05 and of the Master Servicer to provide for and the Trustee to make payments to Certificateholders as hereafter set forth) shall terminate upon payment to the Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them hereunder following the earlier to occur of (i) the repurchase by the Master Servicer of all Mortgage Loans and each REO Property in respect thereof remaining in the Trust Fund at a price equal to (a) 100% of the unpaid principal balance of each Mortgage Loan (other than one as to which a REO Property was acquired) on the day of repurchase together with accrued interest on such unpaid principal balance at the Net Mortgage Rate to the first day of the month in which the proceeds of such repurchase are to be distributed, plus (b) the appraised value of any REO Property (but not more than the unpaid principal balance of the related Mortgage Loan, together with accrued interest on that balance at the Net Mortgage Rate to the first day of the month of repurchase), less the good faith estimate of the Master Servicer of liquidation expenses to be incurred in connection with its disposal thereof, such appraisal to be conducted by an appraiser mutually agreed upon by the Master Servicer and the Trustee; and (ii) the final payment or other liquidation (or any Advance with respect thereto) of the last Mortgage Loan remaining in the Trust Fund (or the disposition of all REO Property in respect thereof); provided, however, that in no event shall the trust created hereby continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, living on the date hereof. In the case of any repurchase by the Master Servicer pursuant to clause (i), the Master Servicer shall include in such repurchase price the amount of any Advances that will be reimbursed to the Master Servicer pursuant to Section 3.11(iii) and the Master Servicer shall exercise reasonable efforts to cooperate fully with the Trustee in effecting such repurchase and the transfer of the Mortgage Loans and related Mortgage Files and related records to the Master Servicer.
The right of the Master Servicer to repurchase all Mortgage Loans pursuant to (i) above shall be conditioned upon the aggregate Stated Principal Balance of such Mortgage Loans at the time of any such repurchase aggregating an amount equal to or less than 5% of the aggregate Stated Principal Balance of the Mortgage Loans at the Cut-off Date. If such right is exercised, the Master Servicer upon such repurchase shall provide to the Trustee, the certification required by Section 3.16.
Notice of any termination, specifying the Distribution Date upon which the Certificateholders may surrender their Certificates to the Trustee for distribution and cancellation, shall be given promptly by the Master Servicer by letter to the Trustee and the Certificateholders mailed (a) in the event such notice is given in connection with the Master Servicer's election to repurchase, not earlier than the 15th day and not later than the 25th day of the month next preceding the month of such final distribution or (b) otherwise during the month of such final distribution on or before the Determination Date in such month, in each case specifying (i) the Distribution Date upon which final payment of the Certificates will be made upon presentation and surrender of Certificates at the office of the Certificate Registrar therein designated, (ii) the amount of any such final payment and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable, payments being made only upon presentation and surrender of the Certificates at the office of the Certificate Registrar therein specified. In the event such notice is given in connection with the Master Servicer's election to repurchase, the Master Servicer shall deliver to the Trustee for deposit in the Certificate Account on the Business Day immediately preceding the Distribution Date specified in such notice an amount equal to the above-described repurchase price payable out of its own funds. Upon presentation and surrender of the Certificates by the Certificateholders, the Trustee shall distribute to the Certificateholders (i) the amount otherwise distributable on such Distribution Date, if not in connection with the Master Servicer's election to repurchase, or (ii) if the Master Servicer elected to so repurchase, an amount determined as follows: with respect to each Class A-1 Certificate, Class A-2 Certificate, Class B-1 Certificate and Class B-2 Certificate, the outstanding Certificate Principal Balance thereof, plus one month's interest thereon at the applicable Pass-Through Rate and any previously unpaid Accrued Certificate Interest; with respect to each Class SA Certificate, one month's interest at the applicable Pass-Through Rate based upon the Notional Amount and any previously unpaid Accrued Certificate Interest; with respect to each Class SB Certificate, the Outstanding Class SB Unpaid Interest Amount for such Distribution Date plus one month's interest at the applicable Pass-Through Rate based upon the Notional Amount and any previously unpaid Accrued Certificate Interest; and with respect to each Class R Certificate, the Percentage Interest evidenced thereby multiplied by the difference, if any, between the above described repurchase price and the aggregate amount to be distributed to the Class SA Certificateholders, the Class A-1 Certificateholders, the Class A-2 Certificateholders, the Class B-1 Certificateholders, the Class B-2 Certificateholders and the Class SB Certificateholders. Upon certification to the Trustee by a Servicing Officer, following such final deposit, the Trustee shall promptly release the Mortgage Files as directed by the Master Servicer for the remaining Mortgage Loans, and the Trustee shall execute all assignments, endorsements and other instruments required by the Master Servicer as being necessary to effectuate such transfer.
In the event that all of the Certificateholders shall not surrender their Certificates for cancellation within six months after the time specified in the above-mentioned notice, the Trustee shall give a second notice to the remaining Certificateholders to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within six months after the second notice all of the Certificates shall not have been surrendered for cancellation, the Trustee shall take reasonable steps as directed by the Depositor, or appoint an agent to take reasonable steps, to contact the remaining Certificateholders concerning surrender of their Certificates, and the cost thereof shall be paid out of the funds and other assets which remain subject hereto. If, within nine months after the second notice, all of the Certificates shall not have been surrendered for cancellation, the Class R Certificateholders shall be entitled to all unclaimed funds and other assets which remain subject hereto.
SECTION 9.02. Additional Termination Requirements.
(a) In the event the Master Servicer repurchases the Mortgage Loans as provided in Section 9.01, the Trust Fund shall be terminated in accordance with the following additional requirements, unless the Master Servicer, at its own expense, obtains for the Trustee an Opinion of Counsel to the effect that the failure of the Trust Fund to comply with the requirements of this Section 9.02 will not (i) result in the imposition of taxes on the net income derived from "prohibited transactions" of the Trust Fund as defined in Section 860F of the Code or (ii) cause the Trust Fund to fail to qualify as a REMIC under the REMIC Provisions at any time that any Certificates are outstanding:
(i) The Trustee shall establish a 90-day liquidation period for the Trust Fund and specify the first day of such period in a statement attached to the Trust Fund's final Tax Return pursuant to Treasury Regulation Section 1.860F-1. The Trustee shall satisfy all the requirements of a qualified liquidation under Section 860F of the Code and any regulations thereunder, as evidenced by an Opinion of Counsel obtained at the expense
(ii) During such 90-day liquidation period, and at or prior to the time of making of the final payment on the Certificates, the Trustee shall sell all of the assets of the Trust Fund for cash; and
(iii) At the time of the making of the final payment on the Certificates, the Trustee shall distribute or credit, or cause to be distributed or credited, to the Holders of the Class R Certificates all cash on hand in the Trust Fund (other than cash retained to meet claims), and the Trust Fund shall terminate at that time.
(b) By their acceptance of the Class R Certificates, the Holders thereof hereby agree to authorize the Trustee to specify the 90-day liquidation period for the Trust Fund, which authorization shall be binding upon all successor Class R Certificateholders.
(a) The Trustee shall make an election to treat the Trust Fund as a REMIC under the Code and, if necessary, under applicable state law. Such election will be made on Form 1066 or other appropriate federal tax or information return or any appropriate state return for the taxable year ending on the last day of the calendar year in which the Certificates are issued. For purposes of the REMIC election in respect of the Trust Fund, the Class SA, Class A-1, Class A-2, Class B-1, Class B-2 and Class SB Certificates shall be designated as the "regular interests" and the Class R Certificates shall be designated as the sole Class of "residual interest" in the REMIC. The Trustee shall not permit the creation of any "interests" in the Trust Fund (within the meaning of Section 860G of the Code) other than the interests represented by the Certificates.
(b) The Closing Date is hereby designated as the "Startup Day" the REMIC within the meaning of Section 860G(a)(9) of the Code.
(c) The Trustee shall pay out of its own funds, without any right of reimbursement, any and all expenses relating to any tax audit of the Trust Fund (including, but not limited to, any professional fees or any administrative or judicial proceedings with respect thereto that involved the Internal Revenue Service or state tax authorities), other than the expense of obtaining any tax related Opinion of Counsel not obtained in connection with such an audit and other than taxes, in either case except as specified herein; provided, however, that if such audit resulted from the negligence of the Master Servicer or the Depositor, then the Master Servicer or the Depositor, as the case may be, shall pay such expenses. The Trustee shall hold a Class R Certificate representing a 0.01% Percentage Interest of all Class R Certificates and shall be designated as the tax matters person of the Trust Fund in the manner provided under Treasury Regulations Section 1.860F-4(d) and Temporary Treasury Regulations Section 301.6231(a)(7)-1T. The Trustee, as tax matters person, shall (i) act on behalf of the Trust Fund in relation to any tax matter or controversy involving the Trust Fund and (ii) represent the Trust Fund in any administrative or judicial proceeding relating to an examination or audit by any governmental taxing authority with respect thereto. To the extent authorized under the Code and the regulations promulgated thereunder, each Holder of a Class R Certificate, hereby irrevocably appoints and authorizes the Trustee to be its attorney-in-fact for purposes of signing any Tax Returns required to be filed on behalf of the Trust Fund.
(d) The Trustee shall prepare or cause to be prepared, sign and file all of the Tax Returns in respect of the Trust Fund created hereunder, other than Tax Returns required to be filed by the Master Servicer pursuant to Section 4.05. The expenses of preparing and filing such returns shall be borne by the Trustee without any right of reimbursement therefor.
(e) The Trustee shall perform on behalf of the Trust Fund all reporting and other tax compliance duties that are the responsibility of the Trust Fund under the Code, REMIC Provisions or other compliance guidance issued by the Internal Revenue Service or any state or local taxing authority. Among its other duties, as required by the Code, the REMIC Provisions or other such compliance guidance, the Trustee shall provide (i) to any Transferor of a Class R Certificate such information as is necessary for the application of any tax relating to the transfer of a Class R Certificate to any Person who is not a Disqualified Organization, (ii) to Certificateholders such information or reports as are required by the Code or the REMIC Provisions including reports relating to interest, original issue discount and market discount or premium (using the Prepayment Assumption) and (iii) to the Internal Revenue Service the name, title, address and telephone number of the person who will serve as the representative of the Trust Fund. In addition, the Depositor shall provide or cause to be provided to the Trustee, within ten (10) days after the Closing Date, all information or data that the Trustee reasonably determines to be relevant for tax purposes as to the valuations and issue prices of the Certificates, including, without limitation, the price, yield, prepayment assumption and projected cash flow of the Certificates.
(f) The Trustee shall take such action and shall cause the Trust Fund created hereunder to take such action as shall be necessary to create or maintain the status thereof as a REMIC under the REMIC Provisions (and the Master Servicer shall assist it, to the extent reasonably requested by it). The Trustee shall not take any action, cause the Trust Fund to take any action or fail to take (or fail to cause to be taken) any action that, under the REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger the status of the Trust Fund as a REMIC or (ii) result in the imposition of a tax upon the Trust Fund (including but not limited to the tax on prohibited transactions as defined in Section 860F(a)(2) of the Code and the tax on contributions to a REMIC set forth in Section 860G(d) of the Code) (either such event, an "Adverse REMIC Event") unless the Trustee received an Opinion of Counsel (at the expense of the party seeking to take such action but in no event shall such Opinion of Counsel be an expense of the Trustee) to the effect that the contemplated action will not, with respect to the Trust Fund created hereunder, endanger such status or result in the imposition of such a tax. The Master Servicer shall not take or fail to take any action (whether or not authorized hereunder) as to which the Trustee has advised it in writing that it has received an Opinion of Counsel (which such Opinion of Counsel shall not be an expense of the Trustee) to the effect that an Adverse REMIC Event could occur with respect to such action. In addition, prior to taking any action which is not expressly permitted under the terms of this Agreement, the Master Servicer will consult with the Trustee or its designee, in writing, with respect to whether such action could cause an Adverse REMIC Event to occur with respect to the Trust Fund, and the Master Servicer shall not take any such action or cause the Trust Fund to take any such action as to which the Trustee has advised it in writing that an Adverse REMIC Event could occur. The Trustee may consult with counsel to make such written advice, and the cost of same shall be borne by the party seeking to take the action not permitted by this Agreement (but in no event shall such cost be an expense of the Trustee). At all times as may be required by the Code, the Trustee will ensure that substantially all of the assets of the Trust Fund will consist of "qualified mortgages" as defined in Section 860G(a)(3) of the Code and "permitted investments" as defined in Section 860G(a)(5) of the Code.
(g) In the event that any tax is imposed on "prohibited transactions" of the Trust Fund created hereunder as defined in Section 860F(a)(2) of the Code, on "net income from foreclosure property" of the Trust Fund as defined in Section 860G(c) of the Code, on any contributions to the Trust Fund after the Startup Day therefor pursuant to Section 860G(d) of the Code, or any other tax is imposed by the Code or any applicable provisions of state or local tax laws, such tax shall be charged (i) to the Trustee pursuant to Section 10.03 hereof, if such tax arises out of or results from a breach by the Trustee of any of its obligations under this Article X, (ii) to the Master Servicer pursuant to Section 10.03 hereof, if such tax arises out of or results from a breach by the Master Servicer of any of its obligations under Article III or this Article X, or otherwise (iii) against amounts on deposit in the Certificate Account and shall be paid by withdrawal therefrom.
(h) On or before April 15 of each calendar year, commencing April 15, 1996, the Trustee shall deliver to the Master Servicer and each Rating Agency a Certificate from a Responsible Officer of the Trustee stating the Trustee's compliance with this Article X.
(i) The Master Servicer and the Trustee shall, for federal income tax purposes, maintain books and records with respect to the Trust Fund on a calendar year and on an accrual basis.
(j) Following the Startup Day therefor, the Trustee shall not accept any contributions of assets to the Trust Fund unless it shall have received an Opinion of Counsel (which such Opinion of Counsel shall not be an expense of the Trustee) to the effect that the inclusion of such assets in the Trust Fund will not cause the Trust Fund to fail to qualify as a REMIC at any time that any Certificates are outstanding or subject the Trust Fund to any tax under the REMIC Provisions or other applicable provisions of federal, state and local law or ordinances.
(k) Neither the Trustee nor the Master Servicer shall enter into any arrangement by which the Trust Fund will receive a fee or other compensation for services nor permit the REMIC to receive any income from assets other than "qualified mortgages" as defined in Section 860G(a)(3) of the Code or "permitted investments" as defined in Section 860G(a)(5) of the Code.
(l) Solely for purposes of satisfying Section 1.860G-1(a)(4)(iii) of the Treasury Regulations, the "latest possible maturity date" by which the Certificate Principal Balances of each Class of Certificates representing a regular interest in the Trust Fund would be reduced to zero is January 25, 2026, which is the Distribution Date immediately following the latest scheduled maturity of any Mortgage Loan.
SECTION 10.02. Prohibited Transactions and Activities.
Neither the Depositor, the Master Servicer nor the Trustee shall sell, dispose of or substitute for any of the Mortgage Loans, except in connection with (i) the foreclosure of a Mortgage Loan, including but not limited to, the acquisition or sale of a Mortgaged Property acquired by deed in lieu of foreclosure, (ii) the bankruptcy of the Trust Fund, (iii) the termination of the Trust Fund pursuant to Article IX of this Agreement or (iv) a purchase of Mortgage Loans pursuant to Article II or III of this Agreement, nor acquire any assets for the Trust Fund, nor sell or dispose of any investments in the Custodial Account or the Certificate Account for gain, nor accept any contributions to the Trust Fund after the Closing Date unless it has received an Opinion of Counsel (at the expense of the party seeking to cause such sale, disposition, substitution or acquisition but in no event shall such Opinion of Counsel be an expense of the Trustee) that such sale, disposition, substitution or acquisition will not (a) affect adversely the status of the Trust Fund as a REMIC or (b) cause the Trust Fund to be subject to a tax on "prohibited transactions" or "contributions" pursuant to the REMIC Provisions.
SECTION 10.03. Master Servicer and Trustee Indemnification.
(a) The Trustee agrees to indemnify the Trust Fund, the Depositor and the Master Servicer for any taxes and costs including, without limitation, any reasonable attorneys' fees imposed on or incurred by the Trust Fund, the Depositor or the Master Servicer, as a result of a breach of the Trustee's covenants set forth in this Article X.
(b) The Master Servicer agrees to indemnify the Trust Fund, the Depositor and the Trustee for any taxes and costs (including, without limitation, any reasonable attorneys' fees) imposed on or incurred by the Trust Fund, the Depositor or the Trustee, as a result of a breach of the Master Servicer's covenants set forth in this Article X or in Article III with respect to compliance with the REMIC Provisions, including without limitation, any penalties arising from the Trustee's execution of Tax Returns prepared by the Master Servicer that contain errors or omissions.
This Agreement may be amended from time to time by the Depositor, the Master Servicer and the Trustee without the consent of any of the Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement any provisions herein which may be defective or inconsistent with any other provisions herein, (iii) to amend this Agreement in any respect subject to the provisions below, or (iv) if such amendment, as evidenced by an Opinion of Counsel (provided by the Person requesting such amendment) delivered to the Trustee, is reasonably necessary to comply with any requirements imposed by the Code or any successor or amendatory statute or any temporary or final regulation, revenue ruling, revenue procedure or other written official announcement or interpretation relating to federal income tax laws or any proposed such action which, if made effective, would apply retroactively to the Trust Fund at least from the effective date of such amendment; provided that such action (except any amendment described in (iv) above) shall not, as evidenced by an Opinion of Counsel (provided by the Person requesting such amendment) delivered to the Trustee, adversely affect in any material respect the interests of any Certificateholder (other than Certificateholders who shall consent to such amendment).
This Agreement may also be amended from time to time by the Depositor, the Master Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66-2/3% of the Voting Rights for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Holders of Certificates; provided, however, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, payments received on Mortgage Loans which are required to be distributed on any Certificate without the consent of the Holder of such Certificate, (ii) adversely affect in any material respect the interests of the Holders of any Class of Certificates in a manner other than as described in (i), without the consent of the Holders of Certificates of such Class evidencing at least 66-2/3% of the Voting Rights of such Class, or (iii) reduce the aforesaid percentage of Certificates the Holders of which are required to consent to any such amendment, without the consent of the Holders of all Certificates then outstanding. Notwithstanding any other provision of this Agreement, for purposes of the giving or withholding of consents pursuant to this Section 11.01, Certificates registered in the name of the Seller or the Master Servicer or any affiliate thereof shall be entitled to Voting Rights with respect to matters described in (i), (ii) and (iii) of this paragraph.
Notwithstanding any contrary provision of this Agreement, the Trustee shall not consent to any amendment to this Agreement unless it shall have first received an Opinion of Counsel (provided by the Person requesting such amendment) to the effect that such amendment will not result in the imposition of any tax on the Trust Fund pursuant to the REMIC Provisions or cause the Trust Fund to fail to qualify as a REMIC at any time that any of the Certificates are outstanding.
Promptly after the execution of any such amendment the Trustee shall furnish a statement describing the amendment to each Certificateholder.
It shall not be necessary for the consent of Certificateholders under this Section 11.01 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Certificateholders shall be subject to such reasonable regulations as the Trustee may prescribe.
Prior to executing any amendment pursuant to this Section, the Trustee shall be entitled to receive an Opinion of Counsel (provided by the Person requesting such amendment) to the effect that such amendment is authorized or permitted by this Agreement. The cost of an Opinion of Counsel delivered pursuant to this Section 11.01 shall be an expense of the party requesting such amendment, but in any case shall not be an expense of the Trustee.
The Trustee may, but shall not be obligated to enter into any amendment pursuant to this Section that affects its rights, duties and immunities under this Agreement or otherwise.
SECTION 11.02. Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, this Agreement is subject to recordation in all appropriate public offices for real property records in all the counties or other comparable jurisdictions in which any or all of the properties subject to the Mortgages are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Master Servicer and at the expense of the Depositor on direction by the Trustee, but only upon direction accompanied by an Opinion of Counsel to the effect that such recordation materially and beneficially affects the interests of the Certificateholders.
For the purpose of facilitating the recordation of this Agreement as herein provided and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument.
SECTION 11.03. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate to terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of the Trust Fund, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them.
No Certificateholder shall have any right to vote (except as expressly provided for herein) or in any manner otherwise control the operation and management of the Trust Fund, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Certificateholder be under any liability to any third party by reason of any action taken by the parties to this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right by virtue of any provision of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Holder previously shall have given to the Trustee a notice of an Event of Default, or of a default by the Seller or the Trustee in the performance of any obligation hereunder, and of the continuance thereof, as hereinbefore provided, and unless also the Holders of Certificates entitled to at least 25% of the Voting Rights shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding. It is understood and intended, and expressly covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or more Holders of Certificates shall have any right in any manner whatever by virtue of any provision of this Agreement to affect, disturb or prejudice the rights of the Holders of any other of such Certificates, or to obtain or seek to obtain priority over or preference to any other such Holder, or to enforce any right under this Agreement, except in the manner herein provided and for the equal, ratable and common benefit of all Certificateholders. For the protection and enforcement of the provisions of this Section, each and every Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity.
This Agreement and the Certificates shall be construed in accordance with the laws of the State of New York and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws.
All demands, notices and direction hereunder shall be in writing and shall be deemed effective upon receipt when delivered to (a) in the case of the Depositor, 140 Broadway, 43rd Floor, New York, New York 10005, Attention: N. Dante LaRocca, or such other address as may hereafter be furnished to the Trustee and the Master Servicer in writing by the Depositor, (b) in the case of the Trustee, Four Albany Street, New York, New York 10006, Attention: DLJ/Quality Series 1995-Q10, or such other address as may hereafter be furnished to the Master Servicer and the Depositor in writing by the Trustee, (c) in the
Servicer, Temple-Inland Mortgage Corporation, 301 Congress Avenue #304, Austin, Texas 78701 Attention: Richard Magel, or such other address as may hereafter be furnished to the Depositor and the Trustee in writing and (d) in the case of the Seller, Quality Mortgage USA, Inc., 16800 Aston Street, Irvine, California 92714, Attention: President, or such other address as may hereafter be furnished to the Trustee, the Master Servicer and the Depositor in writing. Any notice required or permitted to be mailed to a Certificateholder shall be given by first class mail, postage prepaid, at the address of such Holder as shown in the Certificate Register. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice.
SECTION 11.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 11.07. Successors and Assigns; Third Party Beneficiary.
The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto, and all such provisions shall inure to the benefit of the Trustee and the Certificateholders. The parties hereto agree that the Seller is the intended third party beneficiary of Sections 3.07, 3.10 and 3.22 hereof, and that the Seller may enforce such provisions to the same extent as if the Seller were a party to this Agreement.
SECTION 11.08. Article and Section Headings.
The article and section headings herein are for convenience of reference only, and shall not limit or otherwise affect the meaning hereof.
SECTION 11.09. Notice to Rating Agencies and Certificateholder.
The Trustee shall use its best efforts to promptly provide notice to the Rating Agency referred to below with respect to each of the following of which it has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not been cured;
3. The resignation or termination of the Master Servicer or the
4. The repurchase of Mortgage Loans pursuant to Section 2.03;
5. The final payment to Certificateholders; and
6. Any change in the location of the Custodial Account, the Excess Proceeds Account or the Certificate Account.
In addition, the Trustee shall promptly furnish to the Rating Agency copies of the following:
1. Each report to Certificateholders described in Section 4.02; and
2. Each annual independent public accountants' servicing report described in Section 3.20.
Any such notice pursuant to this Section 11.09 shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by first class mail, postage prepaid, or by express delivery service to (i) in the case of Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention: Residential Pass-Through Monitoring or (ii) in the case of Duff & Phelps Credit Rating Co., 55 East Monroe Street, 35th Floor, Chicago, Illinois 60603, Attention: MBS Monitoring, or such other address as either Rating Agency may designate in writing to the parties thereto.
IN WITNESS WHEREOF, the Depositor, the Master Servicer and the Trustee have caused their names to be signed hereto by their respective officers thereunto duly authorized all as of the day and year first above written.
STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK )
On the ____ day of December, 1995 before me, a notary public in and for said State, personally appeared ______________, known to me to be a ____________________ of DLJ Mortgage Acceptance Corp., a corporation that executed the within instrument, and also known to me to be the person who executed the within instrument on behalf of said corporation as a duly authorized officer of said corporation, and acknowledged to me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written.
On the ___ day of December, 1995 before me, a notary public in and for said State, personally appeared ______________, known to me to be a ____________ of Temple-Inland Mortgage Corporation, a corporation that executed the within instrument, and also known to me to be the person who executed the within instrument on behalf of said corporation as a duly authorized officer of said corporation, and acknowledged to me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written.
STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK )
On the ____ day of December, 1995 before me, a notary public in and for said State, personally appeared ______________, known to me to be a ______________________ of Bankers Trust Company, a corporation that executed the within instrument, and also known to me to be the person who executed it on behalf of said corporation as a duly authorized officer of said corporation, and acknowledged to me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written.
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" (AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE")) CREATED BY THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN (THE "AGREEMENT").
[THIS CLASS A-2 CERTIFICATE IS SUBORDINATE TO THE CLASS SA CERTIFICATES AND THE CLASS A-1 CERTIFICATES OF THE SAME SERIES TO THE EXTENT DESCRIBED HEREIN AND IN THE AGREEMENT.]
[NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE BENEFIT PLAN, OR PERSON USING "PLAN ASSETS" OF ANY PLAN TO EFFECT SUCH ACQUISITION (INCLUDING ANY INSURANCE COMPANY UNDER THE CIRCUMSTANCES DESCRIBED IN THE AGREEMENT), SUBJECT TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE, UNLESS THE TRANSFEREE PROVIDES AN OPINION OF COUNSEL OR CERTIFICATION OF FACTS (UNDER THE LIMITED CIRCUMSTANCES DESCRIBED IN THE AGREEMENT), SATISFACTORY TO THE DEPOSITOR AND THE TRUSTEE OR THE CERTIFICATE REGISTRAR, THAT SUCH DISPOSITION WILL NOT VIOLATE THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND SECTION 4975 OF THE CODE.]
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSES OF APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS CERTIFICATE. ASSUMING THAT THE MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF PREPAYMENT, USED SOLELY FOR THE PURPOSES OF APPLYING THE OID RULES TO THE CERTIFICATES, EQUAL TO A CONSTANT PREPAYMENT RATE OF __% PER ANNUM (THE "PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED WITH NO MORE THAN $____ OF OID PER [$100,000] [$1,000] OF INITIAL [NOTIONAL AMOUNT] [CERTIFICATE PRINCIPAL BALANCE], THE YIELD TO MATURITY IS ___ AND THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS NO MORE THAN $___ PER [$100,000] [$1,000] OF INITIAL [NOTIONAL AMOUNT] [CERTIFICATE PRINCIPAL BALANCE], COMPUTED USING THE EXACT METHOD. NO REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT RATES BASED ON THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE.]
Series 1995-Q10 Aggregate Initial [Notional Amount] [Certificate Principal Balance] of the Class
Class [SA][A-1][A-2] Initial [Notional Amount] [Certificate Principal Balance] of this Certificate:
[Variable][Adjustable] Initial Pass-Through Rate: __________
Date of Pooling and Servicing Percentage Interest Evidenced Agreement and Cut-off Date: by this Certificate: _________%
First Distribution Date: Issue Date: January 25, 1996 December 28, 1995
Temple-Inland Mortgage Bankers Trust Company
evidencing a beneficial ownership interest in a trust fund consisting primarily of a pool of adjustable rate residential first mortgage loans sold by
This certifies that ________________________________ is the registered owner of the Percentage Interest specified above in that certain beneficial ownership interest evidenced by all of the Class [SA][A-1][A-2] Certificates in the Trust Fund (as defined herein) established under a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among DLJ Mortgage Acceptance Corp. (hereinafter called the "Depositor", which term includes any successor entity under the Agreement), Temple-Inland Mortgage Corporation (the "Master Servicer") and Bankers Trust Company (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. The Percentage Interest evidenced hereby is equal to the initial [Notional Amount] [Certificate Principal Balance] of this Certificate divided by the aggregate initial [Notional Amount] [Certificate Principal Balance] of all of the Class [SA][A- 1][A-2] Certificates as specified above. The Certificates of the Series specified above (collectively, the "Certificates") evidence in the aggregate the entire beneficial ownership interest in a segregated pool of assets created pursuant to the Agreement comprised of conventional oneto four-family residential first mortgage loans (the "Mortgage Loans"), or interests therein, and certain other assets as described herein. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound.
The Trustee shall distribute or cause to be distributed on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (each, a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered at the close of business on the last Business Day of the month immediately preceding the month of such distribution (the "Record Date"), from the Available Distribution Amount an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class [SA][A-1][A-2] Certificates on such Distribution Date pursuant to the Agreement. [The Notional Amount of the Class [SA] Certificates as of any date of determination will be determined pursuant to the Agreement. The Class [SA] Certificates have no Certificate Principal Balance.] Reference is hereby made to the further provisions of this Certificate and the Agreement set forth herein, which further provisions shall for all purposes have the same effect as though fully set forth at this place.
All distributions will be made or caused to be made by the Trustee either by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register or (ii) at the request of the Person entitled thereto if such Person shall have so notified the Trustee in writing by 5 Business Days prior to the applicable Record Date and such Certificateholder is the registered holder of Certificates the aggregate Initial Certificate Principal Balance of which is not less than $2,500,000 (or, with respect to the Class SA Certificates and the Class SB Certificates, is the registered holder of an aggregate initial Notional Amount of not less than $10,000,000 of the Class SA Certificates and the Class SB Certificates), in immediately available funds by wire transfer to the account of such Person. Notwithstanding the above, the final distribution on this Certificate will be made after due notice by the Master Servicer of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office of the Trustee. [The Certificate Principal Balance hereof will be reduced to the extent of distributions allocable to principal and the principal portions of any Realized Losses allocable hereto.]
This Certificate is one of a duly authorized issue of Certificates of the series and class specified on the face hereof. The Certificates in the aggregate represent the entire beneficial ownership interest in: (i) the Mortgage Loans (exclusive of payments of principal and interest due on or before the Cut-off Date) as from time to time are subject to the Agreement and all payments under and proceeds of the Mortgage Loans, together with all documents included in the related Mortgage File; (ii) such funds or assets as from time to time are deposited in the Custodial Account, the Excess Proceeds Account or the Certificate Account; (iii) any REO Property; (iv) the Primary Hazard Insurance Policies, if any, and all other insurance policies with respect to the Mortgage Loans required to be maintained pursuant to the Agreement; and (v) the Depositor's interest in respect of the representations and warranties made by the Seller in each Mortgage Loan Purchase Agreement and the Seller's Warranty Certificate (all of the foregoing being hereinafter collectively called the "Trust Fund").
The Certificates do not represent an obligation of, or an interest in, the Depositor, the Master Servicer, the Trustee or any Sub-Servicer and are not insured or guaranteed by any governmental agency or instrumentality or by any other person or entity. The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. As provided in the Agreement, withdrawals from the Custodial Account or the Certificate Account may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement to the Master Servicer of advances made, or certain expenses incurred, by it, by the Depositor, by the Trustee or by any Sub-Servicer.
The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Master Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66-2/3% of the Voting Rights. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future Holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the Certificates.
As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the Corporate Trust Office, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate initial [Notional Amount] [Certificate Principal Balance] will be issued to the designated transferee or transferees.
[No transfer of any Class A-2 Certificate shall be made to any employee benefit plan or other retirement arrangement, including individual retirement accounts and Keogh plans, that is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"; any of foregoing, a "Plan"), to any Person acting on behalf of a Plan, or to any other person who is using "plan assets" to effect such acquisition (including any insurance company using funds in its general or separate accounts that may constitute "plan assets"), unless the prospective transferee of a Certificateholder desiring to transfer its Certificates provides to the Trustee or the Certificate Registrar an Opinion of Counsel (or, in the limited circumstances described in the Agreement, a certification of facts) which establishes to the satisfaction of the Depositor and the Trustee or the Certificate Registrar that such disposition will not transaction provisions of Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended. In the case of any transfer of the foregoing Certificates to an insurance company, in lieu of such Opinion of Counsel, the Trustee shall require a certification in the form of Exhibit G-5 to the
The Certificates are issuable in fully registered form only, without coupons, and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same aggregate initial [Notional Amount] [Certificate Principal Balance], as requested by the Holder surrendering the same.
No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates.
The Depositor, the Master Servicer and the Trustee and any agent of the Depositor, the Master Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Depositor, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary.
The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the purchase by the Master Servicer of all Mortgage Loans and each REO Property in respect thereof, or (ii) the final payment on, or other liquidation (or any advance with respect thereto) of, the last Mortgage Loan remaining in the Trust Fund (or the disposition of all REO Property in respect thereof). The Agreement permits, but does not require, the Master Servicer to purchase from the Trust Fund all Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of the Master Servicer's right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than or equal to 5% of the aggregate Stated Principal Balance of the Mortgage Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose.
The recitals contained herein shall be taken as the statements of the Depositor or the Master Servicer, as the case may be.
IN WITNESS WHEREOF, the Trustee in its capacity as trustee under the Agreement has caused this Certificate to be duly executed.
Dated: December 28, 1995 BANKERS TRUST COMPANY,
This is one of the Class [SA][A-1][A-2] Certificates referred to in the within-mentioned Agreement.
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip code of
the beneficial interest evidenced by the within Class [SA][A-1][A-2] Certificate and hereby authorizes the registration of transfer of such interest to the above-named assignee on the Certificate Register.
I (we) further direct the Trustee to issue a new Class [SA][A-1][A-2] Certificate of a like initial [Notional Amount] [Certificate Principal Balance] to the above-named assignee and deliver such Certificate to the following address:
Signature by or on behalf of assignor
NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatever, and must be guaranteed by a commercial bank or trust company on the continental United States or by a firm or corporation having membership in any national securities exchange or in the National Association of Securities Dealers, Inc.
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in for the account of ____________________________, account number _______________, or, if mailed by check, to_____________________. Applicable statements should be mailed to _______________________________________. This information is provided by __________________, the assignee named above, or______________, as its agent.
FORM OF CLASS [B-1][B-2] CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" (AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE")) CREATED BY THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN (THE "AGREEMENT").
THIS CLASS [B-1][B-2] CERTIFICATE IS SUBORDINATE TO THE CLASS SA CERTIFICATES, THE CLASS A-1 CERTIFICATES[,] [AND] THE CLASS A-2 CERTIFICATES [AND THE CLASS B-1 CERTIFICATES] OF THE SAME SERIES TO THE EXTENT DESCRIBED HEREIN AND IN THE AGREEMENT.
NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE BENEFIT PLAN, OR PERSON USING "PLAN ASSETS" OF ANY PLAN TO EFFECT SUCH ACQUISITION (INCLUDING ANY INSURANCE COMPANY UNDER THE CIRCUMSTANCES DESCRIBED IN THE AGREEMENT), SUBJECT TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE, UNLESS THE TRANSFEREE PROVIDES AN OPINION OF COUNSEL OR CERTIFICATION OF FACTS (UNDER THE LIMITED CIRCUMSTANCES DESCRIBED IN THE AGREEMENT), SATISFACTORY TO THE DEPOSITOR AND THE TRUSTEE OR THE CERTIFICATE REGISTRAR, THAT SUCH DISPOSITION WILL NOT VIOLATE THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND SECTION 4975 OF THE CODE.
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSES OF APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS CERTIFICATE. ASSUMING THAT THE MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF PREPAYMENT, USED SOLELY FOR THE PURPOSES OF APPLYING THE OID RULES TO THE CERTIFICATES, EQUAL TO A CONSTANT PREPAYMENT RATE OF __% PER ANNUM (THE "PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED WITH NO MORE THAN $___ OF OID PER $1,000 OF INITIAL CERTIFICATE PRINCIPAL BALANCE, THE YIELD TO MATURITY IS ___ % AND THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS NO MORE THAN $___ PER $1,000 OF INITIAL CERTIFICATE PRINCIPAL BALANCE, COMPUTED USING THE EXACT METHOD. NO REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT RATES BASED ON THE PREPAYMENT ASSUMPTION OR AT ANY OTHER
Series 1995-Q10 Aggregate Initial Certificate Principal Balance of the Class [B-1][B-2] Certificates:
Class [B-1][B-2] Initial Certificate Principal Balance of this
Adjustable Pass-Through Initial Pass-Through Rate: __%
Date of Pooling and Servicing Percentage Interest Evidenced Agreement and Cut-off Date: by this Certificate: _________%
First Distribution Date: Issue Date: January 25, 1996 December 28, 1995
Temple-Inland Mortgage Bankers Trust Company
evidencing a beneficial ownership interest in a trust fund consisting primarily of a pool of adjustable rate residential first mortgage loans
This certifies that ________________________ is the registered owner of the Percentage Interest specified above in that certain beneficial ownership interest evidenced by all of the Class [B-1][B-2] Certificates in the Trust Fund (as defined herein) established under a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among DLJ Mortgage Acceptance Corp. (hereinafter called the "Depositor", which term includes any successor entity under the Agreement), Temple-Inland Mortgage Corporation (the "Master Servicer") and Bankers Trust Company (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. The Percentage Interest evidenced hereby is equal to the initial Certificate Principal Balance of this Certificate divided by the aggregate initial Certificate Principal Balance of all of the Class [B-1][B-2] Certificates as specified above. The Certificates of the Series specified above (collectively, the "Certificates") evidence in the aggregate the entire beneficial ownership interest in a segregated pool of assets created pursuant to the Agreement comprised of conventional one- to four-family residential first mortgage loans (the "Mortgage Loans"), or interests therein, and certain other assets as described herein. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and
Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound.
The Trustee shall distribute or cause to be distributed on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (each, a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered at the close of business on the last Business Day of the month immediately preceding the month of such distribution (the "Record Date"), from the Available Distribution Amount an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class [B-1][B-2] Certificates on such Distribution Date pursuant to the Agreement. Reference is hereby made to the further provisions of this Certificate and the Agreement set forth herein, which further provisions shall for all purposes have the same effect as though fully set forth at this place.
All distributions will be made or caused to be made by the Trustee either (i) by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register or (ii) at the request of the Person entitled thereto if such Person shall have so notified the Trustee in writing by 5 Business Days prior to the applicable Record Date and such Certificateholder is the registered holder of Certificates the aggregate Initial Certificate Principal Balance of which is not less than $2,500,000 (or, with respect to the Class SA Certificates and the Class SB Certificates, is the registered holder of an aggregate initial Notional Amount of not less than $10,000,000 of the Class SA Certificates and the Class SB Certificates), in immediately available funds by wire transfer to the account of such Person. Notwithstanding the above, the final distribution on this Certificate will be made after due notice by the Master Servicer of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office of the Trustee. The Certificate Principal Balance hereof will be reduced to the extent of distributions allocable to principal and the principal portions of any Realized Losses allocable hereto.
This Certificate is one of a duly authorized issue of Certificates of the series and class specified on the face hereof. The Certificates in the aggregate represent the entire beneficial ownership interest in: (i) the Mortgage Loans (exclusive of payments of principal and interest due on or before the Cut-off Date) as from time to time are subject to the Agreement and all payments under and proceeds of the Mortgage Loans, together with all documents included in the related Mortgage File; (ii) such funds or assets as from time to time are deposited in the Custodial Account, the Excess Proceeds Account or the Certificate Account; (iii) any REO Property; (iv) the Primary Hazard Insurance Policies, if any, and all other insurance policies with respect to the Mortgage Loans required to be maintained pursuant to the Agreement; and (v) the Depositor's interest in respect of the representations and warranties made by the Seller in each Mortgage Loan Purchase Agreement and the Seller's Warranty Certificate (all of the foregoing being hereinafter collectively called the "Trust Fund").
The Certificates do not represent an obligation of, or an interest in, the Depositor, the Master Servicer, the Trustee or any Sub-Servicer and are not insured or guaranteed by any governmental agency or instrumentality or by any other person or entity. The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. As provided in the Agreement, withdrawals from the Custodial Account or the Certificate Account may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement to the Master Servicer of advances made, or certain expenses incurred, by it, by the Depositor, by the Trustee or by any Sub-Servicer.
The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Master Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66-2/3% of the Voting Rights. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future Holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the Certificates.
As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the Corporate Trust Office, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate initial Certificate Principal Balance will be issued to the designated transferee or transferees.
No transfer of any Class [B-1][B-2] Certificate shall be made to any employee benefit plan or other retirement arrangement, including individual retirement accounts and Keogh plans, that is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"; any of foregoing, a "Plan"), to any Person acting on behalf of a Plan, or to any other person who is using "plan assets" to effect such acquisition (including any insurance company using funds in its general or separate accounts that may constitute "plan assets"), unless the prospective transferee of a Certificateholder desiring to transfer its Certificates provides to the Trustee or the Certificate Registrar an Opinion of Counsel (or, in the limited circumstances described in the Agreement, a certification of facts) which establishes to the satisfaction of the Depositor and the Trustee or the Certificate Registrar that such disposition will not violate the prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended. In the case of any transfer of the foregoing Certificates to an insurance company, in lieu of such Opinion of Counsel, the Trustee shall require a certification in the form of Exhibit G-5 to the Agreement.
The Certificates are issuable in fully registered form only, without coupons, and in denominations specified in the Agreement. As provided in the certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same aggregate initial Certificate Principal Balance, as requested by the Holder surrendering the same.
No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates.
The Depositor, the Master Servicer and the Trustee and any agent of the Depositor, the Master Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Depositor, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary.
The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the purchase by the Master Servicer of all Mortgage Loans and each REO Property in respect thereof, or (ii) the final payment on, or other liquidation (or any advance with respect thereto) of, the last Mortgage Loan remaining in the Trust Fund (or the disposition of all REO Property in respect thereof). The Agreement permits, but does not require, the Master Servicer to purchase from the Trust Fund all Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of the Master Servicer's right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than or equal to 5% of the aggregate Stated Principal Balance of the Mortgage Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose.
The recitals contained herein shall be taken as the statements of the Depositor or the Master Servicer, as the case may be.
IN WITNESS WHEREOF, the Trustee in its capacity as trustee under the Agreement has caused this Certificate to be duly executed.
This is one of the Class [B-1][B-2] Certificates referred to in the within-mentioned Agreement.
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip code of
the beneficial interest evidenced by the within Class [B-1][B-2] Certificate and hereby authorizes the registration of transfer of such interest to the above-named assignee on the Certificate Register.
I (we) further direct the Trustee to issue a new Class [B-1][B-2] Certificate of a like initial Certificate Principal Balance to the above-named assignee and deliver such Certificate to the following address:
Signature by or on behalf of assignor
NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatever, and must be guaranteed by a commercial bank or trust company on the continental United States or by a firm or corporation having membership in any national securities exchange or in the National Association of Securities Dealers, Inc.
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in for the account of ____________________________, account number _______________, or, if mailed by check, to_____________________. Applicable statements should be mailed to _______________________________________. This information is provided by __________________, the assignee named above, or______________, as its agent.
FORM OF CLASS SB CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" (AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE")) CREATED BY THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN (THE "AGREEMENT").
THIS CLASS SB CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND WHICH IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE AGREEMENT.
THIS CLASS SB CERTIFICATE IS SUBORDINATE TO THE SENIOR CERTIFICATES AND THE CLASS B CERTIFICATES OF THE SAME SERIES TO THE EXTENT DESCRIBED HEREIN AND IN THE AGREEMENT.
NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE BENEFIT PLAN, OR PERSON USING "PLAN ASSETS" OF ANY PLAN TO EFFECT SUCH ACQUISITION (INCLUDING ANY INSURANCE COMPANY UNDER THE CIRCUMSTANCES DESCRIBED IN THE AGREEMENT), SUBJECT TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE, UNLESS THE TRANSFEREE PROVIDES AN OPINION OF COUNSEL OR CERTIFICATION OF FACTS (UNDER THE LIMITED CIRCUMSTANCES DESCRIBED IN THE AGREEMENT), SATISFACTORY TO THE DEPOSITOR AND THE TRUSTEE OR THE CERTIFICATE REGISTRAR, THAT SUCH DISPOSITION WILL NOT VIOLATE THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND SECTION 4975 OF THE CODE.
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSES OF APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS CERTIFICATE. ASSUMING THAT THE MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF PREPAYMENT, USED SOLELY FOR THE PURPOSES OF APPLYING THE OID RULES TO THE CERTIFICATES, EQUAL TO A CONSTANT PREPAYMENT RATE OF __% PER ANNUM (THE "PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED WITH NO MORE THAN $____ OF OID PER $100,000 OF INITIAL NOTIONAL AMOUNT, THE YIELD TO MATURITY IS ___% AND THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS NO MORE THAN $___ PER $100,000 OF INITIAL NOTIONAL AMOUNT, COMPUTED USING THE EXACT
MADE THAT THE MORTGAGE LOANS WILL PREPAY AT RATES BASED ON THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE.]
Series 1995-Q10 Aggregate Initial Notional Amount of the
Class SB Initial Notional Amount of this
Adjustable Pass-Through Rate Initial Pass-Through Rate: ______
Date of Pooling and Servicing Percentage Interest Evidenced Agreement and Cut-off Date: by this Certificate: _________%
First Distribution Date: Issue Date: January 25, 1996 December 28, 1995
Temple-Inland Mortgage Bankers Trust Company
evidencing a beneficial ownership interest in a trust fund consisting primarily of a pool of adjustable rate residential first mortgage loans
This certifies that ________________________ is the registered owner of the Percentage Interest specified above in that certain beneficial ownership interest evidenced by all of the Class SB Certificates in the Trust Fund (as defined herein) established under a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among DLJ Mortgage Acceptance Corp. (hereinafter called the "Depositor", which term includes any successor entity under the Agreement), Temple-Inland Mortgage Corporation (the "Master Servicer") and Bankers Trust Company (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. The Percentage Interest evidenced hereby is equal to the initial Notional Amount of this Certificate divided by the aggregate initial Notional Amount of all of the Class SB Certificates as specified above. The Certificates of the Series specified above (collectively, the "Certificates") evidence in the aggregate the entire beneficial ownership interest in a segregated pool of assets created pursuant to the Agreement comprised of conventional oneto four-family residential first mortgage loans (the "Mortgage Loans") or interests therein, and certain other assets as described herein. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound.
The Trustee shall distribute or cause to be distributed on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (each, a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered at the close of business on the last Business Day of the month immediately preceding the month of such distribution (the "Record Date"), from the Available Distribution Amount an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class SB Certificates on such Distribution Date pursuant to the Agreement. The Notional Amount of the Class SB Certificates as of any date of determination will be determined pursuant to the Agreement. The Class SB Certificates have no Certificate Principal Balance. Reference is hereby made to the further provisions of this Certificate and the Agreement set forth herein, which further provisions shall for all purposes have the same effect as though fully set forth at this place.
All distributions will be made or caused to be made by the Trustee either (i) by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register or (ii) at the request of the Person entitled thereto if such Person shall have so notified the Trustee in writing by 5 Business Days prior to the applicable Record Date and such Certificateholder is the registered holder of Certificates the aggregate Initial Certificate Principal Balance of which is not less than $2,500,000 (or, with respect to the Class SA Certificates and the Class SB Certificates, is the registered holder of an aggregate initial Notional Amount of not less than $10,000,000 of the Class SA Certificates and the Class SB Certificates), in immediately available funds by wire transfer to the account of such Person. Notwithstanding the above, the final distribution on this Certificate will be made after due notice by the Master Servicer of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office of the Trustee.
This Certificate is one of a duly authorized issue of Certificates of the series and class specified on the face hereof. The Certificates in the aggregate represent the entire beneficial ownership interest in: (i) the Mortgage Loans (exclusive of payments of principal and interest due on or before the Cut-off Date) as from time to time are subject to the Agreement and all payments under and proceeds of the Mortgage Loans, together with all documents included in the related Mortgage File; (ii) such funds or assets as from time to time are deposited in the Custodial Account, the Excess Proceeds Account or the Certificate Account; (iii) any REO Property; (iv) the Primary Hazard Insurance Policies, if any, and all other insurance policies with respect to the Mortgage Loans required to be maintained pursuant to the Agreement; and (v) the Depositor's interest in respect of the representations and warranties made by the Seller in each Mortgage Loan Purchase Agreement and the Seller's Warranty Certificate (all of the foregoing being hereinafter collectively called the "Trust Fund").
The Certificates do not represent an obligation of, or an interest in, the Depositor, the Master Servicer, the Trustee or any Sub-Servicer and are not insured or guaranteed by any governmental agency or instrumentality or by any other person or entity. The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. As provided in the Agreement, withdrawals from the Custodial Account or the Certificate Account may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement to the Master Servicer of advances made, or certain expenses incurred, by it, by the Depositor, by the Trustee or by any Sub-Servicer.
The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Master Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66-2/3% of the Voting Rights. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future Holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the Certificates.
As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the Corporate Trust Office, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate initial Notional Amount will be issued to the designated transferee or transferees.
No transfer of any Class SB Certificate shall be made unless that transfer is made pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), and effective registration or qualification under applicable state securities laws, or is made in a transaction which does not require such registration or qualification. In the event that a transfer is to be made without such registration or qualification, (a) the Trustee and the Depositor shall require the transferee to execute an investment letter in substantially the form attached as either Exhibit G-1 or Exhibit H, as applicable, to the Agreement, which investment letter shall not be an expense of the Depositor, the Master Servicer or the Trustee and (b) in the event that such a transfer is not being made pursuant to Rule 144A under the 1933 Act, the Depositor may direct the Trustee to require an Opinion of Counsel satisfactory to the Depositor and the Trustee that such transfer may be made without such registration or qualification, which Opinion of Counsel shall not be an expense of the Depositor, the Trustee or the Master Servicer. Neither the Depositor nor the Trustee is obligated to register or qualify any of the Certificates under the 1933 Act or any other securities law or to take any action not otherwise required under the Agreement to permit the transfer of such Certificates without registration or qualification.
Any such Certificateholder desiring to effect such transfer shall, and does hereby agree to, indemnify the Depositor, the Trustee and the Master Servicer against any liability that may result if the transfer is not so exempt or is not made in accordance with such federal and state laws.
No transfer of any Class SB Certificate shall be made to any employee benefit plan or other retirement arrangement, including individual retirement accounts and Keogh plans, that is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"; any of foregoing, a "Plan"), to any Person acting on behalf of a Plan, or to any other person who is using "plan assets" to effect such acquisition (including any insurance company using funds in its general or separate accounts that may constitute "plan assets"), unless the prospective transferee of a Certificateholder desiring to transfer its Certificates provides to the Trustee or the Certificate Registrar an Opinion of Counsel (or, in the limited circumstances described in the Agreement, a certification of facts) which establishes to the satisfaction of the Depositor and the Trustee or the Certificate Registrar that such disposition will not violate the prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended. In the case of any transfer of the foregoing Certificates to an insurance company, in lieu of such Opinion of Counsel, the Trustee shall require a certification in the form of Exhibit G-5 to the Agreement.
The Certificates are issuable in fully registered form only, without coupons, and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same aggregate initial Notional Amount, as requested by the Holder surrendering the same.
No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates.
The Depositor, the Master Servicer and the Trustee and any agent of the Depositor, the Master Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Depositor, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary.
The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the purchase by the Master Servicer of all Mortgage Loans and each REO Property in respect thereof, or (ii) the final payment on, or other liquidation (or any advance with respect thereto) of, the last Mortgage Loan remaining in the Trust Fund (or the disposition of all REO Property in respect thereof). The Agreement permits, but does not require, the Master Servicer to purchase from the Trust Fund all Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of the Master Servicer's right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the purchase being less than or equal to 5% of the aggregate Stated Principal Balance of the Mortgage Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose.
The recitals contained herein shall be taken as the statements of the Depositor or the Master Servicer, as the case may be.
IN WITNESS WHEREOF, the Trustee in its capacity as trustee under the Agreement has caused this Certificate to be duly executed.
This is one of the Class SB Certificates referred to in the within-mentioned Agreement.
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip code of
the beneficial interest evidenced by the within Class SB Certificate and hereby authorizes the registration of transfer of such interest to the above-named assignee on the Certificate Register.
I (we) further direct the Trustee to issue a new Class SB Certificate of a like initial Notional Amount to the above-named assignee and deliver such Certificate to the following address: Dated:
Signature by or on behalf of assignor
NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatever, and must be guaranteed by a commercial bank or trust company on the continental United States or by a firm or corporation having membership in any national securities exchange or in the National Association of Securities Dealers, Inc.
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in for the account of ____________________________, account number _______________, or, if mailed by check, to_____________________. Applicable statements should be mailed to _______________________________________. This information is provided by __________________, the assignee named above, or______________, as its agent.
FORM OF CLASS R CERTIFICATE
THIS CERTIFICATE HAS BEEN DESIGNATED BY THE DEPOSITOR REFERRED TO BELOW AS A "RESIDUAL INTEREST" IN THE "REAL ESTATE MORTGAGE INVESTMENT CONDUITS" CREATED BY THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN (THE "AGREEMENT") PURSUANT TO THE RELATED PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE").
THIS CLASS R CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND WHICH IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE AGREEMENT.
THIS CERTIFICATE IS SUBORDINATE TO THE SENIOR CERTIFICATES, THE CLASS B CERTIFICATES AND THE CLASS SB CERTIFICATES OF THE SAME SERIES TO THE EXTENT DESCRIBED HEREIN AND IN THE AGREEMENT.
NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE BENEFIT PLAN, OR PERSON USING "PLAN ASSETS" OF ANY PLAN TO EFFECT SUCH ACQUISITION (INCLUDING ANY INSURANCE COMPANY UNDER THE CIRCUMSTANCES DESCRIBED IN THE AGREEMENT), SUBJECT TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE, UNLESS THE TRANSFEREE PROVIDES AN OPINION OF COUNSEL OR CERTIFICATION OF FACTS (UNDER THE LIMITED CIRCUMSTANCES DESCRIBED IN THE AGREEMENT), SATISFACTORY TO THE DEPOSITOR AND THE TRUSTEE OR THE CERTIFICATE REGISTRAR, THAT SUCH DISPOSITION WILL NOT VIOLATE THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND SECTION 4975 OF THE CODE.
THIS CERTIFICATE AND THE AGREEMENT MAY BE AMENDED WITHOUT THE CONSENT OF THE HOLDER HEREOF, AND IN A MANNER THAT MAY ADVERSELY AFFECT THE INTERESTS OF THE HOLDER HEREOF, IF NECESSARY TO PREVENT THE DISQUALIFICATION OF THE TRUST FUND AS A REMIC.
ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE MAY BE MADE ONLY IF THE PROPOSED TRANSFEREE PROVIDES AN AFFIDAVIT TO THE MASTER SERVICER AND THE TRUSTEE THAT (1) SUCH TRANSFEREE IS NOT (A) THE UNITED STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY POSSESSION OF THE UNITED STATES, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN AN
INSTRUMENTALITY WHICH IS A CORPORATION IF ALL OF ITS ACTIVITIES ARE SUBJECT TO TAX AND, EXCEPT FOR THE FEDERAL HOME LOAN MORTGAGE CORPORATION, A MAJORITY OF ITS BOARD OF DIRECTORS IS NOT SELECTED BY SUCH GOVERNMENTAL UNIT), (B) ANY FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING, (C) ANY ORGANIZATION (OTHER THAN CERTAIN FARMERS' COOPERATIVES DESCRIBED IN SECTION 521 OF THE CODE) WHICH IS EXEMPT FROM THE TAX IMPOSED BY CHAPTER 1 OF THE CODE (UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX IMPOSED BY SECTION 511 OF THE CODE ON UNRELATED BUSINESS TAXABLE INCOME), (D) A RURAL ELECTRIC AND TELEPHONE COOPERATIVE DESCRIBED IN SECTION 1381(A)(2)(C) OF THE CODE AND (E) ANY OTHER PERSON SO DESIGNATED BY THE TRUSTEE BASED ON AN OPINION OF COUNSEL (ANY SUCH PERSON DESCRIBED IN THE FOREGOING CLAUSES (A), (B), (C), (D) OR (E) BEING HEREINAFTER REFERRED TO AS A "DISQUALIFIED ORGANIZATION"), OR (2) AN AGENT OF A DISQUALIFIED ORGANIZATION. NOTWITHSTANDING THE REGISTRATION IN THE CERTIFICATE REGISTER OR ANY TRANSFER, SALE OR OTHER DISPOSITION OF THIS CERTIFICATE TO A DISQUALIFIED ORGANIZATION OR AN AGENT OF A DISQUALIFIED ORGANIZATION, SUCH REGISTRATION SHALL BE DEEMED TO BE OF NO LEGAL FORCE OR EFFECT WHATSOEVER AND SUCH PERSON SHALL NOT BE DEEMED TO BE A CERTIFICATEHOLDER FOR ANY PURPOSE HEREUNDER, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS CERTIFICATE. EACH HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, SHALL BE DEEMED TO HAVE CONSENTED TO THE PROVISIONS OF THIS PARAGRAPH.
IF ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE IS MADE TO ANY OF CERTAIN "PASS-THROUGH ENTITIES" DESCRIBED IN SECTION 860E(E)(6) OF THE CODE, AND A DISQUALIFIED ORGANIZATION IS THE RECORD HOLDER OF AN INTEREST IN SUCH ENTITY, THEN A TAX MAY BE IMPOSED ON SUCH ENTITY.
NO TRANSFER OF THE CERTIFICATE MAY BE MADE TO A PERSON THAT IS NOT A UNITED STATES PERSON (AS DEFINED IN THE AGREEMENT).
Series 1995-Q10 Aggregate unpaid principal balance of the Mortgage Loans after deducting payments due on or before
Class R Percentage Interest Evidenced
Date of Pooling and Servicing Issue Date: December 28, 1995 Agreement and Cut-off Date:
Master Servicer: First Distribution Date: Temple-Inland Mortgage Corporation January 25, 1996
evidencing a residual interest with respect to a trust fund consisting primarily of a pool of adjustable rate residential first mortgage loans sold by
This certifies that _______________________________ is the registered owner of the Percentage Interest specified above in that certain beneficial ownership interest evidenced by all of the Class R Certificates in the Trust Fund (as defined herein) established under a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among DLJ Mortgage Acceptance Corp. (hereinafter called the "Depositor", which term includes any successor entity under the Agreement), Temple-Inland Mortgage Corporation (the "Master Servicer") and Bankers Trust Company (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. The Certificates of the Series specified above (collectively, the "Certificates") evidence in the aggregate the entire beneficial ownership interest in a segregated pool of assets created pursuant to the Agreement comprised of conventional oneto four-family residential first mortgage loans (the "Mortgage Loans"), or interests therein, and certain other assets as described herein. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound.
The Trustee shall distribute or cause to be distributed on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (each, a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered at the close of business on the last Business Day of the month immediately preceding the month of such distribution (the "Record Date"), from the Available Distribution Amount an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class R Certificates on such Distribution Date pursuant to the Agreement. Reference is hereby made to the further provisions of this Certificate and the Agreement set forth herein, which further provisions shall for all purposes have the same effect as though fully set forth at this place.
All distributions will be made or caused to be made by the Trustee either (i) by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register or (ii) at the request of the Person entitled thereto if such Person shall have so notified the Trustee in writing by 5 Business Days prior to the applicable Record Date and such Certificateholder is the registered holder of Certificates the aggregate Initial Certificate Principal Balance of which is not less than $2,500,000 (or, with respect to the Class SA Certificates and the Class SB Certificates, is the registered holder of an aggregate initial Notional Amount of not less than $10,000,000 of the Class SA Certificates and the Class SB Certificates), in immediately available funds by wire transfer to the account of such Person. Notwithstanding the above, the final distribution on this Certificate will be made after due notice by the Master Servicer of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office of the Trustee.
This Certificate is one of a duly authorized issue of Certificates of the series and class specified on the face hereof. The Certificates in the aggregate represent the entire beneficial ownership interest in: (i) the Mortgage Loans (exclusive of payments of principal and interest due on or before the Cut-off Date) as from time to time are subject to the Agreement and all payments under and proceeds of the Mortgage Loans, together with all documents included in the related Mortgage File; (ii) such funds or assets as from time to time are deposited in the Custodial Account, the Excess Proceeds Account or the Certificate Account; (iii) any REO Property; (iv) the Primary Hazard Insurance Policies, if any, and all other insurance policies with respect to the Mortgage Loans required to be maintained pursuant to the Agreement; and (v) the Depositor's interest in respect of the representations and warranties made by the Seller in each Mortgage Loan Purchase Agreement and the Seller's Warranty Certificate (all of the foregoing being hereinafter collectively called the "Trust Fund").
The Certificates do not represent an obligation of, or an interest in, the Depositor, the Master Servicer, the Trustee or any Sub-Servicer and are not insured or guaranteed by any governmental agency or instrumentality or by any other person or entity. The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. As provided in the Agreement, withdrawals from the Custodial Account or the Certificate Account may be made by the Master Servicer from time to time for purposes other than purposes including reimbursement to the Master Servicer of advances made, or certain expenses incurred, by it, by the Depositor, by the Trustee or by any Sub-Servicer.
The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Master Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66-2/3% of the Voting Rights. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future Holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the Certificates.
As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the Corporate Trust Office, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees.
No transfer of any Class R Certificate shall be made unless that transfer is made pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), and effective registration or qualification under applicable state securities laws, or is made in a transaction which does not require such registration or qualification. In the event that a transfer is to be made without such registration or qualification, (a) the Trustee shall require that the Certificateholder desiring to effect the transfer and such Certificateholder's prospective transferee each certify to the Trustee in writing the facts surrounding the transfer and (b) in the event that such a transfer is not being made pursuant to Rule 144A under the 1933 Act, the Depositor may direct the Trustee to require an Opinion of Counsel satisfactory to the Depositor and the Trustee that such transfer may be made without such registration or qualification, which Opinion of Counsel shall not be an expense of the Depositor, the Trustee or the Master Servicer. Neither the Depositor nor the Trustee is obligated to register or qualify any of the Certificates under the 1933 Act or any other securities law or to take any action not otherwise required under the Agreement to permit the transfer of such Certificates without registration or qualification. Any such Certificateholder desiring to effect such transfer shall, and does hereby agree to, indemnify the Depositor, the Trustee and the Master Servicer against any liability that may result if the transfer is not so exempt or is not made in accordance with such federal and state laws.
No transfer of any Class R this Certificate shall be made to any employee benefit plan or other retirement arrangement, including individual retirement accounts and Keogh plans, that is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"; any of foregoing, a "Plan"), to any Person acting on behalf of a Plan, or to any other person who is using "plan assets" to effect such acquisition (including any insurance company using funds in its general or separate accounts that may constitute "plan assets"), unless the prospective transferee of a Certificateholder desiring to transfer its Certificates provides to the Trustee or the Certificate Registrar an Opinion of Counsel (or, in the limited circumstances described in the Agreement, a certification of facts) which establishes to the satisfaction of the Depositor and the Trustee or the Certificate Registrar that such disposition will not violate the prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended. In the case of any transfer of the foregoing Certificates to an insurance company, in lieu of such Opinion of Counsel, the Trustee shall require a certification in the form of Exhibit G-5 to the Agreement.
The Certificates are issuable in fully registered form only, without coupons, and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest, as requested by the Holder surrendering the same.
No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates.
The Depositor, the Master Servicer and the Trustee and any agent of the Depositor, the Master Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Depositor, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary.
The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the purchase by the Master Servicer of all Mortgage Loans and each REO Property in respect thereof, or (ii) the final payment on, or other liquidation (or any advance with respect thereto) of, the last Mortgage Loan remaining in the Trust Fund (or the disposition of all REO Property in respect thereof). The Agreement permits, but does not require, the Master Servicer to purchase from the Trust Fund all Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of the Master Servicer's right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than or equal to 5% of the aggregate Stated Principal Balance of the Mortgage Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose.
The recitals contained herein shall be taken as the statements of the Depositor or the Master Servicer, as the case may be.
IN WITNESS WHEREOF, the Trustee in its capacity as trustee under the Agreement has caused this Certificate to be duly executed.
This is one of the Class R Certificates referred to in the within-mentioned Agreement.
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip code of
the beneficial interest evidenced by the within Class R Certificate and hereby authorizes the registration of transfer of such interest to the above-named assignee on the Certificate Register.
I (we) further direct the Trustee to issue a new Class R Certificate of a like Percentage Interest to the above-named assignee and deliver such Certificate to the following address:
Signature by or on behalf of assignor
NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatever, and must be guaranteed by a commercial bank or trust company on the continental United States or by a firm or corporation having membership in any national securities exchange or in the National Association of Securities Dealers, Inc.
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in for the account of ____________________________, account number _______________, or, if mailed by check, to_____________________. Applicable statements should be mailed to _______________________________________. This information is provided by __________________, the assignee named above, or______________, as its agent.
FORM OF TRUSTEE INITIAL CERTIFICATION
Re: Pooling and Servicing Agreement, dated as of December 1, 1995, among DLJ Mortgage Acceptance Corp., Temple-Inland Mortgage Corporation and Bankers Trust Company, DLJ Mortgage Acceptance Corp. Mortgage Pass-Through Certificates, Series 1995-Q10
In accordance with Section 2.02 of the above-captioned Pooling and Servicing Agreement, the undersigned, as Trustee, hereby certifies that as to each Mortgage Loan listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or listed on the attachment hereto) it has reviewed the Mortgage File and the Mortgage Loan Schedule and has determined that: (i) all documents required to be included in the Mortgage File are in its possession; (ii) such documents have been reviewed by it and appear regular on their face and relate to such Mortgage Loan; and (iii) based on examination by it, and only as to such documents, the information set forth in items (i) - (vi) and (x) - (xiii) of the definition or description of "Mortgage Loan Schedule" is correct.
The Trustee has made no independent examination of any documents contained in each Mortgage File beyond the review specifically required in the above-referenced Pooling and Servicing Agreement. The Trustee makes no representation that any documents specified in clause (vi) of Section 2.01 should be included in any Mortgage File. The Trustee makes no representations as to and shall not be responsible to verify: (i) the validity, legality, sufficiency, enforceability, due authorization, recordability or genuineness of any of the documents contained in each Mortgage File of any of the Mortgage Loans identified on the Mortgage Loan Schedule, (ii) the collectability, insurability, effectiveness or suitability of any such Mortgage Loan, or (iii) the existence of any assumption, modification, written assurance or substitution agreement with respect to any Mortgage File if no such documents appear in the Mortgage File delivered to the Trustee.
Capitalized words and phrases used herein shall have the respective meanings assigned to them in the above-captioned Pooling and Servicing Agreement.
FORM OF TRUSTEE FINAL CERTIFICATION
Re: Pooling and Servicing Agreement, dated as of December 1, 1995 among DLJ Mortgage Acceptance Corp., Temple-Inland Mortgage Corporation and Bankers Trust Company, DLJ Mortgage Acceptance Corp. Mortgage Pass-Through Certificates, Series 1995-Q10
In accordance with Section 2.02 of the above-captioned Pooling and Servicing Agreement, the undersigned, as Trustee, hereby certifies that as to each Mortgage Loan listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or listed on the attachment hereto) it has received the documents set forth in Section 2.01.
The Trustee has made no independent examination of any documents contained in each Mortgage File beyond the review specifically required in the above-referenced Pooling and Servicing Agreement. The Trustee makes no representation that any documents specified in clause (vi) of Section 2.01 should be included in any Mortgage File. The Trustee makes no representations as to and shall not be responsible to verify: (i) the validity, legality, sufficiency, enforceability, due authorization, recordability or genuineness of any of the documents contained in each Mortgage File of any of the Mortgage Loans identified on the Mortgage Loan Schedule, (ii) the collectability, insurability, effectiveness or suitability of any such Mortgage Loan or (iii) the existence of any assumption, modification, written assurance or substitution agreement with respect to any Mortgage File if no such documents appear in the Mortgage File delivered to the Trustee.
Capitalized words and phrases used herein shall have the respective meanings assigned to them in the above-captioned Pooling and Servicing Agreement.
REQUEST FOR REQUESTING DOCUMENTS (check one):
(The Master Servicer hereby certifies that all proceeds of foreclosure, insurance or other liquidation have been finally received and deposited into the Custodial Account to the extent required pursuant to the Pooling and
2. Mortgage Loan in Foreclosure.
3. Mortgage Loan Repurchased Pursuant to Section 9.01 of the Pooling and Servicing Agreement.
4. Mortgage Loan Repurchased Pursuant to Article II of the Pooling and Servicing Agreement. (The Master Servicer hereby certifies that the repurchase price has been deposited into the Custodial Account pursuant to the Pooling and Servicing Agreement.)
The undersigned Master Servicer hereby acknowledges that it has received from _____________________________________, as Trustee for the Holders of Mortgage PassThrough Certificates, Series 1995-Q10, the documents referred to below (the "Documents"). All capitalized terms not otherwise defined in this Request for Release shall have the meanings given them in the Pooling and Servicing Agreement, dated as of December 1, 1995 (the "Pooling and Servicing Agreement"), among DLJ Mortgage Acceptance Corp., Temple-Inland Mortgage Corporation and the Trustee.
( ) Promissory Note dated _______________, 19__, in the original principal sum of $__________, made by _____________________, payable to, or endorsed to the order of, the Trustee.
( ) Mortgage recorded on _____________________ as instrument no. ____________________ in the County Recorder's Office of the County of _________________, State of __________________ in book/reel/docket _________________ of official records at page/image _____________.
( ) Deed of Trust recorded on ___________________ as instrument no. ________________ in the County Recorder's Office of the County of _________________, State of __________________ in book/reel/docket _________________ of official records at page/image ______________.
( ) Assignment of Mortgage or Deed of Trust to the Trustee, recorded on ___________________ as instrument no. _________ in the County Recorder's Office of the County of __________, State of _______________ in book/reel/docket ____________ of official records at page/image ____________.
( ) Other documents, including any amendments, assignments or other assumptions of the Mortgage Note or Mortgage.
The undersigned Master Servicer hereby acknowledges and agrees as follows:
(1) The Master Servicer shall hold and retain possession of the Documents in trust for the benefit of the Trustee, solely for the purposes provided in the Agreement.
(2) The Master Servicer shall not cause or knowingly permit the Documents to become subject to, or encumbered by, any claim, liens, security interest, charges, writs of attachment or other impositions nor shall the Master Servicer assert or seek to assert any claims or rights of setoff to or against the Documents or any proceeds thereof.
(3) The Master Servicer shall return each and every Document previously requested from the Mortgage File to the Trustee when the need therefor no longer exists, unless the Mortgage Loan relating to the Documents has been liquidated and the proceeds thereof have been remitted to the Custodial Account and except as expressly provided in the Agreement.
(4) The Documents and any proceeds thereof, including any proceeds of proceeds, coming into the possession or control of the Master Servicer shall at all times be earmarked for the account of the Trustee, and the Master Servicer shall keep the Documents and any proceeds separate and distinct from all other property in the Master Servicer's possession, custody or control.
[Mortgage Loans Paid in Full]
OFFICER'S CERTIFICATE AND TRUST RECEIPT
______________________________________ HEREBY CERTIFIES THAT HE/SHE IS AN OFFICER OF THE MASTER SERVICER, HOLDING THE OFFICE SET FORTH BENEATH HIS/HER SIGNATURE, AND HEREBY FURTHER CERTIFIES AS FOLLOWS:
WITH RESPECT TO THE MORTGAGE LOANS, AS THE TERM IS DEFINED IN THE POOLING AND SERVICING AGREEMENT DESCRIBED IN THE ATTACHED SCHEDULE:
ALL PAYMENTS OF PRINCIPAL, PREMIUM (IF ANY), AND INTEREST HAVE BEEN MADE.
LOAN NUMBER: _______________ BORROWER'S NAME:_____________
WE HEREBY CERTIFY THAT ALL AMOUNTS RECEIVED IN CONNECTION WITH SUCH PAYMENTS, WHICH ARE REQUIRED TO BE DEPOSITED IN THE CUSTODIAL ACCOUNT PURSUANT TO SECTION 3.10 OF THE POOLING AND SERVICING AGREEMENT, HAVE BEEN OR WILL BE CREDITED.
/ / ASSISTANT VICE PRESIDENT
FORM OF INVESTOR REPRESENTATION LETTER
New York, New York 10020
Re: DLJ Mortgage Acceptance Corp.
_______________(the "Purchaser") intends to purchase from ____________ (the "Seller") $____________ Initial Certificate Principal Balance of Mortgage Pass-Through Certificates, Series 1995-Q10, Class (the "Certificates"), issued pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of December 1, 1995 among DLJ Mortgage Acceptance Corp., as seller (the "Company"), Temple-Inland Mortgage Corporation, as master servicer, and Bankers Trust Company, as trustee (the "Trustee"). All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Purchaser hereby certifies, represents and warrants to, and covenants with, the Company and the Trustee that:
1. The Purchaser understands that (a) the Certificates have not been and will not be registered or qualified under the Securities Act of 1933, as amended (the "Act") or any state securities law, (b) the Company is not required to so register or qualify the Certificates, (c) the Certificates may be resold only if registered and qualified pursuant to the provisions of the Act or any state securities law, or if an exemption from such registration and qualification is available, (d) the Pooling and Servicing Agreement contains restrictions regarding the transfer of the Certificates and (e) the Certificates will bear a legend to the foregoing effect.
2. The Purchaser is acquiring the Certificates for its own account for investment only and not with a view to or for sale in connection with any distribution thereof in any manner that would violate the Act or any applicable state securities laws.
3. The Purchaser is (a) a substantial, sophisticated institutional investor having such knowledge and experience in financial and business matters, and, in particular, in such matters related to securities similar to the Certificates, such that it is capable of evaluating the merits and risks of investment in the Certificates, (b) able to bear the economic risks of such an investment and (c) an "accredited investor" within the meaning of Rule 501(a) promulgated pursuant to the Act.
4. The Purchaser has been furnished with, and has had an opportunity to review [(a) a copy of the Private Placement Memorandum dated December 28, 1995 relating to the Certificates, (b)] a copy of the Pooling and Servicing Agreement and [(b)] [(c)] such other information concerning the Certificates, the Mortgage Loans and the Company as has been requested by the Purchaser from the Company or the Seller and is relevant to the Purchaser's decision to purchase the Certificates. The Purchaser has had any questions arising from such review answered by the Company or the Seller to the satisfaction of the Purchaser. If the Purchaser did not purchase the Certificates from the Seller in connection with the initial distribution of the Certificates and was provided with a copy of the Private Placement Memorandum (the "Memorandum") relating to the original sale (the "Original Sale") of the Certificates by the Company, the Purchaser acknowledges that such Memorandum was provided to it by the Seller, that the Memorandum was prepared by the Company solely for use in connection with the Original Sale and the Company did not participate in or facilitate in any way the purchase of the Certificates by the Purchaser from the Seller, and the Purchaser agrees that it will look solely to the Seller and not to the Company with respect to any damage, liability, claim or expense arising out of, resulting from or in connection with (a) error or omission, or alleged error or omission, contained in the Memorandum, or (b) any information, development or event arising after the date of the Memorandum.
5. The Purchaser has not and will not, nor has it authorized or will it authorize, any person to (a) offer, pledge, sell, dispose of or otherwise transfer any Certificate, any interest in any Certificate or any other similar security to any person in any manner, (b) solicit any offer to buy or to accept a pledge, disposition or other transfer of any Certificate, any interest in any Certificate or any other similar security from any person in any manner, (c) otherwise approach or negotiate with respect to any Certificate, any interest in any Certificate or any other similar security with any person in any manner, (d) make any general solicitation by means of general advertising or in any other manner or (e) take any other action, that (as to any of (a) through (e) above) would constitute a distribution of any Certificate under the Act, that would render the disposition of any Certificate a violation of Section 5 of the Act or any state securities law, or that would require registration or qualification pursuant thereto. The Purchaser will not sell or otherwise transfer any of the Certificates, except in compliance with the provisions of the Pooling and Servicing Agreement.
[6. *The Purchaser is not any employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the Internal Revenue Code of 1986, (the "Code"), nor a Person acting, directly or indirectly, on behalf of any such plan, and understands that registration of transfer of any Certificate to any such employee benefit plan, or to any person acting on behalf of such plan, will not be made unless such employee benefit plan delivers an opinion of its counsel, addressed and satisfactory to the Trustee, the Company and the Master Servicer, to the effect that the purchase and holding of a Certificate by or on behalf of such employee benefit plan would not result in the assets of the Trust Estate being deemed to be "plan assets" and subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction provisions of the Code (or comparable provisions of any subsequent enactments), would not constitute or result in a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code, and would not subject the Company, the Master Servicer or the Trustee to any obligation or liability (including liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Pooling and Servicing Agreement or any other liability. The Purchaser understands that under current law such an opinion cannot be rendered.]
* In the case of a transfer of the Class A-2, Class B-1, Class B-2, Class SB and Class R Certificates to an insurance company, the above paragraph 6 shall be deleted and a certification in the form of Exhibit G-5 shall be executed.
Form of Transferor Representation Letter
New York, New York 10020
Re: DLJ Mortgage Acceptance Corp.
In connection with the sale by __________(the "Seller") to____________ (the "Purchaser") of $____________ Initial Certificate Principal Balance of Mortgage Pass-Through Certificates, Series 1995-Q10, Class (the "Certificates"), issued pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of December 1, 1995 among DLJ Mortgage Acceptance Corp., as seller (the "Company"), Temple-Inland Mortgage Corporation, as master servicer, and Bankers Trust Company, as trustee (the "Trustee"). The Seller hereby certifies, represents and warrants to, and covenants with, the Company and the Trustee that:
Neither the Seller nor anyone acting on its behalf has (a) offered, pledged, sold, disposed of or otherwise transferred any Certificate, any interest in any Certificate or any other similar security to any person in any manner, (b) has solicited any offer to buy or to accept a pledge, disposition or other transfer of any Certificate, any interest in any Certificate or any other similar security from any person in any manner, (c) has otherwise approached or negotiated with respect to any Certificate, any interest in any Certificate or any other similar security with any person in any manner, (d) has made any general solicitation by means of general advertising or in any other manner, or (e) has taken any other action, that (as to any of (a) through (e) above) would constitute a distribution of the Certificates under the Securities Act of 1933 (the "Act"), that would render the disposition of any Certificate a violation of Section 5 of the Act or any state securities law, or that would require registration or qualification pursuant thereto. The Seller will not act in any manner set forth in the foregoing sentence with respect to any Certificate. The Seller has not and will not sell or otherwise transfer any of the Certificates, except in compliance with the provisions of the Pooling and Servicing Agreement.
___________________, being first duly sworn, deposes, represents and warrants:
1. That he is [Title of Officer] of [Name of Owner], a [savings institution] [corporation] duly organized and existing under the laws of [the State of ___________] [the United States], (the "Owner"), (record or beneficial owner of the Class R Certificates on behalf of which he makes this affidavit and agreement). This Class R Certificate was issued pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement") dated as of December 1, 1995 among DLJ Mortgage Acceptance Corp., as depositor, Temple-Inland Mortgage Corporation, as master servicer (the "Master Servicer"), and Bankers Trust Company, as trustee (the "Trustee").
2. That the Owner (i) is and will be a "Permitted Transferee" as of ________, 199__ and (ii) is acquiring the Class R Certificates for its own account or for the account of another Owner from which it has received an affidavit in substantially the same form as this affidavit. A "Permitted Transferee" is any person other than a "disqualified organization" or a Non-United States Person. For this purpose, a "disqualified organization" means any of the following: (i) the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing (other than an instrumentality which is a corporation if all of its activities are subject to tax and, except for the FHLMC, a majority of its board of directors is not selected by such governmental unit), (ii) a foreign government, any international organization, or any agency or instrumentality of any of the foregoing, (iii) any organization (other than certain farmers' cooperatives described in Section 521 of the Internal Revenue Code of 1986) (the "Code") which is exempt from the tax imposed by Chapter 1 of the Code (unless such organization is subject to the tax imposed by Section 511 of the Code on unrelated business taxable income), (iv) rural electric and telephone cooperatives described in Section 1381(a)(2)(C) of the Code and (v) any other Person so designated based upon an Opinion of Counsel that the holding of an Ownership Interest in a Class R Certificate by such Person may cause the Trust Fund or any Person having an Ownership Interest in any Class of Certificates, other than such Person, to incur a liability for any federal tax imposed under the Code that would not otherwise be imposed but for the Transfer of an Ownership Interest in a Class R Certificate to such Person. The terms "United States", "State" and "international organization" shall have the meanings set forth in Section 7701 of the Code or successor provisions.
3. That the Owner is aware (i) of the tax that would be imposed on transfers of the Class R Certificates to disqualified organizations under the Code that applies to all transfers of the Class R Certificates after March 31, 1988; (ii) that such tax would be on the transferor, or, if such transfer is through an agent (which person includes a broker, nominee or middleman) for a disqualified organization Transferee, on the agent; (iii) that the person otherwise liable for the tax shall be relieved of liability for the tax if the transferee furnishes to such person an affidavit that the transferee is not a disqualified organization and, at the time of transfer, such person does not have actual knowledge that the affidavit is false and; (iv) that the Class R Certificates may be "noneconomic residual interests" within the meaning of Treasury Regulation Section 1.860E-1(c)(2) and that the transferor of a "noneconomic residual interest" will remain liable for any taxes due with respect to the income on such residual interest, unless no significant purpose of the transfer is to enable the transferor to impede the assessment or collection of tax.
4. That the Owner is aware of the tax imposed on a "pass-through entity" holding the Class R Certificates if at any time during the taxable year of the pass-through entity a non-Permitted Transferee is the record holder of an interest in such entity. For this purpose, a "pass through entity" includes a regulated investment company, a real estate investment trust or common trust fund, a partnership, trust or estate, and certain cooperatives.
5. That the Owner is aware that the Trustee will not register the transfer of any Class R Certificates unless the transferee, or the transferee's agent, delivers to the Trustee, among other things, an affidavit in substantially the same form as this affidavit. The Owner expressly agrees that it will not consummate any such transfer if it knows or believes that any of the representations contained in such affidavit and agreement are false.
6. That the Owner consents to any additional restrictions or arrangements that shall be deemed necessary upon advice of counsel to constitute a reasonable arrangement to ensure that the Class R Certificates will only be owned, directly or indirectly, by Owners that are Permitted Transferees.
7. That the Owner's taxpayer identification number is __________.
8. That the Owner has reviewed the restrictions set forth on the face of the Class R Certificates and the provisions of Section 5.02 of the Pooling and Servicing Agreement under which the Class R Certificates were issued (and, in particular, the Owner is aware that such Section authorizes the Trustee to deliver payments to a person other than the Owner and negotiate a mandatory sale by the Trustee in the event that the Owner holds such Certificate in violation of Section 5.02); and that the Owner expressly agrees to be bound by and to comply with such restrictions and provisions.
9. That the Owner is not acquiring and will not transfer the Class R Certificates in order to impede the assessment or collection of any tax.
10. That the Owner anticipates that it will, so long as it holds the Class R Certificates, have sufficient assets to pay any taxes owed by the holder of such Class R Certificates.
11. That the Owner has no present knowledge that it may become insolvent or subject to a bankruptcy proceeding for so long as it holds the Class R Certificates.
12. That the Owner has no present knowledge or expectation that it will be unable to pay any United States taxes owed by it so long as any of the Certificates remain outstanding. In this regard, the Owner hereby represents to and for the benefit of the Person from whom it acquired the Class R Certificates that the Owner intends to pay taxes associated with holding the Class R Certificates as they become due, fully understanding that it may incur tax liabilities in excess of any cash flows generated by the Class R Certificates.
13. That the Owner is not acquiring the Class R Certificates with the intent to transfer the Class R Certificates to any person or entity that will not have sufficient assets to pay any taxes owed by the holder of such Class R Certificates, or that may become insolvent or subject to a bankruptcy proceeding, for so long as the Class R Certificates remain outstanding.
14. That Owner will, in connection with any transfer that it makes of the Class R Certificates, obtain from its transferee the representations required by Section 5.02(d) of the Pooling and Servicing Agreement under which the Class R Certificates were issued and will not consummate any such transfer if it knows, or knows facts that should lead it to believe, that any such representations are false.
15. That Owner will, in connection with any transfer that it makes of the Class R Certificates, deliver to the Trustee an affidavit, which represents and warrants that it is not transferring the Class R Certificates to impede the assessment or collection of any tax and that it has no actual knowledge that the proposed transferee: (i) has insufficient assets to pay any taxes owed by such transferee as holder of the Class R Certificates; (ii) may become insolvent or subject to a bankruptcy proceeding, for so long as the Class R Certificates remain outstanding and; (iii) is not a "Permitted Transferee".
16. That the Owner is a citizen or resident of the United States, a corporation, partnership or other entity created or organized in, or under the laws of, the United States or any political subdivision thereof, or an estate or trust whose income from sources without the United States is includible in gross income for United States federal income tax purposes regardless of its connection with the conduct of a trade or business within the United States.
IN WITNESS WHEREOF, the Owner has caused this instrument to be executed on its behalf, by its [Title of Officer] and its corporate seal to be hereunto attached, attested by its [Assistant] Secretary, this ____ day of ____________, ____.
Personally appeared before me the above-named [Name of Officer], known or proved to me to be the same person who executed the foregoing instrument and to be the [Title of Officer] of the Owner, and acknowledged to me that such person executed the same as such person's free act and deed and the free act and deed of the Owner.
Subscribed and sworn before me this ___ day of _____________, 19__.
My Commission expires the ____ day of _______, 19__.
New York, New York 10020
Re: DLJ Mortgage Acceptance Corp.
This letter is delivered to you in connection with the sale by ___________________________ (the "Seller") to _____________________________ (the "Purchaser") of a ___% Percentage Interest in the Mortgage Pass-Through Certificates, Series 1995-Q10, Class R (the "Certificates"), issued pursuant to Section 5.02 of the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of December 1, 1995, among DLJ Mortgage Acceptance Corp., as seller (the "Company"), Temple-Inland Mortgage Corporation, as master servicer, and Bankers Trust Company, as trustee (the "Trustee"). All terms used herein and not otherwise defined shall have the meaning set forth in the Pooling and Servicing Agreement. The Seller hereby certifies, represents and warrants to, and covenants with, the Company and the Trustee that:
1. No purpose of the Seller relating to the sale of the Certificates by the Seller to the Purchaser is or will be to impede the assessment or collection of any tax.
2. The Seller understands that the Purchaser has delivered to the Trustee and the Master Servicer a transfer affidavit and agreement in the form attached to the Pooling and Servicing Agreement as Exhibit G-3. The Seller does not know or believe that any representation contained therein is false.
3. The Seller has at the time of the transfer conducted a reasonable investigation of the financial condition of the Purchaser as contemplated by Treasury Regulations Section 1.860E-1(c)(4)(i) and, as a result of that investigation, the Seller has determined that the Purchaser has historically paid its debts as they have become due and has found no significant evidence to indicate that the Purchaser will not continue to pay its debts as they become due in the future. The Seller understands that the transfer of the Certificates may not be respected for
United States income tax purposes (and the Seller may continue to be liable for United States income taxes associated therewith) unless the Seller has conducted such an investigation.
4. The Seller has no actual knowledge that the proposed Transferee is a Disqualified Organization, an agent of a Disqualified Organization or a Non-United States Person.
FORM OF INVESTOR REPRESENTATION LETTER FOR INSURANCE COMPANIES
New York, New York 10020
Re: DLJ Mortgage Acceptance Corp.
_______________ (the "Purchaser") intends to purchase from __________ (the "Seller") $____________ Initial Certificate Principal Balance of Mortgage Pass-Through Certificates, Series 1995-Q10, Class __ (the "Certificate"), issued pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as December 1, 1995, among DLJ Mortgage Acceptance Corp., as seller (the "Company"), Temple-Inland Mortgage Corporation, as master servicer, and Bankers Trust Company, as trustee (the "Trustee"). All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Purchaser hereby certifies, represents and warrants to, and covenants with, the Company and the Trustee that:
1. The Certificates purchased pursuant hereto will not be transferred to any employee benefit plan or other retirement arrangement including individual retirement accounts and Keogh plans that is subject to Section 406 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or Section 4975 of the Internal Revenue Code of 1986 (the "Code") (any of the foregoing, a "Plan").
2. The Purchaser is an insurance company and the source of funds used to purchase the Certificates is an "insurance company general account" (as such term is defined in Prohibited Transaction Class Exemption 95-60 issued by the U.S. Department of Labor ("PTCE 95-60") and there is no plan with respect to which the amount of such general account's reserves and liabilities for the contract(s) held by or on behalf of such Plan and all other plans maintained by the same employer (or affiliate thereof as defined in PTCE 95-60) or by the same employee organization, exceed 10% of the total of all reserves and liabilities of such general account (as such amounts are determined under PTCE 95-60) as of the date of acquisition of such Certificates.
[FORM OF RULE 144A INVESTMENT REPRESENTATION]
Description of Rule 144A Securities, including numbers:
Series 1995-Q10, Class ___, No. ___
The undersigned seller, as registered holder (the "Transferor"), intends to transfer the Rule 144A Securities described above to the undersigned buyer (the "Buyer").
1. In connection with such transfer and in accordance with the agreements pursuant to which the Rule 144A Securities were issued, the Transferor hereby certifies the following facts: Neither the Transferor nor anyone acting on its behalf has offered, transferred, pledged, sold or otherwise disposed of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of the Rule 144A Securities, or otherwise approached or negotiated with respect to the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security with, any person in any manner, or made any general solicitation by means of general advertising or in any other manner, or taken any other action, which would constitute a distribution of the Rule 144A Securities under the Securities Act of 1933, as amended (the "1933 Act"), or which would render the disposition of the Rule 144A Securities a violation of Section 5 of the 1933 Act or require registration pursuant thereto, and that the Transferor has not offered the Rule 144A Securities to any person other than the Buyer or another "qualified institutional buyer" as defined in Rule 144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with, the Transferor, the Trustee and the Master Servicer pursuant to Section 5.02 of the Pooling and Servicing Agreement as follows:
a. The Buyer understands that the Rule 144A Securities have not been registered under the 1933 Act or the securities laws of any state.
b. The Buyer considers itself a substantial, sophisticated institutional investor having such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Rule 144A Securities.
c. The Buyer has been furnished with all information regarding the Rule 144A Securities that it has requested from the Transferor, the Trustee or the Master Servicer.
d. Neither the Buyer nor anyone acting on its behalf has offered, transferred, pledged, sold or otherwise disposed of the Rule 144A
in the Rule 144A Securities or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security from, or otherwise approached or negotiated with respect to the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security with, any person in any manner, or made any general solicitation by means of general advertising or in any other manner, or taken any other action, that would constitute a distribution of the Rule 144A Securities under the 1933 Act or that would render the disposition of the Rule 144A Securities a violation of Section 5 of the 1933 Act or require registration pursuant thereto, nor will it act, nor has it authorized or will it authorize any person to act, in such manner with respect to the Rule 144A Securities.
e. The Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the 1933 Act and has completed either of the forms of certification to that effect attached hereto as Annex 1 or Annex 2. The Buyer is aware that the sale to it is being made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A Securities for its own account or the account of other qualified institutional buyers, understands that such Rule 144A Securities may be resold, pledged or transferred only (i) to a person reasonably believed to be a qualified institutional buyer that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, or (ii) pursuant to another exemption from registration under the 1933 Act.
3. The Buyer warrants and represents to, and covenants with, the Transferor, the Servicer and the Depositor that either (1) the Buyer is not an employee benefit plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("Plan"), or a plan within the meaning of Section 4975(e)(1) of the Internal Revenue Code of 1986 (the "Code") (also a "Plan"), and the Buyer is not directly or indirectly purchasing the Rule 144A Securities on behalf of, as investment manager of, as named fiduciary of, as trustee of, or with assets of a Plan, or (2) the Buyer's purchase of the Rule 144A Securities will not result in a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.
4. This document may be executed in one or more counterparts and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed to be an original; such counterparts, together, shall constitute one and the same document.
IN WITNESS WHEREOF, each of the parties has executed this document as of the date set forth below.
Print Name of Transferor Print Name of Buyer
ANNEX 1 TO EXHIBIT H
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers Other Than Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief Financial Officer, Senior Vice President or other executive officer of the Buyer.
2. In connection with purchases by the Buyer, the Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested on a discretionary basis $______________________1 in securities (except for the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A) and (ii) the Buyer satisfies the criteria in the category marked below.
___ CORPORATION, ETC. The Buyer is a corporation (other than a bank, savings and loan association or similar institution), Massachusetts or similar business trust, partnership, or charitable organization described in Section 501(c)(3) of the Internal Revenue Code.
___ BANK. The Buyer (a) is a national bank or banking institution organized under the laws of any State, territory or the District of Columbia, the business of which is substantially confined to banking and is supervised by the State or territorial banking commission or similar official or is a foreign bank or equivalent institution, and (b) has an audited net worth of at least $25,000,000 as demonstrated in its latest annual financial statement, a copy of which is attached hereto.
___ SAVINGS AND LOAN. The Buyer (a) is a savings and loan association, building and loan association, cooperative bank, homestead association or similar institution, which is supervised and examined by a State or Federal authority having supervision over any such institutions or is a foreign savings and loan association or equivalent institution and (b) has an audited net worth of at least $25,000,000 as demonstrated in its latest annual financial statements.
___ BROKER-DEALER. The Buyer is a dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934.
1 Buyer must own and/or invest on a discretionary basis at least $100,000,000 in securities unless Buyer is a dealer, and, in that case, Buyer must own and/or invest on a discretionary basis at least $10,000,000 in securities.
___ INSURANCE COMPANY. The Buyer is an insurance company whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies and which is subject to supervision by the insurance commissioner or a similar official or agency of a State, territory or the District of Columbia.
___ STATE OR LOCAL PLAN. The Buyer is a plan established and maintained by a State, its political subdivisions, or any agency or instrumentality of the State or its political subdivisions, for the benefit of its employees.
___ ERISA PLAN. The Buyer is an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974.
___ INVESTMENT ADVISER. The Buyer is an investment adviser registered under the Investment Advisers Act of 1940.
___ SBIC. The Buyer is a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958.
___ BUSINESS DEVELOPMENT COMPANY. The Buyer is a business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940.
___ TRUST FUND. The Buyer is a trust fund whose trustee is a bank or trust company and whose participants are exclusively (a) plans established and maintained by a State, its political subdivisions, or any agency or instrumentality of the State or its political subdivisions, for the benefit of its employees, or (b) employee benefit plans within the meaning of Title I of the Employee Retirement Income Security Act of 1974, but is not a trust fund that includes as participants individual retirement accounts or H.R. 10 plans.
3. The term "SECURITIES" as used herein DOES NOT INCLUDE (i) securities of issuers that are affiliated with the Buyer, (ii) securities that are part of an unsold allotment to or subscription by the Buyer, if the Buyer is a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan participations, (v) repurchase agreements, (vi) securities owned but subject to a repurchase agreement and (vii) currency, interest rate and commodity swaps.
4. For purposes of determining the aggregate amount of securities owned and/or invested on a discretionary basis by the Buyer, the Buyer used the cost of such securities to the Buyer and did not include any of the securities referred to in the preceding paragraph. Further, in determining such aggregate amount, the Buyer may have included securities owned by subsidiaries of the Buyer, but only if such subsidiaries are consolidated with the Buyer in its financial statements prepared in accordance with generally accepted accounting principles and if the investments of such subsidiaries are managed under the Buyer's direction. However, such securities were not included if the Buyer is a majority-owned, consolidated subsidiary of another enterprise and the Buyer is not itself a reporting company under the Securities Exchange Act of 1934.
5. The Buyer acknowledges that it is familiar with Rule 144A and understands that the seller to it and other parties related to the Certificates are relying and will continue to rely on the statements made herein because one or more sales to the Buyer may be in reliance on Rule 144A.
___ ___ Will the Buyer be purchasing the Rule 144A Yes No Securities only for the Buyer's own account?
6. If the answer to the foregoing question is "no", the Buyer agrees that, in connection with any purchase of securities sold to the Buyer for the account of a third party (including any separate account) in reliance on Rule 144A, the Buyer will only purchase for the account of a third party that at the time is a "qualified institutional buyer" within the meaning of Rule 144A. In addition, the Buyer agrees that the Buyer will not purchase securities for a third party unless the Buyer has obtained a current representation letter from such third party or taken other appropriate steps contemplated by Rule 144A to conclude that such third party independently meets the definition of "qualified institutional buyer" set forth in Rule 144A.
7. The Buyer will notify each of the parties to which this certification is made of any changes in the information and conclusions herein. Until such notice is given, the Buyer's purchase of Rule 144A Securities will constitute a reaffirmation of this certification as of the date of such purchase.
ANNEX 2 TO EXHIBIT H
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers That Are Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of Investment Companies (as defined below), is such an officer of the Adviser.
2. In connection with purchases by Buyer, the Buyer is a "qualified institutional buyer" as defined in SEC Rule 144A because (i) the Buyer is an investment company registered under the Investment Company Act of 1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of Investment Companies, owned at least $100,000,000 in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year. For purposes of determining the amount of securities owned by the Buyer or the Buyer's Family of Investment Companies, the cost of such securities was used.
____ The Buyer owned $___________________ in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A).
____ The Buyer is part of a Family of Investment Companies which owned in the aggregate $______________ in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A).
3. The term "FAMILY OF INVESTMENT COMPANIES" as used herein means two or more registered investment companies (or series thereof) that have the same investment adviser or investment advisers that are affiliated (by virtue of being majority owned subsidiaries of the same parent or because one investment adviser is a majority owned subsidiary of the other).
4. The term "SECURITIES" as used herein does not include (i) securities of issuers that are affiliated with the Buyer or are part of the Buyer's Family of Investment Companies, (ii) bank deposit notes and certificates of deposit, (iii) loan participations, (iv) repurchase agreements, (v) securities owned but subject to a repurchase agreement and (vi) currency, interest rate and commodity swaps.
5. The Buyer is familiar with Rule 144A and understands that each of the parties to which this certification is made are relying and will continue to rely on the statements made herein because one or more sales to the Buyer will be in reliance on Rule 144A. In addition, the Buyer will only purchase for the Buyer's own account.
6. The undersigned will notify each of the parties to which this certification is made of any changes in the information and conclusions herein. Until such notice, the Buyer's purchase of Rule 144A Securities will constitute a reaffirmation of this certification by the undersigned as of the date of such purchase.
Seller's Representations Assigned by Depositor to Trustee
Representations and Warranties. Pursuant to the Mortgage Loan Purchase Agreement, the Seller has made certain representations and warranties to the Depositor. The Seller shall confirm such representations and warranties and shall deliver a Seller's Warranty Certificate and an Officers' Certificate on the Closing Date (i) reaffirming such representations and warranties and (ii) specifically restating and reaffirming the following representations and warranties as of such date. The following representations are, pursuant to the Pooling and Servicing Agreement, assigned by the Depositor to the Trustee for the benefit of the Certificateholders, together with the related repurchase rights specified in the Mortgage Loan Purchase Agreement. Pursuant to the Mortgage Loan Purchase Agreement, the Seller's Warranty Certificate and related Officer's Certificate, the Seller affirms each such representation and warranty and agrees, consents to and acknowledges the assignment thereof to the Trustee. All capitalized terms herein shall have the meanings assigned in the Pooling and Servicing Agreement and the Seller's Warranty Certificate, as applicable.
The Seller hereby represents and warrants to the Depositor and Trustee, as to each Mortgage Loan, that as of the Closing Date or as of such other date specifically provided herein:
(i) The information set forth in the related Mortgage Loan Schedule with respect to each Mortgage Loan is true and correct in all material respects as of the Closing Date;
(ii) No Mortgage Loan had a Loan-to-Value Ratio at origination in excess of 85% and no Mortgage Loan had a combined Loan-to-Value Ratio at origination, including any second deed of trust subordinated to the lien of the Mortgage, in excess of 90.01%;
(iii) As of the Closing Date, no Mortgage Loan is sixty (60) or more days delinquent in payment of principal or interest;
(iv) Each Mortgage Note is directly secured by the Mortgage, and each Mortgaged Property consists of a single parcel of real estate. Each Mortgage secures the outstanding principal balance of the Mortgage Note and is a valid and enforceable first lien on the Mortgaged Property subject only to (1) the lien of nondelinquent current real property taxes and assessments, (2) covenants, conditions and restrictions, rights of way, easements and other matters of public record as of the date of recording of such Mortgage, such exceptions appearing of record being acceptable to mortgage lending institutions generally or specifically reflected in the appraisal made in connection with the origination of the related Mortgage Loan, and (3) other matters to which like properties are commonly subject that do not materially interfere with the benefits of the security intended to be provided by such Mortgage;
(v) Immediately prior to the delivery of the Mortgage Loan to DLJMCI, the Seller had good title to, and was the sole owner of, such Mortgage Loan free and clear of any mortgage, pledge, lien, security interest, charge or other encumbrance (other than any junior lien on the Mortgaged Property encumbered by the related Mortgage) and had full right and authority, subject to no interest or participation of, or agreement with, any other party, to sell and assign the Mortgage Loan pursuant to the Purchase
(vi) There was no delinquent tax or assessment lien against any Mortgaged Property at the time of the origination of the related Mortgage Loan;
(vii) There is no valid offset, defense or counterclaim to any Mortgage Note or Mortgage, including the obligation of the Mortgagor to pay the unpaid principal of or interest on such Mortgage Note, and any applicable right of rescission has expired as of the Closing Date;
(viii) There are no mechanics' liens or claims for work, labor or material affecting any Mortgaged Property that are or may be a lien prior to, or equal with, the lien of such Mortgage, except those that are insured against by the title insurance policy referred to in clause (xii) below;
(ix) Each Mortgaged Property is free of material damage and is in
(x) Each Mortgage Loan at origination complied in all respects with applicable state and federal laws, including, without limitation, usury, equal credit opportunity, real estate settlement procedures, truth-in-lending and disclosure laws, and consummation of the transactions contemplated hereby will not involve the violation of any such laws;
(xi) At the Closing Date, neither the Seller nor any prior holder of any Mortgage has, except as the Mortgage File may reflect, (1) modified the Mortgage in any material respect, (2) satisfied, canceled or subordinated such Mortgage in whole or in part, (3) released the related Mortgaged Property in whole or in part from the lien of such Mortgage or (4) executed any instrument of release, cancellation, modification or satisfaction with respect thereto;
(xii) A lender's policy of title insurance or a commitment (binder) to issue the same was effective on the date of the origination of each Mortgage Loan, each such policy is valid and remains in full force and effect and each such policy was issued by a title insurer acceptable to FNMA or FHLMC and in a form acceptable to FNMA or FHLMC;
(xiii) Each Mortgage Loan was originated or acquired (1) by the Seller either directly or indirectly through loan brokers or a correspondent lender specifically approved by the Seller, such that (a) the Mortgage Loan was originated in conformity with the Seller's underwriting guidelines, (b) DLJMCI approved the Mortgage Loan either prior to the funding thereof or, in the case of a Mortgage Loan originated pursuant to the Seller's delegated underwriting guidelines, approved the Mortgage Loan after the funding thereof and (c) the Seller funded the Mortgage Loan on the date of origination thereof with its own funds or with funds obtained by it or, in the case of a Mortgage Loan originated by a correspondent lender approved by the Seller and DLJMCI, the Mortgage Loan was approved by the Seller prior to origination and was purchased by the Seller from such correspondent lender within 60 days of the date of origination pursuant to a mandatory purchase commitment in effect at origination, (2) by a savings and loan association, savings bank, commercial bank, credit union, insurance company or similar institution that is supervised and examined by a federal or state authority or (3) by a mortgagee approved by the Secretary of HUD pursuant to Sections 203 and 211 of the National Housing
(xiv) The Mortgage Rate on each Adjustable Rate Mortgage Loan will be subject to adjustment commencing approximately six months after its date of origination or at the end of the initial fixed interest rate period following its respective date of origination, as applicable, and semi-annually thereafter, and each such Adjustable Rate Mortgage Loan has an original term to maturity from the date on which the first monthly payment is due of not more than approximately 30 years. On each adjustment date, the Mortgage Rate will be adjusted to equal the related Index plus the Gross Margin, rounded to the nearest 0.125%, subject to the Periodic Rate Cap, the Maximum Rate and the Minimum Rate. Interest on each Adjustable Rate Mortgage Loan is calculated on the basis of a 360-day year consisting of twelve 30-day months;
(xv) The amount of the Monthly Payment on each GPARM Loan will adjust on each Payment Adjustment Date to an amount which will amortize fully the outstanding principal balance of the GPARM Loan over its remaining term, and pay interest at the Mortgage Rate as adjusted on the immediately preceding Rate Adjustment Date; subject to a Payment Cap that limits any increase in the amount of the Monthly Payment on any Payment Adjustment Date to an amount not greater than 7.5% of the amount of the Monthly Payment due on the immediately preceding Due Date. With respect to each GPARM Loan, the Payment Cap shall not be in effect on the fifth Payment Adjustment Date and each five year anniversary thereof. With respect to approximately 4.16% of the GPARM Loans, by aggregate principal balance as of the Cut-off Date, if the outstanding principal balance of the GPARM Loan equals 110% of the original principal balance thereof (as so indicated on the Mortgage Loan Schedule), the amount of the Monthly Payment will be adjusted on the immediately succeeding Due Date and on the Due Date succeeding each Rate Adjustment Date thereafter, without regard to the Payment Cap, to an amount which will fully amortize the outstanding principal balance of such Mortgage Loan over its remaining term at the then applicable Mortgage Rate;
(xvi) All of the improvements that were included for the purpose of determining the appraised value of the Mortgaged Property are insured to lie wholly within the boundaries and building restriction lines of such property, and no improvements on adjoining properties encroach upon the Mortgaged Property, unless, in either case, an agreement permitting such encroachment is recorded in the applicable real property records and such agreement was taken into account in conducting the appraisal of the Mortgaged Property;
(xvii) No improvement considered in determining the related appraised value located on or being part of the Mortgaged Property is in violation of any applicable zoning law or regulation. All inspections, licenses and certificates required to be made or issued with respect to the use and occupancy of the Mortgaged Property, including but not limited to certificates of occupancy and fire underwriting certificates, have been made or obtained from the appropriate authorities and the Mortgaged Property is lawfully occupied
(xviii) All parties that have had any interest in the Mortgage, whether as mortgagee, assignee, pledgee or otherwise, are, or, during the period in which they held and disposed of such interest, were (1) in compliance with any and all applicable licensing requirements of the laws of the state wherein the Mortgaged Property is located, and (2)(a) organized under the laws of such state, (b) qualified to do business in such state, (c) federal savings associations or national banks having principal offices in such state or (d) not doing business in such state;
(xix) The Mortgage Note and the related Mortgage are genuine, and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms. All parties to the Mortgage Note and the Mortgage had legal capacity to execute the Mortgage Note and the Mortgage and each Mortgage Note and Mortgage has been duly and properly executed and
(xx) The proceeds of the Mortgage Loan have been fully disbursed by the Seller, there is no requirement for future advances thereunder and any and all requirements as to completion of any on-site or off-site improvements and as to disbursements of any escrow funds therefor (including any escrow funds held to make monthly payments pending completion of such improvements) have been complied with. All costs, fees and expenses incurred in making, closing or recording the Mortgage Loans were paid;
(xxi) The related Mortgage contains customary and enforceable provisions that render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security, including (1) in the case of a Mortgage designated as a deed of trust, by trustee's sale, and (2) otherwise by judicial foreclosure. There is no homestead or other exemption available to the Mortgagor that would interfere with the right to sell the Mortgaged Property at a trustee's sale or the right
(xxii) With respect to each Mortgage constituting a deed of trust, a trustee, duly qualified under applicable law to serve as such, has been properly designated and currently so serves and is named in such Mortgage, and no fees or expenses are or will become payable by the holder of the Mortgage Loan to the trustee under the deed of trust, except in connection with a trustee's sale after default by the Mortgagor;
(xxiii) Each Mortgaged Property is suitable for year-round
(xxiv) There exist no deficiencies with respect to escrow deposits and payments, if such are required, for which customary arrangements for repayment thereof have not been made, and no escrow deposits or payments of other charges or payments due with respect to the Mortgage Loan (other than origination points and fees) have been capitalized under the Mortgage or the
(xxv) The origination practices used by the Seller with respect to each Mortgage Loan have been in all respects legal, proper, prudent and customary in the mortgage origination business;
(xxvi) There is no pledged account or other security other than real estate securing the Mortgagor's obligations;
(xxvii) No Mortgage Loan has a shared appreciation feature or
(xxviii) No Mortgage Loan is subject to any temporary buydown
(xxix) Pursuant to the terms of the related Mortgage, all buildings or other improvements upon the Mortgaged Property are insured by a generally acceptable insurer against loss by fire, hazards of extended coverage and such other hazards as are customary in the area where the Mortgaged Property is located pursuant to insurance policies conforming to the requirements of Section 3.13 of the Pooling and Servicing Agreement. If upon origination of the Mortgage Loan, the Mortgaged Property was in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards (and such flood insurance has been made available) a flood insurance policy is in effect which policy conforms to the requirements of the Pooling and
(xxx) An appraisal of each Mortgaged Property is on a form approved by FNMA or FHLMC with such riders as have been approved by FNMA or FHLMC, as the case may be, and each appraiser meets the minimum qualifications of FNMA or FHLMC for appraisers;
(xxxi) The Seller has not provided financing on any Mortgaged Property that is subordinate to the lien of the related Mortgage Loan;
(xxxii) Each Mortgage Loan contains a customary "due-on-sale"
(xxxiii) Except for the criteria for eligible Mortgagors set forth in the Seller's underwriting guidelines, the Seller knows of nothing involving any Mortgage File, Mortgaged Property or Mortgagor's credit standing that could reasonably be expected (1) to cause private institutional investors to regard the Mortgage Loan as an unacceptable investment, (2) to cause the Mortgage Loan to become delinquent or (3) to affect adversely the value or marketability of the Mortgage Loan;
(xxxiv) There are no condemnation proceedings pending with respect to any Mortgaged Property, and no Mortgaged Property had been condemned either in whole or in part;
(xxxv) The Mortgage Loans were not selected for inclusion under the Purchase Agreements from the Seller's portfolio of mortgage loans originated program" on any basis which would have a material adverse effect on the holders
(xxxvi) All of the Mortgage Loans were originated or acquired under the Seller's "regular lending program".
(xxxvii) The collection practices used by the Seller with respect to each Mortgage Note and Mortgage serviced by the Seller have been in all material respects legal, proper, prudent and customary in the mortgage origination and servicing industry; and the Mortgage Loans have been serviced by the Seller in accordance with the terms of the Mortgage Loan documents, any applicable mortgage insurance contract requirements and applicable law in all material respects.
Form of Notice Under Section 3.24
Re: MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1995-Q10
Pursuant to Section 3.24 of the Pooling and Servicing Agreement, dated as of December 1, 1995, relating to the Certificates referenced above, the undersigned does hereby notify you that:
(a) The prepayment assumption used in pricing the Certificates was a Constant Prepayment Rate ("CPR") of __% per annum.
(b) With respect to each Class of the captioned Certificates, set forth below is (i), the first price, as a percentage of the Certificate Principal Balance of each Class of Certificates, at which 10% of the aggregate Certificate Principal Balance of each such Class of Certificates was first sold at a single price, if applicable, or (ii) if more than 10% of a Class of Certificates have been sold but no single price is paid for at least 10% of the aggregate Certificate Principal Balance of such Class of Certificates, then the weighted average price at which the Certificates of such Class were sold expressed as a percentage of the Certificate Principal Balance of such Class of Certificates, (iii) if less than 10% of the aggregate Certificate Principal Balance of a Class of Certificates has been sold, the purchase price for each such Class of Certificates paid by Donaldson, Lufkin & Jenrette Securities Corporation (the "Underwriter") expressed as a percentage of the Certificate Principal Balance of such Class of Certificates calculated by: (1) estimating the fair market value of each such Class of Certificates as of December 28, 1995; (2) adding such estimated fair market value to the aggregate purchase prices of each Class of Certificates described in clause (i) or (ii) above; (3) dividing each of the fair market values determined in clause (1) by the sum obtained in clause (2); (4) multiplying the quotient obtained for each Class of Certificates in clause (3) by the purchase price paid by the Underwriter for all the Certificates purchased by it; and (5) for each Class of Certificates, dividing the product obtained from such Class of Certificates in clause (4) by the initial Principal Balance of such
Class of Certificates or (iv) the fair market value (but not less than zero) as of the Closing Date of each Certificate of each Class of Certificates retained by the Depositor or an affiliate corporation, or delivered to the seller:
The prices and values set forth above do not include accrued interest with respect to periods before the closing.
|
8-K
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EX-4.1
| 1996-01-12T00:00:00
| 1996-01-12T12:47:54
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0000950109-96-000213
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0000950109-96-000213_0001.txt
|
<DESCRIPTION>AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger
THE MERGER AND THE BANK MERGER
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of January 5, 1996 (this "Agreement"), by and between CFX Corporation, a New Hampshire corporation ("Buyer"), and The Safety Fund Corporation, a Massachusetts corporation ("Safety Fund"). (Certain capitalized terms used herein shall have the meanings defined
WHEREAS, Buyer intends to organize a Massachusetts corporation that will be a wholly-owned direct or indirect subsidiary of Buyer ("Buyer Sub"); and
WHEREAS, the respective Boards of Directors of Buyer and Safety Fund have approved the acquisition of Safety Fund by Buyer pursuant to the merger of Buyer Sub with and into Safety Fund (the "Merger"); and
WHEREAS, the parties hereto desire that, following the consummation of the Merger, Safety Fund will merge with and into Buyer (the "BHC Merger") pursuant to a merger agreement in a form to be specified by Buyer and reasonably satisfactory to Safety Fund and consistent with the terms of this Agreement, and that Buyer may cause the merger of Orange Savings Bank ("Orange Savings"), a wholly-owned subsidiary of Buyer, with Safety Fund National Bank ("SFNB"), a wholly-owned subsidiary of Safety Fund (the "Bank Merger"), pursuant to a merger agreement (the "Bank Merger Agreement") in a form to be specified by Buyer and reasonably satisfactory to Safety Fund and consistent with the terms of this
NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements herein contained, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
THE MERGER AND THE BANK MERGER
1.1 THE MERGER. As promptly as practicable following the satisfaction or waiver of the conditions to the parties' respective obligations hereunder, and subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.2 hereof): (a) unless theretofore done, Buyer shall organize the Buyer Sub in accordance with Massachusetts law; (b) Buyer Sub shall be merged with and into Safety Fund, with Safety Fund as the surviving corporation (the "Surviving Corporation"); and (c) the separate existence of Buyer Sub shall cease and all of the rights, privileges, powers, franchises, properties, assets, liabilities and obligations of Buyer Sub shall be vested in and assumed by Safety Fund.
1.2 EFFECTIVE TIME. The Merger shall be effected by the filing of articles of merger (the "Articles of Merger") with the Secretary of State of The Commonwealth of Massachusetts (the "Secretary of State") in accordance with Massachusetts law to become effective on the day of the closing ("Closing Date") provided for in Article IX hereof (the "Closing"). The term "Effective Time" shall mean the time on the Closing Date (or a subsequent date not later than the of business on the next business day) when the Merger becomes effective as set forth in the Articles of Merger.
1.3 CHARTER AND BY-LAWS. The Charter and By-laws of the Surviving Corporation shall be the Articles of Organization, as amended (the "Charter"), and By-laws of Buyer Sub as in effect immediately prior to the Effective Time, until thereafter amended as provided therein and by applicable law.
1.4 DIRECTORS AND COMMITTEES OF SURVIVING CORPORATION AND BUYER.
(a) The Directors of Buyer Sub immediately prior to the Effective Time shall be the initial Directors of Surviving Corporation, each to hold office in accordance with the Charter and By-Laws of Surviving Corporation.
(b) Prior to or at the Effective Time, four directors of Safety Fund to be designated by Buyer after consultation with Safety Fund shall be elected to the Board of Directors of Buyer, to be divided proportionately among the classes. The Board of Directors of Buyer shall nominate such persons for re- election, and support their re-election at the next succeeding annual meeting of shareholders of Buyer to its Board of Directors, to be divided proportionately among the classes of directors. Prior to the Effective Time, Buyer, in consultation with Safety Fund shall reconstitute the committees of its Board of Directors (as well as its joint management-Board committees) so as to achieve substantially proportionate representation, taking into account to the extent practicable the specific skills, education and experience of the various designees, for the directors of Safety Fund designated to become directors of Buyer.
1.5 OFFICERS OF SURVIVING CORPORATION. The officers of Buyer Sub immediately prior to the Effective Time shall be the initial officers of Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified.
(a) In the event Buyer determines to accomplish the Bank Merger immediately following the Merger and the BHC Merger:
(1) The Bank Merger Agreement shall specify which of SFNB and Orange Savings shall be the surviving bank in the Bank Merger ("Surviving Bank"), provided that the name of the Surviving Bank shall include the words "Safety Fund".
(2) Buyer agrees, to the extent permitted by applicable law and appropriate federal and state bank regulators, to maintain the Surviving Bank in existence as a separate subsidiary for at least three years following the Effective Time subject to regulatory considerations, safe and sound banking practices, and the fiduciary duties of Buyer's directors.
(3) The officers of SFNB immediately prior to the Effective Time shall continue to be the officers of the Surviving Bank following the Effective Time, each to hold office in accordance with the Charter and By- Laws of the Surviving Bank. Nine directors of SFNB to be designated by Buyer after consultation with Safety Fund shall continue to be
directors of the Surviving Bank following the Effective Time, each to hold office in accordance with the Charter and By-Laws of the Surviving Bank. Buyer intends initially to elect up to three additional directors to serve on the Board of the Surviving Bank. Buyer agrees that, the continuing directors of SFNB will be kept in place for at least three years subject to regulatory considerations, safe and sound banking practices, and the fiduciary duties of Buyer's directors.
(4) To the extent any of the Persons designated in this Agreement to serve as a director of Buyer or Surviving Bank is unable or unwilling, as of the Effective Time, to serve in such position, Buyer and Safety Fund shall agree on another member of the SFNB Board to serve as a replacement for such designee.
(b) In the event Buyer determines not to accomplish the Bank Merger immediately following the Merger and the BHC Merger, Buyer agrees to take all the measures specified in Sections 1.6(a)(2), (3) and (4) with respect to SFNB to the same extent as they would have been applied to the Surviving Bank.
(c) Nothing herein shall be deemed to preclude Buyer from accomplishing the Bank Merger at any time from and after the Effective Time as determined by the Board of Directors of Buyer.
1.7 ADDITIONAL ACTIONS. If, at any time after the Effective Time, Surviving Corporation shall consider or be advised that any further assignments or assurances in law or any other acts are necessary or desirable (a) to vest, perfect or confirm, of record or otherwise, in Surviving Corporation, title to and possession of any property or right of Buyer Sub acquired or to be acquired by reason of, or as a result of, the Merger, or (b) otherwise to carry out the purposes of this Agreement, Buyer Sub and its proper officers and directors shall be deemed to have granted to Surviving Corporation an irrevocable power of attorney to execute and deliver all such proper deeds, assignments and assurances in law and to do all acts necessary or proper to vest, perfect or confirm title to and possession of such property or rights in Surviving Corporation and otherwise to carry out the purposes of this Agreement; and the proper officers and directors of Surviving Corporation are fully authorized in the name of Buyer Sub or otherwise to take any and all such action.
1.8 ADDITIONAL AGREEMENTS. Safety Fund shall cause SFNB to execute and deliver the Bank Merger Agreement as soon as practicable following Buyer's request therefor. Safety Fund shall, and shall cause SFNB to, execute all other documents and take all actions as may be necessary or desirable for consummation of the BHC Merger and the Bank Merger, as described in the recitals hereto.
1.9 EFFECTS OF THE MERGER. At and after the Effective Time, the Merger shall have the effects set forth in Chapter 156B, Section 80 of the General Laws of The Commonwealth of Massachusetts, as amended.
1.10 THE OPTION AGREEMENT. The parties acknowledge that Safety Fund and Buyer have entered into that certain Stock Option Agreement dated as of even date herewith (the "Option Agreement") pursuant to which Safety Fund has granted to Buyer the right to purchase certain shares of Safety Fund Common Stock (as defined in Section 2.1 hereof) upon terms and conditions specified in the Option Agreement.
2.1 CONVERSION. At the Effective Time, each share of common stock, par value $5.00 per share, of Safety Fund (the "Safety Fund Common Stock") issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares (as such term is defined in Section 2.10 hereof) and other than Safety Fund Common Stock then owned by Safety Fund, any Safety Fund Subsidiary, Buyer, or any Buyer Subsidiary (in each case other than in a fiduciary capacity or in connection with debts previously contracted)), including each attached right issued pursuant to the Shareholder Rights Plan (as hereinafter defined), shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and exchangeable for an amount of common stock, par value $0.66 2/3 per share, of Buyer ("Buyer Common Stock") equal to one share multiplied by the appropriate Exchange Ratio (rounded to the nearest four decimal places) determined in accordance with Section 2.4 or Section 2.5 hereof, as the case may be (the "Merger Consideration").
2.2 CERTAIN DEFINED TERMS. As used herein, the following capitalized terms shall have the specified values or meanings.
(a) "BUYER INDEX PRICE" shall mean $15.54 per share of Buyer Common Stock.
(b) "BUYER TRADING PRICE" shall mean the average closing price of Buyer Common Stock on the American Stock Exchange ("Stock Exchange") (as reported by The Wall Street Journal or, if not reported thereby, another authoritative source) for the ten consecutive trading days ending on the business day before the date on which the last regulatory approval required to consummate the transactions contemplated hereby is obtained.
(c) "POOLING DETERMINATION" shall mean either (i) a determination by Buyer that it is permissible under applicable financial and regulatory accounting principles for Buyer to record the Merger under the pooling of interests method of accounting or (ii) a determination that, solely as a result of actions of Buyer in breach of this Agreement, it is impermissible under applicable financial and regulatory accounting principles for Buyer to record the Merger under the pooling of interests method of accounting and that Buyer will be required to use the purchase method of accounting for the Merger.
2.3 DETERMINATION OF APPLICABLE EXCHANGE RATIO. The parties expect the Merger to be accounted for under the pooling of interests method of accounting. In view of the fact that, among other possibilities, a shareholder might take actions so as to preclude pooling treatment for the Merger, the parties have agreed that the Merger Consideration shall be paid as follows. Not later than the second business day preceding the Effective Time, Buyer shall consult with its independent certified public accountants as to whether a Pooling Determination can be made, and shall promptly advise Safety Fund of the determination. If, as of the close of business on the day preceding the Effective Time, a Pooling Determination shall have been made, the Exchange Ratio shall be the Pooling Exchange Ratio and the provisions of Section 2.4 shall apply. If as of such time it shall not have been possible to make a Pooling Determination the initial Exchange Ratio shall be the Purchase Exchange Ratio and the provisions of Sections 2.5 and 2.6 shall apply.
2.4 POOLING OF INTERESTS ACCOUNTING EXCHANGE RATIOS. The "Pooling Exchange Ratio" shall be determined as follows:
(a) If the Buyer Trading Price is equal to or greater than 85 percent of the Buyer Index Price and is no greater than 115 percent of the Buyer Index Price, the Pooling Exchange Ratio shall be 1.700.
(b) If the Buyer Trading Price is greater than 115 percent of the Buyer Index Price and is no greater than 120 percent of the Buyer Index Price, the Pooling Exchange Ratio shall be equal to:
Buyer Index Price X 1.955
(c) If the Buyer Trading Price is greater than 120 percent of the Buyer Index Price, the Pooling Exchange Ratio shall be 1.629.
(d) If the Buyer Trading Price is less than 85 percent of the Buyer Index Price and is equal to or greater than 80 percent of the Buyer Index Price, the Pooling Exchange Ratio shall be equal to:
Buyer Index Price X 1.445
(e) If the Buyer Trading Price is less than 80 percent of the Buyer Index Price, the Pooling Exchange Ratio shall be 1.806 unless the Buyer Trading Price is less than 75 percent of the Buyer Index Price and the Pooling Exchange Ratio is increased or this Agreement is terminated in accordance with the terms of Section 2.12 hereof.
(f) Notwithstanding any other provisions of this Section 2.4, in the event that before the Effective Time an announcement is made with respect to a business combination involving the acquisition of Buyer or a substantial portion of its assets, the Pooling Exchange Ratio shall not be less than 1.700.
2.5 PURCHASE ACCOUNTING EXCHANGE RATIOS. The "Purchase Exchange Ratio" shall be determined as follows:
(a) If the Buyer Trading Price is equal to or greater than $13.16 and is less than $16.45, the Purchase Exchange Ratio shall be equal to 1.520.
(b) If the Buyer Trading Price is equal to or greater than $16.45 and less than $20.84, the Purchase Exchange Ratio shall be equal to:
(c) If the Buyer Trading Price is equal to or greater than $20.84, the Purchase Exchange Ratio shall be equal to 1.200.
(d) If the Buyer Trading Price is less than $13.16 and equal to or greater than $12.50, the Purchase Exchange Ratio shall be:
(e) If the Buyer Trading Price is less than $12.50 the Purchase Exchange Ratio shall be 1.600 unless the Purchase Exchange Ratio is increased or this Agreement is terminated in accordance with the terms of Section 2.12 hereof.
(f) Notwithstanding any other provisions of this Section 2.5, in the event that before the Effective Time an announcement is made with respect to a business combination involving the acquisition of Buyer or a substantial portion of its assets, the Purchase Exchange Ratio shall not be less than 1.520.
2.6 ADDITIONAL MERGER CONSIDERATION. If the Purchase Exchange Ratio is used to determine the Exchange Ratio at the Effective Time, each holder of Safety Fund Common Stock exchanging shares of Safety Fund Common Stock in connection with the Merger ("Holder") shall also be entitled to received additional Merger Consideration under the circumstances described in this Section 2.6. Upon the occurrence of a "Triggering Event" and without the payment of further consideration, each Holder shall be entitled to receive a number of shares of Buyer Common Stock, rounded down to the nearest whole share, determined by multiplying the number of shares of Safety Fund Common Stock held of record and beneficially by such Holder as of the Closing by the difference between the Pooling Exchange Ratio and the Purchase Exchange Ratio. A Triggering Event shall have occurred if, on or before the date which is three months after the Closing Date, a Pooling Determination is made with respect to the Merger. During the three-month period following the Effective Date, Buyer shall regularly cause an inquiry to be made as to whether a Pooling Determination can be made and shall cause a Pooling Determination to be made as promptly as practicable after the occurrence of events that would permit such a determination to be made based on facts not determinable prior to the Effective Time. If no Triggering Event shall have occurred on or before the end of such three-month period, no Holder shall have any right to receive any additional Merger Consideration pursuant to this Section 2.6. The right to receive additional Merger Consideration shall not be transferable except in the case of the death of the Holder, and then only by will or the laws of descent and distribution.
(a) All Safety Fund Common Stock converted into Buyer Common Stock pursuant to this Article II shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each certificate (each a "Certificate") previously representing any such Safety Fund Common Stock shall thereafter represent the right to receive (i) the number of whole shares of Buyer Common Stock, and (ii) cash in lieu of fractional shares into which the Safety Fund Common Stock represented by such Certificate have been converted. Certificates previously representing Safety Fund Common Stock shall be exchanged for certificates representing whole shares of Buyer Common Stock and cash in lieu of fractional shares issued in consideration therefor upon the surrender of such Certificates in accordance with this Section 2.7, without any interest thereon.
(b) If prior to the Effective Time Buyer should split or combine its common stock (or other securities which are convertible into such common stock) or pay a dividend or other distribution in such common stock or convertible securities, all without Buyer receiving consideration therefor, then an appropriate and proportionate adjustment shall be made to the Exchange Ratio, the Buyer Index Price and the Buyer Trading Price.
(c) At the Effective Time, all shares of Safety Fund Common Stock held in the treasury of Safety Fund other than in a fiduciary capacity or in connection with a debt previously contracted and all shares of Safety Fund Common Stock owned by Buyer or owned beneficially by any subsidiary of Buyer other than in a fiduciary capacity or in connection with debts previously contracted shall be cancelled and no cash, stock or other property shall be delivered in exchange therefor.
2.8 PROCEDURES FOR EXCHANGE OF SAFETY FUND COMMON STOCK FOR MERGER CONSIDERATION.
(a) BUYER TO MAKE SHARES AVAILABLE. Buyer shall take all steps necessary on and as of the Effective Time to deliver to the Exchange Agent (as hereinafter defined), for the benefit of the holders of Certificates, for exchange in accordance with this Section 2.8, certificates representing shares of Buyer Common Stock and the cash in lieu of fractional shares to be paid pursuant to this Section 2.8 (such cash and certificates for shares of Buyer Common Stock, together with any dividends or distributions with respect thereto being hereinafter referred to as the "Exchange Fund") to be issued and paid in exchange for outstanding Safety Fund Common Stock in accordance with this Agreement. The Exchange Agent shall be such banking institution, corporate trust company, or other stock transfer agent appointed by Buyer and reasonably satisfactory to Safety Fund to act as exchange agent hereunder. The Exchange Agent shall act as agent on behalf of record holders (individually, a "Record Holder") of Safety Fund Common Stock at the Effective Time, other than Safety Fund, any Safety Fund Subsidiary, Buyer, or any Buyer Subsidiary (in each case other than in a fiduciary capacity or in connection with debts previously contracted), or any Person holding Dissenting Shares.
(b) EXCHANGE OF CERTIFICATES. Within three business days after the Effective Time, Buyer shall take all steps necessary to cause the Exchange Agent to mail to each Record Holder of a Certificate or Certificates, a form letter of transmittal for return to the Exchange Agent and instructions for use in effecting the surrender of the Certificates for certificates representing the Buyer Common Stock and the cash in lieu of fractional shares into which the Safety Fund Common Stock represented by such Certificates shall have been converted as a result of the Merger. The form letter (which shall be subject to the reasonable approval of Safety Fund) shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent. Upon surrender of a Certificate for exchange and cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor (x) a certificate for the number of whole shares of Buyer Common Stock to which such holder of Safety Fund Common Stock shall have become entitled pursuant to the provisions of this Section 2.8 and (y) a check representing the amount of cash in lieu of the fractional such holder has the right to receive in respect of Certificates surrendered pursuant to the provisions of this Section 2.8, and the Certificates so surrendered shall forthwith be cancelled. In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Buyer, the posting by such person of a bond in such amount as Buyer may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof. Certificates surrendered for exchange by any person who is an "affiliate" of Safety Fund for purposes of Rule 145(c) under the Securities Act of 1933, as amended (the "Securities Act") shall not be exchanged for certificates representing shares of Buyer Common Stock until Buyer has received the written agreement of such person contemplated by Section 7.3 hereof.
(c) RIGHTS OF CERTIFICATE HOLDERS AFTER THE EFFECTIVE TIME. The holder of a Certificate that prior to the Merger represented issued and outstanding Safety Fund Common Stock shall have no rights, after the Effective Time, with respect to such Safety Fund Common Stock except to surrender the Certificate in exchange for the Merger Consideration as provided in this Agreement or to perfect the rights of appraisal as a holder of Dissenting Shares that such holder may have pursuant to the applicable provisions of Massachusetts law. No dividends or other distributions declared after the Effective Time with respect to Buyer Common Stock shall be paid to the holder of any un-surrendered Certificate until the holder thereof shall surrender such Certificate in accordance with this Section 2.8. After the surrender of a Certificate in accordance with this Section 2.8, the record holder thereof shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had become payable with respect to shares of Buyer Common Stock represented by such Certificate.
(d) FRACTIONAL SHARES. Notwithstanding anything to the contrary contained herein, no certificates or scrip representing fractional shares of Buyer Common Stock shall be issued upon the surrender for exchange of Certificates, no dividend or distribution with respect to Buyer Common Stock shall be payable on or with respect to any fractional share, and such fractional share interests shall not entitle the owner thereof to vote or to any other rights of a stockholder of Buyer. In lieu of the issuance of any such fractional share, Buyer shall pay to each former holder of Safety Fund Common Stock who otherwise would be entitled to receive a fractional share of Buyer Common Stock, an amount in cash determined by multiplying the closing sale price of Buyer Common Stock on the Stock Exchange as reported by The Wall Street Journal for the trading day immediately preceding the date of the Effective Time (the "Last Closing Price") by the fraction of a share of Buyer Common Stock which such holder would otherwise be entitled to receive pursuant to Section 2.8 hereof. No interest will be paid on the cash which the holders of such fractional shares shall be entitled to receive upon such delivery.
(e) SURRENDER BY PERSONS OTHER THAN RECORD HOLDERS. If the Person surrendering a Certificate and signing the accompanying letter of transmittal is not the Record Holder thereof, then it shall be a condition of the payment of the Merger Consideration that such Certificate is properly endorsed to such Person or is accompanied by appropriate stock powers, in either case signed exactly as the name of the Record Holder appears on such Certificate, and is otherwise in proper form for transfer, or is accompanied by appropriate evidence of the authority of the Person surrendering such Certificate and signing the letter of transmittal to do so on behalf of the Record Holder and that the person requesting such exchange shall pay to the Exchange Agent in advance any transfer or other taxes required by reason of the payment to a person other than the registered holder of the Certificate surrendered, or required for any other reason, or shall establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable.
(f) CLOSING OF TRANSFER BOOKS. From and after the Effective Time, there shall be no transfers on the stock transfer books of Safety Fund of the Safety Fund Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates representing such shares are presented for transfer to the Exchange Agent, they shall be ex- changed for the Merger Consideration and cancelled as provided in this Section 2.8.
(g) RETURN OF EXCHANGE FUND. At any time following the 12-month period after the Effective Time, Buyer shall be entitled to require the Exchange Agent to deliver to it any portions of the Exchange Fund which had been made available to the Exchange Agent and not disbursed to holders of Certificates (including, without limitation, all interest and other income received by the Exchange Agent in respect of all funds made available to it), and thereafter such holders shall be entitled to look to Buyer (subject to abandoned property, escheat and other similar laws) only as general creditors thereof with respect to any Merger Consideration that may be payable upon due surrender of the Certificates held by them. Notwithstanding the foregoing, neither Buyer nor the Exchange Agent shall be liable to any holder of a Certificate for any Merger Consideration delivered in respect of such Certificate to a public official pursuant to any abandoned property, escheat or other similar law.
2.9 BUYER SUB COMMON STOCK. Each share of common stock of Buyer Sub issued and outstanding immediately prior to the Effective Time shall be converted into one share of common stock of the Surviving Corporation at the Effective Time.
2.10 DISSENTERS' RIGHTS. Notwithstanding anything in this Agreement to the contrary and unless otherwise provided by applicable law, Safety Fund Common Stock which is issued and outstanding immediately prior to the Effective Time and which is owned by stockholders who, pursuant to applicable law, (a) deliver to Safety Fund in the manner provided by law, before the taking of the vote of Safety Fund's stockholders on the Merger, a written objection to the Merger and a written demand for the appraisal of their shares if the Merger is effected and (b) whose shares are not voted in favor of the Merger, nor consented thereto in writing (the "Dissenting Shares"), shall not be converted into the right to receive, or be exchangeable for, the Merger Consideration, but, instead, the holders thereof shall be entitled to payment of the appraised value of such Dissenting Shares in accordance with the provisions of Chapter 156B, (S)(S)86-98 of the Massachusetts Business Corporation Law (as amended, the "MBCL"). If any such holder shall have failed to perfect or shall have effectively withdrawn or lost such right of appraisal, the Safety Fund Common Stock of such holder shall thereupon be deemed to have been converted into and be exchangeable for, at the Effective Time, the right to receive the Merger Consideration. Buyer shall have the right to participate in any proceeding involving dissenters' rights.
2.11 STOCK OPTIONS. (a) At the Effective Time, each holder of a then outstanding stock option to purchase Safety Fund Common Stock ("Safety Fund Option") pursuant to the 1984 Incentive Stock Option Plan or the 1994 Incentive and Nonqualified Stock Option Plan (collectively, the "Safety Fund Stock Option Plans") (it being understood that the aggregate number of shares of Safety Fund Common Stock subject to purchase pursuant to the exercise of such Safety
Fund Options is not and shall not be more than 65,850), whether vested or unvested, will be assumed by Buyer. Each Safety Fund Option so assumed by Buyer under this Agreement shall continue to have, and be subject to, the same terms and conditions set forth in the Safety Fund Stock Option Plans immediately prior to the Effective Time, except that (i) such Safety Fund Option shall be exercisable (when vested) for that number of whole shares of Buyer Common Stock equal to the product of the number of shares of Safety Fund Common Stock covered by the Safety Fund Option multiplied by the Exchange Ratio, provided that any fractional share of Buyer Common Stock resulting from such multiplication shall be rounded down to the nearest share; and (ii) the exercise price per share of Buyer Common Stock shall be equal to the exercise price per share of Safety Fund Common Stock of such Safety Fund Option, divided by the Exchange Ratio, provided that such exercise price shall be rounded up to the nearest cent.
(b) After the Effective Time, Buyer shall issue to each holder of an outstanding Safety Fund Option a document evidencing the foregoing assumption of such Safety Fund Option by Buyer.
(c) It is the intention of the parties that the Safety Fund Options assumed by Buyer qualify following the Effective Time as incentive stock options as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") to the extent that the Safety Fund Options qualified as incentive stock options immediately prior to the Effective Time.
(d) Buyer shall not issue or pay for any fractional share otherwise issuable upon exercise of a Safety Fund Option. Prior to the Effective Time, Buyer shall reserve for issuance (and, if not previously registered pursuant to the Securities Act, register) the number of shares of Buyer Common Stock necessary to satisfy Buyer's obligations with respect to the issuance of Buyer Common Stock pursuant to the exercise of Safety Fund Options.
(e) The provisions of this Section 2.11 are expressly intended to be for the irrevocable benefit of, and shall be enforceable by, each holder of a Safety Fund Option and his or her heirs and representatives.
2.12 TERMINATION, NOTICE AND CURE.
(a) If (i) the Buyer Trading Price is less than $11.65 and a Pooling Determination can be made or (ii) the Buyer Trading Price is less than $12.50 and a Pooling Determination cannot be made, Safety Fund may elect by giving written notice to Buyer prior to the third business day immediately preceding the Closing Date to terminate this Agreement pursuant to Section 1.01. Within two business days thereafter:
(1) in the event the Exchange Ratio is a Pooling Exchange Ratio, Buyer may elect to increase the Exchange Ratio to:
(2) in the event the Exchange Ratio cannot be a Pooling Exchange Ratio, Buyer may elect either to (X) increase the Exchange Ratio to that
multiplied by the Buyer Trading Price has a value of $20.00 or (Y) offer an Exchange Ratio of 1.600 plus an amount of cash which when added to the product of 1.600 and the Buyer Trading Price has an aggregate value of $20.00 per share of Safety Fund Common Stock;
(b) In the event Buyer makes an election referred to in the preceding Section 2.12(a), this Agreement shall not terminate and the Exchange Ratio shall be determined in accordance with such Section 2.12(a), subject (in the event such Exchange Ratio cannot be a Pooling Exchange Ratio) to the possible payment of additional Merger Consideration as described in Section 2.6 hereof. In the event Buyer does not elect to increase the Exchange Ratio, this Agreement shall terminate on the date established as the Closing Date with the consequences specified in Section 10.2 hereof.
REPRESENTATIONS AND WARRANTIES OF SAFETY FUND
Safety Fund hereby represents and warrants to Buyer as follows:
3.1 CORPORATE ORGANIZATION. (a) Safety Fund is a corporation, duly organized and validly existing and in good standing under the laws of The Commonwealth of Massachusetts, and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHCA"). The subsidiaries listed in Exhibit 21 of Safety Fund's Annual Report on Form 10-KSB for the year ended December 31, 1994 constitute all of Safety Fund's subsidiaries (the "Safety Fund Subsidiaries"). Except as set forth in Schedule 3.1 of the Safety Fund Disclosure Schedules (the "Schedules"), each of the Safety Fund Subsidiaries is a bank or corporation, in each case duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. SFNB is a national banking association organized under the National Bank Act. Each of Safety Fund and the Safety Fund Subsidiaries has the power and authority to own or lease all of its properties and assets and to conduct its business as it is now being conducted, and, except as set forth in Schedule 3.1, is duly licensed or qualified to do busi ness and is in good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed, qualified or in good standing does not or would not have a Material Adverse Effect (as defined in Section 11.1) on Safety Fund and the Safety Fund Subsidiaries, taken as a whole.
(b) Neither Safety Fund nor any of the Safety Fund Subsidiaries owns, controls or holds with the power to vote, directly or indirectly of record, beneficially or otherwise, any capital stock or any equity or ownership interest in any corporation, partnership, association, joint venture or other entity, other than not more than five percent of any equity security regis tered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than as disclosed on Schedule 3.1 hereto and except, in the case of Safety Fund, for stock of the Safety Fund Subsidiaries.
3.2 CAPITALIZATION. (a) The authorized capital stock of Safety Fund consists solely of 3,200,000 shares of Safety Fund Common Stock and 100,000 shares of preferred stock, $10.00 par value ("Safety Fund Preferred Shares"). There are 1,660,665 shares of Safety Fund Common Stock issued and outstanding, no shares of Safety Fund Common Stock held in its treasury and no Safety Fund Preferred Shares issued and outstanding or held in its treasury. In connection with the shareholder rights plan ("Shareholder Rights Plan") adopted by Safety Fund as of the date of this Agreement, an aggregate 3,200 shares of its Series A Participating Cumulative Preferred Stock (the "Series A Preferred") have been created and have been reserved for issuance. All issued and outstanding Safety Fund Common Stock has been, and the Series A Preferred upon issuance will be, duly authorized, validly issued, fully paid, nonassessable, and free of preemptive rights, with no personal liability attaching to the ownership thereof. The authorized, issued and outstanding capital stock of each Safety Fund Subsidiary is set forth in Schedule 3.2 hereto. All issued and outstanding shares of each of the Safety Fund Subsidiaries have been duly authorized and validly issued and are fully paid, nonassessable, and free of preemptive rights, with no personal liability attaching to the ownership thereof. All issued and outstanding shares or interests of each of the Safety Fund Subsidiaries are owned by Safety Fund and are held by Safety Fund free and clear of any security interest, pledge, lien, claim or other encumbrance or restriction on voting or transfer.
(b) Except for the Option Agreement, the shareholder rights plan ("Shareholder Rights Plan") in the form previously discussed with Buyer and options to acquire not more than 50,850 shares of Safety Fund Common Stock pursuant to stock options outstanding as of the date hereof under the Safety Fund Stock Option Plans, neither Safety Fund nor any of the Safety Fund Subsidiaries has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the transfer, purchase or issuance of, or representing the right to purchase, subscribe for or otherwise receive, any shares of its capital stock or any securities convertible into or representing the right to receive, purchase or subscribe for any such shares of Safety Fund, or shares of any of the Safety Fund Subsidiaries. The names of the optionees, the date of grant of each option to purchase Safety Fund Common Stock, the number of shares subject to each such option, the expiration date of each such option, and the price at which each such option may be exercised under the Safety Fund Stock Option Plans are set forth on Schedule 3.2. Except as set forth on Schedule 3.2 and except for restrictions on transferability of rights granted pursuant to the Shareholder Rights Plan (as set forth in such Shareholder Rights Plan), there are no agreements or understandings with respect to the voting of any such shares or which restrict the transfer of such shares to which Safety Fund is a party, nor does Safety Fund have knowledge of any such agreements or understandings to which Safety Fund is not a party with respect to the voting of any such shares or which restrict the transfer of such shares. The Safety Fund Common Stock is listed on the Nasdaq small-cap market.
3.3 AUTHORITY. Safety Fund has full corporate power and authority to execute and deliver this Agreement and the Option Agreement and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Option Agreement and the consummation of the transactions contemplated hereby and thereby have been duly and validly approved by at least a majority of Safety Fund's directors. The Board of Directors of Safety Fund has directed that this Agreement and the transactions contemplated hereby be submitted to Safety Fund's stockholders for approval at a meeting of such stockholders and has recommended approval of this Agreement by Safety Fund's stockholders. Except for the adoption of this Agreement by a vote of the holders of two-thirds of the outstanding shares of Safety Fund Common Stock and except for any actions required or appropriate to be taken by Safety Fund with respect to the rights of any dissenting shareholders under Chapter 156B, (S)(S)86-98 of the MBCL, no other corporate proceedings on the part of Safety Fund are necessary to consummate the transactions contemplated by this Agreement. Each of this Agreement and the Option Agreement has been duly and validly executed and delivered by Safety Fund, constitutes a valid and binding obligation of Safety Fund, and is enforceable against Safety Fund in accordance with its terms, subject to (i) bankruptcy, insolvency, reorganization, affecting the rights and remedies of creditors generally and (ii) general principles of equity, regardless of whether enforcement is sought in proceedings in equity or at law.
3.4 NO VIOLATION. Neither the execution and delivery of this Agreement or the Option Agreement by Safety Fund, nor the consummation by Safety Fund of the transactions contemplated hereby or thereby, nor the compliance by Safety Fund with any of the terms or provisions hereof, does or will:
(a) violate any provision of the Charter or By-laws of Safety Fund or any of the Safety Fund Subsidiaries,
(b) assuming that the consents and approvals referred to in Section 3.5 hereof are duly obtained, violate any statute, code, ordinance, permit, authorization, registration, rule, regulation, judgment, order, writ, decree or injunction applicable to Safety Fund or any of the Safety Fund Subsidiaries or any of their respective properties, securities or assets, except for violations which would not, individually or in the aggregate, have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole, or
(c) assuming that the consents and approvals referred to in Section 3.5 hereof are duly obtained and except as set forth on Schedule 3.4 hereto, violate, conflict with, result in a breach of any provisions of, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of, or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any lien, pledge, security interest, charge or other encumbrance upon any of the respective properties or assets of Safety Fund or any of the Safety Fund Subsidiaries under, any of the terms, conditions or provisions of any note, bond, debenture, mortgage, indenture, deed of trust, license, lease, contract, agreement or other instrument or obligation to which Safety Fund or any of the Safety Fund Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except for violations, conflicts, breaches or defaults which would not, individually or in the aggregate, have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole.
3.5 CONSENTS AND APPROVALS. Neither the execution, delivery and performance of this Agreement or the Option Agreement by Safety Fund nor consummation of the transaction contemplated hereby or thereby requires any consent, approval, authorization or permit of, or filing with or notification to, any court, administrative agency or commission or other governmental or regulatory authority or instrumentality, domestic or foreign, including, without limitation, any Bank Regulator (as hereinafter defined), except (i) for applicable requirements, if any, of the Securities Act, the Exchange Act, state takeover laws, and filing and recordation of appropriate merger documents as required by Massachusetts, New Hampshire and Federal law, (ii) for consents and approvals of or filings or registrations with the Board of Governors of the Federal Reserve System (the "Federal Reserve"), the Office of the Comptroller of the Currency (the "OCC"), the Massachusetts Board of Bank Incorporation (the "BBI"), the Massachusetts Commissioner of Banks ("Massachusetts Commissioner"), and the Massachusetts Housing Partnership Fund ("MHP") (each of the foregoing, a "Bank Regulator"), and (iii) where failure to obtain any such consent, approval, authorization or permit, or to make any such filing or notification, would not prevent or significantly delay consummation of the Merger, the BHC Merger or the Bank Merger or otherwise prevent Safety Fund from performing its obligations under this Agreement, or would not have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole, or on Buyer.
3.6 REGULATORY APPROVAL. Safety Fund is not aware of any reason why the conditions set forth in Section 8.1(c) hereof would not be satisfied without significant delay. Safety Fund is not aware of any reason why the Merger cannot qualify as a "pooling of interests" for accounting purposes.
3.7 FINANCIAL STATEMENTS. (a) The consolidated balance sheets of Safety Fund as of December 31, 1994 and 1993, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years ended December 31, 1994, 1993 and 1992, certified by KPMG Peat Marwick LLP for 1994 and by Ernst & Young LLP for 1993 and 1992 in the form delivered to Buyer prior to execution and delivery of this Agreement (all of the above being collectively referred to as the "Safety Fund Audited Financial Statements"), have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis (except as may be indicated in the footnotes thereto and except as required or permitted by SFAS 109 and 115) and present fairly in all material respects the consolidated financial position of and results of operations of Safety Fund at the dates, and for the periods, stated therein.
(b) The consolidated balance sheets of Safety Fund as of September 30, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the nine months ended September 30, 1995 and 1994 in the form delivered to Buyer prior to execution and delivery of this Agreement (hereinafter referred to collectively as the "Safety Fund Interim Financial Statements") present fairly, and the financial statements referred to in Section 5.5 hereof will present fairly, in all material respects the consolidated financial position and results of operations of Safety Fund for the periods indicated thereon and have been, and the financial statements referred to in Section 5.5 hereof will be, prepared in accordance with GAAP applied on a consistent basis (except for the omission of notes to the Safety Fund Interim Financial Statements and year-end adjustments to interim results, which adjustments will not be material, and except as required or permitted by SFAS 109 and 115) with all prior periods and throughout the periods indicated.
(c) The Safety Fund Audited Financial Statements and the Safety Fund Interim Financial Statements are herein referred to together as the "Safety Fund Financial Statements."
(d) The books and records of Safety Fund and each Safety Fund Subsidiary fairly reflect in all material respects the transactions to which it is a party or by which its properties are subject or bound. Such books and records have been properly kept and maintained and are in compliance in all material respects with all applicable legal and accounting requirements. The minute books of Safety Fund and the Safety Fund Subsidiaries contain records which are accurate in all material respects of all corporate actions of the respective shareholders and Board of Directors (including committees of its Board of Directors).
3.8 SAFETY FUND REPORTS. Since January 1, 1991, Safety Fund and the Safety Fund Subsidiaries have filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that were required to be filed (except where the failure to do so would not, individually or in the aggregate, have a Material Adverse Effect on Safety
Fund and the Safety Fund Subsidiaries, taken as a whole), with (i) the Securities and Exchange Commission ("SEC") pursuant to the Securities Act or the Exchange Act, (ii) the OCC, (iii) the Federal Reserve, and (iv) any applicable state securities or banking authorities (all such reports and statements are collectively referred to herein as the "Safety Fund Reports"). As of their respective dates, no such Safety Fund Reports filed with the SEC contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, except that information filed as of a later date shall be deemed to modify information as of an earlier date and except that Safety Fund has corrected a scrivener's error with a filing of an amended Form 10-QSB, for the quarter ended September 30, 1995.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on Schedule 3.9 hereto, since December 31, 1994, Safety Fund and the Safety Fund Subsidiaries have conducted their business in the ordinary course consistent with past practice and there has not been:
(a) any change or event which, individually or in the aggregate with other changes and events, has had a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole;
(b) except as permitted by Section 5.1 with respect to actions that occur after the date hereof and as set forth in Schedule 3.9 hereto or in the ordinary course of business consistent with past practice with respect to actions that occurred prior to the date hereof, any increase in the compensation payable or to become payable to any of the officers, directors or employees of Safety Fund or any of the Safety Fund Subsidiaries or any bonus payment or arrangement made to or with any of them;
(c) any agreement, contract or commitment entered into or agreed to be entered into except for those in the ordinary course of business (none of which, individually or in the aggregate, is reasonably expected to have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken
(d) any change in any of the accounting methods or practices of Safety Fund or any of the Safety Fund Subsidiaries other than changes required by applicable law or by GAAP;
(e) any change in the credit policies or procedures of Safety Fund or any Safety Fund Subsidiary, the effect of which was or is to make any such policy or procedure less restrictive in any material respect; or
(f) any material election made by Safety Fund or any Safety Fund Subsidiary for federal or state income tax purposes.
3.10 LEGAL PROCEEDINGS. (a) Except as set forth on Schedule 3.10 hereto and except for matters which, individually or in the aggregate, would not have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole, neither Safety Fund nor any of the Safety Fund Subsidiaries is a party to any, and there are no pending or, to the best of Safety Fund's knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental investigations of any nature by or against Safety Fund or any of the Safety Fund Subsidiaries; and neither Safety Fund nor any of the Safety Fund Subsidiaries is a party to or subject to any order, judgment or decree.
(b) Schedule 3.10 lists, as of the date of this Agreement, all pending litigation involving any claim against Safety Fund or any Safety Fund Subsidiary, whether directly or by counterclaim, involving a "lender liability" cause of action .
(c) There are no actions, suits or proceedings instituted, pending or, to the knowledge of Safety Fund, threatened (and which if asserted would be reasonably likely to have an unfavorable outcome) against any present or former director or officer of Safety Fund or any Safety Fund Subsidiary that might give rise to a claim for indemnification against Safety Fund or any Safety Fund Subsidiary that is reasonably likely to have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole.
3.11 TAXES AND TAX RETURNS. (a) Safety Fund, all Safety Fund Subsidiaries, and all predecessors of Safety Fund have timely filed all federal, state, and local tax returns required by applicable law to be filed except for filings which are filed pursuant to routine extensions permitted by law or the failure to file which or the late filing of which would not have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole. Such returns were accurate and complete in all material respects except where the failure to be accurate or complete would not have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole.
(b) Safety Fund, all Safety Fund Subsidiaries, and all predecessors of Safety Fund have paid or, where payment is not required to have been made, have set up adequate reserves or accruals in the Safety Fund Financial Statements for the payment of all taxes required to be paid in respect of the periods covered by such returns and as of the date hereof, including but not limited to accruals or withholdings relating to any tax withholding, social security or unemployment provisions of the applicable federal, state and local laws except where the failure to do so would not have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole. As of the respective dates of the Safety Fund Financial Statements in which such reserves or accruals are established and the date hereof, neither Safety Fund nor any Safety Fund Subsidiary had any liability for any such taxes in excess of the amounts so paid or reserved or accruals so established which was material to Safety Fund and the Safety Fund Subsidiaries, taken as a whole. Except for taxes which are being contested in good faith and for which adequate reserves or accruals are reflected in the Safety Fund Financial Statements, neither Safety Fund nor any of the Safety Fund Subsidiaries is delinquent in the payment of any material tax, assessment or governmental charge the failure to pay which would have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole, and none of them has requested any extension of time within which to file any tax returns in respect of any fiscal year which have not since been filed.
(c) No material deficiencies for any tax, assessment or governmental charge have been proposed, asserted or assessed (tentatively or definitively) against Safety Fund or any of the Safety Fund Subsidiaries which have not been settled and paid or adequately reserved against in the Safety Fund Financial Statements and no requests for waivers of the time to assess any tax are pending. Safety Fund and the Safety Fund Subsidiaries file consolidated federal income tax returns. Safety Fund's consolidated federal income tax returns have not been audited by the IRS since prior to 1988.
(d) None of the transactions contemplated hereby or the termination of the employment of any employee of Safety Fund or any Safety Fund Subsidiary prior to or following consummation of the transactions contemplated hereby could result in Buyer or any Buyer Subsidiary making or being required to make any "excess parachute payment" as that term is defined in Section 280G of the Code.
3.12 PROPERTIES. Except (i) as may be reflected in the Safety Fund Financial Statements, (ii) for any lien for current taxes not yet delinquent, (iii) for pledges to secure deposits, (iv) for liens on real estate acquired by foreclosure or substantively repossessed, and (v) for such other liens, security interests, claims, charges, options or other encumbrances and imperfections of title that do not have a Material Adverse Effect on the value of personal or real property reflected in the Safety Fund Financial Statements or acquired since the date of such statements and which do not materially interfere with or impair the present and continued use of such property, Safety Fund and the Safety Fund Subsidiaries have good title, free and clear of any liens, claims, charges, options or other encumbrances, to all of the personal and real property reflected in the consolidated balance sheets of Safety Fund included in the Safety Fund Financial Statements and all personal and real property acquired since such date, except such personal and real property as has been disposed of in the ordinary course of business.
3.13 CERTAIN CONTRACTS. Except as set forth in Schedule 3.13 hereto and except for agreements, indentures, arrangements and contracts which are exhibits to Safety Fund's Annual Report on Form 10-KSB for the year ended December 31, 1994, accurate copies of which have been made available to Buyer, neither Safety Fund nor any of the Safety Fund Subsidiaries is a party to, is bound by, owns properties subject to, or receives benefits under:
(a) any agreement, arrangement or other contract not made in the ordinary course of business that (x) would be required to be filed as an exhibit to a Form 10-K or 10-KSB under the Exchange Act or (y) is or may reasonably be expected to be material to the financial condition, business or results of operations of Safety Fund and the Safety Fund Subsidiaries, taken as a whole,
(b) any agreement, indenture or other instrument relating to the borrowing of money by Safety Fund or any Safety Fund Subsidiary or the guarantee by Safety Fund or any Safety Fund Subsidiary of any such obligation (other than instruments relating to transactions entered into in the ordinary course of the business of Safety Fund or in the ordinary course of business of any Safety Fund
(c) any agreement, arrangement or commitment which cannot be terminated at will relating to the employment of a consultant or the employment, election or retention of any present or former director, officer or employee,
(d) any contract, agreement or understanding with a labor union,
(e) any agreement (other than any agreement (x) with a banking customer entered into by any Safety Fund Subsidiary in the ordinary course of business under which any Safety Fund Subsidiary provides banking services to such banking customer or (y) relating to the sale of mortgage loans, including forward commitments) that involves a payment or series of payments of more than $100,000 from or to Safety Fund or any Safety Fund Subsidiary, or
(f) any agreement containing covenants that limit the ability of Safety Fund or any Safety Fund Subsidiary to compete in any line of business or with any person, or that involve any restriction on the geographic area in which, or method by which, Safety Fund or any Safety Fund Subsidiary may carry on its business.
3.14 CERTAIN DEFAULTS. Except as set forth in Schedule 3.14 hereto, neither Safety Fund nor any Safety Fund Subsidiary, nor, to the knowledge of Safety Fund, any other party thereto, is in default in any material respect under any material lease, contract, mortgage, promissory note, deed of trust, loan or other commitment or arrangement pursuant to which Safety Fund or any Safety Fund Subsidiary has borrowed funds or is otherwise the obligor, which default would have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole.
3.15 INSURANCE. (a) The deposit accounts of any Safety Fund Subsidiary which are of an insurable type are insured by the FDIC to the extent permitted by the Bank Insurance Fund of the FDIC.
(b) Safety Fund has made available to Buyer correct and complete copies of all material policies of insurance of Safety Fund and the Safety Fund Subsidiaries currently in effect. Neither Safety Fund nor any of the Safety Fund Subsidiaries has any liability for unpaid premiums or premium adjustments not properly reflected on Safety Fund's financial statements included in Safety Fund's Quarterly Report on Form 10-QSB for the period ended September 30, 1995, except for any such liability that would not have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole. Except as set forth on Schedule 3.15 hereto, neither Safety Fund nor any Safety Fund Subsidiary has received any notice of termination of any such insurance coverage or material increase in the premiums therefor or has any reason to believe that any such insurance coverage will be terminated or the premiums therefor materially increased.
3.16 EMPLOYEE BENEFIT PLANS. (a) Except as described on Schedule 3.16 hereto, neither Safety Fund nor any of the Safety Fund Subsidiaries has any obligation, contingent or otherwise, under any employment, consulting, retirement or severance agreement which would require Safety Fund or any Safety Fund Subsidiary to make payments exceeding $100,000 for any employee or former employee.
(b) SCHEDULE 3.16 hereto sets forth a complete list of all ERISA Plans (as defined below). Except as set forth in Schedule 3.16, neither Safety Fund nor any Safety Fund Subsidiary maintains or contributes to any "multi- employer plan" as that term is defined at Section 4001(a)(3) of ERISA, and neither Safety Fund nor any Safety Fund Subsidiary has incurred any material liability under Section 4062, 4063 or 4201 of ERISA. To the knowledge of Safety Fund, each pension plan, as defined at Section 3(2) of ERISA, maintained by Safety Fund or any Safety Fund Subsidiary (each, a "Pension Plan") which is intended to be qualified under Section 401(a) of the Code is so qualified. Except as set forth in Schedule 3.16 hereto, to the knowledge of Safety Fund, since January 1, 1991, (i) each welfare plan, as defined at Section 3(1) of ERISA, maintained by Safety Fund or a Safety Fund Subsidiary (each, a "Welfare Plan"), and each Pension Plan (the Pension Plans and Welfare Plans being hereinafter referred to as "ERISA Plans"), has been administered substantially in accordance with the terms of such plan and the provisions of ERISA, (ii) nothing has been done or omitted to be done with respect to any ERISA Plan that would result in any material liability on the part of Safety Fund or any Safety
Fund Subsidiary, including the loss of any material tax deduction, under ERISA or the Code, (iii) no "reportable event" as defined at Section 4043 of ERISA, other than any such event for which the thirty-day notice period has been waived, has occurred with respect to any Pension Plan subject to Title IV of ERISA, and (iv) except for continuation of health coverage to the extent required under Section 4980B of the Code, there are no unfunded obligations under any ERISA Plan providing benefits after termination of employment.
(c) Schedule 3.16 hereto sets forth a complete list of all material employment, consulting, retirement and severance agreements with individuals and all material incentive, bonus, fringe benefit and other employee benefit arrangements of Safety Fund and the Safety Fund Subsidiaries, covering employees or former employees of Safety Fund and the Safety Fund Subsidiaries.
(d) Safety Fund has made available to Buyer copies of all ERISA Plans, copies of all agreements and arrangements referred to in (c) above that have been reduced to writing, and a written summary of the material terms of all such agreements or arrangements that have not been reduced to writing.
3.17 COMPLIANCE WITH APPLICABLE LAW; REGULATORY EXAMINATIONS. (a) Safety Fund and each of the Safety Fund Subsidiaries holds, and has at all times held, all licenses, franchises, permits, approvals, consents, qualifications and authorizations material for the lawful conduct of its business under and pursuant to, and has complied with, and is not in default under, any applicable law, statute, order, rule, regulation, policy, ordinance, reporting or filing requirement and/or guideline of any federal, state or local governmental authority relating to Safety Fund or any of the Safety Fund Subsidiaries, except as set forth on Schedule 3.17 hereto and except for violations which, either individually or in the aggregate, do not or would not have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries taken as a whole, and neither Safety Fund or any of the Safety Fund Subsidiaries has knowledge of any violation of any of the above.
(b) Except for normal examinations conducted by a regulatory agency in the regular course of the business of Safety Fund and the Safety Fund Subsidiaries and except as set forth on Schedule 3.17 hereto, no regulatory agency has initiated any proceeding or, to the best knowledge of Safety Fund, investigation into the business or operations of Safety Fund or any of the Safety Fund Subsidiaries since prior to December 31, 1991. Safety Fund has not received any objection from any regulatory agency to Safety Fund's response to any violation, criticism or exception with respect to any report or statement relating to any examinations of Safety Fund or any of the Safety Fund Subsidiaries.
3.18 BROKER'S FEES. Neither Safety Fund, any Safety Fund Subsidiary, nor any of its officers or directors has employed any broker, finder or investment advisor, or incurred any liability for any broker's fees, commissions, finder's fees or investment advisory fees in connection with any of the transactions contemplated by this Agreement, except that Safety Fund has engaged, and will pay a fee to McConnell, Budd & Downes, Inc. (the "Safety Fund Investment Advisor"). The Safety Fund Investment Advisor has delivered an opinion to the Board of Directors of Safety Fund stating its opinion that the consideration to be received by Safety Fund's stockholders pursuant to the Merger is fair to such stockholders, from a financial point of view.
3.19 SAFETY FUND INFORMATION. The information relating to Safety Fund and the Safety Fund Subsidiaries to be contained in the Proxy Statement-Prospectus (as defined in Section 7.1) and any application to any Bank Regulator, or any other statement or application filed with any other governmental body in connection with the Merger, the BHC Merger, the Bank Merger, and the other transactions contemplated by this Agreement, will not contain as of the date of such Proxy Statement-Prospectus and as of the date of the Special Meeting (defined in Section 5.6) any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, Safety Fund makes and will make no representation or warranty with respect to any information supplied by Buyer which is contained in any of the foregoing documents. The Proxy Statement-Prospectus (except for such portions thereof that relate only to Buyer and its subsidiaries) will comply in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder.
3.20 ENVIRONMENTAL ISSUES. Except as set forth on Schedule 3.20 hereto and except where such violation, liability or noncompliance would not have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole: (i) neither Safety Fund nor any of the Safety Fund Subsidiaries has violated during the last five years or is in violation of any Environmental Law (as defined in Section 11.1); (ii) none of the properties owned or leased by Safety Fund or any Safety Fund Subsidiary (including, without limitation, soils and surface and ground waters) are contaminated with any Hazardous Substance (as defined in Section 11.1); (iii) neither Safety Fund nor any of the Safety Fund Subsidiaries is liable for any off-site contamination; (iv) neither Safety Fund nor any of the Safety Fund Subsidiaries is liable under any Environmental Law; and (v) Safety Fund and each of the Safety Fund Subsidiaries is, and has during the last five years been, in compliance with, all of their respective Environmental Permits (as defined in Section 11.1). For purposes of the foregoing, all references to "properties" include, without limitation, any owned real property or leased real property.
3.21 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as set forth on Schedule 3.21 or in the proxy statement for Safety Fund's 1995 Annual Meeting of Stockholders, to the knowledge of Safety Fund, no officer or director of Safety Fund, or any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of any such officer or director, has any material interest in any material contract or property (real or personal), tangible or intangible, used in or pertaining to the business of Safety Fund or any of the Safety Fund Subsidiaries that would be required to be disclosed in a proxy statement to stockholders under Regulation 14A of the Exchange Act.
3.22 CERTAIN TRANSACTIONS. Since December 31, 1994, neither Safety Fund nor any Safety Fund Subsidiary has entered into any material transactions involving interest rate and currency swaps, options and futures contracts, or any other similar transactions, except as disclosed in Schedule 3.22 hereto.
3.23 REGULATORY AGREEMENTS. Neither Safety Fund nor any Safety Fund Subsidiary is a party to any assistance agreement, supervisory agreement, memorandum of understanding, consent order, cease and desist order, or condition of any regulatory order or decree with or by the OCC, the Federal Reserve or any other financial services regulatory agency that relates to the conduct of the business of Safety Fund or any Safety Fund Subsidiary, nor has Safety Fund or any of the Safety Fund Subsidiaries been advised by any such regulatory agency or other governmental entity that it is considering issuing or requesting any such agreement, order or decree.
3.24 LABOR MATTERS. With respect to their employees, neither Safety Fund nor any Safety Fund Subsidiary has engaged in any unfair labor practice as defined under applicable federal law. Since January 1, 1994, Safety Fund and the Safety Fund Subsidiaries have not experienced any attempt by organized labor or its representatives to make Safety Fund or any Safety Fund Subsidiary conform to demands of organized labor relating to their employees or to enter into a binding agreement with organized labor that would cover the employees of Safety Fund or any Safety Fund Subsidiary. There is no unfair labor practice charge or other complaint by any employee or former employee of Safety Fund or any Safety Fund Subsidiary against any of them pending before any governmental agency arising out of Safety Fund's or such Safety Fund Subsidiary's activities, which charge or complaint (i) has a reasonable probability of an unfavorable outcome and (ii) in the event of an unfavorable outcome would, individually or in the aggregate, have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole; there is no labor strike or labor disturbance pending or threatened against any of them; and neither Safety Fund nor any Safety Fund Subsidiary has experienced a work stoppage or other labor difficulty since January 1, 1994.
3.25 ADMINISTRATION OF TRUST ACCOUNTS. Each Safety Fund Subsidiary has properly administered all accounts for which it acts as a fiduciary or agent, including but not limited to accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents and applicable state and federal law and regulation and common law, except where the failure to do so would not, individually or in the aggregate, have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole. None of Safety Fund, any Safety Fund Subsidiary, or any director, officer or employee of Safety Fund or any Safety Fund Subsidiary acting on behalf of Safety Fund or a Safety Fund Subsidiary, has committed any breach of trust with respect to any such fiduciary or agency account, and the accountings for each such fiduciary or agency account are true and correct in all material respects and accurately reflect the assets of such fiduciary or agency account, except for such breaches and failures to be true, correct and accurate as would not, individually or in the aggregate, have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole.
3.26 INTELLECTUAL PROPERTY. Safety Fund and each Safety Fund Subsidiary owns the entire right, title and interest in and to, or has valid licenses with respect to, all of the Intellectual Property, as hereinafter defined, necessary in all material respects to conduct the business and operations of Safety Fund and the Safety Fund Subsidiaries as presently conducted, except where the failure to do so would not, individually or in the aggregate, have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole. None of such Intellectual Property is subject to any outstanding order, decree, judgment, stipulation, settlement, lien, charge, encumbrance or attachment, which order, decree, judgment, stipulation, settlement, lien, charge, encumbrance or attachment would have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole. For purposes of this Section 3.26, the term "Intellectual Property" means all domestic and foreign letters patent, patents, patent applications, patent licenses, software licensed or owned, know-how licenses, trade names, common law and other trademarks, service marks, licenses of trademarks, trade names and/or service marks, trademark registrations and applications, service mark registrations and applications and copyright registrations and applications.
3.27 LOAN PORTFOLIO. Schedule 3.27 sets forth all of the loans in amount in excess of $200,000 of Safety Fund or any Safety Fund Subsidiary that as of the date of this Agreement are classified by Safety Fund or any Bank Regulator as "Special Mention", "Substandard", "Doubtful", "Loss" or "Classified," together with the aggregate principal amount of and accrued and unpaid interest on such loans by category, it being understood that no representation is being made that the OCC or any other Bank Regulator would agree with the loan classifications contained in Schedule 3.27.
3.28 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Safety Fund nor any Safety Fund Subsidiary has any liability (contingent or otherwise), excluding contractually assumed contingencies, except (i) as set forth on the consolidated balance sheet of Safety Fund and its subsidiaries as at December 31, 1994 contained in the Safety Fund Reports, including the notes thereto, (ii) for liabilities and obligations incurred in the ordinary course of business consistent with past practice since December 31, 1994, and (iii) liabilities which would not, individually or in the aggregate, have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Safety Fund as follows:
4.1 CORPORATE ORGANIZATION. Buyer is a corporation, duly organized, validly existing and in good standing under the laws of the State of New Hampshire. Buyer has the power and authority to own or lease all of its properties and assets and to conduct its business as it is now being conducted, and is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed, qualified or in good standing does not or would not, either individually or in the aggregate, have a Material Adverse Effect on Buyer and its subsidiaries, taken as a whole. Buyer is registered as a bank holding company under the BHCA. Buyer has previously made available to Safety Fund for inspection true and complete copies as amended to date of the Charter and By- laws of Buyer.
4.2 CAPITALIZATION. (a) As of the date hereof, the authorized capital stock of Buyer consists solely of 22,500,000 shares of common stock ("Buyer Common Shares") and 3,000,000 shares of preferred stock ("Buyer Preferred Shares"). As of the date hereof, there were 7,087,550 Buyer Common Shares issued and outstanding, no Buyer Common Shares held in its treasury, and no Buyer Preferred Shares issued and outstanding. All issued and outstanding Buyer Common Shares have been duly authorized and validly issued and are fully paid, nonassessable, and free of preemptive rights, with no personal liability attaching to the ownership thereof. The shares of Buyer Common Stock to be issued pursuant to the Merger will be duly authorized and validly issued and (at the Effective Time) will be fully paid, nonassessable, and free of preemptive rights, with no personal liability attaching to the ownership thereof.
(b) As of the date hereof, except for the options to acquire not more than 732,000 Buyer Common Shares pursuant to stock options under the CFX Stock Option Plan (the "Buyer Stock Option Plan"), Buyer is not bound by any calls, commitments or agreements of any character calling for the transfer, purchase or issuance of, or representing the right to purchase, subscribe for or otherwise receive, any shares of its capital stock or any securities convertible into or representing the right to receive, purchase or subscribe for any such shares of Buyer. There are no agreements or understandings with respect to the voting of any such shares or which restrict the transfer of such shares to which Buyer is a party, nor does Buyer have knowledge of any such agreements or understandings to which Buyer is not a party with respect to the voting of any such shares or which restrict the transfer of such shares. Buyer Common Shares are listed on the Stock Exchange.
4.3 AUTHORITY. Buyer has full corporate power and authority to execute and deliver this Agreement and the Option Agreement, and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Option Agreement, and the consummation of the transactions contemplated hereby and thereby have been duly and validly approved by the Board of Directors of Buyer. No corporate proceedings on the part of Buyer are necessary to consummate the transactions contemplated by this Agreement, except that the affirmative vote of the holders of a majority of the votes cast by the holders of Buyer Common Stock eligible to vote thereon is required to authorize the issuance of Buyer Common Stock pursuant to this Agreement in accordance with Stock Exchange policy. Each of this Agreement and the Option Agreement has been duly and validly executed and delivered by Buyer, constitutes a valid and binding obligation of Buyer, and is enforceable against Buyer in accordance with its terms, subject to (i) bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the rights and remedies of creditors generally and (ii) general principles of equity, regardless of whether enforcement is sought in proceedings in equity or at law.
4.4 NO VIOLATION. Neither the execution and delivery of this Agreement or the Option Agreement by Buyer, nor the consummation by Buyer of the transactions contemplated hereby or thereby, nor the compliance by Buyer with any of the terms or provisions hereof or thereof, does or will
(a) violate any provision of the Charter or By-laws of Buyer,
(b) assuming that the consents and approvals referred to in Section 4.5 hereof are duly obtained, violate any statute, code, ordinance, permit, authorization, registration, rule, regulation, judgment, order, writ, decree or injunction applicable to Buyer or any of its subsidiaries or any of their respective properties, securities or assets, except for violations which would not, individually or in the aggregate, have a Material Adverse Effect on Buyer and its subsidiaries, taken as a whole, or
(c) assuming that the consents and approvals referred to in Section 4.5 hereof are duly obtained and except as set forth on Schedule 4.4 hereto, violate, conflict with, result in a breach of any provisions of, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of, accelerate the performance required by, or result in the creation of any lien, security interest, charge or other encumbrance upon any of the respective properties or assets of Buyer or any of its subsidiaries under, any of the terms, conditions or provisions of any note, bond, debenture, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Buyer or any of its subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except for violations, conflicts, breaches or defaults which would not, individually or in the aggregate, have a Material Adverse Effect on Buyer and its subsidiaries, taken as a whole.
4.5 CONSENTS AND APPROVALS. The execution, delivery and performance of this Agreement and the Option Agreement by Buyer does not require any consent, approval, authorization or permit of, or filing with or notification to, any court, administrative agency or other governmental or regulatory authority or instrumentality, domestic or foreign, including, without limitation, any Bank Regulator, except (i) for applicable requirements, if any, of the Securities Act, the Exchange Act or the laws of certain states under which a "blue sky" filing or consent may be required, state takeover laws, and filing and recordation of appropriate merger documents as required by Massachusetts and New Hampshire law, (ii) for consents and approvals of or filings or registrations with the Bank Regulators, and (iii) where failure to obtain any such consent, approval, authorization or permit, or to make any such filing or notification, would not prevent or significantly delay consummation of the Merger, the BHC Merger, or the Bank Merger or otherwise prevent Buyer from performing its obligations under this Agreement, or would not have a Material Adverse Effect on Buyer and its subsidiaries, taken as a whole.
4.6 REGULATORY APPROVAL. Buyer is not aware of any reason why the conditions set forth in Section 8.1(c) hereof would not be satisfied without significant delay. Buyer is not aware of any reason why the Merger cannot qualify as a "pooling of interests" for accounting purposes.
4.7 FINANCIAL STATEMENTS. (a) The consolidated balance sheets of Buyer as of December 31, 1994 and 1993, and the related consolidated statements of operations, changes in stockholders' equity, cash flows and changes in financial position for the years ended December 31, 1994 and 1993, certified by Wolf & Company, P.C., and for the year ended December 31, 1992, certified by Ernst & Young LLP, in the form delivered to Safety Fund prior to execution and delivery of this Agreement (all of the above being collectively referred to as the "Buyer Audited Financial Statements"), have been prepared in accordance with GAAP applied on a consistent basis (except as may be indicated in the footnotes thereto and except as required or permitted by SFAS 109 and 115) and present fairly in all material respects the consolidated financial position of and results of operations of Buyer at the dates, and for the periods, stated therein.
(b) The consolidated balance sheets of Buyer as of September 30, 1995 and 1994, and the related consolidated statements of income for the nine months ended September 30, 1995 and 1994 in the form delivered to Safety Fund prior to execution and delivery of this Agreement (hereinafter referred to collectively as the "Buyer Interim Financial Statements") present fairly, and the financial statements referred to in Section 6.5 hereof will present fairly, in all material respects the consolidated financial position and results of operations of Buyer at the dates and for the periods indicated thereon and are prepared in accordance with GAAP applied on a consistent basis (except for the omission of notes to the Buyer Interim Financial Statements and year-end adjustments to interim results, which adjustments will not be material, and except as required or permitted by SFAS 109 and 115) with all prior periods and throughout the periods indicated.
(c) The Buyer Audited Financial Statements and the Buyer Interim Financial State ments are herein referred to together as the "Buyer Financial Statements."
(d) The books and records of Buyer and each Buyer Subsidiary fairly reflect in all material respects the transactions to which it is a party or by which its properties are subject or bound. Such books and records have been properly kept and maintained and are in compliance in all material respects with all applicable legal and accounting requirements. The minute books of Buyer and the Buyer Subsidiaries contain records which are accurate in all material respects of all corporate actions of the respective shareholders and Board of Directors (including committees of its Board of Directors).
4.8 BUYER REPORTS. Buyer has previously made available to Safety Fund a true and complete, in all material respects, copy of each (a) final registration statement, prospectus, report, schedule and definitive proxy statement filed since January 1, 1991 by Buyer with the SEC pursuant to the Securities Act or the Exchange Act (the "Buyer Reports") and (b) communication mailed by Buyer to its shareholders since January 1, 1991, and, as of their respective dates, no such Buyer Reports contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, except that information as of a later date shall be deemed to modify information as of an earlier date.
4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on Schedule 4.9 hereto, since December 31, 1994, there has not been:
(a) any change or event which, individually or in the aggregate with other changes and events, has had a Material Adverse Effect on Buyer and its subsidiaries, taken as a whole;
(b) any change in any of the accounting methods or practices of Buyer or any of its subsidiaries other than changes required by applicable law or by
(c) any incurrence by Buyer of any liability that has had, or to the knowledge of Buyer, could reasonably be expected to have, a Material Adverse Effect upon Buyer and its subsidiaries, taken as a whole.
4.10 LEGAL PROCEEDINGS. Except as set forth on Schedule 4.10 hereto and except for matters which, individually or in the aggregate, would not have a Material Adverse Effect on Buyer and its subsidiaries, taken as a whole, neither Buyer nor any of its subsidiaries is a party to any, and there are no pending or, to the best of Buyer's knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental investigations of any nature by or against Buyer or any of its subsidiaries; and neither Buyer nor any of its subsidiaries is a party to or subject to any order, judgment or decree.
4.11 COMPLIANCE WITH APPLICABLE LAW; REGULATORY EXAMINATIONS. (a) Buyer and each of its subsidiaries holds, and has at all times held, all licenses, franchises, permits, approvals, consents, qualifications and authorizations material for the lawful conduct of its business under and pursuant to, and has complied with, and is not in default under, any applicable law, statute, order, rule, regulation, policy, ordinance, reporting or filing requirement and/or guideline of any federal, state or local governmental authority relating to Buyer or any of its subsidiaries, except for violations which, either individually or in the aggregate, do not or would not have a Material Adverse Effect on Buyer and its subsidiaries taken as a whole, and neither Buyer or any of its subsidiaries has knowledge of any violation of any of the above.
(b) Except for normal examinations conducted by a regulatory agency in the regular course of the business of Buyer and its subsidiaries, no regulatory agency has initiated any proceeding or, to the best knowledge of Buyer, investigation into the business or operations of Buyer or any of its subsidiaries since prior to December 31, 1991. Buyer has not received any objection from any regulatory agency to Buyer's response to any violation, criticism or exception with respect to any report or statement relating to any examinations of Buyer or any of its subsidiaries.
4.12 BROKER'S FEE. Neither Buyer, any subsidiary, nor any of its officers or directors has employed any broker, finder or investment advisor, or incurred any liability for any broker's fees, commissions, finder's fees or investment advisory fees in connection with any of the transactions contemplated by this Agreement, except that Buyer has engaged, and will pay a fee or commission to Alex, Brown & Sons Incorporated (the "Buyer Investment Advisor").
4.13 BUYER INFORMATION. The information relating to Buyer to be contained in the Proxy Statement-Prospectus (as contemplated by Section 7.1) and any application to any Bank Regulator, or any other statement or application filed with any governmental body in connection with the Merger, the BHC Merger, the Bank Merger and the other transactions contemplated by this Agreement will not contain as of the date of such Proxy Statement-Prospectus or filing any untrue statement of a material fact or omit to state a material fact necessary to make such information not misleading. Notwithstanding the foregoing, Buyer makes and will make no representation or warranty with respect to any information supplied by Safety Fund which is contained in any of the foregoing documents. The Proxy Statement-Prospectus (except for such portions thereof that relate only to Safety Fund or the Safety Fund Subsidiaries) will comply in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder.
4.14 ENVIRONMENTAL ISSUES. Except where such violation, liability or noncompliance would not have a Material Adverse Effect on Buyer and its subsidiaries, taken as a whole: (i) neither Buyer nor any of its subsidiaries has violated during the last five years or is in violation of any Environmental Law; (ii) none of the properties owned or leased by Buyer or any subsidiary (including, without limitation, soils and surface and ground waters) are contaminated with any Hazardous Substance; (iii) neither Buyer nor any of its subsidiaries is liable for any off-site contamination; (iv) neither Buyer nor any of its subsidiaries is liable under any Environmental Law; and (v) Buyer and each of its subsidiaries is, and has during the last five years been, in compliance with, all of their respective Environmental Permits. For purposes of the foregoing, all references to "properties" include, without limitation, any owned real property or leased real property.
4.15 CAPITAL. As of September 30, 1995, Buyer's Tier 1 risk-based capital ratio, total risk-based capital ratio, and leverage ratio, each calculated in accordance with the capital guidelines of the Federal Reserve applicable to bank holding companies on a fully phased-in basis, were each in excess of the specified minimum levels for qualification as "well capitalized."
4.16 REGULATORY AGREEMENTS. Neither Buyer nor any of its subsidiaries is a party to any assistance agreement, supervisory agreement, memorandum of understanding, consent order, cease and desist order, or condition of any regulatory order or decree with or by the FDIC, the Federal Reserve, the New Hampshire Bank Commissioner, or other financial services regulatory agency that restricts Buyer's ability to perform its obligations hereunder, nor has Buyer or any of its subsidiaries been advised by any such regulatory agency or other governmental entity that it is considering issuing or requesting any such agreement, order or decree.
4.17 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Buyer nor any Buyer Subsidiary has any liability (contingent or otherwise), excluding contractually assumed contingencies, except (i) as set forth on the consolidated balance sheet of Buyer and its subsidiaries as at December 31, 1994 contained in the Buyer Reports, including the notes thereto, (ii) for liabilities and obligations incurred in the ordinary course of business consistent with past practice since December 31, 1994, and (iii) liabilities which would not, individually or in the aggregate, have a Material Adverse Effect on Buyer and the Buyer Subsidiaries, taken as a whole.
4.18 BUYER SUB. (a) Upon its formation, Buyer Sub will be a corporation, duly organized, validly existing and in good standing under the laws of Massachusetts, all of the outstanding capital stock of which is, or will be prior to the Effective Time, owned directly or indirectly by Buyer free and clear of any lien, charge or other encumbrance. From and after its incorporation, Buyer Sub has not and will not engage in any activities other than in connection with or as contemplated by this Agreement.
(b) Buyer Sub has, or will have prior to the Effective Time, all corporate power and authority to consummate the transactions contemplated hereunder and carry out all of its obligations with respect to such transactions. The consummation of the transactions contemplated hereby has been, or will have been prior to the Closing, duly and validly authorized by all necessary corporate action in respect thereof on the part of Buyer Sub.
(a) AFFIRMATIVE COVENANTS. During the period from the date of this Agreement to the Effective Time, except with the written consent of Buyer, Safety Fund will operate its business, and it will cause each of the Safety Fund Subsidiaries to operate its business, only in the usual, regular and ordinary course of business; use reasonable efforts to preserve intact its business organization and assets and maintain its rights and franchises; and to take no action which would (i) materially adversely affect the ability of Buyer or Safety Fund to obtain any necessary approvals of governmental authorities required for the transactions contemplated hereby or materially increase the period of time necessary to obtain such approvals, or (ii) materially adversely affect its ability to perform its covenants and agreements under this Agreement.
(b) NEGATIVE COVENANTS. Safety Fund agrees that from the date of this Agreement to the Effective Time, except as otherwise specifically permitted or required by this Agreement, or consented to by Buyer in writing, Safety Fund will not, and will cause each of the Safety Fund Subsidiaries not to:
(1) change or waive any provision of its Charter or By-laws;
(2) change the number of shares of its authorized or issued capital stock (except (i) as may be required by the Option Agreement, (ii) for the issuance of Safety Fund Common Stock pursuant to the exercise of outstanding stock options under the Safety Fund Stock Option Plans, as contemplated by Section 3.2(b) hereof, and (iii) in connection with its adoption of the Shareholder Rights Plan;
(3) except in connection with its adoption of the Shareholder Rights Plan or as described in Schedule 6.10, issue or grant any option, warrant, call, commitment, sub scription, right to purchase or agreement of any character relating to the authorized or issued capital stock of Safety Fund or any of the Safety Fund Subsidiaries, or any securi ties convertible into shares of such stock; except that (i) Safety Fund may issue shares of Safety Fund Common Stock or permit treasury shares to become outstanding in accor dance with the terms of the Safety Fund Stock Option Plans, and (ii) Safety Fund may issue shares of Safety Fund Common Stock to Buyer in accordance with the terms of the Option Agreement;
(4) except pursuant to the Shareholder Rights Plan, effect any recapitalization, reclassification, stock dividend, stock split or like change in capitalization, or redeem, repurchase or otherwise acquire any shares of its capital stock;
(5) declare or pay any dividends or other distributions with respect to its capital stock except pursuant to the Shareholder Rights Plan and except for a quarterly cash dividend not in excess of $.05, $.06, $.07, $.08 and $.09 per share in the first, second, third and fourth quarters of 1996 and the first quarter of 1997, respectively, declared and paid in accordance with applicable law, regulation and contractual and regulatory commitments and for dividends paid by any Safety Fund Subsidiary to Safety Fund, provided, however, that Safety Fund's then-current quarterly cash dividend may be increased to the Increased Dividend (as defined below) per share of Safety Fund Common Stock beginning in the first quarter of 1997, and (ii) that the parties agree (x) to consult with respect to the amount of the last Safety Fund quarterly dividend payable prior to the Effective Time with the objective of assuring that the shareholders of Safety Fund do not receive a shortfall, or dividend or distribution from both Safety Fund and Buyer, for such quarter based on the record and payment dates of their last dividend prior to the Merger and the record and payment dates of the first dividend of Buyer following the Merger and (y) that Safety Fund may pay a special dividend to holders of record of Safety Fund Common Stock immediately prior to the Effective Time consistent with the objective described in clause (x) above. The parties agree that Buyer dividends paid in any calendar quarter are paid with respect to the then-preceding calendar quarter and that Safety Fund dividends to be paid in any calendar quarter will be paid with respect to the then-preceding calendar quarter. The quarterly "Increased Dividend" shall be determined by multiplying the quarterly dividend then being paid by Buyer with respect to each share of Buyer Common Stock by 1.700;
(6) enter into, amend in any material respect or terminate any contract or agreement (including without limitation any settlement agreement with respect to litigation) that is or may reasonably be expected to have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole, except in the ordinary course of business
(7) except in the ordinary course of business consistent with past practice, incur any material liabilities or material obligations, whether directly or by way of guaranty, including any obligation for borrowed money whether or not evidenced by a note, bond, debenture or similar instrument, or acquire any equity, debt, or other investment securities;
(8) make any capital expenditures other than in the ordinary course of business or as necessary to maintain existing assets in good repair;
(9) except as described on Schedule 5.1, grant any increase in rates of compensation to its employees, except merit increases in accordance with past practices and general increases to employees as a class in accordance with past practice or as required by law; grant any increase in rates of compensation to its directors; adopt or amend in any material respect or terminate any employee benefit plan, pension plan or incentive plan except as required by law, or permit the vesting of any material amount of benefits under any such plan other than pursuant to the provisions thereof as in effect on the date of this Agreement; or enter into any employment, severance or similar agreements or arrangements with
(10) make application for the opening or closing of any, or open or close any, branches or automated banking facility except as previously
(11) make any equity investment or commitment to make such an investment in real estate or in any real estate development project, other than in connection with foreclo sures, settlements in lieu of foreclosure or troubled loan or debt restructurings in the ordinary course of business consistent with customary banking practices;
(12) merge into, consolidate with, affiliate with, or be purchased or acquired by, any other Person, or permit any other to be merged, consolidated or affiliated with it or be purchased or acquired by it, or, except to realize upon collateral in the ordinary course of its business, acquire a significant portion of the assets of any other Person, or sell a significant portion of its assets;
(13) make any material change in its accounting methods or practices, except changes as may be required by GAAP or by regulatory requirements;
(14) take or cause to be taken any action which would disqualify the Merger as a "pooling of interests" for accounting purposes or a tax free reorganization under Section 368 of the Code;
(15) enter into any transactions involving interest rate and currency swaps, options and futures contracts, or any other similar off-balance
(16) take any action that would result in the representations and warranties of Safety Fund contained in this Agreement not being true and correct on the date of this Agreement or at any future date on or prior to
(17) agree to do any of the foregoing.
5.2 NO SOLICITATION. Safety Fund shall not authorize or permit any of its officers, directors, employees or agents to directly or indirectly solicit, initiate or encourage any inquiries relating to, or the making of any proposal which constitutes, a "takeover proposal" (as defined below), or, except to the extent legally required for the discharge of the fiduciary duties of its Board of Directors, recommend or endorse any takeover proposal, or participate in any discussions or negotiations, or provide third parties with any non-public information, relating to any such inquiry or proposal. Nothing contained in this Section 5.2 shall prohibit Safety Fund or Safety Fund's Board from taking and disclosing to Safety Fund's stockholders a position with respect to a tender offer by a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act or making such other disclosure to Safety Fund's stockholders which, in the judgment of the Safety Fund Board, based upon the advice of outside counsel, may be required under applicable law, or making disclosure to the Safety Fund's stockholders of the absence of an opinion from the Safety Fund Investment Advisor as to the fairness of the Merger Consideration dated the date of the Proxy Statement. Safety Fund will take all reasonable actions necessary or advisable to inform the appropriate individuals or entities referred to in the first sentence hereof of the obligations undertaken herein. Safety Fund will notify Buyer immediately if any such inquiries or takeover proposals are received by, any such information requested from, or any such negotiations or discussions are sought to be initiated or continued with, Safety Fund, indicating in reasonable detail the identity of the person making such proposal, offer, inquiry or contact and the terms and conditions of such proposal, offer, inquiry or contact. As used in this Agreement, "takeover proposal" shall mean any tender or exchange offer, proposal for a merger, consolidation or other business combination involving Safety Fund or any of its Subsidiaries or any proposal or offer to acquire in any manner a substantial equity interest in, or a substantial portion of the assets of, Safety Fund or any of its Subsidiaries other than the transactions contemplated or permitted by this Agreement or the Option Agreement.
5.3 CURRENT INFORMATION. During the period from the date of this Agreement to the Effective Time, Safety Fund will cause one or more of its representatives to confer with representatives of Buyer and report the general status of its ongoing operations at such times as Buyer may reasonably request. Safety Fund will promptly notify Buyer of any material change in the normal course of its business or in the operation of its properties and, to the extent permitted by applicable law, of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the institution or the threat of material litigation involving Safety Fund. Safety Fund will also provide Buyer such information with respect to such events as Buyer may reasonably request from time to time.
5.4 ACCESS TO PROPERTIES AND RECORDS. Safety Fund shall permit Buyer reasonable access to its properties and those of the Safety Fund Subsidiaries, and shall disclose and make available to Buyer during normal business hours all of its books, papers and records relating to the assets, stock ownership, properties, operations, obligations and liabilities, including, but not limited to, all books of account (including the general ledger), tax records, minute books of directors' and stockholders' meetings, organizational documents, by- laws, material contracts and agreements, filings with any regulatory authority, litigation files, plans affecting employees, and any other business activities or prospects in which Buyer may have a reasonable interest; provided, however, that Safety Fund shall not be required to take any action that would provide access to or to disclose information where such access or disclosure would violate or prejudice the rights or business interests or confidences of any customer or other person or would result in the waiver by it of the privilege protecting communications between it and any of its counsel.
Safety Fund shall provide and shall request its auditors to provide Buyer with such historical financial information regarding it (and related audit reports and consents) as Buyer may reasonably request for securities disclosure purposes.
5.5 FINANCIAL AND OTHER STATEMENTS. (a) Promptly upon receipt thereof, Safety Fund will furnish to Buyer copies of each annual, interim or special audit of the books of Safety Fund and the Safety Fund Subsidiaries made by its independent accountants and copies of all internal control reports submitted to Safety Fund by such accountants in connection with each annual, interim or special audit of the books of Safety Fund and the Safety Fund Subsidiaries made by such accountants.
(b) As soon as practicable, Safety Fund will furnish to Buyer copies of all such financial statements and reports as it shall send to its stockholders, the SEC, the OCC or any other regulatory authority, except as legally prohibited thereby.
(c) Safety Fund will advise Buyer promptly of Safety Fund's receipt of any examination report of any federal or state regulatory or examination authority with respect to the condition or activities of Safety Fund or any of the Safety Fund Subsidiaries.
(d) With reasonable promptness, Safety Fund will furnish to Buyer such additional financial data as Buyer may reasonably request, including without limitation, detailed monthly financial statements and loan reports.
5.6 APPROVAL OF SAFETY FUND'S STOCKHOLDERS. Safety Fund will take all reasonable steps necessary to duly call, give notice of, solicit proxies for, convene and hold a special meeting (the "Special Meeting") of its stockholders as soon as practicable for the purpose of approving this Agreement and the transactions contemplated hereby. The date of the Special Meeting shall occur as soon as practicable following the effectiveness of the Registration Statement on Form S-4 (as more fully described in Section 7.1) filed with the SEC. The Board of Directors of Safety Fund will recommend to Safety Fund's stockholders the approval of this Agreement and the transactions contemplated hereby and will use all reasonable efforts to obtain, as promptly as practicable, the necessary approvals by Safety Fund's stockholders of this Agreement and the transactions contemplated hereby, provided, however, that nothing contained herein shall prohibit the Board of Directors of Safety Fund from failing to make such a recommendation or modifying or withdrawing its recommendation, if such Board shall have concluded in good faith with the advice of counsel that such action is required to prevent such Board from breaching its fiduciary duties to the stockholders of Safety Fund, and no such action shall constitute a breach of this Agreement.
5.7 DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective Time, Safety Fund will promptly supplement or amend the Schedules delivered in connection herewith pursuant to Article III with respect to any matter hereafter arising which, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in such Schedules or which is necessary to correct any information in such Schedules which has been rendered inaccurate thereby. No supplement or amendment to such Schedules shall have any effect for the purpose of determining satisfaction of the conditions set forth in Article VIII or the compliance by Safety Fund with the covenants set forth in Section 5.1 hereof.
5.8 FAILURE TO FULFILL CONDITIONS. In the event that Safety Fund determines that a condition to its obligation to complete the Merger cannot be fulfilled and that it will not waive that condition, it will promptly notify Buyer.
5.9 CONSENTS AND APPROVALS OF THIRD PARTIES. Safety Fund shall use all reasonable efforts to obtain as soon as practicable all consents and approvals of any other Persons necessary or desirable for the consummation of the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, Safety Fund may utilize the services of a professional proxy soliciting firm to help obtain the shareholder vote required to be obtained by it hereunder.
5.10 ALL REASONABLE EFFORTS. Subject to the terms and conditions herein provided, Safety Fund agrees to use all reasonable efforts to take, or cause to be taken, all corporate or other action and 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.
5.11 SAFETY FUND SUBSIDIARIES. Safety Fund undertakes and agrees that, if so requested by Buyer, it shall take all necessary action to facilitate the merger of Safety Fund Subsidiaries (other than SFNB) with subsidiaries of Buyer effective on or after the Effective Time; provided, however, that in no event shall the Closing be delayed in order to facilitate any such merger and provided further, however, that Safety Fund shall not be required to take any action that could adversely affect the qualification of the Merger as a reorganization within the meaning of Section 368(a) of the Code or the treatment of the Merger as a pooling of interests for accounting purposes.
6.1 CONDUCT OF BUSINESS. During the period from the date of this Agreement to the Effective Time, except with the written consent of Safety Fund and except as provided below, Buyer will take no action which would (i) materially adversely affect the ability of Buyer or Safety Fund to obtain any necessary approvals of governmental authorities required for the transactions contemplated hereby or materially increase the period of time necessary to obtain such approvals, or (ii) materially adversely affect its ability to perform its covenants and agreements under this Agreement, or (iii) disqualify the Merger as a "pooling of interests" for accounting purposes or a tax free reorganization under Section 368 of the Code, or (iv) result in the representations and warranties of Buyer contained in this Agreement not being true and correct on the date of this Agreement or at any future date on or prior to the Closing Date; provided that nothing herein contained shall preclude Buyer from exercising its rights under the Option Agreement or from taking any action described on Schedule 6.1 hereto.
6.2 CERTAIN BUSINESS TRANSACTIONS. Buyer will not enter into any agreement with respect to an Acquisition of another Person without the prior written consent of Safety Fund if such Acquisition would (i) require the approval of Buyer's shareholders; or (ii) involve Buyer's payment of consideration having a value that equals or exceeds $30 million; or (iii) be reasonably likely to result in a delay in the consummation of the Merger in any material respect; or (iv) be reasonably likely to reduce in any material respect the chances that the Merger will be consum- mated in accordance with the terms of this Agreement. Safety Fund agrees not to withhold unreasonably or delay any response to a request by Buyer for consent under this Section 6.2. The term "Acquisition" shall mean Buyer's purchase or other acquisition (including by way of merger, consolidation, share exchange or any similar transaction) of securities representing 50% or more of the voting power of a Person other than Safety Fund; or Buyer's purchase or other acquisition of assets of another Person as a going concern, but shall not include: (i) internal reorganizations or consolidations involving subsidiaries, (ii) foreclosures in the ordinary course of business, (iii) acquisitions of control by a banking subsidiary in its fiduciary capacity, or (iv) the creation of new subsidiaries other than in the context of a purchase or acquisition of assets from another Person.
6.3 CURRENT INFORMATION. During the period from the date of this Agreement to the Effective Time, Buyer will cause one or more of its representatives to confer with representatives of Safety Fund and report the general status of its ongoing operations at such times as Safety Fund may reasonably request. Buyer will promptly notify Safety Fund of any material change in the normal course of its business or in the operation of its properties and, to the extent permitted by applicable law, of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the institution or the threat of material litigation involving Buyer. Buyer will also provide Safety Fund such information with respect to such events as Safety Fund may reasonably request from time to time.
6.4 ACCESS TO PROPERTIES AND RECORDS. Buyer shall permit Safety Fund reasonable access to its properties and those of its subsidiaries, and shall disclose and make available to Safety Fund during normal business hours all of its books, papers and records relating to the assets, stock ownership, properties, operations, obligations and liabilities, including, but not limited to, all books of account (including the general ledger), tax records, minute books of directors' and stockholders' meetings, organizational documents, by- laws, material contracts and agreements, filings with any regulatory authority, litigation files, plans affecting employees, and any other business activities or prospects in which Safety Fund may have a reasonable interest; provided, however, that Buyer shall not be required to take any action that would provide access to or to disclose information where such access or disclosure would violate or prejudice the rights or business interests or confidences of any customer or other person or would result in the waiver by it of the privilege protecting communications between it and any of its counsel.
6.5 FINANCIAL AND OTHER STATEMENTS. (a) Promptly upon receipt thereof, Buyer will furnish to Safety Fund copies of each annual, interim or special audit of the books of Buyer and its subsidiaries made by its independent accountants and copies of all internal control reports submitted to Buyer by such accountants in connection with each annual, interim or special audit of the books of Buyer and its subsidiaries made by such accountants.
(b) As soon as practicable, Buyer will furnish to Safety Fund copies of all such financial statements and reports as it shall send to its stockholders, the SEC, the OCC or any other regulatory authority, except as legally prohibited thereby.
(c) Buyer will advise Safety Fund promptly of Buyer's receipt of any examination report of any federal or state regulatory or examination authority with respect to the condition or activities of Buyer or any of its subsidiaries.
(d) With reasonable promptness, Buyer will furnish to Safety Fund such additional financial data as Safety Fund may reasonably request, including without limitation, detailed monthly financial statements and loan reports.
6.6 CONSENTS AND APPROVALS OF THIRD PARTIES. Buyer shall use all reasonable efforts to obtain as soon as practicable all consents and approvals of any other Persons necessary or desirable for the consummation of the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, Buyer may utilize the services of a professional proxy soliciting firm to help obtain the shareholder vote required to be obtained by it hereunder.
6.7 ALL REASONABLE EFFORTS. Subject to the terms and conditions herein provided, Buyer agrees to use all reasonable efforts to take, or cause to be taken, all action and 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.
6.8 FAILURE TO FULFILL CONDITIONS. In the event that Buyer determines that a condition to its obligation to complete the Merger, the BHC Merger, or the Bank Merger cannot be fulfilled and that it will not waive that condition, it will promptly notify Safety Fund.
6.9 DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective Time, Buyer will promptly supplement or amend the Schedules delivered in connection herewith pursuant to Article with respect to any matter hereafter arising which, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in such Schedules or which is necessary to correct any information in such Schedules which has been rendered inaccurate thereby. No supplement or amendment to such Schedules shall have any effect for the purpose of determining satisfaction of the conditions set forth in Article VII.
6.10 EMPLOYEE BENEFITS. (a) All employees of Safety Fund and its Subsidiaries as of the Effective Time shall become employees of Buyer or a Subsidiary as of the Effective Time. Nothing in this Agreement shall give any employee of Safety Fund or its Subsidiaries a right to continuing employment with Buyer after the Effective Time. Any employee of Safety Fund whose employment with Buyer is terminated after the Effective Time shall be entitled to the same severance benefits generally available to employees of Buyer, provided, however, that for purposes of determining eligibility for and vesting of such severance benefits, service with Safety Fund or any Safety Fund Subsidiary prior to the Effective Time shall be treated as service with an "employer" to the same extent as if such persons had been employees of Buyer. A copy of Buyer's severance policy has previously been made available to Safety Fund.
(b) As soon as practicable after the Effective Time, Buyer shall provide or cause to be provided to all employees of Safety Fund and any Safety Fund Subsidiary who remain employed by Buyer or any of Buyer's Subsidiaries after the Effective Time with employee benefits which, in the aggregate, are no less favorable than those generally afforded to other employees of Buyer or Buyer's Subsidiaries holding similar positions, subject to the terms and conditions under which those employee benefits are made available to such employees, provided, however, that (i) for purposes of determining eligibility for and vesting of such employee benefits only (and not for pension benefit accrual purposes), service with Safety Fund or any Safety Fund Subsidiary prior to the Effective Time shall be treated as service with an "employer" to the same extent as if such persons had been employees of Buyer, (ii) this Section 6.10 construed to limit the ability of Buyer and its Subsidiaries to terminate the employment of any employee or to review employee benefits programs from time to time and to make such changes as they deem appropriate, and (iii) neither Buyer nor any of its Subsidiaries shall be required to provide any employees or former employees of Safety Fund with post-retirement medical benefits more favorable than those provided to new hires of Buyer.
(c) Safety Fund has listed certain employment and change of control agreements and a tin parachute plan in Schedule 6.10 hereto. Following the Effective Time, Buyer shall honor or cause its Subsidiaries to honor in accordance with their terms all such employment and change of control agreements and the tin parachute plan and assume or cause its Subsidiaries to assume all duties, liabilities and obligations under such agreements and arrangements. Buyer agrees that the consummation of the transactions contemplated hereby constitutes a "Change in Control" as defined in the change of control agreements entered into between Safety Fund or any Safety Fund Subsidiary and certain officers as disclosed in Schedule 6.10 hereto. The provisions of this Section 6.10 are expressly intended to be for the irrevocable benefit of, and shall be enforceable by, each director, officer, employee and former employee covered hereby and his or her heirs and representatives.
6.11 DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE.
(a) CONTRACTUAL INDEMNIFICATION. In the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, administrative or criminal, including, without limitation, any such claim, action, suit, proceeding or investigation in which any Person who is now, or has been at any time prior to the date hereof, or who becomes prior to the Effective Time, a director or officer of Safety Fund or any Safety Fund Subsidiary (the
"Indemnified Parties") is, or is threatened to be, made a party, based in whole or in part on, or arising in whole or in part out of, or pertaining to, this Agreement or any of the transactions contemplated hereby, whether in any case asserted or arising before or after the Effective Time, the parties hereto agree to cooperate and use their reasonable efforts to defend against and respond to such claim, action, suit, proceedings or investigation. It is understood and agreed that from and after the Effective Time, Buyer shall indemnify and hold harmless, as and to the fullest extent permitted by applicable law, each Indemnified Party against any and all losses, claims, damages, liabilities and fines, and amounts paid in settlement, in connection with any such threatened or actual claim, action, suit, proceeding or investigation (whether asserted or arising before or after the Effective Time). In connection with any such claim, action, suit, proceeding or investigation, (x) Buyer shall pay expenses (including without limitation reasonable attorney fees) in advance of the final disposition of any such claim, suit, proceeding or investigation to each Indemnified Party to the fullest extent permitted by applicable law upon receipt of any undertaking required by applicable law, and (y) Buyer shall use all reasonable efforts to assist in the vigorous defense of any such matter; provided, however, that (1) Buyer shall have the right to assume the defense thereof and upon such assumption Buyer shall not be liable to any Indemnified Party for any legal expenses of other counsel or any other expenses subsequently incurred by any Indemnified Party in connection with the defense thereof, except that if Buyer does not assume such defense or counsel for the Indemnified Parties reasonably advises that there are issues which raise conflicts of interest between Buyer and the Indemnified Parties, the Indemnified Parties may retain counsel reasonably satisfactory to them after consultation with Buyer, and Buyer shall pay the reasonable fees and expenses of such counsel for the Indemnified Parties, (2) Buyer shall be obligated pursuant to this paragraph to pay for only one firm of counsel for all Indemnified
Parties, (3) Buyer shall not be liable for any settlement effected without its prior written consent (which consent shall not be unreasonably withheld) and (4) Buyer shall have no obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final and nonappealable, that indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law.
(b) PROCEDURAL LIMITATIONS. Any Indemnified Party wishing to claim indemnification under Section 6.11 shall, upon learning of any such claim, action, suit, proceeding or investigation, notify Buyer thereof, provided that the failure so to notify shall not affect the obligations of Buyer under Section 6.11 except to the extent such failure materially prejudices it. As a condition to receiving indemnification under Section 6.11, the party claiming indemnification shall assign, by separate writing, to Buyer all right, title and interest to and in proceeds of any insurance maintained or provided by Safety Fund or Buyer or any of their respective affiliates for the benefit of claimant, to the extent of indemnification actually received from Buyer hereunder. Any Person entitled to indemnification pursuant to Section 6.11 shall be required to cooperate in the defense and investigation of any claim as to which indemnification may be made and shall send such notices as Buyer may reasonably request under any applicable directors and officers liability or bankers blanket bond insurance coverage to preserve claims of which the claiming party is aware. No person shall be entitled to indemnification under Section 6.11 if such Person is seeking indemnification based on a claim (other than a claim arising as a supplier to, customer of or borrower from Buyer or the Buyer Subsidiaries or Safety Fund or the Safety Fund Subsidiaries) brought by such person or by an entity of which such person is a general partner, executive officer, director, trustee, beneficiary or controlling person unless such Person or entity has waived any right to participate in any damage or other award to such claiming party or other entity in any such action, suit or proceeding.
(c) CHARTER AND BY-LAWS. All rights to indemnification and all limitations of liability existing in favor of the Indemnified Parties as provided in Safety Fund's Charter and By-laws, or similar governing documents of any Safety Fund Subsidiary, as in effect as of the date hereof with respect to claims or liabilities arising from facts or events existing or occurring prior to the Effective Time shall survive the Merger and shall continue in full force and effect, without any amendment thereto, for a period of six (6) years from the Effective Time; provided, however, that all rights to indemnification in respect of any claim asserted or made within such period shall continue until the final disposition of such claim. Buyer shall indemnify, defend and hold harmless the Indemnified Parties pursuant to the rights surviving pursuant to the preceding sentence to the full extent permitted under applicable law.
(d) PURCHASE OF INSURANCE. Buyer, from and after the Effective Time, will cause the persons who served as directors or officers of Safety Fund on or before the Effective Time to be covered by Safety Fund's existing directors' and officers' liability insurance policy (provided that Buyer may substitute therefor policies of at least the same coverage and amounts containing terms and conditions which are not less advantageous than such policy) but in no event shall any insured person be entitled under this Section 6.11 to insurance coverage more favorable than that provided to him or her in such capacities at the date hereof with respect to acts or omissions resulting from their service as such on or prior to the Effective Time. Such insurance coverage shall commence on the Effective Date and will be provided for a period of no less than six years after the Effective Time; provided, however, that in no event shall Buyer be required to expend in any year more than 150% of the current per annum amount expended by Safety Fund to maintain or procure insurance coverage pursuant hereto. Safety Fund agrees to renew any such existing insurance or to purchase any "discovery period" insurance provided for thereunder at Buyer's request.
(e) SUCCESSORS OR ASSIGNS. To the extent not otherwise provided by applicable law, contract or otherwise, and to the extent necessary under the circumstances for Buyer's successors or assigns to be bound, in the event Buyer or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any Person, proper provision shall be made so that the successors and assigns of Buyer assume the obligations set forth in this Section 6.11.
(f) THIRD PARTY BENEFICIARY. The provisions of this Section 6.11 are expressly intended to be for the irrevocable benefit of, and shall be enforceable by, each director or officer covered hereby and his or her heirs and representatives.
6.12 STOCK EXCHANGE LISTING. Buyer shall apply for approval to list the shares of Buyer Common Stock to be issued in the Merger on the Stock Exchange, subject to official notice of issuance, prior to the Effective Time.
6.13 BUYER SUB. Prior to the Effective Time, Buyer will take any and all necessary action to cause (i) Buyer Sub to be organized, (ii) Buyer Sub to become a direct or indirect wholly-owned subsidiary of Buyer, (iii) the directors and stockholder or stockholders of Buyer Sub to approve the transactions contemplated by this Agreement
7.1 PROXY STATEMENT-PROSPECTUS. For the purposes (x) of registering Buyer's Common Stock to be issued to holders of Safety Fund's Common Stock in connection with the Merger with the SEC under the Securities Act and applicable state securities laws and (y) of holding the Safety Fund shareholders' meeting, Buyer and Safety Fund shall cooperate in the preparation of a registration statement (such registration statement, together with all and any amendments and supplements thereto, being herein referred to as the "Registration Statement"), including a proxy statement/prospectus or statements satisfying all applicable requirements of applicable state securities and banking laws, and of the Securities Act and the Exchange Act, and the rules and regulations thereunder (such proxy statement/prospectus in the form mailed by Safety Fund to the Safety Fund shareholders, together with any and all amendments or supplements thereto, being herein referred to as the "Proxy Statement-Prospectus"). Buyer shall file the Registration Statement with the SEC. Each of Buyer and Safety Fund shall use their best efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing, and Safety Fund shall thereafter promptly mail the Proxy Statement-Prospectus to its stockholders. Buyer shall also use its best efforts to obtain all necessary state securities law or "Blue Sky" permits and approvals required to carry out the transactions contemplated by this Agreement, and Safety Fund shall furnish all information concerning Safety Fund and the holders of Safety Fund Common Stock as may be reasonably requested in connection with any such action. Safety Fund and Buyer shall each promptly notify the other if at any time it becomes aware that the Proxy Statement-Prospectus contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. In such event, Safety Fund and Buyer shall cooperate in the preparation of a supplement or amendment to the Proxy Statement-Prospectus, which corrects such misstatement or omission, and shall cause the same to be filed with the SEC and distributed to stockholders of Safety Fund.
7.2 REGULATORY APPROVALS. Each of Safety Fund and Buyer will cooperate with the other and use all reasonable efforts to prepare all necessary documentation, to effect all necessary filings and to obtain all necessary permits, consents, approvals and authorizations of all third parties and governmental bodies necessary to consummate the transactions contemplated by this Agreement, including without limitation the Merger, the BHC Merger, and the Bank Merger. Safety Fund and Buyer will furnish each other and each other's counsel with all information concerning themselves, their subsidiaries, directors, officers and stockholders and such other matters as may be necessary or advisable in connection with the Proxy Statement-Prospectus and any application, petition or any other statement or application made by or on behalf of Safety Fund or Buyer to any governmental body in connection with the Merger, the BHC Merger, the Bank Merger, and the other transactions contemplated by this Agreement. Safety Fund and Buyer shall have the right to review and approve in advance all characterizations of the information relating to Buyer or Safety Fund, as the case may be, and any of their respective subsidiaries, which appear in any filing made in connection with the transactions contemplated by this Agreement with any governmental body. In addition, Safety Fund and Buyer shall each furnish to the other a final copy of each such filing made in connection with the transactions contemplated by this Agreement with any governmental body.
7.3 AFFILIATES; PUBLICATION OF COMBINED FINANCIAL RESULTS. (a) Each of Buyer and Safety Fund shall use all reasonable efforts to cause each director, executive officer and other person who is an "affiliate" (for purposes of Rule 145 under the Securities Act and for purposes of qualifying the Merger for "pooling of interests" accounting treatment) of such party to deliver to the other party hereto, as soon as practicable after the date of this Agreement, and prior to the date of the shareholders meeting called by Safety Fund to approve this Agreement, a written agreement, in the form of Exhibit 7.3 hereto, providing that such person will not sell, pledge, transfer or otherwise dispose of any shares of Buyer Common Stock or Safety Fund Common Stock held by such "affiliate", and, in the case of the "affiliates" of Safety Fund, the shares of Buyer Common Stock to be received by such "affiliate" in the Merger: (1) otherwise than in compliance with the applicable provisions of the Securities Act and the rules and regulations thereunder or (2) unless the parties shall have agreed that it will be impossible to obtain pooling treatment for the Merger, during the period commencing 30 days prior to the Merger and ending at the time of the publication of financial results covering at least 30 days of combined operations of Buyer and Safety Fund.
(b) Buyer shall use its best efforts to publish no later than twenty- five (25) days after the end of the first calendar quarter in which there are at least thirty (30) days of post-Merger combined operations (which calendar quarter may be the calendar quarter in which the Effective Time occurs), combined sales and net income figures as contemplated by and in accordance with the terms of SEC Accounting Series Release No. 135.
8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THIS AGREEMENT. The respective obligations of each party under this Agreement shall be subject to the fulfillment at or prior to the Effective Time of the following conditions, none of which may be waived:
(a) STOCKHOLDER APPROVAL. This Agreement and the transactions contemplated hereby shall have been approved in accordance with applicable law and Stock Exchange policy by the requisite vote of the stockholders of Safety Fund and Buyer.
(b) INJUNCTIONS. None of the parties hereto shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the transactions contemplated by this Agreement.
(c) REGULATORY APPROVALS. All necessary approvals, authorizations and consents of all governmental bodies required to consummate the transactions contemplated by this Agreement shall have been obtained and shall remain in full force and effect and all waiting periods relating to such approvals, authorizations or consents shall have expired; and no such approval, authoriza- tion or consent shall include any condition or requirement, not reasonably foreseen as of the date of this Agreement, that would, in the good faith reasonable judgment of the Board of Directors of either Buyer or Safety Fund, materially and adversely affect the business, operations, financial condition, property or assets of the combined enterprise or of Safety Fund or SFNB or otherwise materially impair the value of Safety Fund or SFNB to Buyer; provided, however, that no condition or requirement that relates primarily to regulatory matters existing at the date hereof with respect to Buyer's pre-Merger business or activities shall be deemed to affect the business, operations, financial condition, property or assets of the combined enterprise or of Safety Fund or otherwise materially impair the value of Safety Fund to Buyer.
(d) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued, and no proceedings for that purpose shall have been initiated or threatened by the SEC.
(e) STOCK EXCHANGE LISTING. The shares of Buyer Common Stock to be issued in the Merger shall have been authorized for listing on the Stock Exchange, subject to official notice of issuance.
(f) TAX OPINION. On the basis of facts, representations and assumptions which shall be consistent with the state of facts existing at the Effective Time, each of Buyer and Safety Fund shall have received an opinion of Arnold & Porter reasonably acceptable in form and substance to Buyer and Safety Fund dated as of the Closing Date, substantially to the effect that, for federal income tax purposes:
(1) The Merger, when consummated in accordance with the terms hereof, either will constitute a reorganization within the meaning of Section 368(a) of the Code or will be treated as part of a reorganization within the meaning of Section 368(a) of the Code,
(2) The exchange of Safety Fund Common Stock to the extent exchanged for Buyer Common Stock will not give rise to recognition of gain or loss for federal income tax purposes to the shareholders of Safety Fund,
(3) The basis of the Buyer Common Stock to be received (including any fractional shares deemed received for tax purposes) by a Safety Fund shareholder will be the same as the basis of the Safety Fund Common Stock surrendered pursuant to the Merger in exchange therefor, and
(4) The holding period of the shares of Buyer Common Stock to be received by a shareholder of Safety Fund will include the period during which the shareholder held the shares of Safety Fund Common Stock surrendered in exchange therefor, provided the Safety Fund Common Stock surrendered is held as a capital asset at the Effective Time.
Each of Buyer and Safety Fund shall provide Arnold & Porter with a letter setting forth the facts, assumptions and representations on which Arnold & Porter may rely in rendering its opinion.
8.2 CONDITIONS TO THE OBLIGATIONS OF BUYER UNDER THIS AGREEMENT. The obligations of Buyer under this Agreement shall be further subject to the satisfaction, at or prior to the Effective Time, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Safety Fund set forth in Article III hereof shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (or on the date when made in the case of any representation and warranty which specifically relates to an earlier date), except as otherwise contemplated by this Agreement or consented to in writing by Buyer; provided, however, that (i) in determining whether or not the condition contained in this Section 8.2 shall be satisfied, no effect shall be given to any exceptions in such representations and warranties relating to materiality or Material Adverse Effect and (ii) the condition contained in this Section 8.2 shall be deemed to be satisfied unless the failure of such representations and warranties to be so true and correct constitute, individually or in the aggregate, a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole; and Safety Fund shall have delivered to Buyer a certificate of Safety Fund to such effect signed by the Chief Executive Officer and the Chief Financial Officer of Safety Fund as of the Effective Time.
(b) AGREEMENTS AND COVENANTS. Safety Fund shall have performed in all material respects all obligations and complied in all material respects with all agreements or covenants of Safety Fund to be performed or complied with by it at or prior to the Effective Time under this Agreement and Buyer shall have received a certificate signed on behalf of Safety Fund by the Chief Executive Officer and Chief Financial Officer of Safety Fund to such effect dated as of the Effective Time.
(c) PERMITS, AUTHORIZATIONS, ETC. Safety Fund and the Safety Fund Subsidiaries shall have obtained any and all material permits, authorizations, consents, waivers, clearances or approvals required for the lawful consummation of the Merger by Safety Fund, the lawful consummation of the BHC Merger by the Surviving Corporation, and the lawful consummation of the Bank Merger by SFNB, the failure to obtain which would have a Material Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole.
(d) LEGAL OPINION. Buyer shall have received an opinion, dated the Closing Date, from Foley, Hoag & Eliot, counsel to Safety Fund as to such matters as Buyer may reasonably request with respect to the transactions contemplated hereby. In rendering any such opinion, such counsel may require and, to the extent they deem necessary or appropriate may rely upon, opinions of other counsel and upon representations made in certificates of officers of Safety Fund, Buyer, Affiliates of the foregoing, and others.
(e) ACCOUNTANTS' LETTER. Buyer shall have received a "comfort" letter from the independent certified public accountants for Safety Fund, dated (i) the effective date of the Registration Statement and (ii) the Closing Date, with respect to certain financial information regarding Safety Fund, each in form and substance which is customary in transactions of the nature contemplated by this Agreement.
Safety Fund will furnish Buyer with such certificates of its officers or others and such other documents to evidence fulfillment of the conditions set forth in this Section 8.2 as Buyer may reasonably request.
8.3 CONDITIONS TO THE OBLIGATIONS OF SAFETY FUND UNDER THIS AGREEMENT. The obliga tions of Safety Fund under this Agreement shall be further subject to the satisfaction, at or prior to the Effective Time, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Buyer set forth in Article III hereof shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (or on the date when made in the case of any representation and warranty which specifically relates to an earlier date), except as otherwise contemplated by this Agreement or consented to in writing by Safety Fund; provided, however, that (i) in determining whether or not the condition contained in this Section 8.3(a) shall be satisfied, no effect shall be given to any exceptions in such representations and warranties relating to materiality or Material Adverse Effect and (ii) the condition contained in this Section 8.3(a) shall be deemed to be satisfied unless the failure of such representations and warranties to be so true and correct constitute, individually or in the aggregate, a Material Adverse Effect on Buyer; and Buyer shall have delivered to Safety Fund a certificate of Buyer to such effect signed by the Chief Executive Officer and the Chief Financial Officer of Buyer as of the Effective Time;
(b) AGREEMENTS AND COVENANTS. Buyer shall have performed in all material respects all obligations and complied in all material respects with all agreements or covenants of Buyer to be performed or complied with by it at or prior to the Effective Time under this Agreement and Safety Fund shall have received a certificate signed on behalf of Buyer by the Chief Executive Officer and Chief Financial Officer of Buyer to such effect dated as of the Effective Time.
(c) PERMITS, AUTHORIZATIONS, ETC. Buyer and its subsidiaries shall have obtained any and all material permits, authorizations, consents, waivers, clearances or approvals required for the lawful consummation of the Merger and the Bank Merger by Buyer, the failure to obtain which would have a Material Adverse Effect on Buyer and its subsidiaries, taken as a whole.
(d) LEGAL OPINION. Safety Fund shall have received an opinion from Devine, Millimet & Branch, counsel to Buyer, dated the Closing Date, as to such matters as Safety Fund may reasonably request with respect to the transactions contemplated hereby. In rendering any such opinion, such counsel may require and, to the extent they deem necessary or appropriate may rely upon, opinions of other counsel and upon representations made in certificates of officers of Buyer, Safety Fund, Affiliates of the foregoing, and others.
Buyer will furnish Safety Fund with such certificates of its officers or others and such other documents to evidence fulfillment of the conditions set forth in this Section 8.3 as Safety Fund may reasonably request.
9.1 TIME AND PLACE. Subject to the provisions of Articles VIII and X hereof, the Closing of the transactions contemplated hereby shall take place at the offices of Foley, Hoag & Eliot, One Post Office Square, Boston, Massachusetts at 10:00 a.m. on a date specified by Buyer at least three business days prior to such date. The Closing Date shall be as soon as practicable after the last required approval for the Merger, the BHC Merger and the Bank Merger has been obtained and the last of all required waiting periods under such approvals have expired, or at such other place, date or time as Buyer and Safety Fund may mutually agree upon.
9.2 DELIVERIES AT THE CLOSING. At the Closing there shall be delivered to Buyer and Safety Fund the opinions, certificates, and other documents and instruments required to be delivered under Article VII hereof.
10.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the Merger by the stockholders of Safety Fund:
(a) At any time by the mutual written agreement of Buyer and Safety
(b) By either Safety Fund or Buyer (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein), if there has been a material breach on the part of the other party of any representation, warranty or agreement contained herein which cannot be or has not been cured within 30 days after written notice by the Buyer to Safety Fund (or by Safety Fund to Buyer) of such breach;
(c) At the election of either Buyer or Safety Fund, if the Closing shall not have occurred on or before January 5, 1997 (the "Termination Date"), or such later date as shall have been agreed to in writing by Buyer and Safety Fund; provided, that no party may terminate this Agreement pursuant to this Section 10.1 if the failure of the Closing to have occurred on or before said date was due to such party's breach of any of its obligations under this Agreement, and provided, further, that the Termination Date may be extended until April 5, 1997 by either party by written notice to the other party (given not later than December 5, 1996) if the Closing shall not have occurred because of failure to have obtained approval from one or more regulatory authorities whose approval is required in connection with this Agreement and the transactions contemplated hereby under circumstances in which neither party has the right to terminate this Agreement pursuant to Section 10.1 hereof;
(d) By either Safety Fund or Buyer if the stockholders of Safety Fund or Buyer shall have voted at the Annual or Special Meeting on the transactions contemplated by this Agreement and such vote shall not have been sufficient to
(e) By either Safety Fund or Buyer if final action has been taken by a regulatory authority whose approval is required in connection with this Agreement and the transactions contemplated hereby, which final action (i) has become unappealable and (ii) does not approve this Agreement or the transactions
(f) By Safety Fund, in accordance with the provisions of Section 2.12 hereof.
10.2 EFFECT OF TERMINATION. (a) In the event of termination of this Agreement pursuant to any provision of Section 10.1, this Agreement shall forthwith become void and have no further force, except that (i) the provisions of Sections 10.3, 11.1, 12.1, 12.6, 12.9, and 12.10 (and of this Section 10.2) shall survive such termination of this Agreement and remain in full force and effect and (ii) notwithstanding anything to the contrary contained in this Agreement, each party shall remain liable (in an action at law or otherwise) for any liabilities or damages arising out of its gross negligence or its wilful breach of any provision of this Agreement.
(b) If this Agreement is terminated, expenses of the parties hereto shall be determined as follows:
(1) Any termination of this Agreement pursuant to Sections 10.1, (a), 10.1(c), 10.1(d), 10.1(e), or 10.1(f) hereof (other than as a result of a wilful breach or gross negligence by a party hereto) shall be without cost or expense on the part of any party to the other; and
(2) In the event of a termination of this Agreement pursuant to Section 10.1(b) hereof as a result of a breach of a representation, warranty or covenant which is caused by the wilful conduct or gross negligence of a party, such party shall (while remaining liable for any liabilities or damages arising out of such wilful breach or gross negligence) be obligated to reimburse the other party for all out-of-pocket costs and expenses, including, without limitation, reasonable legal, accounting and investment banking fees and expenses, incurred by such other party in connection with the entering into of this Agreement and the carrying out of any and all acts contemplated hereunder (collectively referred to as "Expenses").
(c) The payment of Expenses is not an exclusive remedy, but is in addition to any other rights or remedies available to the parties hereto at law or in equity and notwithstanding anything to the contrary contained herein, no party shall be relieved or released from any liabilities or damages arising out of its gross negligence or wilful breach of any provision of this Agreement.
(d) In no event shall any officer, agent or director of Safety Fund, any Safety Fund Subsidiary, Buyer or any Buyer subsidiary, be personally liable thereunder for any default by any party in any of its obligations hereunder unless any such default was intentionally caused by such officer, agent or director.
10.3 EXPENSES. Except as provided in Section 10.2 hereof, whether or not the Merger is consummated, all Expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the party incurring such costs and expenses, provided, however, that the Expenses of printing and mailing the Proxy Statement-Prospectus and all filings with the SEC in connection therewith shall be shared by Buyer and by Safety Fund in accordance with the procedures set forth in Schedule 10.3 hereto, provided, further, however, that nothing contained herein shall limit either party's rights under Section 10.2 hereof, including but not limited to the right to recover any liability or damages arising out of the other party's gross negligence or wilful breach of this Agreement.
10.4 AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law, at any time prior to the Effective Time (whether before or after approval thereof by the stockholders of Safety Fund), the parties hereto may (a) amend this Agreement, (b) extend the time for the performance of any of the obligations or other acts of any other party hereto, (c) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, or (d) waive compliance with any of the agreements or conditions contained herein; provided, however, that after any approval of this Agreement and the transactions contemplated hereby by the stockholders of Safety Fund, there may not be, without further approval of such stockholders, any amendment of this Agreement which reduces the amount or changes the form of consideration to be delivered to Safety Fund's stockholders pursuant to this Agreement. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Any agreement on the part of a party hereto to any extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party, but such waiver or failure to insist on strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
11.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms have the following meanings (unless the context otherwise requires, both here and throughout this Agreement, references to Articles and Sections refer to Articles and Sections of this Agreement).
(a) "AFFILIATE" of a specified Person shall mean a Person who directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, such specified Person, including, without limitation, any partnership or joint venture in which a Person (either alone, or through or together with any subsidiary) has, directly or indirectly, an interest of 5% or more.
(b) "ENVIRONMENTAL LAWS" shall mean any federal, state or local law relating to (A) releases or threatened releases of Hazardous Substances or materials containing Hazardous Substances, (B) the manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances, or (C) otherwise relating to pollution of the environment.
(c) "ENVIRONMENTAL PERMITS" means all permits, licenses and other authorizations referred to under any Environmental Law.
(d) "HAZARDOUS SUBSTANCES" means (A) those substances defined in or regulated under the Comprehensive Environmental Response, Compensation and Liability Act, and its state counterparts, as each may be amended from time to time, and all regulations thereunder, (B) petroleum and petroleum products including crude oil and any fractions thereof, (C) natural gas, synthetic gas, and any mixtures thereof, (D) radon, (E) any other contaminant, and (F) any substance with respect to which a federal, state or local agency requires environmental investigation, monitoring, reporting or remediation.
(e) "MATERIAL ADVERSE EFFECT", when used with respect to any Person, shall mean a material adverse effect on the financial condition, business, or results of operations of such Person; provided, however, that the following matters shall not constitute or contribute to a Material Adverse Effect: (i) changes in the financial condition, business, or results of operations of a person resulting directly or indirectly from (x) changes in interest rates (provided that Safety Fund is in compliance with its asset/liability management policy as disclosed to Buyer prior to the date of this Agreement, as the same may be revised thereafter with Buyer's concurrence) or (y) changes in regulations or legislation affecting Massachusetts banks; or (ii) matters related to changes in federal, state or local tax laws or changes in federal, state or local tax status, characteristics, or attributes or the ability to use such attributes.
(f) "PERSON" shall mean any individual, corporation, partnership, joint venture, association, trust, unincorporated organization or government or any agency or political subdivision thereof.
(g) "SUBSIDIARY" or "SUBSIDIARY" of any Person shall mean an Affiliate controlled by such Person, directly or indirectly, through one or more intermediaries, except as otherwise defined herein.
12.1 CONFIDENTIALITY. Except as specifically set forth herein, Buyer and Safety Fund mutually agree to be bound by the terms of the Confidentiality Agreement previously executed by the parties hereto, which Agreement is hereby incorporated herein by reference. The parties hereto agree that such Confidentiality Agreement shall continue in accordance with its respective terms, notwithstanding the termination of this Agreement.
12.2 PUBLIC ANNOUNCEMENTS. Safety Fund and Buyer shall cooperate with each other in the development and distribution of all news releases and other public information disclosures with respect to this Agreement or any of the transactions contemplated hereby, except as may be otherwise required by law, and neither Safety Fund nor Buyer shall issue any joint news releases with respect to this Agreement or any of the transactions contemplated hereby, unless releases have been mutually agreed upon by the parties hereto.
12.3 SURVIVAL. All representations, warranties and covenants in this Agreement or in any instrument delivered pursuant hereto or thereto shall expire on, and be terminated and extinguished at, the Effective Date other than covenants that by their terms are to survive or be performed after the Effective Date.
12.4 NOTICES. All notices or other communications hereunder shall be in writing and shall be deemed given if delivered by receipted hand delivery or mailed by prepaid registered or certified mail (return receipt requested) or by cable, telegram, telex or telecopy addressed as follows:
If to Safety Fund, to:
or such other address as shall be furnished in writing by any party, and any such notice or communication shall be deemed to have been given as of the date so mailed.
12.5 PARTIES IN INTEREST. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto without the prior written consent of the other party, and that (except as otherwise expressly provided in this Agreement) nothing in this Agreement is intended to confer upon any other Person any rights or remedies under or by reason of this Agreement.
12.6 COMPLETE AGREEMENT. This Agreement and the Option Agreement, including the Exhibits and Schedules hereto and the documents and other writings referred to herein or therein or delivered pursuant hereto or thereto, contains the entire agreement and understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties other than those expressly set forth herein or therein. This Agreement supersedes all prior agreements and understandings (other than the Confidentiality Agreement referred to in Section 12.1 hereof) between the parties, both written and oral, with respect to its subject matter.
12.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts all of which shall be considered one and the same agreement and each of which shall be deemed an original.
12.8 SEVERABILITY. In the event that any one or more provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, by any court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement and the parties shall use their reasonable efforts to substitute a valid, legal and enforceable provision which, insofar as practical, implements the purposes and intents of this Agreement.
12.9 GOVERNING LAW. This Agreement shall be governed by the laws of Massachusetts, without giving effect to its principles of conflicts of laws.
12.10 HEADINGS. The Article and Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
* * * * *
IN WITNESS WHEREOF, Buyer and Safety Fund have caused this Agreement to be executed under seal by their duly authorized officers as of the date first set forth above.
[SEAL] By:/s/ Peter J. Baxter
[SEAL] By:/s/ Christopher W. Bramley
[SEAL] By:/s/ Martin F. Connors, Jr. Martin F. Connors, Jr.
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8-K
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EX-2.A
| 1996-01-12T00:00:00
| 1996-01-12T16:40:45
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0000823535-96-000006
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0000823535-96-000006_0008.txt
|
FIDELITY MANAGEMENT & RESEARCH COMPANY AGREEMENT made this 1st day of 19 , by and between Fidelity Boston Street Trust, a Massachsuetts business trust which may issue one or more series of shares of beneficial interest (hereinafter called the "Fund"), on behalf of Fidelity Target Timeline 2001 (hereinafter called the "Portfolio"), and Fidelity Management & Research Company, a Massachusetts corporation (hereinafter called the "Adviser") as set forth in its entirety below. 1. (a) Investment Advisory Services. The Adviser undertakes to act as investment adviser of the Portfolio and shall, subject to the supervision of the Fund's Board of Trustees, direct the investments of the Portfolio in accordance with the investment objective, policies and limitations as provided in the Portfolio's Prospectus or other governing instruments, as amended from time to time, the Investment Company Act of 1940 and rules thereunder, as amended from time to time (the "1940 Act"), and such other limitations as the Portfolio may impose by notice in writing to the Adviser. The Adviser shall also furnish for the use of the Portfolio office space and all necessary office facilities, equipment and personnel for servicing the investments of the Portfolio; and shall pay the salaries and fees of all officers of the Fund, of all Trustees of the Fund who are "interested persons" of the Fund or of the Adviser and of all personnel of the Fund or the Adviser performing services relating to research, statistical and investment activities. The Adviser is authorized, in its discretion and without prior consultation with the Portfolio, to buy, sell, lend and otherwise trade in any stocks, bonds and other securities and investment instruments on behalf of the Portfolio. The investment policies and all other actions of the Portfolio are and shall at all times be subject to the control and direction of the Fund's Board of Trustees. (b) Management Services. The Adviser shall perform (or arrange for the performance by its affiliates of) the management and administrative services necessary for the operation of the Fund. The Adviser shall, subject to the supervision of the Board of Trustees, perform various services for the Portfolio, including but not limited to: (i) providing the Portfolio with office space, equipment and facilities (which may be its own) for maintaining its organization; (ii) on behalf of the Portfolio, supervising relations with, and monitoring the performance of, custodians, depositories, transfer and pricing agents, accountants, attorneys, underwriters, brokers and dealers, insurers and other persons in any capacity deemed to be necessary or desirable; (iii) preparing all general shareholder communications, including shareholder reports; (iv) conducting shareholder relations; (v) maintaining the Fund's existence and its records; (vi) during such times as shares are publicly offered, maintaining the registration and qualification of the Portfolio's shares under federal and state law; and (vii) investigating the development of and developing and implementing, if appropriate, management and shareholder services designed to enhance the value or convenience of the Portfolio as an investment vehicle. The Adviser shall also furnish such reports, evaluations, information or analyses to the Fund as the Fund's Board of Trustees may request from time to time or as the Adviser may deem to be desirable. The Adviser shall make recommendations to the Fund's Board of Trustees with respect to Fund policies, and shall carry out such policies as are adopted by the Trustees. The Adviser shall, subject to review by the Board of Trustees, furnish such other services as the Adviser shall from time to time determine to be necessary or useful to perform its obligations under this Contract. (c) The Adviser shall place all orders for the purchase and sale of portfolio securities for the Portfolio's account with brokers or dealers selected by the Adviser, which may include brokers or dealers affiliated with the Adviser. The Adviser shall use its best efforts to seek to execute portfolio transactions at prices which are advantageous to the Portfolio and at commission rates which are reasonable in relation to the benefits received. In selecting brokers or dealers qualified to execute a particular transaction, brokers or dealers may be selected who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to the Portfolio and/or the other accounts over which the Adviser or its affiliates exercise investment discretion. The Adviser is authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Portfolio which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the Adviser determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities which the Adviser and its affiliates have with respect to accounts over which they exercise investment discretion. The Trustees of the Fund shall periodically review the commissions paid by the Portfolio to determine if the commissions paid over representative periods of time were reasonable in relation to the benefits to the Portfolio. The Adviser shall, in acting hereunder, be an independent contractor. The Adviser shall not be an agent of the Portfolio. 2. It is understood that the Trustees, officers and shareholders of the Fund are or may be or become interested in the Adviser as directors, officers or otherwise and that directors, officers and stockholders of the Adviser are or may be or become similarly interested in the Fund, and that the Adviser may be or become interested in the Fund as a shareholder or otherwise. 3. The Adviser will be compensated on the following basis for the services and facilities to be furnished hereunder. The Adviser shall receive a monthly management fee, payable monthly as soon as practicable after the last day of each month, composed of a Group Fee and an Individual Fund Fee. (a) Group Fee Rate. The Group Fee Rate shall be based upon the monthly average of the net assets of the registered investment companies having Advisory and Service or Management Contracts with the Adviser (computed in the manner set forth in the fund's Declaration of Trust or other organizational document) determined as of the close of business on each business day throughout the month. The Group Fee Rate shall be determined on a cumulative basis pursuant to the following schedule: Average Net Assets Annualized Fee Rate (for each level)
0 - $ 3 billion .3700%
(b) Individual Fund Fee Rate. The Individual Fund Fee Rate shall be .30%. The sum of the Group Fee Rate, calculated as described above to the nearest millionth, and the Individual Fund Fee Rate shall constitute the Annual Management Fee Rate. One-twelfth of the Annual Management Fee Rate shall be applied to the average of the net assets of the Portfolio (computed in the manner set forth in the Fund's Declaration of Trust or other organizational document) determined as of the close of business on each business day throughout the month. (c) In case of termination of this Contract during any month, the fee for that month shall be reduced proportionately on the basis of the number of business days during which it is in effect, and the fee computed upon the average net assets for the business days it is so in effect for that month. 4. It is understood that the Portfolio will pay all its expenses, which expenses payable by the Portfolio shall include, without limitation, (i) interest and taxes; (ii) brokerage commissions and other costs in connection with the purchase or sale of securities and other investment instruments; (iii) fees and expenses of the Fund's Trustees other than those who are "interested persons" of the Fund or the Adviser; (iv) legal and audit expenses; (v) custodian, registrar and transfer agent fees and expenses; (vi) fees and expenses related to the registration and qualification of the Fund and the Portfolio's shares for distribution under state and federal securities laws; (vii) expenses of printing and mailing reports and notices and proxy material to shareholders of the Portfolio; (viii) all other expenses incidental to holding meetings of the Portfolio's shareholders, including proxy solicitations therefor; (ix) a pro rata share, based on relative net assets of the Portfolio and other registered investment companies having Advisory and Service or Management Contracts with the Adviser, of 50% of insurance premiums for fidelity and other coverage; (x) its proportionate share of association membership dues; (xi) expenses of typesetting for printing Prospectuses and Statements of Additional Information and supplements thereto; (xii) expenses of printing and mailing Prospectuses and Statements of Additional Information and supplements thereto sent to existing shareholders; and (xiii) such non-recurring or extraordinary expenses as may arise, including those relating to actions, suits or proceedings to which the Portfolio is a party and the legal obligation which the Portfolio may have to indemnify the Fund's Trustees and officers with respect thereto. 5. The services of the Adviser to the Portfolio are not to be deemed exclusive, the Adviser being free to render services to others and engage in other activities, provided, however, that such other services and activities do not, during the term of this Contract, interfere, in a material manner, with the Adviser's ability to meet all of its obligations with respect to rendering services to the Portfolio hereunder. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of the Adviser, the Adviser shall not be subject to liability to the Portfolio or to any shareholder of the Portfolio for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security or other investment instrument. 6. (a) Subject to prior termination as provided in sub-paragraph (d) of this paragraph 6, this Contract shall continue in force until June 30, 1996 and indefinitely thereafter, but only so long as the continuance after such date shall be specifically approved at least annually by vote of the Trustees of the Fund or by vote of a majority of the outstanding voting securities of the Portfolio. (b) This Contract may be modified by mutual consent, such consent on the part of the Fund to be authorized by vote of a majority of the outstanding voting securities of the Portfolio. (c) In addition to the requirements of sub-paragraphs (a) and (b) of this paragraph 6, the terms of any continuance or modification of this Contract must have been approved by the vote of a majority of those Trustees of the Fund who are not parties to the Contract or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. (d) Either party hereto may, at any time on sixty (60) days' prior written notice to the other, terminate this Contract, without payment of any penalty, by action of its Trustees or Board of Directors, as the case may be, or with respect to the Portfolio by vote of a majority of the outstanding voting securities of the Portfolio. This Contract shall terminate automatically in the event of its assignment. 7. The Adviser is hereby expressly put on notice of the limitation of shareholder liability as set forth in the Fund's Declaration of Trust or other organizational document and agrees that the obligations assumed by the Fund pursuant to this Contract shall be limited in all cases to the Portfolio and its assets, and the Adviser shall not seek satisfaction of any such obligation from the shareholders or any shareholder of the Portfolio or any other Portfolios of the Fund. In addition, the Adviser shall not seek satisfaction of any such obligations from the Trustees or any individual Trustee. The Adviser understands that the rights and obligations of any Portfolio under the Declaration of Trust or other organizational document are separate and distinct from those of any and all other Portfolios. 8. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts, without giving effect to the choice of laws provisions thereof.
The terms "vote of a majority of the outstanding voting securities," "assignment," and "interested persons," when used herein, shall have the respective meanings specified in the 1940 Act, as now in effect or as hereafter amended, and subject to such orders as may be granted by the Securities and Exchange Commission. IN WITNESS WHEREOF the parties have caused this instrument to be signed in their behalf by their respective officers thereunto duly authorized, and their respective seals to be hereunto affixed, all as of the date written above. on behalf of Fidelity Target Timeline 2001 FIDELITY MANAGEMENT & RESEARCH COMPANY
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485BPOS
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EX-99.B5B
| 1996-01-12T00:00:00
| 1996-01-12T16:08:42
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0000040570-96-000002
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0000040570-96-000002_0000.txt
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INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a) of the Securities Act of 1934 (Amendment No. )
[X] Filed by the Registrant [ ] Filed by a party other than the Registrant
[ ] Confidential, for Use of the Commission Only (as permitted [ ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(I), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a- 6(i)(4) and 0-11. (1) Title of each class of securities to which transaction (2) Aggregate number of securities to which transaction [3] Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): [4] Proposed maximum aggregate value of transaction:___________
[ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (2) Form, Schedule or Registration Statement:_______________________
NOTICE OF 1996 ANNUAL MEETING
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of General Employment Enterprises, Inc. will be held at the Company's Corporate Headquarters located in Suite 2100, Oakbrook Terrace Tower, One Tower Lane, Oakbrook Terrace, Illinois 60181 on Monday, February 26, 1996, at 10:00 a.m., local time, for the following purposes:
1. To elect seven directors of the Company;
2. To consider and vote upon a proposal to amend the Company's Articles of Incorporation to increase the number of authorized Common Shares from 5 million to 20 million shares; and
3. To act upon such other matters as may properly be brought before the meeting.
Shareholders of record at the close of business on December 29, 1995 will be entitled to vote at the meeting.
By Order of the Board of Directors
Even if you plan to attend the annual meeting, you are urged to sign, date and promptly return your proxy in the postage paid envelope that is enclosed, so that your shares may be voted in accordance with your wishes. If you attend the meeting, you may vote your shares in person, even though you have previously signed and returned your proxy.
Suite 2100, Oakbrook Terrace Tower
For Annual Meeting of Shareholders
This statement and the accompanying proxy card, which are first being sent to shareholders on approximately January 25, 1996, are being furnished in connection with a solicitation of proxies by the Board of Directors of General Employment Enterprises, Inc. (the "Company"), an Illinois corporation, to be voted at the Annual Meeting of Shareholders to be held on Monday, February 26, 1996, at 10:00 a.m., local time, at the Company's Corporate Headquarters located in Suite 2100, Oakbrook Terrace Tower, One Tower Lane, Oakbrook Terrace, Illinois 60181.
The only voting securities of the Company entitled to be voted at the Annual Meeting are the Common Shares, of which there were 2,195,985 outstanding on December 29, 1995, the record date for the Annual Meeting. Shareholders are entitled to one vote for each share held except that, in elections for directors, each shareholder has cumulative voting rights. When voting cumulatively, each shareholder has the number of votes equal to the number of directors to be elected (seven) multiplied by the number of his or her shares. Such number of votes may be divided equally among all nominees, may be cumulated for one nominee, or may be distributed on any basis among as many nominees as is desired.
Each proxy that is properly signed and received prior to the annual meeting will, unless such proxy has been revoked, be voted in accordance with the instructions on such proxy. If no instruction is indicated, the shares will be voted for election of the seven nominees for director listed in this proxy statement and for approval of the Amendment to the Articles of Incorporation to increase the authorized Common Shares. Proxies given may be revoked at any time prior to the voting thereof by delivering to the Company a written statement revoking the proxy or a subsequently dated proxy, or by attending the meeting and voting in person.
A quorum of shareholders is necessary to take action at the annual meeting. A majority of the total outstanding Common Shares of the corporation, represented in person or by proxy, will constitute a quorum for purposes of the meeting. Abstentions will be treated as Common Shares that are present and entitled to vote for purposes of determining the presence of a quorum. If a proxy submitted by a broker for shares beneficially owned by other persons indicates that all or a portion of the shares represented by such proxy are not being voted (because the broker does not have discretionary authority to vote shares with respect to a particular matter in the absence of instructions from the beneficial owner of such shares), those shares will not be counted in determining whether a quorum is present and will not be considered present and entitled to vote with respect to that matter.
The nominees for director who receive a plurality vote shall be elected directors of the Company. The vote required for the approval of the amendment to the Articles of Incorporation is the affirmative vote of a majority of the outstanding Common Shares of the corporation, present in person or represented by proxy at the annual meeting. For purposes of determining the approval of the matters submitted to the stockholders for a vote, abstentions will have no effect on the vote for the election of directors and will be treated as voted against approval of the amendment of the Articles of Incorporation.
Proposal 1 _ ELECTION OF DIRECTORS
Seven directors are to be elected at the annual meeting, to serve until the 1997 annual meeting of shareholders, or until their successors are elected and qualified. Proxies will be voted, unless otherwise indicated, for the election of the nominees named below. If necessary to elect the nominees named below, proxies will be voted cumulatively.
The following information is furnished with respect to each nominee for election as a director:
HERBERT F. IMHOFF, age 69, has been Chairman of the Board since 1968 and President of the Company since 1964.
HOWARD S. WILCOX, age 75, is a management consultant. Mr. Wilcox was formerly owner of Howard S. Wilcox, Inc., a public relations firm, from 1966 to 1986. Mr. Wilcox was elected to the Board in 1974.
WALTER T. KERWIN, JR., age 78, is a former Vice Chief of Staff of the U.S. Army. He has served as a consultant to the Army, the Department of Defense and private industry since 1978. He joined the Board in 1984.
HERBERT F. IMHOFF, JR., age 46, has been Executive Vice President since February 1986 and General Counsel since January 1982. Mr. Imhoff, Jr. has been a member of the Board since 1986.
LEONARD CHAVIN, age 64, has operated a real estate management and development business for more than 10 years. He was elected to the Board in 1991.
SHELDON BROTTMAN, age 61, has been President and CEO of Jemm Wholesale Meat Co., a food processing business, since May 1989. For more than 10 years prior to that he was, and continues to be, an attorney and real estate developer. Mr. Brottman was elected to the Board in 1991.
DELAIN G. DANEHEY, age 61, was with the accounting firm of Ernst & Young LLP for 31 years, and was a partner when he retired from the firm in 1991. Mr. Danehey joined the Company's Board in May of 1995.
All of the foregoing nominees are currently serving as directors of the Company and all, with the exception of Mr. Danehey, were elected by the shareholders at the last Annual Meeting. Each of the above-named nominees has agreed to serve if elected.
On December 30, 1994, in the United States Bankruptcy Court, Northern District of Illinois, an Involuntary Petition for Bankruptcy under Chapter 7 was filed against Mr. Chavin by three creditors. On December 31, 1993, LC & CP Corporation of Wisconsin, and LP & CC Corporation of Illinois, were adjudicated bankrupt. Mr. Chavin was an executive officer and major shareholder of these corporations.
Information Concerning the Board of Directors and its Committees
The Board of Directors meets on a regularly scheduled basis during its fiscal year to review significant developments affecting the Company and to act on matters requiring Board approval. It also holds special meetings when an important matter requires Board action between scheduled meetings. The Board held five regularly scheduled meetings during the last fiscal year, and all of the directors were in attendance at each of the meetings.
The Board of Directors has an Executive Committee consisting of Herbert F. Imhoff, Howard S. Wilcox and Walter T. Kerwin, Jr., plus Herbert F. Imhoff, Jr. as an alternate member to serve in the absence of Herbert F. Imhoff, the committee's chairman. The committee is empowered to act upon all matters requiring the approval of the Board of Directors except for corporate reorganizations, decisions regarding mergers and acquisitions and those matters reserved to the full Board by the Illinois Business Corporation Act, such as the declaration of dividends. No Executive Committee Meetings were held in fiscal 1995.
The Audit Committee, which is comprised of all Members of the Board, meeting as a committee of the whole, is primarily concerned with the effectiveness of the Company's accounting policies and practices, its financial reporting and with the review of internal policies and practices. Specifically, the Audit Committee reviews and approves the scope of the annual audit of the Company's books, reviews the findings and recommendations of the independent auditors at the completion of their audit, and approves annual audit fees and the selection of an auditing firm. The Audit Committee met once during fiscal 1995.
The Board has a Stock Option Committee which is comprised of all non-employee Directors. The function of this committee is to oversee the administration of the Company's Incentive Stock Option Plans. The Stock Option Committee has the power to determine from time to time the individuals to whom options shall be granted, the number of shares to be covered by each option and the time or times at which options shall be granted. The Stock Option Committee met twice during fiscal 1995.
The Board of Directors does not have a standing Nominating Committee.
The By-Laws of the Company establish procedures for the nomination of candidates for election to the Board of Directors. The By-Laws provide that nominations may be made by the Board of Directors or by a committee appointed by the Board of Directors. Any shareholder entitled to vote in the election of directors generally may make nominations for the election of directors to be held at an annual meeting of shareholders, provided that such shareholder has given actual written notice of his intent to make such nomination or nominations to the secretary of the Company not later than sixty days prior to the anniversary date of the immediately preceding annual meeting of shareholders. Each such notice shall set forth (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings involving any two or more of the shareholders, each such nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder or relating to the corporation or its securities or to such nominee's service as a director if elected; (d) such other information regarding such nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each nominee to serve as a director of the Company, if so elected.
Security Ownership of Certain Beneficial Owners and Management
Listed in the following table is information concerning persons known to the Company to be beneficial owners of more than five percent of the Company's outstanding Common Stock as of December 29, 1995:
Title of Name and Address Amount and Nature of Percent Class of Beneficial Owner Beneficial Ownership* of Class
Common Herbert F. Imhoff 710,001(1) 31.76 One Tower Lane, Suite 2100
Common Marlene Chavin 202,227(2) 9.21
*Unless noted otherwise, the named individuals have sole voting and dispositive power over the shares listed.
(1) Includes 39,675 option shares exercisable by Mr. Imhoff within 60 days of record date.
(2) According to Schedule 13D, dated August 9, 1993, and filed with the Securities and Exchange Commission. Amount has been adjusted to reflect 15% stock dividends paid to shareholders on November 16, 1994 and November 3, 1995.
The following information is furnished as of December 29, 1995, to indicate beneficial ownership by each director and each named executive officer, individually, and all executive officers and directors as a group:
Title of Name and Address Amount and Nature of Percent Class of Beneficial Owner Beneficial Ownership* of Class
Common Herbert F. Imhoff 710,001(1) 31.76 One Tower Lane, Suite 2100
Common Herbert F. Imhoff, Jr. 30,580(2) 1.38 One Tower Lane, Suite 2100
Common Leonard Chavin 0 --
Common Sheldon Brottman 38,484(3) 1.74
Common Howard S. Wilcox 24,610 1.12
Common Walter T. Kerwin, Jr. 21,582 **
Common Delain G. Danehey 17,250(4) **
All directors and executive officers 877,413(5) 37.68 as a group (ten in number)
*Unless noted otherwise, the named individuals have sole voting and dispositive power over the shares listed.
(1) Includes 39,675 option shares exercisable by Mr. Imhoff within 60 days of record date. Mr. Imhoff is the father of Mr. Herbert F. Imhoff, Jr.
(2) Includes 434 shares held in custodial accounts for the benefit of Mr. Imhoff, Jr.'s children and 26,450 option shares exercisable by Mr. Imhoff, Jr. within 60 days of record date. Mr. Imhoff, Jr. is the son of Mr. Herbert F. Imhoff.
(3) Includes options to purchase 19,837 shares within 60 days of record date.
(4) Options to purchase 17,250 shares within 60 days of record date.
(5) Includes 434 shares held in custodial accounts for the benefit of Mr. Imhoff, Jr.'s children and 121,324 option shares exercisable by members of the group within 60 days of record date.
On September 27, 1991 the Company and Leonard Chavin entered into a Settlement Agreement to resolve certain litigation and other issues. Insofar as it is still in effect, Mr. Chavin (and, subsequently, in certain respects, his former wife, Marlene Chavin) (a) agreed not to sue the Company or its agents based on facts existing or occurring prior to September 27, 1991, (b) agreed not to acquire additional securities of the Company during the term of the Agreement or to encourage others to do so, (c) granted the Company a right of first refusal to purchase his common shares of the Company and (d) agreed not to solicit proxies in opposition to the recommendation of the Company's Board of Directors and agreed to vote his shares in accordance with the Board's recommendation for so long as Mr. Chavin and one other person designated by him are included in the slate of nominees for directors recommended by the Board to shareholders for election as directors.
In the Settlement Agreement, the Company agreed (a) to notify Mr. Chavin in advance of an annual meeting of shareholders if Mr. Chavin and his designee are not to be included on the Board's recommended slate of nominees, and (b) to include Mr. Chavin and his designee on the slate of nominees for directors under certain circumstances in the event the Company reincorporates in Delaware and Mr. Chavin and his nominee are members of the Company's Board on the date such reincorporation is approved. The covenants and agreements of the Settlement Agreement will continue in full force and effect for so long as Mr. Chavin remains a member of the Company's Board of Directors or until three years from the date Mr. Chavin's Amended Complaint in his lawsuit was dismissed with prejudice (which date was July 29, 1992), whichever period is longer.
In connection with the 1996 Annual Meeting, Mr. Chavin has designated himself and Mr. Brottman for inclusion in the slate of nominees pursuant to the Settlement Agreement.
The following table sets forth certain information regarding compensation awarded, earned or paid during each of the Company's last three fiscal years to the Company's Chief Executive Officer and one other executive officer.
Name and Compensation - All Other(1) Principal Position Year Salary Bonus Compensation
Herbert F. Imhoff 1995 $225,061 $195,349 $1,875 Chairman and 1994 204,601 81,412 2,514 President 1993 193,751 -- 2,422
Imhoff, Jr. 1995 $127,250 $110,451 $1,983 Executive Vice 1994 115,682 45,994 1,446 President 1993 102,273 -- 1,278
(1) Amounts represent the Company's contribution to the Company's 401(k) Incentive Savings Plan.
The following table provides information related to the number and value of options held at fiscal year end for each of the named executive officers. All options held by these officers at fiscal year end were exercisable.
Fiscal Year End Option Values
Name at F/Y End(1) at F/Y End(2)
Herbert F. Imhoff 39,675 $199,962 Herbert F. Imhoff, Jr. 26,450 133,308
(1) Number of shares adjusted to reflect 15% stock dividend paid on November 3, 1995. (2) Represents the spread between $6.74, the closing price of the Company's Common Stock on the American Stock Exchange on September 29, 1995 (adjusted for a 15% stock dividend) and the option price per share of $1.70 multiplied by the number of unexercised options.
During the last fiscal year directors who are not full-time employees of the Company were compensated at the rate of $1,250 per month. Compensation for non-employee Executive Committee Members is $1,000 per meeting; however, no Executive Committee Meetings were held in fiscal 1995. Since Audit Committee and Stock Option Committee meetings are held in conjunction with regular Board Meetings, Committee Members receive no additional fee for serving on the Audit Committee or the Stock Option Committee. The Audit Committee met once during fiscal 1995, and there were two meetings of the Stock Option Committee held during fiscal 1995.
The Company has agreed to provide Herbert F. Imhoff with a retirement benefit of $400,000 subsequent to his retirement. Under the terms of the agreement, the retirement benefit is to be paid in a number of equal monthly installments equal to the number of months between the first day of the month following his termination date and the first day of the month in which Mr. Imhoff attains age 75. The retirement benefit is also to be paid in the event of a termination without cause or a constructive termination within 12 months following a change in control. In the event of Mr. Imhoff's death, the retirement benefit is to be paid to his designated beneficiary. Mr. Herbert F. Imhoff also has an employment contract with the Company dated October 1, 1962, providing for exclusive continuous employment during a period of time mutually agreeable to the parties.
Herbert F. Imhoff and Herbert F. Imhoff, Jr. each have employment security agreements with the Company which, in general, provide for payments in the amount of twice their respective annual compensation, plus continued participation in any employee benefit plan maintained by the Company in which the executive participates at the date of termination, in the event that the employment of the executive is terminated by the Company for any reason other than good cause within twenty-four months following change of control of the Company.
A change of control shall be deemed to take place on the occurrence of any of the following events on or after May 14, 1990, without the prior written approval of a majority of the entire Board of Directors of the Company as it exists immediately prior to such event: (1) The acquisition by an entity, person or group of beneficial ownership of capital stock of the Company if after such acquisition such entity, person or group is entitled to exercise more than 30% of the outstanding voting power of all capital stock of the Company entitled to vote in elections of directors (2) The effective time of (I) a merger or consolidation of the Company with one or more other corporations as a result of which the holders of the outstanding Voting Power of the Company immediately prior to such merger or consolidation hold less than 50% of the Voting Power of the surviving or resulting corporation, or (II) a transfer of 30% of the Voting Power, or a substantial portion of the property, of the Company other than to an entity of which the Company owns at least 50% of the Voting (3) The election to the Board of Directors of the Company of candidates who were not recommended for election by the Board of Directors of the Company in office immediately prior to the election, if such candidates constitute a majority of those elected in that particular election.
Proposal 2 - AMENDMENT TO ARTICLES OF INCORPORATION TO INCREASE
The Board of Directors has unanimously approved, and recommends that shareholders adopt, an amendment to Article Five of the Articles of Incorporation to increase the number of authorized Common Shares from 5 million to 20 million. If the proposed amendment is adopted, Paragraph 1 of Article Five would be amended to read as follows:
PARAGRAPH 1: The aggregate number of shares which the corporation is authorized to issue is 20,100,000, divided into two classes. The designation of each class, the number of shares of each class, and the par value, if any, of the shares of each class, or a statement that the shares of any class are without par value, are as follows:
Series Number of or Statement that Shares Class (if any) Shares Are Without Par Value
Preferred To be 100,000 Without Par Value Common None 20,000,000 Without Par Value
The Company currently is authorized to issue 5 million Common Shares, of which 2,195,985 Common Shares were issued and outstanding as of December 29, 1995. In addition, as of December 29, 1995 the Company had 205,275 Common Shares reserved for issuance under the Company's stock option plans, leaving 2,598,740 authorized Common Shares available for other purposes. Adoption of the proposed amendment would increase the number of Common Shares available for issuance to 20,000,000.
The additional Common Shares for which authorization is sought would be part of the existing class of Common Shares and, if and when issued, would have the same rights and privileges as the Common Shares presently outstanding. Holders of the Company's Common Shares do not have preemptive rights to subscribe for and purchase any new or additional issue of Common Shares or securities convertible into Common Shares.
The Board of Directors believes that the increase in the number of authorized Common Shares is in the best interests of the Company and its shareholders. The purpose of increasing the number of authorized Common Shares is to have shares available for issuance for such corporate purposes as the Board of Directors may determine in its discretion, including, without limitation, future acquisitions, investment opportunities, stock splits, stock dividends or other distributions, conversion of convertible securities, future financings and other corporate purposes. Except for certain stock option plans and the share purchase rights plan (the "Rights Plan") discussed below, the Company has no agreements or understandings regarding the issuance of additional Common Shares.
Under the provisions of the Illinois Business Corporation Act of 1983, a board of directors generally may issue authorized but unissued common shares without shareholder approval. A substantial number of authorized but unissued Common Shares not reserved for specific purposes will allow the Company to take prompt action with respect to corporate opportunities that develop, without the delay and expense of convening a special meeting of shareholders. The issuance of additional Common Shares may, depending upon the circumstances under which such shares are issued, reduce shareholders' equity per share and may reduce the percentage of ownership of Common Shares of existing shareholders. It is not the present intention of the Board of Directors to seek shareholder approval prior to any issuance of additional Common Shares unless required by law or the rules of the American Stock Exchange or any other stock exchanges on which the Common Shares may be listed. The American Stock Exchange currently requires shareholder approval as a prerequisite to listing shares in several instances, including acquisition transactions where the present or potential issuance of shares could result in an increase in the number of Common Shares outstanding by 20% or more.
Although the Company currently has no reason to believe that a takeover attempt is likely to occur, increasing the number of authorized Common Shares may provide the Company with the means of discouraging any such attempt. Such additional Common Shares could be used in the future, through private sales to purchasers allied with management or otherwise, to dilute the stock ownership of persons seeking to obtain control of the Company, thus making less likely a change in control of the Company, whether or not favored by a majority of unaffiliated shareholders, with the possible effect of deterring an offer for the company at a substantial premium over the current market price of the Common Shares. The Company has no present intention to issue securities for any such purpose. The Articles of Incorporation also contain a provision authorizing the issuance of up to 100,000 Preferred Shares which may be divided into and issued in series with such rights, preferences and limitations as determined by the Board. Such Preferred Shares could be issued by the Board in one or more transactions with terms which might make the acquisition of a controlling interest in the Company more difficult or costly.
The Company has adopted a Rights Plan which provides shareholders with rights to purchase Common Shares of the Company (or of an acquiring company) at half of the market price under certain circumstances involving a potential change in control of the Company that has not been approved by the Board. The Rights Plan is intended as a means to protect the values of the shareholders' investment in the Company, while preserving the possibility of a fair acquisition bid. The Illinois Business Corporation Act of 1983 provides, among other things, that any beneficial owner of more than 15% of the Company's voting stock is prohibited, without the prior approval of the Board, from entering into any business combination with a company for three years from the date such 15% ownership is acquired.
The Company's By-Laws contain certain other provisions which may be viewed as having an antitakeover effect. The By-Laws provide that any shareholder seeking to have the shareholders act by written consent must give notice to the Board of Directors to set a record date for purposes of the consent, which record date shall not precede the date upon which the Board takes action and which shall not be more than 20 days after the date the Board takes action. Additionally, a shareholder must give written notice to the Company of an intention to nominate a director for election at an annual meeting 60 days prior to the anniversary date of the immediately preceding annual meeting. See "Election of Directors - Nominations." A shareholder must also give written notice not less than 30 days nor more than 60 days prior to the date of an annual meeting of any other business to be conducted at an annual meeting. Each of these provisions tends to make a change in control of the Board of Directors more difficult or time consuming. The proposed amendment to the Articles of Incorporation is not being recommended for the purpose of deterring a possible change in control of the Company or in response to any specific effort of which the Company is aware to obtain control of the Company, nor does the Board of Directors currently intend to propose to shareholders any amendments which may have the effect of discouraging takeover attempts.
The affirmative vote of the holders of a majority of the outstanding Common Shares is required to approve the amendment to the Articles of Incorporation to increase the number of authorized Common Shares of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ADOPTION OF THE AMENDMENT TO THE ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED COMMON SHARES FROM 5,000,000 TO 20,000,000.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who beneficially own more than ten percent of the Company's stock, to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission and the American Stock Exchange. Executive officers, directors and greater than ten-percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of these reports furnished to the Company and written representations from the executive officers and directors that no other reports were required during the fiscal year ended September 1995, the Company believes that all Section 16(a) filing requirements applicable to its executive officers, directors and greater than ten-percent owners were complied with.
In order to be considered for inclusion in the Proxy Statement for the 1997 Annual Meeting of Shareholders, shareholder proposals must be received by the Company at its address hereinabove, on or before September 27, 1996.
Ernst & Young LLP, independent certified public accountants, have been auditors of the financial statements of the Company since 1985 and have been selected by the Board of Directors of the Company to serve as independent auditors for the Company for the year ending September 30, 1996.
Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting of Shareholders to respond to appropriate questions and to make a statement if they desire to do so.
Manner and Costs of Solicitation
The cost of preparing, assembling and mailing the proxy materials and of reimbursing brokers, nominees and fiduciaries for the out-of-pocket expenses of transmitting copies of the proxy materials to the beneficial owners of shares held of record by such persons will be borne by the Company. The Company does not intend to solicit proxies otherwise than by the use of mail, but certain officers and regular employees of the Company or its subsidiary, without additional compensation, may use their personal efforts by telephone or otherwise, to obtain proxies.
The Company will furnish upon request and without charge to each record or beneficial owner of its securities from whom it solicits proxies, a copy of its current annual report on Form 10- KSB including the financial statements and financial schedules thereto, filed with the Securities and Exchange Commission. Requests should be in writing and addressed to
Ms. Nancy Frohnmaier, Vice President/Secretary General Employment Enterprises, Inc. One Tower Lane - Suite 2100
At the date of this Proxy Statement, the Board of Directors is not informed of any matters, other than those stated above, that may be brought before the meeting. However, if any other matters shall properly come before the meeting, it is the intention of the persons named in the enclosed form of proxy to vote such proxy in accordance with their best judgment on such matters.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE URGED TO SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO ADDITIONAL POSTAGE, IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS OF GENERAL EMPLOYMENT ENTERPRISES, INC. One Tower Lane, Suite 2100, Oakbrook Terrace, IL 60181
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder of GENERAL EMPLOYMENT ENTERPRISES, INC. hereby appoints HERBERT F. IMHOFF, HOWARD S. WILCOX and WALTER T. KERWIN, JR., and each of them, as the proxies (with full power of substitution) to vote all shares which the undersigned would be entitled to vote at the Annual Meeting of Shareholders to be held on February 26, 1996 and any adjournment thereof. If a vote is not specified, said proxies will vote FOR election of directors and FOR proposal 2.
1. Election of Directors, Nominees: S. Brottman, L. Chavin, D. G. Danehey, H. F. Imhoff, H. F. Imhoff, Jr., W. T. Kerwin, Jr., H. S. Wilcox
FOR ___ AGAINST ___ from the following nominee(s)________________
2. Approval of the Amendment to the Articles of Incorporation to increase the number of authorized Common Shares from 5 million to 20 million shares
FOR ___ AGAINST ___ ABSTAIN ___
3. In their discretion, in the transaction of such other business as may properly come before the meeting.
You are encouraged to specify your choices by marking the appropriate boxes with an "X" but you need not mark any boxes if you wish to vote in accordance with the Board of Directors' recommendations.
Please sign and date on the reverse side, and mail this proxy in the enclosed envelope as promptly as possible.
This proxy when properly executed will be voted as directed. If no direction is made, this proxy will be voted FOR the election of Directors and FOR proposal 2. This proxy confers the proxy holders the power of cumulative voting and the power to vote cumulatively for less than all of the nominees as described in the accompanying proxy statement.
The Board of Directors recommends a vote FOR Proposals 1 and 2.
The signer hereby revokes all proxies heretofore given by the signer to vote at said meeting or any adjournments thereof.
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as trustee or guardian, please give full title as such.
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PRE 14A
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PRE 14A
| 1996-01-12T00:00:00
| 1996-01-11T17:59:02
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0000040554-96-000015
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0000040554-96-000015_0000.txt
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PROSPECTUS Pricing Supplement No. 2679 Dated January 10, 1995 Dated January 10, 1996 PROSPECTUS SUPPLEMENT Rule 424(b)(3)-Registration Statement
GLOBAL MEDIUM-TERM NOTES, SERIES A
Trade Date: January 10, 1996
Settlement Date (Original Issue Date): January 16, 1996
Maturity Date: January 18, 2011
Principal Amount (in Specified Currency): US$25,000,000
Price to Public (Issue Price): The Notes are being purchased by the Underwriter at 100.00% of their principal amount and will be sold at varying prices to be determined at the time of sale. For further information with respect to any discounts, commissions or profits on resales of Notes that may be deemed underwriting discounts or commissions, see "Plan of Distribution" below.
Agent's Discount or Commission: The Notes will be sold at varying prices to be determined by the Underwriter at the time of each sale.
Net Proceeds to Issuer: US$25,000,000
Interest Rate Per Annum: 6.70%
__ March 15 and September 15 of each year X Other: Monthly on the 18th of each month, commencing February 18, 1996 (with respect to the period from and including January 16, 1996 to but excluding February 18, 1996) (each period from and including an Interest Payment Date or the Original Issue Date, as the case may be, to but excluding the next succeeding Interest Payment Date being referred to as an "Interest Payment Period")
Initial Redemption Date: January 18, 1997, and thereafter on any Interest Payment Date (See "Additional Terms--Redemption" Optional Repayment Date: Not applicable ("N/A") Annual Redemption Percentage Reduction: N/A Modified Payment Upon Acceleration: N/A
CAPITALIZED TERMS USED IN THIS PRICING SUPPLEMENT WHICH ARE DEFINED IN THE PROSPECTUS SUPPLEMENT SHALL HAVE THE MEANINGS ASSIGNED TO THEM IN THE PROSPECTUS SUPPLEMENT.
Initial Accrual Period OID: N/A
Option Value Calculation Agent: N/A
At September 30, 1995, the Company had outstanding indebtedness totalling $100.241 billion, consisting of notes payable within one year, senior notes payable after one year and subordinated notes payable after one year. The total amount of outstanding indebtedness at September 30, 1995 excluding subordinated notes payable after one year was equal to $99.544 billion.
Accrued interest on the Notes for the Interest Payment Period commencing on the Original Issue Date (the "Initial Interest Payment Period") shall be calculated as described in the Prospectus Supplement under the caption "Interest and Interest Rates-Fixed Rate Notes." Accrued interest on the Notes for each subsequent Interest Payment Period shall be calculated and paid based on the number of days in such Period divided by 360 (the number of days in such Period to be calculated on the basis of a year of 360 days consisting of twelve 30-day months). As a result, the amount payable on each Interest Payment Date (other than the Interest Payment Date relating to the Initial Interest Payment Period) will remain constant irrespective of the actual number of days that have elapsed since the preceding Interest Payment Date.
The Company may at its option elect to redeem the Notes in whole on January 18, 1997 or on any Interest Payment Date thereafter (each such date, an "Optional Redemption Date") at 100% of their principal amount plus accrued interest to but excluding the date of redemption (the "Redemption Date"). In the event the Company elects to redeem the Notes, notice will be given to registered holders not more than 60 nor less than 30 days prior to the Redemption Date.
The Notes are being purchased by Lehman Brothers Inc. (the "Underwriter"), as principal, at 100% of the aggregate principal amount.
The Underwriter has advised the Company that the Underwriter proposes to offer the Notes from time to time for sale in negotiated transactions or otherwise, at prices determined at the time of sale.
The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended.
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424B3
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424B3
| 1996-01-12T00:00:00
| 1996-01-12T11:54:21
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0000950134-96-000091
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0000950134-96-000091_0000.txt
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SUPPLEMENT DATED JANUARY 2, 1996 TO THE PROSPECTUS DATED MAY 1, 1995, AS PREVIOUSLY SUPPLEMENTED, AND THE STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995
Effective January 1, 1996, BZW Barclays Global Fund Advisors ("BGFA") replaced Wells Fargo Nikko Investment Advisors ("WFNIA") as sub-investment adviser to the Asset Allocation, U.S. Government Allocation and Corporate Stock Funds (the "Funds") of Stagecoach Funds, Inc. BGFA was created by the reorganization of WFNIA with and into an affiliate of Wells Fargo Institutional Trust Company, N.A. ("WFITC"). Pursuant to a Sub-Advisory Contract with each Fund and subject to the overall supervision of Wells Fargo Bank, the investment adviser to each Fund, BGFA is responsible for the day-to-day portfolio management of each Fund. BGFA will continue to employ substantially the same personnel and will continue to use the computer-based investment model developed and previously used by WFNIA to determine the recommended mix of assets in each Fund's portfolio. BGFA is entitled to receive from Wells Fargo Bank as compensation for its sub-advisory services monthly fees at the annual rate of 0.20%, 0.15% and 0.08% of the average daily net assets of the Asset Allocation, U.S. Government Allocation and Corporate Stock Funds, respectively. BGFA is also entitled to receive from Wells Fargo Bank annual fees of $40,000 for its services to the U.S. Government Allocation Fund and $40,000 for its services to the Corporate Stock Fund. BGFA is an indirect subsidiary of Barclays Bank PLC and is located at 45 Fremont
Street, San Francisco, CA 94105. As of January 1, 1996, BGFA and its affiliates provide investment advisory services for more than $220 billion of assets under management. As of January 1, 1996, Wells Fargo Bank provides investment advisory services for approximately $33 billion of assets.
Effective January 1, 1996, WFITC, due to a change in control of its outstanding voting securities, became a wholly owned subsidiary of BZW Barclays Global Investors Holdings Inc. (formerly, The Nikko Building U.S.A., Inc.) and was renamed BZW Barclays Global Investors, N.A. ("BGI"). BGI currently acts as custodian to each Fund. BGFA is a subsidiary of BGI. BGI will not be entitled to receive compensation for its custodial services to the Funds so long as BGFA is entitled to receive fees for providing investment advisory services to such Funds. The principal business address of BGI is 45 Fremont Street, San Francisco, California 94105.
Each Fund's Prospectus and Statement of Additional Information are hereby amended accordingly.
As Supplemented on June 23, 1995 and August 24, 1995
Stagecoach Funds, Inc. (the "Company") is a professionally managed, open-end series investment company. This Prospectus contains information about two of the funds in the Stagecoach Family of Funds - the ASSET ALLOCATION FUND and the U.S. GOVERNMENT ALLOCATION FUND (each a "Fund" and, collectively, the "Funds"). Two classes of shares of each Fund (each, a "Class") are described in this Prospectus - Class A Shares and Class B Shares.
The ASSET ALLOCATION FUND seeks to earn over the long term a high level of total return, including net realized and unrealized capital gains and net investment income, consistent with reasonable risk.
The U.S. GOVERNMENT ALLOCATION FUND seeks to achieve over the long term a high level of total return, including net realized and unrealized capital gains and net investment income, consistent with reasonable risk.
Please read this Prospectus before investing and retain it for future reference. It is designed to provide you with important information and to help you decide if a Fund's goals match your own. Statements of Additional Information ("SAIs"), dated May 1, 1995, for the Funds have been filed with the Securities and Exchange Commission ("SEC") and are incorporated by reference. The SAI for each Fund is available free of charge by writing to Stagecoach Funds, Inc., c/o Stagecoach Shareholder Services, Wells Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA 94120-7066 or by calling the Company at 800-222-8222. If you hold shares in an IRA, please call 1-800-BEST-IRA for information or assistance.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK") OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
PROSPECTUS DATED MAY 1, 1995 AS SUPPLEMENTED ON JUNE 23, 1995 AND AUGUST 24, 1995
The ASSET ALLOCATION FUND seeks to achieve its objective by pursuing an "asset allocation" strategy whereby the Fund allocates and reallocates its investments among three asset classes - common stocks, U.S. Treasury bonds, and money market instruments. The Fund is designed for investors with investment horizons of at least five years.
The U.S. GOVERNMENT ALLOCATION FUND seeks to achieve its objective by pursuing a strategy of allocating and reallocating its investments among three classes of debt securities - long-term U.S. Treasury bonds, intermediate-term U.S. Treasury notes, and short-term money market instruments - at least 65% of which will be obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The Fund is designed for investors with investment horizons of at least five years.
The Funds are advised by Wells Fargo Bank. Wells Fargo Nikko Investment Advisors ("WFNIA") serves as sub-adviser to the Funds. Wells Fargo Bank also serves as the Funds' transfer and dividend disbursing agent, and is a Shareholder Servicing Agent (as defined below) and a Selling Agent (as defined below). Wells Fargo Institutional Trust Company, N.A. ("WFITC") serves as the Funds' custodian. Stephens Inc. ("Stephens") is the Funds' sponsor and administrator and serves as the distributor of the Funds' shares.
THE FUNDS' SHARES AND PORTFOLIO INVESTMENTS (EXCEPT AS NOTED UNDER "HOW THE FUNDS WORK - INVESTMENT OBJECTIVES AND POLICIES" AND "PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES") ARE NOT INSURED OR GUARANTEED BY THE UNITED STATES OR ANY FEDERAL AGENCY OR INSTRUMENTALITY.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND PROVIDES CERTAIN OTHER SERVICES TO THE FUNDS, FOR WHICH IT IS COMPENSATED. STEPHENS, WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE SPONSOR AND DISTRIBUTOR FOR THE FUNDS.
SUMMARY OF FUND EXPENSES 4
HOW THE FUNDS WORK 12
THE FUNDS AND MANAGEMENT 16
INVESTING IN THE FUNDS 18
HOW TO REDEEM SHARES 29
MANAGEMENT AND SERVICING FEES 36
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
The Funds provide you with a convenient way to invest in a portfolio of securities selected and supervised by professional management. The following provides you with summary information about the Funds. For more information, please refer specifically to the identified Prospectus sections and generally to the Prospectus and SAI for each Fund.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The ASSET ALLOCATION FUND'S investment objective is to seek over the long term a high level of total return, including net realized and unrealized capital gains and net investment income, consistent with reasonable risk. The Fund seeks to achieve this objective by pursuing an "asset allocation" strategy whereby its investments are allocated among three asset classes - common stocks, U.S. Treasury bonds and money market instruments. The Fund is designed for investors with investment horizons of at least five years. See "How the Funds Work" and "Prospectus Appendix - Additional Investment Policies."
The U.S. GOVERNMENT ALLOCATION FUND'S investment objective is to seek over the long term a high level of total return, including net realized and unrealized capital gains and net investment income, consistent with reasonable risk. The Fund seeks to achieve this objective by pursuing a strategy of allocating and reallocating its investments among three classes of debt securities: long-term U.S. Treasury bonds, intermediate-term U.S. Treasury notes and short-term money market instruments. Under normal market conditions, at least 65% of the Fund's total assets will be invested in obligations that are issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including government-sponsored enterprises ("U.S. Government obligations"). The Fund is designed for investors with investment horizons of at least five years. See "How the Funds Work" and "Prospectus Appendix - Additional Investment Policies."
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank is investment adviser to the Funds. WFNIA serves as sub-adviser to the Funds and provides allocation advice based on certain proprietary models. Wells Fargo Bank provides the Funds with transfer agency and dividend disbursing agency services; WFITC provides the Funds with custodial services. In addition, Wells Fargo Bank is a Shareholder Servicing Agent and a Selling Agent under Selling Agreements with Stephens, the Funds' distributor. See "The Funds and Management" and "Management and Servicing Fees."
Q. HOW DO I INVEST?
A. You may invest by purchasing shares of a Fund at their public offering price, which is the net asset value per share plus any applicable sales charge. Class A Shares are
subject to a maximum front-end sales charge of 4.50%. Class B Shares that are redeemed within four years of purchase are subject to a maximum contingent deferred sales charge of 3.00% of the lesser of net asset value at purchase or net asset value at redemption. In some cases, such as for investments by certain fiduciary or retirement accounts, the front-end sales charge may be waived. In particular, no front-end sales charge is imposed on sales of Class A Shares made to various retirement plan customers of Wells Fargo Bank, including IRAs, Simplified Employee Pension Plans and other self-directed retirement plans for which Wells Fargo Bank serves as trustee. In other cases, the front-end sales charge may be reduced. You may open an account by investing at least $1,000 and may add to your account by making additional investments of at least $100, although certain exceptions to these minimums may be available. Shares may be purchased by wire, by mail or by an automatic investment feature called the AutoSaver Plan on any day the New York Stock Exchange is open. See "Investing in the Funds." For more details, contact Stephens (the Funds' Sponsor and Distributor), a Shareholder Servicing Agent or a Selling Agent (such as Wells Fargo Bank).
Q. HOW WILL I RECEIVE DIVIDENDS AND ANY CAPITAL GAINS?
A. Dividends from net investment income of the Asset Allocation Fund are declared quarterly and dividends from the net investment income of the U.S. Government Allocation Fund are declared daily. Dividends paid by each Fund are automatically reinvested in additional shares of the same Class of the respective Fund at net asset value without a sales charge unless you elect to receive dividends in cash. You may also elect to reinvest dividends of the Funds in shares of the same class of another multi-class fund or in shares of certain other funds in the Stagecoach Family of Funds with which you have an established account that has met the applicable minimum initial investment requirement. Any capital gains will be distributed at least annually in the same manner. Each Fund's net investment income available for distribution to holders of Class B Shares will be reduced by the amount of the higher Rule 12b-1 Fee payable on behalf of the Class B Shares. Class B Shares automatically convert into Class A Shares of the same Fund six years after the end of the month in which they were acquired. See "Dividends" and "Additional Shareholder Services."
Q. HOW MAY I REDEEM SHARES?
A. You may redeem your shares by telephone, by letter or by an automatic feature called the Systematic Withdrawal Plan on any day the New York Stock Exchange is open. Contingent deferred sales charges may be charged upon redemption of Class B Shares. In addition, the Company reserves the right to impose charges for wiring redemption proceeds. See "How To Redeem Shares" and "How to Purchase Shares - Contingent Deferred Sales Charges - Class B Shares." For more details, contact Stephens, a Shareholder Servicing Agent or a Selling Agent (such as Wells Fargo Bank).
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF INVESTMENT?
A. An investment in shares of the Funds is not insured against loss of principal. When the value of the securities that a Fund owns declines, so does the value of your shares of the Fund. Therefore, you should be prepared to accept some risk with the money you invest in a Fund. Because each Fund may shift its investment allocations significantly from time to time, its performance may differ from funds which invest in one asset class or from funds with a stable mix of assets. Further, shifts among asset classes may result in relatively high portfolio turnover rates, which may, in turn, result in increased brokerage and transaction costs, and/or increased short-term capital gains or losses. The portfolio debt instruments of the Funds are subject to interest rate risk and credit risk. Interest rate risk is the risk that increases in market interest rates may adversely affect the value of the instruments in which a Fund invests and hence the value of your investment in the Fund. The value of instruments held by the Funds generally changes inversely to changes in market interest rates. During those periods in which a high percentage of the portfolio of a Fund is invested in long-term bonds, its exposure to interest rate risk will be greater because the longer maturity of those instruments means they generally are more sensitive to interest rate fluctuations than shorter-term debt instruments. Credit risk is the risk that the issuer of a debt instrument is unable, due to financial constraints, to make timely payments on its outstanding obligations. The portfolio equity investments of the Funds are subject to equity market risk. Equity market risk is the risk that common stock prices will fluctuate or decline over short or even extended periods. The U.S. stock market tends to be cyclical, with periods when stock prices generally rise and periods when prices generally decline.
As with all mutual funds, there can be no assurance that the Funds will achieve their investment objectives. Investors should be prepared to accept that risk, as well as the risk that a Fund may under-perform (over the short and/or long term) one or more of the three classes of securities in which it invests.
This expense summary is a standard format required for all mutual funds to help you understand the various costs and expenses you will bear directly or indirectly as a shareholder of the Funds. As shown below, you are not charged exchange fees. You should consider this expense information together with the important information in this Prospectus, including the Funds' investment objectives and policies.
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
EXAMPLE OF EXPENSES -- CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell Fund shares. You are subject to a front-end sales charge on purchases of Class A Shares of the Funds and may be subject to a contingent deferred sales charge on Class B Shares if you sell such shares within a specified period. See "Investing in the Funds - Sales Charges." The Company reserves the right to impose a charge for wiring redemption proceeds. In certain instances, you may qualify for a reduction or waiver of the front-end sales charge. See "Investing in the Funds - Sales Charges."
ANNUAL FUND OPERATING EXPENSES for Class A Shares of each Fund are based on amounts incurred during the most recent fiscal year reflecting voluntary fee waivers and expense reimbursements. Wells Fargo Bank and Stephens each has agreed to waive or reimburse all or a portion of its respective fees if certain Fund expenses exceed limits set by state securities laws or regulations. In addition, Wells Fargo Bank and Stephens, at their sole discretion, may waive or reimburse all or a portion of the respective fees charged to, or expenses paid by, a Fund. Any waivers or reimbursements would reduce a Fund's total expenses. There can be no assurances that waivers or reimbursements will continue. Absent waivers or reimbursements, the percentages shown above under "Total
Other Expenses" and "Total Fund Operating Expenses" would be 0.41% and 0.84%, respectively for the Class A Shares of the Asset Allocation Fund and 0.53% and 1.08%, respectively, for the Class A Shares of the U.S. Government Allocation Fund. Since Class B Shares were not offered during 1994, the percentages shown above with respect to Class B Shares under "Total Other Expenses" and "Total Fund Operating Expenses" reflect certain anticipated voluntary fee waivers and expense reimbursements for the current fiscal year. Absent waivers and reimbursements, "Total Other Expenses" and "Total Fund Operating Expenses" would be 0.46% and 1.54%, respectively, for the Class B Shares of the Asset Allocation Fund and 0.58% and 1.78%, respectively, for the Class B Shares of the U.S. Government Allocation Fund. The Funds could pay more in sales charges than the economic equivalent of the maximum front-end sales charges applicable to mutual funds sold by members of the National Association of Securities Dealers ("NASD"). For more complete descriptions of the various costs and expenses you can expect to incur as an investor in each Fund, please see the Prospectus sections captioned "Investing in the Funds - How To Buy Shares" and "Management and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical example which illustrates the expenses associated with a $1,000 investment in Class A Shares or Class B Shares over stated periods, based on the expenses in the respective tables above and an assumed annual rate of return of 5%. This rate of return should not be considered an indication of actual or expected performance of a Fund. In addition, the example should not be considered a representation of past or future expenses and actual expenses may be greater or lesser than those shown.
The following information has been derived from the Financial Highlights in the Funds' 1994 annual financial statements. The financial statements are included in the SAI for each Fund. Except for periods ending prior to January 1, 1992, which were audited by other auditors whose report dated February 19, 1992 expressed an unqualified opinion on this information, the financial statements have been audited by KPMG Peat Marwick LLP, independent auditors, whose report dated February 17, 1995 also is included in the SAIs. This information should be read in conjunction with the Funds' 1994 annual financial statements and notes thereto. The SAIs have been incorporated by reference into this Prospectus. Financial information is not provided in connection with Class B Shares because Class B Shares were not offered during the periods presented.
FOR A CLASS A SHARE OUTSTANDING AS SHOWN
* The financial information for the fiscal periods prior to, and including, 1991 is based on the financial information for the Asset Allocation Fund ("IRA Asset Allocation Fund") of the Wells Fargo Investment Trust for Retirement Programs ("Trust") which was reorganized into the Asset Allocation Fund on January 2, 1992.
+ The Fund commenced operations on November 13, 1986.
** Total returns do not include any sales charges.
FOR A CLASS A SHARE OUTSTANDING AS SHOWN
* The financial information for the fiscal periods prior to, and including, 1991 is based on the financial information for the Asset Allocation Fund ("IRA Asset Allocation Fund") of the Wells Fargo Investment Trust for Retirement Programs ("Trust") which was reorganized into the Asset Allocation Fund on January 2, 1992.
+ The Fund commenced operations on November 13, 1986.
** Total returns do not include any sales charges.
FOR A CLASS A SHARE OUTSTANDING AS SHOWN
FOR A CLASS A SHARE OUTSTANDING AS SHOWN
The Asset Allocation Fund's investment objective is to seek over the long term a high level of total return, including net realized and unrealized capital gains and net investment income, consistent with reasonable risk. This investment objective is fundamental and cannot be changed without shareholder approval. As with all mutual funds, there can be no assurance that the Fund, which is a diversified portfolio, will achieve its investment objective. The Fund seeks to achieve its objective by pursuing an asset allocation strategy. This strategy is based upon the premise that these asset classes from time to time are undervalued or overvalued relative to each other by the market and that undervalued asset classes represent relatively better long-term, risk-adjusted investment opportunities. Timely, low-cost shifts among common stocks, U.S. Treasury bonds and money market instruments (as determined by their perceived relative overvaluation or undervaluation) can therefore produce attractive investment returns. Using this strategy, WFNIA regularly determines the appropriate mix of asset classes and the Fund's portfolio is periodically adjusted to achieve this mix.
In determining the recommended mix, WFNIA uses an investment model developed over the past 17 years, which is presently used as a basis for managing large employee benefit trust funds and other institutional accounts. The Asset Allocation Model, which is proprietary to WFNIA, analyzes extensive financial data from numerous sources and recommends a portfolio allocation among common stocks, U.S. Treasury bonds and money market instruments. As further described in the "Prospectus Appendix - Additional Investment Policies," WFNIA bases its investment decisions on the Asset Allocation Model's recommendations. At any given time, substantially all of the Fund's assets may be invested in a single asset class and the relative allocation among the asset classes may shift significantly from time to time.
The Asset Allocation Fund's assets will be invested as follows:
Stock Investments. In making its stock investments, the Fund invests in the common stocks which comprise the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index")* using, to the extent feasible, the same weighting
* The S&P 500 Index is an unmanaged index of stocks comprised of 500 industrial, financial, utility and transportation companies. "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500", and "500" are trademarks of McGraw-Hill, Inc. The Asset Allocation Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Fund.
index. The Fund does not individually select common stocks on the basis of traditional investment analysis.
Bond Investments. The Fund purchases U.S. Treasury bonds with maturities greater than 20 years. The bond portion of the Fund's portfolio is generally managed to attain an average maturity of between 22 and 28 years for the U.S. Treasury bonds held. This form of debt instrument has been selected by WFNIA because of the relatively low transaction costs of buying and selling U.S. Treasury bonds and because of the low default risk associated with such instruments.
Money Market Investments. The money market instrument portion of the Fund's portfolio generally will be invested in high-quality money market instruments, including U.S. Government obligations, obligations of domestic and foreign banks, short-term corporate debt instruments and repurchase agreements.
The portion of the Fund's portfolio invested in stocks is subject to equity market risk. Equity market risk is the possibility that common stock prices may decline over short or even extended periods. The portion of the Fund's portfolio invested in debt instruments is subject to interest rate risk and credit risk, but the Fund minimizes its exposure to credit risk by only purchasing U.S. Treasury bonds and high-quality money market instruments.
A more complete description of the Asset Allocation Model, certain trading policies relating to the implementation of the model's recommendations, and the Fund's investments is contained in the "Prospectus Appendix - Additional Investment Policies" and in the SAI.
The U.S. Government Allocation Fund's investment objective is to seek over the long term a high level of total return, including net realized and unrealized capital gains and net investment income, consistent with reasonable risk. This investment objective is fundamental and cannot be changed without shareholder approval. As with all mutual funds, there can be no assurance that the Fund, which is a diversified portfolio, will achieve its investment objective. The Fund seeks to achieve its objective by pursuing a strategy of allocating and reallocating its investments among the following three classes of debt instruments: long-term U.S. Treasury bonds, intermediate-term U.S. Treasury notes, and short-term money market instruments. This strategy is based upon the premise that these asset classes from time to time are overvalued or undervalued relative to each other by the market and that undervalued asset classes represent relatively better long-term investment opportunities. Timely, low-cost shifts among such securities (as determined by their perceived relative overvaluation or undervaluation) can therefore produce attractive long-term investment returns. Using this strategy, WFNIA regularly determines the recommended mix of asset classes and the Fund's portfolio is periodically adjusted to achieve this mix. Under normal market conditions, the Fund will invest at least 65% of the value of its total assets in U.S. Government obligations.
In determining the recommended mix, WFNIA uses an investment model which is presently used as a basis for managing large employee benefit trust funds and other institutional accounts. The model, which is proprietary to WFNIA, analyzes risk, correlation and expected return data and recommends a portfolio allocation among the three classes of debt instruments. As further described in the "Prospectus Appendix - Additional Investment Policies," WFNIA bases its investment decisions on the model's recommendations. At any given time, substantially all of the Fund's assets may be invested in a single asset class and the relative allocation among the asset classes may shift significantly from time to time. The Fund is not designed to profit from short-term market changes. Instead, it is designed for investors with investment horizons of five years and greater.
The U.S. Government Allocation Fund's assets will be invested and reinvested in the following types of debt instruments:
Long-Term Investments. The Fund purchases U.S. Treasury bonds with maturities greater than 20 years. This portion of the Fund's portfolio is generally managed to attain an average maturity of between 22 and 28 years.
Intermediate-Term Investments. The Fund purchases U.S. Treasury notes with maturities generally ranging from 5 to 7 years. This portion of the Fund's portfolio is generally managed to attain an average maturity of approximately 6 years.
Short-Term Investments. The Fund purchases short-term money market instruments with remaining maturities of one year or less. This portion of the Fund's portfolio may be invested in various types of short-term money market instruments, including U.S. Government obligations, commercial paper, bankers' acceptances, certificates of deposit, fixed time deposits, and repurchase agreements. Obligations of both domestic and foreign banks may be included.
U.S. Government obligations have been selected by Wells Fargo Bank as the Fund's principal investments because of their relatively low purchase and sale transaction costs and because of the low default risk associated with them (i.e., they are issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, including government-sponsored enterprises).
A key component of the U.S. Government Allocation model is a set of assumptions concerning expected risk and return and investor attitudes toward risk, which are incorporated into the allocation decision. The principal inputs of financial data to the model currently are: (i) yields on 90-day U.S. Treasury bills, 5-year U.S. Treasury notes, and 30-year U.S. Treasury bonds; (ii) the expected statistical standard deviation in investment returns for each class of fixed income instrument; and (iii) the expected statistical correlation of investment return among the various classes of fixed income instruments. Using these and other data, the model is run daily to determine the recommended allocation. The model's recommendations are presently implemented in 10% increments. Because the Fund may shift its investment allocations significantly from time to time, its performance may differ from funds which invest in one asset class or from funds with a constant mix of assets. The Fund is subject to interest rate risk and credit risk, but minimizes its exposure to credit risk by purchasing U.S. Treasury bonds and notes and high quality money market instruments.
A more complete description of the model and the Fund's investments and investment activities is contained in the "Prospectus Appendix - Additional Investment Policies" and in the SAI.
The performance of each Class of shares of the Funds may be advertised in terms of average annual total return and yield. These performance figures are based on historical results and are not intended to indicate future performance.
Average annual total return of the shares of a Class of a Fund is based on the overall dollar or percentage change in value of a hypothetical investment in the Class and assumes that all dividends and capital gain distributions are reinvested in shares of that Class. The standardized average annual total return for Class A Shares is calculated assuming you have paid the maximum sales charge, and for Class B Shares is calculated on a one-year investment assuming you have paid the maximum contingent deferred sales charge, on your hypothetical investment. In addition to presenting a standardized total return, at times, each Class also may present nonstandardized total returns, yields and distribution rates for purposes of sales literature. For example, the performance figure of a Class may be calculated on the basis of an investment at the net asset value per share or at net asset value per share plus a reduced sales charge (see "Investing in the Funds -- How To Buy Shares"), rather than the public offering price per share. In this case, the figure might not reflect the effect of the sales charge that you may have paid.
The yield of the shares of each Class of shares of the Funds is calculated by dividing the net investment income per Class share earned during a specified period (usually 30 days) for Class A Shares by its public offering price per share (which includes the maximum sales charge), or for Class B Shares by its net asset value (which does not include the maximum contingent deferred sales charge), on the last day of such period and annualizing the result.
Because of differences in the fees and/or expenses borne by Class B Shares of the Funds, the net performance quotations on such shares can be expected, at any given time, to be lower than the net performance quotations on Class A Shares. Standardized performance quotations are computed separately for Class A Shares and Class B Shares.
Additional information about the performance of each Fund is contained in the Annual Report for each Fund. The Annual Reports may be obtained free of charge by calling the Company at 800-222-8222.
The Funds are two of the funds in the Stagecoach Family of Funds. The Company was organized as a Maryland corporation on September 9, 1991, and currently offers shares of nine other series: the California Tax-Free Bond Fund, the California Tax-Free Income Fund, the California Tax-Free Money Market Mutual Fund, the Corporate Stock Fund, the Diversified Income Fund, the Ginnie Mae Fund, the Growth and Income Fund, the Money Market Mutual Fund and the Short-Intermediate U.S. Government Income Fund. The Board of Directors of the Company supervises the Funds' activities and monitors their contractual arrangements with various service-providers. Although the Company is not required to hold annual shareholder meetings, special meetings may be requested for purposes such as electing or removing Directors, approving advisory contracts and distribution plans, and changing a Fund's investment objective or fundamental investment policies. All shares of the Company have equal voting rights and will be voted in the aggregate, rather than by series or Class, unless otherwise required by law (such as when the voting matter affects only one series or Class). As a shareholder of a Fund, you receive one vote for each share you own and fractional votes for fractional shares owned. A more detailed description of the voting rights and attributes of the shares is contained in the "Capital Stock" section of the Funds' SAIs.
Wells Fargo Bank is the Funds' investment adviser and transfer and dividend disbursing agent. In addition, Wells Fargo Bank is a Shareholder Servicing Agent of the Funds and a Selling Agent under Selling Agreements with the Funds' distributor. Wells Fargo Bank, one of the ten largest banks in the United States, was founded in 1852 and is the oldest bank in the western United States. As of June 30, 1995, Wells Fargo Bank provided investment advisory services for approximately $28 billion of assets of individuals, trusts, estates and institutions. As of June 30, 1995, various divisions and affiliates of Wells Fargo Bank (including WFNIA) provided investment advisory services for approximately $211 billion of assets of individuals, trusts, estates and institutions. As of June 30, 1995, WFNIA managed or advised approximately $183 billion in assets. Wells Fargo Bank also serves as the investment adviser to the other separately managed series of the Company, and to six other registered, open-end, management investment companies, which consist of several separately managed investment portfolios. Wells Fargo Bank, a wholly owned subsidiary of Wells Fargo & Company, is located at 420 Montgomery Street, San Francisco, California 94163.
WFNIA, located at 45 Fremont Street, San Francisco, California 94105, is a sub-adviser to the Funds, and its subsidiary serves as the Funds' custodian. WFNIA is a general partnership owned 50% by a wholly owned subsidiary of Wells Fargo Bank and 50% by a subsidiary of The Nikko Securities Co., Ltd., a Japanese investment firm. As of December 31, 1994, WFNIA managed over $14 billion using the Asset Allocation Model. WFNIA also serves as the sub-adviser to some of the other separately managed series of the Company, and as investment adviser to other registered, open-end, management investment companies.
On June 21, 1995, Wells Fargo & Co. and The Nikko Securities Co., Ltd. signed a definitive agreement to sell their joint venture interest in Wells Fargo Nikko Investment Advisors ("WFNIA") to Barclays PLC of the U.K. The sale, which is subject to the approval of appropriate regulatory authorities, is expected to close in the fourth quarter of 1995.
Barclays is the largest clearing Bank in the U.K., with $259 billion in total assets. Barclays has announced its intention to combine WFNIA with the quantitative group of BZW Asset Management ("BZWAM"), its international asset management arm. BZWAM is the largest quantitative fund manager in Europe, with approximately $32 billion of quantitative funds under management, as of March 31, 1995. The BZW Division of Barclays, of which BZWAM forms a part, is the investment banking arm of Barclays and offers a full range of investment banking, capital markets and asset management services.
Under the Investment Company Act of 1940, this proposed change of control of WFNIA would result in assignment and termination of the current Sub-Investment Advisory Agreements between WFNIA, Wells Fargo Bank and the Funds. Subject to the approval of the Company's Board of Directors, it is contemplated that a special meeting of shareholders of the Funds will be convened to consider a new Sub-Investment Advisory Agreement with WFNIA, which will become effective only upon the change of control of WFNIA. It is not anticipated that the proposed change of control will change the investment objective of overall investment strategy of the Funds.
Stephens is the Funds' sponsor and administrator, and distributes the Funds' shares. Stephens is a full service broker/dealer and investment advisory firm located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its predecessor have been providing securities and investment services for more than 60 years. Additionally, they have been providing discretionary portfolio management services since 1983. Stephens currently manages investment portfolios for pension and profit sharing plans, individual investors, foundations, insurance companies and university endowments.
You can buy shares in either Fund in one of the several ways described below. You must complete and sign an Account Application to open an account. Additional documentation may be required from corporations, associations and certain fiduciaries. Do not mail cash. If you have any questions or need extra forms, you may call 800-222-8222.
After an application has been processed and an account has been established, subsequent purchases of different funds of the Company under the same umbrella account do not require the completion of additional applications. A separate application must be processed for each different umbrella account number (even if the registration is the same). Call the number on your confirmation statement to obtain information about what is required to change registration.
To invest in the Funds through a tax-deferred retirement plan, please contact a Shareholder Servicing Agent or a Selling Agent to receive information and the required separate application. See "Tax-Deferred Retirement Plans" below.
The Company or Stephens may make the Prospectus available in an electronic format. Upon receipt of a request from you or your representative, the Company or Stephens will transmit or cause to be transmitted promptly, without charge, a paper copy of the electronic Prospectus.
The value of a share of a Class of the Funds is its "net asset value," or NAV. The NAV of a share of each Class of the Asset Allocation Fund or U.S. Government Allocation Fund is the value of total net assets attributable to such Class divided by the number of outstanding shares of that Class. The value of the net assets per Class is determined daily by adjusting the net assets per Class at the beginning of the day by the value of each Class's shareholder activity, net investment income and net realized and unrealized gains or losses for that day. Net investment income is calculated each day for each Class by attributing to each Class a pro rata share of daily income and common expenses, and by assigning class-specific expenses to each Class as appropriate. The NAV of each Class is expected to fluctuate daily.
The Funds are open for business each day the New York Stock Exchange ("NYSE") is open for trading ("Business Day"). Currently, the NYSE is closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday falls on a weekend, the NYSE is closed on the weekday immediately before or after such Holiday. Wells Fargo Bank calculates the NAV of each Class of the Funds each Business Day as of the close of regular trading on the NYSE (referred to hereafter as "the close of the NYSE"), which is currently 1:00 p.m. (Pacific time).
Except for debt obligations with remaining maturities of 60 days or less, which are valued at amortized cost, the Funds' other assets are valued at current market prices, or if such prices are not readily available, at fair value as determined in good faith by the Company's Board of Directors. Prices used for such valuations may be provided by independent pricing services.
Shares of each Fund are offered continuously at the applicable offering price (the NAV plus the applicable sales charge) next determined after a purchase order is received in the form specified for the purchase method being used, as described in the following sections. Payment for shares purchased through a Selling Agent will not be due from the Selling Agent until the settlement date. The settlement date normally is three Business Days after the order is placed. It is the responsibility of the Selling Agent to forward payment for shares being purchased to a Fund promptly. Payment must accompany orders placed directly through the Transfer Agent.
Payments for shares of each Class of a Fund will be invested in full and fractional shares of such Class at the applicable offering price. If shares are purchased by a check which does not clear, the Company reserves the right to cancel the purchase and hold the investor responsible for any losses or fees incurred. In addition, the Funds may hold payment on any redemption until reasonably satisfied that your investments made by check have been collected (which may take up to 15 days). The Company reserves the right to reject any purchase order or suspend sales at any time.
The minimum initial investment is $100 by the AutoSaver Plan purchase method (described below), $250 for any tax-sheltered retirement account for which Wells Fargo Bank serves as trustee or custodian under a prototype trust approved by the Internal Revenue Service ("IRS") (a "Plan Account") and $1,000 by all other methods or for all other investors. All subsequent investments must be at least $100. If you have questions regarding purchases of shares, please contact the Company at 800-222-8222, or a Shareholder Servicing Agent or Selling Agent.
Set forth below is a Front-end Sales Charge Schedule listing the front-end sales charges applicable to purchases of Class A Shares of the Funds. As shown below, reductions in the rate of front-end sales charges ("Volume Discounts") are available as you purchase additional shares (other than Class B Shares). You should consider the front-end sales charge information set forth below and the other information contained in this Prospectus when making your investment decisions.
The following is the Front-end Sales Charge Schedule for purchasing Class A Shares of each Fund:
Class B Shares of the Fund are not subject to a front-end sales charge. However, Class B Shares which are redeemed within one, two, three or four years from the receipt of a purchase order affecting such shares will be subject to a contingent deferred sales charge equal to 3.00%, 2.00%, 1.00% and 1.00%, respectively, of the dollar amount equal to the lesser of the NAV at the time of purchase of the shares being redeemed or the NAV of such shares at the time of redemption. See "Investing in the Funds - Contingent Deferred Sales Charges - Class B Shares."
A Selling Agent or Servicing Agent and any other person entitled to receive compensation for selling or servicing shares may receive different compensation for selling or servicing Class A Shares as compared with Class B Shares.
If Class A Shares are purchased through a Selling Agent, Stephens reallows the portion of the front-end sales charge shown above as the Dealer Allowance. Stephens also compensates Selling Agents for sales of Class B Shares, and is then reimbursed out of applicable Rule 12b-1 Fees and contingent deferred sales charges applicable to such shares. In addition, Stephens has established a non-cash compensation program, pursuant to which broker/dealers or financial institutions that sell shares of the Funds may earn additional compensation in the form of trips to sales seminars or vacation destinations, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise. When shares are purchased directly through the Transfer Agent and no Selling Agent is involved with the purchase, the entire front-end sales charge is paid to Stephens.
The Volume Discounts described in the Front-end Sales Charge Schedule are available to you based on the combined dollar amount you invest in shares of one or more of the Company's funds which assess a front-end sales charge (the "Load
Class B Shares are not subject to front-end sales charges, you may not consider the amount of any Class B Shares you hold in determining any Volume Discount.
The Right of Accumulation allows you to combine the amount you invest in Class A Shares of a Fund with the total NAV of shares (other than Class B Shares) in any of the Load Funds to determine reduced front-end sales charges in accordance with the above Front-end Sales Charge Schedule. In addition, you also may combine the total NAV of shares (other than Class B Shares) which you currently have invested in any other mutual fund that assesses a front-end sales charge and is advised by Wells Fargo Bank and sponsored by Stephens. For example, if you own Class A Shares of the Load Funds with an aggregate NAV of $90,000 and you invest an additional $20,000 in Class A Shares of a Fund, the front-end sales charge on the additional $20,000 investment would be 3.50% of the applicable offering price. To obtain such discount, you must provide sufficient information at the time of your purchase to verify that your purchase qualifies for the reduced front-end sales charge. Confirmation of the order is subject to such verification. The Right of Accumulation may be modified or discontinued at any time without prior notice with respect to all subsequent shares purchased.
A Letter of Intent allows you to purchase Class A Shares of a Fund over a 13-month period at a reduced front-end sales charge based on the total amount of Class A Shares you intend to purchase plus the total NAV of shares (other than Class B Shares) in any of the Load Funds you already own. Each investment in Class A Shares that you make during the period may be made at the reduced front-end sales charge that is applicable to the total amount you intend to invest. If you do not invest the total amount within the period, you must pay the difference between the higher front-end sales charge rate that would have been applied to the purchases you made and the reduced sales charge rate you have paid. The minimum initial investment for a Letter of Intent is 5% of the total amount you intend to purchase, as specified in the Letter. Shares of a Fund equal to 5% of the amount you intend to invest will be held in escrow and, if you do not pay the difference within 20 days following the mailing of a request, a sufficient amount of escrowed shares will be redeemed for payment of the additional front-end sales charge. Dividend and capital gains paid on such shares held in escrow will be reinvested in additional Fund shares.
You may reinvest proceeds from a redemption of Class A Shares in Class A Shares of a Fund or in shares of another of the Company's funds registered in your state of residence at NAV, without a front-end sales charge, within 120 days after your redemption. However, if the other investment portfolio charges a front-end sales charge that is higher than the sales load that you have paid in connection with the Class A Shares you have redeemed, you must pay the difference between the dollar amount of the two front-end sales charges. You may reinvest at this NAV price up to the total amount of the redemption proceeds. A written purchase order for the shares must be delivered to the Company, a Selling Agent, a Shareholder Servicing Agent, or the Transfer Agent at the time of reinvestment.
If you realized a gain on your redemption, your reinvestment would not alter the amount of any federal capital gains tax you pay on the gain. If you realized a loss on your redemption, your reinvestment may cause some or all of the loss to be disallowed as a tax deduction, depending on the number of shares you purchase by reinvestment and the period of time that elapses after the redemption although, for tax purposes, the amount disallowed is added to the cost of the shares you acquire upon the reinvestment.
Reductions for Families or Fiduciaries
Reductions in front-end sales charges apply to purchases by a single "person," including an individual, members of a family unit, consisting of a husband, wife and children under the age of 21 purchasing securities for their own account, or a trustee or other fiduciary purchasing for a single fiduciary account or single trust estate.
Waivers for Investments of Proceeds From Other Investments
Purchases may be made at NAV, without a front-end sales charge, to the extent that: (i) you are investing proceeds from a redemption of shares of another open-end investment company or (ii) you are investing proceeds from a redemption of units of a unit investment trust sold through Wells Fargo Securities Inc. on which you paid a front-end sales charge; (iii) such redemption occurred within thirty (30) days prior to the date of the purchase order; and (iv) such other investment company or trust is distributed and advised by entities other than Stephens and Wells Fargo Bank, respectively, or their affiliates. You must notify the Fund and/or the Transfer Agent at the time you place such purchase order of your eligibility for the waiver of front-end sales charges and provide satisfactory evidence thereof (e.g., a confirmation of the redemption).
Reductions in front-end sales charges also apply to purchases by individual members of a "qualified group." The reductions are based on the aggregate dollar amount of Class A Shares purchased by all members of the qualified group. For purposes of this paragraph, a qualified group consists of a "company," as defined in the Investment Company Act of 1940 ("1940 Act"), which has been in existence for more than six months and which has a primary purpose other than acquiring shares of a Fund at a reduced sales charge, and the "related parties" of such company. For purposes of this paragraph, a "related party" of a company is: (i) any individual or other company who directly or indirectly owns, controls or has the power to vote 5% or more of the outstanding voting securities of such company; (ii) any other company of which such company directly or indirectly owns, controls or has the power to vote 5% or more of its outstanding voting securities; (iii) any other company under common control with such company; (iv) any executive officer, director or partner of such company or of a related party; and (v) any partnership of which such company is a partner. Investors seeking to rely on their membership in a qualified group to purchase shares at a reduced sales load must provide evidence satisfactory to the Transfer Agent of the existence of a bona fide qualified group and their membership therein.
Class A Shares of a Fund may be purchased at NAV, without a front-end sales charge, by directors, officers and employees (and their spouses and children under the age of 21) of the Company, Stephens, its affiliates and Selling Agents. Class A Shares of a Fund also may be purchased at NAV, without a front-end sales charge, by present and retired directors, officers and employees (and their spouses and children under the age of 21) of Wells Fargo Bank and its affiliates if Wells Fargo Bank and/or the respective affiliates agree. Class A Shares of a Fund also may be purchased at NAV, without a front-end sales charge, by employee benefit and thrift plans for such persons and by any investment advisory, trust or other fiduciary account, including a Plan Account, that is maintained, managed or advised by Wells Fargo Bank or its affiliates ("Fiduciary Accounts"). In addition, you may purchase Class A Shares of a Fund at NAV, without a front-end sales charge, with proceeds from a required minimum distribution from any Individual Retirement Account ("IRA"), Simplified Employee Pension Plan or other self-directed retirement plan for which Wells Fargo Bank serves as trustee, provided that the proceeds are invested in the Funds within 30 days of such distribution and such distribution is required as a result of reaching age 70 1/2.
CONTINGENT DEFERRED SALES CHARGES - CLASS B SHARES
Class B Shares of the Funds are not subject to front-end sales charges but may be subject to contingent deferred sales charges. Class B Shares which are redeemed within one, two, three or four years from the receipt of a purchase order for such shares will be subject to a contingent deferred sales charge equal to 3.00%, 2.00%, 1.00% and 1.00%, respectively, of the dollar amount equal to the lesser of the NAV at the time of purchase of the shares being redeemed or the NAV of such shares at the time of redemption. Accordingly, a contingent deferred sales charge will not be imposed on amounts representing increases in NAV above the NAV at the time of purchase. Contingent deferred sales charges will not be assessed on Class B Shares purchased through reinvestment of dividends or capital gains distributions. Class B Shares automatically convert into Class A Shares of the same Fund six years after the end of the month in which such Class B Shares were acquired.
The amount of a contingent deferred sales charge, if any, paid upon redemption of Class B Shares is determined in a manner designed to result in the lowest sales charge rate being assessed. When a redemption request is made, Class B Shares acquired pursuant to the reinvestment of dividends and capital gain distributions are considered to be redeemed first. After this, Class B Shares are considered redeemed on a first-in, first-out basis so that Class B Shares held for a longer period of time are considered redeemed prior to more recently acquired Class B Shares. For a discussion of the interaction between the optional Exchange Privilege and contingent deferred sales charges on Class B Shares, see "Additional Shareholder Services - Exchange Privilege."
Contingent deferred sales charges are waived on redemptions of Class B Shares of a Fund (i) following the death or disability (as defined in the Internal Revenue Code of 1986, as amended (the "Code")) of a shareholder, (ii) to the extent that the redemption represents a minimum required distribution from an individual retirement account or other retirement plan to a shareholder who has reached age 70 1/2, (iii) effected pursuant to the Company's right to liquidate a shareholder's account if the aggregate net asset value of the shareholder's account is less than the minimum account size, or (iv) in connection with the combination of the Company with any other registered investment company by a merger, acquisition of assets, or by any other transaction.
In deciding whether to purchase Class A or Class B Shares, you should compare the fees assessed on Class A Shares (including front-end sales charges) against those assessed on Class B Shares (including potential contingent deferred sales charges and higher Rule 12b-1 fees than Class A Shares) in light of the amount to be invested and the anticipated time that the shares will be owned.
You may buy shares of the Funds on any Business Day by any of the methods described below.
1. Complete an Account Application.
2. Instruct the wiring bank to transmit the specified amount in federal funds ($1,000 or more) to:
Wire Purchase Account Number: 4068-000587 Attention: Stagecoach Funds (Name of Fund) (designate Class A or B) Account Name(s): Name(s) in which to be registered Account Number: (if investing into an existing account)
3. A completed Account Application should be mailed, or sent by telefacsimile with the original subsequently mailed, to the following address immediately after the funds are wired and must be received and accepted by the Transfer Agent before an account can be opened:
4. Share purchases are effected at the public offering price or, in the case of Class B Shares, at the NAV next determined after the Account Application is received and accepted.
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more payable to "Stagecoach Funds (Name of Fund) (designate Class A or B)," to the address above.
3. Share purchases are effected at the public offering price or, in the case of Class B Shares, at the NAV next determined after the Account Application is received and accepted.
The Company's AutoSaver Plan provides you with a convenient way to establish and automatically add to a Fund account on a monthly basis. To participate in the AutoSaver Plan, you must specify an amount ($100 or more) to be withdrawn automatically by the Transfer Agent on a monthly basis from an account with a bank, which is designated in your Account Application and which is approved by the Transfer Agent ("Approved Bank"). Wells Fargo Bank is an Approved Bank. The Transfer Agent withdraws and uses this amount to purchase specified Fund shares on your behalf on or about the fifth Business Day of each month. There are no separate fees charged to you by the Funds for participating in the AutoSaver Plan.
You may change your investment amount, suspend purchases or terminate your election at any time by providing notice to the Transfer Agent at least five Business Days prior to any scheduled transaction.
You may be entitled to invest in the Funds through a Plan Account or other tax-deferred retirement plan. Contact a Shareholder Servicing Agent (such as Wells Fargo Bank) or a Selling Agent for materials describing Plan Accounts the benefits, provisions, and fees of such Plan Accounts. The minimum initial investment amount for Fund shares acquired through a Plan Account is $250.
Pursuant to the Code, individuals who are not active participants (and who do not have a spouse who is an active participant) in certain types of retirement plans ("qualified retirement plans") may deduct contributions to an IRA, up to specified limits. Investment earnings in the IRA will be tax-deferred until withdrawn, at which time the individual may be in a lower tax bracket.
The maximum annual deductible contribution to an IRA for individuals under age 70 1/2 is 100% of includible compensation up to a maximum of (i) $2,000 for single individuals; (ii) $4,000 for a married couple when both spouses earn income; and (iii) $2,250 when one spouse earns, or elects for IRA purposes to be treated as earning, no income (together, the "IRA contribution limits").
The IRA deduction is also available for single individual taxpayers and married couples who are active participants in qualified retirement plans but who have adjusted gross incomes which do not exceed certain specified limits. If their adjusted gross income exceeds these limits, the amount of the deductible contribution may be phased down and eventually eliminated.
Any individual who works may make nondeductible contributions to an IRA in addition to any deductible contributions. Total aggregate deductible and nondeductible contributions are limited to the IRA contribution limits discussed above. Nondeductible contributions in excess of the applicable IRA contribution limit are "nondeductible excess contributions." In addition, contributions made to an IRA for the year in which an individual attains the age of 70 1/2, or any year thereafter, are also nondeductible excess contributions. Nondeductible excess contributions are subject to a 6% excise tax penalty which is charged each year that the nondeductible excess contribution remains in the IRA.
An employer also may contribute to an individual's IRA by establishing a Simplified Employee Pension Plan through a Shareholder Servicing Agent or a Selling Agent, known as a SEP-IRA. Participating employers may make an annual contribution in an amount up to the lesser of 15% of earned income or $30,000, subject to certain provisions of the Code. Investment earnings will be tax-deferred until withdrawn.
The foregoing discussion regarding IRAs is based on the Code and regulations in effect as of the date of this Prospectus and summarizes only some of the important federal tax considerations generally affecting IRA contributions made by individuals or their employers. It is not intended as a substitute for careful tax planning. Investors should consult their tax advisors with respect to their specific tax situations as well as with respect to state and local taxes. Further federal tax information is contained under the heading "Taxes" in this Prospectus and in the SAI.
A Shareholder Servicing Agent or Selling Agent also may offer other types of tax-deferred or tax-advantaged plans, including a Keogh retirement plan for self-employed professional persons, sole proprietors and partnerships.
Application materials for opening a tax-deferred retirement plan can be obtained from a Shareholder Servicing Agent or a Selling Agent. Return your completed tax-deferred retirement plan application to your Shareholder Servicing Agent or a Selling Agent for approval and processing. If your tax-deferred retirement plan application is incomplete or improperly filled out, there may be a delay before a Fund account is opened. You should ask your Shareholder Servicing Agent or Selling Agent about the investment options available to your tax-deferred retirement plan, since some of the funds in the Stagecoach Family of Funds may be unavailable as options. Moreover, certain features described herein, such as the AutoSaver Plan and the Systematic Withdrawal Plan, may not be available to individuals or entities who invest through a tax-deferred retirement plan.
You may make additional purchases of $100 or more by instructing a Fund's Transfer Agent to debit an Approved Bank account designated in your Account Application, by wire by instructing the wiring bank to transmit the specified amount as directed above for initial purchases, or by mail with a check payable to "Stagecoach Funds (Name of Fund) (designate Class A or B)" to the address set forth in "Initial Purchases by Wire". Write your Fund account number on the check and include the detachable stub from your Statement of Account or a letter providing your Fund account number.
You may place a purchase order for Class A or Class B Shares of a Fund through a broker/dealer or financial institution which has entered into a Selling Agreement with Stephens, as the Funds' Distributor ("Selling Agent"). If your order is placed by the close of the NYSE, the purchase order generally will be executed on the same day if the order is received by the Transfer Agent before the close of business. If your purchase order is received by a Selling Agent after the close of the NYSE or by the Transfer Agent after the close of business, then your purchase order will be executed on the next Business Day following the day your order is placed. The Selling Agent is responsible for the prompt transmission of your purchase order to the Fund. Because payment for shares of the Funds will not be due until settlement date, the Selling Agent might benefit from temporary use of your payment. A financial institution acting as a Selling Agent, Shareholder Servicing Agent, or in certain other capacities, may be required to register as a dealer pursuant to applicable state securities laws, which may differ from federal law and any interpretations expressed herein.
PURCHASES THROUGH SHAREHOLDER SERVICING AGENTS
Purchase orders for Class A or Class B Shares of the Funds may be transmitted to the Transfer Agent through any entity that has entered into a Shareholder Servicing Agreement with the Fund ("Shareholder Servicing Agent"), such as Wells Fargo Bank. See "Management and Servicing Fees -- Shareholder Servicing Agent."
The Shareholder Servicing Agent may transmit a purchase order to the Transfer Agent, on your behalf, including a purchase order for which payment is to be transferred from an account with an Approved Bank or wired from a financial institution. If your order is transmitted by the Shareholder Servicing Agent, on your behalf, to the Transfer Agent before the close of the NYSE, the purchase order generally will be executed on the same day. If your Shareholder Servicing Agent transmits your purchase order to the Transfer Agent after the close of the NYSE, then your order will be executed on the next Business Day following the day your order is received. The Shareholder Servicing Agent is responsible for the prompt transmission of your purchase order to the Transfer Agent.
The Funds, or a Shareholder Servicing Agent on their behalf, will typically send you a confirmation or statement of your account after every transaction that affects your share balance or your Fund account registration. A statement with tax information will be mailed to you by January 31 of each year, and also will be filed with the IRS. At least twice a year, you will receive financial statements.
The Asset Allocation Fund intends to declare a quarterly dividend and the U.S. Government Allocation Fund intends to declare a daily dividend of substantially all of their respective net investment income to shareholders of record. Dividends declared by the U.S. Government Allocation Fund in a month generally are paid on the last Business Day of each month to shareholders of record. With regard to the U.S. Government Allocation Fund, dividends for a Saturday, Sunday or Holiday are declared payable to shareholders of record as of the preceding Business Day. The Funds will distribute any capital gains at least annually. You have several options for receiving dividends and capital gain distributions. They are discussed under "Additional Shareholder Services - Dividend and Distribution Options."
Dividends and capital gain distributions will have the effect of reducing the NAV per share by the amount distributed. Although a distribution paid to you on newly issued shares shortly after your purchase would represent, in substance, a return of your capital, the distribution would consist of net investment income and, accordingly, would be taxable to you as ordinary income.
Net investment income available for distribution to the holders of Class B Shares is reduced by the amount of the higher Rule 12b-1 Fee payable on such shares. Other expenses, such as state securities registration fees and transfer agency fees, that are attributable to a particular class also may affect the relative dividends and/or capital gains distributions of Class A Shares and Class B Shares.
You may redeem all or a portion of your shares in a Fund on any Business Day. Your shares will be redeemed at the next NAV calculated after the Funds have received your redemption request in proper form. Redemption proceeds may be more or less than the amount invested and, therefore, a redemption may result in a gain or loss for federal and state income tax purposes. The Funds ordinarily will remit redemption proceeds, net of any contingent deferred sales charge applicable with respect to Class B Shares (the "net redemption proceeds"), within seven days after your redemption order is received in proper form, unless the SEC permits a longer period under extraordinary circumstances. Such extraordinary circumstances could include a period during which an emergency exists as a result of which (a) disposal by a Fund of securities owned by it is not reasonably practicable or (b) it is not reasonably practicable for a Fund fairly to determine the value of its net assets, or a period during which the SEC by order permits deferral of redemptions for the protection of security holders of such Fund. In addition, a Fund may hold payment on your redemptions until reasonably satisfied that your investments made by check have been collected (which can take up to 15 days from the purchase date). To ensure acceptance of your redemption request, please follow the procedures described below. Although it is not the Funds' current intention, the Funds may make payment of redemption proceeds in securities if conditions warrant, subject to regulation by some state securities commissions. In addition, the Funds reserve the right to impose charges for wiring redemption proceeds.
Due to the high cost of maintaining Fund accounts with small balances, the Funds reserve the right to close your account and send you the proceeds if the balance falls below the applicable minimum balance because of a redemption (including a redemption of shares of a Fund after an investor has made only the applicable minimum initial investment). However, you will be given 30 days' notice to make an additional investment to increase your account balance to an amount equal to or greater than the applicable minimum balance. Plan Accounts are not subject to minimum Fund account balance requirements. For a discussion of applicable minimum balance requirements, see "Investing in the Funds - How To Buy Shares."
Telephone redemption or exchange privileges are made available to you automatically upon opening an account, unless you specifically decline the redemption privileges authorize the Transfer Agent to act on telephone instructions from any person representing himself or herself to be the investor and reasonably believed by the Transfer Agent to be genuine. The Company will require the Transfer Agent to employ reasonable procedures, such as requiring a form of personal identification, to confirm that instructions are genuine and, if it does not follow such procedures, the Company and the Transfer Agent may be liable for any losses due to unauthorized or fraudulent instructions. Neither the Company nor the Transfer Agent will be liable for following telephone instructions reasonably believed to be genuine.
1. Write a letter of instruction. Indicate the Class and the dollar amount or number of Fund shares you want to redeem. Refer to your Fund account number and give your social security or taxpayer identification number (where applicable).
2. Sign the letter in exactly the same way the account is registered. If there is more than one owner of the shares, all must sign.
3. Signature guarantees are not required for redemption requests unless redemption proceeds of $5,000 or more are to be paid to someone other than yourself at your address of record or your designated Approved Bank account, or other unusual circumstances exist which cause the Transfer Agent to determine that a signature guarantee is necessary or prudent to protect against unauthorized redemption requests. If required, a signature must be guaranteed by an "eligible guarantor institution," which includes a commercial bank that is an FDIC member, a trust company, a member firm of a domestic stock exchange, a savings association, or a credit union that is authorized by its charter to provide a signature guarantee. Signature guarantees by notaries public are not acceptable. Further documentation may be requested from corporations, administrators, executors, personal representatives, trustees or custodians.
4. Mail your letter to the Transfer Agent at the mailing address set forth under "Investing in the Funds - Initial Purchases by Wire."
Unless other instructions are given in proper form, a check for your net redemption proceeds will be sent to your address of record.
EXPEDITED REDEMPTIONS BY MAIL OR TELEPHONE
You may request an expedited redemption of shares of a Fund by letter, in which case your receipt of redemption proceeds, but not the Fund's receipt of your redemption request, would be expedited. In addition, you also may request an expedited redemption of shares of a Fund by telephone on any Business Day, in which case both your receipt of redemption proceeds and the Fund's receipt of your redemption request would be expedited. You may request expedited redemption by telephone only if the total value of the shares redeemed is $100 or more.
You may request expedited redemption by telephone by calling the Transfer Agent at the telephone number listed on your transaction confirmation or by calling 800-222-8222.
You may request expedited redemption by mail by mailing your expedited redemption request to the Transfer Agent at the mailing address set forth under "Investing in the Funds - Initial Purchases by Wire."
Upon request, net redemption proceeds of your expedited redemptions of $5,000 or more will be wired or credited to an Approved Bank account designated in your Account Application or wired to the Selling Agent designated in your Account Application. The Company reserves the right to impose a charge for wiring redemption proceeds. When proceeds of your expedited redemption are to be paid to someone else, to an address other than that of record, or to an account with an Approved Bank or Selling Agent that you have not predesignated in your Account Application, your expedited redemption request must be made by letter and the signature(s) on the letter may be required to be guaranteed, regardless of the amount of the redemption. If your expedited redemption request is received by the Transfer Agent by the close of the NYSE on a Business Day, your redemption proceeds will be transmitted to your designated account with an Approved Bank or Selling Agent on the next Business Day (assuming your investment check has cleared as described above), absent extraordinary circumstances. Such extraordinary circumstances could include those described above as potentially delaying redemptions, and also could include situations involving an unusually heavy volume of wire transfer orders on a national or regional basis or communication or transmittal delays that could cause a brief delay in the wiring or crediting of funds. A check for the net redemption proceeds will be mailed to your address of record or, at your election, credited to an Approved Bank account designated in your Account Application.
During periods of drastic economic or market activity or changes, you may experience problems implementing an expedited redemption by telephone. In the event you are unable to reach the Transfer Agent by telephone, you should consider using overnight mail to implement an expedited redemption. The Funds reserve the right to modify or terminate the expedited telephone redemption privilege at any time.
The Company's Systematic Withdrawal Plan provides you with a convenient way to redeem Fund shares from your account and have the net redemption proceeds distributed to you on a monthly basis. You may participate in the Systematic Withdrawal Plan only if you have a Fund account valued at $10,000 or more as of the date of your election to participate, your dividends and capital gain distributions are being reinvested automatically and you are not participating in the AutoSaver Plan at any time while participating in the Systematic Withdrawal Plan. You specify an amount ($100 or more) to be distributed by check to your address of record or deposited in your
Approved Bank account designated in the Account Application. The Transfer Agent redeems sufficient shares and mails or deposits your net redemption proceeds as instructed on or about the fifth Business Day prior to the end of each month. There are no separate fees charged to you by the Funds for participating in the Systematic Withdrawal Plan. However, you should not participate in the Systematic Withdrawal Plan if you also are purchasing shares of the same Fund that are subject to a sales charge.
You may change your withdrawal amount, suspend withdrawals or terminate your election at any time by notifying the Transfer Agent at least ten Business Days prior to any scheduled transaction. Your participation in the Systematic Withdrawal Plan will be terminated automatically if your Fund account is closed or, in some cases, if your Approved Bank account is closed.
If your redemption order is received by a Selling Agent before the close of the NYSE and received by the Transfer Agent before the close of business on the same day, the order will be executed at the NAV determined as of the close of the NYSE on that day. If your redemption order is received by a Selling Agent after the close of the NYSE, or not received by the Transfer Agent prior to the close of business, your order will be executed at the NAV determined as of the close of the NYSE on the next Business Day. The Selling Agent is responsible for the prompt transmission of your redemption order to the Funds.
Unless you have made other arrangements with the Selling Agent, and the Transfer Agent has been informed of such arrangements, net redemption proceeds of a redemption order made by you through a Selling Agent will be credited to an account with an Approved Bank that you have designated in your Account Application. If no such account is designated, a check for the net redemption proceeds will be mailed to your address of record or, if such address is no longer valid, the net redemption proceeds will be credited to your account with the Selling Agent. You may request a check from the Selling Agent or may elect to retain the net redemption proceeds in such account. The Selling Agent may charge you a service fee. In addition, the Selling Agent may benefit from the use of your redemption proceeds until the check it issues to you has cleared or until such proceeds have been disbursed or reinvested on your behalf.
REDEMPTIONS THROUGH SHAREHOLDER SERVICING AGENTS
You may request a redemption of shares of a Fund through your Shareholder Servicing Agent. Any redemption request made by telephone through your Shareholder Servicing Agent must redeem shares with a total value equal to $100 or more. If your redemption order is transmitted by the Shareholder Servicing Agent, on your behalf, to the Transfer Agent before the close of the NYSE, the redemption order will be executed at the NAV determined as of the close of the NYSE on that day. If your Shareholder Servicing Agent transmits your redemption order to the Transfer Agent after the close of the NYSE, then your order will be executed on the next Business Day following the date your order is received. The Shareholder Servicing Agent is responsible for the prompt transmission of your redemption order to the Funds.
Unless you have made other arrangements with your Shareholder Servicing Agent, and the Transfer Agent has been informed of such arrangements, net redemption proceeds of a redemption order made by you through your Shareholder Servicing Agent will be credited to an account with the Approved Bank that you have designated in the Account Application. If no such account is designated, a check for the net redemption proceeds will be mailed to your address of record or, if such address is no longer valid, the net redemption proceeds will be credited to your account with your Shareholder Servicing Agent or to another account designated in your agreement with your Shareholder Servicing Agent.
The Company offers you a number of optional services. As noted above, you can take advantage of the AutoSaver Plan, Tax-Deferred Retirement Plans, the Systematic Withdrawal Plan, and Expedited Redemptions by Letter and Telephone. In addition, the Funds offer you several dividend and distribution payment options and an exchange privilege, which are described below. If you have any questions about the dividend and distribution payment options available to you, please call 800-222-8222.
When you fill out your Account Application, you can choose from the following dividend and distribution options:
A. The Automatic Reinvestment Option provides for the reinvestment of your dividends and capital gain distributions in additional shares of the same Class of the Fund which paid such dividends or capital gain distributions. Dividends and distributions declared in a month generally are reinvested at NAV on the last Business Day of such month. You are assigned this option automatically if you make no choice on your Account Application.
B. The Fund Purchase Option lets you use your dividends and/or capital gain distributions from the Funds to purchase, at NAV, shares of another fund in the Stagecoach Family of Funds with which you have an established account that has met the applicable minimum initial investment requirement. Dividends and distributions paid on Class A or Class B Shares may be invested in Class A or Class B Shares, respectively, of another fund, in Retail Shares of another fund, in Class A Shares of the Money Market Mutual Fund or in shares of the California Tax-Free Money Market Mutual Fund (the Money Market Mutual Fund and California Tax-Free Money Market Mutual Fund are, collectively, the Money Market Mutual Funds.). Dividends and distributions paid on
Class A Shares may also be invested in shares of a non-money market fund of the Stagecoach Family of Funds with a single class of shares (a "single class fund"). Dividends and distributions paid on Class B Shares may not be invested in shares of a single class fund.
C. The Automatic Clearing House Option permits you to have dividends and capital gain distributions deposited in your Approved Bank account designated in the Account Application. In the event your Approved Bank account is closed, your distribution will be held in a non-interest-bearing omnibus bank account established by the Funds' dividend disbursing agent on your behalf.
D. The Check Payment Option lets you receive a check for all dividends and/or capital gain distributions, which generally is mailed either to your designated address or your designated Approved Bank shortly following declaration. If the U.S. Postal Service cannot deliver your checks, or if your checks remain uncashed for six months, your distributions will be held in a non-interest-bearing omnibus bank account established by the Funds' dividend disbursing agent on your behalf.
Wells Fargo Bank advises a variety of other funds, each with its own investment objective and policies. The exchange privilege is a convenient way to buy shares in the other funds of the Stagecoach Family of Funds that are registered in your state of residence in order to respond to changes in your investment and savings goal or in market conditions. Class A and Class B Shares of the Funds may be exchanged for Class A and Class B Shares, respectively, of another fund, for Class A Shares of the Money Market Mutual Fund, or for shares of the California Tax-Free Money Market Mutual Fund. Class A Shares may also be exchanged for shares of a single-class fund or for Retail Shares of another fund. Before making an exchange from a Fund into another fund advised by Wells Fargo Bank, please observe the following:
- Obtain and carefully read the prospectus of the fund into which you want to exchange.
- If you exchange into another fund with a front-end sales charge, you must pay the difference between that fund's sales charge and any sales charge you already have paid in connection with the shares you are exchanging.
- If you exchange Class B Shares for Class B Shares of another fund, for shares of the California Tax-Free Money Market Mutual Fund or for Class A Shares of the Money Market Mutual Fund, a contingent deferred sales charge will not be imposed upon the exchange.
- Each exchange, in effect, represents the redemption of shares of one fund and the purchase of shares of another, which may produce a gain or loss for tax purposes. A confirmation of each exchange transaction will be sent to you.
- The dollar amount of shares you exchange must meet the minimum initial and/or subsequent investment amounts of the other fund.
- The Company reserves the right to limit the number of times shares may be exchanged between funds, to reject any telephone exchange order, or otherwise to modify or discontinue exchange privileges at any time. Under SEC rules, subject to limited exceptions, the Company must notify you 60 days before it modifies or discontinues the exchange privilege.
- If you exchange Class B Shares for Class B Shares of another fund, for shares of the California Tax-Free Money Market Mutual Fund or for Class A Shares of the Money Market Mutual Fund, the remaining period of time (if any) that the contingent deferred sales charge applicable to such shares is in effect will be computed from the time of initial purchase of the previously held shares. For example, if you exchange Class B Shares of a Fund for shares of the California Tax-Free Money Market Mutual Fund and redeem those shares of the California Tax-Free Money Market Mutual Fund within four years of the purchase of the exchanged Class B Shares, you will be required to pay a contingent deferred sales charge equal to the charge which would have applied had you redeemed the original Class B Shares at that time.
- If you exchange Class B Shares for shares of one of the Money Market Mutual Funds as described above, you subsequently may re-exchange the acquired shares only for Class B Shares of one of the Company's funds or for shares of the other Money Market Mutual Fund.
The procedures applicable to Fund share redemptions also apply to Fund share exchanges.
To exchange shares, write the Transfer Agent at the mailing address under "Investing in the Funds - Initial Purchases by Wire" or call the Transfer Agent at the telephone number listed on your transaction confirmation, or contact your Shareholder Servicing Agent or Selling Agent. The procedures applicable to telephone redemptions, including the discussion regarding the responsibility for the authenticity of telephone instructions, are also applicable to telephone exchange requests. See "How to Redeem Shares - Expedited Redemptions by Letter and Telephone."
Class B Shares of a Fund that have been outstanding for six years after the end of the month in which the shares were initially purchased automatically convert to Class A Shares of such Fund and, consequently, will no longer be subject to the higher Rule 12b-1 Fees applicable to Class B Shares. Such conversion will be on the basis of the relative net asset values of the two Classes, without the imposition of any sales charge or other charge except that the lower Rule 12b-1 Fees applicable to Class A Shares shall thereafter be applied to such converted shares. Because the per share net asset value of the
Shares may be higher than that of the Class B Shares at the time of conversion, a shareholder may receive fewer Class A Shares than the number of Class B Shares converted, although the dollar value will be the same. Reinvestments of dividends and distributions in Class B Shares will be considered new purchases for purposes of the conversion feature.
If a shareholder effects one or more exchanges among Class B Shares, Class A Shares of the Money Market Mutual Fund or shares of the California Tax-Free Money Market Mutual Fund during the six-year period, the holding period for shares so exchanged will be counted toward the six-year period and any Class B Shares held at the end of six years will be converted into Class A Shares.
Subject to the overall supervision of the Company's Board of Directors, Wells Fargo Bank, as the Funds' investment adviser, provides investment guidance and policy direction in connection with the management of the Funds' assets. Wells Fargo Bank also furnishes the Board of Directors with periodic reports on the Funds' investment strategy and performance.
For these services, Wells Fargo Bank is entitled to a monthly advisory fee at the annual rate of 0.50% of the first $250 million of each Fund's average daily net assets, 0.40% of the next $250 million, and 0.30% of the average daily net assets in excess of $500 million. Out of its fees from the Asset Allocation Fund and the U.S. Government Allocation Fund, Wells Fargo Bank pays WFNIA for its sub-advisory services annual fees equal to 0.20% of the average daily net assets of the Asset Allocation Fund and $40,000 plus 0.15% of the average daily net assets of the U.S. Government Allocation Fund. From time to time, Wells Fargo Bank may waive such fees in whole or in part. Any such waiver will reduce a Fund's expenses and, accordingly, have a favorable impact on a Fund's total return and yield. For the year ended December 31, 1994, the Company paid 0.38% of the average daily net assets of the Asset Allocation Fund and 0.50% of the average daily net assets of the U.S. Government Allocation Fund to Wells Fargo Bank for its services as investment adviser to such Funds.
Pursuant to the Sub-Advisory Agreement, Wells Fargo Bank has delegated certain advisory responsibilities to WFNIA. Nevertheless, Wells Fargo Bank has retained authority over the management of each Fund, and the investment and disposition of each Fund's assets, and Wells Fargo Bank may reject any investment recommendations or decisions for a Fund if Wells Fargo Bank determines that such recommendations or decisions are not consistent with the best interests of the Fund. For the year ended December 31, 1994, Wells Fargo Bank paid 0.20% of the average daily net assets of the
Asset Allocation Fund and 0.17% of the average daily net assets of the U.S. Government Allocation Fund to WFNIA for its services as sub-adviser to such Funds.
From time to time, each of the Funds, consistent with its investment objectives, policies and restrictions, may invest in securities of companies with which Wells Fargo Bank has a lending relationship.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
WFITC serves as the Funds' custodian. WFITC, located at 45 Fremont Street, San Francisco, California 94105, is a special purpose trust company that is owned 99.9% by WFNIA and 0.1% by Wells Fargo & Company. Wells Fargo Bank serves as the Funds' transfer and dividend disbursing agent. Wells Fargo Bank performs the transfer and dividend disbursing agency activities at 525 Market Street, San Francisco, California 94105.
The Funds have entered into Shareholder Servicing Agreements with Wells Fargo Bank on behalf of each Class of Shares of the Funds, and may enter into similar agreements with other entities. Under such agreements, Shareholder Servicing Agents (including Wells Fargo Bank) will, as agent for their customers, among other things: answer customer inquiries regarding account status and history, and the manner in which purchases, redemptions and exchanges of Fund shares may be effected; assist shareholders in designating and changing dividend options, account designations and addresses; provide necessary personnel and facilities to establish and maintain shareholder accounts and records; assist in processing purchase, redemption and exchange transactions; arrange for the wiring of money; transfer money in connection with customer orders to purchase or redeem shares; verify shareholder signatures in connection with redemption and exchange orders and transfers and changes in accounts with Approved Banks; furnish (either separately or on an integrated basis with other reports sent to a shareholder by the Shareholder Servicing Agent) monthly and year-end statements and confirmations of purchases, redemptions and exchanges; furnish, on behalf of each of the Funds, proxy statements, annual reports, updated prospectuses and other communications to shareholders; receive, tabulate and send to the Funds proxies executed by shareholders; and provide such other related services as the Funds or a shareholder may reasonably request. For these services, a Shareholder Servicing Agent receives a fee, which may be paid periodically, determined by a formula based upon the number of accounts serviced by the Shareholder Servicing Agent during the period for which payment is being made, the level of activity in such accounts during such period, and the expenses incurred by the Shareholder Servicing Agent. In no event will the fees charged to each Class, as calculated on an annualized basis for each Fund's then-current fiscal year, exceed the lesser of (1) 0.30% of the average daily net assets attributable to the Class A or Class B Shares, as the case may be, owned during the period for which payment is being made by investors with whom the Shareholder Servicing Agent maintains a servicing relationship, or (2) an amount which equals the maximum amount payable to the Shareholder Servicing Agent under applicable laws, regulations or rules, including the Rules of Fair Practice of the NASD ("NASD Rules"). In no event will the portion of such fees that constitutes a "service fee," as that term is used by the NASD, exceed 0.25% of the average NAV attributable to the Class A or Class B Shares of each Fund.
The Funds understand that a Shareholder Servicing Agent also may impose certain conditions on its customers, subject to the terms of this Prospectus, in addition to or different from those imposed by the Funds, such as requiring a higher minimum initial investment or payment of a separate fee for additional services. Each Shareholder Servicing Agent will be required to agree to disclose any fees it may directly charge its customers who are shareholders of a Fund and to notify them in writing at least 30 days before it imposes any transaction fees.
Subject to the overall supervision of the Company's Board of Directors, Stephens provides the Funds with administrative services, including general supervision of each Fund's operation, coordination of the other services provided to each Fund, compilation of information for reports to the SEC and the state securities commissions, preparation of proxy statements and shareholder reports, and general supervision of data compilation in connection with preparing periodic reports to the Company's Directors and officers. Stephens also furnishes office space and certain facilities to conduct each Fund's business, and compensates the Company's Directors, officers and employees who are affiliated with Stephens. For these services, Stephens is entitled to receive from each Fund a monthly fee at the annual rate of 0.03% of each Fund's average daily net assets. From time to time, Stephens may waive its fees from a Fund in whole or in part. Any such waiver will reduce a Fund's expenses and, accordingly, have a favorable impact on such Fund's yield and total return.
Stephens, as the principal underwriter of the Funds within the meaning of the 1940 Act, has entered into a Distribution Agreement with the Company pursuant to which Stephens is responsible for distributing Class A and Class B Shares of the Funds. The Company also has adopted a Distribution Plan on behalf of each Class of shares of the Funds under the SEC's Rule 12b-1 ("Plans"). Under the Class A Plans for each Fund, each Fund may defray all or part of the cost of preparing and printing prospectuses and other promotional materials and of delivering prospectuses and those materials to prospective Class A shareholders by paying on an annual basis up to 0.05% of the average daily net assets attributable to the Class A Shares of the Funds. The Class A Plans provide only for the reimbursement of actual expenses. Under the Class B Plans, each Fund may defray all or part of such costs and pay compensation to the Distributor and Selling Agents for sales support services. The Class B Plans provide for payments, on an annual basis, of up to 0.70% of the average daily net assets attributable to the Class B Shares of each Fund. The Distribution Agreement provides that Stephens shall act as agent for the Funds for the sale of their shares, and may enter into Selling Agreements with Selling Agents that wish to make available shares of the Funds to their respective customers. The Funds may participate in joint distribution activities with any of the other funds of the Company, in which event expenses reimbursed out of the assets of the Fund may be attributable, in part, to the distribution-related activities of another fund of the Company. Generally, the expenses attributable to joint distribution activities will be allocated among each Fund and the other funds of the Company in proportion to their relative net asset sizes, although the Company's Board of Directors may allocate such expenses in any other manner that it deems fair and equitable. In addition, Stephens has established a non-cash compensation program, pursuant to which broker/dealers or financial institutions that sell shares of the Funds may earn additional compensation in the form of trips to sales seminars or vacation destinations, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for goods or merchandise.
In addition, the Plans contemplate that, to the extent any fees payable pursuant to a Shareholder Servicing Agreement (discussed above) are deemed to be for distribution-related services, such payments are approved and payable pursuant to the Plans subject to any limits under applicable law, regulations or rules, including the NASD Rules. Financial institutions acting as Selling Agents, Shareholder Servicing Agents, or in certain other capacities may be required to register as dealers pursuant to applicable state securities laws which may differ from federal law and any interpretations expressed herein.
From time to time, Wells Fargo Bank and Stephens may waive their respective fees in whole or in part and reimburse expenses payable to others. Any such waivers or reimbursements will reduce a Fund's expenses and, accordingly, have a favorable impact on such Fund's yield and total return. Except for the expenses borne by Wells Fargo Bank and Stephens, the Company bears all costs of its operations, including advisory, shareholder servicing, transfer agency, custody and administration fees, payments pursuant to any Plans, fees and expenses of its independent auditors and legal counsel, and any extraordinary expenses. Expenses attributable to each Fund or Class are charged against the assets of the Fund or Class. General expenses of the Company are allocated among all of the funds of the Company, including the Funds, in a manner proportionate to the net assets of each fund, on a transactional basis, or on such other basis as the Company's Board of Directors deems equitable.
By complying with the applicable provisions of the Code, the Funds will not be subject to federal income taxes with respect to net investment income and net realized capital gains distributed to their shareholders. Dividends from the investment income (including net short-term capital gains, if any) declared and paid by each Fund will be taxable as ordinary income to a Fund's shareholders. Whether you take such dividend payments in cash or have them automatically reinvested in additional shares, they will be taxable. Generally, dividends are taxable to shareholders at the time they are paid. However, dividends declared payable in October, November and December and made payable to shareholders of record in such a month are treated as paid and are thereby taxable as of December 31, provided that such dividends are actually paid no later than January 31 of the following year. You may be eligible to defer the taxation of dividend and capital gain distributions on shares of a Fund which are held under a qualified tax-sheltered retirement plan. See "Investing in the Funds - Tax-Deferred Retirement Plans" above. The Funds intend to pay out all their net investment income and net realized capital gains (if any) for each year. Corporate shareholders of the Asset Allocation Fund may be eligible for the dividends-received deduction on the dividends (excluding the net capital gain dividends) paid by such Fund to the extent such Fund's income is derived from certain dividends received from domestic corporations. The U.S. Government Allocation Fund's dividends will not qualify for the dividends-received deduction allowed to corporate shareholders. In order to qualify for the dividends received deduction a corporate shareholder must hold the Fund shares paying the dividends upon which such deduction is based for at least 46 days.
The Funds, or your Shareholder Servicing Agent on their behalf, will inform you of the amount and nature of such dividends and capital gains. You should keep all statements you receive to assist in your personal record keeping. The Company is required to withhold, subject to certain exemptions, at a rate of 31% on dividends paid and redemption proceeds (including proceeds from exchanges) paid or credited to individual shareholders of the Funds if a correct Taxpayer Identification Number, certified when required, is not on file with the Company or the Transfer Agent. In connection with this withholding requirement, you will be asked to certify on your Account Application that the social security or taxpayer identification number you provide is correct and that you are not subject to 31% backup withholding for previous underreporting to the IRS.
Foreign shareholders may be subject to different tax treatment, including a withholding tax. See "Federal Income Taxes - Foreign Shareholders" in the SAIs.
Further federal tax considerations are discussed in the SAIs. All investors should consult their individual tax advisers with respect to their particular tax situations as well as the state and local tax status of investments in shares of the Funds.
WFNIA compares the Asset Allocation Fund's investments daily to the Asset Allocation Model's recommended allocation. The investment model recommends allocations among each asset class in 10% increments only. Any recommended reallocation will be implemented in accordance with trading policies that have been designed to take advantage of market opportunities and to reduce transaction costs. Under current trading policies employed by WFNIA, recommended reallocations may be implemented promptly upon receipt of recommendations or may not be acted upon for as long as two or three months thereafter depending on factors such as the percentage change from previous recommendations and the consistency of recommended reallocations over a period of time. In addition, the Asset Allocation Fund generally will invest the net proceeds from the sale of shares of the Fund and will liquidate existing Fund investments to meet net redemption requirements in a manner that best allows the Fund's existing asset allocation to follow that recommended by the Model. Notwithstanding any recommendation of the model to the contrary, the Asset Allocation Fund will generally maintain at least that portion of its assets in money market instruments reasonably considered necessary to meet redemption requirements. In general, cash maintained for short-term liquidity needs is only invested in U.S. Treasury bills, shares of other mutual funds and repurchase agreements. There is no requirement that the Fund maintain positions in any particular asset class or classes.
Wells Fargo Bank and WFNIA manage other portfolios which also invest in accordance with the Asset Allocation Model. The performance of each of those other portfolios is likely to vary among themselves and from the performance of the Fund. Such variation in performance is primarily due to different equilibrium asset mix assumptions used for the various portfolios, timing differences in the implementation of the model's recommendations and differences in expenses and liquidity requirements.
There are 500 common stocks, including Wells Fargo & Company stock, which make up the S&P 500 Index. S&P occasionally makes changes in the S&P 500 Index based on its criteria for inclusion of stocks in the S&P 500 Index. The S&P 500 Index is market-capitalization-weighted so that each stock in the S&P 500 Index represents its proportion of the total market value of all stocks in the S&P 500 Index. In making its stock investments, the policy of the Asset Allocation Fund is to invest its assets in substantially the same stocks, and in substantially the same percentages, as the S&P 500 Index, including Wells Fargo & Company stock.
WFNIA compares the U.S. Government Allocation Fund's investments daily to the U.S. Government Allocation Model's recommended allocation. Any recommended reallocation will be implemented in accordance with trading policies that have been designed to take advantage of market opportunities and to reduce transaction costs. Under current trading policies employed by WFNIA, recommended reallocations may be implemented promptly upon receipt of recommendations or may not be acted upon for as long as two to three months thereafter depending on factors such as the percentage change from previous recommendations and the consistency of recommended reallocations over a period of time. In addition, the U.S. Government Allocation Fund generally will invest the net proceeds from the sale of shares of the Fund and will liquidate existing Fund investments to meet net redemption requirements in a manner that best allows the Fund's existing asset allocation to follow the allocation recommended by the computer Model. Notwithstanding any recommendation of the computer model to the contrary, the Fund will generally maintain at least that portion of its assets in money market instruments reasonably considered necessary to meet redemption requirements. In general, cash maintained for short-term liquidity needs is only invested in U.S. Treasury bills, shares other mutual funds and repurchase agreements. There is no requirement that the Fund maintain positions in any particular asset class or classes.
WFNIA manages other funds which invest in accordance with a substantially similar version of the Model. The performance of each of those other funds is likely to vary among themselves and from the performance of the Fund. Such variation in performance is primarily due to timing differences in the implementation of the Model's recommendations, differences in expenses and liquidity requirements, and the ability of other funds to invest a higher portion of their assets in short-term investments that may generate a higher yield, but are not issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Although WFNIA intends to use the Models as bases for its investment decisions with respect to the Asset Allocation Fund and U.S. Government Allocation Fund, WFNIA may change from time to time the criteria and methods it uses to implement the model's recommendations if it believes such a change is desirable for a Fund. Nevertheless, Wells Fargo Bank has continuing and exclusive authority over the management of the Funds, the conduct of their affairs and the disposition of the Funds' assets, and Wells Fargo Bank has the right to reject WFNIA's investment decisions for a Fund if Wells Fargo Bank determines that any such decision is not consistent with the best interests of a Fund.
Money Market Instruments and Temporary Investments
In accordance with its investment policies, the Funds will invest varying percentages of their assets in money market instruments. In addition, the Funds cash balances on account of new purchases, dividends, interest and reserves for redemptions, and which the Funds may invest in the following high-quality money market instruments: (i) obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including government-sponsored enterprises ("U.S. Government obligations"); (ii) negotiable certificates of deposit, bankers' acceptances and fixed time deposits and other obligations of domestic banks (including foreign branches) that have more than $1 billion in total assets at the time of investment and are members of the Federal Reserve System or are examined by the Comptroller of the Currency or whose deposits are insured by the FDIC; (iii) commercial paper rated at the date of purchase "P-1" by Moody's Investors Service, Inc. ("Moody's") or "A-1+" or "A-1" by S&P, or, if unrated, of comparable quality as determined by Wells Fargo Bank, as investment adviser; (iv) nonconvertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of no more than one year that are rated at least "Aa" by Moody's or "AA" by S&P; (v) repurchase agreements; and (vi) short-term, U.S. dollar-denominated obligations of foreign banks (including U.S. branches) that at the time of investment: (a) have more than $10 billion, or the equivalent in other currencies, in total assets; (b) are among the 75 largest foreign banks in the world as determined on the basis of assets; (c) have branches or agencies in the United States; and (d) in the opinion of Wells Fargo Bank, as investment adviser, are of comparable quality to obligations of U.S. banks which may be purchased by a Fund.
U.S. Government obligations include securities issued or guaranteed as to principal and interest by the U.S. Government and supported by the full faith and credit of the U.S. Treasury. U.S. Treasury obligations differ mainly in the length of their maturity. Treasury bills, the most frequently issued marketable government securities, have a maturity of up to one year and are issued on a discount basis. U.S. Government obligations also include securities issued or guaranteed by federal agencies or instrumentalities, including government-sponsored enterprises. Some obligations of agencies or instrumentalities of the U.S. Government are supported by the full faith and credit of the United States or U.S. Treasury guarantees; others, by the right of the issuer or guarantor to borrow from the U.S. Treasury; still others, by the discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality; and others, only by the credit of the agency or instrumentality issuing the obligation. In the case of obligations not backed by the full faith and credit of the United States, the investor must look principally to the agency or instrumentality issuing or guaranteeing the obligation for ultimate repayment, which agency or instrumentality may be privately owned. There can be no assurance that the U.S. Government will provide financial support to its agencies or instrumentalities where it is not obligated to do so. In addition, U.S. Government obligations are subject to fluctuations in market value due to fluctuations in market interest rates. As a general matter, the value of debt instruments, including U.S. Government obligations, declines when market interest rates increase and rises when market interest rates decrease. Certain types of U.S. Government obligations are subject to fluctuations in yield or value due to their structure or contract terms.
The Funds may invest in commercial paper (including variable amount master demand notes), which refers to short-term, unsecured promissory notes issued by corporations to finance short-term credit needs. Commercial paper is usually sold on a discount basis and has a maturity at the time of issuance not exceeding nine months. Variable amount master demand notes are demand obligations that permit the investment of fluctuating amounts at varying market rates of interest pursuant to arrangements between the issuer and a commercial bank acting as agent for the payee of such notes whereby both parties have the right to vary the amount of the outstanding indebtedness on the notes.
The Funds also may invest in nonconvertible corporate debt securities (e.g., bonds and debentures) with no more than one year remaining to maturity at the date of settlement. The Funds will invest only in such corporate bonds and debentures that are rated at the time of purchase at least "Aa" by Moody's or "AA" by S&P.
Certain of the debt instruments that the Funds may purchase bear interest at rates that are not fixed, but vary for example, with changes in specified market rates or indices or specified intervals. Certain of these instruments may carry a demand feature that would permit the holder to tender them back to the issuer at par value prior to maturity. The floating- and variable-rate instruments that the Funds may purchase include certificates of participation in such obligations. Wells Fargo Bank or WFNIA, as appropriate will monitor on an ongoing basis the ability of an issuer of a demand instrument to pay principal and interest on demand. Events affecting the ability of the issuer of a demand instrument to make payment when due may occur between the date a Fund elects to demand payment and the date payment is due. Such events may affect the ability of the issuer of the instrument to make payment when due, thereby affecting a Fund's ability to obtain payment at par. Demand instruments whose demand feature is not exercisable within seven days may be treated as liquid, provided that an active secondary market exists.
The Funds may enter into repurchase agreements wherein the seller of a security to a Fund agrees to repurchase that security from such Fund at a mutually agreed-upon time and price. The period of maturity is usually quite short, often overnight or a few days, although it may extend over a number of months. The Funds may enter into repurchase agreements only with respect to U.S. Government obligations and those securities which are permissible investments for the Fund. All repurchase agreements will be fully collateralized based on values that are marked to market daily. The maturities of the underlying securities in a repurchase agreement transaction entered into by the Funds may be greater than one year. If the seller defaults and the value of the underlying securities has declined, a Fund may incur a loss. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, a Fund's disposition of the security may be delayed or limited. The Funds will enter into repurchase agreements only with registered broker/dealers and commercial banks that meet guidelines established by the Company's Board of Directors and are not affiliated with the Funds' investment adviser. The Funds may participate in pooled repurchase agreement transactions with other funds advised by Wells Fargo Bank.
The Funds may lend securities from their portfolios to brokers, dealers and financial institutions (but not individuals) if cash, U.S. Government obligations or other high-quality debt instruments equal to at least 100% of the current market value of the securities loan (including accrued interest thereon) plus the interest payable to a Fund with respect to the loan is maintained with the Fund. In determining whether to lend a security to a particular broker, dealer or financial institution, a Fund's investment adviser will consider all relevant facts and circumstances, including the creditworthiness of the broker, dealer or financial institution. Any loans of portfolio securities will be fully collateralized based on values that are marked to market daily. The Funds will not enter into any portfolio security lending arrangement having a duration of longer than one year. Any securities that a Fund may receive as collateral will not become part of the Fund's portfolio at the time of the loan and, in the event of a default by the borrower, the Fund, if permitted by law, will dispose of such collateral except for such part thereof that is a security in which the Fund is permitted to invest. During the time securities are on loan, the borrower will pay a Fund any accrued income on those securities, and the Fund may invest the cash collateral and earn additional income or receive an agreed-upon fee from a borrower that has delivered cash-equivalent collateral. Neither Fund will lend securities having a value that exceeds one-third of the current value of its total assets. Loans of securities by a Fund will be subject to termination at the Fund's or the borrower's option. The Funds may pay reasonable administrative and custodial fees in connection with a securities loan and may pay a negotiated portion of the interest or fee earned with respect to the collateral to the borrower or the placing broker. Borrowers and placing brokers may not be affiliated, directly or indirectly, with the Company, the investment adviser, or the Distributor.
Each Fund may invest up to 25% of its respective assets in high-quality, short-term debt obligations of foreign branches of U.S. banks or U.S. branches of foreign banks that are denominated in and pay interest in U.S. dollars. Investments in foreign obligations involve certain considerations that are not typically associated with investing in domestic obligations. There may be less publicly available information about a foreign issuer than about a domestic issuer. Foreign issuers also are not subject to the same uniform accounting, auditing and financial reporting standards or governmental supervision as domestic issuers. In addition, with respect to certain foreign countries, interest may be withheld at the source under foreign income tax laws, and there is a possibility of expropriation or confiscatory taxation, political or social instability or diplomatic developments that could adversely affect investments in, the liquidity of, and the ability to enforce contractual obligations with respect to, securities of issuers located in those countries.
Each Fund's investment objective, as set forth in the first paragraph of the "How The Funds Work - Investment Objectives and Policies" section, is fundamental; that is, it may not be changed without approval by the vote of the holders of a majority of a Fund's outstanding voting securities, as described under "Capital Stock" in the SAI for each Fund. In addition, any fundamental investment policy may not be changed without such shareholder approval. If the Board of Directors determines, however, that a Fund's investment objective can best be achieved by a substantive change in a nonfundamental investment policy or strategy, the Company's Board may make such change without shareholder approval and will disclose any such material changes in the then-current prospectus.
As matters of fundamental policy, each Fund may: (i) not purchase securities of any issuer (except U.S. Government obligations) if as a result more than 5% of the value of the Fund's total assets would be invested in the securities of such issuer or the Fund would own more than 10% of the outstanding voting securities of such issuer; (ii) borrow from banks up to 20% of the current value of its net assets for temporary purposes only in order to meet redemptions, and these borrowings may be secured by the pledge of up to 20% of the current value of its net assets (but investments may not be purchased while any such outstanding borrowings exceed 5% of its net assets); (iii) make loans of portfolio securities in accordance with its investment policies; and (iv) not invest 25% or more of its assets (i.e., concentrate) in any particular industry, except that each Fund may invest 25% or more of its assets in U.S. Government obligations, the Asset Allocation Fund is permitted to concentrate its assets in any industry for the same period as does the S&P 500 Index, and the Asset Allocation Fund's money market investments may be invested in the banking industry and in U.S. Government obligations, and such investments may, from time to time, represent 25% or more of the Asset Allocation Fund's total assets. However, the Asset Allocation Fund's money market investments in the banking industry will not represent 25% or more of its total assets unless the SEC staff has confirmed that it does not object to the Fund reserving freedom of action to concentrate investments in the banking industry. With respect to paragraph (ii) above, each Fund presently does not intend to put at risk more than 5% of its assets during the coming year. With respect to paragraph (iii) above, the
Asset Allocation Fund presently does not intend to put at risk more than 5% of its assets during the coming year. With respect to paragraph (i), it may be possible that the Company would own more than 10% of the outstanding voting securities of an issuer.
As a matter of nonfundamental policy, each Fund may not invest more than 10% of the current value of its net assets in repurchase agreements having maturities of more than seven days, and other illiquid securities (including restricted securities).
Advised by WELLS FARGO BANK, N.A. - Sponsored/Distributed by
[THIS PAGE INTENTIONALLY LEFT BLANK]
INVESTMENT ADVISER, TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Nikko Investment Advisors
For more information about the Fund simply call 1-800-222-8222 or write:
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497
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497
| 1996-01-12T00:00:00
| 1996-01-12T12:17:31
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0000823535-96-000006
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0000823535-96-000006_0007.txt
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FIDELITY MANAGEMENT & RESEARCH COMPANY AGREEMENT made this 1st day of 19 , by and between Fidelity Boston Street Trust, a Massachsuetts business trust which may issue one or more series of shares of beneficial interest (hereinafter called the "Fund"), on behalf of Fidelity Target Timeline 1999 (hereinafter called the "Portfolio"), and Fidelity Management & Research Company, a Massachusetts corporation (hereinafter called the "Adviser") as set forth in its entirety below. 1. (a) Investment Advisory Services. The Adviser undertakes to act as investment adviser of the Portfolio and shall, subject to the supervision of the Fund's Board of Trustees, direct the investments of the Portfolio in accordance with the investment objective, policies and limitations as provided in the Portfolio's Prospectus or other governing instruments, as amended from time to time, the Investment Company Act of 1940 and rules thereunder, as amended from time to time (the "1940 Act"), and such other limitations as the Portfolio may impose by notice in writing to the Adviser. The Adviser shall also furnish for the use of the Portfolio office space and all necessary office facilities, equipment and personnel for servicing the investments of the Portfolio; and shall pay the salaries and fees of all officers of the Fund, of all Trustees of the Fund who are "interested persons" of the Fund or of the Adviser and of all personnel of the Fund or the Adviser performing services relating to research, statistical and investment activities. The Adviser is authorized, in its discretion and without prior consultation with the Portfolio, to buy, sell, lend and otherwise trade in any stocks, bonds and other securities and investment instruments on behalf of the Portfolio. The investment policies and all other actions of the Portfolio are and shall at all times be subject to the control and direction of the Fund's Board of Trustees. (b) Management Services. The Adviser shall perform (or arrange for the performance by its affiliates of) the management and administrative services necessary for the operation of the Fund. The Adviser shall, subject to the supervision of the Board of Trustees, perform various services for the Portfolio, including but not limited to: (i) providing the Portfolio with office space, equipment and facilities (which may be its own) for maintaining its organization; (ii) on behalf of the Portfolio, supervising relations with, and monitoring the performance of, custodians, depositories, transfer and pricing agents, accountants, attorneys, underwriters, brokers and dealers, insurers and other persons in any capacity deemed to be necessary or desirable; (iii) preparing all general shareholder communications, including shareholder reports; (iv) conducting shareholder relations; (v) maintaining the Fund's existence and its records; (vi) during such times as shares are publicly offered, maintaining the registration and qualification of the Portfolio's shares under federal and state law; and (vii) investigating the development of and developing and implementing, if appropriate, management and shareholder services designed to enhance the value or convenience of the Portfolio as an investment vehicle. The Adviser shall also furnish such reports, evaluations, information or analyses to the Fund as the Fund's Board of Trustees may request from time to time or as the Adviser may deem to be desirable. The Adviser shall make recommendations to the Fund's Board of Trustees with respect to Fund policies, and shall carry out such policies as are adopted by the Trustees. The Adviser shall, subject to review by the Board of Trustees, furnish such other services as the Adviser shall from time to time determine to be necessary or useful to perform its obligations under this Contract. (c) The Adviser shall place all orders for the purchase and sale of portfolio securities for the Portfolio's account with brokers or dealers selected by the Adviser, which may include brokers or dealers affiliated with the Adviser. The Adviser shall use its best efforts to seek to execute portfolio transactions at prices which are advantageous to the Portfolio and at commission rates which are reasonable in relation to the benefits received. In selecting brokers or dealers qualified to execute a particular transaction, brokers or dealers may be selected who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to the Portfolio and/or the other accounts over which the Adviser or its affiliates exercise investment discretion. The Adviser is authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Portfolio which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the Adviser determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities which the Adviser and its affiliates have with respect to accounts over which they exercise investment discretion. The Trustees of the Fund shall periodically review the commissions paid by the Portfolio to determine if the commissions paid over representative periods of time were reasonable in relation to the benefits to the Portfolio. The Adviser shall, in acting hereunder, be an independent contractor. The Adviser shall not be an agent of the Portfolio. 2. It is understood that the Trustees, officers and shareholders of the Fund are or may be or become interested in the Adviser as directors, officers or otherwise and that directors, officers and stockholders of the Adviser are or may be or become similarly interested in the Fund, and that the Adviser may be or become interested in the Fund as a shareholder or otherwise. 3. The Adviser will be compensated on the following basis for the services and facilities to be furnished hereunder. The Adviser shall receive a monthly management fee, payable monthly as soon as practicable after the last day of each month, composed of a Group Fee and an Individual Fund Fee. (a) Group Fee Rate. The Group Fee Rate shall be based upon the monthly average of the net assets of the registered investment companies having Advisory and Service or Management Contracts with the Adviser (computed in the manner set forth in the fund's Declaration of Trust or other organizational document) determined as of the close of business on each business day throughout the month. The Group Fee Rate shall be determined on a cumulative basis pursuant to the following schedule: Average Net Assets Annualized Fee Rate (for each level)
0 - $ 3 billion .3700%
(b) Individual Fund Fee Rate. The Individual Fund Fee Rate shall be .30%. The sum of the Group Fee Rate, calculated as described above to the nearest millionth, and the Individual Fund Fee Rate shall constitute the Annual Management Fee Rate. One-twelfth of the Annual Management Fee Rate shall be applied to the average of the net assets of the Portfolio (computed in the manner set forth in the Fund's Declaration of Trust or other organizational document) determined as of the close of business on each business day throughout the month. (c) In case of termination of this Contract during any month, the fee for that month shall be reduced proportionately on the basis of the number of business days during which it is in effect, and the fee computed upon the average net assets for the business days it is so in effect for that month. 4. It is understood that the Portfolio will pay all its expenses, which expenses payable by the Portfolio shall include, without limitation, (i) interest and taxes; (ii) brokerage commissions and other costs in connection with the purchase or sale of securities and other investment instruments; (iii) fees and expenses of the Fund's Trustees other than those who are "interested persons" of the Fund or the Adviser; (iv) legal and audit expenses; (v) custodian, registrar and transfer agent fees and expenses; (vi) fees and expenses related to the registration and qualification of the Fund and the Portfolio's shares for distribution under state and federal securities laws; (vii) expenses of printing and mailing reports and notices and proxy material to shareholders of the Portfolio; (viii) all other expenses incidental to holding meetings of the Portfolio's shareholders, including proxy solicitations therefor; (ix) a pro rata share, based on relative net assets of the Portfolio and other registered investment companies having Advisory and Service or Management Contracts with the Adviser, of 50% of insurance premiums for fidelity and other coverage; (x) its proportionate share of association membership dues; (xi) expenses of typesetting for printing Prospectuses and Statements of Additional Information and supplements thereto; (xii) expenses of printing and mailing Prospectuses and Statements of Additional Information and supplements thereto sent to existing shareholders; and (xiii) such non-recurring or extraordinary expenses as may arise, including those relating to actions, suits or proceedings to which the Portfolio is a party and the legal obligation which the Portfolio may have to indemnify the Fund's Trustees and officers with respect thereto. 5. The services of the Adviser to the Portfolio are not to be deemed exclusive, the Adviser being free to render services to others and engage in other activities, provided, however, that such other services and activities do not, during the term of this Contract, interfere, in a material manner, with the Adviser's ability to meet all of its obligations with respect to rendering services to the Portfolio hereunder. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of the Adviser, the Adviser shall not be subject to liability to the Portfolio or to any shareholder of the Portfolio for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security or other investment instrument. 6. (a) Subject to prior termination as provided in sub-paragraph (d) of this paragraph 6, this Contract shall continue in force until June 30, 1996 and indefinitely thereafter, but only so long as the continuance after such date shall be specifically approved at least annually by vote of the Trustees of the Fund or by vote of a majority of the outstanding voting securities of the Portfolio. (b) This Contract may be modified by mutual consent, such consent on the part of the Fund to be authorized by vote of a majority of the outstanding voting securities of the Portfolio. (c) In addition to the requirements of sub-paragraphs (a) and (b) of this paragraph 6, the terms of any continuance or modification of this Contract must have been approved by the vote of a majority of those Trustees of the Fund who are not parties to the Contract or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. (d) Either party hereto may, at any time on sixty (60) days' prior written notice to the other, terminate this Contract, without payment of any penalty, by action of its Trustees or Board of Directors, as the case may be, or with respect to the Portfolio by vote of a majority of the outstanding voting securities of the Portfolio. This Contract shall terminate automatically in the event of its assignment. 7. The Adviser is hereby expressly put on notice of the limitation of shareholder liability as set forth in the Fund's Declaration of Trust or other organizational document and agrees that the obligations assumed by the Fund pursuant to this Contract shall be limited in all cases to the Portfolio and its assets, and the Adviser shall not seek satisfaction of any such obligation from the shareholders or any shareholder of the Portfolio or any other Portfolios of the Fund. In addition, the Adviser shall not seek satisfaction of any such obligations from the Trustees or any individual Trustee. The Adviser understands that the rights and obligations of any Portfolio under the Declaration of Trust or other organizational document are separate and distinct from those of any and all other Portfolios. 8. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts, without giving effect to the choice of laws provisions thereof.
The terms "vote of a majority of the outstanding voting securities," "assignment," and "interested persons," when used herein, shall have the respective meanings specified in the 1940 Act, as now in effect or as hereafter amended, and subject to such orders as may be granted by the Securities and Exchange Commission. IN WITNESS WHEREOF the parties have caused this instrument to be signed in their behalf by their respective officers thereunto duly authorized, and their respective seals to be hereunto affixed, all as of the date written above. on behalf of Fidelity Target Timeline 1999 FIDELITY MANAGEMENT & RESEARCH COMPANY
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485BPOS
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EX-99.B5A
| 1996-01-12T00:00:00
| 1996-01-12T16:08:42
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0000950138-96-000010
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0000950138-96-000010_0002.txt
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1. PURCHASE AND SALE OF SHARES . . . . . . . . . . . . . . . 1 1.1 Sale of Shares. . . . . . . . . . . . . . . . . . . . 1 1.2 Payment of Purchase Price. . . . . . . . . . . . . . . 2
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.1 The Closing; Post-Closing Purchase Price Adjustment . 2 2.2 Stock Certificates. . . . . . . . . . . . . . . . . . 2 2.3 Post-Closing Purchase Price Adjustment . . . . . . . . . 3
3. REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . 5 3.1 Organization and Corporate Power. . . . . . . . . . . 5 3.2 Authorization. . . . . . . . . . . . . . . . . . . . . 6 3.3 Financial Statements. . . . . . . . . . . . . . . . . 6 3.4 Absence of Undisclosed Liabilities. . . . . . . . . . 7 3.5 Absence of Certain Developments. . . . . . . . . . . . 7 3.6 Real Property. . . . . . . . . . . . . . . . . . . . . 9 3.7 Tangible Personal Property. . . . . . . . . . . . . . 10 3.8 Inventories and Supplies. . . . . . . . . . . . . . . 11 3.9 Intellectual Property Rights. . . . . . . . . . . . . 11 3.10 Accounts and Notes Receivable. . . . . . . . . . . . 12 3.11 Outstanding Capital Stock. . . . . . . . . . . . . . 12 3.12 Options or Other Rights. . . . . . . . . . . . . . . 13 3.13 Title to Shares. . . . . . . . . . . . . . . . . . . 13 3.14 Subsidiaries. . . . . . . . . . . . . . . . . . . . . 13 3.15 Compliance with Laws. . . . . . . . . . . . . . . . . 14 3.16 No Breach. . . . . . . . . . . . . . . . . . . . . . 14 3.17 Litigation. . . . . . . . . . . . . . . . . . . . . . 15 3.18 Material and Affiliated Contracts. . . . . . . . . . 16 3.19 Licenses and Permits. . . . . . . . . . . . . . . . . 17 3.20 Labor Matters. . . . . . . . . . . . . . . . . . . . 18 3.21 Charters and Bylaws. . . . . . . . . . . . . . . . . 18 3.22 Tax Matters. . . . . . . . . . . . . . . . . . . . . 19 3.23 Workers' Compensation . . . . . . . . . . . . . . . . 23 3.24 Insurance. . . . . . . . . . . . . . . . . . . . . . 23 3.25 Employee Benefit Plans. . . . . . . . . . . . . . . . 24 3.26 Necessary Property. . . . . . . . . . . . . . . . . . 31 3.27 Environmental Matters. . . . . . . . . . . . . . . . 32 3.28 Full Disclosure. . . . . . . . . . . . . . . . . . . 36 3.29 Limitation. . . . . . . . . . . . . . . . . . . . . . 37
4. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . 37 4.1 Organization and Corporate Power. . . . . . . . . . . 37 4.2 Authorization. . . . . . . . . . . . . . . . . . . . . 37 4.3 No Breach. . . . . . . . . . . . . . . . . . . . . . . 38 4.4 No Investigation. . . . . . . . . . . . . . . . . . . 38 4.5 Buyer's Financing. . . . . . . . . . . . . . . . . . . 39 4.6 Securities Act of 1933. . . . . . . . . . . . . . . . 39
5. COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . 39 5.1 Preservation of Business. . . . . . . . . . . . . . . 39 5.2 Negative Covenants of Seller. . . . . . . . . . . . . 40 5.3 Seller Tax Matters. . . . . . . . . . . . . . . . . . 41 5.4 Buyer Tax Matters. . . . . . . . . . . . . . . . . . . 42 5.5 Other Tax Matters. . . . . . . . . . . . . . . . . . . 43 5.6 Intercompany Accounts. . . . . . . . . . . . . . . . . 46 5.7 Notice of Developments. . . . . . . . . . . . . . . . 46 5.8 Reasonable Efforts and Certain Filings. . . . . . . . 47 5.9 Employees and Employee Benefits. . . . . . . . . . . . 47 5.10 Exclusivity. . . . . . . . . . . . . . . . . . . . . 54 5.11 Non-Hire. . . . . . . . . . . . . . . . . . . . . . . 55 5.12 Noncompetition. . . . . . . . . . . . . . . . . . . . 55 5.13 Pre- and Post-Closing Cooperation. . . . . . . . . . 56 5.14 Insurance. . . . . . . . . . . . . . . . . . . . . . 57 5.15 Confidentiality. . . . . . . . . . . . . . . . . . . 59 5.16 Industrial Revenue Bonds. . . . . . . . . . . . . . . 60
6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER . . . . 61 6.1 Representations and Covenants. . . . . . . . . . . . . 61 6.2 Closing Certificate. . . . . . . . . . . . . . . . . . 62 6.3 Legal Opinion. . . . . . . . . . . . . . . . . . . . . 62 6.4 Injunction. . . . . . . . . . . . . . . . . . . . . . 62 6.5 Governmental Authority. . . . . . . . . . . . . . . . 62
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER . . . . . 62 7.1 Representations and Covenants. . . . . . . . . . . . . 63 7.2 Closing Certificate. . . . . . . . . . . . . . . . . . 63 7.3 Legal Opinion. . . . . . . . . . . . . . . . . . . . . 63 7.4 Injunction. . . . . . . . . . . . . . . . . . . . . . 63 7.5 Governmental Authority. . . . . . . . . . . . . . . . 64 7.6 No Loss. . . . . . . . . . . . . . . . . . . . . . . . 64 7.7 Financing. . . . . . . . . . . . . . . . . . . . . . . 64 7.8 Resignations. . . . . . . . . . . . . . . . . . . . . 64 7.9 Trademark License. . . . . . . . . . . . . . . . . . . 64 7.10 Consents. . . . . . . . . . . . . . . . . . . . . . . 65 7.11 Environmental Reports. . . . . . . . . . . . . . . . 65
8. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . 65 8.1 Indemnity of Seller. . . . . . . . . . . . . . . . . . 65 8.2 Indemnity of Buyer. . . . . . . . . . . . . . . . . . 66 8.3 Mitigation. . . . . . . . . . . . . . . . . . . . . . 67 8.4 Matters Involving Third Parties. . . . . . . . . . . . 68 8.5 Tax Indemnification. . . . . . . . . . . . . . . . . . 69 8.6 Indemnification Payment. . . . . . . . . . . . . . . . 69 8.7 Environmental Indemnification. . . . . . . . . . . . . 70 8.8 Procedures Relating to Environmental Indemnity by Seller 73
9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 76 9.1 Fees and Expenses. . . . . . . . . . . . . . . . . . . 76 9.2 Brokers. . . . . . . . . . . . . . . . . . . . . . . . 77 9.3 Access to the Company's Properties. . . . . . . . . . 77 9.4 Books and Records. . . . . . . . . . . . . . . . . . . 78 9.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . 79 9.6 Successors and Assigns. . . . . . . . . . . . . . . . 80 9.7 Entire Agreement and Modification. . . . . . . . . . . 80 9.8 Termination By Buyer. . . . . . . . . . . . . . . . . 81 9.9 Termination By Seller. . . . . . . . . . . . . . . . . 81 9.10 Other Termination. . . . . . . . . . . . . . . . . . 82 9.11 Effect of Termination. . . . . . . . . . . . . . . . 82 9.12 Survival of Representations, Covenants and Warranties. 83 9.13 Section and Other Headings. . . . . . . . . . . . . . 83 9.14 Governing Law. . . . . . . . . . . . . . . . . . . . 84 9.15 Counterparts. . . . . . . . . . . . . . . . . . . . . 84 9.16 Further Assurances. . . . . . . . . . . . . . . . . . 84 9.17 Severability. . . . . . . . . . . . . . . . . . . . . 84 9.18 Confidentiality. . . . . . . . . . . . . . . . . . . 84 9.19 No Third Party Beneficiaries. . . . . . . . . . . . . 85 9.20 Jurisdiction. . . . . . . . . . . . . . . . . . . . . 85 9.21 Specific Performance. . . . . . . . . . . . . . . . . 85 9.22 Intercompany Relationships. . . . . . . . . . . . . . 86 9.23 Parent Guarantee. . . . . . . . . . . . . . . . . . . 86 9.24 Definition of Knowledge. . . . . . . . . . . . . . . 86
THIS AGREEMENT (the "Agreement"), dated November 18, 1995, among ARMSTRONG WORLD INDUSTRIES, INC., a Pennsylvania corporation ("Parent"), ARMSTRONG ENTERPRISES, INC., a Vermont corporation ("Seller"), and INTERCO INCORPORATED, a Delaware corporation ("Buyer"). WITNESSETH:
WHEREAS, Seller, a wholly-owned subsidiary of Parent, owns beneficially and of record all of the issued and outstanding shares (the "Shares") of Common Stock, par value $1.00 per share, of Thomasville Furniture Industries, Inc., a Pennsylvania corporation
WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, the Shares upon the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained in this Agreement, Seller and Buyer, intending to be legally bound, agree as follows:
1.PURCHASE AND SALE OF SHARES
At the Closing (as defined in Section 2.1), Seller shall sell, assign, transfer and deliver to Buyer, and Buyer shall purchase and accept from Seller, the Shares for the aggregate purchase price of $331,200,000 (the "Purchase Price"), payable as provided in Section 1.2. The Purchase Price is subject to adjustment as provided in Section 2.3.
1.2 Payment of Purchase Price.
The Purchase Price shall be paid by Buyer to Seller on the Closing Date by wire transfer of same day immediately available funds.
2.1 The Closing; Post-Closing Purchase Price Adjustment.
The closing ("Closing") of the sale and purchase of the Shares contemplated hereby shall take place at the offices of the legal counsel for Buyer s lead lender described in the Financing Letters (as defined in Section 4.5) in New York, New York, at 10:00 a.m. local time on December 29, 1995 or, if later, the date that is five business days following notice from Buyer to Seller of the anticipated satisfaction of the condition set forth in Section 7.7, or on such other date and such other place as the parties may agree, but in any event not later than January 31, 1996 ( Termination Date ); provided, however, in the event that any of the conditions set forth in Sections 6.4, 6.5, 7.4 and 7.5 shall not have been met or waived in writing by the Termination Date, such date shall be extended to the first to occur of (i) the satisfaction or written waiver of all such conditions or (ii) March 15, 1996. The day of Closing is referred to hereinafter as the "Closing Date."
At the Closing, Seller shall deliver to Buyer stock certificates representing all of the Shares, duly endorsed in blank or accompanied by stock powers executed in blank, in proper form for transfer, together with any required transfer stamps.
2.3 Post-Closing Purchase Price Adjustment.
(a) Within 60 days after the Closing Date, Buyer will prepare and deliver to Seller a consolidated balance sheet (the "Closing Date Balance Sheet") for the Company and the Subsidiaries as of the close of business on the Closing Date (determined on a pro forma basis as though the parties had not consummated the transactions contemplated by this Agreement). The Closing Date Balance Sheet will be audited by KPMG Peat Marwick ("Peat"), whose opinion will be appended thereto. The Closing Date Balance Sheet will be prepared in accordance with generally accepted accounting principles applied on a basis consistent with the preparation of the Latest Balance Sheet (as defined in Section 3.3. below); provided, however, that (i) inventories will be calculated at cost (first-in, first-out) or market, whichever is lower, (ii) intercompany receivables, intercompany payables and notes payable to affiliates will be excluded, (iii) any asset or liability of the Company and the Subsidiaries retained by Seller pursuant to this Agreement will be excluded and (iv) any other adjustments shall be made which were made in the calculation of Target Net Worth attached hereto as Schedule 2.3 (iv) (Subsections (i), (ii), (iii) and (iv) hereof collectively referred to as the Balance Sheet Adjustments ). Representatives from both Seller and Buyer shall be entitled to participate in the taking of any physical inventories conducted with respect to the Company and the Subsidiaries on or after the date of this Agreement. The fees and expenses of Peat will be paid by Buyer.
(b) On or prior to the date 20 business days after delivery to Seller of the Closing Date Balance Sheet (the Adjustment Date ), Seller and Buyer shall mutually agree upon the "Adjusted Closing Net Worth". The "Adjusted Closing Net Worth" shall mean the Shareholder's Equity of the Company and the Subsidiaries reflected on the Closing Date Balance Sheet. In the event that Seller and Buyer are unable to agree on the Adjusted Closing Net Worth within such 20 day period, Seller and Buyer shall submit the dispute to Arthur Andersen & Co. (the "Arbiter"), for resolution. Promptly, but no later than 20 days after its acceptance of its appointment as Arbiter, the Arbiter shall determine, based solely on presentations by Seller and Buyer, and not by independent review, only those issues in dispute and shall render a report as to the dispute and the resulting computation of the Adjusted Closing Net Worth which shall be conclusive and binding upon the parties. The fees, costs and expenses of the Arbiter shall be borne by each party in proportion that the aggregate dollar amount of such disputed items so submitted that are unsuccessfully disputed by such party bears to the aggregate dollar amount of the items submitted by the Arbiter.
(c) To the extent the Adjusted Closing Net Worth is less than the "Target Net Worth" in an amount that is greater than $2,000,000, Seller shall pay the amount of such difference in excess of $2,000,000 to Buyer (plus interest from the Adjustment Date through the date of payment at the prime lending rate of Bankers Trust Company from time to time prevailing ), as an adjustment to the Purchase Price, by wire transfer of immediately available funds within two business days of the final determination of Adjusted Closing Net Worth. The "Target Net Worth" shall mean $250,895,000, which is the Shareholder's Equity reflected on the Latest Balance Sheet, adjusted to give effect to the Balance Sheet Adjustments. In the event the Adjusted Closing Net Worth is equal to or greater than $248,895,000, no adjustment to the Purchase Price will be made.
(d) Seller will make its books, records and personnel available to Buyer and its accountants and other representatives, and Buyer will cause the Company and the Subsidiaries to make their respective books, records and personnel and Peat's work papers and back-up materials used in preparing and auditing the Closing Date Balance Sheet available to Seller and its accountants and other representatives, at reasonable times and upon reasonable notice at any time during (A) the preparation by Buyer of the Closing Date Balance Sheet, (B) the review by Seller of the Closing Date Balance Sheet and (C) the resolution by the parties and, if necessary, the Arbiter of any disputes involving the Closing Date Balance Sheet.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that the statements contained in this Article 3 are correct as of the date of this Agreement, and will be correct as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article 3).
3.1 Organization and Corporate Power.
Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Vermont. Except as set forth in Schedule 3.1, each of the Company and the Subsidiaries (as defined in Section 3.14) (i) is a corporation duly organized and validly existing in good standing under the laws of its jurisdiction of incorporation and (ii) is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions in which the character of the properties owned or leased by it or the nature of the business conducted therein requires it to be so qualified except where the failure to qualify would have a material adverse effect on the Company and the Subsidiaries, taken as a whole. Schedule 3.1 sets forth each state in which the Company or the Subsidiaries are qualified to do business as a foreign corporation. Seller has full corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. Each of the Company and the Subsidiaries has full power and authority to carry on its business as conducted at the present time and to own and use the properties owned and used by it.
This Agreement has been duly authorized, executed and delivered by Seller and constitutes a valid and legally binding agreement of Seller, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles.
Delivered contemporaneously herewith to Buyer are the following financial statements:
(a) the (i) audited statements of income and cash flows for the years ended December 31, 1992, December 31, 1993 and December 31, 1994 and (ii) the audited consolidated balance sheet of the Company and the Subsidiaries as of December 31, 1993, and December 31, 1994, together with the notes thereto and the reports thereon of
(b) the unaudited consolidated balance sheet of the Company and the Subsidiaries as of October 31, 1995 (the "Latest Balance Sheet") and the related statement of income and cash flows for the ten-month period then ended.
Except as set forth on Schedule 3.3, each of the foregoing financial statements (including in all cases the notes thereto, if any) fairly presents the financial position of and the results of operations for the entities reported on and is consistent with the books and records of the Company and the Subsidiaries and has been prepared in accordance with generally accepted accounting principles, consistently applied, subject in the case of the financial statements referred in (b) above to changes resulting from normal year-end adjustments. The books and records upon which the foregoing financial statements are based are true and complete.
3.4 Absence of Undisclosed Liabilities.
Except as set forth on Schedule 3.4, neither the Company nor any of the Subsidiaries has any material obligation or liability (whether accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due) other than (a) liabilities set forth on the Latest Balance Sheet (including the notes thereto), (b) liabilities and obligations which have arisen after the date of the Latest Balance Sheet in the ordinary course of business , (c) obligations not arising from a default under contracts or commitments described on any Schedules hereto or not required to be described thereon because of the nature and amount of such contracts or commitments, and (d) other liabilities and obligations expressly disclosed in the other Schedules to this Agreement.
3.5 Absence of Certain Developments.
There has not been any material adverse change in the financial position or results of operation of the Company and the Subsidiaries since the date of the Latest Balance Sheet; except, however, for changes (i) in the furniture industry in general, (ii) in the economy in general, or (iii) as a result of the seasonality of the business of the Company and the Subsidiaries, or any of them. In addition, except as expressly contemplated by this Agreement or as set forth on Schedule 3.5, since the date of the Latest Balance Sheet, there has not occurred any of the following events without the prior written consent of Buyer:
(a) the issuance of any notes, bonds or other debt securities or any equity securities;
(b) the borrowing of any amount of money or the incurring of or becoming subject to any liabilities, except (i) current liabilities incurred in the ordinary course of business, and (ii) liabilities under contracts entered into in the ordinary course
(c) the discharge or satisfaction of any lien or encumbrance or the payment of any obligation or liability, other than current liabilities paid in the ordinary course of business;
(d) the mortgage or pledge of any properties or assets or the subjection of any property or asset to any lien, security interest, charge or other encumbrance, except liens for current property taxes not yet due and payable;
(e) the cancellation of any debts or claims except in the ordinary course of business;
(f) the sale, assignment or transfer of (i) any tangible assets, other than the sale of inventory in the ordinary course of business, or (ii) any trademarks, service marks, trade names, copyrights, trade secrets or other intangible assets;
(g) any capital expenditures or commitments therefor that aggregate in excess of $2.5 million per calendar quarter;
(h) any loan or bonus payment to an officer, director, shareholder or affiliate of the Company or any of the Subsidiaries;
(i) the adoption or entering into, or the amendment, modification or termination of, any collective bargaining agreement, Employee Benefit Plan, or Employee Benefit Arrangement (as such terms are defined in Section 3.25 hereof), or the granting of any increase in compensation or the making of any other material change in employment terms for any of its directors, officers or employees outside of the ordinary course of business;
(j) any loans or advances to, or guarantees for the benefit of, any persons in excess of $150,000 in the aggregate, other than endorsements of negotiable instruments made for collection;
(k) any material charitable contributions or pledges;
(l) any theft, damage, destruction or casualty loss exceeding in the aggregate $500,000, whether or not covered by
(m) any conduct of the business of the Company and the Subsidiaries outside the ordinary course of business;
(n) any new elections or change in any current election with respect to Taxes (as defined in Section 3.22 hereof) affecting the Company or the Subsidiaries; and
(o) any commitment on the part of the Company and the Subsidiaries to any of the foregoing.
Schedule 3.6 sets forth a complete list and summary description of all real property, leases, subleases and other rights or interests of record in real property and improvements thereon, wherever located, owned, leased, occupied or used by the Company or any of the Subsidiaries (the "Real Property Interests"), together with a description of the instruments or other documents by which the same were acquired and the recording data applicable thereto. Within ten (10) days of the execution of this Agreement by the parties hereto, Seller will deliver to Buyer true and correct copies of all deeds, leases, subleases, surveys, documents of title, title opinions and title insurance policies relating to the Real Property Interests which are in the possession of Seller. Except as set forth on Schedule 3.6 and except for: (a) liens for current ad valorem taxes not yet delinquent, (b) covenants, conditions and restrictions of record which are not violated by existing uses or improvements and which do not materially interfere with the use of the Real Property Interests and do not adversely affect the merchantability of the title to the Real Property Interests and (c) statutory liens with respect to current obligations not yet delinquent (other than for current ad valorem taxes not yet delinquent) and other title defects which do not materially interfere with the existing use of the Real Property Interests and do not materially adversely affect the merchantability of the title thereto, the Company and the Subsidiaries have good and marketable title to the Real Property Interests, free and clear of any mortgage, security interest, lien, lease, encumbrance, option or agreement and there are no pending or, the knowledge of Seller, threatened condemnation or eminent domain proceedings, lawsuits or administrative actions, special assessments or changes in assessed valuation (other than routine changes to assessed valuations and tax rates) relating to the property affecting materially and adversely the current use or occupancy . Except as set forth in Schedule 3.6, each of the Real Property Interests listed and described in Schedule 3.6 is in full force and effect, and there is no material default by the Company or any of the Subsidiaries or, to the knowledge of Seller, by any other party under any such Real Property Interests.
The Company and the Subsidiaries have good and marketable title to all of the equipment, machinery, motor vehicles, furniture and fixtures, inventory and supplies and other tangible personal property owned or leased by the Company and the Subsidiaries, free and clear of any mortgage, liability, security interest, pledge, lien or encumbrance of any kind or nature whatsoever except as set forth in Schedule 3.7 and except for liens for current ad valorem taxes not yet delinquent. All such tangible personal property used at present in the operations of the Company and the Subsidiaries is in good operating condition and repair (subject to normal wear and tear).
All of the inventories and supplies of each of the Company and the Subsidiaries are reflected on the Latest Balance Sheet, at standard cost, or latest purchase price when inventoried, whichever is lower, and all such inventories and supplies, together with inventories and supplies acquired since the date of the Latest Balance Sheet, are of sufficient quality and quantity for the normal operation of the business of the Company and the Subsidiaries, and are free and clear of any claim, security interest, pledge or lien or encumbrance of any kind or nature whatsoever.
Schedule 3.9 sets forth a true and correct list of all of the patents (including all reissues, divisions, continuations, continuations -in-part and extensions thereof), applications for patents, patent disclosures docketed, inventions, improvements, trademarks (including service marks), trademark applications, trade names, copyrights and copyright registrations owned by the Company or any of the Subsidiaries, and all licenses, franchises, permits, authorizations, agreements and arrangements that concern the same or that concern any intellectual property owned by others and used by the Company or any of the Subsidiaries. True and correct and complete copies of all such intellectual property, licenses, franchises, permits, authorizations, agreements and arrangements will be delivered by Seller to Buyer within ten (10) days of the execution of this Agreement by the parties hereto. The use of such intellectual property rights by the Company and the Subsidiaries does not conflict with the rights of others, nor, to the knowledge of Seller, is any third party infringing upon the intellectual property rights of the Company or any Subsidiary. Each of the Company and the Subsidiaries owns or is the licensee of all rights to all patents, patent applications, inventions, improvements, trademarks, trademark applications, trade names, copyrights or other intellectual property necessary to conduct its present business operations.
3.10 Accounts and Notes Receivable.
The accounts and notes receivable reflected on the Latest Balance Sheet are owned by the Company and the Subsidiaries free and clear of any security interest, pledge or lien or encumbrance of any kind or nature whatsoever except as set forth on Schedule 3.10 and, subject to the amounts reflected in the Latest Balance Sheet for bad debts or doubtful accounts, are collectible in the normal course of business. The accounts and notes receivable of the Company and the Subsidiaries created from and after the date of the Latest Balance Sheet to the Closing Date will be free and clear of any pledge, security interest or lien or encumbrance of any kind or nature whatsoever except as set forth on Schedule 3.10 and, subject to the amounts which are reflected in the books and records of the Company and the Subsidiaries for bad debts or doubtful accounts and which are consistent with the past practices of the Company and the Subsidiaries with respect to the bad debts or doubtful accounts, will be collectible in the normal course of business.
For each of the Company and the Subsidiaries, the title, par value, number of authorized shares, number of issued and outstanding shares of each class of capital stock and the persons owning beneficially and of record the outstanding shares of each such class of capital stock are set forth on Schedule 3.11. No other class of capital stock of the Company or any Subsidiary is authorized or outstanding. All of the issued and outstanding shares of each of the Company and the Subsidiaries, including the Shares, are duly authorized and are validly issued, fully paid and nonassessable and none of such shares have been issued in violation of any preemptive rights of shareholders, the provisions of the applicable Articles or Certificate of Incorporation or any applicable law. The Shares constitute all of the issued and outstanding shares of capital stock of the Company.
3.12 Options or Other Rights.
There is no outstanding right, subscription, warrant, call, unsatisfied preemptive rights, option or other agreement of any kind to purchase or otherwise to receive from the Company, any Subsidiary or Seller any shares of the capital stock or any other security of the Company or any Subsidiary, and there is no outstanding security of any kind convertible into such capital stock.
Seller owns and holds beneficially and of record, free and clear of any lien or other encumbrance, or owns of record and has full power and authority to transfer and dispose of free and clear of any claim, suit, proceeding, call, voting trust, proxy, restriction, security interest, lien or other beneficial interest or encumbrance of any kind or nature whatsoever (other than created by Buyer), all of the Shares and, upon delivery of and payment for such Shares as herein provided, Buyer will acquire good and valid title thereto, free and clear of any claim, suit, proceeding, call, voting trust, proxy, restriction, security interest, lien or other beneficial interest or encumbrance of any kind or nature whatsoever.
The sole first tier subsidiary corporation of the Company is Thomasville Enterprises, Inc., a Vermont corporation (the "First Tier Subsidiary"). The sole subsidiary corporations of the First Tier Subsidiary are as set forth on Schedule 3.14 (collectively, the "Second Tier Subsidiaries"). The First Tier Subsidiary and the Second Tier Subsidiaries are referred to hereinafter collectively as the "Subsidiaries" and individually as a "Subsidiary". Except as set forth on Schedule 3.14, neither the Company nor any of the Subsidiaries owns, directly or indirectly, any shares of capital stock or any other security or interest in any other corporation, partnership, entity or person. The Company has good and valid title to all of the issued and outstanding shares of stock of the First Tier Subsidiary, free and clear of any claim, suit, proceeding, call, voting trust, proxy, restriction, security interest, lien or other encumbrance of any kind or nature whatsoever, and the First Tier Subsidiary has good and valid title to all of the issued and outstanding shares of the stock of each of the Second Tier Subsidiaries, free and clear of any claim, suit, proceeding, call, voting trust, proxy, restriction, security interest, lien or other encumbrance of any kind or nature whatsoever.
The Company and the Subsidiaries have complied in all respects with all laws, statutes, rules, regulations and orders of, and have secured all necessary permits and authorizations and licenses issued by, federal, state, local and foreign agencies and authorities, applicable to their business, properties and operations. This Section 3.15 does not relate to matters with respect to labor matters, tax matters, employee benefit plans or environmental matters, which are the subjects of Sections 3.20, 3.22, 3.25 and 3.27, respectively.
Except as disclosed on Schedule 3.16, the execution and delivery of this Agreement by Seller, consummation of the transactions herein contemplated and compliance with the terms of this Agreement do not conflict with or violate any provision of the charter documents or bylaws of Seller, the Company or any Subsidiary; nor do such actions (a) conflict with, (b) result in a breach of the terms or conditions of, (c) constitute a default under, (d) result in the creation of any lien, security interest or encumbrance upon any of the capital stock or assets of the Company or any Subsidiary, (e) give any third party the right to accelerate any obligations under, or (f) require any filing or the consent or approval under any material agreement, contract, lease, license, permit, instrument or other arrangement to which the Company or any Subsidiary is party or by which any of them are bound or any of their assets are subject, or any law, statute, rule or regulation to which Seller, the Company or any Subsidiary is subject, or any order, judgment or decree to which Seller, the Company or any Subsidiary is subject, or require Seller to make any filing with or obtain the approval or consent of any foreign, federal, state, county, local or other governmental or regulatory body, except for the filing with the Federal Trade Commission and Antitrust Division of the Department of Justice of Notification and Report Forms pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the rules promulgated thereunder, and the expiration of the waiting period and any extension thereof required to expire under such Act and rules; provided, however, Seller makes no representations with respect to the application to this Agreement and the transactions contemplated hereby of antitrust laws or other laws or regulation dealing with competition or restraint of trade.
Except as disclosed in Schedule 3.17, there are no legal or governmental proceedings, actions, suits or arbitrations pending or, to the best of Seller's knowledge, threatened with respect to which the Company or any Subsidiary is a party or to which any property of the Company or any Subsidiary is subject. Neither the Company nor any of the Subsidiaries is in violation of any order, decree or judgment of any court or arbitration tribunal or governmental board, commission, instrumentality or agency.
3.18 Material and Affiliated Contracts.
Schedule 3.18 sets forth all oral and written contracts, commitments, or other agreements to which the Company or any Subsidiary is a party or to which the Company's or any Subsidiary's assets or properties is bound or subject (a) having an annual cost to the Company or any Subsidiary of $50,000 or more, (b) under which the Company or any Subsidiary is entitled to receive $50,000 or more annually, (c) covering indebtedness of the Company or any Subsidiary in the principal amount of $50,000 or more, (d) covering the employment of any employee of the Company or any Subsidiary where the annual salary required is $50,000 or more or involving any obligation to pay severance to any employee (regardless of amount), (e) covering any other matter material to the business of the Company and any Subsidiary, (f) which obligates Seller, the Company or any Subsidiary to act as a guarantor irrespective of the amount involved, (g) involving any franchise, dealer, showroom, distributor or manufacturer's or sales representative contract which is not terminable by the Company and its Subsidiaries on six months (or less) notice without penalty, (h) restricting competition on the part of any of the Company or any Subsidiary, (i) which is terminable by the other party thereto upon a merger or change of control of the Company and its Subsidiaries or (j) involving any purchase order which has an annual cost to the Company and the Subsidiaries in excess of $250,000 and which has a term of 6 months or more. Buyer acknowledges and agrees that, except for purchase orders required to be disclosed in (j) above, no purchase order shall be required to be disclosed on Schedule 3.18. There are no contracts, agreements, purchase orders, commitments, leases, agreements, including loan arrangements, between the Company or any Subsidiary and any of their officers, directors or shareholders, or any related or affiliated person, corporation or other entity, except as set forth on Schedule 3.18 (a true and correct and complete copy of each such written document and a true and correct and complete written description of each such oral relationship having heretofore been delivered by Seller to Buyer), and none shall be entered into by the Company or any Subsidiary from the date hereof through the Closing Date without the prior written consent of Buyer. Each such contract, commitment or other agreement is legal, valid, binding, enforceable obligation of the Company and/or the Subsidiary or Subsidiaries which is a party thereto. Neither the Company nor any of the Subsidiaries nor, to the knowledge of Seller, any other party thereto, is in material breach or material default of any such contract, commitment or other agreement nor has any event occurred which with notice or lapse of time would constitute such a breach or default or permit termination, modification or acceleration by any third party thereunder.
The Company and the Subsidiaries have all licenses, permits and other authorizations from federal, state, local and other governmental or administrative authorities necessary for the conduct of their respective businesses and all present business activities of the Company and the Subsidiaries. Except as set forth in Schedule 3.19, (a) each of said permits, licenses and other authorizations is in full force and effect, (b) the Company and the Subsidiaries are in compliance with the terms, provisions and conditions thereof, and (c) there are no outstanding violations, notices of noncompliance, judgments, consent decrees, agreed orders or judicial or administrative action(s) or proceeding(s) affecting any of said permits, licenses and other authorizations. This Section 3.16 does not relate to matters with respect to environmental matters, which are the subject of Section 3.27.
No union is certified as collective bargaining agent to represent any employee of the Company or any Subsidiary. Except as set forth in Schedule 3.20, the Company and the Subsidiaries are in compliance with all applicable laws pertaining to employment and employment practices, terms and conditions of employment, and wages and hours. Except as set forth on Schedule 3.20, neither the Company nor any Subsidiary (a) is a party to, involved in or threatened by any labor dispute, work stoppage, unfair labor practice charge, labor arbitration proceeding or grievance proceeding, (b) is currently negotiating any collective bargaining agreement or (c) is aware of any threatened work stoppage, strike or filing by any employee or employee group seeking recognition as a collective bargaining representative or unit. This Section 3.20 does not relate to matters with respect to employee benefit plans, which are the subject of Section 3.25.
True and complete copies of the charter documents and bylaws of the Company and the Subsidiaries (and all amendments thereto at any time prior to the date of this Agreement), and the minute books thereof have been provided to Buyer. The minute books of the Company and the Subsidiaries contain true and complete originals or copies of all minutes of meetings of and actions by the stockholders, Boards of Directors and all committees of the Boards of Directors of the Company and the Subsidiaries. The aforesaid charter documents and bylaws are true, correct and complete as of the date hereof, and there will be no amendments or additions thereto prior to the Closing without the prior written consent of Buyer.
(a) Except as set forth on Schedule 3.22(d), the Company and the Subsidiaries have properly prepared and filed, or have caused to be properly prepared and filed, in a timely manner, all Returns required to be filed by them on or prior to the date hereof, and have paid (or withheld and paid over) or will pay all of such Taxes shown as due and payable on such Returns. All such Returns that have been filed are true, complete and correct in all respects.
The Company and the Subsidiaries have properly accrued and reflected on the Latest Balance Sheet, and have thereafter to the date hereof properly accrued all liabilities for taxes and assessments, and will timely and properly file all such federal, state, local and foreign Returns which it is required to file for any taxable period ending on or before the Closing Date, either on its own behalf or on behalf of its employees or other persons or entities, all such Returns to be true and correct and complete in all respects, and will pay or cause to be paid when due all Taxes which have become due and payable pursuant to such Returns for all taxable periods ending on or before the Closing Date.
(b) Member of Affiliated Group. Since 1988, the Company and the Subsidiaries have been members of an affiliated group of corporations within the meaning of section 1504 of the Code, with respect to which Parent is and at all times has been the common parent, and have joined in or will join in the filing of Parent's consolidated federal income tax returns for all its taxable periods ending on or prior to the Closing Date. Since 1988, neither the Company nor any of the Subsidiaries have been a member or any other affiliated group of corporations within the meaning of section 1504 of the Code.
(c) Statutes of Limitations. No waiver or extension of any statute of limitations is in effect with respect to Taxes or Returns of the Company, the Subsidiaries, Parent, Seller or any Tax Affiliate.
(d) Tax Audits. The United States Internal Revenue Service has examined the consolidated federal Income Tax Returns of Parent which include the Company and Subsidiaries for all years up to and including the year ended December 31, 1992. The separate state, local and foreign Income Tax Returns of the Company and the Subsidiaries for taxable periods ending on or after December 31, 1991 have been audited as set forth in Schedule 3.22(d). The combined state and local income Returns in which the income of the Company and the Subsidiaries are included for taxable periods ending on or after December 31, 1991 have been audited as set forth in Schedule 3.22(d).
Except as set forth in Schedule 3.22(d), no audit is in process, or pending with respect to the Company, the Subsidiaries', Parents', Seller's or any Tax Affiliate's Returns, nor is any audit in process, or pending in which issues have been raised specifically in connection with present or former assets of the Company and the Subsidiaries. To the knowledge of Seller, no audit is threatened with respect to the Company s, any Subsidiary s, Parent s, Seller s or any Tax Affiliate s Returns nor is any audit threatened in which issues have been raised specifically in connection with present or former assets of the Company and the Subsidiaries. All such issues raised in connection with any past audits have been fully resolved or finally settled and any deficiency in Taxes associated with such issues has been satisfied.
(e) Returns Furnished. Seller has furnished to Buyer or its counsel true and complete copies of (i) relevant portions of tax audit reports, statements of deficiencies, closing or other agreements received by the Company, the Subsidiaries, Parent or Seller on behalf of the Company or the Subsidiaries relating to the assets or business of the Company or the Subsidiaries from the Internal Revenue Service, or from any other taxing authority (sometimes collectively referred to as a "Taxing Authority") and (ii) all pro forma separate federal, state and local income Returns of Company and Subsidiaries and the relevant portions of all pro forma separate federal, state, local and foreign Income Tax Returns of any Tax Affiliate relating to the assets of Company and Subsidiaries for the Company and the Subsidiaries taxable periods ending on or after December 31, 1991.
(f) Affiliated Group Allocation Agreement. The Company and the Subsidiaries are parties to an unwritten affiliated group consolidated return tax allocation agreement with Parent and its Tax Affiliates.
(g) Foreign Taxes. None of the Company, the Subsidiaries, Parent or Seller is liable for taxes to any foreign taxing authority. Except as provided in Schedule 3.22(g), Company and Subsidiaries do not have and have not had a permanent establishment in any foreign country, as defined in any applicable tax treaty or convention between the United States and such foreign country, any branch operation in a foreign county or any other taxable presence in a foreign jurisdiction. The Company, each Subsidiary, Parent and Seller have evidence of payment of all Taxes of a foreign country, if any, paid or accrued from the date of formation of each of them, respectively.
(h) Accounting Methods. None of the Company, or the Subsidiaries nor any Tax Affiliate is required to include in income any adjustment under Section 481(a) of the Code by reason of a change in accounting method initiated by the Company, the Subsidiaries or any Tax Affiliate and the Internal Revenue Service has not proposed any such adjustment or change in accounting method.
(i) Definitions. For purposes of this Agreement the following definitions shall apply:
(1) "Code" shall mean the Internal Revenue Code of 1986, as amended, and/or, where appropriate, its predecessor, the Internal Revenue Code of 1954, as amended, or any successor thereto.
(2) "Income Tax" shall mean (i) federal, state, local or foreign income or franchise taxes or other taxes measured by income and all other taxes reported on Returns which include federal, state or local income or franchise taxes or other taxes measured by income, together with any interest, penalties or additions to tax imposed with respect thereto and (ii) any obligations under any agreements or arrangements with respect to any Income Taxes described in clause (i) above.
(3) "Returns" shall mean all returns including without limitation all returns, declarations, forms, reports, estimates, information statements, schedules, any amendments thereto and returns relating to or required by law to be filed by the Company or the Subsidiaries in connection with any Taxes and, in the case of consolidated or combined tax returns, by Parent on behalf of the Company or any Subsidiary, and all information returns (e.g., Form W-2, Form 1099) and reports relating to Taxes of the Company or any Subsidiary. Any one of the foregoing Returns shall be referred to sometimes as a "Return."
(4) "Tax Affiliate" shall mean, with respect to a company, any member of an affiliated group as defined in section 1504 of the Code or member or a combined or unitary group of which such company is or was a member (other than such company).
(5) "Taxes" shall mean (i) all taxes (whether federal, possession, state, local or foreign or any governmental unit, agency or political subdivision of the foregoing) based upon or measured by income and any other tax whatsoever, including, without limitation, gross receipts, profits, sales, use, occupation, value added, ad valorem, transfer, franchise, withholding, payroll, employment, excise, real estate gains, real estate transfer or property taxes, customs duties, levies or other charges, and any other governmental charges of the same or similar nature or in lieu thereof, together with any interest or penalties or additions to tax imposed with respect thereto and (ii) any obligations under any agreements or arrangements with respect to any Taxes described in clause (i) above. Any Taxes, penalties or interest payable as a result of an audit of any Return or any other adjustment with respect thereto shall be deemed to have accrued in the period to which such Taxes, penalties or interest are attributable.
The Company and the Subsidiaries have been self-insured or have carried workers' compensation and employer liability insurance coverage as required by applicable workers' compensation laws or regulations covering all employees employed by the Company and the Subsidiaries.
Schedule 3.24 sets forth: (i) each insurance policy under which the Company and the Subsidiaries or their assets or properties is a direct or indirect beneficiary; (ii) the name of the insurer with which such policy is or was carried; (iii) the liabilities covered thereunder; (iv) the amount of coverage thereunder; (v) the period of coverage thereunder; (vi) a designation of which policies provide coverage on a "claims made" basis and which provide coverage on an "occurrence basis"; and (vii) a designation of whether such policy is carried by the Company and the Subsidiary, or by any other person. Schedule 3.24 also contains a description of any program of self- insurance maintained by Seller or by the Company or the Subsidiaries to cover claims against or losses incurred by the Company or the Subsidiaries arising on or prior to the Closing Date. All insurance policies and programs of self insurance listed on Schedule 3.24 will be maintained or will be replaced with substantially equivalent policies or programs and such coverage will not be canceled or terminated prior to the Closing. Seller shall have no obligation to continue any such insurance after the Closing.
(a) Whenever any of the terms set forth below is used in this Agreement, it shall have the following meaning: (i) "COBRA" means any liability or obligation to provide continued health care coverage under ERISA Section 601 or in Code Section 4980B; (ii) "Employee Benefit Arrangement" means any employment, severance, or similar contract, arrangement, or policy (exclusive of any such contract, arrangement or policy which is terminable within 30 days without liability), or any plan or arrangement providing for severance benefits, insurance coverage (including pursuant to any self-insured plan or arrangement), workers' compensation, disability benefits, supplemental unemployment benefits, vacation benefits, fringe benefits (other than retirement benefits, deferred compensation, profit sharing and compensation benefits), sick leave, maternity, paternity, family leave or other leave, bonuses, stock options, stock appreciation rights, or other forms of incentive compensation or post-retirement insurance or welfare benefits, any employment consulting, engagement or retainer agreement, in each such case other than any Non-U.S. Employee Benefit Arrangement; (iii) "Employee Benefit Plan" has the meaning set forth in ERISA Section 3(3); (iv) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended; (v) "ERISA Affiliate" means any entity which would be treated as a single employer together with the Company and any Subsidiary under Code Section 414; (vi) "Multi-Employer Plan" has the meaning set forth in ERISA Section 3(37) or ERISA Section 4001(a)(3); (vii) "Non-U.S. Employee Benefit Arrangement" means any employment, severance, or similar contract arrangement, or policy, whether or not considered legally binding, or any plan or arrangement providing for severance benefits, insurance coverage (including pursuant to any self-insured plan or arrangement), workers' compensation, disability benefits, supplemental unemployment benefits, vacation benefits, fringe benefits, sick leave, maternity, paternity, family leave or other leave, retirement benefits, deferred compensation profit-sharing, bonuses, stock options, stock appreciation rights, or other forms of incentive compensation or post-retirement insurance, compensation, or benefits, any employment, consulting, engagement or retainer agreement for the benefit of non-U.S. employees, non-U.S. former employees or non-U.S. consultants; (viii) "PBGC" means the Pension Benefit Guaranty Corporation, or any successor agency ; (ix) "Prohibited Transaction" has the meaning set forth in ERISA Section 406 in Code Section 4975; and (x) "Reportable Event" has the meaning set forth in ERISA Section 4043.
(b) Schedule 3.25(b) lists each Employee Benefit Plan covered by or subject to ERISA that any of Parent, Seller, the Company, and/or any Subsidiary maintains or administers, or to which any of them contributes, in each such case covering any employee or former employee of the Company and/or any Subsidiary. There are no retirement benefit, deferred compensation, profit sharing or compensation benefit plans that any of Parent, Seller, the Company and/or the Subsidiaries maintains or administers, or to which any of them contributes, in each case covering any employee of the Company or former employee and/or any Subsidiary, which is not an Employee Benefit Plan. There are no negotiations, demands or proposals which are pending or threatened which concern matters now covered, or that would be covered, by any Employee Benefit Plan.
(c) Each such Employee Benefit Plan (and each related trust, insurance contract, or fund) complies in form and in operation with the applicable requirements of any and all statutes, orders or governmental rules or regulations currently in effect, including but not limited to ERISA, the Code, and other applicable laws. Parent, Seller, Company and each of the Subsidiaries has performed all obligations required to be performed by them under, and are not in default under or in violation of, the terms or any of the Employee Benefit Plans.
(d) All required notices, reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports, Forms PBGC-1, and Summary Plan Descriptions) have been filed or distributed where required with respect to each such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Sec. 4980B as well as the applicable provisions of the Social Security Act and the Public Health Service Act have been met with respect to each such Employee Benefit Plan that is a group health plan (within the meaning ERISA Sec. 601 and Code Sec. 4980B).
(e) All contributions (including all employer contributions and employee salary reduction contributions), premiums and administrative charges which are due and payable with respect to any Employee Benefit Plan for all periods ending prior to the Closing Date have been or will be made prior to the Closing Date by Parent, Seller, the Company, and/or the Subsidiaries in accordance with applicable law and the terms of each such Employee Benefit Plan.
(f) Each such Employee Benefit Plan which is an employee pension benefit plan and which is intended to meet the requirements of a qualified plan under Code Sec. 401(a) has either (i) received a favorable determination letter from the Internal Revenue Service covering such Employee Benefit Plan as amended for the Tax Reform Act of 1986, the Unemployment Compensation Act of 1992, and the Omnibus Budget Reconciliation Act of 1993 (and the related trust has been determined to be exempt from taxation under Section 501(a) of the Code), or (ii) timely applied to the Internal Revenue Service for a favorable determination letter covering such Employee Benefit Plan. No amendment made (or the failure of such amendment to be made) to any such Employee Benefit Plan subsequent to the date of such determination letter has adversely affected the qualified status of any such plan, and Seller knows of no fact or set of circumstances that would adversely affect such qualification prior to the Closing.
(g) Seller has delivered to Buyer correct and complete copies of the current plan document and summary plan description, the most recent favorable determination letter received from the Internal Revenue Service, the most recent Form 5500 Annual Report filed with the Internal Revenue Service, the three most recent actuarial reports, and all related trust agreements, insurance contracts, and other funding agreements which implement or evidence each such Employee Benefit Plan, in each case as applicable to such Employee Benefit Plan. In addition, to the extent applicable with respect to each Employee Benefit Plan, Seller has delivered to Buyer (i) correct and complete copies of any Form 5310 and related filings with the PBGC; (ii) ruling letters and any outstanding requests for ruling letters with respect to the tax exempt status of any VEBA which is implementing any Employee Benefit Plan; and (iii) general notification to employees of their rights under Code Section 4980B and form of letters distributed upon the occurrence of a qualifying event described in Code Section 4980B, in the case of an Employee Benefit plan that is a "group health plan" as defined in Code Section 162(i).
(h) There have been no Prohibited Transactions with respect to any such Employee Benefit Plan (and there is no fact or circumstance which may lead to the occurrence of any such Prohibited Transaction) and no plan fiduciary nor any officer, director, or employee of Parent, Seller, the Company or any of the Subsidiaries has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of or otherwise involving any such Employee Benefit Plan. No action, suit, arbitration, proceeding, hearing, claim, or investigation with respect to the administration of or otherwise involving the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or, to the knowledge of any facts which would or could give rise to any action, suit, grievance, arbitration or other manner of litigation, or claim.
(i) Schedule 3.25(i) lists any Employee Benefit Arrangement providing medical, health, or life insurance or other welfare-type benefits for currently (or future) retired or terminated employees, their spouses, or their dependents (other than in accordance with Code Sec. 4980B) which any of Parent, Seller, the Company and the Subsidiaries maintains or administers, or to which any of them contributes, in each case covering any employee or former employee of any of the Company and the Subsidiaries.
(j) With respect to each Employee Benefit Plan which is an employee pension benefit plan subject to Title IV of ERISA that any of the Parent, Seller, the Company, the Subsidiaries, and their ERISA Affiliates maintains or administers or ever has maintained or administered, or to which any of them contributes, ever has contributed, or ever has been required to contribute, in each such case since January 1, 1990:
(i) No such employee pension benefit plan has been completely or partially terminated or been the subject of a Reportable Event as to which notices would be required to be filed with the PBGC, and no proceeding by the PBGC to terminate any such employee pension benefit plan has been instituted or threatened.
(ii) None of the Company, the Subsidiaries, and their respective ERISA Affiliates has any liability to the PBGC (other than for PBGC premium payments) or otherwise under ERISA or under the Code (including any withdrawal liability or any accumulated funding deficiency, whether or not waived, within the meaning of ERISA Section 302 or Code Section 412, or any termination liability under ERISA Section 4062 or 4063).
(k) Neither Parent, Seller, the Company, nor any of the Subsidiaries contributes, ever has contributed, ever has been required to contribute, or has ever been a participant in a Multiemployer Plan in each such case during the period since January 1, 1985 and covering any employee or former employee of any of the Company and the Subsidiaries.
(l) Schedule 3.25(l) lists each Employee Benefit Arrangement other than those described in Schedule 3.25(b) that has been entered into, maintained, or administered, as the case may be, by any of Parent, Seller, the Company, and the Subsidiaries and that currently covers any employee or former employee of any of the Company and the Subsidiaries. Each such Employee Benefit Arrangement and the administration thereof complies with its terms and with the requirements of applicable statutes, orders, rules, and regulations.
(m) Since January 1, 1990, neither Seller, the Company nor the Subsidiaries has terminated or taken action to terminate any Employee Benefit Plan covering any employee or former employee of the Company and the Subsidiaries.
(n) The statements of assets and liabilities of the Employee Benefit Plans covering any employee or former employee of any of the Company and the Subsidiaries as of the end of the most recent three fiscal years for which information is available, and the statements of changes in fund balances, financial position and net assets available for benefits under such Employee Benefit Plans for such fiscal years, copies of which have been certified by Seller and furnished to Buyer, fairly present the financial conditions of such Employee Benefit Plans as of such date and the results of operations thereof for the year ended on such date, all in accordance with GAAP applied on a consistent basis. The actuarial assumptions used for funding purposes have not been changed since the last written report of actuaries on such Employee Benefit Plans, which written reports have been furnished to Buyer.
(o) With respect to any Employee Benefit Plan covering any employee or former employee of any of the Company and the Subsidiaries which is a welfare plan as defined in Section 3(1) of ERISA; (i) each such welfare plan which is intended to meet the requirements for tax-favored treatment under Subchapter B of Chapter 1 of the Code meets such requirements; and (ii) there is no disqualified benefit (as such term is defined in Code Section 4976(b)) which would subject the Company or Buyer to a tax under Code Section 4976(a).
(p) Each Employee Benefit Plan covering any employee or former employee of any of the Company and the Subsidiaries and each Employee Benefit Arrangement covering any employee or former employee of any of the Company and the Subsidiaries may be amended or terminated by Parent, Seller, the Company or the Subsidiaries or Buyer on or at any time after the Closing Date.
(q) The Company and the Subsidiaries have no liability under ERISA or the Code as a result of their being members of a group described in Code Sections 414(b), (c), (m) or (o).
(r) Neither Parent, Seller, the Company nor any Subsidiary contributes, ever has contributed, ever has been required to contribute, has ever been a participant in, or has any obligations or liabilities under any Non-U.S. Employee Benefit Arrangement covering any employee or former employee of the Company or any Subsidiary.
(s) All expenses and liabilities relating to the Employee Benefit Plans have been, and will on the Closing Date be fully and properly accrued on the books and records of the Company and the Subsidiaries and the financial statements of the Company and the Subsidiaries reflect all of such liabilities in a manner satisfying the requirements of GAAP applied on a consistent basis.
The Company and the Subsidiaries own, lease, or have the valid and enforceable right to use all rights, properties and assets, tangible or intangible, which are presently used in the conduct of their respective businesses as presently conducted and as presently proposed to be conducted until the Closing Date and, to the knowledge of Seller, immediately following the Closing Date the Company and the Subsidiaries will have the same rights with respect to such rights, properties and assets.
Except as disclosed in Schedule 3.27:
(a) the Company and the Subsidiaries have obtained and hold all Environmental Permits, each of which is listed on Schedule
(b) the Company and the Subsidiaries are in substantial compliance with all terms, conditions and provisions of all (i) Environmental Permits and (ii) applicable Environmental Laws;
(c) there are no pending, or to the knowledge of the Company or the Subsidiaries: (i) threatened Environmental Claims against the Company or the Subsidiaries; and (ii) neither the Company nor the Subsidiaries are aware of any facts or circumstances which are likely to form the basis for any Environmental Claim against the
(d) no Releases of Hazardous Materials (except in material compliance with applicable Environmental Laws) have occurred at, from, in, to, on, or under any Site during the time when the Company or the Subsidiaries owned, leased or operated thereon and, no such releases of Hazardous Materials occurred prior to the time that the Company or the Subsidiary owned, leased or operated thereon, that could give rise to an Environmental Claim against the Company or the
(e) neither the Company nor the Subsidiaries (including any predecessor thereof) nor any entity previously owned by the Company or the Subsidiaries, during the time when the Company or the Subsidiaries owned such entity and to the knowledge of the Company and the Subsidiaries prior to the time the Company owned such entity, has transported or arranged for the treatment, storage, handling, disposal, or transportation ofany Hazardous Material to any off-Site location which is an Environmental Clean-up Site.
(f) No Site is on the National Priority List or any state equivalent list, or to the knowledge of Seller, a proposed
(g) There are no liens arising under or pursuant to any Environmental Law on any property currently owned, leased or operated by the Company or any Subsidiary and, to the knowledge of Seller, there are no facts, circumstances, or conditions that could reasonably be expected to restrict, encumber, or result in the imposition of special conditions under any Environmental Law with respect to the ownership, occupancy, development, use, or transferability of any such property;
(h) there are no underground storage tanks, polychlorinated biphenyl-containing equipment or friable or damaged asbestos-containing material at any property now owned, leased or operated by the Company or the Subsidiaries not in substantial compliance with applicable Environmental Law; and
(i) to the knowledge of Seller, the currently anticipated aggregate expenditures, solely of equipment, of the Company and the Subsidiaries are not in excess of $1,000,000 to comply with applicable Maximum Achievable Control Technology ( MACT ) standards, National Emissions Standards for Hazardous Air Pollutants ( NESHAPs ), or Reasonably Available Control Technology (RACT) under the existing Federal Clean Air Act and existing state laws regulating air emissions.
Within 72 hours following the execution of this Agreement by the parties hereto, Seller will deliver or make available to Buyer all environmental investigations, studies, audits, tests, reviews or other analyses with respect to any Site (including any properties owned, leased or operated by any predecessors of the Company or the Subsidiaries or any entities previously owned by the Company or Subsidiaries) ( Environmental Reports ) conducted by, on behalf of, and which are in possession of the Company, the Subsidiaries, Seller or Parent.
For purposes of this Agreement, the following definitions shall apply:
"Environment" means all air, surface water, groundwater, or land, including land surface or subsurface, including all fish, wildlife, biota and all other natural resources.
"Environmental Claim" means any and all administrative or judicial actions, suits, orders, claims, liens, notices, notices of violations, investigations, complaints, requests for information, proceedings, or other written communication, whether criminal or civil, pursuant to or relating to any applicable Environmental Law by any person (including but not limited to any Governmental or Regulatory Authority, private person and citizen's group) based upon, alleging, asserting, or claiming any actual (i) violation of or liability under any Environmental Law, (ii) violation of any Environmental Permit, or (iii) liability for investigatory costs, cleanup costs, removal costs, remedial costs, response costs, natural resource damages, property damage, personal injury, fines, or penalties arising out of, based on, resulting from, or related to the presence, Release, or threatened Release into the Environment, of any Hazardous Materials at any location, including but not limited to any off-Site location to which Hazardous Materials or materials containing Hazardous Materials were sent for handling, storage, treatment, or disposal.
"Environmental Clean-up Site" means any location which is listed or proposed for listing on the National Priorities List, or on any similar state list of sites requiring investigation or cleanup, or which is currently the subject of any pending or threatened action, suit, proceeding, or investigation related to or arising from any alleged violation of any Environmental Law or Release or threatened or suspected Release or a Hazardous Material.
"Environmental Law" means any and all current, federal, state, local, provincial, and foreign, civil and criminal laws, statutes, ordinances, orders, codes, rules, regulations, Environmental Permits, judgments, decrees, injunctions, or agreements with any Governmental or Regulatory Authority, relating to the protection of health and the Environment, and/or governing the handling, use, generation, treatment, storage, transportation, disposal, manufacture, distribution, formulation, packaging, labeling, or Release of Hazardous Materials, now existing, including but not limited to; the Clean Air Act, 42 U.S.C. Sections 7401 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Hazardous Material Transportation Act, 49 U.S.C. Sections 1801 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 136 et seq.; the Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C. Section 6901 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; and the state analogies thereto, and any common law doctrine, including but not limited to, negligence, nuisance, trespass, personal injury, or property damage related to or arising out of the presence, Release, or exposure to a Hazardous Material and, with respect to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq. ( CERCLA ) any reauthorization, reenactment or replacement thereof to the extent the same is no more stringent than the provisions of CERCLA last in effect.
"Environmental Permit" means any federal, state, local, provincial, or foreign permits, licenses, approvals, consents or authorizations required by any Governmental or Regulatory Authority under or in connection with any Environmental Law and includes any and all orders, consent orders or binding agreements issued or entered into by a Governmental or Regulatory Authority under any applicable Environmental Law.
"Governmental or Regulatory Authority" means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, country, city or other political subdivision.
"Hazardous Material" means petroleum, petroleum hydrocarbons or petroleum products, petroleum by-products, and any other chemicals, materials, substances or wastes in any amount or concentration which are now defined as or included in the definition of "hazardous substances", "hazardous materials", "hazardous wastes", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "pollutants", "regulated substances", "solid wastes", or "contaminants" or words of similar import under any Environmental Law.
"Release" means any current or prior spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing of a Hazardous Material into the Environment.
"Site" means any of the real properties currently or previously owned, leased or operated by the Company (including any predecessors thereof) or the Subsidiaries (including any predecessors thereof), including all soil, subsoil, surface waters and groundwater thereat for purposes of this Section 3.27 of the Agreement.
No representation or warranty of Seller in this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading.
NO REPRESENTATION OR WARRANTY WHATSOEVER, OTHER THAN THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE 3, IS MADE BY SELLER. SELLER EXPRESSLY HEREBY DISCLAIMS ANY OTHER SUCH REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that the statements contained in this Article 4 are correct as of the date of this Agreement, and will be correct as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article 4).
4.1 Organization and Corporate Power.
Buyer (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and (b) is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions where the failure so to qualify would have a material adverse effect on Buyer. Buyer has full corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by Buyer and constitutes a valid and legally binding agreement of Buyer, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles.
The execution and delivery of this Agreement by Buyer, consummation of the transactions herein contemplated and compliance with the terms of this Agreement will not conflict with or violate any provision of the Articles of Incorporation or Certificate of Incorporation, as the case may be, or any bylaw of Buyer; nor to the best knowledge of Buyer, do such actions constitute a default of or require the consent or approval under any agreement or instrument to which Buyer is a party or by which Buyer's assets are bound, or require Buyer to obtain the approval or consent of any foreign, federal, state, county, local or other governmental or regulatory body, except for the filing with the Federal Trade Commission and Antitrust Division of the Department of Justice of Notification and Report Forms pursuant to the HSR Act and the rules promulgated thereunder, and the expiration of the waiting period and any extension thereof required to expire under such Act and rules; nor will such actions materially violate any applicable law, rule, regulation, judgment, order or decree of any government, governmental instrumentality or court, domestic or foreign, presently applicable to Buyer; provided, however, Buyer makes no representations with respect to the application to this Agreement and the transactions contemplated hereby of antitrust laws or other laws or regulation dealing with competition or restraint of trade.
There exists no investigation by any governmental or regulatory authority, request for information or action by any third party or legal proceeding, known to Buyer which seeks to prohibit or restrain the consummation or performance of this Agreement or the transactions contemplated hereby.
Buyer has provided to Seller copies of bank commitments and other financing letters attached hereto as Schedule 4.5 (the Financing Letters ) relating to the financing described in Section 7.7 below which have been executed by Buyer and delivered by Buyer to the lenders named therein. The Financing Letters have not been revoked or modified. Buyer does not presently anticipate that it will not satisfy the conditions to the financing set forth in the Financing Letters (other than any conditions that relate directly to the Company and the Subsidiaries).
4.6 Securities Act of 1933.
Buyer is acquiring the Shares solely for its own account and for the purpose of investment only and not with a view to any distribution thereof. Buyer acknowledges that the Shares are not registered under the Securities Act of 1933, as amended, and that such Shares may not be transferred or sold except pursuant to the registration provisions of such Act or pursuant to an applicable exemption therefrom and pursuant to applicable state securities laws and regulations.
From the date hereof through the Closing Date, Seller shall cause the Company and the Subsidiaries to conduct their respective businesses in the ordinary course of business consistent with past business practices, and shall use its commercially reasonable efforts to cause the Company and the Subsidiaries to preserve their business organizations intact, keep available the services of their present employees, consultants and agents, maintain their present suppliers and customers and preserve their goodwill.
5.2 Negative Covenants of Seller.
Seller covenants and agrees that from and after the date hereof, neither the Company nor any Subsidiary will, except with the prior written consent of Buyer:
(a) Propose or effect a split or reclassification of its outstanding capital stock or a recapitalization;
(b) Mortgage, pledge or otherwise encumber any assets, or dispose of, or make any agreement with respect to the disposition of, any assets except for the sale of the same in the ordinary course
(c) Make any capital commitment or expenditure of more than $500,000 for any single commitment or $2,500,000 in the aggregate, or incur or become liable for any other obligation or liability except current liabilities in the ordinary course of
(d) Adjust in any way, either directly or indirectly, the compensation or benefits paid or payable to any shareholder, officer, director, consultant, agent or employee of the Company or any Subsidiary except for such adjustments as may be made in the ordinary course of business and except as required under existing agreements described in one or more of the Schedules hereto or enter into any employment or severance agreement with any of the foregoing;
(e) Take any action, or enter into contract commitment or other agreement, which if taken or in effect on the date hereof, would be required to be disclosed on any Schedule hereto.
(a) Federal Taxes for Periods Through the Closing Date. Subject to Section 5.3(c) below, Seller will include the income of the Company and the Subsidiaries (including any deferred income triggered into income by Treas. Reg. Sections 1.1502-13 and Treas. Reg. Sections 1.1502-14 and any excess loss accounts taken into income under Treas. Reg. Sections 1.1502-19) on its consolidated federal Income Tax Returns for all periods through the Closing Date and pay any federal Income Taxes attributable to such income. Buyer will cause the Company and the Subsidiaries to furnish information to Seller for inclusion in Parent's consolidated federal Income Tax Return for the period which includes the Closing Date in accordance with Parent's past custom and practice. Seller will allow Buyer an opportunity to review and comment upon such Income Tax Returns (including any amended Returns) to the extent that they relate to the Company or the Subsidiaries for taxable periods ending after the Closing Date. Subject to Section 5.3(c) below, the income of the Company and the Subsidiaries will be apportioned between the period up to and including the Closing Date and the period after the Closing Date by closing the books of the Company and the Subsidiaries as of the end of the Closing Date.
(b) State, Local and Foreign Income Taxes. Seller shall be liable for all state, local and foreign Income Taxes of the Company and the Subsidiaries for all periods through the Closing Date. Seller shall file returns for tax periods which end on or before the Closing Date. Seller shall file such returns on a basis consistent with past practice except for differences in filing that are required by the effect of the Section 338(h)(10) elections on such returns. Buyer shall file returns for tax periods which end after the Closing Date. If any such return filed by Buyer includes any period which begins on or before the Closing Date, Seller shall be liable for taxes attributable to income in such return arising on or before the Closing Date. The income of the Company and the Subsidiaries will be apportioned between the period up to and including the Closing Date and the period after the Closing Date based upon closing the books of the Company and the Subsidiaries as contemplated in Section 5.3(a) hereof. To the extent that the liability for such Income Tax is reflected on a Return filed by Buyer, Seller shall pay to Buyer its share of the tax shown on such Return as provided in Section 5.4 hereof.
(a) Except as otherwise provided in Sections 5.3(a) and 5.3(b), Buyer shall be responsible for filing all Returns required to be filed by or on behalf of Company and Subsidiaries, after the Closing Date.
(b) With respect to any Income Tax Return required to be filed by Buyer for a taxable period of Company and Subsidiaries which includes (but does not close on) the Closing Date, Buyer shall provide Seller and its authorized representatives with copies of such completed Income Tax Return and a statement certifying the amount of Tax shown on such Income Tax Return that is allocable to Seller pursuant to Section 5.3(b) hereof (the "Statement") at least 30 calendar days prior to the due date for the filing of such Income Tax Return, and Seller and its authorized representatives shall have the right to review and approve such Income Tax Return and Statement prior to the filing of such Income Tax Return. Seller and Buyer agree to consult and resolve in good faith any issues arising as a result of the review and approval of such Income Tax Return and Statement by Seller or its authorized representatives and to mutually consent to the filing of such Income Tax Return. No later than 5 business days before the due date for payment of Taxes with respect to such Income Tax Return, Seller shall pay to Buyer an amount equal to the Taxes shown on the Statement as being allocable to Seller pursuant to Section 5.3(b) hereof.
(a) 338(h)(10). After the Closing, Buyer, Seller and Parent will make an election under Section 338(h)(10) of the Code, and any corresponding elections under state, local, or foreign tax law (collectively a "Section 338(h)(10) Election"), with respect to the purchase and sale of the capital stock of the Company and the Subsidiaries indicated on Schedule 5.5(a) hereto. Seller will pay any Tax attributable to making the Section 338(h)(10) Election, regardless of the taxable period in which such Tax is payable.
(b) Allocation of Purchase Price. The parties agree that the Purchase Price, the liabilities of the Company and the Subsidiaries, and any adjustments thereto will be allocated among the assets of the Company and the Subsidiaries in accordance with the provisions of a Schedule of Tax Allocations (which will be prepared in accordance with the provisions of Tres. Reg. Sections 1.338(h)(10)- 1(f)). Schedule 5.5(b) hereto sets forth Buyer and Seller s preliminary estimate of such tax allocations as of the date hereof. The Schedule of Tax Allocations as of the Closing Date shall be agreed to by Seller and Buyer as soon as practicable after the Closing Date. If Buyer and Seller are unable to agree on such Schedule, the Schedule of Tax Allocations shall be determined on the basis of an appraisal prepared by KPMG Peat Marwick. In the event of an adjustment to the Purchase Price in accordance with this Agreement by reason of an indemnity payment or pursuant to Section 2.3 hereof, such adjustment shall be made to the Purchase Price of the assets of the Company or the assets of the particular Subsidiary to which the indemnity payment of Section 2.3 adjustment relates or from which it arose. If such indemnity payment or Section 2.3 adjustment cannot be allocated to the Company or a particular Subsidiary, such adjustment shall be allocated to the assets of the Company. The parties will file all Returns (including amended Returns and claims for refund) and information reports in a manner consistent with such allocation.
(c) Information. Upon Buyer's reasonable request, from time to time, Seller shall deliver or make available to Buyer all information (including, without limitation, all work papers, schedules, memoranda and other information prepared by Parent, Seller or its affiliates, subsidiaries and agents, relating to the assets of the Company and the Subsidiaries) reasonably available to Seller or Parent and necessary to the preparation of Company and Subsidiaries' Returns for periods ending after the Closing Date. Seller shall also provide to Buyer, upon Buyer's written request and after they become available to Seller or Parent, copies of the Company and the Subsidiaries' separate pro forma federal income and state Income Tax Returns for all tax years of Company and Subsidiaries ending on or after December 31, 1988, together with any data or schedules reasonably necessary to support the computations and information shown on such returns. In the event of an audit of Buyer, the Company or the Subsidiaries by a taxing authority with respect to any Return for any taxable period or periods ending subsequent to the Closing Date, Seller shall provide Buyer with such information which Seller or Parent possesses as Buyer may reasonably request, in writing, with respect to the Company and the Subsidiaries and shall otherwise provide such assistance as Buyer may reasonably request in connection with such audit. Seller and Parent shall maintain and preserve their respective tax records with respect to the Company or the Subsidiaries for at least seven years from the Closing Date. Upon Seller's reasonable request, Buyer shall deliver or make available to Seller all information reasonably available to Buyer and necessary to the preparation of Seller's Returns for periods ending on or before Closing Date. In the event of an audit of Seller, the Company or any of the Subsidiaries by a taxing authority with respect to any Return of the Company or a Subsidiary for any taxable period or periods ending prior to the Closing Date, Buyer shall cause the Company and the Subsidiaries to provide Seller with such information which the Company or the Subsidiaries possess as Seller may reasonably request, in writing, with respect to the Company and Subsidiaries and shall otherwise provide such assistance as Seller may reasonably request in connection with such audit. Buyer shall cause Company and Subsidiaries to maintain and preserve their tax records with respect to the Company or the Subsidiaries for at least seven years from the Closing Date.
(d) Tax Audit. Buyer will allow Seller and its counsel to participate at Seller s expense in any outside tax audit of the Company s or the Subsidiaries state and local Tax Returns to the extent that such audits relate to a tax or tax period for which the Seller has any liability hereunder. Seller shall not settle, resolve, compromise or otherwise resolve any state or local tax audit of the Company or any Subsidiary on or before the Closing Date without the prior written consent of Buyer, which consent will not be unreasonably withheld.
(e) Participation. Seller will allow Buyer and its counsel to participate at Buyer's own expense in any outside tax audits of Parent's consolidated federal Income Tax Returns to the extent that such audits relate to a tax or tax period for which the Company and the Subsidiaries have liability hereunder.
(f) Termination of Existing Tax Sharing Agreements. All tax-sharing agreements or similar agreements, whether written or not, with respect to or involving the Company or the Subsidiaries shall be terminated prior to the Closing Date.
(g) Tax Elections. No new elections with respect to Taxes or any changes in current elections with respect to Taxes affecting the Company or the Subsidiaries shall be made by Seller or Parent after the date of this Agreement without the prior written consent of Buyer.
(h) Transfer Taxes. Seller shall pay all transfer taxes imposed in respect of the transactions contemplated by this Agreement.
On the Closing Date, all intercompany account balances between the Company and the Subsidiaries, on the one hand, and Seller, Parent and their respective subsidiaries and affiliates, on the other hand, will be canceled and marked to zero without any payment by the Company and the Subsidiaries or Seller, as the case may be.
Each of Buyer and Seller shall give prompt notice (written upon reasonable request) to the other of (i) to the extent known by Buyer or Seller, as the case may be, the existence of any state of facts, the occurrence or failure to occur of any event, the existence, occurrence or failure of which to occur would be likely to cause (1) any representation or warranty contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Closing Date, (2) any condition set forth in Article 6 or Article 7 to not be satisfied (ii) any failure of the notifying party or its officers, directors, employees, or agents to comply with or satisfy any covenant, condition, or agreement to be complied with or satisfied by it under this Agreement, and (iii) in the case of Seller, any known material claims, actions, proceedings, or investigations commenced or threatened, involving or affecting any of the properties or assets of the Company and the Subsidiaries; provided, however, that no such notification or failure to notify shall affect the representations, warranties, covenants or indemnification obligations of the parties or the conditions to the obligations to the parties hereunder.
5.8 Reasonable Efforts and Certain Filings.
Subject to the terms and conditions of this Agreement, Buyer and Seller each will use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable to consummate the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Articles 6 and 7 below including those relating to Buyer s financing). Buyer and Seller shall cooperate with one another and use their respective best efforts in preparing and filing the necessary notification and report forms under the HSR Act by November 22, 1995. Without limiting the generality of the foregoing, Seller will take, or cause to be taken, all actions and do, or cause to be done, all things necessary and desirable to obtain all material consents required for the consummation of the transactions contemplated by this Agreement, including without limitation consents required under the High Point Showroom Lease, the Appomatox Town Center Lease and the Industrial Revenue Bonds issued by the Industrial Development Authority of Fluvanna County, Virginia (collectively the "IRB").
5.9 Employees and Employee Benefits.
(a) Continuation of Benefits. With respect to any individuals who after the Closing Date continue to be employees of the Company and the Subsidiaries and who were covered by an employee welfare benefit plan and/or qualified defined contribution pension plan maintained by Seller, Buyer will, effective as of the Closing Date (i) establish a similar plan providing comparable benefits as well as comparable pre-existing condition, waiting period, co- insurance, and deductible provisions (collectively "eligibility provisions"), or (ii) provide benefits comparable to the benefits afforded similarly situated employees of Buyer. For purposes of satisfying any eligibility provisions under such plans, Buyer will credit such employees with all past service with Seller, the Company and the Subsidiaries. Buyer shall waive any pre-existing condition limitation under any such group health plan and the amount of any expenses incurred before the Closing Date by employees of the Company or any Subsidiaries before the Closing Date shall be taken into account for purposes of satisfying the applicable deductible, coinsurance and maximum out-of-pocket and lifetime maximum provisions of such group health plan.
(b) Certain Statutory Requirements. As of the Closing Date Buyer will assume and be solely responsible for any liability or obligation that any of Seller and its affiliates may have for providing continued health care coverage under COBRA with respect to all individuals who are COBRA beneficiaries of the Company or any Subsidiary as of the Closing Date under any health plan that covers employees of the Company and the Subsidiaries, to the extent that the Company and the Subsidiaries, in accordance with past custom and practice, were responsible for such liability or obligation prior to the Closing Date.
(c) Employee Pension Benefit Plans. As soon as practicable after the Closing Date, and after giving and receiving appropriate governmental notifications and approvals, the Parties shall take the following actions with regard to those Employee Benefit Plans listed on Schedule 3.25(b) (or shall cause the following actions to be taken by the trustees, custodians, and, where appropriate, actuaries and other professionals retained by such plans) in which any participant was an employee of, was terminated with a deferred vested benefit from, or was a retiree from any of the Company and the Subsidiaries (or their respective predecessors) prior to the Closing Date (such participants, together with their beneficiaries, are referred to collectively herein as "Company Participants"):
(i) With respect to those Employee Benefit Plans (indicated by an "A" in parentheses alongside its listing in Schedule 3.25(b)) which are non- qualified defined benefit plans, non-qualified defined contribution plans, qualified defined benefit plans, deferred compensation plans or employee stock option plans, Parent, Seller, the Company, and the Subsidiaries shall amend the Employee Benefit Plans to provide, effective as of the Closing Date, that each employee of the Company and the Subsidiaries who is a participant in any such Employee Benefit Plan shall have a fully vested and nonforteitable right to any benefit or account accrued in his or her name, in each case as of the Closing Date. Effective as of the Closing Date, the Company and the Subsidiaries shall cease sponsorship of and participation in such Employee Benefit Plans and such Employee Benefit Plans shall be sponsored solely by Seller. Parent, Seller and the Company and the Subsidiaries shall take all actions necessary to terminate the sponsorship and participation of the Company and the Subsidiaries in such Employee Benefit Plans and to ensure that Seller sponsors such plans as of the Closing Date, and Seller shall be solely responsible for all liabilities and obligations with respect to such plans following the Closing. With respect to those Employee Benefit Plans which are qualified or non- qualified defined benefit plans, Seller shall take all actions necessary to amend such plans to provide that for purposes of determining participants eligibility for early retirement benefits, service will include service with Buyer and retirement from employment with Buyer shall be treated as retirement from active employment with Seller.
(ii) With respect to each Employee Benefit Plan (indicated by a "B" in parentheses alongside its listing on Schedule 3.25(b)) which is a tax- qualified defined contribution pension plan (other than an employee stock ownership plan) and which covers Company Participants as well as other shall direct to Buyer's successor plan and trustee a transfer, in cash, securities (other than securities of Seller or any affiliate), other property, or any combination thereof as agreed upon by the Parties pursuant to good faith bargaining (or in particular investments (other than securities of Seller or any affiliate) if such plan permitted participant directed investments and both such plan and Buyer s successor plan and trustee will permit such transfer of particular investments) of that portion of such plan's assets (including all outstanding Company Participant loans, if any, and including allocable earnings and losses of such plan or, in the case of participant-directed investments, including earnings and losses of the individual Company Participant accounts), valued as of the date of such transfer, allocable to those Company Participants with a benefit or account (whether or not vested) under such plan (other than benefits or accounts which have been distributed in the normal course as of the date of such transfer). Thereafter Buyer shall assume (or the applicable Company or Subsidiary shall retain) all liabilities and responsibilities relating to such Company Participant benefits and accounts and the assets so transferred. With respect to all such directions for transfer, Buyer shall provide to Seller an opinion of counsel, in the form attached hereto as Exhibit A, to the effect that each and every successor plan and trust to which transfer is requested is (A) tax-qualified under applicable provisions of Code Secs. 401(a) and 501(a) and (B) complies in all applicable respects with Code Sec. 414(l). With respect to all benefits accrued as of the date of the transfer of assets, Buyer shall preserve under all such successor plans all optional forms of benefits which are protected under Code Sec. 411(d)(6). From and after each such transfer of assets with respect to each such Employee Benefit Plan, Seller shall cease to have any liability or responsibility for all liabilities and responsibilities that Buyer has assumed (or that the Company and the Subsidiaries has retained) with respect to such plans, their assets, and the Company Participants.
(iii) Seller will make available any and all necessary records for the purpose of computing or establishing all employee benefits, and such other employee benefits information or records as to provide for a smooth and orderly transition, including but not limited to statements of accrued benefits as of the Closing Date under the defined benefit pension plans and statements of account balances as of the Closing Date under the defined contribution plans.
(d) Other Employee Plans. Except as otherwise provided in subsections (e) and (f) below, Buyer shall be responsible for any liabilities or obligations with respect to events which occurred and claims incurred prior to the Closing (including liabilities and obligations for incurred but not reported claims outstanding as of the Closing Date, for disabilities or periods of sickness commencing prior to the Closing Date, and for workers compensation claims arising prior to the Closing Date) with respect to Employee Benefit Arrangements covering individuals who were employees (including any employees on leave) of, or terminated or retired from, the Company and the Subsidiaries prior to the Closing Date.
(e) Post Employment Obligations. With respect to employees of any of the Company and the Subsidiaries who terminated employment with the Company and the Subsidiaries prior to the Closing Date, Buyer shall (except as provided in Sections 5.9(c)(i) and 5.9(f)) be solely responsible for any and all liabilities and obligations reflected as FAS 106 and 112 liabilities on the Closing Date Balance Sheet and Seller shall (except as provided in Section 5.9(c)(ii)) be solely responsible for any and all other post employment liabilities and obligations arising under the Employee Benefit Plans and the Employee Benefit Arrangements.
(f) Thomasville Group Insurance Plan. Seller shall be solely responsible for any liabilities or obligations with respect to events which occurred and claims incurred prior to the Closing Date (including liabilities and obligations for incurred but not reported claims outstanding as of the Closing Date, and for disabilities or periods of sickness commencing prior to the Closing Date) by individuals who were employees (including any employees on leave) of, or terminated or retired from, the Company and the Subsidiaries and their dependents with respect to the Group Insurance Plan for Employees of Thomasville Furniture Industries, Inc. in accordance with the terms thereof, which plan encompasses the Group Life Insurance Program for Hourly Employees of Thomasville Furniture Industries, Inc., the Group Life Insurance Program for Salaried Employees and Marketing Representatives of Thomasville Furniture Industries, Inc., the Group Long Term Disability Insurance for Salaried and Commissioned Employees of Thomasville Furniture Industries, Inc., the Group Dental Assistance Plan for Employees of Thomasville Furniture Industries, Inc., and the Group Medical Care Benefits for Employees of Thomasville Furniture Industries, Inc.
(g) Liabilities Triggered in Connection with the Transaction. To the extent that either the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby (i) results in any payment (including, without limitation, severance, unemployment compensation, deferred compensation, golden parachute or otherwise) becoming due to any officer, director, employee or other person from the Company or any of the Subsidiaries under any Employee Benefit Plan, Employee Benefit Arrangement or otherwise, (ii) increases any benefits otherwise payable under any Employment Benefit Plan or Employee Benefit Arrangement, or (iii) results in the acceleration of the time of payment or vesting of any such benefits, Seller shall be solely responsible and liable for such payment, increased benefits or acceleration of benefits.
(h) No Third Party Beneficiaries. Nothing contained in this Section 5.9 or elsewhere in this Agreement shall grant or create in any person not a party hereto any right to be offered, or to continue, employment or to receive any benefit as an employee or former employee. Without limiting the generality of the foregoing, after the Closing neither Buyer, the Company nor any of the Subsidiaries shall have any obligation arising out of this Agreement to continue the employment of or provide any benefit to any person who was or is employed by the Company or the Subsidiaries, and neither Buyer, the Company nor the Subsidiaries assumes any liability or obligation under any Employee Benefit Plan established or maintained by Seller except as set forth in this Agreement.
Seller and Parent will not, and shall use their respective best efforts to cause their investment bankers, attorneys, accountants and other agents retained by Seller or Parent not to, solicit, initiate, or encourage, directly or indirectly, the submission of any proposal or offer from any third party or engage in negotiations or discussions with, or furnish any information or data to, any third party, relating to the acquisition of any capital stock or all or substantially all of the assets of any of the Company and the Subsidiaries (including any such acquisition structured as a merger, consolidation, or share exchange), or respond to or discuss such a proposal or offer if made.
With respect to any person who is an executive, management or supervisory employee of the Company and the Subsidiaries on the date hereof, for a period of 18 months following the Closing, neither Parent (or any division or subsidiary of Parent) nor Seller will, without the prior written consent of Buyer, hire such person or solicit, encourage, entice or induce such person to terminate his or her employment by the Company and the Subsidiaries.
As an inducement for Buyer to enter into this Agreement, Seller and Parent agree that for a period of three years following the Closing Date (the "Non-Competition Period"), neither of them (nor any division or subsidiary of Parent) shall directly or indirectly own, manage, operate, assist, join, control or participate in the ownership, management, operation or control of, or be connected as a partner, consultant or otherwise with, any third party that directly or indirectly competes with, or is about to compete with, the business of the Company and the Subsidiaries as it shall exist on the Closing Date. In recognition that the business of the Company and the Subsidiaries is currently conducted throughout the world, the restrictions set forth in the foregoing sentence shall have no geographic limits. In the event the restrictions set forth in this subsection (5.12) shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending over too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. Nothing contained in this subsection (5.12) shall restrict Seller, Parent or Parent s pension plan from owning 5% or less of the corporate securities of any third party which securities are listed on any national securities exchange or authorized for quotation on the Automated Quotation System of the National Association of Securities Dealers, Inc., if none of them has any other connection or relationship, direct or indirect, with such third party, nor prevent Parent or any division or subsidiary of Parent from conducting their business as currently being conducted.
5.13 Pre- and Post-Closing Cooperation.
Prior to, at and, at Buyer s sole out-of-pocket cost and expense, for a reasonable period subsequent to the Closing, Seller and Parent shall cooperate with Buyer in connection with (i) the initiation by Buyer of administrative, legal and management functions previously provided by Seller, Parent or their affiliates with respect to the businesses of the Company and the Subsidiaries, (ii) the efforts by Buyer to complete its financing with respect to this transaction (including the provision of information and access to Parent s accountants and auditors and the reasonable assistance of management of the Company and the Subsidiaries), (iii) the making of future filings with the Securities and Exchange Commission, including the assistance and cooperation of Parent and its auditors in the preparation of financial statements for such filings and the provision of any necessary consents in connection therewith and (iv) Buyer's handling following the Closing of any liabilities and obligations of the Company and the Subsidiaries with respect to which Seller has no responsibility pursuant to Section 8.1 or otherwise. Such cooperation shall include, but not be limited to, the provision by Seller and Parent of any documents (or copies thereof) reasonably requested by Buyer.
(a) Seller, at its sole cost and expense, shall obtain and maintain following the Closing for a period of 4 years general liability insurance providing coverage on substantially the same terms as the general liability policy maintained by the Parent on behalf of the Company and Subsidiaries prior to Closing (the GLI Policy ) naming Seller as an insured and naming the Company and the Subsidiaries as additional insureds and loss payees (as their interests may appear) in respect of any insured events under the GLI Policy arising out of occurrences occurring prior to the Closing Date ( GLI Claims ). With respect to GLI Claims which are not covered by the GLI Policy, Seller will remain liable for, and will indemnify and hold Buyer, the Company and the Subsidiaries harmless from and against, all such Claims incurred on or prior to the Closing Date. Notwithstanding any other provision of this Agreement to the contrary, Buyer acknowledges and agrees that except as explicitly provided in the immediately preceding sentences of this Section 5.14, with respect to any and all occurrences arising after the Closing Date and any and all other claims made after the Closing Date, Buyer shall have sole liability therefor (without regard to when the occurrence or occurrences giving rise to such claims arose). In this regard, without limiting the provisions of the immediately preceding sentence, Buyer shall have sole liability for worker s compensation claims which are made on or after the Closing Date.
(b) Notwithstanding the foregoing, from and after the Closing, Seller shall make claims and receive recoveries for the benefit of the Company and the Subsidiaries under any occurrence basis insurance policies maintained (including, automobile insurance) at any time prior to the Closing by Seller (collectively, the Pre- Closing Insurance Policies ), in respect of any insured events of the Company and the Subsidiaries that relate to or arise out of occurrences prior to the Closing Date (an Insurance Claim ); provided, however, that any recoveries received by Seller in respect of such insured events shall be promptly paid by Seller to or as directed by Buyer, and Seller will have no right or interest therein. The Company and the Subsidiaries will have the sole and exclusive right, in their own names, to make directly any Insurance Claims with respect to insured events under any Pre-Closing Insurance Policies maintained at any time prior to, on or after Closing by the Company and the Subsidiaries and to receive directly any recoveries thereunder, and other than with respect to matters for which Seller has retained responsibility pursuant to this Agreement, Seller and its affiliates will have no right or interest therein.
(c) In order to implement Section 5.14(a), Seller shall (i) cooperate fully and cause its affiliates to cooperate fully with Buyer and the Company and the Subsidiaries in submitting good faith Insurance Claims and GLI Claims on behalf of the Company and the Subsidiaries under the Pre-Closing Insurance Policies or the GLI Policy, as the case may be, and (ii) pay promptly over to or as directed by Buyer any and all amounts received by Seller or its affiliates under the Pre-Closing Insurance Policies and the GLI Policy with respect to Insurance Claims and GLI Claims, as the case may be.
(d) Effective as of the Closing Date, except as expressly provided herein, Seller will cause the Company and the Subsidiaries to be removed from any insurance policies or self insurance programs maintained prior to the Closing by, and Buyer and the Company and the Subsidiaries will be solely liable for asserted claims as provided herein.
Parent and Seller acknowledge that the Confidential Information (as defined below) of the Company and the Subsidiaries is valuable and proprietary to the business of the Company and the Subsidiaries and agree not to (and to cause their affiliates not to), directly or indirectly, use, publish, disseminate, describe or otherwise disclose any Confidential Information of the Company and the Subsidiaries without the prior written consent of Buyer. For purposes of this Agreement, "Confidential Information" shall mean with respect to the Company and the Subsidiaries all confidential information of the Company and the Subsidiaries existing on or prior to the Closing Date that is not otherwise publicly disclosed or generally available, including information delivered in confidence by others to the Company and the Subsidiaries. Without limiting the generality of the foregoing, Confidential Information shall include: (i) customer lists, lists of potential customers and details of agreements with customers; (ii) acquisition, expansion, marketing, financial and other business information and plans; (iii) research and development performed exclusively by or for the benefit of the Company and/or the Subsidiaries; (iv) computer programs and computer software; (v) sources of supply; (vi) identity of specialized consultants and contractors; (vii) purchasing, operating and other cost data; (viii) special customer needs, cost and pricing data; and (ix) employee information. Confidential Information also includes information recorded in manuals, memoranda, projections, minutes, plans, drawings, designs, formula books, specifications, computer programs and records, whether or not legended or otherwise identified as Confidential Information, as well as information that is the subject of meetings and discussions and not so recorded. Seller shall also fully exercise all of its rights, contractual or otherwise, to retrieve from third parties all Confidential Information (which for this purpose shall be deemed to include all information subject to applicable confidentiality agreements) of the Company and the Subsidiaries which has been delivered to such third parties, whether in connection with the contemplated sale by Seller of the Company and the Subsidiaries or otherwise.
Buyer shall use its best efforts (and Seller shall cooperate with Buyer) from and after the date hereof to cause Sovran Bank, N.A., as Trustee under that certain Indenture of Trust dated as of November 1, 1986, pursuant to which the IRB was issued (the Trustee ), to permit the substitution by Buyer of (i) a letter of credit to be issued by a lender which is chosen by Buyer and which is satisfactory to the Trustee (the Substitute LOC ), for (ii) that certain Irrevocable Letter of Credit issued by Union Bank of Switzerland, New York Branch (the Bank ) in favor of the Trustee (the Union LOC ) relative to the IRB. In the event the Substitute LOC has not been issued on the Closing Date, Buyer, from and after the Closing Date, shall (i) indemnify and hold Parent harmless from and against any and all liabilities, obligations, losses, claims, and expenses (including attorney s fees and costs of suit) incurred by Parent and arising under or in connection with that certain Guarantee dated November 1, 1986, made by Parent in favor of the Bank and (ii) as security for the foregoing indemnity of Buyer, cause to be issued and maintained in effect until the first to occur of the expiration of the term of the Union LOC or the issuance of the Substitute LOC an irrevocable letter of credit in favor of Parent (the Indemnity LOC ) by Bankers Trust Company, Nations Bank or such other lender which is chosen by Buyer and which is satisfactory to Parent in the exercise of its sole discretion and the Indemnity LOC shall be in an amount and for a term equal to the Union LOC and contain such other terms as are satisfactory to Parent. Notwithstanding the provisions of the first sentence of this Section 5.16, in the event the substitution of the Substitute LOC for the Union LOC would, by itself, adversely impair the tax exemption of interest on the IRB or cause the IRB to not remain outstanding after the Closing Date in accordance with the terms of the IRB, Buyer s sole obligation under this Section 5.16 shall be to provide to Parent the indemnity and Indemnity LOC contemplated by the second sentence of this Section. In the event Buyer is unable to cause the substitution of the Substitute LOC for the Union LOC and the term of the Union LOC expires prior to end of the term of the IRB, Parent shall use its reasonable commercial efforts to renew the Union LOC or assist Buyer in obtaining a Substitute LOC so that the IRB remains outstanding until the expiration of its term.
6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
The obligations of Seller hereunder are subject to the fulfillment of the following conditions, any of which may be waived by Seller:
All representations and warranties of Buyer contained herein shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. Buyer shall have performed and complied in all material respects with all covenants and agreements contained herein and required to be performed or complied with by it on or prior to the Closing Date.
Buyer shall have delivered to Seller a certificate signed by its President or any Vice President, dated as of the Closing Date, to the effect set forth in Section 6.1.
Seller shall have received an opinion of Bryan Cave LLP, counsel for the Buyer, dated as of the Closing Date, substantially in the form attached hereto as Exhibit B.
There shall not be any pending action, suit, or other judicial proceeding brought by the United States Federal Trade Commission or by the Antitrust Division of the United States Department of Justice against any of the parties hereto with respect to any of the transactions contemplated by this Agreement, and no order or decree prohibiting or restraining the consummation of this Agreement shall have been issued by any court or governmental or regulatory body.
The parties shall have filed with the Federal Trade Commission and the Antitrust Division of the Department of Justice notification and report forms with respect to the transactions contemplated hereby pursuant to the HSR Act and the rules promulgated thereunder, and the waiting period required to expire under such Act and rules, including any extension thereof, shall have expired prior to the Closing Date.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
The obligation of Buyer to enter into and complete the Closing is subject to the fulfillment of the following conditions, any of which may be waived by Buyer:
All representations and warranties of Seller contained herein shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. Seller shall have performed and complied in all material respects with all covenants and agreements contained herein and required to be performed or complied with by it on or prior to the Closing Date.
Seller shall have delivered to Buyer a certificate signed by its President or any Vice President, dated as of the Closing Date, to the effect set forth in Section 7.1.
Buyer shall have received an opinion of Buchanan Ingersoll Professional Corporation, counsel for Seller, dated as of the Closing Date, substantially in the form attached hereto as Exhibit C.
There shall not be any pending or threatened action, suit, or other judicial proceeding brought by the United States Federal Trade Commission or by the Antitrust Division of the United States Department of Justice against any of the parties hereto with respect to any of the transactions contemplated by this Agreement, and no order or decree prohibiting or restraining the consummation of this Agreement or imposing any conditions to the consummation of this Agreement which are burdensome in any material respect to Buyer shall have been issued by any court or governmental or regulatory body.
The parties shall have filed with the Federal Trade Commission and the Antitrust Division of the Department of Justice notification and report forms with respect to the transactions contemplated hereby pursuant to the HSR Act and the rules promulgated thereunder, and the waiting period required to expire under such Act and rules, including any extension thereof, shall have expired prior to the Closing Date.
Since the date of the Latest Balance Sheet, the Company and the Subsidiaries shall not have suffered any loss on account of fire, flood, accident, strike or other calamity which has had or may have a material adverse effect on the financial condition or assets of the Company and the Subsidiaries, taken as a whole, whether or not such loss shall have been covered by insurance.
Buyer shall have closed on financing for the purchase of all of the Shares and consummation of the related transactions contemplated in the Financing Letters.
Buyer shall have received resignations from each member of the Board of Directors of each of the Company and the Subsidiaries, who is not otherwise an employee of the Company or the Subsidiaries.
Parent shall have executed and delivered to Buyer a Trademark License Agreement, in a form mutually agreeable to Parent and Buyer , pursuant to which Parent shall grant to the Company and the Subsidiaries a royalty free license to use the Armstrong name solely in connection with the business operations of the Company and the Subsidiaries for a period not to exceed eighteen (18) months following the Closing Date.
Buyer shall have received the consents and approvals set forth on Schedule 7.10.
Buyer shall have received the final Phase One Study described in Section 9.3, from an environmental consultant selected by Buyer and agreed to in writing by Seller, such agreement not to be unreasonably withheld, with respect to the properties currently owned or operated by the Company and the Subsidiaries which does not reveal environmental remediation costs and compliance costs (exclusive of Known Environmental Losses, as hereinafter defined) which are reasonably likely to exceed $20,000,000. This condition shall be deemed satisfied on December 29, 1995 (effective as of the Closing Date), unless on or before such date Buyer notifies Seller in writing that this condition is not satisfied.
Seller shall indemnify Buyer, its affiliates, the Company and the Subsidiaries and their respective directors, officers, shareholders, employees, agents, representatives, successors and assigns (collectively, the Buyer Indemnitees ) against any and all claims, losses, liabilities, damages, expenses, including reasonable attorney's fees and costs of suit ( Losses ), resulting from or related to: (i) any breach of Seller's covenants, warranties and representations contained in this Agreement and (ii) any item disclosed on Schedule 3.27 (exclusive of Known Environmental Losses, as hereinafter defined) ( Other Environmental Losses ); provided, however, that with respect to breaches of the representations and warranties of Seller set forth in Article 3 (other than with respect to breaches of representations and warranties set forth in Sections 3.2, 3.11, 3.12, 3.13, 3.14 and 3.22) and including Other Environmental Losses, (i) the Buyer Indemnitees will not be entitled to indemnification until the aggregate of all such claims exceeds the sum of $2,500,000, and then only to the extent of any amount in excess of $2,500,000 and (ii) Seller's aggregate liability to indemnify the Buyer Indemnitees shall not exceed $30,000,000 (the Seller s Indemnity Cap ). Buyer and Seller acknowledge and agree that, notwithstanding the foregoing provision of this Section 8.1, in the event the Phase One Study described in Section 9.3 discloses environmental remediation costs (exclusive of Known Environmental Losses, as hereinafter defined) and compliance costs which are in excess of $5,000,000, then the Seller s Indemnity Cap shall be increased by an amount equal to the amount of such environmental remediation costs and compliance costs in excess of $5,000,000 but in no event shall such increase exceed $15,000,000 ( Excess Environmental Indemnity ).
Buyer shall indemnify Seller and its affiliates, directors, officers, shareholders, employees, agents, representatives, successors and assigns (collectively, the Seller Indemnitees ) against any and all claims, and losses, liabilities, damages, expenses, including reasonable attorney's fees and costs of suit, to Seller (i) resulting from or related to any breach of Buyer's covenants, warranties and representations contained in this Agreement and (ii) resulting from, relating to or in connection with the operations of the Company and the Subsidiaries subsequent to the Closing Date, including without limitation, the sale of products by the Company and the Subsidiaries under the Armstrong brand name subsequent to the Closing Date (other than with respect to infringement actions by third parties relative to the use of the Armstrong brand name).
Every person seeking indemnification hereunder shall correct or mitigate, to the extent commercially reasonable, any loss suffered by such person for which indemnification is claimed hereunder, and the indemnifying party shall be liable only for the amount thereof which is net of any insurance proceeds and other amounts paid by, or offset against any amount owed to, any person not a party to this Agreement (including any costs or expenses incurred to so correct or mitigate); provided, however, with respect to matters, including without limitation, known Environmental Losses, Other Environmental Losses, and Environmental Warranty Losses, for which Seller is required to indemnify Buyer pursuant to this Agreement, Seller shall indemnify and hold harmless Buyer with respect to such matters upon receipt of notice of such claim notwithstanding the existence of a pending claim for recovery of insurance proceeds (including any proceeds from any applicable state underground storage tank fund). In the event Buyer recovers insurance proceeds with respect to matters that Seller provided indemnity pursuant to this Agreement, Buyer shall reimburse Seller for its expenditures in an amount equal to the funds recovered by Buyer from such insurer. If a person which has a right of indemnification under this Article 8 reasonably can, by expenditure of money, mitigate or otherwise reduce or eliminate any loss for which indemnification would otherwise be claimed, such person shall take such action and shall be entitled to reimbursement for such expenditures and all related expenses. The parties acknowledge and agree that, except as provided in Sections 8.5, 8.7, 9.2, 9.11 and 9.21, the indemnification provided under this Article 8 shall be the sole and exclusive remedy of the parties with respect to the breach of any covenant, representation or warranty contained herein. Notwithstanding the foregoing, nothing in this Agreement shall relieve Seller or Buyer from any liability arising from an intentional breach of any of its representations, warranties, covenants or agreements set forth in this Agreement.
8.4 Matters Involving Third Parties.
(a) If any third party (including any governmental agency or authority) shall notify any Buyer Indemnitee or Seller Indemnitee, as the case may be (the Indemnified Party ) with respect to any matter (a Third Party Claim ) which may give rise to a claim for indemnification against either Buyer or Seller, as the case may be (the Indemnifying Party ) under this Article 8, then the Indemnified Party shall promtly notify the Indemnifying Party thereof in writing.
(b) The Indemnifying Party shall, within 30 days after receipt of the notice described in Section 8.4(a), assume and thereafter conduct the defense of the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party at the sole expense of the Indemnifying Party; provided, however, that the Indemnified Party may participate in such settlement or defense through counsel chosen by such Indemnified Party, provided that the fees and expenses of such counsel shall be borne by such Indemnified Party; and provided, further, that the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably) unless the judgment or proposed settlement involves only the payment of money damages by the Indemnifying Party and does not impose an injunction or any other equitable relief upon the Indemnified Party.
(c) Unless and until the Indemnifying Party assumes the defense of the Third Party Claim as provided in Section 8.4(b) above, however, the Indemnified Party may defend against the Third Party Claim in any manner it reasonably may deem appropriate, but shall not thereby waive any right to indemnify therefor pursuant to this Agreement; provided, however, that the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not to be withheld unreasonably).
(d) The specific provisions of Sections 5.5(c), 5.5(d), 8.5 and 8.7 will govern in the event of any conflict with the general provisions of this Section 8.4.
In addition to any other indemnification granted herein and notwithstanding the survivability or limits, if any, of any representation contained herein or the absence of any representation herein, Seller agrees to indemnify, defend and hold harmless the Buyer Indemnitees from and against all loss, liability including the Company and the Subsidiaries liability for its own Taxes or its liability, if any (for example, by reason of transferee liability or application of Treas. Reg. Section 1.1502-6) for Taxes of others, including, but not limited to, Seller or any Tax Affiliate or any majority-controlled foreign affiliate, damage or reasonable expense (including but not limited to reasonable attorneys fees and expenses) (collectively, Costs ) payable with respect to Taxes claimed or assessed against the Company and the Subsidiaries (i) for any taxable period ending on or before the Closing Date or (ii) for any taxable period resulting from a breach of any of the representations or warranties contained in
With respect to any indemnity payment under this Article 8, the parties agree to treat, to the extent permitted by law, all such payments as an adjustment to the consideration paid for the sale and transfer of the stock of the Company and the Subsidiaries, to be allocated to the Company or the Subsidiary in respect of which the adjustment arose, and if the source of any such adjustment cannot reasonably be determined, such adjustment shall be allocated to the Company.
(a) Identified Properties. Seller agrees to indemnify, defend and hold harmless the Buyer Indemnitees from and against all existing and future claims, losses, liabilities, damages and expenses, including, without limitation, claims, losses, liabilities, damages and expenses for personal injury, property damage, reasonable costs of investigation, attorneys fees and costs of suit and reasonable consultant fees, resulting from or related to (i) the direct or indirect disposal by the Company or any of its Subsidiaries of wastes or other materials in the Buckingham County, Virginia landfill site ( Buckingham ) and (ii) the former Pleasant Garden, North Carolina facility of the Company heretofore sold to Hooker Furniture Corporation pursuant to an agreement dated February 17, 1993 (including but not limited to releases of volatile organic compounds) ( Pleasant Garden ) (hereinafter Buckingham and Pleasant Garden referred to together as the Identified Properties ) ( Known Environmental Losses ); provided however (i) with respect to the first $4,000,000 of Known Environmental Losses relating to the Identified Properties, Seller and Buyer shall each pay fifty percent (50%) of such $4,000,000 of such Known Environmental Losses and (ii) thereafter, the Buyer Indemnities will be entitled to indemnification for additional Known Environmental Losses with respect to the Identified Properties up to an aggregate amount, including such $4,000,000, not to exceed $30,000,000. Thereafter, Seller shall have no further obligation to Buyer or any other person relating to the Identified Properties. This Section 8.7(a) sets forth Buyer Indemnitees sole and exclusive rights of indemnification for Known Environmental Losses.
(b) Period of Indemnity. Seller s Indemnification obligations in Section 8.7 (a) herein shall apply only to Known Environmental Losses actually incurred by the Buyer Indemnities before the tenth anniversary of the Closing Date. Thereafter Seller shall have no further obligation to indemnify Buyer or any other person for Known Environmental Losses.
(c) Lowest Cost Response. Notwithstanding anything in this Agreement to the contrary, Seller s indemnity obligation for breach of any warranty in Section 3.27(a)-(h) ( Environmental Warranty Losses ), Other Environmental Losses and Known Environmental Losses (collectively Environmental Losses ) for which Seller has an indemnity obligation pursuant to this Agreement shall be satisfied by implementation or indemnification for implementation of the Lowest Cost Response. The Lowest Cost Response shall mean any compliance activity or any investigation, cleanup, remediation, removal action or other response activity that (1) satisfies applicable Environmental Laws that are in existence at the time of the contemplated activity, (2) is acceptable to Governmental Authorities having jurisdiction over the site, (3) is consistent with the operations being conducted at the site, and (4) can be achieved for the lowest financial cost as compared with other potential response activities.
(d) Limitation. Notwithstanding anything in this Agreement to the contrary, Seller s indemnity obligation for Environmental Losses shall be limited solely to Environmental Losses arising out of or resulting from (1) investigative or remedial action required by Environmental Law or Governmental Authorities, (2) third- party claims, or (3) the discovery of the presence or Release of a Hazardous Material as a result of: (i) a facility expansion or renovation (ii) in the ordinary course of operations, including pursuant to a corporate environmental compliance program (except for findings resulting from soil or ground water sampling pursuant to such programs), (iii) an investigation done in connection with a bona fide offer received after the Closing Date to purchase or lease any of the real property currently owned or leased by the Company or the Subsidiaries and in particular to the Armstrong Furniture Division of the Company ( AFD ), a bona fide offer to purchase or a board approved organized sale, disposition or bidding process to sell all or substantially all of the assets of AFD (which for purposes hereof the real property shall only include the real property listed on Schedule 8.7(d)(3)(iii) hereto) (the Assets ) or the stock of a subsidiary of the Company owning directly or indirectly no real property other than the Assets, or (iv) an investigation or remedial action which in the reasonable business judgment of Buyer is required to protect human health or safety. For purposes of Article 8, no indemnification is provided by Seller for asbestos removal costs solely associated with renovation of any property currently owned, leased, or operated by the Company or any Subsidiary.
(e) Confidentiality. Buyer shall use its best efforts to maintain in strict confidence, the existence and terms of Seller s indemnity obligation with respect to the Identified Properties set forth in Section 8.7(a) provided, however, Buyer may disclose the terms and existence of such indemnity obligation (1) to any financial institution that is considering or actually provides financing to Buyer, and (2) to the extent required by law. In the event Buyer discloses the existence or terms of Seller s indemnity obligation pursuant to Section 8.7(a) to a financial institution, Buyer shall take reasonable and appropriate measures to ensure that such financial institution is familiar with the confidentiality requirement set forth herein and agrees to comply with its terms.
8.8 Procedures Relating to Environmental Indemnity by Seller.
(a) Subject to the provisions of Section 8.7 (a) and (b), the continued defense, settlement or compromise of the claims giving rise to Known Environmental Losses shall continue with existing counsel or other counsel selected by Seller and reasonably acceptable to Buyer under the direction of Seller; provided, however, Buyer Indemnitees shall have the right to retain, at their own expense counsel and consultants of their own choosing to work with Seller s current defense counsel and consultants.
(b) As a condition of the indemnity for Environmental Warranty Losses and Other Environmental Losses Buyer shall, promptly after becoming aware of facts that will likely result in such Environmental Warranty Losses or Other Environmental Losses being incurred for which Buyer Indemnitees are entitled to indemnity hereunder ( Environmental Losses Claim ), submit to Seller a written notice thereof within four years of the Closing Date, which notice shall describe in reasonable detail the date when and circumstance by which Buyer became aware of the Environmental Losses Claim; the nature of the Environmental Losses Claim, and the basis for the alleged liability. Seller shall have no obligation to Buyer for any Environmental Warranty Losses or Other Environmental Losses for which a notice as described above is not received before the fourth anniversary of the Closing Date.
(c) With regard to any Environmental Losses Claim, Seller may, at its option, defend such Environmental Losses Claim with counsel or consultants selected by Seller reasonably acceptable to the Buyer Indemnitees. If Seller does not elect to defend any such Environmental Losses Claim, the Buyer Indemnitees shall defend such Claim with counsel or consultants selected by the Buyer Indemnitees reasonably acceptable to Seller. Seller shall provide Buyer with copies of all correspondence, reports and other documentation, including but not limited to settlement communications or documents (excluding matters subject to confidentiality) (draft or final) relating to any Other Environmental Losses or Environmental Warranty Claims, excepting such documents as are routinely filed. If Seller elects to defend such Environmental Losses Claim, Seller shall retain control of the defense, compromise or settlement (including without limitation the nature and scope of any work to be performed; the contractors, consultants or engineers to be performing any work; the making of any admissions against interest; the making of any decision whether work should be performed voluntarily by the Buyer Indemnitees or their contractors, consultants or engineers or, alternatively, by an authorized governmental entity; and the making of any decision whether to enter into any consent decree, consent order or consent agreement and the terms of such decree, order or agreement) thereof; provided, however, that if Buyer reasonably determines that the defense, compromise or settlement of an Environmental Losses Claim may reasonably be expected to materially and adversely affect the business or operations of the Buyer Indemnitees, the Buyer Indemnitees shall have the right to approve, such approval not to be unreasonably withheld, the defense, compromise or settlement of such Environmental Losses Claim. If the Buyer Indemnitees are conducting the defense, compromise or settlement of such Environmental Losses Claim, the Buyer Indemnitees shall have control over the defense, compromise or settlement; provided, however, that Seller shall have the right to approve the defense, compromise or settlement (including without limitation the nature and scope of any work to be performed; the contractors, consultants or engineers to be performing any work; the making of any admissions against interest; the making of any decision whether work should be performed voluntarily by the Buyer Indemnitees or their contractors, consultants or engineers or, alternatively, by an authorized governmental entity; and the making of any decision whether to enter into any consent decree, consent order or consent agreement and the terms of such decree, order or agreement) if the Environmental Losses Claim may reasonably be expected to exceed $250,000 in Environmental Warranty Losses or Other Environmental Losses in any one or more years. The party conducting the defense, compromise or settlement of an Environmental Losses Claim shall inform the other party in a timely manner of any material information concerning the Environmental Losses Claim or the defense, compromise or settlement thereof and provide copies of correspondence, reports and other documentation (draft or final) relating thereto.. If at any time Seller is not satisfied with the defense being provided by the Buyer Indemnitees with regard to any Environmental Losses Claim that may reasonably be expected to exceed $250,000 in Environmental Losses Losses in any one or more years, Seller shall have the right, at its option, to assume control of the defense, compromise or settlement of such Environmental Losses Claim, including without limitation the appointment of new counsel or consultants if Seller so elects; provided, however, if Buyer reasonably determines that the defense, compromise or settlement (including without limitation the nature and scope of any work to be performed; the contractors, consultants or engineers to be performing any work; the making of any admissions against interest; the making of any decision whether work should be performed voluntarily by the Buyer Indemnitees or their contractors, consultants or engineers or, alternatively, by an authorized governmental entity; and the making of any decision whether to enter into any consent decree, consent order or consent agreement and the terms of such decree, order or agreement) of such Environmental Losses Claim may reasonably be expected to materially and adversely affect the business or operations of the Buyer Indemnitees or result in not insignificant Environmental Warranty Losses or Other Environmental Losses to the Buyer Indemnitees, the Buyer Indemnitees shall have the right to approve the defense, compromise or settlement of such Environmental Losses Claim, such approval not to be unreasonably withheld. Regardless of the party conducting the defense of any Environmental Losses Claim, the parties agree to cooperate in the defense, compromise or settlement of such claim. Where Seller decides that the taking of any action to test, investigate, remove, remediate or restore any environmental conditions with regard to a property owned or operated by the Buyer Indemnitees is necessary to protect Seller s interests under this Agreement, Seller shall provide advance written notification to the Buyer Indemnitees of the nature of and reasons for such action. The Buyer Indemnitees shall allow Seller to perform all or part of any such action at Seller s option, using Seller s own counsel, consultants, contractors and/or engineers reasonably acceptable to the Buyer Indemnitees. Seller and the Buyer Indemnitees will cooperate in attempting to minimize any disruption of operations of the Buyer Indemnitees caused by such actions. In connection with the obligations of Seller pursuant to this subsection 8.8(c) the Buyer Indemnitees shall cause the Company and its Subsidiaries to deliver to Seller copies of all documents reasonably necessary to Seller pertaining to environmental or other state or federal regulatory matters with respect to which Seller may be required to indemnify the Buyer Indemnitees hereunder.
Each party to this Agreement shall pay its own expenses (including, without limitation, the fees and expenses of their respective agents, representatives, counsel and accountants) incidental to the preparation, negotiation, and consummation of this Agreement and the transactions contemplated hereby. All filing fees required to be paid under the HSR Act and the rules promulgated thereunder shall be paid by Buyer.
Buyer has not employed a finder or broker or other person entitled to a brokerage commission or fee in respect of this Agreement and the transaction contemplated hereby. Seller has engaged Goldman, Sachs & Co. to act as its financial advisor in connection with the transactions contemplated hereby and shall be solely responsible for the payment of such firm's fees for such services.
9.3 Access to the Company's Properties.
Seller will, and will cause the Company to accord Buyer and its authorized representatives reasonable access to all of the books, records, personnel and properties of or pertaining to the Company and the Subsidiaries commencing not later than the date of this Agreement. Such access shall include, but not be limited to, the right to conduct, at Buyer s sole expense, an environmental investigation (which shall not include performance of soil, groundwater, surface water and air sampling and analysis without the prior written consent of Seller), at any of the properties currently owned or operated by the Company and the Subsidiaries; provided however, that Buyer acknowledges that such environmental investigation and report issued thereon (the Phase One Study ) contains confidential information of the Seller with respect to the Company and the Subsidiaries, and Buyer agrees to not directly or indirectly use, publish, disseminate, describe or otherwise disclose the Phase One Study to any person other than its attorneys, accountants, financial institutions or other advisors directly involved in the transaction contemplated by this Agreement without the prior written consent of Seller. Buyer agrees to cause any person to whom it discloses such Phase One Study to be bound by the confidentiality provisions contained herein. Prior to finalizing any Phase One Study, including any estimation of environmental remediation or compliance costs, Buyer shall provide Seller with an oral and an executive summary of the proposed Phase One Study on or before December 8, 1995 and shall provide a copy of such Phase One Study to Seller for meaningful review and comment by no later than December 27, 1995. Buyer shall have the right to make copies of any such records, files, tax returns and other materials as it may deem advisable. Seller will cause the respective personnel of Seller and the Company to assist Buyer in making such investigation, and will make its counsel, accountants and other representatives available for such purposes. All stock record books and all minute books of the Company and the Subsidiaries will be delivered to Buyer at the Closing. All other books and records of the Company and the Subsidiaries in the possession of Seller will be delivered to Buyer at the Closing.
Seller (as it reasonably requires) and any taxing authority in the United States shall have access for a period of six (6) years after the Closing Date, during normal business hours, to personnel of the Company and the Subsidiaries and to all books, records, files, documents and other data relating to the business of the Company and the Subsidiaries conducted prior to the Closing Date in connection with any proceedings with any governmental authority.
All notices or other communications given under this Agreement shall be in writing and transmitted by registered or certified mail, postage prepaid, or by telegram. Any such notice or communication given hereunder shall be sent as follows:
c/o Armstrong World Industries, Inc. 313 West Liberty Street, Lancaster, PA 17603 Attention: Larry A. Pulkrabek, Senior Vice
Attn: Chairman of the Board
Any party may send notice or other communication hereunder using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice or other communication shall be deemed to have been duly given unless and until it actually is received. Any party may change the address to which notices and other communications hereunder are to be delivered by giving the other party notice in the manner herein set forth.
This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. This Agreement or any part thereof, may not be assigned without the prior written consent of the other party, which consent may be withheld in the sole discretion of the other party; provided, however, that Buyer may (i) assign any or all of its rights and interests hereunder (but not delegate any or all of its duties hereunder) to one or more of its affiliates and (ii) designate one or more of its affiliates to perform its obligations hereunder (in any or all of which cases in subparagraphs (i) and (ii) Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder). References to Buyer and Seller shall include their respective successors and permitted assigns.
9.7 Entire Agreement and Modification.
This Agreement supersedes all prior agreements and understandings between the parties or any of their respective affiliates (written or oral) relating to the subject matter (except for that certain Confidentiality Agreement between the parties dated June 30, 1995), and is intended to be the entire and complete statement of the terms of the agreement between the parties, and may be amended or modified only by a written instrument executed by the parties. The waiver by one party of any breach of this Agreement by the other party shall not be considered to be a waiver of any succeeding breach (whether of a similar or a dissimilar nature) of any such provision or other provision or a waiver of any such provision itself. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. Notwithstanding anything to the contrary contained herein, any matter set forth or referred to or disclosed on any Schedule hereto shall be deemed also to be set forth, referred to and disclosed on all schedules, and deemed to be the disclosure under all Sections and provisions of this Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein has been made or relied upon by either party hereto.
Buyer may, without liability, terminate this Agreement by written notice to Seller as follows:
(a) If Seller fails to comply with Section 2.2 or to satisfy at or prior to Closing in all material respects any of the conditions to Closing specified in Article 7 which are required to be performed or satisfied by Seller at or prior to Closing, and if any such failure either is not waived in writing by Buyer or cured by Seller within twenty days after written notice thereof by Buyer; or
(b) If the Phase One Study prepared pursuant to Section 9.3 discloses environmental remediation costs and compliance costs which are in excess of $20,000,000, Buyer may, without liability, terminate this Agreement by written notice to Seller on or before December 29, 1995.
Seller may, without liability, terminate this Agreement by written notice to Buyer as follows:
(a) If Buyer fails to comply with Section 1.2 or to satisfy at or prior to Closing in all material respects any of the conditions to Closing specified in Article 6 which are required to be performed or satisfied by Buyer at or prior to Closing, and if any such failure either is not waived in writing by Seller or cured by Buyer within twenty days after written notice thereof by Seller;
(b) If Buyer fails to obtain financing as required by Section 7.7 on or before January 16, 1996 and Buyer does not waive the condition set forth in Section 7.7 thereon or before such date; or
(c) If the Phase One Study prepared pursuant to Section 9.3 discloses environmental remediation costs and compliance costs which are in excess of $20,000,000, and Buyer provides the notice set forth in Section 7.11, Seller may, without liability, terminate this Agreement by written notice to Buyer on or before January 3, 1996.
If no Closing occurs by March 15, 1996, and the failure to close is not the result of Seller's or Buyer's failure to satisfy in all material respects any of the conditions to Closing specified in Articles 6 and 7 at or prior to Closing, each of Buyer and Seller shall have the right to terminate this Agreement upon written notice to the other.
If this Agreement is terminated pursuant to Sections 9.8, 9.9 or 9.10 above, all rights and obligations of the parties hereunder shall terminate without any liability of any party to the other party under or with respect to this Agreement; provided, however, that nothing in this Section 9.11 or elsewhere in this Agreement shall impair or restrict the rights of any party to any and all remedies at law or in equity in the event of a breach of or default under this Agreement by the other party. If this Agreement is terminated as provided herein all filings, applications and other submissions made pursuant to this Agreement shall, to the extent practicable, be withdrawn from the agency or other persons to which they were made.
9.12 Survival of Representations, Covenants and Warranties.
The representations and warranties made by Seller and Buyer herein shall survive the Closing for a period of two years; provided, however, that the representations and warranties made by Seller in Section 3.27(a)-(h) above shall survive the Closing and continue in full force and effect for a period of four years; those contained in Sections 3.2, 3.11, 3.12, 3.13 and 3.14 above shall survive the Closing and continue in full force and effect forever thereafter (subject to any applicable statutes of limitations); and those contained in Section 3.27 (i) shall not survive the Closing. The covenants and agreements set forth in the Agreement shall survive Closing, each in accordance with its terms.
In the case of any representation or warranty of Seller in Section 3.22 and any other representation or warranty relating to or affecting the Company or the Subsidiaries liability for Taxes (the Surviving Representations ) whether the Company s or the Subsidiaries Taxes or their liability, if any (for example, by reason of transferee liability or application of Treas. Reg. Section 1.1502-6) for the Taxes of others including, but not limited to Seller or any former or present affiliate or subsidiary thereof, the same shall survive until the later of the final resolution of any judicial or administrative proceeding involving any such Tax or expiration of any statute of limitations (including any suspensions, tollings or extensions thereof).
9.13 Section and Other Headings.
The Section and other headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
This Agreement shall be interpreted and governed by the laws of the Commonwealth of Pennsylvania without giving effect to any choice or conflict of law provision.
This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, and such counterparts shall together constitute one and the same instrument.
Each of the parties shall execute such documents and other papers and take such further actions as may be reasonably required to carry out the provisions hereof and the transactions contemplated hereby. Each party shall use its reasonable efforts to fulfill or obtain the fulfillment of the conditions to the Closing.
Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition and unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
Seller and Buyer agree to keep the terms of this Agreement and any amendments to it or transactions arising from it confidential except as required by law or as otherwise agreed by the parties. The parties hereto agree that before issuing any press release or making any public statement with respect to this Agreement or the transactions contemplated hereby, the content of any such disclosure shall be communicated between the parties and agreed to prior to the release thereof, except as required by applicable law or government regulation.
9.19 No Third Party Beneficiaries.
Neither this Agreement nor any provision hereof is intended to confer upon any person (other than the parties hereto and their respective successors and permitted assigns ) any rights or remedies hereunder.
Each party agrees to bring all judicial proceedings against the other arising out of or relating to this Agreement or any of the Delaware or the appropriate state court located in New Castle County, Delaware. In addition, each party accepts, generally and unconditionally, the exclusive jurisdiction of such courts and waives, to the fullest extent permitted by law, any objection (including any objection that jurisdiction, situs, or venue is inconvenient or improper) which it may now have or may hereafter have to the laying of venue or the convenience of the forum of any action with respect to bringing, prosecution or defense of any such judicial proceeding in any such court.
Buyer and Seller acknowledge and agree that failure by the other to perform its obligations under this Agreement would cause such party or parties to be materially and irreparably injured and to suffer material loss; and that such injury and loss cannot be fully or adequately compensated by the payment of money or by an award of damages and each shall be entitled to the specific performance of this Agreement, in addition to all other remedies that each might have, and that each of them will not object to and will not hinder or delay the entry of a decree of specific performance against it in any action or suit brought under or in respect of this Agreement.
All leases, licenses, contracts, and other agreements between any of the Company and the Subsidiaries on one hand and any of Seller or any of its affiliates on the other hand shall be deemed terminated as of the Closing and will have no further force or effect.
Parent hereby unconditionally and irrevocably guarantees the full and prompt performance by Seller of all of its obligations under this Agreement.
As used herein, the phrase knowledge of Seller shall have the meaning, and be limited to the persons, as set forth on Schedule 9.24.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
ATTEST: ARMSTRONG WORLD INDUSTRIES, INC.
L.A. Pulkrabek By: George A. Lorch Title:
D. D. Wilson By: L.A. Pulkrabek Title:
D. A. Patterson By: R. B. Loynd Title: Chairman of the Board
2.3 (iv) Targeted Net Worth 3.1 Exceptions To Qualification Of TFI 3.3 Additional Footnotes/Exceptions To Financial Statements 3.4 Undisclosed Material Obligations And Liabilities 3.5 Events And Developments Since Latest Balance Sheet Date 3.6(A) Real Property Interest Held By Company 3.6(B) Liens And Other Encumbrances On Real Property 3.7 Liens And Encumbrances On Personal Property 3.10 Pledges, Liens Or Encumbrances on Accounts Receivable Accounts And Notes Receivable Not Collectible In The Ordinary Course of Business 3.11 Capital Stock Of Company And Its Subsidiaries 3.14 List Of Second Tier Subsidiaries Corporations Whose Securities Are Owned By The Company 3.16 Agreements For Which The Proposed Transaction Requires 3.18 Material Contracts And Contracts With Affiliates 3.19 Outstanding Violations And Notices of Noncompliance 3.22(d) Possible Unfiled Returns And Tax Payments Owed Tax Audits In Process Or Pending 3.22(g) Permanent Establishments In Foreign Countries 3.24 Insurance Policies Currently Covering The Company And 5.5(a) List of Company And Subsidiaries For Which Election 5.5(b) Preliminary Estimate Of Tax Allocation 7.10 Agreements For Which The Proposed Transaction Requires 8.7(d)(3)(iii) The Real Property Of The Armstrong Furniture Division 9.24 Definition Of "Knowledge"
The Company agrees to furnish supplementally a copy of any of the above schedules to the Commission upon request.
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8-K
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EX-2
| 1996-01-12T00:00:00
| 1996-01-12T16:18:53
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0000893877-96-000005
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0000893877-96-000005_0000.txt
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As filed with the Securities and Exchange Commission on January 12, 1996
THE SECURITIES ACT OF 1933
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
(Name, address, including zip code, and telephone number, including area code, of agent for service)
It is respectfully requested that the Commission send copies of all notices, orders and communications to:
Stoel Rives LLP Winthrop, Stimson, Putnam & Roberts 700 NE Multnomah, Suite 950 One Battery Park Plaza Portland, Oregon 97232-4109 New York, New York 10004-1490 Attention of John M. Schweitzer Attention of C. Payson Coleman, Jr.
Approximate date of commencement of proposed sale of the securities to the public: From time to time after this Registration Statement becomes effective as determined by market conditions and other factors.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION DATED JANUARY 12, 1996
Pacific Telecom, Inc. (the "Company") may from time to time offer its unsecured debt securities consisting of notes, debentures or other evidences of indebtedness (the "Debt Securities") in an aggregate principal amount of up to U.S. $200,000,000 (or the equivalent thereof in other currencies or composite currencies) of its unsecured debt securities consisting of notes, debentures or other evidences of indebtedness (the "Debt Securities"). The Debt Securities may be offered as separate series in amounts, at prices and on terms to be determined in light of market conditions at the time of sale and set forth in a Prospectus Supplement or Prospectus Supplements.
The terms of each series of Debt Securities, including, where applicable, the specific designation, aggregate principal amount, authorized denominations and currencies, maturity or maturities, rate or rates and time or times of payment of any interest, any terms for optional or mandatory redemption or payment of additional amounts or any sinking fund provisions, any initial public offering price, the proceeds to the Company and any other specific terms in connection with the offering and sale of such series (the "Offered Securities") will be set forth in a Prospectus Supplement or Prospectus Supplements.
The Debt Securities may be sold directly by the Company, through agents designated from time to time or to or through underwriters or dealers. See "Plan of Distribution." If any agents of the Company or any underwriters are involved in the sale of any Debt Securities in respect of which this Prospectus is being delivered, the names of such agents or underwriters and any applicable commissions or discounts will be set forth in a Prospectus Supplement. The net proceeds to the Company from such sale also will be set forth in a Prospectus Supplement or Prospectus Supplements.
The Debt Securities may be issued only in registered form, which may, if so designated in the applicable Prospectus Supplement or Prospectus Supplements, be in the form of a registered global security to facilitate the use of a "book-entry" registration and transfer system. See "Description of Debt Securities -- Global Securities."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY IS A CRIMINAL OFFENSE.
This Prospectus may not be used to consummate sales of Debt Securities unless accompanied by a Prospectus Supplement.
The date of this Prospectus is ____________, 1996
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
IN CONNECTION WITH THIS OFFERING, UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SECURITIES OFFERED HEREBY OR ANY OTHER DEBT SECURITIES OF THE COMPANY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Such reports and other information (including proxy and information statements) filed by the Company can be inspected and copied at public reference facilities maintained by the Commission at 450 Fifth Street, NW, Washington, D.C. 20549, and at the following Regional Offices of the Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048, and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, NW, Washington, D.C. 20549, upon payment of the prescribed rates.
This Prospectus constitutes a part of a registration statement on Form S-3 (together with all amendments and exhibits thereto, the "Registration Statement") filed by the Company with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does not contain all of the information included in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Statements contained herein concerning the provisions of any document are qualified by reference to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Reference is made to the Registration Statement, including the exhibits thereto, for further information with respect to the Company and the securities offered hereby.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission pursuant to the Exchange Act are incorporated in this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the year ended December 31, 1994 (as amended by Form 10-K/A dated June 30, 1995);
(b) The Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1995; and
(c) The Company's Current Reports on Form 8-K dated February 6, February 15, March 9, March 31, July 14, September 27, 1995 and September 30, 1995.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of this offering shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents (such documents, and the documents enumerated above, being hereinafter referred to as "Incorporated Documents"; provided, however, that all documents subsequently filed by the Company pursuant to Section 13 or 14 of the Exchange Act in each year during which the offering made by this Prospectus is in effect prior to the filing with the Commission of the Company's Annual Report on Form 10-K covering such year shall not be Incorporated Documents or be incorporated by reference in this Prospectus or be a part hereof from and after such filing of such Annual Report on Form 10-K).
Any statement contained in an Incorporated Document shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed Incorporated Document or in any accompanying Prospectus Supplement modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person, including any beneficial owner, to whom a copy of this Prospectus has been delivered, on the written or oral request of any such person, a copy of any or all of the Incorporated Documents, other than exhibits to such documents, unless such exhibits are specifically incorporated by reference therein. Requests should be directed to Pacific Telecom, Inc., 805 Broadway, P.O. Box 9901, Vancouver, Washington 98668-8701, Attention: Brian M. Wirkkala, Vice President and Treasurer, telephone number (360) 696-6918. The information relating to the Company contained in this Prospectus does not purport to be comprehensive and should be read together with the information contained in the Incorporated Documents.
No person has been authorized to give any information or to make any representation not contained in this Prospectus or in any Prospectus Supplement and, if given or made, such information or representation must not be relied upon as having been authorized. This Prospectus and any Prospectus Supplement do not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby or thereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction.
Neither the delivery of this Prospectus and the Prospectus Supplement nor any sale made hereunder or thereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company or its subsidiaries since the date of this Prospectus or the date of the latest Prospectus Supplement, as the case may be.
The Company was organized in 1955 to provide telephone service to suburban and rural communities principally in the Pacific Northwest. Since that time, the Company has grown significantly through acquisitions and expanded its service offerings in several areas within the telecommunications industry. The Company is a holding company, and its assets are predominantly the common stock of its majority or wholly-owned subsidiaries. The Company currently operates one of the major non-Bell telephone companies in the United States. Through its subsidiaries, the Company provides local telephone service and access to the long-distance network in Alaska, seven other western states and three midwestern states, provides cellular mobile telephone services in nine states and is engaged in sales of capacity in and operation of a submarine fiber optic cable between the United States and Japan. See "Available Information" and "Incorporation of Certain Documents by Reference" for additional information concerning the Company's operations.
The Company is a Washington corporation. Its principal executive offices are located at 805 Broadway, Vancouver, Washington 98668-8701, and its telephone number is (360) 905-5800.
Relationship with PacifiCorp and Holdings
All of the common stock of the Company is owned by PacifiCorp Holdings, Inc. ("Holdings"), a wholly-owned subsidiary of PacifiCorp. PacifiCorp is an electric utility headquartered in Portland, Oregon that conducts its electric utility business through Pacific Power & Light Company and Utah Power & Light Company, and engages in power production and sales on a wholesale basis under the name PacifiCorp. PacifiCorp is the indirect owner through Holdings, of 100% of each of Powercor, the Company, Pacific Generation Company ("PGC") and PacifiCorp Financial Services, Inc. ("PFS"). Powercor is an electric distribution company serving 570,000 customers in suburban Melbourne and the western and central regions of the State of Victoria in southeast Australia. PGC is engaged in the independent power production and cogeneration business. PFS plans to continue to liquidate portions of its lease, leasing and real estate investments.
Unless otherwise indicated in a Prospectus Supplement, the net proceeds to be received by the Company from the issuance and sale of the Debt Securities will be used for general corporate purposes, including repayment of short-term indebtedness that may be incurred from time to time, future acquisitions and further investments in subsidiaries.
The Debt Securities will be issued pursuant to an Indenture, dated as of September 20, 1991, as amended and supplemented (the "Indenture"), between the Company and The First National Bank of Chicago, as Trustee (the "Trustee"), a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The statements under this caption are brief summaries of certain provisions of the Indenture, do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of the Indenture, including the definitions therein of certain terms. Section references and defined terms used herein or in a Prospectus Supplement are references to provisions of and defined terms in the Indenture, unless otherwise noted.
The Debt Securities may be issued from time to time in one or more series. The particular terms of each series of Debt Securities offered by any Prospectus Supplement or Prospectus Supplements will be described in such Prospectus Supplement or Prospectus Supplements relating to such series.
The Debt Securities offered hereby (the "Offered Securities") will be limited to an aggregate principal amount of U.S. $200,000,000 (or the equivalent thereof in other currencies or composite currencies). The Indenture does not limit the aggregate amount of Debt Securities that may be issued thereunder, and Debt Securities may be issued thereunder from time to time in separate series up to the aggregate amount from time to time authorized by the Company for each series. The Debt Securities will be unsecured obligations of the Company and will rank pari passu with all other unsecured and unsubordinated indebtedness of the Company.
The applicable Prospectus Supplement or Prospectus Supplements will describe the following terms of the Offered Securities: (1) the title of the Offered Securities; (2) any limit upon the aggregate principal amount of the Offered Securities; (3) the date or dates on which the principal of the Offered Securities is payable; (4) the rate or rates (or, if subject to adjustment, the manner for determining such rates) at which the Offered Securities shall bear interest, if any, the date or dates from which any such interest shall accrue, the Interest Payment Dates on which any such interest shall be payable, the Regular Record Dates for any interest payable on the Interest Payment Dates and the basis upon which interest shall be calculated if other than a year of twelve 30-day months; (5) the place or places where, subject to the terms of the Indenture as described below under "Payment and Paying Agents," the principal of and premium, if any, and interest on the Offered Securities will be payable and where, subject to the terms of the Indenture as described below under "Denominations, Registration and Transfer," the Offered Securities may be presented for registration of transfer or exchange and the place or places where notices and demands to or upon the Company in respect of the Offered Securities and the Indenture may be made; (6) the period or periods within which, the price or prices at which and the terms and conditions upon which Offered Securities may be redeemed, in whole or in part, at the option of the Company; (7) the obligation, if any, of the Company to redeem, repurchase or repay the Offered Securities pursuant to any sinking fund or analogous provisions or at the option of a holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which the Offered Securities shall be redeemed, repurchased or repaid, in whole or in part, pursuant to such obligation; (8) the denominations in which any Offered Securities shall be issuable if other than denominations of $1,000 and any integral multiple thereof and the currency or composite currency in which the Offered Securities will be denominated if other than U.S. dollars; (9) any addition to, or modification or deletion of, any Event of Default or any covenant of the Company specified in the Indenture with respect to the Offered Securities; (10) any index used to determine the amount of payments of principal of and premium, if any, on the Offered Securities and the manner in which such amounts will be determined; (11) if other than the principal amount thereof, the portion of the principal amount of the Offered Securities which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to the Indenture; (12) the dates within 15 days of which lists of Holders of Original Issue Discount Securities are to be furnished to the Trustee pursuant to the Indenture; (13) whether such Offered Securities may be issued in whole or in part in the form of one or more Global Securities and, if so, the identity of the Depositary for such Global Security or Securities; and (14) any other terms of the Offered Securities not inconsistent with the provisions of the Indenture.
The Debt Securities will be unsecured, general obligations of the Company. The Debt Securities will rank equally with the Company's other unsecured and unsubordinated indebtedness and will not, by their terms, be subordinate in right of payment to any other indebtedness of the Company. As the Debt Securities will be issued at the holding company level, the Debt Securities effectively will be subordinate to all obligations of the Company's subsidiaries, and the rights of the Company's creditors, including holders of the Debt Securities, to participate in the assets of such subsidiaries upon liquidation or reorganization will be junior to the rights of the holders of all preferred stock, indebtedness and other liabilities of such subsidiaries, which may include trade payables, obligations to banks under credit facilities, guarantees, pledges, support agreements, bonds, capital leases, notes and other obligations. With respect to any such subsidiaries that are not wholly-owned by the Company, the rights of the Company's creditors, including holders of the Debt Securities, will also be limited to the Company's ownership interest in such subsidiaries. See "The Company -- General."
Other than the restriction on the Company's ability to incur secured indebtedness for borrowed money described below under "Limitation on Liens," there are no provisions in the Indenture that afford holders of the Debt Securities protection in the event of a highly leveraged transaction involving the Company. The restriction on the Company's ability to incur secured indebtedness for borrowed money contained in the Indenture may be waived or modified only with the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Debt Securities of each series affected by the waiver or modification. See "Modification and Waiver."
Debt Securities may be issued as Original Issue Discount Securities to be sold at a discount below their principal amount. Special United States federal income tax considerations applicable to any Debt Securities issued at an original issue discount, including Original Issue Discount Securities, will be described in the applicable Prospectus Supplement or Prospectus Supplements.
The Debt Securities will be issuable only in registered form without coupons. Debt Securities of a series may be issuable in whole or in part in the form of one or more Global Securities, as described below under "Global Securities." One or more Global Securities will be issued in a denomination or aggregate denominations equal to the aggregate principal amount of Outstanding Debt Securities of the series to be represented by such Global Security or Securities.
Debt Securities (other than Global Securities) may be presented for exchange as provided above, and may be presented for registration of transfer (with the form of transfer endorsed thereon duly executed) at the office of the Security Registrar or at the office of any transfer agent designated by the Company for such purpose with respect to any series of Debt Securities and referred to in an applicable Prospectus Supplement, without service charge and upon payment of any taxes and other governmental charges as described in the Indenture. Such transfer or exchange will be effected upon the Security Registrar or such transfer agent, as the case may be, being satisfied with the documents of title and identity of the person making the request. Unless otherwise indicated in a Prospectus Supplement or changed by written notice to the Holders of any series of Debt Securities affected thereby, the Trustee will be designated as the sole Security Registrar with respect to the Offered Securities. (Section 305) If a Prospectus Supplement refers to any transfer agents (in addition to the Security Registrar) initially designated by the Company with respect to any series of Debt Securities, the Company may at any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent acts, provided that the Company maintains a transfer agent in each Place of Payment for such series. The Company may at any time designate additional transfer agents with respect to any series of Debt Securities. (Section 1002)
In the event of any redemption, the Company shall not be required to (i) issue, register the transfer of or exchange Debt Securities of any series during a period beginning at the opening of business 15 days before any selection of Debt Securities of that series to be redeemed and ending at the close of business on the day of mailing of the relevant notice of redemption or (ii) register the transfer of or exchange any Debt Security, or portion thereof, called for redemption, except the unredeemed portion of any Debt Security being redeemed in part. (Section 305)
The Debt Securities of a series may be issued in whole or in part in the form of one or more Global Securities that will be deposited with, or on behalf of, a depositary (the "Depositary") identified in the Prospectus Supplement relating to such series. Unless and until it is exchanged in whole or in part for Debt Securities in definitive form, a Global Security may not be transferred except as a whole by the Depositary for such Global Security to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor of such Depositary or a nominee of such successor. (Sections 303 and 305)
The specific terms of the depositary arrangement with respect to any Debt Securities of a series will be described in the Prospectus Supplement or Prospectus Supplements relating to such series. The Company anticipates that the following provisions will apply to all depositary arrangements.
So long as the Depositary for a Global Security, or its nominee, is the owner of such Global Security, such Depositary or nominee, as the case may be, will be considered the sole owner or holder of the Debt Securities represented by such Global Security for all purposes under the Indenture governing such Debt Securities; provided that with respect to a consent or vote of a Holder, Global Securities will be voted in accordance with the instructions of the owners of beneficial interests therein. Except as set forth below, owners of beneficial interests in a Global Security will not be entitled to have Debt Securities of the series represented by such Global Security registered in their names, will not receive or be entitled to receive physical delivery of Debt Securities of such series in definitive form and will not be considered the owners or holders thereof under the Indenture.
Principal, premium, if any, and interest payments on Debt Securities registered in the name of or held by a Depositary or its nominee will be made to the Depositary or its nominee, as the case may be, as the registered owner or the holder of the Global Security representing such Debt Securities. None of the Company, the Trustee for such Debt Securities, any Paying Agent or the Security Registrar for such Debt Securities will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Security for such Debt Securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
If a Depositary for Debt Securities of a series is at any time unwilling or unable to continue as depositary and a successor depositary is not appointed by the Company within 90 days, the Company will issue Debt Securities of such series in definitive form in exchange for the Global Security or Securities representing the Debt Securities of such series. In addition, the Company may at any time and in its sole discretion determine not to have any Debt Securities of a series represented by one or more Global Securities and, in such event, will issue Debt Securities of such series in definitive form in exchange for the Global Security or Securities representing such Debt Securities. If there shall have occurred and be continuing an event of default under the Indenture, as described under "Events of Default," and the Depositary is notified by the Company, the Trustee or the Registrar and Paying Agent that such Global Security shall be exchangeable for definitive Notes in registered form, the Company will issue Debt Securities of such series in definitive form in exchange for the Global Security representing the Debt Securities of such series. Further, if the Company so specifies with respect to the Debt Securities of a series, an owner of a beneficial interest in a Global Security representing Debt Securities of such series may, on terms acceptable to the Company and the Depositary for such Global Security, receive Debt Securities of such series in definitive form. In any such instance, an owner of a beneficial interest in a Global Security will be entitled to physical delivery in definitive form of Debt Securities of the series represented by such Global Security equal in principal amount to such beneficial interest and to have such Debt Securities registered in its name. Debt Securities of such series so issued in definitive form will be issued as registered securities in denominations, unless otherwise specified by the Company, of $1,000 and integral multiples thereof.
Unless otherwise indicated in an applicable Prospectus Supplement, payment of principal of (and premium, if any) and any interest on Debt Securities will be made at the office or offices of such Paying Agent or Paying Agents as the Company may designate from time to time, except that, at the option of the Company, payment of any interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) by wire transfer to an account maintained by the Person entitled thereto as specified in the Security Register, provided that proper wire transfer instructions have been received by the Regular Record Date. (Sections 305, 307 and 1002) Unless otherwise indicated in an applicable Prospectus Supplement, payment of any installment of interest on Debt Securities (other than Defaulted Interest) will be made to the Person in whose name such Debt Security (or Predecessor Security) is registered at the close of business on the Regular Record Date for such interest, except that interest payable at Maturity will be payable to the Person entitled to the principal payment. (Section
Unless otherwise indicated in an applicable Prospectus Supplement or changed by written notice to the Holders of any series of Debt Securities affected thereby, the Trustee, at its Corporate Trust Office in Chicago and its office in The City of New York, will be designated as the Company's sole Paying Agent for payments with respect to Offered Securities. The Company may at any time designate additional Paying Agents, rescind the designation of any Paying Agent or approve a change in the office or offices through which any Paying Agent acts, except that the Company will be required to maintain a Paying Agent in each Place of Payment for each series of Debt Securities. (Section 1002)
All monies paid by the Company to a Paying Agent for the payment of principal of (and premium, if any) or interest on any Debt Security which remain unclaimed at the end of two years after such principal, premium or interest shall have become due and payable will be repaid to the Company, and the Holder of such Debt Security will thereafter look only to the Company for payment thereof as a general unsecured creditor. (Section 1003)
The Indenture provides that the Company may not at any time incur secured indebtedness for borrowed money in excess of 10% of Consolidated Net Worth (as defined below) of the Company without expressly securing payment of the principal of and premium, if any, and interest on the Debt Securities equally and ratably with such secured indebtedness; provided, however, that this restriction will not apply to (1) liens on any property or assets securing indebtedness of the Company incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property or asset; provided, however, that such lien attaches to such property or assets concurrently with or within 90 days after the acquisition thereof and no such lien shall extend to or cover any other property or assets of the Company; (2) any liens securing indebtedness upon the property or assets of a corporation which are in existence prior to the time such corporation is merged into or consolidated with the Company or which are in existence on properties or assets acquired by the Company and which are not created in contemplation of any such event, provided, however, that no such lien shall extend to or cover any other property or assets of the Company; (3) liens on property or related receivables, or both, to secure nonrecourse obligations in connection with the Company's engaging in any leveraged or single-investor or other lease, project financing or similar transaction entered into by the Company in the ordinary course of its business; (4) any extension, renewal or replacement (or successive extensions, renewals or replacements, in any case, without increase in principal amount of the indebtedness secured thereby), in whole or in part, of any of the foregoing; provided, however, that any such extension, renewal or replacement shall be limited to all or part of the property or assets which secured the lien so extended, renewed or replaced (plus improvements) and the principal amount secured thereby shall not be increased as a result thereof. (Section 1005)
The term "Consolidated Net Worth" means, at any date, the shareholders' equity of the Company and its consolidated subsidiaries, determined on a consolidated basis in accordance with generally accepted accounting principles then in effect.
The Indenture provides that the Company may not declare or pay dividends (other than dividends payable solely in the Company's common stock) on, directly or indirectly purchase or otherwise acquire (except solely by exchange of additional shares of common stock), or make any other distributions of cash or property with respect to, any class of its common stock or, in the case of any such purchase or acquisition, any options or warrants to acquire its common stock ("Restricted Payments") if the aggregate of all Restricted Payments made after August 31, 1989 would exceed the sum of (i) $150,000,000 plus (ii) 80% of the cumulative consolidated net income of the Company after January 1, 1989 (minus 100% of the cumulative consolidated net losses during such period) plus (iii) the amount of any net proceeds to the Company from the sale of its common and preferred stock, equity contributions to its capital and other contributions to its capital from the conversion or exercise of securities to or for its equity securities, in each case subsequent to January 1,
The Company may discharge its indebtedness and its obligations or certain of its obligations under the Indenture with respect to any series of Debt Securities by depositing funds or U.S. Government Obligations with the Trustee.
Defeasance and Discharge. The Indenture provides that the Company will be discharged from certain obligations in respect of the Debt Securities of any series (not including obligations relating to payment thereof in accordance with their terms, exchange of Debt Securities, registration of the transfer of or exchange of Debt Securities of such series, replacement of stolen, lost or mutilated Debt Securities of such series and maintenance of paying agencies) upon the deposit with the Trustee, in trust, of money and/or U.S. Government Obligations which, through the payment of interest and principal in respect thereof in accordance with their terms, will provide money in an amount sufficient to pay the principal of (and premium, if any), each installment of interest on and any sinking fund payments on the Debt Securities of such series on the Stated Maturity of such payments in accordance with the terms of the Indenture and the Debt Securities of such series. Such a trust may only be established if, among other things, (a) the Company has paid or caused to be paid all other sums payable with respect to the Debt Securities of such series; (b) such deposit will not result in a breach or violation of, or constitute a default under, the Indenture or any other agreement or instrument to which the Company is a party or by which it is bound; (c) no Event of Default or event which, with the giving of notice or lapse of time, or both, would become an Event of Default with respect to the Debt Securities of such series shall have occurred and be continuing on the date of such deposit; (d) the Debt Securities of such series, if then listed on any national securities exchange, will not be delisted as a result of such deposit, defeasance and discharge; and (e) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel as to certain matters. In addition to discharging certain obligations under the Indenture as stated above, if the Company delivers to the Trustee an Opinion of Counsel to the effect that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (b) since the date of the Indenture there has been a change in applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of Debt Securities of such series will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred, then, in such event, the obligation of the Company to duly and punctually pay or cause to be paid the principal of (and premium, if any) and interest on the Debt Securities of such series shall cease, terminate and be completely discharged. In the event of any such defeasance and discharge of Debt Securities of such series, Holders of Debt Securities of such series would be able to look only to such trust fund for payment of principal of (and premium, if any) and interest, if any, on their Debt
Any of the following events will constitute an Event of Default under the Indenture with respect to Debt Securities of any series: (a) failure to pay any interest on any Debt Security of that series when due, and such failure shall continue for 30 days; (b) failure to pay principal of or any premium on any Debt Security of that series when due; (c) failure to deposit any sinking fund payment, when due, in respect of any Debt Security of that series; (d) failure to perform any other covenant of the Company in the Indenture (other than a covenant included in the Indenture solely for the benefit of series of Debt Securities other than that series), continued for 30 days after written notice as provided in the Indenture; (e) default resulting in the acceleration of the maturity of, or default in the payment of, any other indebtedness of the Company in an aggregate amount in excess of $5,000,000 and the failure by the Company to obtain rescission or annulment of all such accelerations or to discharge all such defaulted indebtedness within 10 days after notice thereof to the Company by the Trustee or the Holders of at least 25% in principal amount of the Debt Securities; (f) certain events in bankruptcy, insolvency or reorganization involving the Company; and (g) any other Event of Default provided with respect to Debt Securities of that series. (Section 501)
If an Event of Default with respect to Debt Securities of any series at the time Outstanding occurs and is continuing, either the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Debt Securities of that series, by notice as provided in the Indenture, may declare the principal amount (or, if the Debt Securities of that series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all the Debt Securities of that series and the accrued interest thereon, if any, to be due and payable immediately. At any time after a declaration of acceleration with respect to Debt Securities of any series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Debt Securities of that series may, under certain circumstances, including the Company's payment or deposit with the Trustee of all overdue amounts (other than amounts due solely as a result of such acceleration), rescind and annul such acceleration. (Section 502)
The Indenture provides that the Trustee shall transmit notice, as provided in the Indenture, of any default with respect to the Debt Securities of any series unless (a) such default has been cured or waived or (b) such default does not constitute a payment default with respect to such series and the board of directors, the executive committee or a trust committee of directors of the Trustee and/or Responsible Officers in good faith determine that the withholding of such notice is in the interest of the Holders of Securities of such series. (Section 602)
The Indenture provides that, subject to the duty of the Trustee during default to act with the required standard of care, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable security or indemnity. (Sections 601 and 603) Subject to such provisions for the indemnification of the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Debt Securities of any series will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Debt Securities of that series, unless the Trustee shall determine that the action specified would be in conflict with any rule of law or the Indenture, involve the Trustee in personal liability which has not been indemnified or be unduly prejudicial to the interests of the Holders of the Debt Securities not joining in such direction. (Section
The Company will be required to furnish to the Trustee annually a statement as to the performance by the Company of certain of its obligations under the Indenture and as to any default in such performance.
Modifications and amendments of the Indenture may be made by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Debt Securities of each series affected by such modification or amendment; provided, however, that no such modification or amendment may, without the consent of the Holder of each Outstanding Debt Security affected thereby, (a) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Debt Security; (b) reduce the principal amount of, or premium or interest, if any, on, any Debt Security; (c) reduce the amount of principal of an Original Issue Discount Security payable upon acceleration of the maturity thereof; (d) reduce any premium payable upon redemption; (e) waive any default in the payment of the principal of or interest on any Debt Security; (f) change the coin or currency in which any Debt Security or any premium or interest thereon is payable; (g) impair the right to institute suit for the enforcement of any payment on or with respect to any Debt Security; (h) reduce the percentage in principal amount of Outstanding Debt Securities of any series, the consent of whose Holders is required for modification or amendment of the Indenture or for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults; (i) change any obligation of the Company to maintain an office or agency in the places and for the purposes required by the Indenture; or (j) modify any of the above provisions or the provisions set forth in the paragraph below, except to increase the foregoing percentage.
The Holders of not less than a majority in aggregate principal amount of the Outstanding Debt Securities of each series may, on behalf of the Holders of all the Debt Securities of that series, waive, insofar as that series is concerned, compliance by the Company with certain restrictive provisions of the Indenture. (Section 1008) The Holders of not less than a majority in aggregate principal amount of the Outstanding Debt Securities of each series may, on behalf of all Holders of Debt Securities of that series, waive any past default under the Indenture with respect to Debt Securities of that series, except a default (a) in the payment of principal of (or premium, if any) or interest on any security of such series or (b) in respect of a covenant or provision of the Indenture which cannot be modified or amended without the consent of the Holder of each Outstanding Debt Security of such series affected. (Section 513)
Consolidation, Merger and Sale of Assets
The Company, without the consent of the Holders of any of the Outstanding Debt Securities under the Indenture, may consolidate or merge with or into, or convey, transfer or lease all or substantially all of its property or assets to, any entity organized under the laws of any domestic jurisdiction, or may permit any Person to consolidate with or merge into the Company or convey, transfer or lease all or substantially all of its properties and assets to the Company; provided that, in the case of a consolidation or a merger of the Company into any other Person or the conveyance, transfer or lease of all or substantially all of the property and assets of the Company to any other Person, any successor, transferee or lessee expressly assumes the Company's obligations on the Debt Securities and under the Indenture, after giving effect to the transaction no Event of Default shall have occurred and be continuing and the Company delivers to the Trustee an Officer's Certificate and an Opinion of Counsel to the effect that such consolidation, merger, conveyance, transfer or lease complies with the provisions of the Indenture and certain other conditions
Except as otherwise provided in the Indenture, notices to Holders of Debt Securities will be given by mail to the addresses of such Holders as they appear in the Security Register. (Sections 101 and 106)
Any mutilated Debt Security may be replaced by the Company at its discretion at the expense of the Holder upon surrender of such Debt Security to the Trustee. Debt Securities that become destroyed, stolen or lost may be replaced by the Company at the expense of the Holder upon delivery to the Trustee of the Debt Security or evidence of the destruction, loss or theft thereof satisfactory to the Company and the Trustee. In the case of a destroyed, lost or stolen Debt Security, an indemnity satisfactory to the Trustee and the Company may be required at the expense of the Holder of such Debt Security before a replacement Debt Security will be issued. (Section 306)
The Company and affiliates of the Company maintain banking relationships in the ordinary course of business with the Trustee.
The Company may sell Debt Securities in any of the following ways: (i) through underwriters or dealers; (ii) directly to a limited number of purchasers or to a single purchaser; or (iii) through agents. The Prospectus Supplement with respect to any Offered Securities will set forth the terms of the offering of such Offered Securities, including the name or names of any underwriters, dealers or agents, the purchase price of such Offered Securities and the proceeds to the Company from such sale, any underwriting discounts and other items constituting underwriters' compensation, any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers. Any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time.
If underwriters are involved in the sale of any Offered Securities, such Offered Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, transactions, at a fixed public offering price or at varying prices determined at the time of sale. The underwriter or underwriters with respect to a particular underwritten offering of Offered Securities will be named in the Prospectus Supplement relating to such offering and, if an underwriting syndicate is used, the managing underwriter or underwriters will be set forth on the cover page of such Prospectus Supplement. Unless otherwise set forth in such Prospectus Supplement, the obligations of the underwriters to purchase the Offered Securities will be subject to certain conditions precedent, and the underwriters will be obligated to purchase all such Offered Securities if any are purchased.
If a dealer is used in the sale of any Offered Securities, the Company will sell such Offered Securities to the dealer, as principal. The dealer may then resell such Offered Securities to the public at varying prices to be determined by such dealer at the time of resale. The name of any dealer involved in a particular offering of Offered Securities and any discounts or concessions allowed or reallowed or paid to the dealer will be set forth in the Prospectus Supplement relating to such offering.
Offered Securities may be sold directly by the Company or through agents designated by the Company from time to time. Any such agent, who may be deemed to be an underwriter as that term is defined in the Securities Act, involved in the offer or sale of any of the Offered Securities will be named, and any commissions payable by the Company to such agent will be set forth, in the Prospectus Supplement relating to such Offered Securities. Unless otherwise indicated in such Prospectus Supplement, any such agent will be acting on a reasonable best efforts basis for the period of its appointment.
Underwriters, dealers and agents participating in the distribution of the Offered Securities may be deemed to be "underwriters" within the meaning of, and any discounts and commissions received by them and any profit realized by them on resale of such Offered Securities may be deemed to be underwriting discounts and commissions under, the Securities Act. Underwriters, dealers and agents may be entitled, under agreements with the Company, to indemnification against or contribution toward certain civil liabilities, including certain liabilities under the Securities Act, and to reimbursement by the Company for certain expenses.
If so indicated in an applicable Prospectus Supplement, the Company will authorize dealers acting as the Company's agents to solicit offers by certain institutions to purchase Offered Securities from the Company at the public offering price set forth in such Prospectus Supplement pursuant to delayed delivery contracts ("Contracts") providing for payment and delivery on the date or dates stated in such Prospectus Supplement. Each Contract will be for an amount not less than, and the aggregate principal amount of Offered Securities sold pursuant to Contracts shall be not less nor more than, the respective amounts stated in such Prospectus Supplement. Institutions with whom Contracts, when authorized, may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and other institutions, but will in all cases be subject to the approval of the Company. Contracts will not be subject to any conditions except (i) the purchase by an institution of the Offered Securities covered by its Contracts shall not at the time of delivery be prohibited under the laws of any jurisdiction in the United States to which such institution is subject, and (ii) if the Offered Securities are being sold to underwriters, the Company shall have sold to such underwriters the total principal amount of the Offered Securities less the principal amount thereof covered by Contracts. Agents and underwriters will have no responsibility in respect of the delivery or performance of Contracts.
Certain of the underwriters or agents and their associates may be customers of, engage in transactions with and perform services for the Company and its affiliates in the ordinary course of business.
The Company will indicate in a Prospectus Supplement the extent to which it anticipates that a secondary market for the Offered Securities will be available.
Subject to certain conditions, the Company may agree to indemnify the several underwriters, agents or dealers and their controlling persons against certain civil liabilities, including certain liabilities under the Securities Act, or to contribute to payments any such person may be required to make in respect thereof. Agents, underwriters and dealers may engage in transactions with or perform services for the Company and its subsidiaries in the ordinary course of business.
RATIOS OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges for the years ended December 31, 1990 through 1994 and for the nine months ended September 30, 1995, calculated as required by the Commission, are 3.9x, 2.8x, 2.6x, 2.4x, 3.5x and 4.9x, respectively. For the purpose of computing such ratios, "earnings" represents the aggregate of (a) income from continuing operations before income taxes, (b) fixed charges, (c) equity losses of less than 50 percent owned subsidiaries, and (d) minority interest. "Fixed charges" consist of interest charges and an estimated amount representing the interest portion of rental expense.
The validity of the Offered Securities will be passed upon for the Company by Stoel Rives LLP, counsel to the Company, 700 NE Multnomah, Suite 950, Portland, Oregon 97232, and for any underwriters, dealers or agents by Winthrop, Stimson, Putnam & Roberts, One Battery Park Plaza, New York, New York 10004. Winthrop, Stimson, Putnam & Roberts may rely on the opinion of Stoel Rives LLP as to matters of Washington law. John M. Schweitzer and John Detjens III, who are assistant secretaries of PacifiCorp, are partners in the firm of Stoel Rives LLP.
The consolidated financial statements of the Company and subsidiaries and supplemental schedules incorporated by reference in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports included in or incorporated by reference in the Company's Annual Report on Form 10-K incorporated by reference herein, and have been so incorporated herein in reliance upon such reports given upon the authority of that firm as experts in accounting and auditing.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Registration fee .................................... $ 68,966 *Rating agency fees ................................. 90,000 *Blue sky expenses .................................. 7,500 *Printing and delivery of registration statement, prospectus, certificates, etc ....................... 25,000
Item 15. Indemnification of Directors and Officers.
The Company's Bylaws, as amended (Bylaws), require the Company to indemnify directors and officers to the fullest extent not prohibited by law. The right to and amount of indemnification ultimately will be subject to determination by a court that indemnification in the circumstances presented is consistent with public policy considerations and other provisions of law. It is likely, however, that the Bylaws would require indemnification at least to the extent that indemnification is authorized by the Washington Business Corporation Act (WBCA). The effect of the WBCA is summarized as follows:
(a) The WBCA permits the Company to grant a right of indemnification in respect of any pending, threatened or completed action, suit or proceeding, other than an action by or in the right of the Company, against expenses (including attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred, provided the person concerned acted in good faith and in a manner the person reasonably believed to be, in the case of conduct in his or her own official capacity with the Company, in the best interests of the Company and, in all other cases, at least not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
(b) The WBCA permits the Company to grant a right of indemnification in respect of any proceeding by or in the right of the Company against the reasonable expenses (including attorneys' fees) incurred if the person concerned acted in good faith and in a manner the person reasonably believed to be, in the case of conduct in his or her own official capacity with the Company, in the best interests of the Company and, in all other cases, at least not opposed to the best interests of the Company, except that no indemnification may be granted if such person is adjudged to be liable to the Company unless permitted by a court.
(c) Indemnification is not permitted in connection with a proceeding in which a person is adjudged liable on the basis that personal benefit was improperly received, unless indemnification is permitted by a court upon a finding that the person is fairly and reasonably entitled to indemnification in view of all of the relevant circumstances, except that indemnification with respect to such proceeding shall be limited to expenses. The termination of a proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the person did not meet the prescribed standard of conduct.
(d) Under the WBCA, the Company may not indemnify a person in respect of a proceeding described in (a) or (b) above unless it is determined in the specific case that indemnification is permissible because the person has met the prescribed standard of conduct by any one of the following: (i) the Board of Directors, by a majority vote of a quorum consisting of directors not at the time parties to the proceeding, (ii) if a quorum of directors not parties to the proceeding cannot be obtained, by a majority vote of a committee of two or more directors not at the time parties to the proceeding, (iii) by special legal counsel selected by the Board of Directors or the committee thereof, as described in (i) and (ii) above, or (iv) by the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination. Indemnification can also be ordered by a court if the court determines that indemnification is fair in view of all of the relevant circumstances. Notwithstanding the foregoing, every person who has been wholly successful, on the merits or otherwise, in defense of a proceeding described in (a) or (b) above is entitled to be indemnified as a matter of right against reasonable expenses incurred in connection with the proceeding.
(e) Under the WBCA, the Company may pay for or reimburse the reasonable expenses incurred in defending a proceeding in advance of the final disposition thereof if the director or officer receiving the advance furnishes (i) written affirmation of the director's or officer's good faith belief that he or she has met the prescribed standard of conduct, and (ii) a written undertaking to repay the advance in the event indemnification is not authorized.
(f) A report of any indemnification shall be provided to shareholders along with notice of the next shareholders' meeting or prior to such notice.
The rights of indemnification described above are not exclusive of any other rights of indemnification to which officers or directors may be entitled under any statute, agreement, vote of shareholders,
or otherwise. Indemnity agreements entered into by the Company require the Company to indemnify the directors and officers who are parties thereto to the fullest extent permitted by law and are intended to create an obligation to indemnify to the fullest extent a court may find to be consistent with public policy considerations.
The Company has directors' and officers' liability insurance coverage which insures directors and officers of the Company and its subsidiaries against certain liabilities.
1 Form of Selling Agency Agreement.
4(a) Indenture between the Company and The First National Bank of Chicago, as Trustee, dated as of September 20, 1991. Incorporated by reference to Exhibit 4-A to Registration Statement on Form S-3, Registration No. 33-42577.
4(b) Form of Certificate of Authorized Officer to be used in connection with the issuance of the Debt Securities.
4(c) Form of Debt Securities (included in Exhibits 4(a) and (b)).
5 Opinion of Stoel Rives LLP.
12 Statement re Computation of Ratios. Incorporated by reference to Exhibit 12 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, File No. 0-873.
23(a) Consent of Independent Public Accountants.
23(b) Consent of Stoel Rives LLP (included in Exhibit 5).
25 Statement of Eligibility of Trustee.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of determining liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 15, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Vancouver, State of Washington, on January 12, 1996.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been duly signed by the following persons on January 12, 1996 in the capacities indicated.
--------------------------------------- Chairman, President, Chief Executive Charles E. Robinson Officer and Director
--------------------------------------- Executive Vice President and Chief James H. Huesgen Financial Officer
--------------------------------------- Vice President, Revenue Requirements Donald A. Bloodworth and Controller
1 Form of Selling Agency Agreement.
4(a) Indenture between the Company and The First National Bank of Chicago, as Trustee, dated as of September 20, 1991. Incorporated by reference to Exhibit 4-A to Registration Statement on Form S-3, Registration No. 33-42577.
4(b) Form of Certificate of Authorized Officer to be used in connection with the issuance of the Debt Securities.
4(c) Form of Debt Securities (included in Exhibits 4(a) and (b)).
5 Opinion of Stoel Rives LLP.
12 Statement re Computation of Ratios. Incorporated by reference to Exhibit 12 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, File No. 0-873.
23(a) Consent of Independent Public Accountants.
23(b) Consent of Stoel Rives LLP (included in Exhibit 5).
25 Statement of Eligibility of Trustee.
|
S-3
|
S-3
| 1996-01-12T00:00:00
| 1996-01-12T17:21:24
|
0000912057-96-000460
|
0000912057-96-000460_0000.txt
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U.S. TREASURY SECURITIES MONEY MARKET FUND
Supplement Dated January 12, 1996 to Prospectus Dated November 1, 1995
The Expense Summary on page 4 pertaining to The One Group-Registered Trademark- U.S. Treasury Securities Money Market Fund has been revised. Please replace page 4 with this Supplement.
THE ONE GROUP-REGISTERED TRADEMARK- U.S. TREASURY SECURITIES MONEY MARKET FUND
(1) A person who purchases shares through an account with a financial institution or broker/dealer may be charged separate transaction fees by the financial institution or broker/dealer. In addition, a wire redemption charge, currently $7.00, is deducted from the amount of a wire redemption payment made at the request of a shareholder.
(2) The expense information in the table has been restated to reflect current fees that would have been applicable had they been in effect during the previous fiscal year.
(3) Investment Advisory Fees have been revised to reflect fee waivers effective as of the date of this Prospectus. The Adviser may voluntarily agree to waive a part of its fees. Absent this voluntary reduction, Investment Advisory Fees would be .35% for all classes of shares.
(4) Absent the voluntary waiver of fees under the Trust's Distribution and Shareholder Services Plans, 12b-1 fees (as a percentage of average daily net assets) would be .35% for Class A shares and .75% for Service Class shares. There are no 12b-1 fees charged to Fiduciary Class shares. The 12b-1 fees include a shareholder servicing fee of .25% of average daily net assets of the Fund's Class A and Service Class shares. See "The Distributor" in the One Group Funds prospectuses accompanying this Combined Prospectus/Proxy Statement.
(5) Total Operating Expenses have been revised to reflect waivers effective as of the date of this Prospectus. Other Expenses are based on the Fund's expenses during the most recent fiscal year. Absent the voluntary reduction of Investment Advisory and 12b-1 fees, Total Operating Expenses would be .92% for Class A shares, .57% for Fiduciary Class shares and 1.32% for Service Class shares.
EXAMPLE: An investor would pay the following expense on a $1,000 investment in Class A, Fiduciary Class and Service Class shares of the U.S. Treasury Money Market Fund, assuming: (1) 5% annual return; and (2) redemption at the end of each time period.
Absent the voluntary reduction of fees, the dollar amounts in the above example would be as follows:
Service Class shares are offered to investors requiring additional administrative and/or accounting services, such as sweep processing. It is not intended that a shareholder would remain in the Service Class for more than a very limited period of time. However, a shareholder investing on a continual basis in the Service Class for a period of one (1) month would pay $1, three (3) months would pay $2, one (1) year would pay $10. Absent the voluntary fee reduction a shareholder would pay for a period of one (1) month $1, three (3) months $3, one (1) year $13.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of these tables is to assist the investor in understanding the various costs and expenses that may be directly or indirectly borne by investors in the Trust.
Investors in the Fund ("Shareholders") who are long-term Shareholders of Class A shares and Service Class shares may pay more than the equivalent of the maximum front-end sales charges otherwise permitted by the National Association of Securities Dealers' Rules.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE PROSPECTUS
|
497
|
497
| 1996-01-12T00:00:00
| 1996-01-12T16:57:45
|
0000950147-96-000011
|
0000950147-96-000011_0000.txt
|
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer Identification No.)
40 Lowndes Street, London, England SW1X 9HX N/A (Address of principal executive offices) (Zip Code)
(010 44 171) 823 1032 (Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No
24,999,236 shares, $.01 par value, as of June 30, 1995 (Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date)
Part I - Financial Information (unaudited)
Consolidated Balance Sheet June 30, 1995 and December 31, 1994.................................................... 3
six months ended June 30, 1994 and 1995.................................. 5
Consolidated Statements of Cash Flows six months ended June 30, 1994 and 1995.................................. 6
Notes to Financial Statements............................................ 7
Management's Discussion and Analysis of Financial Condition and Results of Operations ..................................... 8
Part II - Other Information 9
The financial statements are unaudited. However, the management of registrant believes that all necessary adjustments (which include only normal recurring adjustments) have been reflected to present fairly the financial position of registrant at June 30, 1995 and December 31, 1994 and the results of its operations and the changes in its financial position for the six months ended June 30, 1994 and 1995 and the results of its operations for six months ended June 30, 1994 and 1995.
LITTLE PRINCE PRODUCTIONS LIMITED AND SUBSIDIARY
Cash and cash equivalents $ 2,384 $ 5,241
Investment in U.S. Government Bond Fund 1,400 10,900
Prepaid expenses and taxes 612 612
Loan to officer of company 2,000 2,000
Amount due from Riparian Securities Limited 2,770 2,770
Due from former partner in Joint Venture 18,930 18,930
Total current assets 28,096 40,453
PROPERTY AND EQUIPMENT - AT COST
Furniture, fixtures and equipment -- --
Less: Accumulated depreciation -- --
Net property and equipment -- --
Production and distribution rights 6,250 7,500
Investment in joint ventures 3,728 3,728
Total other assets 9,978 11,228
LITTLE PRINCE PRODUCTIONS LIMITED AND SUBSIDIARY
Trade creditors $ 159,145 $ 159,145
Provision for legal fees 10,000 20,000
Accrued audit fees 18,000 27,500
Provision for secretarial services 4,000 7,500
Short term loans from major shareholder 69,030 --
Total current liabilities 260,175 214,145
Common stock $0.01 par value
Issued and outstanding - 24,999,236 shares 249,992 249,992
Additional paid-in capital 3,006,891 3,006,891
Total shareholders' deficit -222,101 -162,464
TOTAL LIABILITIES AND SHAREHOLDERS' $ 38,074 $ 51,681
LITTLE PRINCE PRODUCTIONS LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months ended June 30,
Adjustments to reconcile net loss to Net Cash Provided by Operating Activities: Change in Asset and Liabilities: Accounts Receivable and Other Debtors -- 97,185 Increase/(Decrease) in Liabilities: Accounts payable and Accrued Expenses -23,000 155,903 Effect of foreign currency exchange rate changes on cash and cash equivalents -- -- Adjustment on disposal of subsidiary -- -287,428
NET CASH - OPERATING ACTIVITIES -81,387 294,302 INVESTING ACTIVITIES: Proceeds on disposal of subsidiary -- 1 Proceeds on disposal of US Government Bonds 9,500 --
NET CASH - INVESTING ACTIVITIES 9,500 1 New short term loans 69,030 -- Repayment of loans -- -315,283 Cash released on disposal of subsidiary -- -2,290
NET CASH - FINANCING ACTIVITIES 69,030 -298,949
AND CASH EQUIVALENTS -2,857 -4,646
CASH AND CASH EQUIVALENTS -
CASH AND CASH EQUIVALENTS - END 2,384 25,287
LITTLE PRINCE PRODUCTIONS LIMITED AND SUBSIDIARY
The balance sheet as of June 30, 1995, the statements of operations for the six months ended June 30, 1994 and 1995, and the statement of cash flows for the six months ended June 30, 1994 and 1995 have been prepared by registrant without audit. The accompanying unaudited interim financial statements include all adjustments (consisting only of those of a normal recurring nature) necessary for a fair statement of the results for the interim periods.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in registrant's Form 10-K for the year ended December 31, 1994.
LITTLE PRINCE PRODUCTIONS LIMITED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On August 22, 1994, in order to substantially reduce the deficit on shareholders equity, registrant exchanged agreements with Riparian Securities Limited ("Riparian"), its legal advisors and the then officers and directors of the company, whereby 11,000,000 shares in the common stock of the company were to be issued for $495,146. Of this total consideration, $32,500 was for cash with the remaining $462,656 applied to the cancellation of liabilities. These agreements were completed on October 3, 1994. These agreements are more fully discussed in Registrant's 10-K for the year ended December 31, 1994.
On January 17, 1995 Riparian transferred its entire holding to the Patchouli Foundation ("Patchouli"), a Liechtenstein Stiftung and as at March 31, 1995 Patchouli owned 25% of the issued and outstanding common stock of the company.
In order to meet the excess of continuing operating costs of Registrant over income, including those costs associated with meeting the regulatory requirements of Registrant, $9,000 was realized from the sale of investments at book value during the six months ended June 30, 1995, of which $6,500 was realized in the quarter to March 31, 1995. In addition, in the six months to June 30, 1995 Rennick Investments Limited, as associate of Patchouli, advanced funds by way of loans to Registrant totalling $69,030, of which $31,515 was advanced in the quarter to March 31, 1995. Of these funds $34,500 was applied to reduce the outstanding liabilities for legal, audit and secretarial fees that were unpaid at December 31, 1994.
Management does not believe that Registrant has the ability to raise adequate resources from its existing Revenue operations. Registrant is therefore dependent in the short term from continued loans from Rennick Investments Limited and in the longer term upon increasing its authorized share capital in order to acquire a suitable business to satisfy the minimum financial criteria for inclusion in the National Association of Security Dealers, Inc. automated quotation system as previously sated in Registrant's Form 10-K for the year ended December 31, 1994.
Management intends to call a meeting of Registrant's shareholders for the purpose of, among other things, increasing the amount of authorized capital stock.
Registrant had no material commitments for capital expenditure at either March 31, 1995 or December 31, 1994.
Income in the quarter arose from fees received from the licensing of various theatrical productions. This income did not reflect any change in the business of registrant but typified the nature of the business and timing of the income generated.
LITTLE PRINCE PRODUCTIONS LIMITED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Throughout the six months ended June 30, 1995 management's primary task has been to deal with the preparation and completion of the various financial and regulatory documentation which Registrant has been required to file, some of had been overdue. By March 31, 1995, a substantial amount of the filings had been brought up to date. The majority of the operating costs of $64,451 incurred in the six months to June 30, 1995 related specifically to the audit, accounting, secretarial and legal costs associated with the preparation of the aforementioned documentation.
On December 18, 1990, an action against the Parent company commenced before the Tribunal de Grande Instance of Paris, France. The Plaintiff was seeking a judicial declaration of the termination of the agreement to engage in the exploitation of certain ancillary and subsidiary rights in connection with the literary work entitled "The Little Prince," an illustrated story by the French author, Antoine de Saint-Exupery (the "Agreement"), together with reimbursement of all sums received and damages and legal fees of approximately $200,000. In February 1992, an agreement was reached to settle the above matter whereby the Parent Company would receive $200,000 in return for giving up certain foreign rights as follows: $50,000 payable upon full performance of the Settlement Agreement and four payments of $25,000 every 3 months thereafter with a final payment of $50,000 by November 1993. All monies have now been received. Accrued legal expenses thereon of $150,692 were payable. The settlement also stipulates that the Parent must abandon the corporate name "Little Prince Productions Ltd." within 18 months from February 6, 1992. As at the date of this report, the name of the company has not been changed nor has any action been commenced by the plaintiff.
Submission of vote to Security Holders
No matters have been submitted to the vote of Security Holders in the quarter.
Exhibits and Reports on Form 8-K
Exhibits filed herewith: None Forms 8-K filed in quarter: None
Pursuant to the requirements of the Securities Exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
P. N. Chapman, Chief Financial Officer, duly authorized to sign this report on its behalf
|
10-Q/A
|
10-Q
| 1996-01-12T00:00:00
| 1996-01-11T18:24:16
|
0000950109-96-000200
|
0000950109-96-000200_0020.txt
|
Palm Beach Gardens, Florida 33410
The undersigned hereby subscribes to purchase 33,334 shares of beneficial interest of Weiss Treasury Only Money Market Fund (the "Fund") of Weiss Treasury Fund, at a price of $1.00 per share, and agrees to pay therefor upon demand in cash the amount of $33,334. The undersigned hereby represents and acknowledges that it intends to purchase the shares for investment and has no present intention of reselling the shares herein acquired and that any redemption of such shares will be reduced by a pro rata portion of any then unamortized organization expenses of the Fund, such proration to be calculated by dividing the number of shares to be redeemed by the aggregate number of shares held which represent the initial capital of the Fund.
OF WEISS TREASURY BOND FUND
Palm Beach Gardens, Florida 33410
The undersigned hereby subscribes to purchase 3,333.30 shares of beneficial interest of Weiss Treasury Bond Fund of Weiss Treasury Fund, at a price of $10.00 per share, and agrees to pay therefor upon demand in cash the amount of $33,333. The undersigned hereby represents and acknowledges that it intends to purchase the shares for investment and has no present intention of reselling the shares herein acquired and that any redemption of such shares will be reduced by a pro rata portion of any then unamortized organization expenses of the Fund, such proration to be calculated by dividing the number of shares to be redeemed by the aggregate number of shares held which represent the initial capital of the Fund.
OF WEISS INTERMEDIATE TREASURY FUND
Palm Beach Gardens, Florida 33410
The undersigned hereby subscribes to purchase 3,333.30 shares of beneficial interest of Weiss Intermediate Treasury Fund at a price of $10.00 per share, and agrees to pay therefor upon demand in cash the amount of $33,333. The undersigned hereby represents and acknowledges that it intends to purchase the shares for investment and has no present intention of reselling the shares herein acquired and that any redemption of such shares will be reduced by a pro rata portion of any then unamortized organization expenses of the Fund, such proration to be calculated by dividing the number of shares to be redeemed by the aggregate number of shares held which represent the initial capital of the Fund.
|
N-1/A
|
EX-99.18
| 1996-01-12T00:00:00
| 1996-01-11T17:32:37
|
0000916641-96-000023
|
0000916641-96-000023_0003.txt
|
PLAN PURSUANT TO RULE 18F-3(D) UNDER THE INVESTMENT COMPANY ACT OF 1940
Each series of shares of beneficial interest in The Mentor Funds (the "Trust") (each a "Portfolio" and, together, the "Portfolios") may from time to time issue one or more of the following classes of shares: Class A shares and Class B shares. Each class is subject to such investment minimums and other conditions of eligibility as are set forth in the prospectus in respect of any such Portfolio as from time to time in effect (each, the "Prospectus"). The differences in expenses among these classes of shares, and the conversion and exchange features of each class of shares, are set forth below in this Plan. Except as noted below, expenses are allocated among the classes of shares of each Portfolio based upon the net assets of each Portfolio attributable to shares of each class. This Plan is subject to change, to the extent permitted by law and by the Declaration of Trust and By-laws of the Trust, by action of the Trustees of the Trust.
Class A shares pay no Rule 12b-1 distribution fees, but pay shareholder service fees of .25% of the relevant Portfolio's average net assets attributable to Class A shares.
Class A shares of any Portfolio may be exchanged, at the holder's option, for Class A shares of any other Portfolio that offers Class A shares without the payment of a sales charge beginning 15 days after purchase, provided that Class A shares of such other Portfolio are available to residents of the relevant state. The holding period for determining any CDSC will include the holding period of the shares exchanged, and will be calculated using the schedule of any Portfolio into or from which shares have been exchanged that would result in the highest CDSC applicable to such shares. (If a shareholder exchanges his shares for shares of the Cash Resource U.S. Government Money Market Fund, the period during which he holds shares of that Fund will not be included in calculating the length of time he has owned the shares subject to the CDSC, and any CDSC payable on redemption of his shares will be reduced by the amount of any payment collected by that Fund under its distribution plan in respect of those shares.)
* The Trust has been offering multiple classes of shares, prior to the effectiveness of under this Investment Company Act of 1940, without any change in the arrangements and expense allocations that have previously been approved by the Trustees of the Trust under such order of exemption.
Class A shares do not convert into any other class of shares.
Class A shares are offered at a public offering price that is equal to their net asset value ("NAV") plus a sales charge of up to 5.75% of the public offering price (which maximum may be less for certain Portfolios, as described in the Prospectus). The sales charges on Class A shares are subject to reduction or waiver as permitted by Rule 22d-1 under the 1940 Act and as described in the Prospectus.
Purchases of Class A shares of $1 million or more that are redeemed within one year of purchase are subject to a CDSC of 1.00% of either the purchase price or the NAV of the shares redeemed, whichever is less. Class A shares are not otherwise subject to a CDSC.
The CDSC on Class A shares is subject to reduction or waiver in certain circumstances, as permitted by Rule 6c-10 under the 1940 Act and as described in the Prospectus.
Class B shares pay distribution fees pursuant to plans adopted pursuant to Rule 12b-1 under the 1940 Act (the "Class B Plans"). Class B shares also bear any costs associated with obtaining shareholder approval of the Class B Plans (or an amendment to a Class B Plan). Pursuant to the Class B Plans, Class B shares may pay up to .75% of the relevant Portfolio's average net assets attributable to Class B shares (which percentage may be less for certain Portfolios, as described in the Prospectus). Amounts payable under the Class B Plans are subject to such further limitations as the Trustees may from time to time determine and as set forth in the Prospectus.
Class B shares of any Portfolio may be exchanged, at the holder's option, for Class B shares of any other Portfolio that offers Class B shares without the payment of a sales charge beginning 15 days after purchase, provided that Class B shares of such other Portfolio are available to residents of the relevant state. The holding period for determining any CDSC will include the holding period of the shares exchanged, and will be calculated using the schedule of any Portfolio into or from which shares have been exchanged that would result in the highest CDSC applicable to such Class B shares. (If a shareholder exchanges his shares for shares of the Cash Resource U.S. Government Money Market Fund, the period which he holds shares of that Fund will not be included in calculating the length of time he has owned the shares subject to the CDSC, and any CDSC payable on redemption of his shares will be reduced by the amount of any payment collected by that Fund under its distribution plan in respect of those shares.)
Class B shares do not convert into any other class of shares.
Class B shares are offered at their NAV, without an initial sales charge.
Class B shares that are redeemed within 6 years of purchase are subject to a CDSC of up to 4.00% of either the purchase price or the NAV of the shares redeemed, whichever is less (which period may be shorter and which percentage may be less for certain Portfolios, as described in the Prospectus); such percentage declines the longer the shares are held, as described in the Prospectus. Class B shares purchased with reinvested dividends or capital gains are not subject to a CDSC.
The CDSC on Class B shares is subject to reduction or waiver in certain circumstances, as permitted by Rule 6c-10 under the 1940 Act and as described in the Prospectus.
|
485BPOS
|
EX-18
| 1996-01-12T00:00:00
| 1996-01-12T16:58:28
|
0000950153-96-000016
|
0000950153-96-000016_0000.txt
|
<DESCRIPTION>PRELIMINARY N&PS FOR AMERICAN CASINO ENTERPRISES
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/ Filed by a Party other than the Registrant / /
/x/ Preliminary Proxy Statement / / Confidential, for / / Definitive Proxy Statement the Commission
/ / Definitive Additional Materials / / Soliciting Material Pursuant to Rule 14a-ll(c) or Rule 14a-12
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box): /x/ $125 per Exchange Act Rule 0-ll(c)(l)(ii), 14a-6(i)(1), or 14a-6(i)(2). / / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). / / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule (4) Proposed maximum aggregate value of transaction: (5) Total fee paid:
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-ll(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
(2) Form, Schedule or Registration Statement No.:_________
(1) Set forth the amount on which the filing fee is calculated and state how it was determined.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the stockholders of American Casino Enterprises, Inc.:
You are cordially invited to attend the Annual Meeting (the "Annual Meeting") of the Stockholders of American Casino Enterprises, Inc., which will be held at the Holiday Inn Crown Plaza, 4255 South Paradise Road, Las Vegas, Nevada 89108, at 10:00 a.m., Pacific time, on March 4, 1996, to consider and act upon the following matters:
(1) To elect two Directors of the Company to serve for the ensuing two years and until their successors are duly elected and qualified.
(2) To approve the Company's 1996 Stock Option Plan.
(3) To ratify the appointment of Bradshaw, Smith & Co., as the Company's independent public accountants for the year ended July 31, 1996.
(4) The transaction of such other business as may properly come before the Annual Meeting or any adjournments thereof.
Only stockholders of record at the close of business on January 12, 1996, will be entitled to notice of, and to vote at, the Annual Meeting or any adjournments thereof.
Stockholders are cordially invited to attend the Annual Meeting. Whether or not you expect to attend the Annual Meeting in person, please complete, date and sign the accompanying proxy card and return it without delay in the enclosed postage prepaid envelope. Your proxy will not be used if you are present and prefer to vote in person or if you revoke the proxy.
Date: Las Vegas Nevada By order of the Board of
These proxy materials are furnished in connection with the solicitation of proxies by the Board of Directors of American Casino Enterprises, Inc., a Nevada corporation (the "Company"), for use at the Annual Meeting of Stockholders of the Company and for any adjournment or adjournments thereof (the "Annual Meeting"), to be held at the Holiday Inn Crowne Plaza, 4255 South Paradise Road, Las Vegas, Nevada 89108 at 10:00 a.m., Pacific time, on March 4, 1996, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. A Board of Directors' proxy (the "Proxy") for the Annual Meeting is enclosed herewith, by means of which you may indicate your votes as to each of the proposals described in this Proxy Statement.
All Proxies which are properly completed, signed and returned to the Company prior to the Annual Meeting, and which have not been revoked, will be voted in accordance with the stockholder's instructions contained in such Proxy. The affirmative vote by holders of a majority of the Common Stock represented at the Annual Meeting is required for the election of Directors and for the ratification of Bradshaw, Smith & Co., as the Company's independent public accountants. The affirmative vote by holders of a majority of the Common Stock outstanding is required for ratification of the adoption of the Company's 1996 Stock Option Plan. If no specification is made, shares represented by such Proxy will be voted FOR the election of the nominees for Directors as set forth herein; FOR the adoption of the Company's 1996 Stock Option Plan; and FOR the ratification of the appointment of Bradshaw, Smith & Co., as the Company's independent public accountants. Shares represented by proxies which are marked "abstain" for Items 2 and 3 on the proxy card and proxies which are marked to deny discretionary authority on all other matters will not be included in the vote totals, and therefore will have no effect on the vote. In addition, where brokers are prohibited from exercising discretionary authority for beneficial owners who have not provided voting instructions (commonly referred to as "broker non-votes"), those shares will not be included in the vote totals.
The Board of Directors does not anticipate that any of its nominees will be unavailable for election and does not know of any other matters that may be brought before the Annual Meeting. In the event that any other matter shall come before the Annual Meeting or any nominee is not available for election, the persons named in the enclosed Proxy will have discretionary authority to vote all Proxies not marked to the contrary with respect to such matter in accordance with their best judgment.
A stockholder may revoke his or her Proxy at any time before it is exercised by filing with the Secretary of the Company at its executive offices in Las Vegas, Nevada, either a written notice of revocation or a duly executed Proxy bearing a later date, or by appearing in person at the Annual Meeting and expressing a desire to vote his or her shares in person. All costs of this solicitation are to be borne by the Company.
A list of stockholders entitled to vote at the Annual Meeting will be open to examination by any stockholder, for any purpose germane to the meeting, at the executive offices of the Company, 6243 Industrial Road, Las Vegas, Nevada 89118, during ordinary business hours for ten days prior to the Annual Meeting. Such list shall also be available during the Annual Meeting.
This Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders, the Proxy, and the 1995 Annual Report to Stockholders are expected to be mailed commencing on or about January 23, 1996, to stockholders of record on January 12, 1996.
January 12, 1996 has been fixed as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting or any adjournment or adjournments thereof. As of that date, the Company had outstanding 14,367,958 shares of Common Stock, the only outstanding voting securities of the Company. Stockholders are entitled to one vote for each share owned upon all matters to be considered at the Annual Meeting.
The following table sets forth, as of January 10, 1996, certain information concerning those persons known to the Company to be the beneficial owners (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the "Exchange Act") of more than five (5%) percent of the outstanding shares of Common Stock of the Company; the number of shares of Common Stock of the Company owned by all Directors of the Company, individually, and by all Directors and executive officers of the Company as a group:
(1) Unless otherwise noted, all shares are beneficially owned and the sole voting and investment power is held by the persons indicated.
(2) Based on 14,367,958 shares outstanding as of the date of this Report, except each beneficial owner's percentage ownership is determined by assuming that options or warrants that are held by such person and which are convertible or exchangeable within 60 days of the date hereof (pursuant to Rule 13d-3 under the Securities Exchange Act of 1934) have been converted or exercised.
(3) Includes an aggregate of 710,666 shares issuable upon exercise of a like number of stock options at exercise prices of $.25, $.58, $.76 and $1.75 per share. Does not include options to acquire 171,334 shares at an exercise price of $.76, which are not currently exercisable. In addition, such shares exclude the following shares as to which Mrs. Tassinari disclaims beneficial ownership: 364,154 shares of Common Stock owned of record by Ronald J. Tassinari, Mrs. Tassinari's husband; 11,094 shares owned of record by Mrs. Tassinari's husband as custodian for his son; and 1,321,334 shares issuable upon exercise of currently exercisable options owned by Mrs.
(4) Includes 11,094 shares owned of record by Mr. Tassinari as custodian for his son and 1,321,334 shares issuable upon exercise of a like number of options at exercise prices of $.25, $.58, $.76 and $1.75 per share. Does not include options to acquire 342,666 shares at an exercise price of $.76, which are not currently exercisable. Such shares exclude the following shares as to which Mr. Tassinari disclaims beneficial ownership: 432,236 shares of Common Stock owned of record by Audrey K. Tassinari, Mr. Tassinari's wife; and 710,666 shares issuable upon exercise of a like number of currently exercisable stock options owned of record by Mr. Tassinari's wife.
(5) Includes 419,000 stock options to acquire a like number of shares at exercise prices of $.53, $.69 and $1.75 per share. Does not include options to acquire 188,000 shares at a price of $.69 per share which are not currently exercisable.
(6) Includes 65,000 shares issuable upon exercise of a like number of options at prices of $.53, $.69 and $1.75 per share.
(7) Represents options to acquire 150,000 shares at prices of $.69 and $1.75 per share.
(8) Includes an aggregate of 23,167 shares of Common Stock and 324,074 Warrants beneficially owned by Mr. Brown's son and 23,500 shares of Common Stock beneficially owned by Mr. Brown's wife.
(9) Includes presently exercisable options to purchase an aggregate of 2,666,000 shares of Common Stock referred to in notes 3, 4, 5, 6 and 7 above.
The Company's Board of Directors consists of five persons. The Company's two Class C Directors, Jeanne Hood and Douglas Sanderson, are standing for re-election, each to serve for a term of three years and until their successors are elected and qualified. The terms of the Company's remaining Directors, Ronald J. Tassinari and Audrey K. Tassinari, both Class A Directors, expire in 1998 and the term of Roy K. Keefer, a Class B Director, expires in 1997. Accordingly, no vote is being taken on their re-election at this Annual Meeting. It is intended that the accompanying form of Proxy will be voted FOR
Directors of Ms. Hood and Mr. Sanderson, unless the Proxy contains contrary instructions. Proxies which abstain and do not direct the Proxy holders to vote for or withhold authority in the matter of electing Directors will be voted for the election of Ms. Hood and Mr. Sanderson. Proxies cannot be voted for a greater number of persons than the number of nominees named in the Proxy Statement.
Management has no reason to believe that any of the nominees will not be a candidate or will be unable to serve. However, in the event that any of the nominees should become unable or unwilling to serve as a Director, the Proxy will be voted for the election of such person or persons as shall be designated by the Directors.
The persons listed in the table below are all currently serving as Directors of the Company.
Ronald J. Tassinari has been President and a Director of the Company since its inception in August 1979. From January to August 1979, he acted as a founder of the Company prior to its formation.
Audrey K. Tassinari has been a Director of the Company since March 1985 and Vice President since April 1986. Mrs. Tassinari is the wife of Ronald J. Tassinari, the Company's President.
Roy K. Keefer has been Chief Financial Officer of the Company since April 1992. Mr. Keefer has been a Director of the Company since December 1992. He served as Manager of Corporate Accounting for the Schulman Group, a major residential and commercial real estate developer in Las Vegas, Nevada from June 1991 to April 1992. Prior thereto, he was an audit manager for more than three years with Laventhol & Horwath, a national public accounting firm, and a successor thereto, Piercy, Bowler, Taylor and Kern. Prior thereto, for five years Mr. Keefer was a principal of Cox Keefer & Company, a public accounting firm.
Douglas R. Sanderson has been a Director of the Company since December 1992. Since April 1995, Mr. Sanderson has been President of Sega Gaming Enterprises, Inc., an electronic games manufacturer located in Las Vegas, Nevada. Prior thereto, from June 1994 until April 1995, Mr. Sanderson was Vice President of Sales of Sega Gaming Enterprises, Inc. From November 1992 to June 1994, he was Director of National Casino Sales for Bally Gaming, Inc., where he managed and directed sales in major gaming centers of the United States. From October l990 to October l992 he was Sales Director for International Game Technology, a Nevada based gaming equipment manufacturer.
Jeanne Hood has been a Director of the Company since February 1994. Since February 1994, Ms. Hood has served as a gaming consultant to the Company. See "Certain Relationships and Related Transactions." From 1985 to 1993 Ms. Hood served as President and Chief Executive Officer of Elsinore, Inc., a publicly traded gaming company located in Las Vegas, Nevada. From 1977 to 1993, Ms. Hood also served as President and Chief Executive Officer of Four Queens, Inc., a wholly-owned subsidiary of Elsinore, Inc., the owner and operator of the Four Queens Hotel Casino in Las Vegas, Nevada.
Robert J. Michaels served as a Director of the Company from November 1982 until his death in November 1995.
Certain Information Concerning the Board of Directors
Each Director will hold office until the next annual meeting of Stockholders and until his or her successor has been elected and qualified. Officers are appointed by and serve at the discretion of the Board of Directors. The Board of Directors of the Company has audit and compensation committees, each consisting of Douglas Sanderson and Jeanne Hood.
The Company held six meetings of the Board of Directors during the fiscal year ended July 31, 1995. Each member of the Board of Directors (at the time of such meeting) attended all of the meetings either in person or telephonically.
The following table sets forth all compensation awarded to, earned by, or paid for all services rendered to the Company, a small business issuer, during the fiscal years ended July 31, 1993, 1994 and 1995, by the Company's Chief Executive Officer and all other executive officers whose total compensation exceeded $100,000.
(1) This amount does not include $12,000 fees paid to this person in Fiscal 1995 for serving on the Table Mountain Casino board of directors.
(2) Includes options to purchase 500,000 shares which were granted in December 1993 at $1.54 per share, cancelled and re-granted in November 1994 at $.76 per share.
(3) Such options were re-granted by the Board of Directors because the Board believed that the price upon re-grant better reflected the fair market value of the Company's Common Stock at the time of re-grant and as such would provide greater incentive for the optionee to better the Company's performance.
(4) This amount does not include $35,703 in salary and $12,000 in fees for serving on the Table Mountain Casino board of directors paid to Ronald J. Tassinari by the Table Mountain Casino during Fiscal 1994. The salary payments from the Casino to Mr. Tassinari ceased in April 1994. In addition, this amount does not include the cost to the Company of the use of automobiles leased by the Company or the cost to the Company of health insurance benefits.
(5) These options were granted in December 1993, cancelled in November 1994 and re-granted as set forth in footnotes (2) and (3) above.
(6) This amount does not include $48,620 in salary and Casino Board of Directors Fees paid to Ronald J. Tassinari by Table Mountain Casino during the year ended July 31, 1993. In addition, this amount does not include the cost to the Company of the use of automobiles leased by the Company or the cost to the Company of health insurance benefits.
(7) This person received less than $100,000 in compensation from the Company for the fiscal years ended July 31, 1994 and 1993.
(8) Includes options to purchase 250,000 shares which were re-granted in November 1994 at $.76 per share upon cancellation of a like number of options granted in December 1993 at $1.54 per share.
(9) Includes options to purchase 275,000 shares which were re-granted in November 1994 at $.69 per share upon cancellation of a like number of options granted in December 1993 at $1.40 per share.
Individualized Option/SAR Grants in Last Fiscal Year
Aggregated Option/SAR Exercises in Last Fiscal Year and FY End Option/SAR Values
(1) The closing price for the Company's Common Shares on July 31, 1995 was $.97 per share.
(d) The Company has no long-term incentive plan awards.
(e) Directors receive $1,000 for each meeting of the Board of Directors they attend. They are also compensated for expenses incurred in attending the meetings. Certain of the Company's directors have received stock options from the Company. See "Certain Relationships and Related Transactions."
On July 20, 1995, the Company entered into substantially similar employment agreements with Ronald J. Tassinari, to serve as the Company's Chief Executive Officer and President, Audrey K.
Tassinari, to serve as the Company's Vice President, and Roy K. Keefer to serve as the Company's Chief Financial Officer (collectively, the "Employees"). The employment agreements provide for a term which concludes on March 31, 2002. The agreements provide for annual salaries of $300,000, $98,000, and $108,000, respectively, for Mr. Tassinari, Mrs. Tassinari and Mr. Keefer. The agreements further provide that the Employees are entitled to receive annual increases in their salaries every December equal to no less than (i) the annual increases provided to the Company's other salaried executives or (ii) the increase in the Annual Average All Items Index of the U.S. City Average Consumer Price Index. Under the agreements, the Employees are entitled to receive incentive stock options under the Company's stock option plans and the Company is required to reimburse Employees for their personal legal and financial consulting expenses, subject to a maximum of three percent of their prior calendar year's base salary. Mr. Tassinari is entitled to a term life insurance policy with a minimum death benefit of $1,000,0000, payable to a beneficiary of Mr. Tassinari's designation. Mrs. Tassinari and Mr. Keefer are entitled to policies with $500,000 minimum death benefits, payable to beneficiaries of their designation. The Company has agreed to provide the Employees with an automobile allowance or, in lieu thereof, will pay them an equal monthly cash stipend. In the event that the Company requires the Employee to relocate from Las Vegas, Nevada, the Company has agreed to pay their relocation expenses and to provide second mortgages on their new permanent residences of up to $100,000. The employment agreements also provide for indemnification of the Employees in connection with their service to the Company.
If the employment of any of the Employees is terminated by reason of death, the Company shall pay the balance of the monies due under the agreement to the estate of the decreased Employee. If the employment of any of the Employees is terminated by reason of disability, the Employee shall be entitled to one year of severance pay at full salary and then severance pay at half salary for the remainder of the term. If any of the Employees are terminated without cause, or the Employees terminate their own employment following: (a) a change in control (as defined below); (b) a significant change in the Employee's duties under the agreements; (c) a removal of the Employee from the positions or offices set forth in the agreements; (d) a substantial reduction in compensation, unless all senior executives receive comparable reductions; (e) a breach by the Company of the relocation provisions set forth in the agreements; (f) if a successor to the Company refuses to assume the Company's obligations under the agreements; (g) a relocation of the Company's executive offices without the Employee's consent; (h) a failure by the Company to increase the Employee's salary; or (i) the Employee remains employed following a change in control, but then resigns within two years, then the Company shall pay as liquidated damages, or severance pay, or both to the Employee on the fifth day the termination date, a lump sum equal to the product of (i) an amount equal to the sum of the annual base salary in effect as of the termination date plus any incentive compensation most recently paid or payable to the Employees, multiplied by (ii) two and ninety-nine one hundredths (2.99), (iii) plus any and all accrued salary, accrued vacation pay and accrued bonus in addition to any other consideration due under the agreements. In addition, the agreements provide that in the event an Employee terminates his or her employment following a change in control, the Company shall make a cash payment on the 91st day after such termination to the Employee in an amount equal to the excess, if any, of (1) the number of options then held by the Employee which have not terminated other than as a result of termination of employment multiplied by the market price of the Company's common stock as of the date of termination, over (2) the aggregate exercise prices for all options then held by the Employee.
For purposes of the employment agreements, a "change in control of the Company" shall be deemed to have occurred if (i) a third Person becomes the beneficial owner (as such term is defined in Rule 13d-3 promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Act")) of the securities of the Company having twenty percent (20%) or more of the combined voting power of all classes of the Company's securities entitled to vote in an election of Directors of the Company; (ii) there occurs a tender offer or exchange offer by, a merger or other business combination with, or a sale of substantially all of the assets of the Company to any third Person; (iii) a stockholder or stockholders holding five percent (5%) or more of the outstanding common stock of the Company proposes a reconstitution of additions to or deletions from the Board and as a result, obtains a majority thereof; or (iv) during any period of two consecutive years during the term of the agreements, individuals who at the beginning of such period constitute the Board cease for any reason other than death or disability to constitute at least a majority thereof.
Certain Relationships and Related Transactions
On September 23, 1993, the Company repaid $18,000 of indebtedness evidenced by a promissory note dated December 21, 1990 owed to a former director of the Company, who had loaned the Company such amount for working capital purposes during the year ended July 31, 1991.
At July 31, 1995, the Company had revolving lines of credit totaling $500,000 with two banks. One line for $250,000 expires in December 1995 and bears interest at 3% above prime. The line is collateralized by 91,000 shares of the Company's common stock owned and pledged by Ronald J. Tassinari, the Company's President. The credit line is also guaranteed by Audrey K. Tassinari, the Company's Vice President. The other $250,000 line of credit is unsecured, expires in November 1995 and bears interest at 2% above prime. At July 31, 1995, no funds were outstanding on the lines of credit.
Jeanne Hood, a Director of the Company, has provided consulting services to the Company since February 1994. Ms. Hood was compensated at the rate of $2,500 per month for such services for the period from August 1994 through December 1994 and $3,000 per month for the period from January 1995 through July 1995.
On November 23, 1994, the Board of Directors granted stock options to Robert J. Michaels, Jeanne Hood and Douglas R. Sanderson, Directors of the Company, to purchase 50,000, 50,000 and 12,500 shares of Common Stock, respectively. The options were immediately exercisable at $.69 per share in recognition of prior services rendered to the Company and expire on November 23, 1997.
On December 4, 1994, the Company loaned $110,000 to Ronald J. Tassinari, the Company's President and a Director. Such amount was repaid on January 30, 1995, together with interest of $1,460, which had been accrued at the rate of eight and one half percent (8.5%) per annum.
On May 31, 1995, the Company loaned $125,000 to Ronald J. Tassinari, the Company's President and a Director. Such amount was repaid on July 24, 1995, together with interest of $2,109, which had been accrued at the rate of eleven percent (11%) per annum.
On October 19, 1995, the Board of Directors granted stock options to Robert J. Michaels, Jeanne Hood and Douglas R. Sanderson, Directors of the Company, to purchase 50,000, 100,000 and 15,000 shares of Common Stock, respectively. The options were immediately exercisable at $1.75 per share in recognition of prior services rendered to the Company and expire on October 18, 2005.
On October 19, 1995, the Board of Directors granted stock options to Ronald J. Tassinari, Audrey K. Tassinari and Roy K. Keefer, each an Officer and Director of the Company, to purchase 400,000, 250,000 and 150,000 shares of Common Stock, respectively. The options were immediately exercisable at $1.75 per share in recognition of prior services rendered to the Company and expire on October 18, 2005.
See "Executive Compensation" for the terms of Employment Agreements between the Company and Ronald J. Tassinari, Audrey K. Tassinari and Roy K. Keefer, each a Director and officer of the Company.
See "Executive Compensation" for the terms of options granted during Fiscal 1995 to Ronald J. Tassinari, Audrey K. Tassinari, Roy K. Keefer, each a Director and officer of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten percent shareholders are required by regulation to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Form 5's were required for those persons, the Company believes that, during the period from August 1, 1994 through July 31, 1995, all filing requirements applicable to its officers, directors, and greater than ten percent beneficial owners were complied with.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ALL THE NOMINEES LISTED IN THE FOREGOING PROPOSAL 1.
APPROVAL OF AMERICAN CASINO ENTERPRISES, INC.
The Board of Directors of the Company, subject to the approval of shareholders, adopted the American Casino Enterprises, Inc. 1996 Stock Option Plan (the "Plan"), which authorizes the grant of options to purchase an aggregate of 2,500,000 shares of Common Stock.
The Board of Directors has deemed it in the best interest of the Company to establish the Plan so as to provide employees and other persons involved in the continuing development and successes of the Company and its subsidiaries an opportunity to acquire a proprietary interest in the Company by means of grants of options to purchase Common Stock. The Plan supplements the 1991 Officers Stock Option Plan, which presently has 468,734 shares remaining of the 1,500,000 authorized thereunder for issuance, and the 1992 Employee Stock Option Plan which has 191,266 shares of the 2,500,000 authorized thereunder remaining for issuance. Both the 1991 Officers Stock Option Plan and the 1992 Employee Stock Option Plan were previously approved by the Company's the opinion of the Board of Directors that by providing the Company's employees and other individuals contributing to the Company and its subsidiaries the opportunity to acquire an equity investment in the Company, the Plan will maintain and strengthen their desire to remain with the Company, stimulate their efforts on the Company's behalf, and also attract other qualified personnel to the Company's employ. The affirmative vote of a majority of the voting securities represented at the meeting, assuming a quorum is present, is required for approval of the Plan.
The following statements summarize certain provisions of the Plan. All statements are qualified in their entirety by reference to the text of the Plan, copies of which are available for examination at the Securities and Exchange Commission and at the principal office of the Company, 6243 Industrial Road, Las Vegas, Nevada 89118.
The Plan allows the Company to grant incentive stock options ("ISOs"), as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"), Non-Qualified Stock Options ("NQSOs") not intended to qualify under Section 422(b) of the Code and Stock Appreciation Rights ("SARs"). The Plan is intended to provide the employees, directors, independent contractors and consultants of the Company with an added incentive to commence or continue their services to the Company and to induce them to exert their maximum efforts toward the Company's success. The Board has deemed it in the best interest of the Company to establish the Plan so as to provide employees and the other persons listed above the opportunity to acquire a proprietary interest in the Company by means of grants of options to purchase Common Stock.
Under the Plan, ISOs or ISOs in tandem with SARs, subject to the requirements set forth in Temp. Reg. Section 14a.422A-1, A-39 (a)-(e), may be granted, from time to time, to employees of the Company, including officers, but excluding Directors, who are not otherwise employees of the Company. ISOs, NQSOs and SARs (collectively, "Options") may be granted from time to time, under the Plan, to employees of the Company, officers, Directors, independent contractors, consultants and other individuals who are not employees of, but are involved in the continuing development and success of the Company (persons entitled to receive ISOs, NQSOs, and/or SARs are hereinafter referred to as "Participants"). ISOs and ISOs in tandem with SARs may not be granted under the Plan to any person for whom shares first become exercisable under the Plan or any other stock option plan of the Company in any calendar year having an aggregate fair market value (measured at the respective time of grant of such options) in excess of $100,000. Any grant in excess of such amount shall be deemed a grant of a NQSO. The maximum number of Options which can be granted to a Participant in any calendar year is 350,000. To date, the Company has seven employees (three of whom are also directors), who are eligible for grants of one or more types of options under the Plan. The Company cannot presently compute the number of non-employees who may be entitled to NQSOs.
The Plan is to be administered by the Board of Directors of the Company or by a Stock Option or Compensation Committee comprised of at least two disinterested persons (the term "disinterested" having the meaning ascribed to it by Rule 16b-3 of the Securities Exchange Act of 1934). Any Stock Option or Compensation Committee cannot contain less than two disinterested directors. An interested Director cannot be on such Committee. The Board of Directors or the Committee will have the authority, in its discretion, to determine the persons to whom, options shall be granted, the character of such options and the number of Common Shares to be subject to each option. Presently, the Plan will be administered by Jeanne Hood and Douglas Sanderson, the Company's two disinterested Directors.
The terms of options granted under the Plan are to be determined by the Board or its committee. Each option is to be evidenced by a stock option agreement between the Company and the employee to whom such option is granted, and is subject to the following additional terms and conditions:
(a) Exercise of the Option: The Board of Directors or its committee will determine the time periods during which options granted under the Plan may be exercised. An option must be granted within ten (10) years from the date the Plan was adopted or the date the Plan is approved by the stockholders of the Company, whichever is earlier. Options will be exercisable in whole or in part at any time during the period but will not have an expiration date later than ten (10) years from the date of grant. Unless otherwise provided in any option agreement issued under the Plan, any Option granted under the Plan may be exercisable in whole or in part at any time during the exercise period and must become fully exercisable within five years from the date of its grant, and no less than 20% of the Option shall become exercisable on an aggregate basis by the end of any of the first five years of the Option. The Board of Directors of or its Committee may, in its sole discretion, accelerate any such vesting period after the grant thereof. Notwithstanding the above, ISOs or SARs granted in tandem with ISOs, granted to holders owning directly or through attribution more than 10% of the Company's Common Shares are subject to the additional restriction that the expiration date shall not be later
than five (5) years from the date of grant. An option is exercised by giving written notice of exercise to the Company specifying the number of full shares of Common Stock to be purchased and tendering payment of the purchase price to the Company in cash or certified check, or if permitted by the instrument of grant, with respect to an ISO, or at the discretion of the Board or its committee with respect to NQSOs, by delivery of Common Shares having a fair market value equal to the option price, by delivery of an interest bearing promissory note having an original principal balance equal to the Option Price and an interest rate not below the rate which would result in imputed interest under the Code or by a combination of cash, shares of Common Stock and promissory notes. Furthermore, in the case of a NQSO, at the discretion of the Board of Directors or its committee, the Participant may have the Company withhold from the Common Stock to be issued upon exercise of the Option that number of shares having a fair market value equal to the exercise price and/or the withholding amount due.
(b) Option Price: The option price of an NQSO or an SAR granted in tandem with an NQSO granted pursuant to the Plan, is determined by the Board of Directors or its committee at their sole discretion.
In no event may the option price of an ISO or SARs granted in tandem with ISOs be less than the fair market value on the date of grant. Such fair market value of an ISO shall be determined by the Board of Directors and, if the Common Shares are listed on a national securities exchange or traded on the over-the-counter market, the fair market value shall be the closing price on such exchange, or the mean of the reported bid and asked prices of the Common Shares on the over-the-counter market as reported by NASDAQ, the NASD OTC Bulletin Board or the National Quotation Bureau, Inc., as the case may be, on such date. ISOs or SARs granted in tandem with ISOs, granted to holders owning directly or through attribution, more than 10% of the Company's Common Stock are subject to the additional restriction that the option price must be at least 110% of the fair market value of the Company's Common Shares on the date of grant.
(c) Termination of Employment; Death: Except as provided in the Plan, or otherwise determined by the Board of Directors or its committee in its sole discretion, upon termination of employment with the Company for any reason, a holder of an Option under the Plan may exercise such Option to the extent such Option was exercisable as of the date of termination or at any time within thirty (30) days after the date of such termination. However, unless
otherwise determined by the Board of Directors or its committee in its sole discretion, any options granted under the Plan shall immediately terminate in the event the optionee is convicted of a felony committed against the Company.
If the holder of an Option granted under the Plan dies (i) while employed by the Company or a subsidiary or parent corporation or (ii) within three (3) months after the termination of such holder's employment, such option may be exercised within twelve months, less one day, of death by a legatee or legatees of such option under such individual's last will or by such individual's estate, to the extent such option was exercisable as of the date of death or date of termination of employment, whichever date is earlier.
If the holder of an Option under the Plan becomes disabled within the definition of section 22(e)(3) of the Code while employed by the Company or a subsidiary or parent corporation, such Option may be exercised at any time within six months, less one day, after such holder's termination of employment due to the disability.
Except as otherwise determined by the Board of Directors or the Committee in its sole discretion, an Option may not be exercised except to the extent that the holder was entitled to exercise the option at the time of termination of employment or death, and in any event it may not be exercised after the original expiration date of the option.
(d) Nontransferability of Options; No Liens: An option is nontransferable and non-assignable by the optionee, other than by will or the laws of descent and distribution, and any ISO or SAR in tandem with an ISO is exercisable during the lifetime of the optionee and only by the optionee, or in the event of his or her death, by a person who acquires the right to exercise the option by bequest or inheritance or by reason of the death of the optionee.
The option agreement may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Board of Directors or its committee.
The Plan (but not options previously granted under the Plan) shall terminate ten years from the earlier of the date of its adoption by the Board of Directors or the date the Plan is approved by the Stockholders of the Company. No option will be granted after termination of the Plan.
The Board of Directors of the Company may terminate the Plan at any time prior to its expiration date, or from time to time make such modifications or amendments of the Plan as it deems advisable. However, the Board may not, without the approval of a majority of the then outstanding shares of the Company entitled to vote thereon, except under conditions described under "Adjustments Upon Changes in Capitalization," increase the maximum number of shares as to which options may be granted under the Plan or materially change the standards of eligibility under the Plan.
No termination, modification or amendment of the Plan may adversely affect the terms of any outstanding options without the consent of the holders of such options.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event that the number of outstanding Common Shares of the Company is changed by reason of recapitalization, reclassification, stock split, stock dividend, combination, exchange of shares, or the like, the Board of Directors of the Company will make an appropriate adjustment in the aggregate number of Common Shares available under the Plan, in the number of Common Shares reserved for issuance upon the exercise of then outstanding options and in the exercise prices of such options. Any adjustment in the number of shares will apply proportionately only to the unexercised portion of options granted under the Plan. Fractions of shares resulting from any such adjustment shall be revised to the next higher whole number of shares.
In the event of the proposed dissolution or liquidation of substantially all of the assets of the Company, all outstanding options will automatically terminate, unless otherwise provided by the Board.
The following discussion is only a summary of the principal Federal income tax consequences of the Options granted under the Plan and is based on existing Federal law, which is subject to change, in some cases retroactively. This discussion is also qualified by the particular circumstances of individual optionees, which may substantially alter or modify the Federal income tax consequences herein discussed.
Generally, under present law, when an option qualifies as an ISO under Section 422 of the Code (i) an employee will not realize taxable income either upon the grant or the exercise of the option, (ii) the amount by which the fair market value of the shares acquired by the exercise of the option at the time of exercise exceeds the option price is included in alternative minimum taxable income for purposes of determining the employee's alternative minimum tax, (iii) any gain or loss (the difference between the net proceeds received upon the disposition of the shares and the option price paid therefor) upon a qualifying disposition of the shares acquired by the exercise of the option will be treated as capital gain or loss if the stock qualifies as a capital asset in the hands of the employee, and (iv) no deduction will be allowed to the Company for Federal income tax purposes in connection with the grant or exercise of an incentive stock option or a qualifying disposition of the shares. A disposition by an employee of shares acquired upon exercise of an ISO will constitute a qualifying disposition if it occurs after the holder's death or more than two years after the grant of the option and one year after the issuance of the shares to the employee. If such shares are disposed of by the employee before the expiration of those time limits, the transfer would be a "disqualifying disposition" and the employee, in general, will recognize ordinary income (and the Company will receive an equivalent deduction) equal to the lesser of (i) the aggregate fair market value of the shares as of the date of exercise less the option price, or (ii) the amount realized on the disqualifying disposition less the option price. Ordinary income from a disqualifying disposition will constitute compensation for which withholding may be required under Federal and state law. Currently under the Code, the maximum rate of tax on ordinary income is greater than the rate of tax on long-term capital gains. Legislation has passed the House of Representatives and the Senate to decrease the marginal rate of tax on capital gains. It is unknown whether such legislation will eventually be enacted into law. Furthermore, in the future, the rate of tax on such gains may be increased. No assurance can be given of when, if ever, new tax legislation will be enacted into law, and the effective date of any such legislation.
In the case of a non-qualified stock option granted under the Plan, no income generally is recognized by the optionee at the time of the grant of the option assuming such non-qualified stock option does not have a readily ascertainable fair market value. The optionee generally will recognize ordinary income when the non-qualified stock option is exercised equal to the aggregate fair market value of the shares acquired less the option price. Ordinary income from non-qualified stock options will constitute compensation for which withholding may be required under Federal and state law, and the Company will receive an equivalent deduction, subject to the limitations of Section 162(m) of the Code which limits the amount a publicly held corporation may deduct with respect to remuneration generally paid to an executive officer of the Corporation to $1,000,000. Income recognized by such executive officer on the exercise of a NQSO or SAR would be deemed remuneration. There are certain exceptions including income from the exercise of a NQSO or SAR which the Company may avail itself if the Plan is administered by two directors who are not indirectly employed by the Company and certain other tests are met by the Company. The Company does not currently have any such directors.
Shares acquired upon exercise of non-qualified stock options will have a tax basis equal to their fair market value on the exercise date or other relevant date on which ordinary income is recognized and the holding period for the shares generally will begin on the date of the exercise or such other relevant date. Upon subsequent disposition of the shares, the optionee will recognize capital gain or loss if the stock is a capital asset in his hands. Provided the shares are held by the optionee for more than one year prior to disposition, such gain or loss will be long-term capital gain or loss. As set forth above, the maximum rate of tax on ordinary income is currently greater than the rate of tax on long-term capital gains. To the extent an optionee recognizes a capital loss, such loss may currently generally offset capital gains and $3,000 of ordinary income. Any excess capital loss is carried forward indefinitely.
The grant of an SAR is generally not a taxable event for the optionee. Upon the exercise of an SAR the optionee will recognize ordinary income in an amount equal to the amount of cash and with respect to SARs granted in tandem with NQSOs, the fair market value of any Common Shares received upon such exercise, and the Company will be entitled to a deduction equal to the same amount. However, if the sale of any shares received would be subject to Section 16(b) of the Securities Exchange Act of 1934, ordinary income attributable to such shares received will be recognized on the date such sale would not give rise to a Section 16(b) action, valued at the fair market value at such later time, unless the optionee has made a Section 83(b) election within 30 days after the date of exercise to recognize ordinary income as of the date of exercise based on the fair market value at the date of exercise.
The foregoing discussion is only a brief summary of the applicable Federal income tax laws as in effect on this date and should not be relied upon as being a complete statement. The Federal tax laws are complex, and they are subject to legislative changes and new or revised judicial or administrative interpretations at any time. In addition to the Federal income tax consequences described herein, an optionee may also be subject to state and/or local income tax consequences in the jurisdiction in which the grantee works and/or resides.
As of January 10, 1996, no options have been granted or allocated under the Plan. Accordingly, any benefits or amounts that will be received by management of the Company under the Plan are not presently determinable.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE FOREGOING PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Bradshaw, Smith & Co., independent public accountants, to continue as the Company's auditors and to audit the books of account and other records of the Company for the fiscal year ending July 31, 1996. The Board recommends that shareholders vote "FOR" ratification of such appointment. Bradshaw, Smith & Co., Las Vegas, Nevada has audited the Company's financial statements since the fiscal year ended July 31, 1993. They have no financial interests, either direct or indirect, in the Company. Representatives of Bradshaw, Smith & Co. are expected to be present at the Annual Meeting to respond to appropriate questions from stockholders and to make a statement if they desire to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE FOREGOING PROPOSAL 4.
The Board of Directors is not aware of any business to be presented at the Annual Meeting except the matters set forth in the Notice and described in this Proxy Statement. Unless otherwise directed, all shares represented by Board of Directors' Proxies will be voted in favor of the proposals of the Board of Directors described in this Proxy Statement. If any other matters come before the Annual Meeting, the persons named in the accompanying Proxy will vote on those matters according to their best judgment.
The entire cost of preparing, assembling, printing and mailing this Proxy Statement, the enclosed Proxy and other materials, and the cost of soliciting Proxies with respect to the Annual Meeting, will be borne by the Company. The Company will request banks and brokers to solicit their customers who beneficially own shares listed of record in names of nominees, and will reimburse those banks and brokers for the reasonable out-of-pocket expenses of such solicitations. The original solicitation of Proxies by mail may be supplemented by telephone and telegram by officers and other regular employees
Company, but no additional compensation will be paid to such individuals.
No person who intends to present a proposal for action at a forthcoming stockholders' meeting of the Company may seek to have the proposal included in the proxy statement or form of proxy for such meeting unless that person (a) is a record beneficial owner of at least 1% or $1,000 in market value of shares of Common Stock, has held such shares for at least one year at the time the proposal is submitted, and such person shall continue to own such shares through the date on which the meeting is held, (b) provides the Company in writing with his name, address, the number of shares held by him and the dates upon which he acquired such shares with documentary support for a claim of beneficial ownership, (c) notifies the Company of his intention to appear personally at the meeting or by a qualified representative under Nevada law to present his proposal for action, and (d) submits his proposal timely. A proposal to be included in the proxy statement or proxy for the Company's next annual meeting of stockholders, will be submitted timely only if the proposal has been received at the Company's principal executive office no later than November 11, 1996. If the date of such meeting is changed by more than 30 calendar days from the date such meeting is scheduled to be held under the Company's By-Laws, or if the proposal is to be presented at any meeting other than the next annual meeting of stockholders, the proposal must be received at the Company's principal executive office at a reasonable time before the solicitation of proxies for such meeting is made.
Even if the foregoing requirements are satisfied, a person may submit only one proposal of not more than 500 words with a supporting statement if the latter is requested by the proponent for inclusion in the proxy materials, and under certain circumstances enumerated in the Securities and Exchange Commission's rules relating to the solicitation of proxies, the Company may be entitled to omit the proposal and any statement in support thereof from its proxy statement and form of proxy.
BY ORDER OF THE BOARD OF DIRECTORS
Las Vegas, Nevada Roy K. Keefer
Copies of the Company's 1995 Annual Report on Form 10-KSB for the fiscal year ended July 31, 1995 as filed with the Securities and Exchange Commission, including the financial statements, can be obtained without charge by stockholders (including beneficial owners of the Company's Common Stock) upon written request to Roy K. Keefer, the Company's Secretary, American Casino Enterprises, Inc., 6243 Industrial Road, Las Vegas, Nevada 89118.
The undersigned, a holder of Common Stock of American Casino Enterprises, Inc. a Nevada corporation (the "Company"), hereby appoints Ronald J. Tassinari and Roy K. Keefer, and each of them, the proxies of the undersigned, each with full power of substitution, to attend, represent and vote for the undersigned, all of the shares of the Company which the undersigned would be entitled to vote, at the Annual Meeting of Stockholders of the Company to be held on March 4, 1996 and any adjournments thereof, as follows:
1. ELECTION OF DIRECTORS, as provided in the Company's Proxy Statement:
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all nominees listed below. (Instructions: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH OR OTHERWISE STRIKE OUT HIS OR HER NAME BELOW)
Douglas R. Sanderson and Jeanne Hood
2. To act upon a proposal to adopt the Company's 1996 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the appointment of Bradshaw, Smith & Co., as the Company's independent auditors by the year ended July 31, 1996.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Upon such other matters as may properly come before the meeting or any adjournments thereof.
The undersigned hereby revokes any other proxy to vote at such Annual Meeting, and hereby ratifies and confirms all that said attorneys and proxies, and each of them, may lawfully do by virtue hereof. With respect to matters not known at the time of the solicitations hereof, said proxies are authorized to vote in accordance with their best judgment.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS ON THE OTHER SIDE HEREOF. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE TWO DIRECTORS NAMED IN PROPOSAL 1, FOR THE ADOPTION OF PROPOSALS 2 and 3, AND AS SAID PROXIES SHALL DEEM ADVISABLE
BUSINESS AS MAY COME BEFORE THE MEETING.
The undersigned acknowledges receipt of a copy of the Notice of Annual Meeting and accompanying Proxy Statement dated January 23, 1996 relating to the Annual Meeting, and the 1995 Annual Report to Stockholders.
The signature(s) hereon should correspond exactly with the name(s) of the Stockholder(s) appearing on the Stock Certificate. If stock is jointly held, all joint owners should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If signer is a corporation, please sign the full corporate name, and give title of signing officer.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF AMERICAN CASINO ENTERPRISES, INC.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
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PRE 14A
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PRE 14A
| 1996-01-12T00:00:00
| 1996-01-12T15:02:20
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0000950120-96-000004
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0000950120-96-000004_0000.txt
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POST-EFFECTIVE AMENDMENT NO. 4 TO
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
National Fuel Gas Company National Fuel Gas 10 Lafayette Square Distribution Corporation Buffalo, New York 14203 10 Lafayette Square
Seneca Resources Corporation National Fuel Gas Supply Buffalo, New York 14203 10 Lafayette Square
National Fuel Resources, Inc. Utility Constructors, Inc. 10 Lafayette Square 10 Lafayette Square Buffalo, New York 14203 Buffalo, New York 14203
(Names of companies filing this statement and addresses of principal executive offices)
(Name of top registered holding company)
Philip C. Ackerman Robert J. Reger, Jr., Esq. Senior Vice President Reid & Priest LLP National Fuel Gas Company 40 West 57th Street 10 Lafayette Square New York, New York 10019
(Names and addresses of agents for service)
Item 1. Description of Proposed Transactions.
The following paragraphs are hereby added to Item 1:
"Request for Authority Regarding Investments in EWGs and FUCOs
For purposes of investments made in Project Activities, no
such investment will be made unless at the time of the
investment, National's and Horizon's "aggregate investment" in
Project Activities (as defined in File No. 70-8649) does not
exceed 50% of National's "consolidated retained earnings" as
required by the safe harbor provisions set forth in Rule 53 under
the Holding Company Act for investments in EWGs. To come within
the safe harbor of Rule 53, the amount of a registered holding
company's aggregate investments in EWGs and FUCOs cannot exceed
50% of all system's average consolidated retained earnings over
the past four quarters. Under this limitation, the National
system's present investment limitation, as of September 30, 1995,
is approximately $196 million. National and Horizon will comply
with all other applicable rules under the Holding Company Act,
including, without limitations, such rules as may be promulgated
in the future pursuant to Section 33 of the Holding Company Act.
National and Horizon have received an exemption from
Section 13 and Rule 83 of the Holding Company Act (see File No.
70-8649), so that any subsidiary of National may provide services
at market rates in regard to EWGs and FUCOs involving entities
that do not derive, directly or indirectly, any material part of
their income form sources within the United States and are not
public utility companies operating in the United States. In no
instance, however, will such services be provided below cost.
Neither National nor any subsidiary company of National
has been the subject of a bankruptcy or similar proceeding.
National has not reported operating losses, in excess
of 5% of consolidated retained earnings, attributable to direct
or indirect investments in EWGs and FUCOs. Accordingly, such
investments do not present a risk of substantial adverse impact
as described in Section 32 and 33 of the Holding Company Act and
National will comply with Rule 53(a)(2) with regard to
the maintenance of books and records in connection with
investments in EWGs or FUCOs in which it directly or indirectly
In conjunction with Horizon's long-term financing plan,
Horizon requests authority to participate in National's interest
rate swap program whereby National enters into Swap and
Derivative Transactions directly related to then-outstanding
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, the undersigned companies have duly
caused this post-effective amendment to be signed on their behalf
by the undersigned thereunto duly authorized.
By /s/ Gerald T. Wehrlin
By /s/ Gerald T. Wehrlin
By /s/ Gerald T. Wehrlin
By /s/ Joseph P. Pawlowski
By /s/ Robert J. Kreppel
By /s/ Joseph P. Pawlowski
By /s/ Gerald T. Wehrlin
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POS AMC
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POS AMC
| 1996-01-12T00:00:00
| 1996-01-12T11:41:16
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0000743773-96-000002
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0000743773-96-000002_0000.txt
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Carillon Fund, Inc. (the "Fund"), is a no-load, diversified, open-end management investment company which is intended to meet a wide range of investment objectives with its four separate Port- folios: Equity Portfolio, Bond Portfolio, Capital Portfolio and S&P 500 Index Portfolio. Each Portfolio generally operates as a separate fund issuing its own shares.
The Equity Portfolio seeks primarily long-term appreciation of capital, without incurring unduly high risk, by investing primarily in common stocks and other equity securities. Current income is a secondary objective.
The Bond Portfolio seeks as high a level of current income as is consistent with reasonable investment risk, by investing primarily in long-term, fixed-income, investment-grade corporate bonds.
The Capital Portfolio seeks to provide the highest total return through a combination of income and capital appreciation consistent with the reasonable risks associated with an investment portfolio of above-average quality by investing in equity securities, debt instruments and money market instruments.
The S&P 500 Index Portfolio seeks investment results that correspond to the total return performance of U.S. common stocks, as represented by the S&P 500 Index.
There can be no assurance that any Portfolio will achieve its objectives.
This Prospectus sets forth concisely the information that a prospective investor should know before investing in the Fund, and it should be read and kept for future reference. A Statement of Additional Information dated December 28, 1995, which contains further information about the Fund, has been filed with the Securities and Exchange Commission and is incorporated by reference into this Prospectus. A copy of the Statement of Additional Information may be obtained without charge by calling the Fund at (513) 595-2600, or by writing the Fund at P.O. Box 40409, Cincinnati, Ohio 45240-0409.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTA- TION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Annual Fund Operating Expenses .................... 3
Investment Objectives and Policies ................ 6 S&P 500 Index Portfolio .......................... 9 Principal Risk Factors ........................... 9 Reverse Repurchase Agreements .................... 11 Options on Futures Contracts ................... 11 Options on Securities Indices .................... 12 Collateralized Mortgage Obligations .............. 12 Lending Portfolio Securities ..................... 12 The Fund and Its Management ....................... 13 Purchase and Redemption of Shares ................. 14 Dividends and Distributions ....................... 15 Dividend Disbursing Agent ........................ 15
Bond and Commercial Paper Ratings ................ 16
Carillon Fund, Inc. (the "Fund"), a Maryland corporation, is a no-load, diversified, open-end investment company. The Fund has four Portfolios, which in many ways operate as separate funds issuing separate classes of common stock. An interest in the Fund is limited to the assets of the Portfolio in which shares are held, and shareholders of each Portfolio are entitled to a pro rata share of all dividends and distributions arising from the net income and capital gains on the investments of such Portfolio.
Currently, the shares of the Fund are sold only to The Union Central Life Insurance Company ("Union Central") and to certain of its separate accounts to fund the benefits under certain variable annuity contracts and variable universal life insurance policies (the "contracts") issued by Union Central. The separate accounts invest in shares of the Fund in accordance with allocation instructions received from Contract Owners.
To the extent that the shares of the Fund's four Portfolios are sold to Union Central in order to fund the benefits under the contracts, the structure of the Fund permits Contract Owners, within the limitations described in the contracts, to determine the type of investment underlying their contracts in response to or in anticipation of changes in market or economic conditions. Contract Owners should consider that the investment return experience of the Portfolio or Portfolios they select will affect the value of the contract and the amount of annuity payments received under a contract. See the attached Prospectus for the Flexible Premium Deferred Variable Annuity for a description of the relationship between increases or decreases in the net asset value of Fund shares (and any distributions on such shares) and the benefits provided under a contract.
EXPENSES (as a percentage of average net assets)
The table below shows the amount of expenses a Shareholder would pay on a $1,000 investment assuming a 5% annual return.<F1>
The purpose of this table is to assist the Contract Owner in understanding the various expenses that the Contract Owner will bear indirectly by providing information on expenses associated with the Contract's investment in the Fund. This table does not include any contract or variable account charges.
This table should not be considered a representation of past or future expenses and the actual expenses that will be paid may be greater or lesser than those shown.
The financial information in the tables which follow (pages 4-6), insofar as it pertains to each of the five years in the period ended December 31, 1994, have been audited in conjunction with the annual audit of the financial statements of the Fund by Price Waterhouse LLP, independent accountants, whose unqualified report thereon is included in the Statement of Additional Information. These financial highlights should be read in conjunction with the financial statements and notes thereto included in the Statement of Additional Information. Further information about the performance of the Fund is contained in the Fund's annual report which may be obtained without charge. (See "Other Information" below.)
Each Portfolio has a different investment objective which it pursues through separate investment policies. The differences in objectives and policies among the various Portfolios can be expected to affect the investment return of each Portfolio and the degree of market and financial risks to which each Portfolio is subject. The investment objectives of each Portfolio (described on the cover of this Prospectus) are fundamental policies and may not be changed without shareholder approval. There can be no assurance that the investment objectives of any Portfolio will be realized.
The investment objectives of the Equity Portfolio are to seek long-term appreciation of capital with secondary opportunities for growth in current income, without incurring unduly high risks. A major portion of the Portfolio will be invested in common stocks. The Portfolio's investment policy is to seek special opportunities in securities that are selling at a discount from theoretical price/earnings ratios and that seem capable of recovering from their temporary out-of-favor status. A portion of the Portfolio may be invested in money market instruments pending investment or to effectively utilize cash reserves.
Since no one class or type of security at all times affords the greatest promise of capital appreciation and growth in income, the Portfolio may invest all or a portion of its assets in preferred stocks, bonds, convertible preferred stocks, convertible bonds, and convertible debentures if it is believed that such investments will further its investment objectives. When market conditions for equity securities are adverse, and for temporary defensive purposes, the Portfolio may invest in Government securities, money market instruments, or other fixed-income securities, or retain cash or cash equivalents. However, the Portfolio will remain well invested in equities to take advantage of stocks' relatively higher long-term potential.
The Equity Portfolio's policy of investing is based upon the belief that the pricing mechanism of the securities market lacks total efficiency and has a tendency to inflate prices of some securities and depress prices of other securities in different market climates. Management believes that favorable changes in market prices are more likely to begin when securities are out-of- favor, price/earnings ratios are relatively low, investment expectations are limited, and there is little interest in a particular security or industry. Management believes that securities with relatively low price/earnings ratios in relation to their profitability are better positioned to benefit from favorable but generally unanticipated events than are securities with relatively high price/earnings ratios which are more susceptible to unexpected adverse developments. The current institutionally- dominated market tends to ignore the numerous second tier issues whose market capitalizations are below those of a limited number of established large companies. Although this segment of the market may be more volatile and speculative, it is expected that a well- diversified Portfolio represented in this segment of the market has potential long-term rewards greater than the potential rewards from investments in more highly capitalized equities.
The investment objectives of the Bond Portfolio are to provide as high a level of current income as is believed to be consistent with reasonable investment risk and to seek preservation and growth of shareholders' capital. In seeking to achieve these objectives, it is anticipated that the Portfolio will invest at least 75% of the value of its assets in publicly-traded straight debt securities rated BBB or Baa or higher by a nationally recognized rating service such as Standard & Poor's or Moody's, or obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities or cash and cash equivalents. Up to 25% of the Bond Portfolio's total assets may be invested in straight debt securities that are unrated or less than investment-grade bonds, in convertible debt securities, convertible preferred and preferred stocks, or other securities.
Debt securities that are unrated or less than investment-grade bonds are often referred to as "high-yield" bonds because they generally offer higher interest rates. High-yield bonds run a higher risk of default. In the case of default, they are more difficult to sell and could present a liquidity problem to the Portfolio. (See "Principal Risk Factors," page 9.) As of March 31, 1995, 22% of the debt securities held by the Bond Portfolio were unrated or less than investment-grade bonds. For a more complete discussion of the risk factors associated with high-yield bonds, see the discussion below under "Principal Risk Factors," and "Certain Risk Factors Relating to High-Yield, High-Risk Bonds" in the Statement of Additional Information.
The Bond Portfolio will not directly purchase common stocks. However, it may retain up to 10% of the value of its total assets in common stocks acquired either by conversion of fixed-income securities or by the exercise of warrants attached thereto.
The Bond Portfolio may also write covered call options on U.S. Treasury Securities and options on futures contracts for such securities. See "Options," page 11.
The Bond Portfolio may invest without limit in money market instruments pending investment in accordance with its investment policies or when market conditions dictate a "defensive" investment strategy. To the extent a portion is invested in commercial paper rated "A" or "Prime" it will be included in the 75% guideline noted above.
A description of the corporate bond ratings assigned by Standard & Poor's and Moody's is included in the Appendix.
The Capital Portfolio seeks to obtain the highest total return through a combination of income and capital appreciation consistent with the reasonable risks associated with an investment portfolio of above-average quality. The Capital Portfolio invests in equity, debt and money market securities.
There are no percentage limitations on the type of securities in which the Capital Portfolio may invest. The Capital Portfolio may invest entirely in equity securities, entirely in debt, entirely in money market instruments, or in any combination of these type of securities at the sole discretion of the investment adviser, subject only to the investment objective of the Capital Portfolio and the policies adopted by the Board of Directors. The investment adviser determines the proportion of Capital Portfolio assets invested in equity, debt and money market securities based on fundamental value analysis; analysis of historical long-term returns among equity, debt and money market investments; and other market influencing factors. The fundamental value analysis considers the adviser's outlook over both the near and long-term, for corporate profitability, short and long-term interest rates, stock price earnings ratios for the market in total and individual stocks and inflation rates. When the investment climate as indicated by the fundamental factors is near historical relationships, the Portfolio will be structured approximately 63% in equity, 30% in debt and 7% in money market securities. In addition, market influencing factors relating to monetary policy, equity momentum, market sentiment, economic influences and market cycles are taken into consideration in making the asset allocation decision.
Deviations from historical fundamental market relationships on either a current or anticipated basis, along with the influences of market factors, may result under most foreseeable circumstances in changes as much as 40%, plus or minus, in the percentages allocated to equity, debt or money market securities within the Portfolio.
Equity Securities. In its equity investments, the Capital Portfolio emphasizes a combination of several themes in order to diversify its investment exposure. Most stocks purchased by the Portfolio display one or more of the following criteria:
- Low price earnings ratios in relation to their return on equity.
- High asset values in relation to stock price.
- Foreign shares, listed on the New York or American Stock Exchanges or purchased in the form of American Depository Receipts, of companies judged to represent better fundamental value than those of similar domestic companies.
- A high level of dividend payment providing a yield that is competitive with debt investments.
Debt Securities. The Capital Portfolio may invest in rated or unrated debt securities, including obligations of the U.S. Government and its agencies, and corporate debt obligations rated BBB or Baa or higher by a nationally recognized rating service such as Standard & Poor's or Moody's, or, if not rated, of equivalent quality as determined by the investment adviser. Only 25% of the value of any bonds held by the Capital Portfolio may be unrated or less than investment-grade bonds. For a discussion of the risk factors associated with "high-yield" bonds, see the "Bond Portfolio" on page 7 and "Certain Risk Factors Relating to High- Yield, High-Risk Bonds" in the Statement of Additional Information.
Money Market Instruments. The Capital Portfolio may at any time be 100% invested in money market instruments although it likely will invest in these securities only temporarily pending investment in equity and debt securities, or on a limited basis. The following securities, which are described in the Statement of Additional Information, are considered money market instruments if their remaining maturities are less than 13 months: repurchase agreements, U.S. government obligations, government agency securities, certificates of deposit, time deposits, bankers' acceptances, commercial paper and corporate debt securities.
The Capital Portfolio may also write covered call options on U.S. Treasury Securities and options on futures contracts for such securities. See "Options," page 11.
The S&P 500 Index Portfolio ("Index Portfolio") seeks investment results that correspond to the total return performance of U.S. common stocks, as represented by the Standard & Poor's 500 Composite Stock Index (the "S&P 500").<F1> The S&P 500 is a well- known stock market index that includes common stocks of companies representing approximately 71% of the market value of all common stocks publicly traded in the United States. The investment adviser believes that the performance of the S&P 500 is representative of the performance of publicly traded common stocks in general. As with all mutual funds, there can be no assurance that the Index Portfolio will achieve its investment objective.
Index funds, such as the Index Portfolio, seek to create, to the extent feasible, a portfolio which substantially replicates the total return of the securities comprising the applicable index, taking into consideration redemptions, sales of additional shares, and other adjustments described below. Index funds are not managed through traditional methods of fund management, which typically involve frequent changes in a portfolio of securities on the basis of economic, financial, and market analyses. Therefore, brokerage costs, transfer taxes, and certain other transaction costs for index funds may be lower than those incurred by non-index, traditionally managed funds. Precise replication of the holdings of the Index Portfolio and the capitalization weighting of the securities in the S&P 500 is not feasible, but the Index Portfolio seeks a high correlation between the total return performance of securities comprising the S&P 500 and the investment results of the Index Portfolio. The Index Portfolio will attempt to achieve, in both rising and falling markets, a correlation of at least 95% between the total return of its net assets before expenses and the total return of the S&P 500. A correlation of 100% would represent perfect correlation between Index Portfolio and index performance. It is anticipated that the correlation of the Index Portfolio's performance to that of the S&P 500 will increase as the size of the Index Portfolio increases. There can be no assurance that the Index Portfolio will achieve this correlation.
The Index Portfolio may invest up to 5% of its assets in Standard & Poor's Depositary Receipts(R) ("SPDRs(R)"). SPDRs are units of beneficial interest in a unit investment trust, representing proportionate undivided interests in a portfolio of securities in substantially the same weighting as the component common stocks of the S&P 500.
Although the Adviser will attempt to invest as much of the Index Portfolio's assets as is practical in stocks comprising the S&P 500 and futures contracts and options relating thereto, a portion of the Index Portfolio may be invested in money market instruments pending investment or to meet redemption requests or other needs for liquid assets. In addition, for temporary defensive purposes, the Index Portfolio may invest in Government securities, money market instruments, or other fixed-income securities, or retain cash or cash equivalents.
The S&P 500 is an unmanaged index of common stocks comprised of 500 industrial, financial, utility and transportation companies. "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500(R)", "Standard & Poor's Depositary Receipts(R)", "SPDRs(R)", and "500" are trademarks of McGraw-Hill, Inc. The Carillon S&P 500 Index Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard and Poor's makes no representation regarding the advisability of investing in the Portfolio or in SPDRs.
Because the Portfolios are intended to serve a variety of investment objectives, they are subject to varying degrees of financial and market risks and current income volatility. Financial risk refers to the ability of an issuer of a debt security to pay principal and interest on that security and to the earning stability and overall financial soundness of an issuer of an equity security. Market risk refers to the volatility of the reaction of the price of the security to changes in conditions in the securities markets in general and, with respect to debt securities, changes in the overall level of interest rates. Current income volatility refers to the degree and rapidity with which changes in the overall level of interest rates become reflected in the level of current income of the portfolio.
The Equity Portfolio should be subject to moderate levels of both market and financial risk, since it invests in equity securities chosen primarily for potential long-term appreciation.
The Bond Portfolio invests most of its assets in investment- grade corporate bonds, and these should be subject to little financial risk, to moderately high levels of market risk, and to moderately low current income volatility.
The Capital Portfolio invests in equity, debt and money market instruments, and therefore the financial and market risks to which it is subject will vary from time to time depending on the extent of its holdings in each of those classes of securities. The Portfolio is subject to the further risk that in order to meet its objectives, the Adviser must determine the proper mix of equity, debt and money market securities. Moreover, the timing of movements from one type of security to another could have a negative effect on the Portfolio's overall objective. Inherent in the fact that the Adviser has great latitude with respect to portfolio composition is the risk that it may not properly ascertain the appropriate mix of securities for any particular economic cycle.
The market value of fixed-income debt securities is affected by changes in general market interest rates. If interest rates fall, the market value of fixed-income securities tends to rise; but if interest rates rise, the value of fixed-income securities tends to fall. This market risk affects all fixed-income securities, but lower-rated and unrated securities may be subject to a greater market risk than higher-rated (lower-yield) securities.
Bonds rated below the four highest grades used by Standard & Poor's or Moody's are frequently referred to as "junk" bonds, reflecting the greater market and investment risks associated with such bonds. Such risks relate not only to the greater financial weakness of the issuers of such securities but also to other factors including: (i) the sensitivity of such securities to interest rates and economic changes (high-yield, high-risk bonds are very sensitive to adverse economic and corporate developments; their yields will fluctuate over time and either an economic downturn or rising interest rates could create financial stress on the issuers of such bonds, possibly resulting in their defaulting on their obligations); (ii) the payment expectations of holders of such securities (high-yield, high-risk bonds may contain redemption or call provisions which if exercised in a period of lower interest rates would result in their being replaced by lower yielding securities); (iii) the liquidity of such securities (there may be little trading in certain high-yield, high-risk bonds which may make it more difficult to dispose of the securities and more difficult to determine their fair value). See "Certain Risk Factors Relating to High-Yield, High-Risk Bonds" in the Statement of Additional Information for a further discussion of the risks summarized above.
The S&P 500 Index Portfolio is subject to equity market risk (i.e., the possibility that common stock prices will decline over short or even extended periods). The U.S. stock market tends to be cyclical, with periods when stock prices generally rise and periods when stock prices generally decline.
To illustrate the volatility of stock prices, the following table sets forth the average returns of the S&P 500 for the period from 1926 to 1994:
As shown, common stocks have provided annual total returns (capital appreciation plus dividend income) averaging 10.7% for all 10-year periods from 1926 to 1994. Average return may not be useful for forecasting future returns in any particular period, as stock returns are quite volatile from year to year.
A repurchase agreement is a transaction where a Portfolio buys a security at one price and simultaneously agrees to sell that same security back to the original owner at a higher price. The Adviser reviews the creditworthiness of the other party to the agreement and must find it satisfactory before engaging in a repurchase agreement. A majority of such agreements will mature in seven days or less. In the event of the bankruptcy of the other party, the Portfolio could experience delays in recovering its money, may realize only a partial recovery or even no recovery, and may also incur disposition costs. It is not anticipated that any Portfolio will regularly utilize repurchase agreements extensively, since they are intended to be used to invest otherwise idle cash.
The S&P 500 Index Portfolio may enter into reverse repurchase agreements. Under reverse repurchase agreements, the Portfolio transfers possession of portfolio securities to banks in return for cash in an amount equal to a percentage of the portfolio securities' market value and agrees to repurchase the securities at a future date by repaying the cash with interest. The Portfolio retains the right to receive interest and principal payments from the securities while they are in the possession of the financial institutions. Cash or liquid high quality debt obligations from the Portfolio's portfolio equal in value to the repurchase price (including any accrued interest) will be segregated by the Custodian on the Portfolio's records while a reverse repurchase agreement is in effect.
Futures Contracts and Options on Futures Contracts
For hedging purposes, including protecting the price or interest rate of securities that the Portfolio intends to buy, the S&P 500 Index Portfolio may enter into futures contracts that relate to securities in which it may directly invest and indices comprised of such securities and may purchase and write call and put options on such contracts. As a temporary investment strategy until the Index Portfolio reaches $25 million in net assets, the Index Portfolio may invest up to 100% of its assets in such futures and/or options contracts. Thereafter, the Portfolio may invest up to 20% of its assets in such futures and/or options contracts.
A financial futures contract is a contract to buy or sell a specified quantity of financial instruments such as U.S. Treasury bills, notes and bonds, commercial paper and bank certificates of deposit or the cash value of a financial instrument index at a specified future date at a price agreed upon when the contract is made. A stock index futures contract is a contract to buy or sell specified units of a stock index at a specified future date at a price agreed upon when the contract is made. The value of a unit is based on the current value of the contract index. Under such contracts no delivery of the actual stocks making up the index takes place. Rather, upon expiration of the contract, settlement is made by exchanging cash in an amount equal to the difference between the contract price and the closing price of the index at expiration, net of variation margin previously paid.
Substantially all futures contracts are closed out before settlement date or called for cash settlement. A futures contract is closed out by buying or selling an identical offsetting futures contract. Upon entering into a futures contract, the Portfolio is required to deposit an initial margin with the Custodian for the benefit of the futures broker. The initial margin serves as a "good faith" deposit that the Portfolio will honor their futures commitments. Subsequent payments (called "variation margin") to and from the broker are made on a daily basis as the price of the underlying investment fluctuates. In the event of the bankruptcy of the futures broker that holds margin on behalf of the Portfolio, the Portfolio may be entitled to return of margin owed to it only in proportion to the amount received by the broker's other customers. The Adviser will attempt to minimize this risk by monitoring the creditworthiness of the futures brokers with which the Portfolio does business.
Because the value of index futures depends primarily on the value of their underlying indexes, the performance of the broad- based contracts will generally reflect broad changes in common stock prices. However, because the Portfolio may not be invested in precisely the same proportion as the S&P 500, it is likely that the price changes of the Portfolio's index futures positions will not match the price changes of the Portfolio's other investments.
Options on futures contracts give the purchaser the right to assume a position at a specified price in a futures contract at any time before expiration of the option contract.
The Bond and Capital Portfolios may engage in certain limited options strategies as hedging techniques. These options strategies are limited to selling/writing call option contracts on U.S. Treasury Securities and call option contracts on futures on such securities held by the Portfolio (covered calls). The Portfolio may purchase call option contracts to close out a position acquired through the sale of a call option. The Portfolio will only write options that are traded on a domestic exchange or board of trade.
The S&P 500 Index Portfolio may write and purchase covered put and call options on securities in which it may directly invest. Option transactions of the Portfolio will be conducted so that the total amount paid on premiums for all put and call options outstanding will not exceed 5% of the value of the Portfolio's total assets. Further, the Portfolio will not write put or call options or combination thereof if, as a result, the aggregate value of all securities or collateral used to cover its outstanding options would exceed 25% of the value of the Portfolio's total assets.
A call option is a short-term contract (generally nine months or less) which gives the purchaser of the option the right to purchase from the seller of the option (the Portfolio) the underlying security or futures contract at a fixed exercise price at any time prior to the expiration of the option period regardless of the market price of the underlying instrument during the period. A futures contract obligates the buyer to purchase and the seller to sell a predetermined amount of a security at a predetermined price at a selected time in the future. A call option on a futures contract gives the purchaser the right to assume a "long" position in a futures contract, which means that if the option is exercised the seller of the option (the Portfolio) would have the legal right (and obligation) to sell the underlying security to the purchaser at the specified price and future time.
As consideration for the call option, the buyer pays the seller (the Portfolio) a premium, which the seller retains whether or not the option is exercised. The selling of a call option will benefit the Portfolio if, over the option period, the underlying security or futures contract declines in value or does not appreciate to a price higher than the total of the exercise price and the premium. The Portfolio risks an opportunity loss of profit if the underlying instrument appreciates to a price higher than the exercise price and the premium. When the Adviser anticipates that interest rates will increase, the Portfolio may write call options in order to hedge against an expected decline in value of portfolio securities.
The Portfolio may close out a position acquired through selling a call option by buying a call option on the same security or futures contract with the same exercise price and expiration date as the option previously sold. A profit or loss on the transaction will result depending on the premium paid for buying the closing call option. If a call option on a futures contract is exercised, the Portfolio intends to close out the position immediately by entering into an offsetting transaction or by delivery of the underlying security (or other related securities).
Options transactions may increase the Portfolio's portfolio turnover rate and attendant transaction costs, and may be somewhat more speculative than other investment strategies. It may not always be possible to close out an options position, and with respect to options on futures contracts there is a risk of imperfect correlation between price movements of a futures contract (or option thereon) and the underlying security. Options strategies and related risks and limitations are described in more detail in the Statement of Additional Information.
The S&P 500 Index Portfolio may purchase or sell options on the S&P 500, subject to the limitations set forth above and provided such options are traded on a national securities exchange or in the over-the-counter market. Options on securities indices are similar to options on securities except there is no transfer of a security and settlement is in cash. A call option on a securities index grants the purchaser of the call, for a premium paid to the seller, the right to receive in cash an amount equal to the difference between the closing value of the index and the exercise price of the option times a multiplier established by the exchange upon which the option is traded.
The Portfolios other than the S&P 500 Index Portfolio may invest in collateralized mortgage obligations ("CMOs") or mortgage-backed bonds issued by financial institutions such as commercial banks, savings and loan associations, mortgage banks and securities broker-dealers (or affiliates of such institutions established to issue these securities). To a limited extent, the Portfolios may also invest in a variety of more risky CMOs, including interest only ("IOs"), principal only ("POs"), inverse floaters, or a combination of these securities. See "Money Market Instruments and Investment Techniques" in the Statement of Additional Information for a further discussion.
The S&P 500 Index Portfolio may lend portfolio securities with a value up to 33 1/3% of its total assets. Such loans may be terminated at any time. The Portfolio will continuously maintain as collateral cash or obligations issued by the U.S. government, its agencies or instrumentalities in an amount equal to not less than 100% of the current market value (on a daily marked-to-market basis) of the loaned securities plus declared dividends and accrued interest.
The Portfolio will retain most rights of beneficial ownership, including the right to receive dividends, interest or other distributions on loaned securities. The Portfolio will call loans to vote proxies if a material issue affecting the investment is to be voted upon. Should the borrower of the securities fail financially, the Portfolio may experience delay in recovering the securities or loss of rights in the collateral. Loans are to be made only to borrowers that are deemed by the Adviser to be of good financial standing.
In addition to the investment policies described above, each Portfolio's investment program is subject to further restrictions which are described in the Statement of Additional Information. Unless otherwise specified, each Portfolio's investment objectives, policies and restrictions are not fundamental policies and may be changed without shareholder approval. Shareholder inquiries and requests for the Fund's annual report should be directed to the Fund at (513) 595-2600, or at P.O. Box 40409, Cincinnati, Ohio 45240-0409.
THE FUND AND ITS MANAGEMENT
The Fund is a mutual fund, technically known as an open-end, diversified, management investment company. The Board of Directors is responsible for supervising the business affairs and investments of the Fund, which are managed on a daily basis by the Fund's investment adviser. The Fund was incorporated under the laws of the State of Maryland on January 30, 1984. The Fund is a series fund with four classes of stock, one for each Portfolio. The S&P 500 Index Portfolio was authorized on September 15, 1995 and it is anticipated that on or about January 2, 1996, Union Central will invest approximately $10 million in this Portfolio.
The Fund's investment adviser is Carillon Advisers, Inc. (the "Adviser"), P.O. Box 40407, Cincinnati, Ohio 45240. The Adviser was incorporated under the laws of Ohio on August 18, 1986, as successor to the advisory business of Carillon Investments, Inc., the investment adviser for the Fund since 1984. The Adviser is a wholly-owned subsidiary of Union Central, a mutual life insurance company organized in 1867 under the laws of Ohio. Subject to the direction and authority of the Fund's Board of Directors, the Adviser manages the investment and reinvestment of the assets of each Portfolio and provides administrative services and manages the Fund's business affairs.
George L. Clucas has been primarily responsible for the day- to-day management of the Equity Portfolio since 1988 and the Capital Portfolio since its inception in 1990. Mr. Clucas is Director, President and Chief Executive Officer of the Fund, and President and Chief Executive Officer of the Adviser. He has been affiliated with the Adviser and Union Central since 1987. Steven R. Sutermeister (since 1990) has been primarily responsible for the day-to-day management of the Bond Portfolio. Mr. Sutermeister is Vice President of the Adviser and has been affiliated with the Adviser and Union Central since 1990. Previously, he was Senior Vice President of Washington Square Capital, Inc.
The Fund pays the Adviser, as full compensation for all facilities and services furnished, a monthly fee computed separately for each Portfolio on a daily basis, at an annual rate, as follows:
(a) for the Equity Portfolio--.65% of the first $50,000,000, .60% of the next $100,000,000, and .50% of all over $150,000,000 of the current value of the net assets;
(b) for the Bond Portfolio--.50% of the first $50,000,000, .45% of the next $100,000,000, and .40% of all over $150,000,000 of the current value of the net assets; and
(c) for the Capital Portfolio--.75% of the first $50,000,000, .65% of the next $100,000,000, and .50% of all over $150,000,000 of the current value of the net assets.
(d) for the S&P 500 Index Portfolio--.30% of the current value of the net assets.
The fee paid for the Capital Portfolio is somewhat higher than the average fee paid in the industry. However, breakpoints at which fees are reduced are set at lower than normal amounts. It is the desire of the Fund and Adviser to reflect in the fee arrangement the effort involved in advising the separate Portfolios.
The Fund's expenses are deducted from total income before dividends are paid. These expenses, which are accrued daily, include: the fee of the Adviser; taxes; legal, dividend disbursing, bookkeeping and transfer agent, custodian and auditing fees; and printing and other expenses relating to the Fund's operations which are not expressly assumed by the Adviser under its investment advisory agreement with the Fund. Certain expenses are paid by the particular Portfolio that incurs them, while other expenses are allocated among the Portfolios on the basis of their relative size (i.e., the amount of their net assets). The Adviser will pay any expenses of the S&P 500 Index Portfolio, other than the advisory fee for that Portfolio, to the extent that such expenses exceed .30% of that Portfolio's net assets.
The Fund currently has four classes of stock, one for each Portfolio. Shares (including fractional shares) of each Portfolio have equal rights with regard to voting, redemptions, dividends, distributions, and liquidations with respect to that Portfolio. When issued, shares are fully paid and nonassessable and do not have preemptive or conversion rights or cumulative voting rights. The Fund's sole shareholder, Union Central, will vote Fund shares allocated to its registered separate accounts in accordance with instructions received from Contract Owners. However, by virtue of Fund shares allocated to its other separate accounts, Union Central currently has voting control and can make fundamental changes regardless of the voting instructions received from Contract Owners.
PURCHASE AND REDEMPTION OF SHARES
The Fund offers its shares, without sales charge, only for purchase by Union Central and its separate accounts to fund benefits under both variable annuity contracts and variable universal life insurance policies. The Fund's Board of Directors will monitor the Fund for the existence of any material irreconcilable conflict between the interests of variable annuity contractowners investing in the Fund and interests of holders of variable universal life insurance policies investing in the Fund. Union Central will report any potential or existing conflicts to the Directors of the Fund. If a material irreconcilable conflict arises, Union Central will, at its own cost, remedy such conflict up to and including establishing a new registered management company and segregating the assets underlying the variable annuity contracts and variable universal life insurance policies. It is possible that at some later date the Fund may offer shares to other investors. The Fund continuously offers shares in each of its Portfolios at prices equal to the respective net asset values of the shares of each Portfolio.
The Fund redeems all full and fractional shares of the Fund for cash. No redemption fee is charged. The redemption price is the net asset value per share. Payment for shares redeemed will generally be made within seven days after receipt of a proper notice of redemption.
The net asset value of the shares of each Portfolio of the Fund is determined once daily, Monday through Friday, when there are purchases or redemptions of Fund shares, except (i) when the New York Stock Exchange is closed (currently New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day); (ii) the day following Thanksgiving Day; (iii) December 26, 1995; and (iv) any day on which changes in the value of the Portfolio securities of the Fund will not materially affect the current net asset value of the shares of a Portfolio. Such determination is made by adding the values of all securities and other assets of the Portfolio, subtracting liabilities and expenses, and dividing by the number of shares of the Portfolio outstanding. Expenses, including the investment advisory fee payable to the Adviser, are accrued daily.
Securities held by the Portfolios, except for money market instruments maturing in 60 days or less, are valued at their market value if market quotations are readily available. Otherwise, such securities are valued at fair value as determined in good faith by the Board of Directors, although the actual calculations may be made by persons acting pursuant to the direction of the Board.
All money market instruments with a remaining maturity of 60 days or less are valued on an amortized cost basis.
It is the Fund's intention to distribute substantially all of the net investment income, if any, of each Portfolio. For dividend purposes, net investment income of the Equity, Bond and Capital Portfolios consists of all dividends or interest earned by such Portfolio less estimated expenses (including the investment advisory fee). All net realized capital gains, if any, of each Portfolio are distributed periodically, no less frequently than annually. All dividends and distributions are reinvested in additional shares of the respective Portfolio at net asset value.
Each Portfolio has qualified and has elected to be taxed as a "regulated investment company" under the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If a Portfolio qualifies as a "regulated investment company" and complies with the appropriate provisions of the Code, the Portfolio will be relieved of federal income tax on the amounts distributed. Federal tax laws impose a four percent nondeductible excise tax on each regulated investment company with respect to an amount, if any, by which such company does not meet specified distribution requirements. Each Portfolio intends to comply with such distribution requirements and therefore does not expect to incur the four percent nondeductible excise tax.
Since the sole shareholder of the Fund is Union Central, no discussion is included herein as to the federal income tax consequences at the shareholder level. For information concerning the federal tax consequences to purchasers of the contracts, see the attached Prospectus for such contracts.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company, Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701, acts as Custodian of the Fund's assets, and is its bookkeeping, transfer and dividend disbursing agent.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
AAA--This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay principal and interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong, and in the majority of instances they differ from AAA issues only in a small degree.
A--Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in the A category.
BB-B-CCC-CC--Bonds rated BB, B, CCC, and CC are regarded, on balance, as predominately speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
A Prime rating is the highest commercial paper rating assigned by Moody's Investors Services, Inc. Issuers rated Prime are further referred to by use of numbers 1, 2 and 3 to denote relative strength within this highest classification. Among the factors considered by Moody's in assigning ratings for an issuer are the following: (1) management; (2) economic evaluation of the industry and an appraisal of speculative type risks which may be inherent in certain areas; (3) competition and customer acceptance of products; (4) liquidity; (5) amount and quality of long-term debt; (6) ten- year earnings trends; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations.
Commercial paper rated A by Standard & Poor's Corporation has the following characteristics: Liquidity ratios are better than the industry average. Long-term senior debt rating is "A" or better. In some cases, BBB credits may be acceptable. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend with allowance made for unusual circumstances. Typically, the issuer's industry is well established, the issuer has a strong position within its industry and the reliability and quality of management is unquestioned. Issuers rated A are further referred to by use of numbers 1, 2 and 3 to denote relative strength within this classification.
This Statement of Additional Information is not a prospectus. Much of the information contained in this Statement of Additional Information expands upon subjects discussed in the Prospectus. Accordingly, this Statement should be read in conjunction with Carillon Fund, Inc.'s ("Fund") current Prospectus, dated December 28, 1995, which may be obtained by calling the Fund at (513) 595- 2600, or writing the Fund at P.O. Box 40409, Cincinnati, Ohio 45240-0409.
Money Market Instruments and Investment Techniques... 2 Certain Risk Factors Relating to High-Yield, Management of the Fund (13)...........................16 Determination of Net Asset Value (14).................23 Purchase and Redemption of Shares (14)................23 ( ) indicates page on which the corresponding section appears in the Prospectus.
The following specific policies supplement the Fund's "Investment Objectives and Policies" set forth in the Prospectus.
Money Market Instruments and Investment Techniques
Certain money market instruments and investment techniques are described below. Money market instruments may be purchased extensively by the Capital Portfolio. They may also be purchased by the Equity, Bond and S&P 500 Index ("Index Portfolio") Portfolios to a very limited extent (to invest otherwise idle cash) or on a temporary basis (if invested in money market instruments for defensive purposes).
Small Bank Certificates of Deposit. The Fund may invest in certificates of deposit issued by commercial banks, savings banks, and savings and loan associations having assets of less than $1 billion, provided that the principal amount of such certificates is insured in full by the Federal Deposit Insurance Corporation ("FDIC"). The FDIC presently insures accounts up to $100,000, but interest earned above such amount is not insured by the FDIC.
Repurchase Agreements. A repurchase agreement is an instrument under which the purchaser (i.e., one of the Portfolios) acquires ownership of the obligation (the underlying security) and the seller (the "issuer" of the repurchase agreement) agrees, at the time of sale, to repurchase the obligation at a mutually agreed upon time and price, thereby determining the yield during the purchaser's holding period. This results in a fixed rate of return insulated from market fluctuations during such period. The underlying securities will only consist of securities in which the respective Portfolio may otherwise invest. Repurchase agreements usually are for short periods, normally under one week, and are considered to be loans under the Investment Company Act of 1940. Repurchase agreements will be fully collateralized at all times and interest on the underlying security will not be taken into account for valuation purposes. The investments by a Portfolio in repurchase agreements may at times be substantial when, in the view of the Adviser, unusual market, liquidity, or other conditions warrant.
If the issuer of the repurchase agreement defaults and does not repurchase the underlying security, the Portfolio might incur a loss if the value of the underlying security declines, and the Fund might incur disposition costs in liquidating the underlying security. In addition, if the issuer becomes involved in bankruptcy proceedings, the Portfolio may be delayed or prevented from obtaining the underlying security for its own purposes. In order to minimize any such risk, the Portfolio will only engage in repurchase agreements with recognized securities dealers and banks determined to present minimal credit risk by the Adviser, under the direction and supervision of the Board of Directors.
U.S. Government Obligations. Securities issued and guaranteed as to principal and interest by the United States Government include a variety of Treasury securities, which differ only in their interest rates, maturities and times of issuance. Treasury bills have a maturity of one year or less. Treasury notes have maturities of one to seven years and Treasury bonds generally have a maturity of greater than five years.
Government Agency Securities. Government agency securities that are permissible investments consist of securities either issued or guaranteed by agencies or instrumentalities of the United States Government. Agencies of the United States Government which issue or guarantee obligations include, among others, Export-Import Banks of the United States, Farmers Home Administration, Federal Housing Administration, Government National Mortgage Association ("GNMA"), Maritime Administration, Small Business Administration and The Tennessee Valley Authority. Obligations of instrumentalities of the United States Government include securities issued or guaranteed by, among others, the Federal National Mortgage Association ("FNMA"), Federal Home Loan Banks, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks, Banks for Cooperatives, and the U.S. Postal Service. Some of these securities, such as those guaranteed by GNMA, are supported by the full faith and credit of the U.S. Treasury; others, such as those issued by The Tennessee Valley Authority, are supported by the right of the issuer to borrow from the Treasury; while still others, such as those issued by the Federal Land Banks, are supported only by the credit of the instrumentality. The Fund's primary usage of these types of securities will be GNMA certificates and FNMA and FHLMC mortgage-backed obligations which are discussed in more detail below.
Certificates of Deposit. Certificates of deposit are generally short-term, interest-bearing negotiable certificates issued by banks or savings and loan associations against funds deposited in the issuing institution.
Time Deposits. Time Deposits are deposits in a bank or other financial institution for a specified period of time at a fixed interest rate for which a negotiable certificate is not received.
Bankers' Acceptance. A bankers' acceptance is a time draft drawn on a commercial bank by a borrower usually in connection with an international commercial transaction (to finance the import, export, transfer or storage of goods). The borrower is liable for payment as well as the bank, which unconditionally guarantees to pay the draft at its face amount on the maturity date. Most acceptances have maturities of six months or less and are traded in secondary markets prior to maturity.
Commercial Paper. Commercial paper refers to short-term, unsecured promissory notes issued by corporations to finance short-term credit needs. Commercial paper is usually sold on a discount basis and has a maturity at the time of issuance not exceeding nine months.
Corporate Debt Securities. Corporate debt securities with a remaining maturity of less than one year tend to become extremely liquid and are traded as money market securities. Such issues with between one and two years remaining to maturity tend to have greater liquidity and considerably less market value fluctuations than longer-term issues.
When-issued and Delayed-delivery Securities. From time to time, in the ordinary course of business, each Portfolio of the Fund may purchase securities on a when-issued or delayed-delivery basis - i.e., delivery and payment can take place a month or more after the date of the transactions. The securities so purchased are subject to market fluctuation and no interest accrues to the purchaser during this period. At the time a Portfolio makes the commitment to purchase securities on a when-issued or delayed- delivery basis, the Fund will record the transaction and thereafter reflect the value, each day, of such security in determining the net asset value of such Portfolio. At the time of delivery of the securities, the value may be more or less than the purchase price. Each Portfolio will also establish a segregated account with the Fund's custodian bank in which it will maintain cash or cash equivalents or other Portfolio securities equal in value to commitments for such when-issued or delayed-delivery securities.
GNMA Certificates GNMA certificates are mortgage-backed securities representing part ownership of a pool of mortgage loans on which timely payment of interest and principal is guaranteed by the full faith and credit of the U.S. government. GNMA certificates differ from typical bonds because principal is repaid monthly over the term of the loan rather than returned in a lump sum at maturity. Because both interest and principal payments (including prepayments) on the underlying mortgage loans are passed through to the holder of the certificate, GNMA certificates are called "pass- through" securities.
Although the mortgage loans in the pool have maturities of up to 30 years, the actual average life of the GNMA certificates typically will be substantially less because the mortgages are subject to normal principal amortization and may be prepaid prior to maturity. Prepayment rates vary widely and may be affected by changes in market interest rates. In periods of falling interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of the GNMA certificates. Conversely, when interest rates are rising, the rate of prepayment tends to decrease, thereby lengthening the actual average life of the GNMA certificates. Accordingly, it is not possible to predict accurately the average life of a particular pool. Reinvestment of prepayments may occur at higher or lower rates that the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current rates, GNMA certificates can be less effective than typical bonds of similar maturities at "locking-in" yields during periods of declining interest rates, although they may have comparable risks of decline in value during periods of rising interest rates.
FNMA and FHLMC Mortgage-Backed Obligations The Federal National Mortgage Association ("FNMA"), a federally chartered and privately owned corporation, issues pass-through securities representing an interest in a pool of conventional mortgage loans. FNMA guarantees the timely payment of principal and interest but this guarantee is not backed by the full faith and credit of the U.S. government. The Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate instrumentality of the United States, issues participation certificates that represent an interest in a pool of conventional mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate collection of principal and maintains reserves to protect holders against losses due to default, but the certificates are not backed by the full faith and credit of the U.S. government. As is the case with GNMA certificates, the actual maturity of and realized yield on particular FNMA and FHLMC pass-through securities will vary based on the prepayment experience of the underlying pool of mortgages.
Mortgage-Related Securities Each Portfolio of the Fund other than the S&P 500 Index Portfolio may invest in collateralized mortgage obligations ("CMOs") or mortgage-backed bonds issued by financial institutions such as commercial banks, savings and loan associations, mortgage banks and securities broker-dealers (or affiliates of such institutions established to issue these securities). CMOs are obligations fully collateralized directly or indirectly by a pool of mortgages on which payments of principal and interest are dedicated to payment of principal and interest on the CMOs. Payments on the underlying mortgages (both interest and principal) are passed through to the holders, although not necessarily on a pro rata basis, on the same schedule as they are received. Mortgage-backed bonds are general obligations of the issuer fully collateralized directly or indirectly by a pool of mortgages. The mortgages serve as collateral for the issuer's payment obligations on the bonds, but interest and principal payments on the mortgages are not passed through either directly (as with GNMA certificates and FNMA and FHLMC pass-through securities) or on a modified basis (as with CMOs). Accordingly, a change in the rate of prepayments on the pool of mortgages could change the effective maturity of a CMO but not that of a mortgage- backed bond (although, like many bonds, mortgage-backed bonds may be callable by the issuer prior to maturity).
Each Portfolio of the Fund other than the S&P 500 Index Portfolio may also invest in a variety of more risky CMOs, including interest only ("IOs"), principal only ("POs"), inverse floaters, or a combination of these securities. Stripped mortgage- backed securities ("SMBS") are usually structured with several classes that receive different proportions of the interest and principal distributions from a pool of mortgage assets. A common type of SMBS will have one class receiving all of the interest from the mortgage assets (an IO), while the other class will receive all of the principal (a PO). However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying mortgage assets experience greater-than-anticipated or less-than-anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment or obtain its initially assumed yield on some of these securities. The market value of the class consisting entirely of principal payments generally is unusually volatile in response to changes in interest rates. The yields on classes of SMBS that have more uncertain timing of cash flows are generally higher than prevailing market yields on other mortgage-backed securities because there is a greater risk that the initial investment will not be fully recouped or received as planned over time.
Each Portfolio of the Fund other than the S&P 500 Index Portfolio may invest in another CMO class known as leveraged inverse floating rate debt instruments ("inverse floaters"). The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher degree of leverage inherent in inverse floaters is associated with greater volatility in their market values. Accordingly, the duration of an inverse floater may exceed its stated final maturity.
Certain CMOs may be deemed to be illiquid securities for purposes of the Fund's 10% limitation on investments in such securities. The investment adviser limits investments in more risky CMOs (IOs, POs, inverse floaters) to no more than 5% of its total assets.
Certain Risk Factors Relating to High-Yield, High-Risk Bonds
The descriptions below are intended to supplement the material in the Prospectus regarding high-yield, high-risk bonds.
Sensitivity to Interest Rates and Economic Changes. High-yield bonds are very sensitive to adverse economic changes and corporate developments and their yields will fluctuate over time. During an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience financial stress that would adversely affect their ability to service their principal and interest payment obligations, to meet projected business goals, and to obtain additional financing. If the issuer of a bond defaulted on its obligations to pay interest or principal or entered into bankruptcy proceedings, the Portfolio may incur losses or expenses in seeking recovery of amounts owed to it. In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices of high-yield bonds and the Portfolio's net asset value.
Payment Expectations. High-yield bonds may contain redemption or call provisions. If an issuer exercised these provisions in a declining interest rate market, the Portfolio would have to replace the security with a lower-yielding security, resulting in a decreased return for investors. Conversely, a high-yield bond's value will decrease in a rising interest rate market, as will the value of the Portfolio's assets. If the Portfolio experiences unexpected net redemptions, this may force it to sell high-yield bonds without regard to their investment merits, thereby decreasing the asset base upon which expenses can be spread and possibly reducing the Portfolio's rate of return.
Liquidity and Valuation. There may be little trading in the secondary market for particular bonds, which may affect adversely the Portfolio's ability to value accurately or dispose of such bonds. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of high-yield bonds, especially in a thin market.
For hedging purposes, including protecting the price or interest rate of securities that the Portfolio intends to buy, the S&P 500 Index Portfolio may enter into futures contracts that relate to securities in which it may directly invest and indices comprised of such securities and may purchase and write call and put options on such contracts. As a temporary investment strategy until the Index Portfolio reaches $25 million in net assets, the Index Portfolio may invest up to 100% of its assets in such futures and/or options contracts. Thereafter, the Portfolio may invest up to 20% of its assets in such futures and/or options contracts. The Index Portfolio does not intend to enter into futures contracts that are not traded on exchanges or boards of trade.
A financial futures contract is a contract to buy or sell a specified quantity of financial instruments such as U.S. Treasury bills, notes and bonds, commercial paper and bank certificates of deposit or the cash value of a financial instrument index at a specified future date at a price agreed upon when the contract is made. A stock index futures contract is a contract to buy or sell specified units of a stock index at a specified future date at a price agreed upon when the contract is made. The value of a unit is based on the current value of the contract index. Under such contracts no delivery of the actual stocks making up the index takes place. Rather, upon expiration of the contract, settlement is made by exchanging cash in an amount equal to the difference between the contract price and the closing price of the index at expiration, net of variation margin previously paid.
Substantially all futures contracts are closed out before settlement date or called for cash settlement. A futures contract is closed out by buying or selling an identical offsetting futures contract. Upon entering into a futures contract, the Portfolio is required to deposit an initial margin with the Custodian for the benefit of the futures broker. The initial margin serves as a "good faith" deposit that the Portfolio will honor their futures commitments. Subsequent payments (called "variation margin"} to and from the broker are made on a daily basis as the price of the underlying investment fluctuates. In the event of the bankruptcy of the futures broker that holds margin on behalf of the Portfolio, the Portfolio may be entitled to return of margin owed to it only in proportion to the amount received by the broker's other customers. The Adviser will attempt to minimize this risk by monitoring the creditworthiness of the futures brokers with which the Portfolio does business.
Because the value of index futures depends primarily on the value of their underlying indexes, the performance of the broad- based contracts will generally reflect broad changes in common stock prices. However, because the Portfolio may not be invested in precisely the same proportion as the S&P 500, it is likely that the price changes of the Portfolio's index futures positions will not match the price changes of the Portfolio's other investments.
Options on futures contracts give the purchaser the right to assume a position at a specified price in a futures contract at any time before expiration of the option contract.
The Bond and Capital Portfolios may sell (write) listed options on U.S. Treasury Securities and options on contracts for the future delivery of U.S. Treasury Securities as a means of hedging the value of such securities owned by the Portfolio. The S&P 500 Index Portfolio may enter into futures contracts that relate to securities in which it may directly invest and indices comprised of such securities and may purchase and write call and put options on such contracts.
As a writer of a call option, a Portfolio may terminate its obligation by effecting a closing purchase transaction. This is accomplished by purchasing an option of the same series as the option previously written. However, once the Portfolio has been assigned an exercise notice, the Portfolio will be unable to effect a closing purchase transaction. There can be no assurance that a closing purchase transaction can be effected when the Portfolio so desires.
The Portfolio will realize a profit from a closing transaction if the price of the transaction is less than the premium received from writing the option; the Portfolio will realize a loss from a closing transaction if the price of the transaction is more than the premium received from writing the option. Since the market value of call options generally reflects increases in the value of the underlying security, any loss resulting from the closing transaction may be wholly or partially offset by unrealized appreciation of the underlying security. Conversely, any gain resulting from the closing transaction may be wholly or partially offset by unrealized depreciation of the underlying security. The principal factors affecting the market value of call options include supply and demand, the current market price and price volatility of the underlying security, and the time remaining until the expiration date.
Although the Bond and Capital Portfolios will write only options on U.S. Treasury Securities and options on futures contracts with respect to such securities which are traded on a national exchange or Board of Trade, and the S&P 500 Index Portfolio will write only options on securities among the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500")<F1> and options of futures contracts with respect to such securities, there is no assurance that a liquid secondary market will exist for any particular option. In the event it is not possible to effect a closing transaction, the Portfolio will not be able to sell the underlying security, until the option expires or the option is exercised by the holder.
The S&P 500 is an unmanaged index of stocks comprised of 500 industrial, financial, utility and transportation companies. "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500(R)", "Standard & Poor's Depositary Receipts(R)", "SPDRs(R)", and "500" are trademarks of McGraw-Hill, Inc. The Carillon S&P 500 Index Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard and Poor's makes no representation regarding the advisability of investing in the Portfolio or in SPDRs.
The Portfolio will effect a closing transaction to realize a profit on an outstanding call option, to prevent an underlying security from being called, to permit the sale of an underlying security prior to the expiration date of the option, or to allow for the writing of another call option on the same underlying security with either a different exercise price or expiration date or both.
Possible reasons for the absence of a liquid secondary market on an exchange include the following: (a) insufficient trading interest in certain options; (b) restrictions on transactions imposed by an exchange; (c) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities; (d) inadequacy of the facilities of an exchange or the Clearing Corporation to handle trading volume; or (e) a decision by one or more exchanges to discontinue the trading of options or impose restrictions on types of orders. There can be no assurance that higher than anticipated trading activity or order flow or other unforeseen events might not at times render the trading facilities inadequate and thereby result in the institution of special trading procedures or restrictions which could interfere with the Portfolio's ability to effect closing transactions.
The Bond and Capital Portfolios may write call options on futures contracts on U.S. Treasury Securities as a hedge against the adverse effect of expected increases in interest rates on the value of Portfolio securities, in order to establish more definitely the effective return on securities held by the Portfolio. The S&P 500 Index Portfolio will write call options on futures contracts on the S&P 500 or securities included therein only for hedging purposes to protect the price of securities it intends to buy and when such transactions enable it to correlate its investment performance more closely to that of the S&P 500 than would a direct purchase of securities included in the S&P 500. The Portfolios will not write options on futures contracts for speculative purposes.
A futures contract on a debt security is a binding contractual commitment which will result in an obligation to make or accept delivery, during a specified future time, of securities having standardized face value and rate of return. Selling a futures contract on debt securities (assuming a short position) would give the Portfolio a legal obligation and right as seller to make future delivery of the security against payment of the agreed price.
Upon the exercise of a call option on a futures contract, the writer of the option (the Portfolio) is obligated to sell the futures contract (to deliver a long position to the option holder) at the option exercise price, which will presumably be lower than the current market price of the contract in the futures market. However, as with the trading of futures, most participants in the options markets do not seek to realize their gains or losses by exercise of their option rights. Instead, the holder of an option will usually realize a gain or loss by buying or selling an offsetting option at a market price that will reflect an increase or a decrease from the premium originally paid. Nevertheless, if an option on a futures contract written by the Portfolio is exercised, the Portfolio intends to either close out the futures contract by purchasing an offsetting futures contract, or deliver the underlying securities immediately, in order to avoid assuming a short position. There can be no assurance that the Portfolio will be able to enter into an offsetting transaction with respect to a particular contract at a particular time, but it may always deliver the underlying security.
As a writer of options on futures contracts, the Portfolio will receive a premium but will assume a risk of adverse movement in the price of the underlying futures contract. If the option is not exercised, the Portfolio will gain the amount of the premium, which may partially offset unfavorable changes in the value of securities held in the Portfolio. If the option is exercised, the Portfolio might incur a loss in the option transaction which would be reduced by the amount of the premium it has received.
While the holder or writer of an option on a futures contract may normally terminate its position by selling or purchasing an offsetting option, the Portfolio's ability to establish and close out options positions at fairly established prices will be subject to the maintenance of a liquid market. The Portfolio will not write options on futures contracts unless, in the Adviser's opinion, the market for such options has sufficient liquidity that the risks associated with such options transactions are not at unacceptable levels.
Risks. While options will be sold in an effort to reduce certain risks, those transactions themselves entail certain other risks. Thus, while the Portfolio may benefit from the use of options, unanticipated changes in interest rates or security price movements may result in a poorer overall performance for the Portfolio than if it had not entered into any options transactions. The price of U.S. Treasury Securities futures are volatile and are influenced, among other things, by changes in prevailing interest rates and anticipation of future interest rate changes. The price of S&P 500 futures are also volatile and are influenced, among other things, by changes in conditions in the securities markets in general.
In the event of an imperfect correlation between a futures position (and a related option) and the Portfolio position which is intended to be protected, the desired protection may not be obtained. The correlation between changes in prices of futures contracts and of the securities being hedged is generally only approximate. The amount by which such correlation is imperfect depends upon many different circumstances, such as variations in speculative market demand for futures and for debt securities (including technical influences in futures trading) and differences between the financial instruments being hedged and the instruments underlying the standard options on futures contracts available for trading.
Due to the imperfect correlation between movements in the prices of futures contracts and movements in the prices of the underlying debt securities, the price of a futures contract may move more than or less than the price of the securities being hedged. If the price of the future moves less than the price of the securities which are the subject of the hedge, the hedge will not be fully effective and if the price of the securities being hedged has moved in an unfavorable direction, the Portfolio would be in a better position than if it had not hedged at all. If the price of the futures moves more than the price of the security, the Portfolio will experience either a gain or loss on the option on the future which will not be completely offset by movements in the price of the securities which are the subject of the hedge.
The market prices of futures contracts and options thereon may be affected by various factors. If participants in the futures market elect to close out their contracts through offsetting transactions rather than meet margin deposit requirements, distortions in the normal relationship between the debt securities and futures markets could result. Price distortions could also result if investors in futures contracts make or take delivery of underlying securities rather than engage in closing transactions. This could occur, for example, if there is a lack of liquidity in the futures market. From the point of view of speculators, the deposit requirements in the futures markets are less onerous than margins requirements in the securities markets; accordingly, increased participation by speculators in the futures market could cause temporary price distortions. A correct forecast of interest rate trends by the adviser may still not result in a successful hedging transaction because of possible price distortions in the futures market and because of the imperfect correlation between movements in the prices of debt securities and movements in the prices of futures contracts. A well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends.
Limitations on the Use of Options on Futures. The Portfolio will only write options on futures that are traded on exchanges and are standardized as to maturity date and underlying financial instrument. The principal exchanges in the United States for trading options on Treasury Securities are the Board of Trade of the City of Chicago and the Chicago Mercantile Exchange. These exchanges and trading options on futures are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC").
It is the Fund's opinion that it is not a "commodity pool" as defined under the Commodity Exchange Act and in accordance with rules promulgated by the CFTC.
The Portfolio will not write options on futures contracts for which the aggregate premiums exceed 5% of the fair market value of the Portfolio's assets, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into (except that, in the case of an option that is in-the-money at the time of purchase, the in-the-money amount generally may be excluded in computing the 5%).
All of the futures options transactions employed by the Portfolio will be BONA FIDE hedging transactions, as that term is used in the Commodity Exchange Act and has been interpreted and applied by the CFTC. To ensure that its futures options transactions meet this standard, the Fund will enter into such transactions only for the purposes and with the intent that CFTC has recognized to be appropriate.
Custodial Procedures and Margins. The Fund's Custodian acts as the Fund's escrow agent as to securities on which the Fund has written call options and with respect to margin which the Fund must deposit in connection with the writing of call options on futures contracts. The Clearing Corporation (CC) will release the securities or the margin from escrow on the expiration of the call, or when the Fund enters into a closing purchase transaction. In this way, assets of the Fund will never be outside the control of the Fund's custodian, although such control might be limited by the escrow receipts issued.
At the time the Portfolio sells a call option on a contract for future delivery of U.S. Treasury Securities ("Treasury futures contract"), it is required to deposit with its custodian, in an escrow account, a specified amount of cash or U.S. Government securities ("initial margin"). The account will be in the name of the CC. The amount of the margin generally is a small percentage of the contract amount. The margin required is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit, and it is released from escrow upon termination of the option assuming all contractual obligations have been satisfied. The Portfolio will earn interest income on its initial margin deposits.
In accordance with the rules of the exchange on which the option is traded, it might be necessary for the Portfolio to supplement the margin held in escrow. This will be done by placing additional cash or U.S. Government securities in the escrow account. If the amount of required margin should decrease, the CC will release the appropriate amount from the escrow account.
The assets in the margin account will be released to the CC only if the Portfolio defaults or fails to honor its commitment to the CC and the CC represents to the custodian that all conditions precedent to its right to obtain the assets have been satisfied.
The S&P 500 Index Portfolio may lend portfolio securities with a value up to 33 1/3% of its total assets. Such loans may be terminated at any time. The Portfolio will continuously maintain as collateral cash or obligations issued by the U.S. government, its agencies or instrumentalities in an amount equal to not less than 100% of the current market value (on a daily marked-to-market basis) of the loaned securities plus declared dividends and accrued interest. While portfolio securities are on loan, the borrower will pay the Portfolio any income accruing thereon, and the Portfolio may invest or reinvest the collateral (depending on whether the collateral is cash or U.S. Government securities) in portfolio securities, thereby earning additional income. Loans are typically subject to termination by the Portfolio in the normal settlement time, currently five business days after notice, or by the borrower on one day's notice. Borrowed securities must be returned when the loan is terminated. Any gain or loss in the market price of the borrowed securities which occurs during the term of the loan inures to the Portfolio and its shareholders. The Portfolio may pay reasonable finders', borrowers', administrative, and custodial fees in connection with a loan of its securities. The Adviser will review and monitor the creditworthiness of such borrowers on an ongoing basis.
The S&P 500 Index Portfolio may invest in Standard & Poor's Depositary Receipts(R) ("SPDRs(R)". SPDRs are units of beneficial interest in a unit investment trust, representing proportionate undivided interests in a portfolio of securities in substantially the same weighting as the component common stocks of the S&P 500. While the investment objective of such a unit investment trust is to provide investment results that generally correspond to the price and yield performance of the component common stocks of the S&P 500, there can be no assurance that this investment objective will be met fully. As SPDRs are securities issued by an investment company, non-fundamental restriction (6) below restricts purchases of SPDRs to 5% of the Portfolio's assets.
The Fund has adopted the following fundamental restrictions relating to the investment of assets of the Portfolios and other investment activities. These are fundamental policies and may not be changed without the approval of holders of the majority of the outstanding voting shares of each Portfolio affected (which for this purpose means the lesser of: [i] 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented, or [ii] more than 50% of the outstanding shares). A change in policy affecting only one Portfolio may be effected with the approval of the majority of the outstanding voting shares of that Portfolio only. The Fund's fundamental investment restrictions provide that no Portfolio of the Fund is allowed to:
(1) Issue senior securities (except that each Portfolio may borrow money as described in restriction [9] below).
(2) With respect to 75% of the value of its total assets, invest more than 5% of its total assets in securities (other than securities issued or guaranteed by the United States Government or its agencies or instrumentalities) of any one issuer.
(3) Purchase more than either: (i) 10% in principal amount of the outstanding debt securities of an issuer, or (ii) 10% of the outstanding voting securities of an issuer, except that such restrictions shall not apply to securities issued or guaranteed by the United States Government or its agencies or instrumentalities.
(4) Invest more than 25% of its total assets in the securities of issuers primarily engaged in the same industry. For purposes of this restriction, gas, gas transmission, electric, water, and telephone utilities each will be considered a separate industry. This restriction does not apply to obligations of banks or savings and loan associations or to obligations issued or guaranteed by the United States Government, its agencies or instrumentalities.
(5) Purchase or sell commodities, commodity contracts, or real estate, except that each Portfolio may purchase securities of issuers which invest or deal in any of the above, and except that each Portfolio may invest in securities that are secured by real estate. This restriction does not apply to obligations issued or guaranteed by the United States Government, its agencies or instrumentalities or to futures contracts or options purchased by the S&P 500 Index Portfolio in compliance with non-fundamental restrictions [8 and 9] below.
(6) Purchase any securities on margin (except that the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities) or make short sales of securities or maintain a short position.
(7) Make loans, except through the purchase of obligations in private placements or by entering into repurchase agreements (the purchase of publicly traded obligations not being considered the making of a loan).
(8) Lend its securities, except that the S&P 500 Index Portfolio may lend securities in compliance with non-fundamental restriction [7] below.
(9) Borrow amounts in excess of 10% of its total assets, taken at market value at the time of the borrowing, and then only from banks (and, in the case of the S&P 500 Index Portfolio by entering into reverse repurchase agreements) as a temporary measure for extraordinary or emergency purposes, or to meet redemption requests that might otherwise require the untimely disposition of securities, and not for investment or leveraging.
(10) Mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by such Portfolio.
(11) Underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933 in selling shares of each Portfolio and except as it may be deemed such in a sale of restricted securities.
(12) Invest more than 10% of its total assets in repurchase agreements maturing in more than seven days, "small bank" certificates of deposit that are not readily marketable, and other illiquid investments.
The Fund has also adopted the following additional investment restrictions that are not fundamental and may be changed by the Board of Directors without shareholder approval. Under these restrictions, no Portfolio of the Fund may:
(1) Invest in securities of foreign issuers except American Depository Receipts, securities listed for trading on the New York or American Stock Exchange, and Canadian bank short-term obligations.
(2) Participate on a joint (or a joint and several) basis in any trading account in securities (but this does not prohibit the "bunching" of orders for the sale or purchase of Portfolio securities with the other Portfolios or with other accounts advised or sponsored by the Adviser or any of its affiliates to reduce brokerage commissions or otherwise to achieve best overall execution).
(3) Purchase or retain the securities of any issuer, if, to the knowledge of the Fund, officers and directors of the Fund, the Adviser or any affiliate thereof each owning beneficially more than 1/2% of one of the securities of such issuer, own in the aggregate more than 5% of the securities of such issuer.
(4) Purchase or sell interests in oil, gas, or other mineral exploration or development programs, or real estate mortgage loans, except that each Portfolio may purchase securities of issuers which invest or deal in any of the above, and except that each Portfolio may invest in securities that are secured by real estate mortgages. This restriction does not apply to obligations or other securities issued or guaranteed by the United States Government, its agencies or instrumentalities.
(5) Invest in companies for the purpose of exercising control (alone or together with the other Portfolios).
(6) Purchase securities of other investment companies with an aggregate value in excess of 5% of the Portfolio's total assets, except in connection with a merger, consolidation, acquisition or reorganization, or by purchase in the open market of securities of closed-end investment companies where no underwriter or dealer's commission or profit, other than customary broker's commission, is involved, and only if immediately thereafter not more than 10% of such Portfolio's total assets, taken at market value, would be invested in such securities.
The Fund has also adopted the following additional investment restrictions that are not fundamental and may be changed by the Board of Directors without shareholder approval. Under these restrictions:
The S&P 500 Index Portfolio of the Fund may not:
(7) Lend portfolio securities with an aggregate value of more than 33 1/3 % of its total assets.
(8) Invest more than 20% of its assets in futures contracts and/or options on futures contracts, except as a temporary investment strategy until the Index Portfolio reaches $25 million in net assets, the Index Portfolio may invest up to 100% of its assets in such futures and/or options contracts..
(9) Invest in options unless no more than 5% of its assets is paid for premiums for outstanding put and call options (including options on futures contracts) and unless no more than 25% of the Portfolio's assets consist of collateral for outstanding options.
If a percentage restriction (for either fundamental or nonfundamental policies) is adhered to at the time of investment, a later increase or decrease in percentage beyond the specified limit resulting from a change in values of portfolio securities or amount of net assets shall not be considered a violation.
In addition to the investment restrictions described above, the Fund will comply with restrictions contained in any current insurance laws in order that the assets of The Union Central Life Insurance Company's ("Union Central") separate accounts may be invested in Fund shares.
Each Portfolio has a different expected annual rate of Portfolio turnover, which is calculated by dividing the lesser of purchases or sales of Portfolio securities during the fiscal year by the monthly average of the value of the Portfolio's securities (excluding from the computation all securities, including options, with maturities at the time of acquisition of one year or less). A high rate of Portfolio turnover generally involves correspondingly greater brokerage commission expenses, which must be borne directly by the Portfolio. Turnover rates may vary greatly from year to year as well as within a particular year and may also be affected by cash requirements for redemptions of each Portfolio's shares and by requirements which enable the Fund to receive certain favorable tax treatments. The Portfolio turnover rates will, of course, depend in large part on the level of purchases and redemptions of shares of each Portfolio. Higher Portfolio turnover can result in corresponding increases in brokerage costs to the Portfolios of the Fund and their shareholders. However, because rate of Portfolio turnover is not a limiting factor, particular holdings may be sold at any time, if investment judgment or Portfolio operations make a sale advisable.
The annual Portfolio turnover rates for the Equity Portfolio were 40.33% and 37.93%, respectively, for 1994 and 1993. The annual Portfolio turnover rates for the Bond Portfolio were 70.27% and 137.46%, respectively, for 1994 and 1993. The annual Portfolio turnover rates for the Capital Portfolio were 41.89% and 32.42%, respectively, for 1994 and 1993. The annual turnover rate for the S&P 500 Index Portfolio is expected to be less than 50%.
The directors and executive officers of the Fund and their principal occupations during the past five years are set forth below. Unless otherwise noted, the address of each executive officer and director is 1876 Waycross Road, Cincinnati, Ohio 45240.
Each of the directors also serves as a trustee of Carillon Investment Trust.
All directors who are not "interested persons" of the Company are members of the Audit Committee.
As of the date of this Statement of Additional Information, officers and directors of the Fund do not own any of the outstanding shares of the Fund. Directors who are not officers or employees of Union Central or Adviser are paid a fee plus actual out-of-pocket expenses by the Fund for each meeting of the Board of Directors attended. Total fees and expenses incurred for 1994 were $43,515.
The Fund has entered into an Investment Advisory Agreement ("Agreement") with Carillon Advisers, Inc. ("Adviser") whose principal business address is 1876 Waycross Road, Cincinnati, Ohio 45240 (P.O. Box 177, Cincinnati, Ohio 45201). The Adviser was incorporated under the laws of Ohio on August 18, 1986, and is a wholly-owned subsidiary of Union Central. Executive officers and directors of the Adviser who are affiliated with the Fund are George L. Clucas, President and Chief Executive Officer; Thomas G. Knipper, Treasurer; and John F. Labmeier, Secretary.
Pursuant to the Agreement, the Fund has retained the Adviser to manage the investment of the Fund's assets, including the placing of orders for the purchase and sale of Portfolio securities. The Adviser is at all times subject to the direction and supervision of the Board of Directors of the Fund.
The Adviser continuously furnishes an investment program for each Portfolio, is responsible for the actual management of each Portfolio and has responsibility for making decisions to buy, sell or hold any particular security. The Adviser obtains and evaluates such information and advice relating to the economy, securities markets, and specific securities as it considers necessary or useful to continuously manage the assets of the Portfolios in a manner consistent with their investment objectives, policies and restrictions. The Adviser considers analyses from various sources, makes necessary investment decisions and effects transactions accordingly. The Adviser also performs certain administrative functions for the Fund. The Adviser may utilize the advisory services of subadvisers for one or more of the Portfolios.
Under the terms of the Agreement, in addition to managing the Fund's investments, the Adviser, at its expense, maintains certain of the Fund's books and records (other than those provided by Firstar Trust Company, by agreement) and furnishes such office space, facilities, equipment, and clerical help as the Fund may reasonably require in the conduct of business. In addition, the Adviser pays for the services of all executive, administrative, clerical, and other personnel, including officers of the Fund, who are employees of Union Central. The Adviser also bears the cost of telephone service, heat, light, power and other utilities provided to the Fund. Expenses not expressly assumed by the Adviser under the Agreement will be paid by the Fund.
Each Portfolio pays all other expenses incurred in its operation and a portion of the Fund's general administration expenses allocated on the basis of the asset size of the respective Portfolios. Expenses other than the Adviser's fee that are borne directly and paid individually by a Portfolio include, but are not limited to, brokerage commissions, dealer markups, expenses incurred in the acquisition of Portfolio securities, transfer taxes, transaction expenses of the custodian, pricing services used by only one or more Portfolios, and other costs properly payable by only one or more Portfolios. Expenses which are allocated on the basis of size of the respective Portfolios include custodian (portion based on asset size), dividend disbursing agent, transfer agent, bookkeeping services (except annual per Portfolio base charge), pricing, shareholder's and directors' meetings, directors' fees, proxy statement and Prospectus preparation, registration fees and costs, fees and expenses of legal counsel not including employees of the Adviser, membership dues of industry associations, postage, insurance premiums including fidelity bond, and all other costs of the Fund's operation properly payable by the Fund and allocable on the basis of size of the respective Portfolios. The Adviser will pay any expenses of the S&P 500 Index Portfolio, other than the advisory fee for that Portfolio, to the extent that such expenses exceed .30% of that Portfolio's net assets.
Depending on the nature of a legal claim, liability or lawsuit, litigation costs, payment of legal claims or liabilities and any indemnification relating thereto may be directly applicable to a Portfolio or allocated on the basis of the size of the respective Portfolios. The directors have determined that this is an appropriate method of allocation of expenses.
The Agreement also provides that if the total operating expenses of the Fund, exclusive of the advisory fee, taxes, interest, brokerage fees and certain legal claims and liabilities and litigation and indemnification expenses, as described in the Agreement, for any fiscal year exceed 1.0% of the average daily net assets of the Fund, the Adviser will reimburse the Fund for such excess, up to the amount of the advisory fee for that year. Such amount, if any, will be calculated daily and credited on a monthly basis.
As full compensation for the services and facilities furnished to the Fund and expenses of the Fund assumed by the Adviser, the Fund pays the Adviser monthly compensation calculated daily as described on page 11 of the Prospectus. The compensation after all waivers for each Portfolio was as follows:
There is no assurance that the Portfolios will reach a net asset level high enough to realize a reduction in the rate of the advisory fee. Any reductions in the rate of advisory fee will be applicable to each Portfolio separately in accordance with the schedule of fees applicable to each Portfolio.
The Investment Advisory Agreement was initially approved by the Fund's Board of Directors, including a majority of the directors who are not interested persons of the Adviser, on March 22, 1984. Unless earlier terminated as described below, the Agreement will continue in effect from year to year if approved annually: (a) by the Board of Directors of the Fund or by a majority of the outstanding shares of the Fund, including a majority of the outstanding shares of each Portfolio; and (b) by a majority of the directors who are not parties to such contract or interested persons (as defined by the Investment Company Act of 1940) of any such party. The Agreement is not assignable and may be terminated without penalty by the Fund on 60 days notice, and by the Adviser on 90 days notice. On March 27, 1995, the Agreement was approved for continuance for one (1) year by the Board of Directors by unanimous vote of those present, including a majority of the directors who are not parties to such contract or interested persons of any such party.
On March 21, 1990, the Board of Directors took steps to activate the Capital Portfolio of the Fund by authorizing the issuance of shares of that Portfolio to a separate account of Union Central. The Board of Directors also approved an amendment to the Investment Advisory Agreement so as to make the Agreement applicable to the Capital Portfolio and to specify the advisory fee payable by it. The Board determined that the amendment did not affect the interests of the classes of Fund shares other than Capital Portfolio shares and that therefore only the holders of Capital Portfolio shares were entitled to vote on the amendment. On May 1, 1990, the Union Central separate account invested $15.2 million in the Capital Portfolio in exchange for 1,390,516 shares at a price of $10.95 per share. Union Central, as legal owner of the Capital Portfolio shares purchased by its separate account and as sole shareholder of the Capital Portfolio, approved the Agreement as amended.
On September 15, 1995, the Board of Directors took steps to activate the S&P 500 Index Portfolio of the Fund by authorizing the issuance of shares of that Portfolio. On December 13, 1995, the Board of Directors also approved an amendment to the Investment Advisory Agreement so as to make the Agreement applicable to the Index Portfolio and to specify the advisory fee payable by it. The Board determined that the amendment did not affect the interests of the classes of Fund shares other than Index Portfolio shares and that therefore only the holders of Index Portfolio shares were entitled to vote on the amendment. It is anticipated that Union Central, as legal owner of the Index Portfolio shares as sole shareholder of the Index Portfolio, will approve the Agreement as amended on January 3, 1996.
The Investment Advisory Agreement provides that the Adviser shall not be liable to the Fund or to any shareholder for any error of judgment or mistake of law or for any loss suffered by the Fund or by any shareholder in connection with matters to which the Investment Advisory Agreement relates, except a loss resulting from willful misfeasance, bad faith, gross negligence, or reckless disregard on the part of the Adviser in the performance of its duties thereunder. In the case of administration services, the Adviser will be held to a normal standard of liability.
The Agreement in no way restricts the Adviser from acting as investment manager or adviser to others.
If the question of continuance of the Agreement (or adoption of any new Agreement) is presented to shareholders, continuance (or adoption) with respect to a Portfolio shall be effective only if approved by a majority vote of the outstanding voting securities of that Portfolio. If the shareholders of any one or more of the Portfolios should fail to approve the Agreement, the Adviser may nonetheless serve as an adviser with respect to any Portfolio whose shareholders approved the Agreement.
The Adviser is responsible for providing certain administrative functions to the Fund and has entered into an Administration Agreement with Carillon Investments, Inc. ("CII") under which CII furnishes substantially all of such services for an annual fee of .20% of the Fund's average net assets. The fee is borne by the Adviser, not the Fund. Under the Administration Agreement, CII is obligated to provide persons for clerical, accounting, bookkeeping, administrative and other similar services, to supply office space, stationery and office supplies, and to prepare tax returns, reports to stockholders, and filings with the Securities and Exchange Commission and state securities authorities.
Under a Service Agreement between the Adviser and Union Central, Union Central has agreed to make available to the Adviser the services of certain employees of Union Central on a part-time basis for the purpose of better enabling the Adviser to fulfill its obligations to the Fund under the Agreement. Pursuant to the Service Agreement, the Adviser shall reimburse Union Central for all costs allocable to the time spent on the affairs of the Adviser by the employees provided by Union Central. In performing their services for the Adviser pursuant to the Service Agreement, the specified employees shall report and be solely responsible to the officers and directors of the Adviser or persons designated by them. Union Central shall have no responsibility for the investment recommendations or decisions of the Adviser. The obligation of performance under the Agreement is solely that of the Adviser and Union Central undertakes no obligation in respect thereto except as otherwise expressly provided in the Service Agreement. The Service Agreement was approved by the shareholders of the Equity, Bond and Capital Portfolios at a meeting held on March 20, 1992. It is anticipated that the sole shareholder of the S&P 500 Index Portfolio will approve the Service Agreement on or about January 3, 1996.
Securities held by the Fund may also be held by Union Central or by other separate accounts or mutual funds for which the Adviser acts as an adviser. Because of different investment objectives or other factors, a particular security may be bought by Union Central or by the Adviser or for one or more of its clients, when one or more other clients are selling the same security. If purchases or sales of securities for one or more of the Fund's Portfolios or other clients of the Adviser or Union Central arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the Fund's Portfolios, Union Central, and other clients in a manner deemed equitable to all. To the extent that transactions on behalf of more than one client of the Adviser during the same period may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price.
On occasions when the Adviser deems the purchase or sale of a security to be in the best interests of the Fund as well as other accounts or companies, it may, to the extent permitted by applicable laws and regulations, but will not be obligated to, aggregate the securities to be sold or purchased for the Fund (or for two or more Portfolios) with those to be sold or purchased for other accounts or companies in order to obtain more favorable execution and low brokerage commissions. In that event, allocation of the securities purchased or sold, as well as the expenses incurred in the transaction, will be made by the Adviser in the manner it considers to be most equitable and consistent with its fiduciary obligations to the Fund Portfolio(s) and to such other accounts or companies. In some cases this procedure may adversely affect the size of the position obtainable for a Portfolio.
DETERMINATION OF NET ASSET VALUE
As described on page 12 of the Prospectus, the net asset value of shares of the Fund is determined once daily, Monday through Friday, when there are purchases or redemptions of Fund shares, except: (i) when the New York Stock Exchange is closed (currently New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day); (ii) the day following Thanksgiving Day; (iii) December 26, 1995, and (iv) any day on which changes in the value of the Portfolio securities of the Fund will not materially affect the current net asset value of the shares of a Portfolio.
Securities held by the Portfolios, except for money market instruments maturing in 60 days or less, will be valued as follows: Securities which are traded on stock exchanges (including securities traded in both the over-the-counter market and on exchange), or listed on the NASDAQ National Market System, are valued at the last sales price as of the close of the New York Stock Exchange on the day the securities are being valued, or, lacking any sales, at the closing bid prices. Securities traded only in the over-the-counter market are valued at the last bid prices quoted by brokers that make markets in the securities at the close of trading on the New York Stock Exchange. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors.
Money market instruments with a remaining maturity of 60 days or less are valued on an amortized cost basis. Under this method of valuation, the instrument is initially valued at cost (or in the case of instruments initially valued at market value, at the market value on the day before its remaining maturity is such that it qualifies for amortized cost valuation); thereafter, the Fund assumes a constant proportionate amortization in value until maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price that would be received upon sale of the instrument.
PURCHASE AND REDEMPTION OF SHARES
The Fund offers its shares, without sales charge, only to Union Central and its separate accounts. It is possible that at some later date the Fund may offer shares to other investors.
The Fund is required to redeem all full and fractional shares of the Fund for cash at the net asset value per share. Payment for shares redeemed will generally be made within seven days after receipt of a proper notice of redemption. The right to redeem shares or to receive payment with respect to any redemption may only be suspended for any period during which: (a) trading on the New York Stock Exchange is restricted as determined by the Securities and Exchange Commission or such exchange is closed for other than weekends and holidays; (b) an emergency exists, as determined by the Securities and Exchange Commission, as a result of which disposal of Portfolio securities or determination of the net asset value of a Portfolio is not reasonably practicable; and (c) the Securities and Exchange Commission by order permits postponement for the protection of shareholders.
Each Portfolio of the Fund will be treated as a separate entity for federal income tax purposes. Each Portfolio has qualified and has elected to be taxed as a "regulated investment company" under the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If a Portfolio qualifies as a "regulated investment company" and complies with the provisions of the Code by distributing substantially all of its net income (both ordinary income and capital gain), the Portfolio will be relieved from federal income tax on the amounts distributed.
In order to qualify as a regulated investment company, in each taxable year each Portfolio must, among other things: (a) derive at least 90 percent of its gross income from dividends, interest, payments with respect to loans of securities, and gains from the sale or other disposition of stocks or securities or foreign currencies (subject to the authority of the Secretary of the Treasury to exclude certain foreign currency gains) or other income (including, but not limited to, gains from options, futures, or forward contracts which are ancillary to the Portfolio's principal business of investing in stocks or securities or options and futures with respect to stocks or securities) derived with regard to its investing in such stocks, securities or currencies; and (b) derive less than 30 percent of its gross income from gains (without deduction for losses) realized on the sale or other disposition of any of the following held for less than three months: securities, options, futures or forward contracts (other than options, futures or forward contracts on foreign currencies) or certain foreign currencies. In order to meet the requirements noted above, the Fund may be required to defer disposing of certain options, futures contracts and securities beyond the time when it might otherwise be advantageous to do so. These requirements may also affect the Fund's investments in various ways, such as by limiting the Fund's ability to:(a) sell investments held for less than three months; (b) effect closing transactions on options written less than three months previously; (c) write options for a period of less than three months; and (d) write options on securities held for less than the long-term capital gains holding period. For a discussion of tax consequences to owners of annuity contracts, see the Prospectus for those contracts.
The discussion of "Taxes" in the Prospectus, in conjunction with the foregoing, is a general and abbreviated summary of the applicable provisions of the Code and Treasury Regulations currently in effect as interpreted by the Courts and the Internal Revenue Service.
The Adviser is primarily responsible for the investment decisions of each Portfolio, including decisions to buy and sell securities, the selection of brokers and dealers to effect the transactions, the placing of investment transactions, and the negotiation of brokerage commissions, if any. No Portfolio has any obligation to deal with any dealer or group of dealers in the execution of transactions in Portfolio securities. In placing orders, it is the policy of the Fund to obtain the most favorable net results, taking into account various factors, including price, dealer spread or commission, if any, size of the transaction, and difficulty of execution. While the Adviser generally seeks reasonably competitive spreads or commissions, the Portfolios will not necessarily be paying the lowest spread or commission available.
If the securities in which a particular Portfolio of the Fund invests are traded primarily in the over-the-counter market, where possible the Portfolio will deal directly with the dealers who make a market in the securities involved unless better prices and execution are available elsewhere. Such dealers usually act as principals for their own account. On occasion, securities may be purchased directly from the issuer. Bonds and money market instruments are generally traded on a net basis and do not normally involve either brokerage commissions or transfer taxes. The cost of Portfolio securities transactions of each Portfolio will consist primarily of brokerage commission or dealer or underwriter spreads.
While the Adviser seeks to obtain the most favorable net results in effecting transactions in the Portfolio securities, brokers who provide supplemental investment research to the Adviser may receive orders for transactions by the Fund. Such supplemental research service ordinarily consists of assessments and analyses of the business or prospects of a company, industry, or economic sector. If, in the judgment of the Adviser, the Fund will be benefited by such supplemental research services, the Adviser is authorized to pay commissions to brokers furnishing such services which are in excess of commissions which another broker may charge for the same transaction. Information so received will be in addition to and not in lieu of the services required to be performed by the Adviser under its Investment Advisory Agreement. The expenses of the Adviser will not necessarily be reduced as a result of the receipt of such supplemental information. In some cases, the Adviser may use such supplemental research in providing investment advice to its other advisory accounts.
During 1994, 45% of the Fund's total brokerage was allocated to brokers who furnish statistical data or research information. Brokerage commissions paid during 1994, 1993 and 1992 were $232,642, $226,635 and $220,110, respectively.
The Fund was incorporated in Maryland on January 30, 1984. The authorized capital stock of the Fund consists of sixty-million shares of common stock, par value ten cents ($0.10) per share. Fifty-five million shares of the authorized capital stock is currently divided into the following classes: Equity Portfolio consisting of twenty-million authorized shares; Capital Portfolio consisting of fifteen-million authorized shares; Bond Portfolio consisting of ten-million authorized shares; and S&P 500 Index Portfolio consisting of ten-million authorized shares.
The balance of the shares may be issued to the existing Portfolios, or to new Portfolios having the number of shares and descriptions, powers, and rights, and the qualifications, limitations, and restrictions as the Board of Directors may determine. The Board of Directors may also change the designation of any Portfolio and may increase or decrease the number of authorized shares of any Portfolio, but may not decrease the number of authorized shares of any Portfolio below the number of shares then outstanding.
Each issued and outstanding share is entitled to participate equally in dividends and distributions declared by the respective Portfolio and, upon liquidation or dissolution, in net assets of such Portfolio remaining after satisfaction of outstanding liabilities.
In accordance with an amendment to the Maryland General Corporation Law, the Board of Directors of the Fund has adopted an amendment to its Bylaws providing that unless otherwise required by the Investment Company Act of 1940, the Fund shall not be required to hold an annual shareholder meeting unless the Board of Directors determines to hold an annual meeting. The Fund intends to hold shareholder meetings only when required by law and such other times as may be deemed appropriate by its Board of Directors.
All shares of common stock have equal voting rights (regardless of the net asset value per share) except that on matters affecting only one Portfolio, only shares of the respective Portfolio are entitled to vote. The shares do not have cumulative voting rights. Accordingly, the holders of more than 50% of the shares of the Fund voting for the election of directors can elect all of the directors of the Fund if they choose to do so and in such event the holders of the remaining shares would not be able to elect any directors.
Matters in which the interests of all Portfolios are substantially identical (such as the election of directors or the approval of independent public accountants) will be voted on by all shareholders without regard to the separate Portfolios. Matters that affect all Portfolios but where the interests of the Portfolios are not substantially identical (such as approval of the Investment Advisory Agreement) would be voted on separately by each Portfolio. Matters affecting only one Portfolio, such as a change in its fundamental policies, are voted on separately by that Portfolio.
Matters requiring separate shareholder voting by Portfolio shall have been effectively acted upon with respect to any Portfolio if a majority of the outstanding voting securities of that Portfolio votes for approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other Portfolio; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Fund.
The phrase "a majority of the outstanding voting securities" of a Portfolio (or of the Fund) means the vote of the lesser of: (1) 67% of the shares of the Portfolio (or the Fund) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of the Portfolio (or the Fund).
As noted in the Prospectus, Union Central currently has voting control of the Fund. With voting control, Union Central could make fundamental and substantial changes (such as electing a new Board of Directors, changing the investment adviser or advisory fee, changing a Portfolio's fundamental investment objectives and policies, etc.) regardless of the views of Contract Owners. However, under current interpretations of presently applicable law, Contract Owners are entitled to give voting instructions with respect to Fund shares held in registered separate accounts and therefore all Contract Owners would receive advance notice before any such changes could be made.
This Statement of Additional Information and the Prospectus do not contain all the information set forth in the registration statement and exhibits relating thereto, which the Fund has filed with the Securities and Exchange Commission, Washington, D.C., under the Securities Act of 1933 and the Investment Company Act of 1940, to which reference is hereby made.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The financial statements of the Fund have been audited by Price Waterhouse LLP, independent accountants, whose report follows. The financial statements included in this Statement of Additional Information have been included in reliance upon the report of Price Waterhouse LLP, given upon their authority as experts in auditing and accounting.
Deloitte & Touche LLP has been retained by the Fund to examine its 1995 financial statements.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
U.S. TREASURY OBLIGATIONS - 13.88%
MORTGAGE - BACKED SECURITIES -18.44%
CORPORATE BONDS AND NOTES - 8.35%
The accompanying notes are an integral part of the financial statements.
U.S. TREASURY OBLIGATIONS - 33.87%
SHORT TERM INVESTMENTS - 1.04%
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
The accompanying notes are an integral part of the financial statements.
SIX MONTHS ENDED JUNE 30, 1995
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
The accompanying notes are an integral part of the financial statements.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Carillon Fund, Inc., (the Fund) is registered under the Investment Company Act of 1940, as amended, as a no-load, diversified, open-end management investment company. The shares of the Fund are sold only to The Union Central Life Insurance Company (Union Central) and its separate accounts to fund the benefits under certain variable annuity contracts. The Fund's shares are offered in three different series - Equity Portfolio, Capital Portfolio, and Bond Portfolio.
Securities held by the Equity, Capital and Bond Portfolios, except for money market instruments maturing in 60 days or less, are valued as follows: Securities traded on stock exchanges (including securities traded in both the over-the counter market and on an exchange), or listed on the NASDAQ National Market System, are valued at the last sales price as of the close of the New York Stock Exchange on the day the securities are being valued, or, lacking any sales, at the closing bid prices. Securities traded only in the over-the-counter market are valued at the last bid price, as of the close of trading on the New York Stock Exchange, quoted by brokers that make markets in the securities. Other securities for which market quotations are not readily available are valued at fair value as determined in good faith under procedures adopted by the Board of Directors. Money market instruments with a remaining maturity of 60 days or less held by the Equity, Capital, and Bond Portfolios are valued at amortized cost which approximates market.
Securities transactions and investment income
Securities transactions are recorded on the trade date (the date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Gains and losses on sales of investments are calculated on the identified cost basis for financial reporting and tax purposes. The cost of investments is substantially the same for financial reporting and tax purposes.
It is the intent of the Fund to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and any net realized capital gains. Regulated investment companies owned by the segregated asset accounts of a life insurance company, held in connection with variable annuity contracts, are exempt from excise tax on undistributed income. Therefore, no provision for income or excise taxes has been recorded. The Bond Portfolio has a capital loss carryforward for tax purposes of $446,614 at December 31, 1994. The carryforward, if unused expires in 2002.
Dividends and capital gains distributions
Dividends from net investment income in the Equity, Capital and Bond Portfolios are declared and paid quarterly. Net realized capital gains are distributed periodically, no less frequently than annually. Dividends from net investment income and capital gains distributions are recorded on the ex-dividend date. All dividends and distributions are reinvested in additional shares of the respective Portfolio at the net asset value per share.
Allocable expenses of the Fund are charged to each Portfolio based on the ratio of the net assets of each Portfolio to the combined net assets of the Fund. Nonallocable expenses are charged to each Portfolio based on specific identification.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Fund pays investment advisory fees to Carillon Advisers, Inc. (the Adviser), under terms of an Investment Advisory Agreement (the Agreement). Certain officers and directors of the Adviser are affiliated with the Fund. The Fund pays the Adviser, as full compensation for all services and facilities furnished, a monthly fee computed separately for each Portfolio on a daily basis, at an annual rate, as follows:
(a) for the Equity Portfolio - .65% of the first $50,000,000, .60% of the next $100,000,000 and .50% of all over $150,000,000 of the current net asset value:
(b) for Capital Portfolio - .75% of the first $50,000,000, .65% of the next $100,000,000 and .50% of all over $150,000,000 of the current net asset value:
(c) for the Bond Portfolio - .50% of the first $50,000,000, .45% of the next $100,000,000 and .40% of all over $150,000,000 of the current net asset value.
The Agreement provides that if the total operating expenses of the Fund, exclusive of the advisory fee and certain other expenses as described in the Agreement, for any fiscal quarter exceed an annual rate of 1% of the average daily net assets of the Fund, the Adviser will reimburse the Fund for such excess, up to the amount of the advisory fee for that year. Such amount, if any, will be calculated daily and credited on a monthly basis. No such reimbursements were required for the periods presented in the financial statements.
In addition to providing investment advisory services, the Adviser is responsible for providing certain administrative functions to the Fund. The Adviser has entered into an Administration Agreement with Carillon Investments, Inc. (the Distributor) under which the Distributor furnishes substantially all of such services for an annual fee of .20% of the Fund's average net assets. The fee is borne by the Adviser, not the Fund.
Carillon Advisers, Inc. and Carillon Investments, Inc. are wholly-owned subsidiaries of Union Central.
Each director who is not affiliated with the Adviser receives fees from the Fund for service as a director. Members of the Board of Directors who are not affiliated with the Adviser are eligible to participate in a deferred compensation plan. The value of each director's deferred compensation account will increase or decrease at the same rate as if it were invested in shares of the Scudder Money Market Fund.
NOTE 3 - SUMMARY OF PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of securities for the six months ended June 30, 1995, excluding short-term obligations, follow:
NOTE 4 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding throughout the period.
NOTE 4 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding throughout the period.
NOTE 4 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding throughout the period.
To the Board of Directors and Shareholders of Carillon Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Equity Portfolio, the Capital Portfolio and the Bond Portfolio (constituting Carillon Fund, Inc., hereafter referred to as the "Fund") at December 31, 1994, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 1994 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above.
CARILLON FUND, INC., SCHEDULE OF INVESTMENTS, DECEMBER 31, 1994
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
CARILLON FUND, INC., SCHEDULE OF INVESTMENTS, DECEMBER 31, 1994
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
CARILLON FUND, INC., SCHEDULE OF INVESTMENTS, DECEMBER 31, 1994
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
Carillon Fund, Inc., Statements of Assets and Liabilities,
The accompanying notes are an integral part of the financial statements.
Carillon Fund, Inc., Statements of Operations,
The accompanying notes are an integral part of the financial statements.
Carillon Fund, Inc., Statement of Changes in Net Assets
The accompanying notes are an integral part of the financial statements.
Carillon Fund, Inc., Statement of Changes in Net Assets
The accompanying notes are an integral part of the financial statements.
Carillon Fund, Inc., Statement of Changes in Net Assets
The accompanying notes are an integral part of the financial statements.
CARILLON FUND, INC., NOTES TO FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Carillon Fund, Inc. (the Fund) is registered under the Investment Company Act of 1940, as amended, as a no-load, diversified, open-end management investment company. The shares of the Fund are sold only to The Union Central Life Insurance Company (UCL) and its separate accounts to fund the benefits under certain variable annuity contracts. The Fund's shares are offered in three different series - Equity Portfolio, Capital Portfolio, and Bond Portfolio.
Securities held by the Equity, Capital and Bond Portfolios, except for money market instruments maturing in 60 days or less, are valued as follows: Securities which are traded on stock exchanges (including securities traded in both the over-the- counter market and on an exchange), or listed on the NASDAQ National Market System, are valued at the last sales price as of the close of the New York Stock Exchange on the day the securities are being valued, or, lacking any sales, at the closing bid prices. Securities traded only in the over-the- counter market are valued at the last bid price, as of the close of trading on the New York Stock Exchange, quoted by brokers that make markets in the securities. Other securities for which market quotations are not readily available are valued at fair value as determined in good faith under procedures adopted by the Board of Directors. Money market instruments with a remaining maturity of 60 days or less held by the Equity, Capital and Bond Portfolios are valued at amortized cost which approximates market.
Change in Accounting for Distributions to Shareholders
Effective January 1, 1993, the fund adopted Statement of Position 93-2: DETERMINATION, DISCLOSURE AND FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES. Accordingly, permanent book and tax basis differences relating to shareholder distributions have been reclassified. During the year ended December 31, 1994, the cumulative effect of such differences was reclassified from undistributed net realized gains/(losses) to undistributed net investment income. Amounts reclassified were $2,148, $(291,738) and $56,606 for the Equity, Capital and Bond Portfolios, respectively. These reclassifications are primarily due to differing book and tax treatment for mortgage-backed securities and market discount. Net investment income, net realized gains/(losses), and net assets were not affected by this change.
Securities transactions and investment income
Securities transactions are recorded on the trade date (the date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Gains and losses on sales of investments are calculated on the identified cost basis for financial reporting and tax purposes. The cost of investments is substantially the same for financial reporting and tax purposes, except for the Bond Portfolio, where tax cost exceeds cost for financial statement purposes by $129,813.
It is the intent of the Fund to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and any net realized capital gains. Regulated investment companies owned by the segregated asset accounts of a life insurance company, held in connection with variable annuity contracts, are exempt from excise tax on undistributed income. Therefore, no provision for income or excise taxes has been recorded. The Bond Portfolio has a capital loss carryforward for tax purposes of $446,614 at December 31, 1994. The carryforward, if unused expires in 2002.
Dividends and capital gains distributions
Dividends from net investment income in the Equity, Capital and Bond Portfolios are declared and paid quarterly. Net realized capital gains are distributed periodically, no less frequently than annually. Dividends from net investment income and capital gains distributions are recorded on the ex-dividend date. All dividends and distributions are reinvested in additional shares of the respective Portfolio at the net asset value per share.
Allocable expenses of the Fund are charged to each Portfolio based on the ratio of the net assets of each Portfolio to the combined net assets of the Fund. Nonallocable expenses are charged to each Portfolio based on specific identification.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Fund pays investment advisory fees to Carillon Advisers, Inc. (the Adviser), under terms of an Investment Advisory Agreement (the Agreement). Certain officers and directors of the Adviser are affiliated with the Fund. The Fund pays the Adviser, as full compensation for all services and facilities furnished, a monthly fee computed separately for each Portfolio on a daily basis, at an annual rate, as follows: (a) for the Equity Portfolio - .65% of the first $50,000,000, .60% of the next $100,000,000 and .50% of all over $150,000,000 of the current net asset value;
(b) for the Capital Portfolio - .75% of the first $50,000,000, .65% of the next $100,000,000 and .50% of all over $150,000,000 of the current net asset value;
(c) for the Bond Portfolio - .50% of the first $50,000,000, .45% of the next $100,000,000 and .40% of all over $150,000,000 of the current net asset value; and
The Agreement provides that if the total operating expenses of the Fund, exclusive of the advisory fee and certain other expenses as described in the Agreement, for any fiscal quarter exceed an annual rate of 1% of the average daily net assets of the Fund, the Adviser will reimburse the Fund for such excess, up to the amount of the advisory fee for that year. Such amount, if any, will be calculated daily and credited on a monthly basis. No such reimbursements were required for the periods presented in the financial statements.
In addition to providing investment advisory services, the Adviser is responsible for providing certain administrative functions to the Fund. The Adviser has entered into an Administration Agreement with Carillon Investments, Inc. (the Distributor) under which the Distributor furnishes substantially all of such services for an annual fee of .20% of the Fund's average net assets. The fee is borne by the Adviser, not the Fund.
Carillon Advisers, Inc. and Carillon Investments, Inc. are wholly-owned subsidiaries of UCL.
Each director who is not affiliated with the Adviser receives fees from the Fund for services as a director. Members of the Board of Directors who are not affiliated with the Adviser are eligible to participate in a deferred compensation plan. The value of each director's deferred compensation account will increase or decrease at the same rate as if it were invested in shares of the Scudder Money Market Fund. NOTE 3 - SUMMARY OF PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of securities for the year ended December 31, 1994, excluding short-term obligations, follow:
NOTE 4 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding throughout the period.
NOTE 4 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding throughout the period.
NOTE 4 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding throughout the period.
Carillon Fund, Inc. (the "Fund"), is a no-load, diversified, open-end management investment company which is intended to meet a wide range of investment objectives with its three separate Port- folios: Equity Portfolio, Bond Portfolio, and Capital Portfolio. Each Portfolio generally operates as a separate fund issuing its own shares.
The Equity Portfolio seeks primarily long-term appreciation of capital, without incurring unduly high risk, by investing primarily in common stocks and other equity securities. Current income is a secondary objective.
The Bond Portfolio seeks as high a level of current income as is consistent with reasonable investment risk, by investing primarily in long-term, fixed-income, investment-grade corporate bonds.
The Capital Portfolio seeks to provide the highest total return through a combination of income and capital appreciation consistent with the reasonable risks associated with an investment portfolio of above-average quality by investing in equity securities, debt instruments and money market instruments.
There can be no assurance that any Portfolio will achieve its objectives.
This Prospectus sets forth concisely the information that a prospective investor should know before investing in the Fund, and it should be read and kept for future reference. A Statement of Additional Information dated May 1, 1995, which contains further information about the Fund, has been filed with the Securities and Exchange Commission and is incorporated by reference into this Prospectus. A copy of the Statement of Additional Information may be obtained without charge by calling the Fund at (513) 595-2600, or by writing the Fund at P.O. Box 40409, Cincinnati, Ohio 45240- 0409.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTA- TION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Annual Fund Operating Expenses .................... 3
Investment Objectives and Policies ................ 6 Principal Risk Factors ........................... 9 Collateralized Mortgage Obligations .............. 10 The Fund and Its Management ....................... 10 Purchase and Redemption of Shares ................. 12 Dividends and Distributions ....................... 12 Dividend Disbursing Agent ........................ 12
Bond and Commercial Paper Ratings ................ 13
Carillon Fund, Inc. (the "Fund"), a Maryland corporation, is a no-load, diversified, open-end investment company. The Fund has three Portfolios, which in many ways operate as separate funds issuing separate classes of common stock. An interest in the Fund is limited to the assets of the Portfolio in which shares are held, and shareholders of each Portfolio are entitled to a pro rata share of all dividends and distributions arising from the net income and capital gains on the investments of such Portfolio.
Currently, the shares of the Fund are sold only to The Union Central Life Insurance Company ("Union Central") and to certain of its separate accounts to fund the benefits under certain variable annuity contracts (the "contracts") issued by Union Central. The separate accounts invest in shares of the Fund in accordance with allocation instructions received from Contract Owners.
To the extent that the shares of the Fund's three Portfolios are sold to Union Central in order to fund the benefits under the contracts, the structure of the Fund permits Contract Owners, within the limitations described in the contracts, to determine the type of investment underlying their contracts in response to or in anticipation of changes in market or economic conditions. Contract Owners should consider that the investment return experience of the Portfolio or Portfolios they select will affect the value of the contract and the amount of annuity payments received under a contract. See the attached Prospectus for the Flexible Premium Deferred Variable Annuity for a description of the relationship between increases or decreases in the net asset value of Fund shares (and any distributions on such shares) and the benefits provided under a contract.
SUPPLEMENT DATED December 28, 1995 TO THE PROSPECTUS DATED MAY 1, 1995 OF CARILLON FUND, INC.
Effective December 28, 1995, the prospectus for Carillon Fund, Inc. (the "Fund") dated May 1, 1995 (the "Prospectus") is amended by including as a part thereof the following information.
As of December 28, 1995, a new S&P 500 Index Portfolio (the "Index Portfolio") was added to the Fund. As the Index Portfolio is not yet available under the contracts being offered pursuant to the variable annuity prospectus which accompanies the Prospectus, all information about the Index Portfolio and its investment objective, policies and risks has been omitted from this supplement and the Prospectus.
The date of the statement of additional information referenced on the cover of the Prospectus is replaced by
May 1, 1995, as supplemented on December 28, 1995.
On page 2 of the Prospectus, the following sentence replaces the first sentence of the second paragraph after the caption "The Fund."
Currently, the shares of the Fund are sold only to The Union Central Life Insurance Company ("Union Central") and to certain of its separate accounts to fund the benefits under certain variable annuity contracts and variable universal life insurance policies (the "con- tracts") issued by Union Central.
The following language replaces the first sentence after the caption "Purchase and Redemption of Shares" on page 12 of the Prospectus.
The Fund offers its shares, without sales charge, only for purchase by Union Central and its separate accounts to fund benefits under both variable annuity contracts and variable universal life insurance policies. The Fund's Board of Directors will monitor the Fund for the existence of any material irreconcilable conflict between the interests of variable annuity contractowners invest- ing in the Fund and interests of holders of variable universal life insurance policies investing in the Fund. Union Central will report any potential or existing conflicts to the Directors of the Fund. If a material irreconcilable conflict arises, Union Central will, at its own cost, remedy such conflict up to and including establishing a new registered management company and segregating the assets underlying the variable annuity contracts and variable universal life insurance policies.
EXPENSES (as a percentage of average net assets)
* "Other Expenses" for the S&P 500 Index Portfolio are based on estimates. Total Operating Expenses in excess of .60% for that Portfolio are paid by the investment adviser.
The table below shows the amount of expenses a Shareholder would pay on a $1,000 investment assuming a 5% annual return.**
** The 5% annual return is a standardized rate prescribed for the purpose of this example and does not represent the past or future return of the Fund.
The purpose of this table is to assist the Contract Owner in understanding the various expenses that the Contract Owner will bear indirectly by providing information on expenses associated with the Contract's investment in the Fund. This table does not include any contract or variable account charges.
This table should not be considered a representation of past or future expenses and the actual expenses that will be paid may be greater or lesser than those shown.
The financial information in the tables which follow (pages 4-6), insofar as it pertains to each of the five years in the period ended December 31, 1994, have been audited in conjunction with the annual audit of the financial statements of the Fund by Price Waterhouse LLP, independent accountants, whose unqualified report thereon is included in the Statement of Additional Information. These financial highlights should be read in conjunction with the financial statements and notes thereto included in the Statement of Additional Information. Further information about the performance of the Fund is contained in the Fund's annual report which may be obtained without charge. (See "Other Information" below.)
Each Portfolio has a different investment objective which it pursues through separate investment policies. The differences in objectives and policies among the various Portfolios can be expected to affect the investment return of each Portfolio and the degree of market and financial risks to which each Portfolio is subject. The investment objectives of each Portfolio (described on the cover of this Prospectus) are fundamental policies and may not be changed without shareholder approval. There can be no assurance that the investment objectives of any Portfolio will be realized.
The investment objectives of the Equity Portfolio are to seek long-term appreciation of capital with secondary opportunities for growth in current income, without incurring unduly high risks. A major portion of the Portfolio will be invested in common stocks. The Portfolio's investment policy is to seek special opportunities in securities that are selling at a discount from theoretical price/earnings ratios and that seem capable of recovering from their temporary out-of-favor status. A portion of the Portfolio may be invested in money market instruments pending investment or to effectively utilize cash reserves.
Since no one class or type of security at all times affords the greatest promise of capital appreciation and growth in income, the Portfolio may invest all or a portion of its assets in preferred stocks, bonds, convertible preferred stocks, convertible bonds, and convertible debentures if it is believed that such investments will further its investment objectives. When market conditions for equity securities are adverse, and for temporary defensive purposes, the Portfolio may invest in Government securities, money market instruments, or other fixed-income securities, or retain cash or cash equivalents. However, the Portfolio will remain well invested in equities to take advantage of stocks' relatively higher long-term potential.
The Equity Portfolio's policy of investing is based upon the belief that the pricing mechanism of the securities market lacks total efficiency and has a tendency to inflate prices of some securities and depress prices of other securities in different market climates. Management believes that favorable changes in market prices are more likely to begin when securities are out-of- favor, price/earnings ratios are relatively low, investment expectations are limited, and there is little interest in a particular security or industry. Management believes that securities with relatively low price/earnings ratios in relation to their profitability are better positioned to benefit from favorable but generally unanticipated events than are securities with relatively high price/earnings ratios which are more susceptible to unexpected adverse developments. The current institutionally- dominated market tends to ignore the numerous second tier issues whose market capitalizations are below those of a limited number of established large companies. Although this segment of the market may be more volatile and speculative, it is expected that a well- diversified Portfolio represented in this segment of the market has potential long-term rewards greater than the potential rewards from investments in more highly capitalized equities.
The investment objectives of the Bond Portfolio are to provide as high a level of current income as is believed to be consistent with reasonable investment risk and to seek preservation and growth of shareholders' capital. In seeking to achieve these objectives, it is anticipated that the Portfolio will invest at least 75% of the value of its assets in publicly-traded straight debt securities rated BBB or Baa or higher by a nationally recognized rating service such as Standard & Poor's or Moody's, or obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities or cash and cash equivalents. Up to 25% of the Bond Portfolio's total assets may be invested in straight debt securities that are unrated or less than investment-grade bonds, in convertible debt securities, convertible preferred and preferred stocks, or other securities.
Debt securities that are unrated or less than investment-grade bonds are often referred to as "high-yield" bonds because they generally offer higher interest rates. High-yield bonds run a higher risk of default. In the case of default, they are more difficult to sell and could present a liquidity problem to the Portfolio. (See "Principal Risk Factors," page 9.) As of March 31, 1995, 22% of the debt securities held by the Bond Portfolio were unrated or less than investment-grade bonds. For a more complete discussion of the risk factors associated with high-yield bonds, see the discussion below under "Principal Risk Factors," and "Certain Risk Factors Relating to High-Yield, High-Risk Bonds" in the Statement of Additional Information.
The Bond Portfolio will not directly purchase common stocks. However, it may retain up to 10% of the value of its total assets in common stocks acquired either by conversion of fixed-income securities or by the exercise of warrants attached thereto.
The Bond Portfolio may also write covered call options on U.S. Treasury Securities and options on futures contracts for such securities. See "Options," page 9.
The Bond Portfolio may invest without limit in money market instruments pending investment in accordance with its investment policies or when market conditions dictate a "defensive" investment strategy. To the extent a portion is invested in commercial paper rated "A" or "Prime" it will be included in the 75% guideline noted above.
A description of the corporate bond ratings assigned by Standard & Poor's and Moody's is included in the Appendix.
The Capital Portfolio seeks to obtain the highest total return through a combination of income and capital appreciation consistent with the reasonable risks associated with an investment portfolio of above-average quality. The Capital Portfolio invests in equity, debt and money market securities.
There are no percentage limitations on the type of securities in which the Capital Portfolio may invest. The Capital Portfolio may invest entirely in equity securities, entirely in debt, entirely in money market instruments, or in any combination of these type of securities at the sole discretion of the investment adviser, subject only to the investment objective of the Capital Portfolio and the policies adopted by the Board of Directors. The investment adviser determines the proportion of Capital Portfolio assets invested in equity, debt and money market securities based on fundamental value analysis; analysis of historical long-term returns among equity, debt and money market investments; and other market influencing factors. The fundamental value analysis considers the adviser's outlook over both the near and long-term, for corporate profitability, short and long-term interest rates, stock price earnings ratios for the market in total and individual stocks and inflation rates. When the investment climate as indicated by the fundamental factors is near historical relationships, the Portfolio will be structured approximately 63% in equity, 30% in debt and 7% in money market securities. In addition, market influencing factors relating to monetary policy, equity momentum, market sentiment, economic influences and market cycles are taken into consideration in making the asset allocation decision.
Deviations from historical fundamental market relationships on either a current or anticipated basis, along with the influences of market factors, may result under most foreseeable circumstances in changes as much as 40%, plus or minus, in the percentages allocated to equity, debt or money market securities within the Portfolio.
Equity Securities. In its equity investments, the Capital Portfolio emphasizes a combination of several themes in order to diversify its investment exposure. Most stocks purchased by the Portfolio display one or more of the following criteria:
- Low price earnings ratios in relation to their return on equity.
- High asset values in relation to stock price.
- Foreign shares, listed on the New York or American Stock Exchanges or purchased in the form of American Depository Receipts, of companies judged to represent better fundamental value than those of similar domestic companies.
- A high level of dividend payment providing a yield that is competitive with debt investments.
Debt Securities. The Capital Portfolio may invest in rated or unrated debt securities, including obligations of the U.S. Government and its agencies, and corporate debt obligations rated BBB or Baa or higher by a nationally recognized rating service such as Standard & Poor's or Moody's, or, if not rated, of equivalent quality as determined by the investment adviser. Only 25% of the value of any bonds held by the Capital Portfolio may be unrated or less than investment-grade bonds. For a discussion of the risk factors associated with "high-yield" bonds, see the "Bond Portfolio" on page 7 and "Certain Risk Factors Relating to High- Yield, High-Risk Bonds" in the Statement of Additional Information.
Money Market Instruments. The Capital Portfolio may at any time be 100% invested in money market instruments although it likely will invest in these securities only temporarily pending investment in equity and debt securities, or on a limited basis. The following securities, which are described in the Statement of Additional Information, are considered money market instruments if their remaining maturities are less than 13 months: repurchase agreements, U.S. government obligations, government agency securities, certificates of deposit, time deposits, bankers' acceptances, commercial paper and corporate debt securities.
The Capital Portfolio may also write covered call options on U.S. Treasury Securities and options on futures contracts for such securities. See "Options," page 9.
Because the Portfolios are intended to serve a variety of investment objectives, they are subject to varying degrees of financial and market risks and current income volatility. Financial risk refers to the ability of an issuer of a debt security to pay principal and interest on that security and to the earning stability and overall financial soundness of an issuer of an equity security. Market risk refers to the volatility of the reaction of the price of the security to changes in conditions in the securities markets in general and, with respect to debt securities, changes in the overall level of interest rates. Current income volatility refers to the degree and rapidity with which changes in the overall level of interest rates become reflected in the level of current income of the portfolio.
The Equity Portfolio should be subject to moderate levels of both market and financial risk, since it invests in equity securities chosen primarily for potential long-term appreciation.
The Bond Portfolio invests most of its assets in investment- grade corporate bonds, and these should be subject to little financial risk, to moderately high levels of market risk, and to moderately low current income volatility.
The Capital Portfolio invests in equity, debt and money market instruments, and therefore the financial and market risks to which it is subject will vary from time to time depending on the extent of its holdings in each of those classes of securities. The Portfolio is subject to the further risk that in order to meet its objectives, the Adviser must determine the proper mix of equity, debt and money market securities. Moreover, the timing of movements from one type of security to another could have a negative effect on the Portfolio's overall objective. Inherent in the fact that the Adviser has great latitude with respect to portfolio composition is the risk that it may not properly ascertain the appropriate mix of securities for any particular economic cycle.
The market value of fixed-income debt securities is affected by changes in general market interest rates. If interest rates fall, the market value of fixed-income securities tends to rise; but if interest rates rise, the value of fixed-income securities tends to fall. This market risk affects all fixed-income securities, but lower-rated and unrated securities may be subject to a greater market risk than higher-rated (lower-yield) securities.
Bonds rated below the four highest grades used by Standard & Poor's or Moody's are frequently referred to as "junk" bonds, reflecting the greater market and investment risks associated with such bonds. Such risks relate not only to the greater financial weakness of the issuers of such securities but also to other factors including: (i) the sensitivity of such securities to interest rates and economic changes (high-yield, high-risk bonds are very sensitive to adverse economic and corporate developments; their yields will fluctuate over time and either an economic downturn or rising interest rates could create financial stress on the issuers of such bonds, possibly resulting in their defaulting on their obligations); (ii) the payment expectations of holders of such securities (high-yield, high-risk bonds may contain redemption or call provisions which if exercised in a period of lower interest rates would result in their being replaced by lower yielding securities); (iii) the liquidity of such securities (there may be little trading in certain high-yield, high-risk bonds which may make it more difficult to dispose of the securities and more difficult to determine their fair value). See "Certain Risk Factors Relating to High-Yield, High-Risk Bonds" in the Statement of Additional Information for a further discussion of the risks summarized above.
A repurchase agreement is a transaction where a Portfolio buys a security at one price and simultaneously agrees to sell that same security back to the original owner at a higher price. The Adviser reviews the creditworthiness of the other party to the agreement and must find it satisfactory before engaging in a repurchase agreement. A majority of such agreements will mature in seven days or less. In the event of the bankruptcy of the other party, the Portfolio could experience delays in recovering its money, may realize only a partial recovery or even no recovery, and may also incur disposition costs. It is not anticipated that any Portfolio will regularly utilize repurchase agreements extensively, since they are intended to be used to invest otherwise idle cash.
The Bond and Capital Portfolios may engage in certain limited options strategies as hedging techniques. These options strategies are limited to selling/writing call option contracts on U.S. Treasury Securities and call option contracts on futures on such securities held by the Portfolio (covered calls). The Portfolio may purchase call option contracts to close out a position acquired through the sale of a call option. The Portfolio will only write options that are traded on a domestic exchange or board of trade.
A call option is a short-term contract (generally nine months or less) which gives the purchaser of the option the right to purchase from the seller of the option (the Portfolio) the underlying security or futures contract at a fixed exercise price at any time prior to the expiration of the option period regardless of the market price of the underlying instrument during the period. A futures contract obligates the buyer to purchase and the seller to sell a predetermined amount of a security at a predetermined price at a selected time in the future. A call option on a futures contract gives the purchaser the right to assume a "long" position in a futures contract, which means that if the option is exercised the seller of the option (the Portfolio) would have the legal right (and obligation) to sell the Treasury Security to the purchaser at the specified price and future time.
As consideration for the call option, the buyer pays the seller (the Portfolio) a premium, which the seller retains whether or not the option is exercised. The selling of a call option will benefit the Portfolio if, over the option period, the underlying security or futures contract declines in value or does not appreciate to a price higher than the total of the exercise price and the premium. The Portfolio risks an opportunity loss of profit if the underlying instrument appreciates to a price higher than the exercise price and the premium. When the Adviser anticipates that interest rates will increase, the Portfolio may write call options in order to hedge against an expected decline in value of portfolio securities.
The Portfolio may close out a position acquired through selling a call option by buying a call option on the same security or futures contract with the same exercise price and expiration date as the option previously sold. A profit or loss on the transaction will result depending on the premium paid for buying the closing call option. If a call option on a futures contract is exercised, the Portfolio intends to close out the position immediately by entering into an offsetting transaction or by delivery of the underlying security (or other satisfactory U.S. Treasury Securities).
Options transactions may increase the Portfolio's portfolio turnover rate and attendant transaction costs, and may be somewhat more speculative than other investment strategies. It may not always be possible to close out an options position, and with respect to options on futures contracts there is a risk of imperfect correlation between price movements of a futures contract (or option thereon) and the underlying security. Options strategies and related risks and limitations are described in more detail in the Statement of Additional Information.
The Portfolios may invest in collateralized mortgage obligations ("CMOs") or mortgage-backed bonds issued by financial institutions such as commercial banks, savings and loan associations, mortgage banks and securities broker-dealers (or affiliates of such institutions established to issue these securities). To a limited extent, the Portfolios may also invest in a variety of more risky CMOs, including interest only ("IOs"), principal only ("POs"), inverse floaters, or a combination of these securities. See "Money Market Instruments and Investment Techniques" in the Statement of Additional Information for a further discussion.
In addition to the investment policies described above, each Portfolio's investment program is subject to further restrictions which are described in the Statement of Additional Information. Unless otherwise specified, each Portfolio's investment objectives, policies and restrictions are not fundamental policies and may be changed without shareholder approval. Shareholder inquiries and requests for the Fund's annual report should be directed to the Fund at (513) 595-2600, or at P.O. Box 40409, Cincinnati, Ohio 45240-0409.
THE FUND AND ITS MANAGEMENT
The Fund is a mutual fund, technically known as an open-end, diversified, management investment company. The Board of Directors is responsible for supervising the business affairs and investments of the Fund, which are managed on a daily basis by the Fund's investment adviser. The Fund was incorporated under the laws of the State of Maryland on January 30, 1984. The Fund is a series fund with three classes of stock, one for each Portfolio. The Capital Portfolio was authorized during 1990 and on May 1, 1990, the Variable Capital Account, a separate account of Union Central, invested approximately $14,953,645 in this Portfolio.
The Fund's investment adviser is Carillon Advisers, Inc. (the "Adviser"), P.O. Box 40407, Cincinnati, Ohio 45240. The Adviser was incorporated under the laws of Ohio on August 18, 1986, as successor to the advisory business of Carillon Investments, Inc., the investment adviser for the Fund since 1984. The Adviser is a wholly-owned subsidiary of Union Central, a mutual life insurance company organized in 1867 under the laws of Ohio. Subject to the direction and authority of the Fund's Board of Directors, the Adviser manages the investment and reinvestment of the assets of each Portfolio and provides administrative services and manages the Fund's business affairs.
George L. Clucas has been primarily responsible for the day-to- day management of the Equity Portfolio since 1988 and the Capital Portfolio since its inception in 1990. Mr. Clucas is Director, President and Chief Executive Officer of the Fund, and President and Chief Executive Officer of the Adviser. He has been affiliated with the Adviser and Union Central since 1987. Steven R. Sutermeister (since 1990) and Michael J. Schultz (since 1992) have been primarily responsible for the day-to-day management of the Bond Portfolio. Mr. Sutermeister is Vice President of the Adviser and has been affiliated with the Adviser and Union Central since 1990. Previously, he was Senior Vice President of Washington Square Capital, Inc. Mr. Schultz is Second Vice President of the Adviser and has been affiliated with the Adviser and Union Central since 1992. Previously, he was affiliated with ICH Capital Management Group.
The Fund pays the Adviser, as full compensation for all facilities and services furnished, a monthly fee computed separately for each Portfolio on a daily basis, at an annual rate, as follows:
(a) for the Equity Portfolio -- .65% of the first $50,000,000, .60% of the next $100,000,000, and .50% of all over $150,000,000 of the current value of the net assets;
(b) for the Bond Portfolio -- .50% of the first $50,000,000, .45% of the next $100,000,000, and .40% of all over $150,000,000 of the current value of the net assets; and
(c) for the Capital Portfolio -- .75% of the first $50,000,000, .65% of the next $100,000,000, and .50% of all over $150,000,000 of the current value of the net assets.
The fee paid for the Capital Portfolio is somewhat higher than the average fee paid in the industry. However, breakpoints at which fees are reduced are set at lower than normal amounts. It is the desire of the Fund and Adviser to reflect in the fee arrangement the effort involved in advising the separate Portfolios.
The Fund's expenses are deducted from total income before dividends are paid. These expenses, which are accrued daily, include: the fee of the Adviser; taxes; legal, dividend disbursing, bookkeeping and transfer agent, custodian and auditing fees; and printing and other expenses relating to the Fund's operations which are not expressly assumed by the Adviser under its investment advisory agreement with the Fund. Certain expenses are paid by the particular Portfolio that incurs them, while other expenses are allocated among the Portfolios on the basis of their relative size (i.e., the amount of their net assets).
The Fund currently has three classes of stock, one for each Portfolio. Shares (including fractional shares) of each Portfolio have equal rights with regard to voting, redemptions, dividends, distributions, and liquidations with respect to that Portfolio. When issued, shares are fully paid and nonassessable and do not have preemptive or conversion rights or cumulative voting rights. The Fund's sole shareholder, Union Central, will vote Fund shares allocated to its registered separate accounts in accordance with instructions received from Contract Owners. However, by virtue of Fund shares allocated to its other separate accounts, Union Central currently has voting control and can make fundamental changes regardless of the voting instructions received from Contract Owners.
PURCHASE AND REDEMPTION OF SHARES
The Fund offers its shares, without sales charge, only for purchase by Union Central and its separate accounts. It is possible that at some later date the Fund may offer shares to other investors. The Fund continuously offers shares in each of its Portfolios at prices equal to the respective net asset values of the shares of each Portfolio.
The Fund redeems all full and fractional shares of the Fund for cash. No redemption fee is charged. The redemption price is the net asset value per share. Payment for shares redeemed will generally be made within seven days after receipt of a proper notice of redemption.
The net asset value of the shares of each Portfolio of the Fund is determined once daily, Monday through Friday, when there are purchases or redemptions of Fund shares, except (i) when the New York Stock Exchange is closed (currently New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day); (ii) the day following Thanksgiving Day; (iii) December 26, 1995; and (iv) any day on which changes in the value of the Portfolio securities of the Fund will not materially affect the current net asset value of the shares of a Portfolio. Such determination is made by adding the values of all securities and other assets of the Portfolio, subtracting liabilities and expenses, and dividing by the number of shares of the Portfolio outstanding. Expenses, including the investment advisory fee payable to the Adviser, are accrued daily.
Securities held by the Portfolios, except for money market instruments maturing in 60 days or less, are valued at their market value if market quotations are readily available. Otherwise, such securities are valued at fair value as determined in good faith by the Board of Directors, although the actual calculations may be made by persons acting pursuant to the direction of the Board.
All money market instruments with a remaining maturity of 60 days or less are valued on an amortized cost basis.
It is the Fund's intention to distribute substantially all of the net investment income, if any, of each Portfolio. For dividend purposes, net investment income of the Equity, Bond and Capital Portfolios consists of all dividends or interest earned by such Portfolio less estimated expenses (including the investment advisory fee). All net realized capital gains, if any, of each Portfolio are distributed periodically, no less frequently than annually. All dividends and distributions are reinvested in additional shares of the respective Portfolio at net asset value.
Each Portfolio has qualified and has elected to be taxed as a "regulated investment company" under the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If a Portfolio qualifies as a "regulated investment company" and complies with the appropriate provisions of the Code, the Portfolio will be relieved of federal income tax on the amounts distributed. Federal tax laws impose a four percent nondeductible excise tax on each regulated investment company with respect to an amount, if any, by which such company does not meet specified distribution requirements. Each Portfolio intends to comply with such distribution requirements and therefore does not expect to incur the four percent nondeductible excise tax.
Since the sole shareholder of the Fund is Union Central, no discussion is included herein as to the federal income tax consequences at the shareholder level. For information concerning the federal tax consequences to purchasers of the contracts, see the attached Prospectus for such contracts.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company, Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701, acts as Custodian of the Fund's assets, and is its bookkeeping, transfer and dividend disbursing agent.
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
AAA - This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong, and in the majority of instances they differ from AAA issues only in a small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in the A category.
BB-B-CCC-CC - Bonds rated BB, B, CCC, and CC are regarded, on balance, as predominately speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
A Prime rating is the highest commercial paper rating assigned by Moody's Investors Services, Inc. Issuers rated Prime are further referred to by use of numbers 1, 2 and 3 to denote relative strength within this highest classification. Among the factors considered by Moody's in assigning ratings for an issuer are the following: (1) management; (2) economic evaluation of the industry and an appraisal of speculative type risks which may be inherent in certain areas; (3) competition and customer acceptance of products; (4) liquidity; (5) amount and quality of long-term debt; (6) ten- year earnings trends; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations.
Commercial paper rated A by Standard & Poor's Corporation has the following characteristics: Liquidity ratios are better than the industry average. Long-term senior debt rating is "A" or better. In some cases, BBB credits may be acceptable. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend with allowance made for unusual circumstances. Typically, the issuer's industry is well established, the issuer has a strong position within its industry and the reliability and quality of management is unquestioned. Issuers rated A are further referred to by use of numbers 1, 2 and 3 to denote relative strength within this classification.
This Statement of Additional Information is not a prospectus. Much of the information contained in this Statement of Additional Information expands upon subjects discussed in the Prospectus. Accordingly, this Statement should be read in conjunction with Carillon Fund, Inc.'s ("Fund") current Prospectus, dated May 1, 1994, which may be obtained by calling the Fund at (513) 595-2600, or writing the Fund at P.O. Box 40409, Cincinnati, Ohio 45240-0409.
Money Market Instruments and Investment Techniques... 2 Certain Risk Factors Relating to High-Yield, Management of the Fund (10)...........................11 Determination of Net Asset Value (12).................16 Purchase and Redemption of Shares (12)................17 ( ) indicates page on which the corresponding section appears in the Prospectus.
The following specific policies supplement the Fund's "Investment Objectives and Policies" set forth in the Prospectus.
Money Market Instruments and Investment Techniques
Certain money market instruments and investment techniques are described below. Money market instruments may be purchased extensively by the Capital Portfolio. They may also be purchased by the Equity and Bond Portfolios to a very limited extent (to invest otherwise idle cash) or on a temporary basis (if invested in money market instruments for defensive purposes).
Small Bank Certificates of Deposit. The Fund may invest in certificates of deposit issued by commercial banks, savings banks, and savings and loan associations having assets of less than $1 billion, provided that the principal amount of such certificates is insured in full by the Federal Deposit Insurance Corporation ("FDIC"). The FDIC presently insures accounts up to $100,000, but interest earned above such amount is not insured by the FDIC.
Repurchase Agreements. A repurchase agreement is an instrument under which the purchaser (i.e., one of the Portfolios) acquires ownership of the obligation (the underlying security) and the seller (the "issuer" of the repurchase agreement) agrees, at the time of sale, to repurchase the obligation at a mutually agreed upon time and price, thereby determining the yield during the purchaser's holding period. This results in a fixed rate of return insulated from market fluctuations during such period. The underlying securities will only consist of securities in which the respective Portfolio may otherwise invest. Repurchase agreements usually are for short periods, normally under one week, and are considered to be loans under the Investment Company Act of 1940. Repurchase agreements will be fully collateralized at all times and interest on the underlying security will not be taken into account for valuation purposes. The investments by a Portfolio in repurchase agreements may at times be substantial when, in the view of the Adviser, unusual market, liquidity, or other conditions warrant.
If the issuer of the repurchase agreement defaults and does not repurchase the underlying security, the Portfolio might incur a loss if the value of the underlying security declines, and the Fund might incur disposition costs in liquidating the underlying security. In addition, if the issuer becomes involved in bankruptcy proceedings, the Portfolio may be delayed or prevented from obtaining the underlying security for its own purposes. In order to minimize any such risk, the Portfolio will only engage in repurchase agreements with recognized securities dealers and banks determined to present minimal credit risk by the Adviser, under the direction and supervision of the Board of Directors.
U.S. Government Obligations. Securities issued and guaranteed as to principal and interest by the United States Government include a variety of Treasury securities, which differ only in their interest rates, maturities and times of issuance. Treasury bills have a maturity of one year or less. Treasury notes have maturities of one to seven years and Treasury bonds generally have a maturity of greater than five years.
Government Agency Securities. Government agency securities that are permissible investments consist of securities either issued or guaranteed by agencies or instrumentalities of the United States Government. Agencies of the United States Government which issue or guarantee obligations include, among others, Export-Import Banks of the United States, Farmers Home Administration, Federal Housing Administration, Government National Mortgage Association ("GNMA"), Maritime Administration, Small Business Administration and The Tennessee Valley Authority. Obligations of instrumentalities of the United States Government include securities issued or guaranteed by, among others, the Federal National Mortgage Association ("FNMA"), Federal Home Loan Banks, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks, Banks for Cooperatives, and the U.S. Postal Service. Some of these securities, such as those guaranteed by GNMA, are supported by the full faith and credit of the U.S. Treasury; others, such as those issued by The Tennessee Valley Authority, are supported by the right of the issuer to borrow from the Treasury; while still others, such as those issued by the Federal Land Banks, are supported only by the credit of the instrumentality. The Fund's primary usage of these types of securities will be GNMA certificates and FNMA and FHLMC mortgage-backed obligations which are discussed in more detail below.
Certificates of Deposit. Certificates of deposit are generally short-term, interest-bearing negotiable certificates issued by banks or savings and loan associations against funds deposited in the issuing institution.
Time Deposits. Time Deposits are deposits in a bank or other financial institution for a specified period of time at a fixed interest rate for which a negotiable certificate is not received.
Bankers' Acceptance. A bankers' acceptance is a time draft drawn on a commercial bank by a borrower usually in connection with an international commercial transaction (to finance the import, export, transfer or storage of goods). The borrower is liable for payment as well as the bank, which unconditionally guarantees to pay the draft at its face amount on the maturity date. Most acceptances have maturities of six months or less and are traded in secondary markets prior to maturity.
Commercial Paper. Commercial paper refers to short-term, unsecured promissory notes issued by corporations to finance short-term credit needs. Commercial paper is usually sold on a discount basis and has a maturity at the time of issuance not exceeding nine months.
Corporate Debt Securities. Corporate debt securities with a remaining maturity of less than one year tend to become extremely liquid and are traded as money market securities. Such issues with between one and two years remaining to maturity tend to have greater liquidity and considerably less market value fluctuations than longer-term issues.
When-issued and Delayed-delivery Securities. From time to time, in the ordinary course of business, each Portfolio of the Fund may purchase securities on a when-issued or delayed-delivery basis - i.e., delivery and payment can take place a month or more after the date of the transactions. The securities so purchased are subject to market fluctuation and no interest accrues to the purchaser during this period. At the time a Portfolio makes the commitment to purchase securities on a when-issued or delayed- delivery basis, the Fund will record the transaction and thereafter reflect the value, each day, of such security in determining the net asset value of such Portfolio. At the time of delivery of the securities, the value may be more or less than the purchase price.
Each Portfolio will also establish a segregated account with the Fund's custodian bank in which it will maintain cash or cash equivalents or other Portfolio securities equal in value to commitments for such when-issued or delayed-delivery securities.
GNMA Certificates GNMA certificates are mortgage-backed securities representing part ownership of a pool of mortgage loans on which timely payment of interest and principal is guaranteed by the full faith and credit of the U.S. government. GNMA certificates differ from typical bonds because principal is repaid monthly over the term of the loan rather than returned in a lump sum at maturity. Because both interest and principal payments (including prepayments) on the underlying mortgage loans are passed through to the holder of the certificate, GNMA certificates are called "pass- through" securities.
Although the mortgage loans in the pool have maturities of up to 30 years, the actual average life of the GNMA certificates typically will be substantially less because the mortgages are subject to normal principal amortization and may be prepaid prior to maturity. Prepayment rates vary widely and may be affected by changes in market interest rates. In periods of falling interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of the GNMA certificates. Conversely, when interest rates are rising, the rate of prepayment tends to decrease, thereby lengthening the actual average life of the GNMA certificates. Accordingly, it is not possible to predict accurately the average life of a particular pool. Reinvestment of prepayments may occur at higher or lower rates that the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current rates, GNMA certificates can be less effective than typical bonds of similar maturities at "locking-in" yields during periods of declining interest rates, although they may have comparable risks of decline in value during periods of rising interest rates.
FNMA and FHLMC Mortgage-Backed Obligations The Federal National Mortgage Association ("FNMA"), a federally chartered and privately owned corporation, issues pass-through securities representing an interest in a pool of conventional mortgage loans. FNMA guarantees the timely payment of principal and interest but this guarantee is not backed by the full faith and credit of the U.S. government. The Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate instrumentality of the United States, issues participation certificates that represent an interest in a pool of conventional mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate collection of principal and maintains reserves to protect holders against losses due to default, but the certificates are not backed by the full faith and credit of the U.S. government. As is the case with GNMA certificates, the actual maturity of and realized yield on particular FNMA and FHLMC pass-through securities will vary based on the prepayment experience of the underlying pool of mortgages.
Mortgage-Related Securities The Fund may invest in collateralized mortgage obligations ("CMOs") or mortgage-backed bonds issued by financial institutions such as commercial banks, savings and loan associations, mortgage banks and securities broker-dealers (or affiliates of such institutions established to issue these securities). CMOs are obligations fully collateralized directly or indirectly by a pool of mortgages on which payments of principal and interest are dedicated to payment of principal and interest on the CMOs. Payments on the underlying mortgages (both interest and principal) are passed through to the holders, although not necessarily on a pro rata basis, on the same schedule as they are received. Mortgage-backed bonds are general obligations of the issuer fully collateralized directly or indirectly by a pool of mortgages. The mortgages serve as collateral for the issuer's payment obligations on the bonds, but interest and principal payments on the mortgages are not passed through either directly (as with GNMA certificates and FNMA and FHLMC pass-through securities) or on a modified basis (as with CMOs). Accordingly, a change in the rate of prepayments on the pool of mortgages could change the effective maturity of a CMO but not that of a mortgage- backed bond (although, like many bonds, mortgage-backed bonds may be callable by the issuer prior to maturity).
The Fund may also invest in a variety of more risky CMOs, including interest only ("IOs"), principal only ("POs"), inverse floaters, or a combination of these securities. Stripped mortgage- backed securities ("SMBS") are usually structured with several classes that receive different proportions of the interest and principal distributions from a pool of mortgage assets. A common type of SMBS will have one class receiving all of the interest from the mortgage assets (an IO), while the other class will receive all of the principal (a PO). However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying mortgage assets experience greater-than-anticipated or less-than-anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment or obtain its initially assumed yield on some of these securities. The market value of the class consisting entirely of principal payments generally is unusually volatile in response to changes in interest rates. The yields on classes of SMBS that have more uncertain timing of cash flows are generally higher than prevailing market yields on other mortgage-backed securities because there is a greater risk that the initial investment will not be fully recouped or received as planned over time.
The Fund may invest in another CMO class known as leveraged inverse floating rate debt instruments ("inverse floaters"). The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher degree of leverage inherent in inverse floaters is associated with greater volatility in their market values. Accordingly, the duration of an inverse floater may exceed its stated final maturity.
Certain CMOs may be deemed to be illiquid securities for purposes of the Fund's 10% limitation on investments in such securities. The investment adviser limits investments in more risky CMOs (IOs, POs, inverse floaters) to no more than 5% of its total assets.
Certain Risk Factors Relating to High-Yield, High-Risk Bonds
The descriptions below are intended to supplement the material in the Prospectus regarding high-yield, high-risk bonds.
Sensitivity to Interest Rates and Economic Changes. High-yield bonds are very sensitive to adverse economic changes and corporate developments and their yields will fluctuate over time. During an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience financial stress that would adversely affect their ability to service their principal and interest payment obligations, to meet projected business goals, and to obtain additional financing. If the issuer of a bond defaulted on its obligations to pay interest or principal or entered into bankruptcy proceedings, the Portfolio may incur losses or expenses in seeking recovery of amounts owed to it. In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices of high-yield bonds and the Portfolio's net asset value.
Payment Expectations. High-yield bonds may contain redemption or call provisions. If an issuer exercised these provisions in a declining interest rate market, the Portfolio would have to replace the security with a lower-yielding security, resulting in a decreased return for investors. Conversely, a high-yield bond's value will decrease in a rising interest rate market, as will the value of the Portfolio's assets. If the Portfolio experiences unexpected net redemptions, this may force it to sell high-yield bonds without regard to their investment merits, thereby decreasing the asset base upon which expenses can be spread and possibly reducing the Portfolio's rate of return.
Liquidity and Valuation. There may be little trading in the secondary market for particular bonds, which may affect adversely the Portfolio's ability to value accurately or dispose of such bonds. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of high-yield bonds, especially in a thin market.
The Bond and Capital Portfolios may sell (write) listed options on U.S. Treasury Securities and options on contracts for the future delivery of U.S. Treasury Securities as a means of hedging the value of such securities owned by the Portfolio.
As a writer of a call option, the Portfolio may terminate its obligation by effecting a closing purchase transaction. This is accomplished by purchasing an option of the same series as the option previously written. However, once the Portfolio has been assigned an exercise notice, the Portfolio will be unable to effect a closing purchase transaction. There can be no assurance that a closing purchase transaction can be effected when the Portfolio so desires.
The Portfolio will realize a profit from a closing transaction if the price of the transaction is less than the premium received from writing the option; the Portfolio will realize a loss from a closing transaction if the price of the transaction is more than the premium received from writing the option. Since the market value of call options generally reflects increases in the value of the underlying security, any loss resulting from the closing transaction may be wholly or partially offset by unrealized appreciation of the underlying security. Conversely, any gain resulting from the closing transaction may be wholly or partially offset by unrealized depreciation of the underlying security. The principal factors affecting the market value of call options include supply and demand, the current market price and price volatility of the underlying security, and the time remaining until the expiration date.
Although the Portfolio will write only options on U.S. Treasury Securities and options on futures contracts with respect to such securities which are traded on a national exchange or Board of Trade, there is no assurance that a liquid secondary market will exist for any particular option. In the event it is not possible to effect a closing transaction, the Portfolio will not be able to sell the underlying security, until the option expires or the option is exercised by the holder.
The Portfolio will effect a closing transaction to realize a profit on an outstanding call option, to prevent an underlying security from being called, to permit the sale of an underlying security prior to the expiration date of the option, or to allow for the writing of another call option on the same underlying security with either a different exercise price or expiration date or both.
Possible reasons for the absence of a liquid secondary market on an exchange include the following: (a) insufficient trading interest in certain options; (b) restrictions on transactions imposed by an exchange; (c) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities; (d) inadequacy of the facilities of an exchange or the Clearing Corporation to handle trading volume; or (e) a decision by one or more exchanges to discontinue the trading of options or impose restrictions on types of orders. There can be no assurance that higher than anticipated trading activity or order flow or other unforeseen events might not at times render the trading facilities inadequate and thereby result in the institution of special trading procedures or restrictions which could interfere with the Portfolio's ability to effect closing transactions.
The Bond and Capital Portfolios may write call options on futures contracts on U.S. Treasury Securities as a hedge against the adverse effect of expected increases in interest rates on the value of Portfolio securities, in order to establish more definitely the effective return on securities held by the Portfolio. The Portfolios will not write options on futures contracts for speculative purposes.
A futures contract on a debt security is a binding contractual commitment which will result in an obligation to make or accept delivery, during a specified future time, of securities having standardized face value and rate of return. Selling a futures contract on debt securities (assuming a short position) would give the Portfolio a legal obligation and right as seller to make future delivery of the security against payment of the agreed price.
Upon the exercise of a call option on a futures contract, the writer of the option (the Portfolio) is obligated to sell the futures contract (to deliver a long position to the option holder) at the option exercise price, which will presumably be lower than the current market price of the contract in the futures market. However, as with the trading of futures, most participants in the options markets do not seek to realize their gains or losses by exercise of their option rights. Instead, the holder of an option will usually realize a gain or loss by buying or selling an offsetting option at a market price that will reflect an increase or a decrease from the premium originally paid. Nevertheless, if an option on a futures contract written by the Portfolio is exercised, the Portfolio intends to either close out the futures contract by purchasing an offsetting futures contract, or deliver the underlying Treasury Securities immediately, in order to avoid assuming a short position. There can be no assurance that the Portfolio will be able to enter into an offsetting transaction with respect to a particular contract at a particular time, but it may always deliver the underlying Treasury Security.
As a writer of options on futures contracts, the Portfolio will receive a premium but will assume a risk of adverse movement in the price of the underlying futures contract. If the option is not exercised, the Portfolio will gain the amount of the premium, which may partially offset unfavorable changes in the value of securities held in the Portfolio. If the option is exercised, the Portfolio might incur a loss in the option transaction which would be reduced by the amount of the premium it has received.
While the holder or writer of an option on a futures contract may normally terminate its position by selling or purchasing an offsetting option, the Portfolio's ability to establish and close out options positions at fairly established prices will be subject to the maintenance of a liquid market. The Portfolio will not write options on futures contracts unless, in the Adviser's opinion, the market for such options has sufficient liquidity that the risks associated with such options transactions are not at unacceptable levels.
Risks. While options will be sold in an effort to reduce certain risks, those transactions themselves entail certain other risks. Thus, while the Portfolio may benefit from the use of options, unanticipated changes in interest rates or security price movements may result in a poorer overall performance for the Portfolio than if it had not entered into any options transactions. The price of U.S. Treasury Securities futures are volatile and are influenced, among other things, by changes in prevailing interest rates and anticipation of future interest rate changes.
In the event of an imperfect correlation between a futures position (and a related option) and the Portfolio position which is intended to be protected, the desired protection may not be obtained. The correlation between changes in prices of futures contracts and of the securities being hedged is generally only approximate. The amount by which such correlation is imperfect depends upon many different circumstances, such as variations in speculative market demand for futures and for debt securities (including technical influences in futures trading) and differences between the financial instruments being hedged and the instruments underlying the standard options on futures contracts available for trading.
Due to the imperfect correlation between movements in the prices of futures contracts and movements in the prices of the underlying debt securities, the price of a futures contract may move more than or less than the price of the securities being hedged. If the price of the future moves less than the price of the securities which are the subject of the hedge, the hedge will not be fully effective and if the price of the securities being hedged has moved in an unfavorable direction, the Portfolio would be in a better position than if it had not hedged at all. If the price of the futures moves more than the price of the security, the Portfolio will experience either a gain or loss on the option on the future which will not be completely offset by movements in the price of the securities which are the subject of the hedge.
The market prices of futures contracts and options thereon may be affected by various factors. If participants in the futures market elect to close out their contracts through offsetting transactions rather than meet margin deposit requirements, distortions in the normal relationship between the debt securities and futures markets could result. Price distortions could also result if investors in futures contracts make or take delivery of underlying securities rather than engage in closing transactions. This could occur, for example, if there is a lack of liquidity in the futures market. From the point of view of speculators, the deposit requirements in the futures markets are less onerous than margins requirements in the securities markets; accordingly, increased participation by speculators in the futures market could cause temporary price distortions. A correct forecast of interest rate trends by the adviser may still not result in a successful hedging transaction because of possible price distortions in the futures market and because of the imperfect correlation between movements in the prices of debt securities and movements in the prices of futures contracts. A well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends.
Limitations on the Use of Options on Futures. The Portfolio will only write options on futures that are traded on exchanges and are standardized as to maturity date and underlying financial instrument. The principal exchanges in the United States for trading options on Treasury Securities are the Board of Trade of the City of Chicago and the Chicago Mercantile Exchange. These exchanges and trading options on futures are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC").
It is the Fund's opinion that it is not a "commodity pool" as defined under the Commodity Exchange Act and in accordance with rules promulgated by the CFTC.
The Portfolio will not write options on futures contracts for which the aggregate premiums exceed 5% of the fair market value of the Portfolio's assets, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into (except that, in the case of an option that is in-the-money at the time of purchase, the in-the-money amount generally may be excluded in computing the 5%).
All of the futures options transactions employed by the Portfolio will be BONA FIDE hedging transactions, as that term is used in the Commodity Exchange Act and has been interpreted and applied by the CFTC. To ensure that its futures options transactions meet this standard, the Fund will enter into such transactions only for the purposes and with the intent that CFTC has recognized to be appropriate.
Custodial Procedures and Margins. The Fund's Custodian acts as the Fund's escrow agent as to securities on which the Fund has written call options and with respect to margin which the Fund must deposit in connection with the writing of call options on futures contracts. The Clearing Corporation (CC) will release the securities or the margin from escrow on the expiration of the call, or when the Fund enters into a closing purchase transaction. In this way, assets of the Fund will never be outside the control of the Fund's custodian, although such control might be limited by the escrow receipts issued.
At the time the Portfolio sells a call option on a contract for future delivery of U.S. Treasury Securities ("Treasury futures contract"), it is required to deposit with its custodian, in an escrow account, a specified amount of cash or U.S. Government securities ("initial margin"). The account will be in the name of the CC. The amount of the margin generally is a small percentage of the contract amount. The margin required is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit, and it is released from escrow upon termination of the option assuming all contractual obligations have been satisfied. The Portfolio will earn interest income on its initial margin deposits.
In accordance with the rules of the exchange on which the option is traded, it might be necessary for the Portfolio to supplement the margin held in escrow. This will be done by placing additional cash or U.S. Government securities in the escrow account. If the amount of required margin should decrease, the CC will release the appropriate amount from the escrow account.
The assets in the margin account will be released to the CC only if the Portfolio defaults or fails to honor its commitment to the CC and the CC represents to the custodian that all conditions precedent to its right to obtain the assets have been satisfied.
The Fund has adopted the following fundamental restrictions relating to the investment of assets of the Portfolios and other investment activities. These are fundamental policies and may not be changed without the approval of holders of the majority of the outstanding voting shares of each Portfolio affected (which for this purpose means the lesser of: [i] 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented, or [ii] more than 50% of the outstanding shares). A change in policy affecting only one Portfolio may be effected with the approval of the majority of the outstanding voting shares of that Portfolio only. The Fund's fundamental investment restrictions provide that no Portfolio of the Fund is allowed to:
(1) Issue senior securities (except that each Portfolio may borrow money as described in restriction [9] below).
(2) With respect to 75% of the value of its total assets, invest more than 5% of its total assets in securities (other than securities issued or guaranteed by the United States Government or its agencies or instrumentalities) of any one issuer.
(3) Purchase more than either: (i) 10% in principal amount of the outstanding debt securities of an issuer, or (ii) 10% of the outstanding voting securities of an issuer, except that such restrictions shall not apply to securities issued or guaranteed by the United States Government or its agencies or instrumentalities.
(4) Invest more than 25% of its total assets in the securities of issuers primarily engaged in the same industry. For purposes of this restriction, gas, gas transmission, electric, water, and telephone utilities each will be considered a separate industry. This restriction does not apply to obligations of banks or savings and loan associations or to obligations issued or guaranteed by the United States Government, its agencies or instrumentalities.
(5) Purchase or sell commodities, commodity contracts, or real estate, except that each Portfolio may purchase securities of issuers which invest or deal in any of the above, and except that each Portfolio may invest in securities that are secured by real estate. This restriction does not apply to obligations issued or guaranteed by the United States Government, its agencies or instrumentalities.
(6) Purchase any securities on margin (except that the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities) or make short sales of securities or maintain a short position.
(7) Make loans, except through the purchase of obligations in private placements or by entering into repurchase agreements (the purchase of publicly traded obligations not being considered the making of a loan).
(9) Borrow amounts in excess of 10% of its total assets, taken at market value at the time of the borrowing, and then only from banks as a temporary measure for extraordinary or emergency purposes, or to meet redemption requests that might otherwise require the untimely disposition of securities, and not for investment or leveraging.
(10) Mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by such Portfolio.
(11) Underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933 in selling shares of each Portfolio and except as it may be deemed such in a sale of restricted securities.
(12) Invest more than 10% of its total assets in repurchase agreements maturing in more than seven days, "small bank" certificates of deposit that are not readily marketable, and other illiquid investments.
The Fund has also adopted the following additional investment restrictions that are not fundamental and may be changed by the Board of Directors without shareholder approval. Under these restrictions, no Portfolio of the Fund may:
(1) Invest in securities of foreign issuers except American Depository Receipts, securities listed for trading on the New York or American Stock Exchange, and Canadian bank short-term obligations.
(2) Participate on a joint (or a joint and several) basis in any trading account in securities (but this does not prohibit the "bunching" of orders for the sale or purchase of Portfolio securities with the other Portfolios or with other accounts advised or sponsored by the Adviser or any of its affiliates to reduce brokerage commissions or otherwise to achieve best overall execution).
(3) Purchase or retain the securities of any issuer, if, to the knowledge of the Fund, officers and directors of the Fund, the Adviser or any affiliate thereof each owning beneficially more than 1/2% of one of the securities of such issuer, own in the aggregate more than 5% of the securities of such issuer.
(4) Purchase or sell interests in oil, gas, or other mineral exploration or development programs, or real estate mortgage loans, except that each Portfolio may purchase securities of issuers which invest or deal in any of the above, and except that each Portfolio may invest in securities that are secured by real estate mortgages. This restriction does not apply to obligations or other securities issued or guaranteed by the United States Government, its agencies or instrumentalities.
(5) Invest in companies for the purpose of exercising control (alone or together with the other Portfolios).
(6) Purchase securities of other investment companies with an aggregate value in excess of 5% of the Portfolio's total assets, except in connection with a merger, consolidation, acquisition or reorganization, or by purchase in the open market of securities of closed-end investment companies where no underwriter or dealer's commission or profit, other than customary broker's commission, is involved, and only if immediately thereafter not more than 10% of such Portfolio's total assets, taken at market value, would be invested in such securities.
If a percentage restriction (for either fundamental or nonfundamental policies) is adhered to at the time of investment, a later increase or decrease in percentage beyond the specified limit resulting from a change in values of portfolio securities or amount of net assets shall not be considered a violation.
In addition to the investment restrictions described above, the Fund will comply with restrictions contained in any current insurance laws in order that the assets of The Union Central Life Insurance Company's ("Union Central") separate accounts may be invested in Fund shares.
Each Portfolio has a different expected annual rate of Portfolio turnover, which is calculated by dividing the lesser of purchases or sales of Portfolio securities during the fiscal year by the monthly average of the value of the Portfolio's securities (excluding from the computation all securities, including options, with maturities at the time of acquisition of one year or less). A high rate of Portfolio turnover generally involves correspondingly greater brokerage commission expenses, which must be borne directly by the Portfolio. Turnover rates may vary greatly from year to year as well as within a particular year and may also be affected by cash requirements for redemptions of each Portfolio's shares and by requirements which enable the Fund to receive certain favorable tax treatments. The Portfolio turnover rates will, of course, depend in large part on the level of purchases and redemptions of shares of each Portfolio. Higher Portfolio turnover can result in corresponding increases in brokerage costs to the Portfolios of the Fund and their shareholders. However, because rate of Portfolio turnover is not a limiting factor, particular holdings may be sold at any time, if investment judgment or Portfolio operations make a sale advisable.
The annual Portfolio turnover rates for the Equity Portfolio were 40.33% and 37.93%, respectively, for 1994 and 1993. The annual Portfolio turnover rates for the Bond Portfolio were 70.27% and 137.46%, respectively, for 1994 and 1993. The annual Portfolio turnover rates for the Capital Portfolio were 41.89% and 32.42%, respectively, for 1994 and 1993.
The directors and executive officers of the Fund and their principal occupations during the past five years are set forth below. Unless otherwise noted, the address of each executive officer and director is 1876 Waycross Road, Cincinnati, Ohio 45240.
The directors and executive officers of the Fund and their principal occupations during the past five years are set forth below. Unless otherwise noted, the address of each executive officer and director is 1876 Waycross Road, Cincinnati, Ohio 45240.
* Each of the Directors also serves as a Trustee of Carillon Investment Trust. ** Messrs. Callard and McMahon have been deferring their compensation each year. As of December 31, 1994, the total amount deferred, including interest, was as follows: Dr. Callard -$44,199; Mr. McMahon - $22,752.
The Fund has entered into an Investment Advisory Agreement ("Agreement") with Carillon Advisers, Inc. ("Adviser") whose principal business address is 1876 Waycross Road, Cincinnati, Ohio 45240 (P.O. Box 177, Cincinnati, Ohio 45201). The Adviser was incorporated under the laws of Ohio on August 18, 1986, and is a wholly-owned subsidiary of Union Central. Executive officers and directors of the Adviser who are affiliated with the Fund are George L. Clucas, President and Chief Executive Officer; and John F. Labmeier, Secretary.
Pursuant to the Agreement, the Fund has retained the Adviser to manage the investment of the Fund's assets, including the placing of orders for the purchase and sale of Portfolio securities. The Adviser is at all times subject to the direction and supervision of the Board of Directors of the Fund.
The Adviser continuously furnishes an investment program for each Portfolio, is responsible for the actual management of each Portfolio and has responsibility for making decisions to buy, sell or hold any particular security. The Adviser obtains and evaluates such information and advice relating to the economy, securities markets, and specific securities as it considers necessary or useful to continuously manage the assets of the Portfolios in a manner consistent with their investment objectives, policies and restrictions. The Adviser considers analyses from various sources, makes necessary investment decisions and effects transactions accordingly. The Adviser also performs certain administrative functions for the Fund. The Adviser may utilize the advisory services of subadvisers for one or more of the Portfolios.
Under the terms of the Agreement, in addition to managing the Fund's investments, the Adviser, at its expense, maintains certain of the Fund's books and records (other than those provided by Firstar Trust Company, by agreement) and furnishes such office space, facilities, equipment, and clerical help as the Fund may reasonably require in the conduct of business. In addition, the Adviser pays for the services of all executive, administrative, clerical, and other personnel, including officers of the Fund, who are employees of Union Central. The Adviser also bears the cost of telephone service, heat, light, power and other utilities provided to the Fund. Expenses not expressly assumed by the Adviser under the Agreement will be paid by the Fund.
Each Portfolio pays all other expenses incurred in its operation and a portion of the Fund's general administration expenses allocated on the basis of the asset size of the respective Portfolios. Expenses other than the Adviser's fee that are borne directly and paid individually by a Portfolio include, but are not limited to, brokerage commissions, dealer markups, expenses incurred in the acquisition of Portfolio securities, transfer taxes, transaction expenses of the custodian, pricing services used by only one or more Portfolios, and other costs properly payable by only one or more Portfolios. Expenses which are allocated on the basis of size of the respective Portfolios include custodian (portion based on asset size), dividend disbursing agent, transfer agent, bookkeeping services (except annual per Portfolio base charge), pricing, shareholder's and directors' meetings, directors' fees, proxy statement and Prospectus preparation, registration fees and costs, fees and expenses of legal counsel not including employees of the Adviser, membership dues of industry associations, postage, insurance premiums including fidelity bond, and all other costs of the Fund's operation properly payable by the Fund and allocable on the basis of size of the respective Portfolios.
Depending on the nature of a legal claim, liability or lawsuit, litigation costs, payment of legal claims or liabilities and any indemnification relating thereto may be directly applicable to a Portfolio or allocated on the basis of the size of the respective Portfolios. The directors have determined that this is an appropriate method of allocation of expenses.
The Agreement also provides that if the total operating expenses of the Fund, exclusive of the advisory fee, taxes, interest, brokerage fees and certain legal claims and liabilities and litigation and indemnification expenses, as described in the Agreement, for any fiscal year exceed 1.0% of the average daily net assets of the Fund, the Adviser will reimburse the Fund for such excess, up to the amount of the advisory fee for that year. Such amount, if any, will be calculated daily and credited on a monthly basis.
As full compensation for the services and facilities furnished to the Fund and expenses of the Fund assumed by the Adviser, the Fund pays the Adviser monthly compensation calculated daily as described on page 11 of the Prospectus. The compensation after all waivers for each Portfolio was as follows:
There is no assurance that the Portfolios will reach a net asset level high enough to realize a reduction in the rate of the advisory fee. Any reductions in the rate of advisory fee will be applicable to each Portfolio separately in accordance with the schedule of fees applicable to each Portfolio.
The Investment Advisory Agreement was initially approved by the Fund's Board of Directors, including a majority of the directors who are not interested persons of the Adviser, on March 22, 1984. Unless earlier terminated as described below, the Agreement will continue in effect from year to year if approved annually: (a) by the Board of Directors of the Fund or by a majority of the outstanding shares of the Fund, including a majority of the outstanding shares of each Portfolio; and (b) by a majority of the directors who are not parties to such contract or interested persons (as defined by the Investment Company Act of 1940) of any such party. The Agreement is not assignable and may be terminated without penalty by the Fund on 60 days notice, and by the Adviser on 90 days notice. On March 27, 1995, the Agreement was approved for continuance for one (1) year by the Board of Directors by unanimous vote of those present, including a majority of the directors who are not parties to such contract or interested persons of any such party.
On March 21, 1990, the Board of Directors took steps to activate the Capital Portfolio of the Fund by authorizing the issuance of shares of that Portfolio to a separate account of Union Central. The Board of Directors also approved an amendment to the Investment Advisory Agreement so as to make the Agreement applicable to the Capital Portfolio and to specify the advisory fee payable by it. The Board determined that the amendment did not affect the interests of the classes of Fund shares other than Capital Portfolio shares and that therefore only the holders of Capital Portfolio shares were entitled to vote on the amendment. On May 1, 1990, the Union Central separate account invested $15.2 million in the Capital Portfolio in exchange for 1,390,516 shares at a price of $10.95 per share. Union Central, as legal owner of the Capital Portfolio shares purchased by its separate account and as sole shareholder of the Capital Portfolio, approved the Agreement as amended.
The Investment Advisory Agreement provides that the Adviser shall not be liable to the Fund or to any shareholder for any error of judgment or mistake of law or for any loss suffered by the Fund or by any shareholder in connection with matters to which the Investment Advisory Agreement relates, except a loss resulting from willful misfeasance, bad faith, gross negligence, or reckless disregard on the part of the Adviser in the performance of its duties thereunder. In the case of administration services, the Adviser will be held to a normal standard of liability.
The Agreement in no way restricts the Adviser from acting as investment manager or adviser to others.
If the question of continuance of the Agreement (or adoption of any new Agreement) is presented to shareholders, continuance (or adoption) with respect to a Portfolio shall be effective only if approved by a majority vote of the outstanding voting securities of that Portfolio. If the shareholders of any one or more of the Portfolios should fail to approve the Agreement, the Adviser may nonetheless serve as an adviser with respect to any Portfolio whose shareholders approved the Agreement.
The Adviser is responsible for providing certain administrative functions to the Fund and has entered into an Administration Agreement with Carillon Investments, Inc. ("CII") under which CII furnishes substantially all of such services for an annual fee of .20% of the Fund's average net assets. The fee is borne by the Adviser, not the Fund. Under the Administration Agreement, CII is obligated to provide persons for clerical, accounting, bookkeeping, administrative and other similar services, to supply office space, stationery and office supplies, and to prepare tax returns, reports to stockholders, and filings with the Securities and Exchange Commission and state securities authorities.
Under a Service Agreement between the Adviser and Union Central, Union Central has agreed to make available to the Adviser the services of certain employees of Union Central on a part-time basis for the purpose of better enabling the Adviser to fulfill its obligations to the Fund under the Agreement. Pursuant to the Service Agreement, the Adviser shall reimburse Union Central for all costs allocable to the time spent on the affairs of the Adviser by the employees provided by Union Central. In performing their services for the Adviser pursuant to the Service Agreement, the specified employees shall report and be solely responsible to the officers and directors of the Adviser or persons designated by them. Union Central shall have no responsibility for the investment recommendations or decisions of the Adviser. The obligation of performance under the Agreement is solely that of the Adviser and Union Central undertakes no obligation in respect thereto except as otherwise expressly provided in the Service Agreement. The Service Agreement was approved by the shareholders at a meeting held on March 20, 1992.
Securities held by the Fund may also be held by Union Central or by other separate accounts or mutual funds for which the Adviser acts as an adviser. Because of different investment objectives or other factors, a particular security may be bought by Union Central or by the Adviser or for one or more of its clients, when one or more other clients are selling the same security. If purchases or sales of securities for one or more of the Fund's Portfolios or other clients of the Adviser or Union Central arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the Fund's Portfolios, Union Central, and other clients in a manner deemed equitable to all. To the extent that transactions on behalf of more than one client of the Adviser during the same period may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price.
On occasions when the Adviser deems the purchase or sale of a security to be in the best interests of the Fund as well as other accounts or companies, it may, to the extent permitted by applicable laws and regulations, but will not be obligated to, aggregate the securities to be sold or purchased for the Fund (or for two or more Portfolios) with those to be sold or purchased for other accounts or companies in order to obtain more favorable execution and low brokerage commissions. In that event, allocation of the securities purchased or sold, as well as the expenses incurred in the transaction, will be made by the Adviser in the manner it considers to be most equitable and consistent with its fiduciary obligations to the Fund Portfolio(s) and to such other accounts or companies. In some cases this procedure may adversely affect the size of the position obtainable for a Portfolio.
DETERMINATION OF NET ASSET VALUE
As described on page 12 of the Prospectus, the net asset value of shares of the Fund is determined once daily, Monday through Friday, when there are purchases or redemptions of Fund shares, except: (i) when the New York Stock Exchange is closed (currently New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day); (ii) the day following Thanksgiving Day; (iii) December 26, 1995, and (iv) any day on which changes in the value of the Portfolio securities of the Fund will not materially affect the current net asset value of the shares of a Portfolio.
Securities held by the Portfolios, except for money market instruments maturing in 60 days or less, will be valued as follows: Securities which are traded on stock exchanges (including securities traded in both the over-the-counter market and on exchange), or listed on the NASDAQ National Market System, are valued at the last sales price as of the close of the New York Stock Exchange on the day the securities are being valued, or, lacking any sales, at the closing bid prices. Securities traded only in the over-the-counter market are valued at the last bid prices quoted by brokers that make markets in the securities at the close of trading on the New York Stock Exchange. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors.
Money market instruments with a remaining maturity of 60 days or less are valued on an amortized cost basis. Under this method of valuation, the instrument is initially valued at cost (or in the case of instruments initially valued at market value, at the market value on the day before its remaining maturity is such that it qualifies for amortized cost valuation); thereafter, the Fund assumes a constant proportionate amortization in value until maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price that would be received upon sale of the instrument.
PURCHASE AND REDEMPTION OF SHARES
The Fund offers its shares, without sales charge, only to Union Central and its separate accounts. It is possible that at some later date the Fund may offer shares to other investors.
The Fund is required to redeem all full and fractional shares of the Fund for cash at the net asset value per share. Payment for shares redeemed will generally be made within seven days after receipt of a proper notice of redemption. The right to redeem shares or to receive payment with respect to any redemption may only be suspended for any period during which: (a) trading on the New York Stock Exchange is restricted as determined by the Securities and Exchange Commission or such exchange is closed for other than weekends and holidays; (b) an emergency exists, as determined by the Securities and Exchange Commission, as a result of which disposal of Portfolio securities or determination of the net asset value of a Portfolio is not reasonably practicable; and (c) the Securities and Exchange Commission by order permits postponement for the protection of shareholders.
Each Portfolio of the Fund will be treated as a separate entity for federal income tax purposes. Each Portfolio has qualified and has elected to be taxed as a "regulated investment company" under the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If a Portfolio qualifies as a "regulated investment company" and complies with the provisions of the Code by distributing substantially all of its net income (both ordinary income and capital gain), the Portfolio will be relieved from federal income tax on the amounts distributed.
In order to qualify as a regulated investment company, in each taxable year each Portfolio must, among other things: (a) derive at least 90 percent of its gross income from dividends, interest, payments with respect to loans of securities, and gains from the sale or other disposition of stocks or securities or foreign currencies (subject to the authority of the Secretary of the Treasury to exclude certain foreign currency gains) or other income (including, but not limited to, gains from options, futures, or forward contracts which are ancillary to the Portfolio's principal business of investing in stocks or securities or options and futures with respect to stocks or securities) derived with regard to its investing in such stocks, securities or currencies; and (b) derive less than 30 percent of its gross income from gains (without deduction for losses) realized on the sale or other disposition of any of the following held for less than three months: securities, options, futures or forward contracts (other than options, futures or forward contracts on foreign currencies) or certain foreign currencies. In order to meet the requirements noted above, the Fund may be required to defer disposing of certain options, futures contracts and securities beyond the time when it might otherwise be advantageous to do so. These requirements may also affect the Fund's investments in various ways, such as by limiting the Fund's ability to:(a) sell investments held for less than three months; (b) effect closing transactions on options written less than three months previously; (c) write options for a period of less than three months; and (d) write options on securities held for less than the long-term capital gains holding period. For a discussion of tax consequences to owners of annuity contracts, see the Prospectus for those contracts.
The discussion of "Taxes" in the Prospectus, in conjunction with the foregoing, is a general and abbreviated summary of the applicable provisions of the Code and Treasury Regulations currently in effect as interpreted by the Courts and the Internal Revenue Service.
The Adviser is primarily responsible for the investment decisions of each Portfolio, including decisions to buy and sell securities, the selection of brokers and dealers to effect the transactions, the placing of investment transactions, and the negotiation of brokerage commissions, if any. No Portfolio has any obligation to deal with any dealer or group of dealers in the execution of transactions in Portfolio securities. In placing orders, it is the policy of the Fund to obtain the most favorable net results, taking into account various factors, including price, dealer spread or commission, if any, size of the transaction, and difficulty of execution. While the Adviser generally seeks reasonably competitive spreads or commissions, the Portfolios will not necessarily be paying the lowest spread or commission available.
If the securities in which a particular Portfolio of the Fund invests are traded primarily in the over-the-counter market, where possible the Portfolio will deal directly with the dealers who make a market in the securities involved unless better prices and execution are available elsewhere. Such dealers usually act as principals for their own account. On occasion, securities may be purchased directly from the issuer. Bonds and money market instruments are generally traded on a net basis and do not normally involve either brokerage commissions or transfer taxes. The cost of Portfolio securities transactions of each Portfolio will consist primarily of brokerage commission or dealer or underwriter spreads.
While the Adviser seeks to obtain the most favorable net results in effecting transactions in the Portfolio securities, brokers who provide supplemental investment research to the Adviser may receive orders for transactions by the Fund. Such supplemental research service ordinarily consists of assessments and analyses of the business or prospects of a company, industry, or economic sector. If, in the judgment of the Adviser, the Fund will be benefited by such supplemental research services, the Adviser is authorized to pay commissions to brokers furnishing such services which are in excess of commissions which another broker may charge for the same transaction. Information so received will be in addition to and not in lieu of the services required to be performed by the Adviser under its Investment Advisory Agreement. The expenses of the Adviser will not necessarily be reduced as a result of the receipt of such supplemental information. In some cases, the Adviser may use such supplemental research in providing investment advice to its other advisory accounts.
During 1994, 45% of the Fund's total brokerage was allocated to brokers who furnish statistical data or research information. Brokerage commissions paid during 1994, 1993 and 1992 were $232,642, $226,635 and $220,110, respectively.
The Fund was incorporated in Maryland on January 30, 1984. The authorized capital stock of the Fund consists of sixty-million shares of common stock, par value ten cents ($0.10) per share. Fifty-five million shares of the authorized capital stock is currently divided into the following classes: Equity Portfolio consisting of twenty-million authorized shares; Capital Portfolio consisting of fifteen-million authorized shares; Bond Portfolio consisting of ten-million authorized shares; and Money Market Portfolio (which is not being offered) consisting of ten-million authorized shares.
The balance of the shares may be issued to the existing Portfolios, or to new Portfolios having the number of shares and descriptions, powers, and rights, and the qualifications, limitations, and restrictions as the Board of Directors may determine. The Board of Directors may also change the designation of any Portfolio and may increase or decrease the number of authorized shares of any Portfolio, but may not decrease the number of authorized shares of any Portfolio below the number of shares then outstanding.
Each issued and outstanding share is entitled to participate equally in dividends and distributions declared by the respective Portfolio and, upon liquidation or dissolution, in net assets of such Portfolio remaining after satisfaction of outstanding liabilities.
In accordance with an amendment to the Maryland General Corporation Law, the Board of Directors of the Fund has adopted an amendment to its Bylaws providing that unless otherwise required by the Investment Company Act of 1940, the Fund shall not be required to hold an annual shareholder meeting unless the Board of Directors determines to hold an annual meeting. The Fund intends to hold shareholder meetings only when required by law and such other times as may be deemed appropriate by its Board of Directors.
All shares of common stock have equal voting rights (regardless of the net asset value per share) except that on matters affecting only one Portfolio, only shares of the respective Portfolio are entitled to vote. The shares do not have cumulative voting rights. Accordingly, the holders of more than 50% of the shares of the Fund voting for the election of directors can elect all of the directors of the Fund if they choose to do so and in such event the holders of the remaining shares would not be able to elect any directors.
Matters in which the interests of all Portfolios are substantially identical (such as the election of directors or the approval of independent public accountants) will be voted on by all shareholders without regard to the separate Portfolios. Matters that affect all Portfolios but where the interests of the Portfolios are not substantially identical (such as approval of the Investment Advisory Agreement) would be voted on separately by each Portfolio. Matters affecting only one Portfolio, such as a change in its fundamental policies, are voted on separately by that Portfolio.
Matters requiring separate shareholder voting by Portfolio shall have been effectively acted upon with respect to any Portfolio if a majority of the outstanding voting securities of that Portfolio votes for approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other Portfolio; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Fund.
The phrase "a majority of the outstanding voting securities" of a Portfolio (or of the Fund) means the vote of the lesser of: (1) 67% of the shares of the Portfolio (or the Fund) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of the Portfolio (or the Fund).
As noted in the Prospectus, Union Central currently has voting control of the Fund. With voting control, Union Central could make fundamental and substantial changes (such as electing a new Board of Directors, changing the investment adviser or advisory fee, changing a Portfolio's fundamental investment objectives and policies, etc.) regardless of the views of Contract Owners. However, under current interpretations of presently applicable law, Contract Owners are entitled to give voting instructions with respect to Fund shares held in registered separate accounts and therefore all Contract Owners would receive advance notice before any such changes could be made.
This Statement of Additional Information and the Prospectus do not contain all the information set forth in the registration statement and exhibits relating thereto, which the Fund has filed with the Securities and Exchange Commission, Washington, D.C., under the Securities Act of 1933 and the Investment Company Act of 1940, to which reference is hereby made.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The financial statements of the Fund have been examined by Price Waterhouse LLP, independent accountants, whose report follows. The financial statements included in this Statement of Additional Information have been included in reliance upon the report of Price Waterhouse LLP, given upon their authority as experts in auditing and accounting.
To the Board of Directors and Shareholders of Carillon Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Equity Portfolio, the Capital Portfolio and the Bond Portfolio (constituting Carillon Fund, Inc., hereafter referred to as the "Fund") at December 31, 1994, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 1994 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above.
CARILLON FUND, INC., SCHEDULE OF INVESTMENTS, DECEMBER 31, 1994
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
CARILLON FUND, INC., SCHEDULE OF INVESTMENTS, DECEMBER 31, 1994
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
CARILLON FUND, INC., SCHEDULE OF INVESTMENTS, DECEMBER 31, 1994
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
Carillon Fund, Inc., Statements of Assets and Liabilities,
The accompanying notes are an integral part of the financial statements.
Carillon Fund, Inc., Statements of Operations,
The accompanying notes are an integral part of the financial statements.
Carillon Fund, Inc., Statement of Changes in Net Assets
The accompanying notes are an integral part of the financial statements.
Carillon Fund, Inc., Statement of Changes in Net Assets
The accompanying notes are an integral part of the financial statements.
Carillon Fund, Inc., Statement of Changes in Net Assets
The accompanying notes are an integral part of the financial statements.
CARILLON FUND, INC., NOTES TO FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Carillon Fund, Inc. (the Fund) is registered under the Investment Company Act of 1940, as amended, as a no-load, diversified, open-end management investment company. The shares of the Fund are sold only to The Union Central Life Insurance Company (UCL) and its separate accounts to fund the benefits under certain variable annuity contracts. The Fund's shares are offered in three different series - Equity Portfolio, Capital Portfolio, and Bond Portfolio.
Securities held by the Equity, Capital and Bond Portfolios, except for money market instruments maturing in 60 days or less, are valued as follows: Securities which are traded on stock exchanges (including securities traded in both the over-the- counter market and on an exchange), or listed on the NASDAQ National Market System, are valued at the last sales price as of the close of the New York Stock Exchange on the day the securities are being valued, or, lacking any sales, at the closing bid prices. Securities traded only in the over-the- counter market are valued at the last bid price, as of the close of trading on the New York Stock Exchange, quoted by brokers that make markets in the securities. Other securities for which market quotations are not readily available are valued at fair value as determined in good faith under procedures adopted by the Board of Directors. Money market instruments with a remaining maturity of 60 days or less held by the Equity, Capital and Bond Portfolios are valued at amortized cost which approximates market.
Change in Accounting for Distributions to Shareholders
Effective January 1, 1993, the fund adopted Statement of Position 93-2: DETERMINATION, DISCLOSURE AND FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES. Accordingly, permanent book and tax basis differences relating to shareholder distributions have been reclassified. During the year ended December 31, 1994, the cumulative effect of such differences was reclassified from undistributed net realized gains/(losses) to undistributed net investment income. Amounts reclassified were $2,148, $(291,738) and $56,606 for the Equity, Capital and Bond Portfolios, respectively. These reclassifications are primarily due to differing book and tax treatment for mortgage-backed securities and market discount. Net investment income, net realized gains/(losses), and net assets were not affected by this change.
Securities transactions and investment income
Securities transactions are recorded on the trade date (the date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Gains and losses on sales of investments are calculated on the identified cost basis for financial reporting and tax purposes. The cost of investments is substantially the same for financial reporting and tax purposes, except for the Bond Portfolio, where tax cost exceeds cost for financial statement purposes by $129,813.
It is the intent of the Fund to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and any net realized capital gains. Regulated investment companies owned by the segregated asset accounts of a life insurance company, held in connection with variable annuity contracts, are exempt from excise tax on undistributed income. Therefore, no provision for income or excise taxes has been recorded. The Bond Portfolio has a capital loss carryforward for tax purposes of $446,614 at December 31, 1994. The carryforward, if unused expires in 2002.
Dividends and capital gains distributions
Dividends from net investment income in the Equity, Capital and Bond Portfolios are declared and paid quarterly. Net realized capital gains are distributed periodically, no less frequently than annually. Dividends from net investment income and capital gains distributions are recorded on the ex-dividend date. All dividends and distributions are reinvested in additional shares of the respective Portfolio at the net asset value per share.
Allocable expenses of the Fund are charged to each Portfolio based on the ratio of the net assets of each Portfolio to the combined net assets of the Fund. Nonallocable expenses are charged to each Portfolio based on specific identification.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Fund pays investment advisory fees to Carillon Advisers, Inc. (the Adviser), under terms of an Investment Advisory Agreement (the Agreement). Certain officers and directors of the Adviser are affiliated with the Fund. The Fund pays the Adviser, as full compensation for all services and facilities furnished, a monthly fee computed separately for each Portfolio on a daily basis, at an annual rate, as follows: (a) for the Equity Portfolio - .65% of the first $50,000,000, .60% of the next $100,000,000 and .50% of all over $150,000,000 of the current net asset value;
(b) for the Capital Portfolio - .75% of the first $50,000,000, .65% of the next $100,000,000 and .50% of all over $150,000,000 of the current net asset value;
(c) for the Bond Portfolio - .50% of the first $50,000,000, .45% of the next $100,000,000 and .40% of all over $150,000,000 of the current net asset value; and
The Agreement provides that if the total operating expenses of the Fund, exclusive of the advisory fee and certain other expenses as described in the Agreement, for any fiscal quarter exceed an annual rate of 1% of the average daily net assets of the Fund, the Adviser will reimburse the Fund for such excess, up to the amount of the advisory fee for that year. Such amount, if any, will be calculated daily and credited on a monthly basis. No such reimbursements were required for the periods presented in the financial statements.
In addition to providing investment advisory services, the Adviser is responsible for providing certain administrative functions to the Fund. The Adviser has entered into an Administration Agreement with Carillon Investments, Inc. (the Distributor) under which the Distributor furnishes substantially all of such services for an annual fee of .20% of the Fund's average net assets. The fee is borne by the Adviser, not the Fund.
Carillon Advisers, Inc. and Carillon Investments, Inc. are wholly-owned subsidiaries of UCL.
Each director who is not affiliated with the Adviser receives fees from the Fund for services as a director. Members of the Board of Directors who are not affiliated with the Adviser are eligible to participate in a deferred compensation plan. The value of each director's deferred compensation account will increase or decrease at the same rate as if it were invested in shares of the Scudder Money Market Fund. NOTE 3 - SUMMARY OF PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of securities for the year ended December 31, 1994, excluding short-term obligations, follow:
NOTE 4 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding throughout the period.
NOTE 4 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding throughout the period.
NOTE 4 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding throughout the period.
SUPPLEMENT DATED December 28, 1995 TO THE STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995 OF CARILLON FUND, INC.
Effective December 28, 1995, the statement of additional informa- tion for Carillon Fund, Inc. (the "Fund") dated May 1, 1995 (the "SAI") is amended by including as a part thereof the following information.
As of December 28, 1995, a new S&P 500 Index Portfolio (the "Index Portfolio") was added to the Fund. As the Index Portfolio is not yet available under the contracts being offered pursuant to the variable annuity prospectus which accompanies the Fund's prospec- tus, all information about the Index Portfolio and its investment objective, policies, restrictions and risks has been omitted from this supplement and the SAI.
The date of the prospectus referenced on the cover of the SAI is
May 1, 1995, as supplemented on December 28, 1995.
The following sentence is added to page 27 of the SAI:
Deloitte & Touche LLP has been retained by the Fund to examine its 1995 financial statements.
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0000950129-96-000033_0000.txt
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<DESCRIPTION>SERVICE CORPORATION INTERNATIONAL - FORM S-8
As filed with the Securities and Exchange Commission on January 12, 1996
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S Employer Identification
(Address of Principal Executive Offices)
(Full title of the plan)
(Name and address of agent for service)
(Telephone number, including area code, of agent for service)
(1) There are also registered hereunder (i) the preferred share purchase rights associated with the shares of Common Stock being registered ("Rights"), and (ii) the resale of any such shares and Rights by persons who may be deemed affiliates of the Company pursuant to the provisions of Form S-8.
(2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(h).
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents are hereby incorporated by reference in this Registration Statement:
(i) The Company's Annual Report on Form 10-K for the year ended
(ii) The Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995;
(iii) The Company's Current Report on Form 8-K dated June 7, 1995;
(iv) The Company's Current Report on Form 8-K dated July 10, 1995;
(v) The Company's Current Report on Form 8-K dated July 12, 1995;
(vi) The Company's Current Report on Form 8-K dated July 13, 1995;
(vii) The Company's Current Report on Form 8-K dated September 5,
(viii) The Company's Current Report on Form 8-K dated September 12,
(ix) The Company's Current Report on Form 8-K dated September 18,
(x) The Company's Current Report on Form 8-K dated December 4,
(xi) The description of the Common Stock set forth under the caption "Description of Securities to be Registered--Capital Stock" in the Form 8 Amendment No. 3, dated September 15, 1982, to the Company's Registrant Statement on Form 8-A; and
(xii) The description of the Company's preferred share purchase rights contained in the Company's Registration Statement on Form 8-A dated July 26, 1988, as amended by Amendment No. 1 thereto filed under cover of Form 8 and dated May 11, 1990.
All documents filed by the Registrant pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange Act of 1934 subsequent to the filing hereof and prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference in this Registration Statement and to be a part hereof from the date of filing such documents.
ITEM 4. DESCRIPTION OF SECURITIES
A description of the Common Stock is incorporated by reference pursuant to paragraphs (xi) and (xii) of Item 3 above. The Company's authorized capital consists of 200,000,000 shares of Common Stock and 1,000,000 shares of preferred stock, $1.00 par value. As of November 30, 1995, there were 116,335,953 shares of Common Stock outstanding and no shares of preferred stock outstanding. The transfer agent and registrar for the Common Stock is Society National Bank.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Certain legal matters in connection with the securities offered hereby are being passed upon for the Registrant by James M. Shelger, Senior Vice President, General Counsel and Secretary of the Company. Mr. Shelger currently holds 29,996 shares of Common Stock free and clear of any restrictions (except with respect to resale restrictions under Rule 144), holds 8,493 shares of Common Stock that are subject to forfeiture under the Amended 1987 Stock Plan, as amended, and holds options to acquire 87,150 shares of Common Stock.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act provides that any director or officer of a Texas corporation may be indemnified against judgments, penalties, fines, settlements and reasonable expenses actually incurred by him in connection with or in defending any action, suit or proceeding in which he is or is threatened to be made a named defendant by reason of his position as director or officer, provided that he conducted himself in good faith and reasonably believed that, in the case of conduct in his official capacity as director or officer, such conduct was in the corporation's best interests, or, in all other cases, that such conduct was not opposed to the corporation's best interests. In the case of any criminal proceeding, a director or officer may be indemnified only if he had no reasonable cause to believe his conduct was unlawful. If a director or officer is wholly successful, on the merits or otherwise, in connection with such a proceeding, such indemnification is mandatory.
Under the registrant's Restated Articles of Incorporation, as amended (the "Articles of Incorporation"), no director of the registrant will be liable to the registrant or any of its shareholders for monetary damages for an act or omission in the director's capacity as a director, except for liability (i) for any breach of the director's duty of loyalty to the registrant or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for any transaction for which the director received an improper benefit, whether or not the benefit resulted from action taken within the scope of the director's office, (iv) for acts or omissions for which the liability of a director is expressly provided by statute, or (v) for acts related to an unlawful stock repurchase or dividend payment. The Articles of Incorporation further provide that, if the statutes of Texas are amended to further limit the liability of a director, then the liability of the registrant's directors will be limited to the fullest extent permitted by any such provision.
The registrant's by-laws provide for indemnification of officers and directors of the registrant and persons serving at the request of the registrant in such capacities for other business organizations against certain losses, costs, liabilities and expenses incurred by reason of their positions with the registrant or such other business organizations. The registrant also has policies insuring its officers and directors against certain liabilities for actions taken in such capacities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act").
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of l934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Houston, Texas, on the 11th day of January, 1996.
*By /s/ James M. Shelger
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
* By his signature below, James M. Shelger, pursuant to duly executed powers of attorney filed with the Securities and Exchange Commission, has signed this registration statement on the date indicated on behalf of the persons listed above, designated by asterisks, in the capacities set forth opposite their respective names.
5.1 --Opinion of James M. Shelger.
23.2 --Consent of Independent Accountants (Coopers & Lybrand L.L.P.).
23.3 --Consent of Independent Auditors (Ernst & Young LLP).
23.4 --Consent of Independent Accountants (Barbier Frinault & Associes, Membre d'Arthur Andersen & Co., SC and PGA).
23.5 --Consent of Independent Auditors (Ernst & Young LLP).
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S-8
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S-8
| 1996-01-12T00:00:00
| 1996-01-12T14:40:22
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0000889812-96-000025
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0000889812-96-000025_0001.txt
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<DESCRIPTION>REPORT OF KPMG PEAT MARWICK LLP
In planning and performing our audit of the financial statements of the BJB Global Income Fund and the BJB International Equity Fund for the year ended October 31, 1995, we considered their internal control structure, including procedures for safeguarding securities, in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and to comply with the requirements of Form N-SAR, not to provide assurance on the internal control structure.
The management of the BJB Global Income Fund and the BJB International Equity Fund is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefit and related costs of internal control structure policies and procedures. Two of the objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with management's authorization and recorded properly to permit preparation of financial statements in conformity with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or irregularities may occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risks that it may become inadequate because of changes in conditions or that the effectiveness of the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a condition in which the design or operation of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. However, we noted no matters involving the internal control structure, including procedures for safeguarding securities, that we consider to be material weaknesses as defined above as of October 31, 1995.
This report is intended solely for the information and use of management and the Securities and Exchange Commission.
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NSAR-B
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EX-99.23
| 1996-01-12T00:00:00
| 1996-01-12T17:25:06
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0000950168-96-000039
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0000950168-96-000039_0000.txt
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As filed with the Securities and Exchange Commission on January 12, 1996
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 10 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
FIRST INVESTORS SERIES FUND II, INC. (Exact name of Registrant as specified in charter)
First Investors Series Fund II, Inc. New York, New York 10005 (Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement
It is proposed that this filing will become effective on February 15, 1996 pursuant to paragraph (b) of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has previously elected to register an indefinite number of shares of common stock, par value $.001 per share, under the Securities Act of 1933. Registrant filed a Rule 24f-2 Notice for its fiscal year ending October 31, 1995 on November 14, 1995.
FIRST INVESTORS SERIES FUND II, INC.
Information required to be included in Part C is set forth under the appropriate item so numbered, in Part C hereof.
First Investors Series Fund II, Inc. Made In The U.S.A. Fund
95 Wall Street, New York, New York 10005/1-800-423-4026
This is a Prospectus for First Investors Series Fund II, Inc. ("Series Fund II"), an open-end diversified management investment company. The Fund offers three separate investment series, each of which has different investment objectives and policies: Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund (each a "Fund"). Each Fund sells two classes of shares. Investors may select Class A or Class B shares, each with a public offering price that reflects different sales charges and expense levels. See "Alternative Purchase Plans."
Growth & Income Fund seeks long-term growth of capital and current income. This Fund seeks to achieve its objective by investing, under normal market conditions, at least 65% of its total assets in securities that provide the potential for growth and offer income, such as dividend-paying stocks and securities convertible into common stock.
Made In The U.S.A. Fund seeks long-term capital growth. This Fund seeks to achieve its objective by investing, under normal market conditions, at least 75% of its total assets in common and preferred stocks of companies that its investment adviser considers to have potential for capital growth. In addition, under normal market conditions, 65% of the Fund's total assets will be invested in securities of companies that have a medium market capitalization and are incorporated and have their principal place of business in the United States.
Utilities Income Fund primarily seeks high current income. Long-term capital appreciation is a secondary objective. This Fund seeks to achieve its objectives by investing, under normal market conditions, at least 65% of its total assets in equity and debt securities issued by companies primarily engaged in the public utilities industry.
There can be no assurance that any Fund will achieve its investment objective.
This Prospectus sets forth concisely the information about the Funds that a prospective investor should know before investing and should be retained for future reference. First Investors Management Company, Inc. ("FIMCO" or "Adviser") serves as investment adviser to the Funds and First Investors Corporation ("FIC" or "Underwriter") serves as distributor of the Funds' shares. A Statement of Additional Information ("SAI"), dated February 15, 1996 (which is incorporated by reference herein), has been filed with the Securities and Exchange Commission. The SAI is available at no charge upon request to the Funds at the address or telephone number indicated above.
An investment in these securities is not a deposit or obligation of, or guaranteed or endorsed by, any bank and is not federally insured or protected by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 16, 1996
The following table is intended to assist investors in understanding the expenses associated with investing in each class of shares of a Fund. Shares of the Funds issued prior to January 12, 1995 have been designated as Class A shares.
(as a percentage of average net assets)
* A contingent deferred sales charge ("CDSC") of 1.00% will be assessed on certain redemptions of Class A shares that are purchased without a sales charge. See "How to Buy Shares." ** Although there is a $5.00 exchange fee for exchanges into a Fund, this fee is being assumed by that Fund for a minimum period ending October 31, 1996. Each Fund reserves the right to change or suspend this privilege after October 31, 1996. See "How to Exchange Shares." (1) Other Expenses and Total Fund Operating Expenses are based on estimated amounts for the fiscal year ending October 31, 1996. (2) Management Fees have been restated to reflect the maximum Management Fees that may be incurred by each Fund for a minimum period ending October 31, 1996. Actual fees for the fiscal year ended October 31, 1995 were as follows; Growth & Income Fund - 0.53%; Made In The U.S.A. Fund - 0.58%; and Utilities Income Fund - 0.46%. The Adviser will waive 0.25% of Management Fees for Made In The U.S.A. Fund for a minimum period ending October 31, 1996. Otherwise, such fee could have been 1.00%. (3) 12b-1 Fees have been restated to reflect the maximum distribution expenses that may be incurred by each Fund for a minimum period ending October 31, 1996. Actual fees for the fiscal year ended October 31, 1995 were 1.00% for each Fund with respect to Class B shares and 0.13% for Growth & Income Fund and 0.26% for each other Fund with respect to Class B shares. (4) Other Expenses for Growth & Income Fund have been restated to reflect Other Expenses expected to be incurred for a minimum period ending October 31, 1996. Other Expenses for Made In The U.S.A. Fund and Utilities Income Fund are net of reimbursed expenses. Otherwise, Other Expenses for each class of shares would have been as follows: Made In The U.S.A. Fund-1.02% and Utilities Income Fund-0.52%. The Adviser intends to reimburse Made In The U.S.A. Fund and Utilities Income Fund for Other Expenses in excess of 0.45% of average net assets through October 31, 1996. (5) Net of waived Management Fees and/or reimbursed expenses. If certain Management Fees and Other Expenses were not waived or reimbursed, Total Fund Operating Expenses would have been 2.07% for Made In The U.S.A.
1.57% for Utilities Income Fund for Class A shares and are estimated to be 2.77% for Made In The U.S.A. Fund and 2.27% for Utilities Income Fund for Class B shares.
For a more complete description of the various costs and expenses, see "Alternative Purchase Plans," "How to Buy Shares," "How to Redeem Shares," "Management" and "Distribution Plans." Due to the imposition of 12b-1 fees, it is possible that long-term shareholders of a Fund may pay more in total sales charges than the economic equivalent of the maximum front-end sales charge permitted by the rules of the National Association of Securities Dealers, Inc.
The Example below is based on Class A and Class B expense data for each Fund's fiscal year ended October 31, 1995, except that certain Operating Expenses have been restated, as noted above.
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period:
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) no redemption at the end of each time period:
The expenses in the Example should not be considered a representation by the Funds of past or future expenses. Actual expenses in future years may be greater or less than those shown.
The table below sets forth the per share operating performance data for a share outstanding, total return, ratios to average net assets and other supplemental data for each period indicated. The table has been derived from financial statements which have been examined by Tait, Weller & Baker, independent certified public accountants, whose report thereon appears in the SAI. This information should be read in conjunction with the Financial Statements and Notes thereto, which also appear in the SAI, available at no charge upon request to the Funds.
* Commencement of operations of Class A shares or date Class B shares were ** Calculated without sales charges ++ Some or all expenses have been waived or assumed from commencement of operations through October 31, 1995
The investment objective of Growth & Income Fund is to seek long-term growth of capital and current income. The Fund seeks its objective by investing, under normal market conditions, at least 65% of its total assets in securities that provide the potential for growth and offer income, such as dividend-paying stocks and securities convertible into common stock. The portion of the Fund's assets invested in equity securities and in debt securities may vary from time to time due to changes in interest rates and economic and other factors. The Fund is not designed for investors seeking a steady flow of income distributions. Rather, the Fund's policy of investing in income producing securities is intended to provide investors with a more consistent total return than may be achieved by investing solely in growth stocks.
The convertible securities in which the Fund may invest are not subject to any limitations as to ratings and may include high, medium, lower and unrated securities. However, the Fund may not invest more than 20% of its total assets in convertible securities rated below Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P") (including convertible securities that have been downgraded), or in unrated convertible securities that are of comparable quality as determined by the Fund's subadviser, Wellington Management Company ("WMC" or "Subadviser"). Convertible securities rated lower than BBB by S&P or Baa by Moody's, commonly referred to as "junk bonds," are speculative and generally involve a higher risk of loss of principal and income than higher-rated securities. See "Debt Securities-Risk Factors" below, and Appendix A to the SAI for a description of convertible security ratings.
The Fund may invest up to 35% of its total assets in the following instruments: money market instruments, including U.S. bank certificates of deposit, bankers' acceptances, commercial paper issued by domestic corporations and repurchase agreements; fixed income securities, including obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government Obligations"), including mortgage-backed securities, and corporate debt securities rated at least Baa by Moody's or BBB by S&P, commonly known as "investment grade securities" or unrated securities that are of comparable quality as determined by the Subadviser; and common stock and securities convertible into common stock of companies that are not paying a dividend if there exists the potential for growth of capital or future income. See "Description of Certain Securities, Other Investment Policies and Risk Factors," below, and the SAI for additional information concerning these securities. It is the Fund's policy to attempt to sell, within a reasonable time period, a debt security which has been downgraded below investment grade (other than convertible securities, as previously discussed), provided that such disposition is in the best interests of the Fund and its shareholders. See "Debt Securities-Risk Factors," below, and Appendix A to the SAI for a description of corporate bond ratings.
Generally, the prices of equity securities could be affected by such factors as a change in a company's earnings, fluctuations in interest rates or changes in the rate of economic growth. To the extent the Fund invests in issuers with small capitalizations, the Fund would be subject to greater risk than may be involved in investing in companies with larger capitalizations. These securities generally include newer and less seasoned companies which are more speculative than securities issued by well-established issuers. Other risks may include less available information about the issuer, the absence of a business history or historical pattern of performance, as well as normal risks which accompany the development of new products, markets or services.
The Fund may invest up to 20% of its total assets in securities of well-established foreign companies in developed countries which are traded on a recognized domestic or foreign securities exchange. Although such foreign securities may be denominated in foreign currencies, the Fund anticipates that the majority of its foreign investments will be in American Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs"). See "Foreign Securities-Risk Factors" and "American Depository Receipts and Global Depository Receipts." Although it does not intend to engage in these strategies in the coming year, the Fund may enter into forward currency contracts to protect against uncertainty in the level of future exchange rates. The Subadviser will not attempt to time actively either short-term market trends or short-term currency trends in any market. See "Hedging and Option Income Strategies" in the SAI.
The Fund may also borrow money for temporary or emergency purposes in amounts not exceeding 5% of its net assets, make loans of portfolio securities and invest in securities issued on a "when-issued" or delayed delivery basis. In addition, in any period of market weakness or of uncertain market or economic conditions, the Fund may establish a temporary defensive position to preserve capital by having up to 100% of its assets invested in short-term fixed income securities or retained in cash or cash equivalents. See "Description of Certain Securities, Other Investment Policies and Risk Factors" for additional information concerning these securities.
Made In The U.S.A. Fund
Made In The U.S.A. Fund seeks long-term capital growth by investing, under normal market conditions, at least 75% of its total assets in common and preferred stocks of companies that the Adviser considers to have potential for capital growth. In addition, under normal market conditions, 65% of the Fund's total assets will be invested in securities of companies that have a medium market capitalization and are incorporated and have their principal place of business in the United States, irrespective of whether they have most of their operations in the United States. This could result in the Fund investing in companies that do not actually manufacture products in the United States. An investment in the Fund will not necessarily promote manufacturing or employment in the United States since many companies that are incorporated and have their principal place of business in the United States have significant operations outside of the United States.
The Fund seeks to invest in growth equity securities, including securities of companies with above-average earnings growth as compared to the average of the stocks in the Standard & Poor's 500 Composite Stock Price Index, other companies that the Adviser believes demonstrate changing or accelerating growth records, and companies with outstanding growth records and potential based on the Adviser's fundamental analysis of the company. The companies in which the Fund will invest will be primarily those with medium market capitalization. Market capitalization is the total market value of a company's outstanding common stock. Companies with medium capitalization are those companies with a market capitalization of between $750 million and $5 billion, but which could be higher under certain market conditions. Growth equity securities tend to have above-average price/earnings ratios and less-than-average current yields compared to non-growth equity securities. The payment of dividend income will not be a primary consideration in the selection of equity investments.
Although the companies in which the Fund will invest will be primarily those with medium market capitalizations, the Fund may also invest in companies with small market capitalizations, as discussed under "Investment Objectives and Policies - Growth & Income Fund."
The majority of the Fund's equity investments are securities listed on the New York Stock Exchange ("NYSE"), other national securities exchanges or securities that have an established over-the-counter ("OTC") market, although the depth and liquidity of the OTC market may vary from time to time and from security to security. The Fund's policy of investing in seasoned companies with above-average earnings growth, other companies with changing or accelerating growth profiles and companies with outstanding growth records and potential subjects the Fund to greater risk than may be involved in investing in securities that are not selected for such growth characteristics.
The Fund may invest up to 25% of its total assets in U.S. Government Obligations, including mortgage-backed securities, and investment grade debt securities or unrated securities that are of comparable quality as determined by the Adviser, repurchase agreements, investment grade securities convertible into common stock, warrants to purchase common stock and zero coupon and pay-in-kind securities. See "Description of Certain Securities, Other Investment Policies and Risk Factors," below, and "Investment Policies" in the SAI for information on these securities. The Fund may borrow money for temporary or emergency purposes in an amount not exceeding 5% of its net assets, invest in securities issued on a "when-issued" or delayed delivery basis and engage in short sales "against the box." The Adviser continually monitors the investments in the Fund's portfolio and carefully evaluates on a case-by-case basis whether to dispose of or retain a debt security that has been downgraded below investment grade. No more than 5% of the Fund's net assets will remain invested in such downgraded securities. See Appendix A to the SAI for a description of corporate bond ratings.
In any period of market weakness or of uncertain market or economic conditions, the Fund may establish a temporary defensive position to preserve capital by having all or part of its assets invested in short-term fixed income securities or retained in cash or cash equivalents, including U.S. Government Obligations, mortgage-backed securities, bank certificates of deposit, bankers' acceptances and commercial paper issued by domestic corporations. See "Description of Certain Securities, Other Investment Policies and Risk Factors."
The primary investment objective of Utilities Income Fund is to seek high current income. Long-term capital appreciation is a secondary objective. The Fund seeks its objectives by investing, under normal market conditions, at least 65% of its total assets in equity and debt securities issued by companies primarily engaged in the public utilities industry. Equity securities in which the Fund may invest include common stocks, preferred stocks, securities convertible into common stocks or preferred stocks and warrants to purchase common or preferred stocks. Debt securities in which the Fund may invest will be rated at the time of investment at least A by Moody's or S&P or will be of comparable quality as determined by the Adviser. The Fund's policy is to attempt to sell, within a reasonable time period, a debt security in its portfolio which has been downgraded below A, provided that such disposition is in the best interests of the Fund and its shareholders. See Appendix A to the SAI for a description of corporate bond ratings. The portion of the Fund's assets invested in equity securities and in debt securities will vary from time to time due to changes in interest rates and economic and other factors.
The utilities companies in which the Fund will invest include companies primarily engaged in the ownership or operation of facilities used to provide electricity, gas, water or telecommunications (including telephone, telegraph and satellite, but not companies engaged in public broadcasting or cable television). For these purposes, "primarily engaged" means that (1) more than 50% of the company's assets are devoted to the ownership or operation of one or more facilities as described above, or (2) more than 50% of the company's operating revenues are derived from the business or combination of any of the businesses described above. It should be noted that based on this definition, the Fund may invest in companies which are also involved to a significant degree in non-public utilities activities.
Utilities stocks generally offer dividend yields that exceed those of industrial companies and their prices tend to be less volatile than stocks of industrial companies. However, utilities stocks can still be affected by the risks of the stock of industrial companies. Because the Fund concentrates its investments in public utilities companies, the value of its shares will be especially affected by factors peculiar to the utilities industry, and may fluctuate more widely than the value of shares of a fund that invests in a broader range of industries. See "Utilities Industries--Risk Factors."
The Fund may invest up to 35% of its total assets in the following instruments: debt securities (rated at least A by Moody's or S&P) and common and preferred stocks of non-utilities companies; U.S. Government Obligations; mortgage-backed securities; cash; and money market instruments consisting of prime commercial paper, bankers' acceptances, certificates of deposit and repurchase agreements. The Fund may invest in securities on a "when-issued" or delayed delivery basis, engage in short sales "against the box" and make loans of portfolio securities. The Fund may invest up to 10% of its net assets in ADRs. The Fund may borrow money for temporary or emergency purposes in amounts not exceeding 5% of its net assets. The Fund also may invest in zero coupon and pay-inkind securities. In addition, in any period of market weakness or of uncertain market or economic conditions, the Fund may establish a temporary defensive position to preserve capital by having up to 100% of its assets invested in short-term fixed income securities or retained in cash or cash equivalents. See "Description of Certain Securities, Other Investment Policies and Risk Factors," below, and "Investment Policies" in the SAI for a description of these securities.
General. Each Fund's net asset value fluctuates based mainly upon changes in the value of its portfolio securities. Each Fund's investment objective and certain investment policies set forth in the SAI that are designated fundamental policies may not be changed without shareholder approval. There can be no assurance that any Fund will achieve its investment objective.
Description of Certain Securities, Other Investment Policies and Risk Factors
American Depository Receipts and Global Depository Receipts. Growth & Income Fund may invest in sponsored and unsponsored ADRs and GDRs. ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities of foreign issuers, and other forms of depository receipts for securities of foreign issuers. Generally, ADRs, in registered form, are denominated in U.S. dollars and are designed for use in the U.S. securities markets. Thus, these securities are not denominated in the same currency as the securities into which they may be converted. In addition, the issuers of the securities underlying unsponsored ADRs are not obligated to disclose material information in the United States and, therefore, there may be less information available regarding such issuers and there may not be a correlation between such information and the market value to the ADRs. GDRs are issued globally and similar ownership arrangement. Generally, GDRs are designed for trading in non-U.S. securities markets. ADRs and GDRs are considered to be foreign securities by the Fund. See "Foreign Securities--Risk Factors."
Convertible Securities. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock of the same or a different issuer within a particular period of time at a specified price or formula. A convertible security entitles the holder to receive interest paid or accrued on debt or dividends paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Convertible securities have unique investment characteristics in that they generally (1) have higher yields than common stocks, but lower yields than comparable non-convertible securities, (2) are less subject to fluctuation in value than the underlying stock because they have fixed income characteristics, and (3) provide the potential for capital appreciation if the market price of the underlying common stock increases. Lower-rated and certain unrated convertible securities are subject to certain risks that may not be present with investments in higher-grade securities. See "Debt Securities-Risk Factors," below, and "Risk Factors of High Yield Securities" in the SAI.
Debt Securities--Risk Factors. The market value of debt securities, including convertible securities, is influenced primarily by changes in the level of interest rates. Generally, as interest rates rise, the market value of debt securities decreases. Conversely, as interest rates fall, the market value of debt securities increases. Factors which could result in a rise in interest rates, and a decrease in the market value of debt securities, include an increase in inflation or inflation expectations, an increase in the rate of U.S. economic growth, an expansion in the Federal budget deficit, or an increase in the price of commodities such as oil. In addition to interest rate risk, there is also credit risk involved in investing in debt securities. Debt obligations rated lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds," are speculative and generally involve a higher risk of loss of principal and income than higher-rated securities. See Appendix A to the SAI for a description of corporate bond and convertible security ratings.
The prices of lower-rated debt obligations, including convertible securities, tend to be less sensitive to interest rate changes than higher-rated investments, but may be more sensitive to adverse economic changes or individual corporate developments. Thus, there could be a higher incidence of default. This would affect the value of such securities and thus a Fund's net asset value. Further, if the issuer of a security owned by a Fund defaults, the Fund might incur additional expenses to seek recovery. Generally, when interest rates rise, the value of fixed rate debt obligations tends to decrease; when interest rates fall, the value of fixed rate debt obligations tends to increase. If a Fund experiences unexpected net redemptions in a rising interest rate market, it might be forced to sell certain securities, regardless of investment merit. This could result in decreasing the assets to which Fund expenses could be allocated and in a reduced rate of return for the Fund. While it is impossible to protect entirely against this risk, diversification of a Fund's portfolio and the careful analysis by the Adviser or the Subadviser of prospective portfolio securities should minimize the impact of a decrease in value of a particular security or group of securities in a Fund's portfolio.
The credit ratings issued by credit rating services may not fully reflect the true risks of an investment. For example, credit ratings typically evaluate the safety of principal and interest payments, not market value risk, of lower-rated debt securities. Also, credit rating agencies may fail to change on a timely basis a credit rating to reflect changes in economic or company affect a security's market value. Although the Adviser or the Subadviser consider ratings of recognized rating services such as Moody's and S&P, the Adviser or the Subadviser primarily rely on their own credit analysis, which includes a study of existing debt, capital structure, ability to service debt and to pay dividends, the issuer's sensitivity to economic conditions, its operating history and the current trend of earnings. Growth & Income Fund may invest in securities rated B by S&P or Moody's or, if unrated, deemed to be of comparable quality by the Subadviser. Debt obligations with these ratings, while currently having the capacity to meet interest payments and principal repayments, have a greater vulnerability to default. The Subadviser continually monitors the investments in the Fund's portfolio and carefully evaluates whether to dispose of or retain lowerrated debt securities whose credit ratings have changed. See Appendix A to the SAI for a description of corporate bond ratings.
Lower-rated debt securities are typically traded among a smaller number of broker-dealers than in a broad secondary market. Purchasers of such securities tend to be institutions, rather than individuals, which is a factor that further limits the secondary market. To the extent that no established retail secondary market exists, many lower-rated debt securities may not be as liquid as higher-grade securities. A less active and thinner market for such securities than that available for higher quality securities may result in more volatile valuations of a Fund's holdings and more difficulty in executing trades at fair value during unsettled market conditions. The ability of a Fund to value or sell lower-rated debt securities will be adversely affected to the extent that such securities are thinly traded or illiquid. See "Risks Factors of High Yield Securities" in the SAI.
Foreign Securities--Risk Factors. Growth & Income Fund may sell a security denominated in a foreign currency and retain the proceeds in that foreign currency to use at a future date (to purchase other securities denominated in that currency) or the Fund may buy foreign currency outright to purchase securities denominated in that foreign currency at a future date. Because the Fund does not presently intend to hedge its foreign investments against the risk of foreign currency fluctuations, changes in the value of these currencies can significantly affect the Fund's share price. In addition, the Fund will be affected by changes in exchange control regulations and fluctuations in the relative rates of exchange between the currencies of different nations, as well as by economic and political developments. Other risks involved in foreign securities include the following: there may be less publicly available information about foreign companies comparable to the reports and ratings that are published about companies in the United States; foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards and requirements comparable to those applicable to U.S. companies; some foreign stock markets have substantially less volume than U.S. markets, and securities of some foreign companies are less liquid and more volatile than securities of comparable U.S. companies; there may be less government supervision and regulation of foreign stock exchanges, brokers and listed companies than exist in the United States; and there may be the possibility of expropriation or confiscatory taxation, political or social instability or diplomatic developments which could affect assets of the Fund held in foreign countries.
Hedging and Option Income Strategies. Utilities Income Fund may attempt to reduce the overall risk of its investments (hedge) by using options and futures contracts and may engage in certain strategies involving options to attempt to enhance income. Growth & Income Fund may use forward currency contracts to protect against uncertainty in the level of future exchange rates. A Fund's ability to use these instruments may be limited by market conditions, regulatory tax considerations. Neither Fund presently intends to engage in these strategies. See the SAI for more information regarding hedging and option income strategies.
Money Market Instruments. Investments in commercial paper are limited to obligations rated Prime-1 by Moody's or A-1 by S&P. Commercial paper includes notes, drafts, or similar instruments payable on demand or having a maturity at the time of issuance not exceeding nine months, exclusive of days of grace or any renewal thereof. Investments in certificates of deposit will be made only with domestic institutions with assets in excess of $500 million. See the SAI for more information regarding money market instruments and Appendix B to the SAI for a description of commercial paper ratings.
Mortgage-Backed Securities. Mortgage loans often are assembled into pools, the interests in which are issued and guaranteed by an agency or instrumentality of the U.S. Government, though not necessarily by the U.S. Government itself. Interests in such pools are referred to herein as "mortgage-backed securities." The market value of these securities can and will fluctuate as interest rates and market conditions change. In addition, prepayment of principal by the mortgagees which often occurs with mortgage-backed securities when interest rates decline, can significantly change the realized yield of these securities. See the SAI for more information concerning mortgage-backed securities.
Preferred Stock. A preferred stock is a blend of the characteristics of a bond and common stock. It can offer the higher yield of a bond and has priority over common stock in equity ownership, but does not have the seniority of a bond and, unlike common stock, its participation in the issuer's growth may be limited. Preferred stock has preference over common stock in the receipt of dividends and in any residual assets after payment to creditors should the issuer be dissolved. Although the dividend is set at a fixed annual rate, in some circumstances it can be changed or omitted by the issuer.
Repurchase Agreements. Repurchase agreements are transactions in which a Fund purchases securities from a bank or recognized securities dealer and simultaneously commits to resell the securities to the bank or dealer at an agreed-upon date and price reflecting a market rate of interest unrelated to the coupon rate or maturity of the purchased securities. Each Fund's risk is limited to the ability of the seller to repurchase the securities at the agreed-upon price upon the delivery date. See the SAI for more information regarding repurchase agreements.
Restricted and Illiquid Securities. Each Fund may invest up to 15% of its net assets in illiquid securities, including (1) securities that are illiquid due to the absence of a readily available market or due to legal or contractual restrictions on resale and (2) repurchase agreements maturing in more than seven days. However, illiquid securities for purposes of this limitation do not include securities eligible for resale under Rule 144A under the Securities Act of 1933, as amended, which the Board of Directors or the Adviser or the Subadviser has determined are liquid under Boardapproved guidelines. See the SAI for more information regarding restricted and illiquid securities.
U.S. Government Obligations. Securities issued or guaranteed as to principal and interest by the U.S. Government include (1) U.S. Treasury obligations which differ only in their interest rates, maturities and times of issuance as follows: U.S. Treasury bills (maturities of one year or less), U.S. Treasury notes (maturities of one to ten years) and U.S. Treasury bonds (generally maturities of greater than ten years), and (2) obligations issued or agencies and instrumentalities that are backed by the full faith and credit of the U.S., such as securities issued by the Federal Housing Administration, Government National Mortgage Association, the Department of Housing and Urban Development, the Export-Import Bank, the General Services Administration and the Maritime Administration and certain securities issued by the Farmers Home Administration and the Small Business Administration. The range of maturities of U.S. Government Obligations is usually three months to thirty years.
Utilities Industries--Risk Factors. Many utilities companies, especially electric and gas and other energy-related utilities companies, have historically been subject to the risk of increases in fuel and other operating costs, changes in interest rates on borrowings for capital improvement programs, changes in applicable laws and regulations, and costs and operating constraints associated with compliance with environmental regulations. In particular, regulatory changes with respect to nuclear and conventionally-fueled power generating facilities could increase costs or impair the ability of utilities companies to operate such facilities or obtain adequate return on invested capital.
Certain utilities, especially gas and telephone utilities, have in recent years been affected by increased competition, which could adversely affect the profitability of such utilities companies. In addition, expansion by companies engaged in telephone communication services of their non-regulated activities into other businesses (such as cellular telephone services, data processing, equipment retailing, computer services and financial services) has provided the opportunity for increases in earnings and dividends at faster rates than have been allowed in traditional regulated businesses. However, technological innovations and other structural changes also could adversely affect the profitability of such companies.
Because securities issued by utilities companies are particularly sensitive to movement in interest rates, the equity securities of such companies are more affected by movement in interest rates than are the equity securities of other companies.
Each of these risks could adversely affect the ability and inclination of public utilities companies to declare or pay dividends and the ability of holders of common stock, such as Utilities Income Fund, to realize any value from the assets of the company upon liquidation or bankruptcy.
Portfolio Turnover. Made In The U.S.A. Fund had an increase in trading activity in 1995 because the Adviser restructured the Fund's portfolio to increase the diversity of the Fund's holdings. This resulted in a portfolio turnover rate of 106% for the Fund for the fiscal year ended October 31, 1995. A high rate of portfolio turnover generally leads to increased transaction costs and may result in a greater number of taxable transactions. See the SAI for the portfolio turnover rates for Growth & Income Fund and Utilities Income Fund and for more information on portfolio turnover.
Each Fund has two classes of shares, Class A and Class B, which represent interests in the same portfolio of securities and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that each class (i) is subject to a different sales charge and bears its separate distribution and certain other class expenses; (ii) has exclusive voting rights with respect to matters affecting only that class; and (iii) has different exchange privileges.
Class A Shares. Class A shares are sold with an initial sales charge of up to 6.25% of the amount invested with discounts available for volume purchases. Class A shares pay a 12b-1 fee at the annual rate of 0.30% of each Fund's average daily net assets attributable to Class A shares, of which no more than 0.25% may be paid as a service fee and the balance thereof paid as an asset-based sales charge. The initial sales charge is waived for certain purchases and a CDSC may be imposed on such purchases. See "How to Buy Shares."
Class B Shares. Class B shares are sold without an initial sales charge, but are generally subject to a CDSC which declines in steps from 4% to 0% during a six-year period and bear a higher 12b-1 fee than Class A shares. Class B shares pay a 12b-1 fee at the annual rate of 1.00% of each Fund's average daily net assets attributable to Class B shares, of which no more than 0.25% may be paid as a service fee and the balance thereof paid as an asset-based sales charge. Class B shares automatically convert into Class A shares after eight years. See "How to Buy Shares."
Factors to Consider in Choosing a Class of Shares. In deciding which alternative is most suitable, an investor should consider several factors, as discussed below. Regardless of whether an investor purchases Class A or Class B shares, your Representative, as defined under "How to Buy Shares," receives compensation for selling shares of a Fund, which may differ for each class.
The principal advantages of purchasing Class A shares are the lower overall expenses, the availability of quantity discounts on volume purchases and certain account privileges which are not offered to Class B shareholders. If an investor plans to make a substantial investment, the sales charge on Class A shares may either be lower due to the reduced sales charges available on volume purchases of Class A shares or waived for certain eligible purchasers. Because of the reduced sales charge available on quantity purchases of Class A shares, it is recommended that investments of $250,000 or more be made in Class A shares. Investments in excess of $1,000,000 will only be accepted as purchases of Class A shares. Distributions paid by each Fund with respect to Class A shares will also generally be greater than those paid with respect to Class B shares because expenses attributable to Class A shares will generally be lower.
The principal advantage of purchasing Class B shares is that, since no initial sales charge is paid, all of an investor's money is put to work from the outset. Furthermore, although any investment in a Fund should only be viewed as a long-term investment, if a redemption must be made soon after purchase, an investor will pay a lower sales charge than if Class A shares had been purchased. Conversely, because Class B shares are subject to a higher asset-based sales charge, long-term Class B shareholders may pay more in an asset-based sales charge than the economic equivalent of the maximum sales charge on Class A shares. The automatic conversion of Class B shares into Class A shares is designed to reduce the probability of this occurring.
You may buy shares of a Fund through a First Investors registered representative ("FIC Representative") or through a registered representative ("Dealer Representative") of an unaffiliated broker-dealer ("Dealer") which is authorized to sell shares of a Fund. Your FIC Representative or Dealer Representative (collectively, "Representative") may help you complete and submit an application to open an account with a Fund. Applications accompanied by checks drawn on U.S. banks made payable to "FIC" received in FIC's Woodbridge offices by the close of regular trading on the New York Stock Exchange ("NYSE"), generally 4:00 P.M. (New York City time), will be processed and shares will be purchased at the public offering price determined at the close of regular trading on the NYSE on that day. The "public offering price" is defined in this Prospectus as net asset value plus the applicable sales charge for Class A shares and net asset value for Class B shares. Orders given to Representatives before the close of regular trading on the NYSE and received by FIC at their Woodbridge offices before the close of its business day, generally 5:00 P.M. (New York City time), will be executed at the public offering price determined at the close of regular trading on the NYSE on that day. It is the responsibility of Representatives to promptly transmit orders they receive to FIC. Each Fund reserves the right to reject any application or order for its shares for any reason and to suspend the offering of its shares.
When you open a Fund account, you must specify which class of shares you wish to purchase. If you do not specify which class of shares you wish to purchase, your order will be processed according to procedures established by the Adviser. For more information, see the SAI.
Initial Investment in a Fund. You may open a Fund account with as little as $1,000. This account minimum is waived if you open an account for a particular class of shares through a full exchange of shares of the same class of another "Eligible Fund," as defined below. Class A share accounts opened through an exchange of shares from First Investors Cash Management Fund, Inc. or First Investors Tax-Exempt Money Market Fund, Inc. (collectively, "Money Market Funds") may be subject to an initial sales charge. You may open a Fund account with $250 for individual retirement accounts ("IRAs") or, at the Fund's discretion, a lesser amount for Simplified Employee Pension Plans ("SEPs"), salary reduction SEPs ("SARSEPs") and qualified or other retirement plans. Automatic investment plans allow you to open an account with as little as $50, provided you invest at least $600 a year. See "Systematic Investing."
Additional Purchases. After you make your first investment in a Fund, you may purchase additional shares of a Fund by mailing a check made payable to FIC, directly to First Investors Corporation, 581 Main Street, Woodbridge, NJ 07095-1198, Attn: Dept. CP. Include your account number on the face of the check. There is no minimum on additional purchases of Fund shares.
Eligible Funds. The funds in the First Investors family of funds, except as noted below, are eligible to participate in certain shareholder privileges noted in this Prospectus and the SAI (singularly, "Eligible Fund" and, collectively, "Eligible Funds"). First Investors Special Bond Fund, Inc., First Investors Life Series Fund and First Investors U.S. Government Plus Fund are not deemed to be Eligible Funds. The Money Market Funds, unless otherwise noted, are not deemed to be Eligible Funds. The series of Executive Investors Trust ("Executive Investors") are deemed to be Eligible Funds provided the shares of any such series either have been (a) acquired through an exchange from an Eligible Fund which imposes a maximum sales charge of 6.25%, or (b) held for at least one year from their date of purchase.
Systematic Investing. You may arrange for automatic investments in a Fund on a systematic basis through First Investors Money Line and through automatic payroll investments. You may also elect to invest in Class A shares of a Fund at net asset value all the cash distributions or Systematic Withdrawal Plan payments from the same class of shares of another Eligible Fund. If you wish to participate in any of these systematic investment plans, please call Shareholder Services at 1-800- 423-4026 or see the SAI.
Class A Shares. Class A shares of each Fund are sold at the public offering price, which will vary with the size of the purchase, as shown in the following table:
Sales Charge as % of Concession to Offering Net Amount Dealers as % of Amount of Investment Price Invested Offering Price Less than $25,000.................... 6.25% 6.67% 5.13% $25,000 but under $50,000............ 5.75 6.10 4.72 $50,000 but under $100,000........... 5.50 5.82 4.51 $100,000 but under $250,000.......... 4.50 4.71 3.69 $250,000 but under $500,000.......... 3.50 3.63 2.87 $500,000 but under $1,000,000........ 2.50 2.56 2.05
There is no sales charge on transactions of $1 million or more, including transactions of this amount which are subject to the Cumulative Purchase Privilege or a Letter of Intent. The Underwriter will pay from its own resources a sales commission to FIC Representatives and a concession equal to 0.90% of the amount invested to Dealers on such purchases. If shares are redeemed within 24 months of purchase (this holding period is 18 months for shares purchased prior to May 1, 1995), a CDSC of 1.00% will be deducted from the redemption proceeds. The CDSC will be applied in the same manner as the CDSC on the Class B shares. See "Class B Shares."
Cumulative Purchase Privilege and Letters of Intent. You may purchase Class A shares of a Fund at a reduced sales charge through the Cumulative Purchase Privilege or by executing a Letter of Intent. For more information, see the SAI, call your Representative or call Shareholder Services at 1-800-423-4026.
Waivers of Class A Sales Charges. Sales charges on Class A shares do not apply to: (1) any purchase by an officer, director, trustee or full-time employee (who has completed the introductory period) of a Fund, the Underwriter, the Adviser, or their affiliates, by a Representative, or by the spouse, or by the children and grandchildren under the age of 21 of any such person; (2) any purchase by a former officer, director, trustee or full-time employee of Series Fund II, the Underwriter, the Adviser, or their affiliates, or by a former FIC Representative; provided they had acted as such for at least five years and had retired or otherwise terminated the relationship in good standing; (3) the proceeds of any settlement reached with FIC, FIMCO and/or certain First Investors funds; (4) any reinvestment of the loan repayments by a participant in a loan program of any First Investors sponsored qualified retirement plan; and (5) a purchase with proceeds from the liquidation of a First Investors Life Variable Annuity Fund A contract or a First Investors Life Variable Annuity Fund C contract during the one-year period preceding the maturity date of the contract.
The sales charge will be waived on any purchases of Class A shares by a participant in a Qualified Plan account, as defined under "Retirement Plans," if the purchase is made with the proceeds from a redemption of shares of a fund in another fund group on which either an initial sales charge or a CDSC has been paid.
Additionally, policyholders of participating life insurance policies issued by First Investors Life Insurance Company ("FIL"), an affiliate of the Adviser and Underwriter, may elect to invest dividends earned on such policies in Class A shares of a Fund at net asset value, provided the annual dividend is at least $50 and the policyholder has an existing account with the Fund.
Holders of certain unit trusts ("Unitholders") who have elected to invest the entire amount of cash distributions from either principal, interest income or capital gains or any combination thereof ("Unit Distributions") from the following trusts may invest such Unit Distributions in Class A shares of a Fund at a reduced sales charge. Unitholders of various series of New York Insured MunicipalsIncome Trust sponsored by Van Kampen Merritt Inc. (the "New York Trust"); Unitholders of various series of the Multistate Tax Exempt Trust sponsored by Advest Inc.; and Unitholders of various series of the Municipal Insured National Trust, J.C. Bradford & Co. as agent, may purchase Class A shares of a Fund with Unit Distributions at an offering price which is the net asset value per share plus a sales charge of 1.5%. Unitholders of various series of tax-exempt trusts, other than the New York Trust, sponsored by Van Kampen Merritt Inc. may purchase Class A shares of a Fund with Unit Distributions at an offering price which is the net asset value per share plus a sales charge of 1.0%. Each Fund's initial minimum investment requirement is waived for purchases of Class A shares with Unit Distributions. Shares of a Fund purchased by Unitholders may be exchanged for Class A shares of any Eligible Fund subject to the terms and conditions set forth under "How to Exchange Shares."
Retirement Plans. You may invest in shares of a Fund through an IRA, SEP, SARSEP or any other retirement plan. Participant directed plans, such as 401(k) plans, profit sharing and money purchase plans and 403(b) plans, that are subject to Title I of ERISA (each, a "Qualified Plan") are entitled to a reduced sales charge provided the number of employees eligible to participate are 99 or less, as follows:
Sales Charge as % of Concession to Offering Net Amount Dealers as % of
There is no sales charge on purchases through a Qualified Plan with 100 or more eligible employees. A CDSC of 1.00% will be deducted from the redemption proceeds of such accounts for redemptions made within 24 months of purchase. The CDSC will be applied in the same manner as the CDSC on Class B shares. See "Class B Shares." The Underwriter will pay from its own resources a sales commission to FIC Representatives and a concession equal to 0.90% of the amount invested to Dealers on such purchases. These sales charges will be available regardless of whether the account is registered with the Transfer Agent in the name of the individual participant or the sponsoring employer or plan trustee. A Qualified Plan account will be subject to the lower of the sales charge for Qualified Plans or the sales charge for the purchase of Fund shares (see page 16).
Class B Shares. The public offering price of Class B shares of each Fund is the next determined net asset value, with no initial sales charge imposed. A CDSC, however, is imposed upon most redemptions of Class B shares at the rates set forth below:
Year Since Purchase as a Percentage of Dollars Invested Payment Made or Redemption Proceeds
The CDSC will not be imposed on (1) the redemption of Class B shares acquired as dividends or other distributions, or (2) any increase in the net asset value of redeemed shares above their initial purchase price (in other words, the CDSC will be imposed on the lower of net asset value or purchase price). In determining whether a CDSC is payable on any redemption, it will be assumed that the redemption is made first of any Class B shares acquired as dividends or distributions, second of Class B shares that have been held for a sufficient period of time such that the CDSC no longer is applicable to such shares and finally of Class B shares held longest during the period of time that a CDSC is applicable to such shares. This will result in your paying the lowest possible CDSC.
As an example, assume an investor purchased 100 shares of Class B shares at $10 per share for a total cost of $1,000 and in the second year after purchase, the net asset value per share is $12 and, during such time, the investor has acquired 10 additional Class B shares as dividends. If at such time the investor makes his or her first redemption of 50 shares (proceeds of $600), 10 shares will not be subject to a CDSC charge because redemptions are first made of shares acquired through dividend reinvestment. With respect to the remaining 40 shares, the charge is applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be charged at a rate of 4.00% (the applicable rate in the second year after purchase).
For purposes of determining the CDSC on Class B shares, all purchases made during a calendar month will be deemed to have been made on the first business day of that month at the average cost of all purchases made during that month. The holding period of Class B shares acquired through an exchange with another Eligible Fund will be calculated from the first business day of the month that the Class B shares were initially acquired in the other Eligible Fund. The amount of any CDSC will be paid to FIC. The CDSC imposed on the purchase of Class B shares will be waived under certain circumstances. See "Waivers of CDSC on Class B Shares" in the SAI.
Conversion of Class B Shares. A shareholder's Class B shares will automatically convert to Class A shares approximately eight years after the date of purchase, together with a pro rata portion of all Class B shares representing dividends and other distributions paid in additional Class B shares. The Class B shares so converted will no longer be subject to the higher expenses borne by Class B shares. The conversion will be effected at the relative net asset values per share of the two classes on the first business day of the month following that in which the eighth anniversary of the purchase of the Class B shares occurs. If a shareholder effects one or more exchanges between Class B shares of the Eligible Funds during the eight-year period, the holding period for the shares so exchanged will commence upon the date of the purchase of the original share net asset value of the Class A shares may be higher than that of the Class B shares at the time of conversion, a shareholder may receive fewer Class A shares than the number of Class B shares converted. See "Determination of Net Asset Value."
General. The Underwriter may at times agree to reallow to Dealers up to an additional 0.25% of the dollar amount of shares of the Funds and/or certain other First Investors funds sold by such Dealers during a specific period of time. From time to time, the Underwriter also will pay, through additional reallowances or other sources, a bonus or other compensation to Dealers which employ a Dealer Representative who sells a minimum dollar amount of the shares of the Funds and/or certain other First Investors or Executive Investors funds during a specific period of time. Such bonus or other compensation may take the form of reimbursement of certain seminar expenses, co-operative advertising, or payment for travel expenses, including lodging incurred in connection with trips taken by qualifying Dealer Representatives to the Underwriter's principal office in New York City.
Should your investment needs change, you may exchange, at net asset value, shares of a Fund for shares of any Eligible Fund, including the Money Market Funds. In addition, Class A shares of a Fund may be exchanged at net asset value for units of any single payment plan ("plan") sponsored by the Underwriter. Shares of a particular class may be exchanged only for shares of the same class of another fund. Exchanges can only be made into accounts registered to identical owners. If your exchange is into a new account, it must meet the minimum investment and other requirements of the fund or plan into which the exchange is being made. Additionally, the fund or plan must be available for sale in the state where you reside. A $5.00 exchange fee is charged for each exchange into a Fund. However, currently this fee is being voluntarily borne by the fund into which you are making the exchange and, thus, that fund's shareholders are bearing the fee ratably. Before exchanging Fund shares for shares of another fund or plan, you should read the Prospectus of the fund or plan into which the exchange is to be made. You may obtain Prospectuses and information with respect to which funds or plans qualify for the exchange privilege free of charge by calling Shareholder Services at 1-800-423-4026. Exchange requests received in "good order" by the Transfer Agent before the close of regular trading on the NYSE will be processed at the net asset value determined as of the close of regular trading on the NYSE on that day; exchange requests received after that time will be processed on the following trading day.
Exchanges By Mail. To exchange shares by mail, you should mail requests to Administrative Data Management Corp. (the "Transfer Agent"), 581 Main Street, Woodbridge, NJ 07095-1198. Shares will be exchanged after the request is received in "good order" by the Transfer Agent. "Good order" means that an exchange request must include: (1) the names of the funds, account numbers (if existing accounts), the dollar amount, number of shares or percentage of the account you wish to exchange; and (2) the signature of all registered owners exactly as the account is registered. If the request is not in good order or information is missing, the Transfer Agent will seek additional information from you and process the exchange on the day it receives such information. Certain account registrations may require additional legal documentation in order to exchange. To review these requirements, please call Shareholder Services at 1-800-423-4026.
Exchanges By Telephone. See "Telephone Transactions."
Additional Exchange Information. Exchanges should be made for investment purposes only. A pattern of frequent exchanges may be contrary to the best interests of a Fund's other shareholders. Accordingly, each Fund has the right, at its sole discretion, to limit the amount of an exchange, reject any exchange, or, upon 60 days' notice, materially modify or discontinue the exchange privilege. Each Fund will consider all relevant factors in determining whether a particular frequency of exchanges is contrary to the best interests of the Fund and/or a class of the Fund and its other shareholders. Any such restriction will be made by a Fund on a prospective basis only, upon notice to the shareholder not later than ten days following such shareholder's most recent exchange.
You may redeem your Fund shares at the next determined net asset value, less any applicable CDSC, on any day the NYSE is open, directly through the Transfer Agent. Your Representative may help you with this transaction. Shares may be redeemed by mail or telephone (provided written authorization for telephone transactions is on file). Redemption requests received in "good order" by the Transfer Agent before the close of regular trading on the NYSE, will be processed at the net asset value, less any applicable CDSC, determined as of the close of regular trading on the NYSE on that day. Payment of redemption proceeds will be made within three days. If the shares being redeemed were recently purchased by check, payment may be delayed to verify that the check has been honored, normally not more than fifteen days.
Redemptions By Mail. Written redemption requests should be mailed to Administrative Data Management Corp., 581 Main Street, Woodbridge, NJ 07095-1198. For your redemption request to be in good order, you must include: (1) the name of the Fund; (2) your account number; (3) the dollar amount, number of shares or percentage of the account you want redeemed; (4) share certificates, if issued; (5) the original signatures of all registered owners exactly as the account is registered; (6) signature guarantees as described below; and (7) additional documents required for redemptions by corporations, trusts, partnerships, organizations, retirement, pension or profit sharing plans and for requests from anyone other than the shareholder(s) of record. If your redemption request is not in good order or information is missing, the Transfer Agent will seek additional information and process the redemption on the day it receives such information. Certain account registrations may require additional legal documentation in order to redeem. To review these requirements, please call Shareholder Services at 1-800-423-4026.
Signature Guarantees. In order to protect you, the Funds and their agents, each Fund reserves the right to require signature guarantees in order to process certain exchange or redemption requests. Members of the STAMP (Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion Signature Program), SEMP (Stock Exchanges Medallion Program) and FIC are eligible signature guarantors. A notary public is not an acceptable guarantor. See the SAI or call Shareholder Services at 1-800-423-4026 for instances when signature guarantees are required.
Redemptions By Telephone. See "Telephone Transactions."
Systematic Withdrawal Plan. If you own noncertificated shares, you may set up a plan for redemptions to be made automatically at regular intervals. You may elect to have the payments automatically (a) sent directly to you or persons you designate; or (b) invested in shares of the same class of any other Eligible Fund, including the Money Market Funds; or (c) paid to FIL for the purchase of a life insurance policy or a variable annuity. See the SAI for more information on
Systematic Withdrawal Plan. To establish a Systematic Withdrawal Plan, call Shareholder Services at 1-800-423-4026.
Reinvestment after Redemption. If you redeem Class A or Class B shares in your Fund account, you can reinvest within ninety days from the date of redemption all or any part of the proceeds in shares of the same class of the same Fund or any other Eligible Fund, including the Money Market Funds, at net asset value, on the date the Transfer Agent receives your purchase request. For more information on the reinvestment privilege, please see the SAI or call Shareholder Services at 1-800-423-4026.
Repurchase through Underwriter. You may redeem Class A shares for which a certificate has been issued through a Dealer. In this event, the Underwriter, acting as agent for each Fund, will offer to repurchase or accept an offer to sell such shares at a price equal to the net asset value next determined after the making of such offer. The Dealer may charge you an added commission for handling any redemption transaction.
Redemption of Low Balance Accounts. Because each Fund incurs certain fixed costs in maintaining shareholder accounts, each Fund may redeem without your consent, on at least 60 days' prior written notice (which may appear on your account statement), any Fund account of Class A or Class B shares which has a net asset value of less than $500. To avoid such redemption, you may, during such 60-day period, purchase additional Fund shares of the same class so as to increase your account balance to the required minimum. There will be no CDSC imposed on such redemptions of Class B shares. A Fund will not redeem accounts that fall below $500 solely as a result of a reduction in net asset value. Accounts established under a Systematic Investment Plan which have been discontinued prior to meeting the $1,000 minimum are subject to this policy.
Additional information concerning how to redeem shares of the Fund is available upon request to your Representative or Shareholder Services at 1-800-423-4026.
You may redeem or exchange noncertificated shares of a Fund by calling the Special Services Department at 1-800-342-6221 weekdays (except holidays) between 9:00 A.M. and 5:00 P.M. (New York City time). Exchange or redemption requests received before the close of regular trading on the NYSE, will be processed at the net asset value, less any applicable CDSC, determined as of the close of business on that day. For more information on telephone privileges, please call Shareholder Services at 1-800-423-4026 or see the SAI.
Telephone Exchanges. Exchange requests may be made by telephone (for shares held on deposit only). You are limited to one telephone exchange within any 30-day period for each account authorized. Telephone exchanges to Money Market Funds are not available if your address of record has changed within 60 days prior to the exchange request. Telephone exchange instructions will be accepted from any one owner.
Telephone Redemptions. The telephone redemption privilege may be used provided: (1) the redemption proceeds are being mailed to the address of record; (2) your address of record has not changed within the past 60 days; (3) the shares to be redeemed have not been issued in certificate form; (4) the proceeds of the redemption do not exceed $50,000; and (5) shares have not been redeemed by telephone from the account in the past 30 days. For joint accounts, telephone redemption instructions will be accepted from any one owner.
Additional Information. Series Fund II, the Adviser, the Underwriter and their officers, directors and employees will not be liable for any loss, damage, cost or expense arising out of any instruction (or any interpretation of such instruction) received by telephone which they reasonably believe to be authentic. In acting upon telephone instructions, these parties use procedures which are reasonably designed to ensure that such instructions are genuine. This policy places the entire risk of loss for unauthorized or fraudulent transactions on the shareholder, except that if Series Fund II, the Adviser, the Underwriter and their officers, directors and employees do not follow reasonable procedures, some or all of them may be liable for any such losses. For more information on telephone transactions see the SAI. Each Fund has the right, at its sole discretion, upon 60 days' notice, to materially modify or discontinue the telephone exchange and redemption privilege. During times of drastic economic or market changes, telephone exchanges or redemptions may be difficult to implement. If you experience difficulty in making a telephone exchange or redemption, your exchange or redemption request may be made by regular or express mail, and it will be implemented at the next determined net asset value, less any applicable CDSC, following receipt by the Transfer Agent.
Board of Directors. Series Fund II's Board of Directors, as part of its overall management responsibility, oversees various organizations responsible for each Fund's day-to-day management.
Adviser. First Investors Management Company, Inc. supervises and manages each Fund's investments, supervises all aspects of each Fund's operations and, for Made In The U.S.A. Fund and Utilities Income Fund, determines those Funds' portfolio transactions. The Adviser is a New York corporation located at 95 Wall Street, New York, NY 10005. The Adviser presently acts as investment adviser to 14 mutual funds. First Investors Consolidated Corporation ("FICC") owns all of the voting common stock of the Adviser and all of the outstanding stock of FIC and the Transfer Agent. Mr. Glenn O. Head (and members of his family) and Mrs. Julie W. Grayson (as executrix of the estate of her deceased husband, David D. Grayson) are controlling persons of FICC and, therefore, jointly control the Adviser.
As compensation for its services, the Adviser receives an annual fee from each of the Funds, which is payable monthly. For the fiscal year ended October 31, 1995, advisory fees, net of waiver for Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund were 0.53%, 0.58% and 0.46%, respectively, of each Fund's average daily net assets.
Each Fund bears all expenses of its operations other than those incurred by the Adviser or Underwriter under the terms of its advisory or underwriting agreements. Fund expenses include, but are not limited to: the advisory fee; shareholder servicing fees and expenses; custodian fees and expenses; legal and auditing fees; expenses of communicating to existing shareholders, including preparing, printing and mailing prospectuses and shareholder reports to such shareholders; and proxy and shareholder meeting expenses.
Subadviser-Growth & Income Fund. Wellington Management Company has been retained by the Adviser and Series Fund II as the investment subadviser to Growth & Income Fund. The
Adviser has delegated discretionary trading authority to WMC with respect to all of the Fund's assets, subject to the continuing oversight and supervision by the Adviser. As compensation for its services, WMC is paid by the Adviser, and not by the Fund, a fee which is computed daily and paid monthly.
WMC, located at 75 State Street, Boston, MA 02109, is a Massachusetts general partnership of which Robert W. Doran, Duncan M. McFarland and John R. Ryan are Managing Partners. WMC is a professional investment counseling firm which provides investment services to investment companies, employee benefit plans, endowment funds, foundations and other institutions and individuals. As of October 31, 1995, WMC held investment management authority with respect to approximately $102.2 billion of assets. Of that amount, WMC acted as investment adviser or subadviser to approximately 110 registered investment companies or series of such companies, with net assets of approximately $70.6 billion as of October 31, 1995. WMC is not affiliated with the Adviser or any of its affiliates.
For the fiscal year ended October 31, 1995, the Subadviser's fees amounted to 0.32% of Growth & Income Fund's average daily net assets, all of which was paid by the Adviser and not by the Fund.
Portfolio Managers. Patricia D. Poitra, Director of Equities, has been primarily responsible for the day-to-day management of the Made In The U.S.A. Fund since October 1994. Ms. Poitra is assisted by a team of portfolio analysts. Ms. Poitra also is responsible for the management of the Special Situation Series, the Blue Chip Series and the small capitalization equity portion of the Total Return Series, all Series of First Investors Series Fund. In addition, Ms. Poitra is responsible for the management of the Blue Chip Fund and Discovery Fund of First Investors Life Series Fund and the Blue Chip Fund of Executive Investors Trust. Ms. Poitra joined FIMCO in 1985 as a Senior Equity Analyst.
Margaret R. Haggerty has been Portfolio Manager for Utilities Income Fund since its inception in February 1993. Ms. Haggerty joined FIMCO in 1990 as an analyst for several First Investors equity funds. In addition, she monitored the management of several First Investors funds for which WMC was the subadviser. Ms. Haggerty has been Portfolio Manager of the Utilities Income Fund of First Investors Life Series Fund since its inception in November 1993.
Growth & Income Fund has been managed since its inception in 1993 by Laura J. Allen, Vice President of WMC. Ms. Allen joined WMC in 1981 as a portfolio assistant and became a portfolio manager in 1984.
Brokerage. Each Fund may allocate brokerage commissions, if any, to broker-dealers in consideration of Fund share distribution, but only when execution and price are comparable to that offered by other broker-dealers. See the SAI for more information on allocation of portfolio brokerage.
Underwriter. Series Fund II has entered into an Underwriting Agreement with First Investors Corporation, 95 Wall Street, New York, NY 10005, as Underwriter. The Underwriter receives all sales charges in connection with the sale of each Fund's Class A shares and all contingent deferred sales charges in connection with each Fund's Class B shares and may receive payments under a plan of distribution. See "How to Buy Shares" and "Distribution Plans."
Pursuant to separate distribution plans pertaining to each Fund's Class A and Class B shares ("Class A Plan" or "Class B Plan," and collectively, "Plans"), each Fund is authorized to compensate the Underwriter for certain expenses incurred in the distribution of that Fund's shares ("distribution fees") and the servicing or maintenance of existing Fund shareholder accounts ("service fees"). Pursuant to the Plans, distribution fees are paid for activities relating to the distribution of Fund shares, including costs of printing and dissemination of sales material or literature, prospectuses and reports used in connection with the sale of Fund shares. Service fees are paid for the ongoing maintenance and servicing of existing shareholder accounts, including payments to Representatives who provide shareholder liaison services to their customers who are holders of that Fund, provided they meet certain criteria.
Pursuant to the Class A Plan, each Fund is authorized to pay the Underwriter a distribution fee at the annual rate of 0.05% of that Fund's average daily net assets attributable to Class A shares and a service fee of 0.25% of that Fund's average daily net assets attributable to Class A shares. Pursuant to the Class B Plan, each Fund is authorized to pay the Underwriter a distribution fee at the annual rate of 0.75% of that Fund's average daily net assets attributable to Class B shares and a service fee of 0.25% of that Fund's average daily net assets attributable to Class B shares. Payments made to the Underwriter under the Plans represent compensation for distribution and service activities, not reimbursement for specific expenses incurred.
Although Class B shares are sold without an initial sales charge, the Underwriter pays from its own resources a sales commission to FIC Representatives and a concession equal to 3.5% of the amount invested to Dealers who sell Class B shares. In addition, the Underwriter will make quarterly payments of service fees to Representatives commencing after the thirteenth month following the initial sale of Class B shares. The Underwriter will make such payments at an annual rate of up to 0.25% of the average net asset value of Class B shares which are attributable to shareholders for whom the Representatives are designated as dealer of record.
A Fund may suspend or modify payments under the Plans at any time, and payments are subject to the continuation of each Plan, the terms of any dealer agreements between Dealers and the Underwriter and any applicable limits imposed by the National Association of Securities Dealers, Inc. Each Fund will not carry over any fees under the Plans to the next fiscal year. See "Distribution Plans" in the SAI for a full discussion of the various Plans.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund's shares fluctuates and is determined separately for each class of shares. The per share net asset value of the Class B shares will generally be lower than that of the Class A shares because of the higher expenses borne by the Class B shares. The net asset value of shares of a given class of each Fund is determined as of the close of regular trading on the NYSE (generally 4:00 P.M., New York City time) on each day the NYSE is open for trading, and at such other times as the Board of Directors deems necessary, by dividing the market value of the securities held by such Fund, plus any cash and other assets, less all liabilities, by the number of shares of the applicable class outstanding. If there is no available market value, securities will be valued at their fair value as determined in good faith pursuant to procedures adopted by the Board of Directors.
The NYSE currently observes the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Dividends from net investment income are generally declared and paid quarterly by Growth & Income Fund and Utilities Income Fund and annually by Made In The U.S.A. Fund. Unless you direct the Transfer Agent otherwise, dividends declared on a class of shares of a Fund are paid in additional shares of that class at the net asset value generally determined as of the close of business on the business day immediately following the record date of the dividend. Net investment income includes interest, earned discount, dividends and other income earned on portfolio securities less expenses.
Each Fund also distributes with its regular dividend at the end of the year substantially all of its net capital gain (the excess of net long-term capital gain over net short-term capital loss) and net short-term capital gain, if any, after deducting any available capital loss carryovers and, for Growth & Income Fund, any net realized gains from foreign currency transactions. Unless you direct the Transfer Agent otherwise, these distributions are paid in additional shares of the same class of the distributing Fund at the net asset value generally determined as of the close of business on the business day immediately following the record date of the distribution. A Fund may make an additional distribution in any year if necessary to avoid a Federal excise tax on certain undistributed income and capital gain.
Dividends and other distributions paid on both classes of a Fund's shares are calculated at the same time and in the same manner. Dividends on Class B shares of a Fund are expected to be lower than those for its Class A shares because of the higher distribution fees borne by the Class B shares. Dividends on each class also might be affected differently by the allocation of other class-specific expenses.
In order to be eligible to receive a dividend or other distribution, you must own Fund shares as of the close of business on the record date of the distribution. You may elect to receive dividends and/or other distributions in cash by notifying the Transfer Agent by telephone or in writing prior to the record date of any such distribution. If you elect this form of payment, the payment date generally is two weeks following the record date of any such distribution. Your election remains in effect until you revoke it by written notice to the Transfer Agent.
You may elect to invest the entire amount of any cash distribution on Class A shares in shares of the same class of any Eligible Fund, including the Money Market Funds, by notifying the Transfer Agent. See the SAI or call Shareholder Services at 1-800-423-4026 for more information. The investment will be made at the net asset value per share of the other fund, generally determined as of the close of business, on the business day immediately following the record date of any such distribution.
A dividend or other distribution paid on a class of shares of a Fund will be paid in additional shares of that class and not in cash if any of the following events occurs: (1) the total amount of the distribution is under $5, (2) the Fund has received notice of your death on an individual account (until written alternate payment instructions and other necessary documents are legal representative), or (3) a distribution check is returned to the Transfer Agent, marked as being undeliverable, by the U.S. Postal Service after two consecutive mailings.
Each Fund intends to continue to qualify for treatment as a regulated investment company under the Code so that it will be relieved of Federal income tax on that part of its investment company taxable income (consisting generally of net investment income, net short-term capital gain and, for Growth & Income Fund, net gains from certain foreign currency transactions) and net capital gain that is distributed to its shareholders.
Dividends from a Fund's investment company taxable income are taxable to you as ordinary income, to the extent of the Fund's earnings and profits, whether paid in cash or in additional Fund shares. Distributions of a Fund's net capital gain, when designated as such, are taxable to you as long-term capital gain, whether paid in cash or in additional Fund shares, regardless of the length of time you have owned your shares. If you purchase shares shortly before the record date for a dividend or other distribution, you will pay full price for the shares and receive some portion of the price back as a taxable distribution. You will receive an annual statement following the end of each calendar year describing the tax status of distributions paid by the Fund during that year.
Each Fund is required to withhold 31% of all dividends, capital gain distributions and redemption proceeds payable to you (if you are an individual or certain other non-corporate shareholder) if the Fund is not furnished with your correct taxpayer identification number, and that percentage of dividends and such distributions in certain other circumstances.
Your redemption of Fund shares will result in a taxable gain or loss to you, depending on whether the redemption proceeds are more or less than your adjusted basis for the redeemed shares (which normally includes any initial sales charge paid on Class A shares). An exchange of Fund shares for shares of any Eligible Fund generally will have similar tax consequences. However, special tax rules apply when a shareholder (1) disposes of Class A shares through a redemption or exchange within 90 days of purchase and (2) subsequently acquires Class A shares of an Eligible Fund without paying a sales charge due to the 90-day reinvestment privilege or exchange privilege. In these cases, any gain on the disposition of the original Class A shares will be increased, or loss decreased, by the amount of the sales charge paid when the shares were acquired, and that amount will increase the basis of the Eligible Fund's shares subsequently acquired. In addition, if you purchase Fund shares within 30 days before or after redeeming other shares of that Fund (regardless of class) at a loss, all or a portion of the loss will not be deductible and will increase the basis of the newly purchased shares. No gain or loss will be recognized to a shareholder as a result of a conversion of Class B shares into Class A shares.
The foregoing is only a summary of some of the important Federal tax considerations generally affecting each Fund and its shareholders; see the SAI for a further discussion. There may be other Federal, state and local tax considerations applicable to a particular investor. You therefore are urged to consult you own tax adviser.
For purposes of advertising, each Fund's performance may be calculated for each class of its shares based on average annual total return and total return. Each of these figures reflects past performance and does not necessarily indicate future results. Average annual total return shows the average annual percentage change in an assumed $1,000 investment. It reflects the hypothetical annually compounded return that would have produced the same total return if a Fund's performance had been constant over the entire period. Because average annual total return tends to smooth out variations in a Fund's return, you should recognize that it is not the same as actual year-by-year results. Average annual total return includes the effect of paying the maximum sales charge (in the case of Class A shares) or the deduction of any applicable CDSC (in the case of Class B shares) and payment of dividends and other distributions in additional shares. One, five and ten year periods will be shown unless the class has been in existence for a shorter period. Total return is computed using the same calculations as average annual total return. However, the rate expressed is the percentage change from the initial $1,000 invested to the value of the investment at the end of the stated period. Total return calculations assume reinvestment of dividends and other distributions.
Each of the above performance calculations may be based on investment at reduced sales charge levels or at net asset value. Any quotation of performance figures not reflecting the maximum sales charge will be greater than if the maximum sales charge were used. Additional performance information is contained in the Funds' Annual Report which may be obtained without charge by contacting the Funds at 1-800-423-4026.
Organization. Series Fund II is a Maryland corporation organized on April 1, 1992. Series Fund II is authorized to issue 400 million shares of common stock, $0.001 par value, in such separate and distinct series and classes of shares as Series Fund II's Board of Directors shall from time to time establish. The shares of common stock of Series Fund II are presently divided into three separate and distinct series, each having two classes, designated Class A shares and Class B shares. Each class of a Fund represents interests in the same assets of that Fund. The classes differ in that (1) each class has exclusive voting rights on matters affecting only that class, (2) Class A shares are subject to an initial sales charge and relatively lower ongoing distribution fees, (3) Class B shares bear higher ongoing distribution fees, are subject to a CDSC upon certain redemptions and will automatically convert to Class A shares approximately eight years after purchase, (4) each class may bear differing amounts of certain other class-specific expenses, and (5) each class has different exchange privileges. The Board of Directors anticipates that there will not be any conflicts among the interests of the holders of the different classes of each Fund's shares. On an ongoing basis, the Board of Directors will consider whether any such conflict exists and, if so, take appropriate action. Series Fund II does not hold annual shareholder meetings. If requested to do so by the holders of at least 10% of Series Fund II's outstanding shares, the Board of Directors will call a special meeting of shareholders for any purpose, including the removal of Directors. Each share of each Fund has equal voting rights except as noted above. Each share of a Fund is entitled to participate equally in dividends and other distributions and the proceeds of any liquidation except that, due to the higher expenses borne by the Class B shares, such dividends and proceeds are likely to be lower for the Class B shares than for the Class A shares.
Custodian. The Bank of New York, 48 Wall Street, New York, NY 10286, is custodian of the securities and cash of each Fund and may employ foreign sub-custodians to provide custody of Growth & Income Fund's foreign assets.
Transfer Agent. Administrative Data Management Corp., 581 Main Street, Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer and dividend disbursing agent for each Fund and as redemption agent for regular redemptions. The Transfer Agent's telephone number is 1-800-423-4026.
Share Certificates. The Funds do not issue certificates for Class B shares or for Class A shares purchased under any retirement account. The Funds, however, will issue share certificates on Class A shares at the shareholder's request. Ownership of shares of each Fund is recorded on a stock register by the Transfer Agent and shareholders have the same rights of ownership with respect to such shares as if certificates had been issued.
Confirmations and Statements. You will receive confirmations of purchases and redemptions of shares of a Fund. A statement of shares owned will be sent to you following a transaction in the account, including payment of a dividend or capital gain distribution in additional shares or cash.
Shareholder Inquiries. Shareholder inquiries can be made by calling Shareholder Services at 1-800-423-4026.
Annual and Semi-Annual Reports to Shareholders. It is the Funds' practice to mail only one copy of its annual and semi-annual reports to any address at which more than one shareholder with the same last name has indicated that mail is to be delivered. Additional copies of the reports will be mailed if requested in writing or by telephone by any shareholder. The Funds will mail an additional copy of such reports to any shareholder who subsequently changes his or her mailing address.
FIRST INVESTORS SERIES FUND II, INC. Made In The U.S.A. Fund
New York, New York 10005
This is a Statement of Additional Information ("SAI") for First Investors Series Fund II, Inc. ("Series Fund II"), an open-end diversified management investment company. Series Fund II offers three separate series, each of which has different investment objectives and policies: Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund (each, a "Fund"). The investment objectives of each Fund is as follows:
Growth & Income Fund seeks long-term growth of capital and current income.
Made In The U.S.A. Fund seeks long-term capital growth.
Utilities Income Fund primarily seeks high current income. Long-term capital appreciation is a secondary objective.
There can be no assurance that any Fund will achieve its investment objective.
This SAI is not a prospectus. It should be read in conjunction with the Funds' Prospectus dated February 15, 1996, which may be obtained free of cost from the Funds at the address or telephone number noted above.
Hedging and Option Income Strategies................................. Investment Restrictions.............................................. Directors and Officers............................................... Management........................................................... Underwriter.......................................................... Distribution Plan.................................................... Determination of Net Asset Value..................................... Allocation of Portfolio Brokerage.................................... Reduced Sales Charges, Additional Exchange and Redemption Information and Other Services.......................... Taxes................................................................ Performance Information.............................................. General Information.................................................. Appendix A........................................................... Appendix B........................................................... Appendix C........................................................... Financial Statements.................................................
Bankers' Acceptances. Each Fund may invest in bankers' acceptances. Bankers' acceptances are short-term credit instruments used to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an asset or it may be sold in the secondary market at the going rate of interest for a specific maturity. Although maturities for acceptances can be as long as 270 days, most acceptances have maturities of six months or less.
Certificates of Deposit. Each Fund may invest in bank certificates of deposit ("CDs") subject to the restrictions set forth in the Prospectus. The Federal Deposit Insurance Corporation is an agency of the U.S. Government which insures the deposits of certain banks and savings and loan associations up to $100,000 per deposit. The interest on such deposits may not be insured if this limit is exceeded. Current Federal regulations also permit such institutions to issue insured negotiable CDs in amounts of $100,000 or more, without regard to the interest rate ceilings on other deposits. To remain fully insured, these investments currently must be limited to $100,000 per insured bank or savings and loan association.
Convertible Securities. While no securities investment is without some risk, investments in convertible securities generally entail less risk than the issuer's common stock, although the extent to which such risk is reduced depends in large measure upon the degree to which the convertible security sells above its value as a fixed income security. First Investors Management Company, Inc. ("FIMCO" or "Adviser"), or for Growth & Income Fund, its subadviser, Wellington Management Company ("WMC" or "Subadviser"), will decide to invest based upon a fundamental analysis of the long-term attractiveness of the issuer and the underlying common stock, the evaluation of the relative attractiveness of the current price of the underlying common stock, and the judgment of the value of the convertible security relative to the common stock at current prices.
Loans of Portfolio Securities. Growth & Income Fund and Utilities Income Fund may loan securities to qualified broker-dealers or other institutional investors provided: the borrower pledges to a Fund and agrees to maintain at all times with the Fund collateral equal to not less than 100% of the value of the securities loaned (plus accrued interest or dividend, if any); the loan is terminable at will by the Fund; the Fund pays only reasonable custodian fees in connection with the loan; and the Adviser or the Subadviser monitors the creditworthiness of the borrower throughout the life of the loan. Such loans may be terminated by a Fund at any time and the Fund may vote the proxies if a material event affecting the investment is to occur. The market risk applicable to any security loaned remains a risk of the Fund. The borrower must add to the collateral whenever the market value of the securities rises above the level of such collateral. A Fund could incur a loss if the borrower should fail financially at a time when the value of the loaned securities is greater than the collateral.
Mortgage-Backed Securities. Each Fund may invest in mortgage-backed securities, including those representing an undivided ownership interest in a pool of mortgage loans. Each of the certificates described below is characterized by monthly payments to the security holder, reflecting the monthly payments made by the mortgagees of the underlying mortgage loans. The payments to the security holders (such as a Fund), like the payments on the underlying loans, represent both principal and interest. Although the underlying mortgage loans are for specified periods of time, such as twenty to thirty years, the borrowers can, and typically do, repay them sooner. Thus, the security holders frequently receive prepayments of principal, in addition to the principal which is part of the regular monthly payments. A borrower is more likely to prepay a mortgage which bears a relatively high rate of interest. Thus, in times of declining interest rates, some higher yielding mortgages might be repaid resulting in larger cash payments to a Fund, and the Fund will be forced to accept lower interest rates when that cash is used to purchase additional securities.
Interest rate fluctuations may significantly alter the average maturity of mortgage-backed securities, due to the level of refinancing by homeowners. When interest rates rise, prepayments often drop, which should increase the average maturity of the mortgage-backed security. Conversely, when interest rates fall, prepayments often rise, which should decrease the average maturity of the mortgage-backed security.
GNMA Certificates. Government National Mortgage Association ("GNMA") certificates ("GNMA Certificates") are mortgage-backed securities, which evidence an undivided interest in a pool of mortgage loans. GNMA Certificates differ from bonds in that principal is paid back monthly by the borrower over the term of the loan rather than returned in a lump sum at maturity. GNMA Certificates that the Fund purchase are the "modified pass-through" type. "Modified pass-through" GNMA Certificates entitle the holder to receive a share of all interest and principal payments paid and owed on the mortgage pool net of fees paid to the "issuer" and GNMA, regardless of whether or not the mortgagor actually makes the payment.
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the timely payment of principal and interest on securities backed by a pool of mortgages insured by the Federal Housing Administration ("FHA") or the Farmers' Home Administration ("FMHA"), or guaranteed by the Department of Veteran Affairs ("VA"). The GNMA guarantee is backed by the full faith and credit of the U.S. Government. GNMA also is empowered to borrow without limitation from the U.S. Treasury if necessary to make any payments required under its guarantee.
Life of GNMA Certificates. The average life of a GNMA Certificate is likely to be substantially less than the original maturity of the mortgage pools underlying the securities. Prepayments of principal by mortgagors and mortgage foreclosures will usually result in the return of the greater part of principal investment long before maturity of the mortgages in the pool. A Fund normally will not distribute principal payments (whether regular or prepaid) to its shareholders. Rather, it will invest such payments in additional mortgage-backed securities of the types described above. Interest received by the Fund will, however, be distributed to shareholders. Foreclosures impose no risk to principal investment because of the GNMA guarantee. As prepayment rates of the individual mortgage pools vary widely, it is not possible to predict accurately the average life of a particular issue of GNMA Certificates.
Yield Characteristics of GNMA Certificates. The coupon rate of interest on GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or FHA-insured mortgages underlying the Certificates by the amount of the fees paid to GNMA and the issuer. The coupon rate by itself, however, does not indicate the yield which will be earned on GNMA Certificates. First, Certificates may trade in the secondary market at a premium or discount. Second, interest is earned monthly, rather than semi-annually as with traditional bonds; monthly compounding raises the effective yield earned. Finally, the actual yield of a GNMA Certificate is influenced by the prepayment experience of the mortgage pool underlying it. For example, if the higher-yielding mortgages from the pool are prepaid, the yield on the remaining pool will be reduced.
FHLMC Securities. The Federal Home Loan Mortgage Corporation ("FHLMC") issues two types of mortgage pass-through securities, mortgage participation certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata share of all interest and principal payments made and owed on the underlying pool.
FNMA Securities. The Federal National Mortgage Association ("FNMA") issues guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate represents a pro rata share of all interest and principal payments made and owed on the underlying pool. FNMA guarantees timely payment of interest on FNMA Certificates and the full return of principal.
Risk of foreclosure of the underlying mortgages is greater with FHLMC and FNMA securities because, unlike GNMA Certificates, FHLMC and FNMA securities are not guaranteed by the full faith and credit of the U.S. Government.
Portfolio Turnover. Although each Fund generally will not invest for short-term trading purposes, portfolio securities may be sold from time to time without regard to the length of time they have been held when, in the opinion of the Adviser or the Subadviser investment considerations warrant such action. Portfolio turnover rate is calculated by dividing (1) the lesser of purchases or sales of portfolio securities for the fiscal year by (2) the monthly average of the value of portfolio securities owned during the fiscal year. A 100% turnover rate would occur if all the securities in a Fund's portfolio, with the exception of securities whose maturities at the time of acquisition were one year or less, were sold and either repurchased or replaced within one year. A high rate of portfolio turnover generally leads to transaction costs and may result in a greater number of taxable transactions. See "Allocation of Portfolio Brokerage."
For the fiscal year ended October 31, 1994, the portfolio turnover rate for Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund was 6%, 29% and 58%, respectively. For the fiscal year ended October 31, 1995, the portfolio turnover rate for Growth & Income Fund and Utilities Income Fund was 19% and 16%, respectively. See the Prospectus for the portfolio turnover rate for Made In The U.S.A. Fund.
Repurchase Agreements. Although each Fund may enter into repurchase agreements with banks which are members of the Federal Reserve System or securities dealers who are members of a national securities exchange or are market makers in government securities, Made In The U.S.A. Fund and Utilities Income Fund do not currently intend to do so. The period of these repurchase agreements will usually be short, from overnight to one week, and at no time will a Fund invest in repurchase agreements with more than one year in time to maturity. The securities which are subject to repurchase agreements, however, may have maturity dates in excess of one year from the effective date of the repurchase agreement. Each Fund will always receive, as collateral, securities whose market value, including accrued interest, will at all times be at least equal to 100% of the dollar amount invested by the Fund in each agreement, and the Fund will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of the Fund's custodian. If the seller defaults, a Fund might incur a loss if the value of the collateral securing the repurchase agreement declines, and might incur disposition costs in connection with liquidating the collateral. In addition, if bankruptcy or similar proceedings are commenced with respect to the seller of the security, realization upon the collateral by a Fund may be delayed or limited. Repurchase agreements maturing in more than seven days are considered illiquid.
Restricted and Illiquid Securities. No Fund will purchase or otherwise acquire any security if, as a result, more than 15% of its net assets (taken at current value) would be invested in securities that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions on resale. This policy includes foreign issuers' unlisted securities with a limited trading market and repurchase agreements maturing in more than seven days. This policy does not include restricted securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended ("1933 Act"), which the Board of Directors or the Adviser or the Subadviser has determined under Boardapproved guidelines are liquid. As a result of undertakings to certain state securities commissions, Made In The U.S.A. Fund and Utilities Income Fund each will not invest more than 5% of its total assets in restricted securities (excluding Rule 144A securities) or more than 10% of its total assets in Rule 144A securities and Growth & Income Fund will not invest more than 5% of its total assets in restricted securities (excluding Rule 144A securities).
Restricted securities which are illiquid may be sold only in privately negotiated transactions or in public offerings with respect to which a registration statement is in effect under the 1933 Act. Such securities include those that are subject to restrictions contained in the securities laws of other countries. Securities that are freely marketable in the country where they are principally traded, but would not be freely marketable in the United States, will not be subject to this 15% limit. Where registration is required, a Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, a Fund might obtain a less favorable price than prevailed when it decided to sell.
In recent years, a large institutional market has developed for certain securities that are not registered under the 1933 Act, including private placements, repurchase agreements, commercial paper, foreign securities and corporate bonds and notes. These instruments are often restricted securities because the securities are either themselves exempt from registration or sold in transactions not requiring registration. Institutional investors generally will not seek to sell these instruments to the general public, but instead will often depend on an efficient institutional market in which such unregistered securities can be readily resold or on an issuer's ability to honor a demand for repayment. Therefore, the fact that there are contractual or legal restrictions on resale to the general public or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the registration requirements of the 1933 Act for resales of certain securities to qualified institutional buyers. Institutional markets for restricted securities that might develop as a result of Rule 144A could provide both readily ascertainable values for restricted securities and the ability to liquidate an investment in order to satisfy share redemption orders. An insufficient number of qualified institutional buyers interested in purchasing Rule 144A-eligible securities held by a Fund, however, could affect adversely the marketability of such portfolio securities and a Fund might be unable to dispose of such securities promptly or at reasonable prices.
Risk Factors of High Yield Securities. High yield, high risk securities (commonly referred to as "junk bonds"), are subject to certain risks that may not be present with investments of higher grade securities. These risks also apply to lower-rated and certain unrated convertible securities.
Effect of Interest Rate and Economic Changes. The prices of High Yield Securities tend to be less sensitive to interest rate changes than higher-rated investments, but may be more sensitive to adverse economic changes or individual corporate developments. Periods of economic uncertainty and changes generally result in increased volatility in the market prices and yields of High Yield Securities and thus in a Fund's net asset value. A strong economic downturn or a substantial period of rising interest rates could severely affect the market for High Yield Securities. In these circumstances, highly leveraged companies might have greater difficulty in making principal and interest payments, meeting projected business goals, and obtaining additional financing. Thus, there could be a higher incidence of default. This would affect the value of such securities and thus a Fund's net asset value. Further, if the issuer of a security owned by a Fund defaults, that Fund might incur additional expenses to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt obligations, including High Yield Securities, tends to decrease; when interest rates fall, the value of fixed rate debt obligations tends to increase. If an issuer of a High Yield Security containing a redemption or call provision exercises either provision in a declining interest rate market, a Fund would have to replace the security, which could result in a decreased return for shareholders. Conversely, if a Fund experiences unexpected net redemptions in a rising interest rate market, it might be forced to sell certain securities, regardless of investment merit. This could result in decreasing the assets to which Fund expenses could be allocated and in a reduced rate of return for that Fund. While it is impossible to protect entirely against this risk, diversification of a Fund's portfolio and the Adviser's careful analysis of prospective portfolio securities should minimize the impact of a decrease in value of a particular security or group of securities in a Fund's portfolio.
The High Yield Securities Market. The market for below investment grade bonds expanded rapidly in recent years and its growth paralleled a long economic expansion. In the past, the prices of many lower-rated debt securities declined substantially, reflecting an expectation that many issuers of such securities might experience financial difficulties. As a result, the yields on lower-rated debt securities rose dramatically. However, such higher yields did not reflect the value of the income streams that holders of such securities expected, but rather the risk that holders of such securities could lose a substantial portion of their value as a result of the issuers' financial restructuring or default. There can be no assurance that such declines in the below investment grade market will not reoccur. The market for below investment grade bonds generally is thinner and less active than that for higher quality bonds, which may limit a Fund's ability to sell such securities at fair value in response to changes in the economy or the financial markets. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the values and liquidity of lower rated securities, especially in a thinly traded market.
Liquidity and Valuation. Lower-rated bonds are typically traded among a smaller number of broker-dealers than in a broad secondary market. Purchasers of High Yield Securities tend to be institutions, rather than individuals, which is a factor that further limits the secondary market. To the extent that no established retail secondary market exists, many High Yield Securities may not be as liquid as higher-grade bonds. A less active and thinner market for High Yield Securities than that available for higher quality securities may result in more volatile valuations of a Fund's holdings and more difficulty in executing trades at favorable prices during unsettled market conditions.
The ability of a Fund to value or sell High Yield Securities will be adversely affected to the extent that such securities are thinly traded or illiquid. During such periods, there may be less reliable objective information available and thus the responsibility of the Board of Directors to value High Yield Securities becomes more difficult, with judgment playing a greater role. Further, adverse publicity about the economy or a particular issuer may adversely affect the public's perception of the value, and thus liquidity, of a High Yield Security, whether or not such perceptions are based on a fundamental analysis. See "Determination of Net Asset Value."
Legislation. Provisions of the Revenue Reconciliation Act of 1989 limit a corporate issuer's deduction for a portion of the original issue discount on "high yield discount" obligations (including certain pay-in-kind securities). This limitation could have a materially adverse impact on the market for certain High Yield Securities. From time to time, legislators and regulators have proposed other legislation that would limit the use of high yield debt securities in leveraged buyouts, mergers and acquisitions. It is not certain whether such proposals, which also could adversely affect High Yield Securities, will be enacted into law.
Short Sales. Although they do not intend to do so in the foreseeable future, Made In The U.S.A. Fund and Utilities Income Fund may borrow securities for cash sale to others. This type of transaction is commonly known as a "short sale." Each Fund will only make short sales "against the box," which occurs when a Fund enters into a short sale with a security identical to one it already owns or has the immediate and unconditional right, at no cost, to obtain the identical security.
Warrants. Each Fund may purchase warrants, which are instruments that permit a Fund to acquire, by subscription, the capital stock of a corporation at a set price, regardless of the market price for such stock. Warrants may be either perpetual or of limited duration. There is a greater risk that warrants might drop in value at a faster rate than the underlying stock. Each Fund's investments in warrants and stock rights will be limited to 5% of its total assets, of which no more than 2% may not be listed on the New York or American Stock Exchange.
When-Issued Securities. Each Fund may invest up to 10% of its net assets in securities issued on a when-issued or delayed delivery basis at the time the purchase is made. A Fund generally would not pay for such securities or start earning interest on them until they are issued or received. However, when a Fund purchases debt obligations on a when-issued basis, it assumes the risks of ownership, including the risk of price fluctuation, at the time of purchase, not at the time of receipt. Failure of the issuer to deliver a security purchased by the Fund on a when-issued basis may result in the Fund's incurring a loss or missing an opportunity to make an alternative investment. When a Fund enters into a commitment to purchase securities on a when-issued basis, it establishes a separate account with its custodian consisting of cash or liquid high-grade debt securities equal to the amount of the Fund's commitment, which are valued at their fair market value. If on any day the market value of this segregated account falls below the value of the Fund's commitment, the Fund will be required to deposit additional cash or qualified securities into the account until equal to the value of the Fund's commitment. When the securities to be purchased are issued, a Fund will pay for the securities from available cash, the sale of securities in the segregated account, sales of other securities and, if necessary, from sale of the when-issued securities themselves although this is not ordinarily expected. Securities purchased on a when-issued basis are subject to the risk that yields available in the market, when delivery takes place, may be higher than the rate to be received on the securities a Fund is committed to purchase. Sale of securities in the segregated account or other securities owned by a Fund and when-issued securities may cause the realization of a capital gain or loss.
Zero Coupon and Pay-In-Kind Securities. Although there is no intention to do so in the foreseeable future, Made In The U.S.A. Fund and Utilities Income Fund may each invest in zero coupon and pay-in-kind securities. Zero coupon securities are debt obligations that do not entitle the holder to any periodic payment of interest prior to maturity or a specified date when the securities begin paying current interest. They are issued and traded at a discount from their face amount or par value, which discount varies depending on the time remaining until cash payments begin, prevailing interest rates, liquidity of the security and the perceived credit quality of the issuer. Pay-in-kind securities are those that pay interest through the issuance of additional securities. The market prices of zero coupon and pay-inkind securities generally are more volatile than the prices of securities that pay interest periodically and in cash and are likely to respond to changes in interest rates to a greater degree than do other types of debt securities having similar maturities and credit quality. Original issue discount earned on zero coupon securities and the "interest" on pay-in-kind securities must be included in a Fund's income. Thus, to continue to qualify for tax treatment as a regulated investment company and to avoid a certain excise tax on undistributed income, a Fund may be required to distribute as a dividend an amount that is greater than the total amount of cash it actually receives. See "Taxes." These distributions must be made from a Fund's cash assets or, if necessary, from the proceeds of sales of portfolio securities. Each Fund will not be able to purchase additional income-producing securities with cash used to make such distributions, and its current income ultimately could be reduced as a result.
HEDGING AND OPTION INCOME STRATEGIES
Although it does not intend to engage in these strategies in the coming year, Utilities Income Fund may engage in certain options and futures strategies to hedge its portfolio and in other circumstances permitted by the Commodity Futures Trading Commission ("CFTC") and may engage in certain options strategies to enhance income. The instruments described below are sometimes referred to collectively as "Hedging Instruments" and are defined in Appendix C. Certain special characteristics of and risks associated with using Hedging Instruments are discussed below. In addition to the investment guidelines (described below) adopted by the Board of Directors to govern the Fund's investments in Hedging Instruments, use of these instruments is subject to the applicable regulations of the Securities and Exchange Commission ("SEC"), the several options and futures exchanges upon which options and futures contracts are traded, the CFTC and various state regulatory authorities. In addition, the Fund's ability to use Hedging Instruments will be limited by tax considerations. See "Taxes."
Participation in the options or futures markets involves investment risks and transaction costs to which the Fund would not be subject absent the use of these strategies. If the Adviser's prediction of movements in the direction of the securities and interest rate markets are inaccurate, the adverse consequences to the Fund may leave the Fund in a worse position than if such strategies were not used. The Fund might not employ any of the strategies described below, and there can be no assurance that any strategy will succeed. The use of these strategies involve certain special risks, including (1) dependence on the Adviser's ability to predict correctly movements in the direction of interest rates and securities prices; (2) imperfect correlation between the price of options, futures contracts and options thereon and movements in the prices of the securities being hedged; (3) the fact that skills needed to use these strategies are different from those needed to select portfolio securities; (4) the possible absence of a liquid secondary market for any particular instrument at any time; and (5) the possible need to defer closing out certain hedged positions to avoid adverse tax consequences.
The Fund may buy and sell put and call options on stock indices and securities that are traded on national securities exchanges or in the over-the-counter ("OTC") market to enhance income or to hedge the Fund's portfolio. The Fund also may write put and covered call options to generate additional income through the receipt of premiums, purchase put options in an effort to protect the value of a security that it owns against a decline in market value and purchase call options in an effort to protect against an increase in the price of securities it intends to purchase. The Fund also may purchase put and call options to offset previously written put and call options of the same Fund. The Fund also may write put and call options to offset previously purchased put and call options of the same Fund. Other than to effect closing transactions, the Fund will write only covered call options, including options on futures contracts.
The Fund may buy and sell financial futures contracts and options thereon that are traded on a commodities exchange or board of trade for hedging purposes. These futures contracts and related options may be on stock indices, financial indices or debt securities. However, as a non-fundamental policy, Series Fund II has undertaken to a certain state securities commission that the Fund will not purchase interest rate futures contracts or options thereon.
Cover for Hedging and Option Income Strategies. The Fund will not use leverage in its hedging and option income strategies. In the case of each transaction entered into as a short hedge, the Fund will hold securities, or other options or futures positions whose values are expected to offset ("cover") its obligations hereunder. The Fund will not enter into a hedging or option income strategy that exposes the Fund to an obligation to another party unless it owns either (1) an offsetting ("covered") position in securities, or other options or futures contracts or (2) cash, receivables and short-term debt securities with a value sufficient at all times to cover its potential obligations. The Fund will comply with guidelines established by the SEC with respect to coverage of hedging and option income strategies by mutual funds and, if required, will set aside cash and/or liquid, high-grade debt securities in a segregated account with its custodian in the prescribed amount. Securities or other options or futures positions used for cover and securities held in a segregated account cannot be sold or closed out while the hedging or option income strategy is outstanding unless they are replaced with similar assets. As a result, there is a possibility that the use of cover or segregation involving a large percentage of the Fund's assets could impede portfolio management or the Fund's ability to meet redemption requests or other current obligations.
Options Strategies. The Fund may purchase call options on securities that the Adviser intends to include in the Fund's portfolio in order to fix the cost of a future purchase. Call options also may be used as a means of participating in an anticipated price increase of a security. In the event of a decline in the price of the underlying security, use of this strategy would serve to limit the Fund's potential loss to the option premium paid; conversely, if the market price of the underlying security increases above the exercise price and the Fund either sells or exercises the option, any profit eventually realized will be reduced by the premium. The Fund may purchase put options in order to hedge against a decline in the market value of securities held in its portfolio. The put option enables the Fund to sell the underlying security at the predetermined exercise price; thus the potential for loss to the Fund below the exercise price is limited to the option premium paid. If the market price of the underlying security is higher than the exercise price of the put option, any profit the Fund realizes on the sale of the security will be reduced by the premium paid for the put option less any amount for which the put option may be sold.
The Fund may write covered call options on securities to increase income in the form of premiums received from the purchasers of the options. Because it can be expected that a call option will be exercised if the market value of the underlying security increases to a level greater than the exercise price, the Fund will write covered call options on securities generally when the Adviser believes that the premium received by the Fund, plus anticipated appreciation in the market price of the underlying security up to the exercise price of the option, will be greater than the total appreciation in the price of the security. The strategy may be used to provide limited protection against a decrease in the market price of the security in an amount equal to the premium received for writing the call option less any transaction costs. Thus, if the market price of the underlying security held by the Fund declines, the amount of such decline will be offset wholly or in part by the amount of the premium received by the Fund. If, however, there is an increase in the market price of the underlying security and the option is exercised, the Fund will be obligated to sell the security at less than its market value. The Fund gives up the ability to sell the portfolio securities used to cover the call option while the call option is outstanding. Such securities may also be considered illiquid in the case of OTC options written by the Fund and therefore subject to investment restrictions. See "Restricted and Illiquid Securities." In addition, the Fund could lose the ability to participate in an increase in the value of such securities above the exercise price of the call option because such an increase would likely be offset by an increase in the cost of closing out the call option (or could be negated if the buyer chose to exercise the call option at an exercise price below the securities' current market value).
The Fund may purchase put and call options and write covered call options on stock indices in much the same manner as the more traditional equity and debt options discussed above, except that stock index options may serve as a hedge against overall fluctuations in the securities markets (or a market sector) rather than anticipated increases or decreases in the value of a particular security. A stock index assigns relative values to the stock included in the index and fluctuates with changes in such values. Stock index options operate in the same way as the more traditional equity options, except that settlements of stock index options are effected with cash payments and do not involve delivery of securities. Thus, upon settlement of a stock index option, the purchaser will realize, and the writer will pay, an amount based on the difference between the exercise price and the closing price of the stock index. The effectiveness of hedging techniques using stock index options will depend on the extent to which price movements in the stock index selected correlate with price movements of the securities in which the Fund invests.
The Fund may write put options on securities or on a stock index. A put option on a security gives the purchaser of the option the right to sell, and the writer (seller) the obligation to buy, the underlying security at the exercise price during the option period. So long as the obligation of the writer continues, the writer may be assigned an exercise notice by the broker-dealer through which such option was sold, requiring it to make payment of the exercise price against delivery of the underlying security. A written put option on a stock index is similar to a written put option on a security except that, on exercise, the writer pays the buyer a settlement payment in cash equal to the difference between the exercise price and the value of the index. The operation of put options in other respects, including their related risks and rewards, is substantially identical to that of call options. The Fund may write covered put options in circumstances when the Adviser believes that the market price of the securities will not decline below the exercise price less the premiums received. If the put option is not exercised, the Fund will realize income in the amount of the premium received. This technique could be used to enhance current return during periods of market uncertainty. The risk in such a transaction would be market price of the underlying security would decline below the exercise price less the premiums received, in which case the Fund would expect to suffer a loss.
Currently, many options on equity securities are exchange-traded, whereas options on debt securities are primarily traded on the OTC market. Exchange-traded options in the U.S. are issued by a clearing organization affiliated with the exchange on which the option is listed which, in effect, guarantees completion of every exchange-traded option transaction. In contrast, OTC options are contracts between the Fund and the opposite party with no clearing organization guarantee. Thus, when the Fund purchases an OTC option, it relies on the dealer from which it has purchased the OTC option to make or take delivery of the securities underlying the option. Failure by the dealer to do so would result in the loss of the premium paid by the Fund as well as the loss of the expected benefit of the transaction.
Options Guidelines. In view of the risks involved in using options, the Board of Directors has adopted non-fundamental investment guidelines to govern the Fund's use of options that may be modified by the Board without shareholder vote: (1) options will be purchased or written only when the Adviser believes that there exists a liquid secondary market in such options; and (2) the Fund may not purchase a put or call option if the value of the option's premium, when aggregated with the premiums on all other options held by the Fund, exceeds 5% of the Fund's total assets. However, this does not limit the amount of the Fund's assets at risk to 5%.
Special Characteristics and Risks of Options Trading. The Fund may effectively terminate its right or obligation under an option by entering into a closing transaction. If the Fund wishes to terminate its obligation to sell securities under a call option it has written, the Fund may purchase a call option of the same series (that is, a call option identical in its terms to the call option previously written); this is known as a closing purchase transaction. Conversely, in order to terminate its right to purchase or sell specified securities under a call or put option it has purchased, the Fund may write an option of the same series, as the option held; this is known as a closing sale transaction. Closing transactions essentially permit the Fund to realize profits or limit losses on its options positions prior to the exercise or expiration of the option.
The value of an option position will reflect, among other things, the current market price of the underlying security or stock index, the time remaining until expiration, the relationship of the exercise price to the market price, the historical price volatility of the underlying security or stock index and general market conditions. For this reason, the successful use of options depends upon the Adviser's ability to forecast the direction of price fluctuations in the underlying securities or, in the case of stock index options, fluctuations in the market sector represented by the index selected.
Options normally have expiration dates of up to nine months. Unless an option purchased by the Fund is exercised or unless a closing transaction is effected with respect to that position, a loss will be realized in the amount of the premium paid and any transaction costs.
A position in an exchange-listed option may be closed out only on an exchange that provides a secondary market for identical options. The ability to establish and close out positions on the exchanges is subject to the maintenance of a liquid secondary market. Although the Fund intends to purchase or write only those exchange-traded options for which there appears to be a liquid secondary market, there is no assurance that a liquid secondary market will exist for any particular option at any particular time. Closing transactions may be effected with respect to options traded in the OTC markets (currently the primary markets for options on debt securities) only by negotiating directly with the other party to the option contract or in a secondary market for the option if such market exists. Although the Fund will enter into OTC options only with dealers that agree to enter into, and that are expected to be capable of entering into, closing transactions with the Fund, there is no assurance that the Fund will be able to liquidate an OTC option at a favorable price at any time prior to expiration. In the event of insolvency of the opposite party, the Fund may be unable to liquidate an OTC option. Accordingly, it may not be possible to effect closing transactions with respect to certain options, with the result that the Fund would have to exercise those options that it has purchased in order to realize any profit. With respect to options written by the Fund, the inability to enter into a closing transaction may result in material losses to the Fund. For example, because the Fund must maintain a covered position with respect to any call option it writes, the Fund may not sell the underlying assets used to cover an option during the period it is obligated under the option. This requirement may impair the Fund's ability to sell a portfolio security or make an investment at a time when such a sale or investment might be advantageous.
Stock index options are settled exclusively in cash. If the Fund purchases an option on a stock index, the option is settled based on the closing value of the index on the exercise date. Thus, a holder of a stock index option who exercises it before the closing index value for that day is available runs the risk that the level of the underlying index may subsequently change. For example, in the case of a call option, if such a change causes the closing index value to fall below the exercise price of the option on the index, the exercising holder will be required to pay the difference between the closing index value and the exercise price of the option.
The Fund's activities in the options markets may result in a higher portfolio turnover rate and additional brokerage costs; however, the Fund also may save on commissions by using options as a hedge rather than buying or selling individual securities in anticipation or as a result of market movements.
Futures Strategies. The Fund may engage in futures strategies to attempt to reduce the overall investment risk that would normally be expected to be associated with ownership of the securities in which it invests. The Fund may sell stock index futures contracts in anticipation of a general market or market sector decline that could adversely affect the market value of the Fund's portfolio. To the extent that a portion of the Fund's portfolio correlates with a given stock index, the sale of futures contracts on that index could reduce the risks associated with a market decline and thus provide an alternative to the liquidation of securities positions. The Fund may purchase a stock index futures contract if a significant market or market sector advance is anticipated. Such a purchase would serve as a temporary substitute for the purchase of individual stocks, which stocks may then be purchased in an orderly fashion. This strategy may minimize the effect of all or part of an increase in the market price of securities that the Fund intends to purchase. A rise in the price of the securities should be partially or wholly offset by gains in the futures position.
The Fund may purchase a call option on a stock index future to hedge against a market advance in equity securities that the Fund plans to purchase at a future date. The Fund may also write put options on a stock index futures contract as a partial hedge against a market advance in equity securities the Fund plans to purchase at a future date. The Fund may write covered call options on stock index futures as a partial hedge against a decline in the prices of stocks held in the Fund's portfolio. The Fund also may purchase put options on stock index futures contracts.
The Fund may use interest rate futures contracts and options thereon to hedge the debt portion of its portfolio against changes in the general level of interest rates. The Fund may purchase an interest rate futures contract when it intends to purchase debt securities but has not yet done so. This strategy may minimize the effect of all or part of an increase in the market price of those securities because a rise in the price of the securities prior to their purchase may either be offset by an increase in the value of the futures contract purchased by the Fund or avoided by taking delivery of the debt securities under the futures contract. Conversely, a fall in the market price of the underlying debt securities may result in a corresponding decrease in the value of the futures position. The Fund may sell an interest rate futures contract in order to continue to receive the income from a debt security, while endeavoring to avoid part or all of the decline in the market value of that security that would accompany an increase in interest rates.
The Fund may purchase a call option on an interest rate futures contract to hedge against a market advance in debt securities that the Fund plans to acquire at a future date. The seller may also write a put option on an interest rate futures contract as a partial hedge against a market advance in debt securities that the Fund plans to acquire at a future date. The Fund also may write covered call options on interest rate futures contracts as a partial hedge against a decline in the price of debt securities held in the Fund's portfolio or purchase put options on interest rate futures contracts in order to hedge against a decline in the value of debt securities held in the Fund's portfolio. Series Fund II, on behalf of the Fund, has undertaken to a certain state securities commission that the Fund will not purchase interest rate futures contracts or options thereon.
Futures Guidelines. In view of the risks involved in using futures strategies described above, the Board of Directors has adopted non-fundamental investment guidelines to govern the Fund's use of such investments that may be modified by the Board without shareholder vote. The Fund will not purchase or sell futures contracts or related options if, immediately thereafter, the sum of the amount of initial margin deposits on the Fund's existing futures positions and initial margin and premiums paid for related options would exceed 5% of the market value of the Fund's total assets. The value of all futures sold will not exceed the total market value of the Fund's portfolio.
Special Characteristics and Risks of Futures Trading. No price is paid upon entering into futures contracts. Instead, upon entering into a futures contract, the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker through which the transaction is effected an amount of cash, U.S. Government securities or other liquid, high-grade debt instruments generally equal to 10% or less of the contract value. This amount is known as "initial margin." When writing a call or put option on a futures contract, margin also must be deposited in accordance with applicable exchange rules. Initial margin on futures contracts is in the nature of a performance bond or good-faith deposit that is returned to the Fund upon termination of the transaction, assuming all obligations have been satisfied. Under certain circumstances, such as periods of high volatility, the Fund may be required by an exchange to increase the level of its initial margin payment. Additionally, initial margin requirements may be increased generally in the future by regulatory action. Subsequent payments, called "variation margin," to and from the broker, are made on a daily basis as the value of the futures position varies, a process known as "marking to market." Variation margin does not involve borrowing to finance the futures transactions, but rather represents a daily settlement of the Fund's obligation to or from a clearing organization.
Holders and writers of futures positions and options thereon can enter into offsetting closing transactions, similar to closing transactions on options on securities, by selling or purchasing, respectively, a futures position or options position with the same terms as the position or option held or written. Positions in futures contracts and options thereon may be closed only on an exchange or board of trade providing a secondary market for such futures or options.
Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract or related option may vary either up or down from the previous day's settlement price. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because prices could move to the daily limit for several consecutive trading days with little or no trading and thereby prevent prompt liquidation of unfavorable positions. In such event, it may not be possible for the Fund to close a position and, in the event of adverse price movements the Fund would have to make daily cash payments of variation margin (except in the case of purchased options). However, in the event futures contracts have been used to hedge portfolio securities, such securities will not be sold until the contracts can be terminated. In such circumstances, an increase in the price of the securities, if any, may partially or completely offset losses on the futures contract. However, there is no guarantee that the price of the securities will, in fact, correlate with the price movements in the contracts and thus provide an offset to losses on the contracts.
Successful use by the Fund of futures contracts and related options will depend upon the Adviser's ability to predict movements in the direction of the overall securities and interest rate markets, which requires different skills and techniques than predicting changes in the prices of individual securities. Moreover, futures contracts relate not to the current price level of the underlying instrument but to the anticipated levels at some point in the future. There is, in addition, the risk that the movements in the price of the futures contract or related option will not correlate with the movements in prices of the securities being hedged. In addition, if the Fund has insufficient cash, it may have to sell assets from its portfolio to meet daily variation margin requirements. Any such sale of assets may or may not be made at prices that reflect the rising market. Consequently, the Fund may need to sell assets at a time when such sales are disadvantageous to the Fund. If the price of the futures contract or related option moves more than the price of the underlying securities, the Fund will experience either a loss or a gain on the futures contract or related option that may or may not be completely offset by movements in the price of the securities that are the subject of the hedge.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between price movements in the futures position or related option and the securities being hedged, movements in the prices of futures contracts and related options may not correlate perfectly with movements in the prices of the hedged securities because of price distortions in the futures market. As a result, a correct forecast of general market trends may not result in successful hedging through the use of futures contracts or related options over the short term.
Positions in futures contracts and related options may be closed out only on an exchange or board of trade that provides a secondary market for such futures contracts or related options. Although the Fund intends to purchase or sell futures and related options only on exchanges or boards of trade where there appears to be a liquid secondary market, there is no assurance that such a market will exist for any particular contract or option at any particular time. In such event, it may not be possible to close a futures or option position and, in the event of adverse price movements, the Fund would continue to be required to make variation margin payments.
Like options on securities, options on futures contracts have a limited life. A purchased option that expires unexercised has no value.
Purchasers of options on futures contracts pay a premium in cash at the time of purchase. This amount and the transaction costs are all that is at risk. Sellers of options on a futures contract, however, must post initial margin and are subject to additional margin calls that could be substantial in the event of adverse price movements. In addition, although the maximum amount at risk when the Fund purchases an option is the premium paid for the option and the transaction costs, there may be circumstances when the purchase of an option on a futures contract would result in a loss to the Fund when the use of a futures contract would not, such as when there is no movement in the level of the underlying stock index or the value of the securities being hedged.
The Fund's activities in the futures and related options markets may result in a higher portfolio turnover rate and additional transaction costs in the form of added brokerage commissions; however, the Fund also may save on commissions by using futures and related options as a hedge rather than buying or selling individual securities in anticipation or as a result of market movements.
Forward Currency Contracts. Although it does not intend to do so in the foreseeable future, Growth & Income Fund may use forward currency contracts to protect against uncertainty in the level of future exchange rates. The Fund will not speculate with forward currency contracts or foreign currency exchange rates.
The Fund may enter into forward currency contracts with respect to specific transactions. For example, when the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, or when the Fund anticipates the receipt in a foreign currency of dividend or interest payments on a security that it holds, the Fund may desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of such payment, as the case may be, by entering into a forward contract for the purchase or sale, for a fixed amount of U.S. dollars or foreign currency, of the amount of foreign currency involved in the underlying transaction. The Fund will thereby be able to protect itself against a possible loss resulting from an adverse change in the relationship between the currency exchange rates during the period between the date on which the security is purchased or sold, or on which the payment is declared, and the date on which such payments are made or received.
The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot (i.e., cash) market and bear the expense of such purchase if the market value of the security is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Fund is obligated to deliver. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Forward contracts involve the risk that anticipated currency movements will not be accurately predicted, causing the Fund to sustain losses on these contracts and transactions costs. The Fund may enter into formal contracts or maintain a net exposure to such contracts only if the Fund maintains cash, U.S. Government securities or liquid, high- grade debt securities in a segregated account in an amount not less than the value of the Fund's total assets committed to the consummation of the contract, as marked to market daily.
At or before the maturity date of a forward contract requiring the Fund to sell a currency, the Fund may either sell a portfolio security and use the sale proceeds to make delivery of the currency or retain the security and offset its contractual obligation to deliver the currency by purchasing a second contract pursuant to which the Fund will obtain, on the same maturity date, the same amount of the currency that it is obligated to deliver. Similarly, the Fund may close out a forward contract requiring it to purchase a specified currency by entering into a second contract entitling it to sell the same amount of the same currency on the maturity date of the first contract. The Fund would realize a gain or loss as a result of entering into an offsetting forward currency contract under either circumstance to the extent the exchange rate or rates between the currencies involved moved between the execution dates of the first contract and the offsetting contract. There can be no assurance that new forward contracts or offsets always will be available for the Fund. Forward currency contracts also involve a risk that the other party to the contract may fail to deliver currency when due, which could result in substantial losses to the Fund. The cost to the Fund of engaging in forward currency contracts varies with factors such as the currencies involved, the length of the contract period and the market conditions then prevailing. Because forward currency contracts are usually entered into on a principal basis, no fees or commissions are involved.
The investment restrictions set forth below have been adopted by the respective Fund and, unless identified as non-fundamental policies, may not be changed without the affirmative vote of a majority of the outstanding voting securities of that Fund, voting separately from any other series of Series Fund II. As provided in the Investment Company Act of 1940, as amended ("1940 Act"), a "vote of a majority of the outstanding voting securities of the Fund" means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of the Fund or (2) 67% or more of the shares of the Fund present at a meeting, if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. Changes in values of a particular Fund's assets or the assets of Series Fund II as a whole will not cause a violation of the following investment restrictions so long as percentage restrictions are observed by each Fund at the time it purchases any security.
Growth & Income Fund. Growth & Income Fund will not:
(1) Issue senior securities or borrow money, except that the Fund may borrow money from a bank for temporary or emergency purposes in amounts not exceeding 5% (taken at the lower of cost or current value) of its net assets (not including the amount borrowed).
(2) Purchase any security (other than obligations of the U.S. Government, its agencies or instrumentalities) if as a result, with respect to 75% of the Fund's total assets, more than 5% of such assets would then be invested in securities of a single issuer.
(3) With respect to 75% of its total assets, purchase more than 10% of the outstanding voting securities of any one issuer or more than 10% of any class of securities of one issuer (all debt and all preferred stock of an issuer are each considered a single class for this purpose).
(4) Pledge, mortgage or hypothecate any of its assets, except that the Fund may pledge its assets to secure borrowings made in accordance with paragraph (1) above, provided the Fund maintains asset coverage of at least 300% for all such borrowings.
(5) Buy or sell commodities or commodity contracts, or real estate or interests in real estate, except that the Fund may purchase and sell securities that are secured by real estate, securities of companies which invest or deal in real estate, and interests in real estate investment trusts. As nonfundamental policies, Series Fund II, on behalf of the Fund, has undertaken to certain state securities commissions that the Fund will not invest in real estate partnership interests or invest more than 10% of its net assets in real estate investment trusts.
(6) Act as an underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws.
(7) Make loans, except loans of portfolio securities and repurchase agreements.
The following investment restrictions are not fundamental and may be changed without shareholder approval. The Fund will not:
(1) Invest more than 15% of its net assets in repurchase agreements maturing in more than seven days or in other illiquid securities, including securities that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions as to resale. Securities that have legal or contractual restrictions as to resale but have a readily available market and securities eligible for resale under Rule 144A under the 1933 Act, are not deemed illiquid for purposes of this limitation.
(2) Invest more than 5% of its total assets in securities of companies (including predecessors) which have been in operation for less than three years.
(3) Invest in securities of other registered investment companies, except by purchases in the open market involving only customary brokerage commissions and as a result of which not more than 5% of its total assets would be invested in such securities, or except as part of a merger, consolidation or other acquisition.
(4) Purchase oil, gas or other mineral leases. However, the Fund may purchase and sell the securities of companies engaged in the exploration, development, production, refining, transporting and marketing of oil, gas or minerals.
(5) Purchase warrants if as a result the Fund would then have more than 5% of its total assets, valued at the lower of cost or market, invested in warrants (of which no more than 2% may be warrants not listed on the New York or American Stock Exchange).
(6) Make short sales of securities.
(7) Make investments for the purpose of exercising control or management.
(8) Purchase any securities on margin.
(9) Purchase or sell portfolio securities from or to the Adviser or any director or officer thereof or of Series Fund II, as principals.
(10) Invest in any securities of any issuer if, to the knowledge of the Fund, any officer or director of Series Fund II or of the Adviser owns more than 1/2 of 1% of the outstanding securities of such issuer, and such officers or directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such issuer.
Notwithstanding non-fundamental investment restriction (1) above, Series Fund II, on behalf of the Fund, has undertaken to certain state securities commissions, that the Fund will not invest more than 5% of its total assets in restricted securities (excluding Rule 144A securities).
Notwithstanding non-fundamental investment restrictions (1) and (2) above, Series Fund II, on behalf of the Fund, has undertaken to a certain state securities commission that the Fund will invest no more than 15% of its total assets in the securities of issuers which together with any predecessors have a record of less than three years continuous operation or securities of issuers which are restricted as to disposition, including Rule 144A securities.
Made In The U.S.A. Fund. Made In The U.S.A. Fund will not:
(1) Issue senior securities or borrow money, except that the Fund may borrow money from a bank for temporary or emergency purposes in amounts not exceeding 5% (taken at the lower of cost or current value) of its net assets (not including the amount borrowed).
(2) Purchase any security (other than obligations of the U.S. Government, its agencies or instrumentalities) if as a result: (a) as to 75% of the Fund's total assets more than 5% of such assets would then be invested in securities of a single issuer, or (b) 25% or more of the Fund's total assets would be invested in a single industry.
(3) Purchase more than 10% of the outstanding voting securities of any one issuer or more than 10% of any class of securities of one issuer (all debt and all preferred stock of an issuer are each considered a single class for this purpose).
(4) Pledge, mortgage or hypothecate any of its assets, except that the Fund may pledge its assets to secure borrowings made in accordance with paragraph (1) above, provided the Fund maintains asset coverage of at least 300% for all such borrowings.
(5) Buy or sell commodities or commodity contracts, including futures contracts, or real estate or interests in real estate, although it may purchase and sell securities which are secured by real estate, securities of companies which invest or deal in real estate, and interests in real estate investment trusts. As a non-fundamental policy, Series Fund II, on behalf of the Fund, has undertaken to certain state securities commissions that the Fund will not invest in real estate limited partnership interests or in real estate investment trusts that are not readily marketable.
(6) Act as an underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain Federal securities laws.
(7) Make investments for the purpose of exercising control or management.
(8) Purchase any securities on margin.
(9) Make loans, except through repurchase agreements.
(10) Purchase or sell portfolio securities from or to the Adviser or any director or officer thereof or of Series Fund II, as principals.
(11) Invest in any securities of any issuer if, to the knowledge of the Fund, any officer or director of Series Fund II or of the Adviser owns more than 1/2 of 1% of the outstanding securities of such issuer, and such officers or directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such issuer.
The following investment restrictions are not fundamental and may be changed without shareholder approval. The Fund will not:
(1) Invest more than 15% of its net assets in repurchase agreements maturing in more than seven days or in other illiquid securities, including securities that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions as to resale. Securities that have legal or contractual restrictions as to resale but have a readily available market and securities eligible for resale under Rule 144A under the Securities Act of 1933, as amended, are not deemed illiquid for purposes of this limitation; the Adviser will monitor the liquidity of such restricted securities under the supervision of the Board of Directors.
(2) Purchase any security if as a result the Fund would then have more than 5% of its total assets invested in securities of companies (including predecessors) less than three years old.
(3) Invest in securities of other registered investment companies, except by purchases in the open market involving only customary brokerage commissions and as a result of which not more than 5% of its total assets would be invested in such securities, or except as part of a merger, consolidation or other acquisition.
(4) Purchase oil, gas or other mineral leases. However, the Fund may purchase and sell the securities of companies engaged in the exploration, development, production, refining, transporting and marketing of oil, gas or minerals.
(5) Write, purchase or sell options (puts, calls or combinations thereof).
(6) Purchase warrants if as a result the Fund would then have more than 5% of its total assets, valued at the lower of cost or market, invested in warrants (of which no more than 2% may be warrants not listed on the New York or American Stock Exchange).
(7) Make short sales of securities, except short sales "against the box."
Notwithstanding non-fundamental investment restriction (1) above, as a result of undertakings to certain state securities commissions, the Fund will not invest more than 5% of its total assets in restricted securities (excluding Rule 144A securities) or more than 10% of its total assets in Rule 144A securities.
Notwithstanding non-fundamental restrictions (1) and (2) above, Series Fund II, on behalf of the Fund, has undertaken to a certain state securities commission that the Fund will not invest more than 15% of its total assets in the securities of issuers which together with any predecessor have a record of less than three years continuous operation or securities of issuers which are restricted as to disposition, including Rule 144A securities.
Utilities Income Fund. Utilities Income Fund will not:
(1) Issue senior securities or borrow money, except that the Fund may borrow money from a bank for temporary or emergency purposes in amounts not exceeding 5% (taken at the lower of cost or current value) of its net assets (not including the amount borrowed).
(2) Purchase any security (other than obligations of the U.S. Government, its agencies or instrumentalities) if as a result as to 75% of the Fund's total assets more than 5% of such assets would then be invested in securities of a single issuer.
(3) Purchase more than 10% of the outstanding voting securities of any one issuer or more than 10% of any class of securities of one issuer (all debt and all preferred stock of an issuer are each considered a single class for this purpose).
(4) Pledge, mortgage or hypothecate any of its assets, except that the Fund may pledge its assets to secure borrowings made in accordance with paragraph (1) above, provided the Fund maintains asset coverage of at least 300% for all such borrowings.
(5) Buy or sell commodities or commodity contracts, or real estate or interests in real estate, except that the Fund may purchase and sell futures contracts, options on futures contracts, securities that are secured by real estate, securities of companies which invest or deal in real estate, and interests in real estate investment trusts.
(6) Act as an underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws.
(7) Make investments for the purpose of exercising control or management.
(8) Purchase any securities on margin, except the Fund may make deposits of margin in connection with futures contracts and options.
(9) Make loans, except loans of portfolio securities and repurchase agreements.
(10) Purchase or sell portfolio securities from or to the Adviser or any director or officer thereof or of Series Fund II, as principals.
(11) Invest in any securities of any issuer if, to the knowledge of the Fund, any officer or director of Series Fund II or of the Adviser owns more than 1/2 of 1% of the outstanding securities of such issuer, and such officers or directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such issuer.
The following investment restrictions are not fundamental and may be changed without shareholder approval. The Fund will not:
(1) Invest more than 15% of its net assets in repurchase agreements maturing in more than seven days or in other illiquid securities, including securities that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions as to resale. Securities that have legal or contractual restrictions as to resale but have a readily available market and securities eligible for resale under Rule 144A under the 1933 Act, are not deemed illiquid for purposes of this limitation.
(2) Invest more than 5% of its total assets in securities of companies (including predecessors) which have been in operation for less than three years.
(3) Invest in securities of other registered investment companies, except by purchases in the open market involving only customary brokerage commissions and as a result of which not more than 5% of its total assets would be invested in such securities, or except as part of a merger, consolidation or other acquisition.
(4) Purchase oil, gas or other mineral leases. However, the Fund may purchase and sell the securities of companies engaged in the exploration, development, production, refining, transporting and marketing of oil, gas or minerals.
(5) Purchase warrants if as a result the Fund would then have more than 5% of its total assets, valued at the lower of cost or market, invested in warrants (of which no more than 2% may be warrants not listed on the New York or American Stock Exchange).
(6) Make short sales of securities, except short sales "against the box."
As non-fundamental policies, Series Fund II, on behalf of the Fund, has filed the following undertakings with various state securities commissions, which may be changed without shareholder approval:
(1) The Fund will not invest in small emerging growth companies.
(2) The Fund will not purchase interest rate futures contracts or options thereon.
(3) The Fund will not purchase puts, calls, straddles, spreads or any combination thereof, if by reason of that purchase, the value of the Fund's investments in all such securities exceeds 5% of the Fund's total assets.
(4) The Fund will not invest in real estate limited partnership interests or in real estate investment trusts that are not readily marketable.
(5) The Fund will not invest more than 5% of its total assets in restricted securities (excluding Rule 144A securities) or more than 10% of its total assets in Rule 144A securities.
(6) The Fund will not invest more than 15% of its total assets in the securities of issuers which together with any predecessor have a record of less than three years continuous operation or securities of issuers which are restricted as to disposition, including Rule 144A securities.
The following table lists the Directors and executive officers of Series Fund II, their business address and principal occupations during the past five years. Unless otherwise noted, an individual's business address is 95 Wall Street, New York, New York 10005.
Glenn O. Head*+ (70), President and Director. Chairman of the Board, Director and Treasurer, Administrative Data Management Corp. ("ADM"); Chairman of the Board and Director, FIMCO, Executive Investors Management Company, Inc. ("EIMCO"), First Investors Corporation ("FIC"), Executive Investors Corporation ("EIC") and First Investors Consolidated Corporation ("FICC").
James J. Coy (81), Director, 90 Buell Lane, East Hampton, NY 11937. Retired; formerly Senior Vice President, James Talcott, Inc. (financial institution).
Roger L. Grayson* (39), Director. Director, FIC and FICC; President and Director, First Investors Resources, Inc.; Commodities Portfolio Manager.
Kathryn S. Head*+ (40), Director, 581 Main Street, Woodbridge, NJ 07095. President, FICC, EIMCO and FIMCO; President, ADM; Vice President, Chief Financial Officer and Director, FIC and EIC; President and Director, First Financial Savings Bank, S.L.A.
Rex R. Reed (83), Director, 76 Keats Way, Morristown, NJ 07960. Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
Herbert Rubinstein (84), Director, 145 Elm Drive, Roslyn, NY 11576. Retired; formerly President, Belvac International Industries, Ltd. and President, Central Dental Supply.
James M. Srygley (63), Director, 33 Hampton Road, Chatham, NJ 07982. Principal, Hampton Properties, Inc., property investment company.
John T. Sullivan* (63), Director and Chairman of the Board; Director, FIMCO, FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
Robert F. Wentworth (66), Director, RR1, Box 2554, Upland Downs Road, Manchester Center, VT 05255. Retired; formerly, financial and planning executive with American Telephone & Telegraph Company.
Joseph I. Benedek (38), Treasurer, 581 Main Street, Woodbridge, NJ 07095. Treasurer, FIC FIMCO, EIMCO and EIC; Comptroller and Treasurer, FICC.
Concetta Durso (61), Vice President and Secretary. Vice President, FIMCO, EIMCO and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
Patricia D. Poitra (40), Vice President. Vice President, First Investors Series Fund, First Investors U.S. Government Plus Fund and Executive Investors Trust; Director of Equities, FIMCO.
Margaret Haggerty (30), Vice President. Portfolio Manager since November 1993; Analyst from 1990 to 1993.
Carol R. Lerner (41), Assistant Secretary. Secretary, FIMCO, EIMCO, FICC, EIC and ADM; Assistant Secretary, FIC.
* These Directors may be deemed to be "interested persons," as defined in the 1940 Act. + Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
All of the officers and Directors, except for Ms. Haggerty and Ms. Poitra, hold identical or similar positions with Executive Investors Trust and 13 other registered investment companies in the First Investors Family of Funds. Mr. Head is also an officer and/or Director of First Investors Asset Management Company, Inc., First Investors Credit Funding Corporation, First Investors Leverage Corporation, First Investors Realty Company, Inc., First Investors Resources, Inc., N.A.K. Realty Corporation, Real Property Development Corporation, Route 33 Realty Corporation, First Investors Life Insurance Company, First Financial Savings Bank, S.L.A., First Investors Credit Corporation and School Financial Management Services, Inc. Ms. Head is also an officer and/or Director of First Investors Life Insurance Company, First Investors Credit Corporation, School Financial Management Services, Inc., First Investors Credit Funding Corporation, N.A.K. Realty Corporation, Real Property Development Corporation, First Investors Leverage Corporation and Route 33 Realty Corporation.
The following table lists compensation paid to the Series Fund II Directors for the fiscal year ended October 31, 1995.
Compensation to officers and interested Directors of Series Fund II is paid by the Adviser. In addition, compensation to non-interested Directors of Series Fund II is currently voluntarily paid by the Adviser.
Adviser. Investment advisory services to each Fund are provided by First Investors Management Company, Inc. pursuant to an Investment Advisory Agreement ("Advisory Agreement") dated June 13, 1994. The Advisory Agreement was approved by the Board of Directors, including a majority of the Directors who are not parties to the Funds' Advisory Agreement or "interested persons" (as defined in the 1940 Act) of any such party ("Independent Directors"), in person at a meeting called for such purpose and by a majority of the public shareholders of each Fund.
Pursuant to the Advisory Agreement, FIMCO shall supervise and manage each Fund's investments, determine each Fund's portfolio transactions and supervise all aspects of each Fund's operations, subject to review by the Directors. However, with respect to Growth & Income Fund, FIMCO has delegated these duties to Wellington Management Company. See "Subadviser." The Advisory Agreement also provides that FIMCO shall provide the Funds with certain executive, administrative and clerical personnel, office facilities and supplies, conduct the business and details of the operation of Series Fund II and each Fund and assume certain expenses thereof, other than obligations or liabilities of the Funds. The Advisory Agreement may be terminated at any time, with respect to a Fund, without penalty by the Directors or by a majority of the outstanding voting securities of such Fund, or by FIMCO, in each instance on not less than 60 days' written notice, and shall automatically terminate in the event of its assignment (as defined in the 1940 Act). The Advisory Agreement also provides that it will continue in effect, with respect to a Fund, for a period of over two years only if such continuance is approved annually either by the Directors or by a majority of the outstanding voting securities of such Fund, and, in either case, by a vote of a majority of the Independent Directors voting in person at a meeting called for the purpose of voting on such approval.
Under the Advisory Agreement, each Fund pays the Adviser an annual fee, paid monthly, according to the following schedules:
Made In The U.S.A. Fund
Average Daily Net Assets Rate Up to $200 million...................................................... 1.00% In excess of $200 million up to $500 million............................ 0.75 In excess of $500 million up to $750 million............................ 0.72 In excess of $750 million up to $1.0 billion............................ 0.69
Growth & Income Fund, Utilities Income Fund Average Daily Net Assets Rate Up to $300 million.................................................. 0.75% In excess of $300 million up to $500 million........................ 0.72 In excess of $500 million up to $750 million........................ 0.69
The SEC staff takes the position that annual advisory fees of 0.75% or greater are higher than those paid by most investment companies.
For the fiscal year ended October 31, 1993, Made In The U.S.A. Fund paid $42,072 in advisory fees. For the same period, the Adviser voluntarily waived an additional $115,451 in advisory fees. In addition, for the same period, expenses in the amount of $36,570 were voluntarily assumed or reimbursed by the Adviser. For the period August 24, 1993 (commencement of operations) through October 31, 1993, Utilities Income Fund paid $44,554 in advisory fees. For the same period, the Adviser voluntarily waived an additional $113,242 in advisory fees. In addition, for the same period, expenses in the amount of $14,518 were voluntarily assumed or reimbursed by the Adviser. For the period October 4, 1993 (commencement of operations) through October 31, 1993, Growth & Income Fund's advisory fees amounted to $540, all of which were voluntarily waived by the Adviser. In addition, for the same period, expenses in the amount of $559 were voluntarily assumed or reimbursed by the Adviser.
For the fiscal year ended October 31, 1994, Made In The U.S.A. Fund paid $31,266 in advisory fees. For the same period, the Adviser voluntarily waived an additional $72,955 in advisory fees. For the fiscal year ended October 31, 1994, Growth & Income Fund paid $61,035 in advisory fees. For the same period, the Adviser voluntarily waived an additional $95,778 in advisory fees. For the fiscal year ended October 31, 1994, Utilities Income Fund paid $194,914 in advisory fees. For the same period, the Adviser voluntarily waived an additional $266,649 in advisory fees. In addition, for the fiscal year ended October 31, 1994, the Adviser voluntarily assumed or reimbursed expenses for Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund in the amounts of $10,831, $73,772 and $140,086, respectively.
For the fiscal year ended October 31, 1995, Made In The U.S.A. Fund paid $46,846 in advisory fees. For the same period, the Adviser voluntarily waived an additional $33,991 in advisory fees. For the fiscal year ended October 31, 1995, Growth & Income Fund paid $261,607 in advisory fees. For the same period, the Adviser voluntarily waived an additional $105,515 in advisory fees. For the fiscal year ended October 31, 1995, Utilities Income Fund paid $334,586 in advisory fees. For the same period, the Adviser voluntarily waived an additional $207,605 in advisory fees. In addition, for the fiscal year ended October 31, 1995, the Adviser voluntarily assumed or reimbursed expenses for Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund in the amounts of $114,393, $46,369 and $105,954, respectively.
Pursuant to certain state regulations, the Adviser has agreed to reimburse a Fund if and to the extent that Fund's aggregate operating and management expenses, including advisory fees but generally excluding interest, taxes, brokerage commissions and extraordinary expenses, exceed any limitation on expenses applicable to that Fund for any full fiscal year (unless a waiver of obtained). The amount of any such reimbursement is limited to the amount of the advisory fees paid or accrued to the Adviser for the fiscal year. For the fiscal year ended October 31, 1995, no reimbursement to any Fund was required pursuant to these regulations.
The Adviser has an Investment Committee composed of George V. Ganter, Margaret Haggerty, Glenn O. Head, Nancy W. Jones, Patricia D. Poitra, Michael O'Keefe, Clark D. Wagner and Richard Guinnessey. The Committee usually meets weekly to discuss the composition of the portfolio of each Fund and to review additions to and deletions from the portfolios.
Subadviser. Wellington Management Company has been retained by the Adviser and Series Fund II as the investment subadviser to Growth & Income Fund under a subadvisory agreement dated June 13, 1994 ("Subadvisory Agreement"). The Subadvisory Agreement was approved by the Board of Directors, including a majority of Independent Directors in person at a meeting called for such purpose and by a majority of the shareholders of the Growth & Income Fund.
The Subadvisory Agreement provides that it will continue for a period of more than two years from the date of execution only so long as such continuance is approved annually by either the Board of Directors or a majority of the outstanding voting securities of the Growth & Income Fund and, in either case, by a vote of a majority of the Independent Directors voting in person at a meeting called for the purpose of voting on such approval. The Subadvisory Agreement provides that it will terminate automatically if assigned or upon the termination of the Advisory Agreement, and that it may be terminated at any time without penalty by the Board of Directors or a vote of a majority of the outstanding voting securities of the Growth & Income Fund or by the Subadviser upon not more than 60 days' nor less than 30 days' written notice. The Subadvisory Agreement provides that WMC will not be liable for any error of judgment or for any loss suffered by the Growth & Income Fund in connection with the matters to which the Subadvisory Agreement relates, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation or from willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties.
Under the Subadvisory Agreement, the Adviser will pay to the Subadviser a fee at an annual rate of 0.325% of the average daily net assets of Growth & Income Fund up to and including $50 million; 0.275% of the average daily net assets in excess of $50 million up to and including $150 million; 0.225% of the average daily net assets in excess of $150 million up to and including $500 million; and 0.200% of the average daily net assets in excess of $500 million. For the fiscal year ended October 31, 1995 the Adviser paid the Subadviser fees of $157,067.
Series Fund II has entered into an Underwriting Agreement ("Underwriting Agreement") with First Investors Corporation ("Underwriter" or "FIC") which requires the Underwriter to use its best efforts to sell shares of the Funds. Pursuant to the Underwriting Agreement, the Underwriter shall bear all expenses of sales material or literature, including prospectuses and proxy materials, to the extent such materials are used in connection with the sale of the Funds' shares, unless the Funds have agreed to bear such costs pursuant to a plan of distribution. See "Distribution Plans." The Underwriting Agreement was approved by the Board of Directors, including a majority of the Independent Directors. The Underwriting Agreement provides that it will continue in effect from year to year, with respect to a Fund, only so long as such continuance is specifically approved at least annually by the Board of Directors or by a vote of a majority of the outstanding voting securities of such Fund, and in either case by the vote of a majority of the Independent Directors, voting in person at a meeting called for the purpose of voting on such approval. The Underwriting Agreement will terminate automatically in the event of its assignment.
For the fiscal year ended October 31, 1993, FIC received underwriting commissions with respect to Made In The U.S.A. Fund of $485,701. For the same period, FIC allowed an additional $7,653, to unaffiliated dealers. For the period February 22, 1993 (commencement of operations) through October 31, 1993, FIC received underwriting commissions with respect to Utilities Income Fund of $2,518,361. For the same period, FIC allowed an additional $23,008 to unaffiliated dealers. For the period October 4, l993 (commencement of operations) through October 31, 1993, FIC received underwriting commissions with respect to Growth & Income Fund of $187,995, none of which was allowed to unaffiliated dealers.
For the fiscal year ended October 31, 1994, FIC received underwriting commissions with respect to Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund of $1,187,272, $32,881 and $1,045,980, respectively. For the same period, FIC allowed an additional $257 with respect to Growth & Income Fund and $588 with respect to Made In The U.S.A. Fund to unaffiliated dealers.
For the fiscal year ended October 31, 1995, FIC received underwriting commissions with respect to Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund of $1,958,002, $88,203 and $1,614,848, respectively. For the same period, FIC allowed to unaffiliated dealers an additional $7,252 with respect to Growth & Income Fund, $5,486 with respect to Made In The U.S.A. Fund and $7,080 with respect to Utilities Income Fund.
As stated in the Funds' Prospectus, pursuant to a separate plan of distribution for each class of shares adopted by Series Fund II pursuant to Rule 12b-1 under the 1940 Act ("Class A Plan" and "Class B Plan" and, collectively, "Plans"), each Fund is authorized to compensate the Underwriter for certain expenses incurred in the distribution of that Fund's shares and the servicing or maintenance of existing Fund shareholder accounts.
Each Plan was approved by the Board of Directors, including a majority of the Independent Directors, and by a majority of the outstanding voting securities of the relevant class of each Fund. Each Plan will continue in effect from year to year, with respect to a Fund, as long as its continuance is approved annually be either the Board of Directors or by a vote of a majority of the outstanding voting securities of the relevant class of shares of such Fund. In either case, to continue, each Plan must be approved by the vote of a majority of the Independent Directors. The Board reviews quarterly and annually a written report provided by the Treasurer of the amounts expended under the applicable Plan and the purposes for which such expenditures were made. While each Plan is in effect, the selection and nomination of the Independent Directors will be committed to the discretion of such Independent Directors then in office.
Each Plan can be terminated at any time, with respect to a Fund, by a vote of a majority of the Independent Directors or by a vote of a majority of the outstanding voting securities of the relevant class of shares of that Fund. Any change to the Class B Plan that would materially increase the costs to that class of shares of a Fund or any material change to the Class A Plan may not be instituted without the approval of the outstanding voting securities of the relevant class of shares of that Fund. Such changes also require approval by a majority of the Independent Directors.
In reporting amounts expended under the Plans to the Directors, FIMCO will allocate expenses attributable to the sale of each class of a Fund's shares to such class based on the ratio of sales of such class to the sales of both classes of shares. The fees paid by one class of a Fund's shares will not be used to subsidize the sale of any other class of that Fund's shares.
In approving each Fund's overall system of distribution, the Board of Directors considered several factors, including that implementation of the system would (1) enable investors to choose the purchasing option better suited to their individual situation, thereby encouraging current shareholders to make additional investments in a Fund and attracting new investors and assets to that Fund to the benefit of the Fund and its shareholders; (2) facilitate distribution of each Fund's shares; and (3) maintain the competitive position of each Fund in relation to other funds that have implemented or are seeking to implement similar distribution arrangements.
In adopting the Class B Plan, the Board of Directors considered all the features of the distribution system, including (1) the conditions under which a contingent differed sales charge ("CDSC") would be imposed and the amount of such charge, (2) the advantage to investors in having no initial sales charges deducted from a Fund's purchase payments and instead having the entire amount of their purchase payments immediately invested in Fund shares, (3) the Underwriter's belief that the ability to receive sales commissions and service fees under the Class B Plan would prove attractive to Representatives, resulting in greater growth of each Fund than might otherwise be the case, (4) the advantages to the shareholders of a Fund of economies of scale resulting from growth in such Fund's assets, and (5) the Underwriter's shareholder service and distribution-related expenses and costs.
In adopting the Class A Plan, the Board of Directors considered all relevant information and determined that there is a reasonable likelihood that the Class A Plan will benefit each Fund and their shareholders. The Board believes that the amounts spent pursuant to the Fund's Class A Plan have assisted each Fund in providing ongoing servicing to shareholders, in competing with other providers of financial services and in promoting sales, thereby increasing the net assets of each Fund.
For the fiscal year ended October 31, 1995, Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund accrued $143,005, $23,924 and $213,442, respectively, in fees pursuant to the Class A Plan. Of such amounts, $79,348, $3,061 and $26,822, respectively, was voluntarily waived by the Underwriter. For the fiscal year ended October 31, 1995, Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund accrued $12,812, $1,096 and $11,449, respectively, in fees pursuant to the Class B Plan.
The Underwriter incurred the following Class A Plan-related expenses for the fiscal year ended October 31, 1995:
The Underwriter incurred the following Class B Plan-related expenses for the period January 12, 1995 (commencement of offering of Class B shares) to October 31, 1995:
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange or the NASDAQ national market system is valued at its last sale price on the exchange or market system where the security is primarily traded, and lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the market (including securities listed on exchanges whose primary market is believed to be OTC) is valued at the mean between the last bid and asked prices based upon quotes furnished by a market maker for such securities. In the absence of market quotations, a Fund will determine the value of bonds based upon quotes furnished by market makers, if available, or in accordance with the procedures described herein. In that connection, the Board of Directors has determined that a Fund may use an outside pricing service. The pricing service uses quotations obtained from investment dealers or brokers for the particular securities being evaluated, information with respect to market transactions in comparable securities and other available information in determining value. This service is furnished by Interactive Data Corporation. Short-term debt securities that mature in 60 days or less are valued at amortized cost if their original term to maturity from the date of purchase was 60 days or less, or by amortizing their value on the 61st day prior to maturity if their term to maturity from the date of purchase exceeded 60 days, unless the Board of Directors determines that such valuation does not represent fair value. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Series Fund II's officers in a manner specifically authorized by the Board of Directors.
With respect to each Fund, "when-issued securities" are reflected in the assets of the Fund as of the date the securities are purchased. Such investments are valued thereafter at the mean between the most recent bid and asked prices obtained from recognized dealers in such securities. For valuation with respect to Growth & Income Fund, quotations of foreign securities in foreign currencies are converted into U.S. dollar equivalents using the foreign exchange equivalents in effect.
The Board of Directors may suspend the determination of a Fund's net asset value per share separately for each class of shares for the whole or any part of any period (1) during which trading on the New York Stock Exchange ("NYSE") is restricted as determined by the SEC or the NYSE is closed for other than weekend and holiday closings, (2) during which an emergency, as defined by rules of the SEC in respect to the U.S. market, exists as a result of which disposal by a Fund of securities owned by it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or (3) for such other period as the SEC has by order permitted.
Purchases and sales of portfolio securities by the Fund may be principal transactions. In principal transactions, portfolio securities are normally purchased directly from the issuer or from an underwriter or market maker for the securities. There will usually be no brokerage commissions paid by a Fund for such purchases. Purchases from underwriters will include the underwriter's commission or concession and purchases from dealers serving as market makers will include the spread between the bid and asked price. Certain money market instruments may be purchased by a Fund directly from an issuer, in which no commission or discounts are paid. Each Fund may purchase fixed income securities on a "net" basis with dealers acting as principal for their own accounts without a stated commission, although the price of the security usually includes a profit to the dealer.
Each Fund may deal in securities which are not listed on a national securities exchange or the Nasdaq national market system but are traded in the OTC market. Each Fund also may purchase listed securities through the "third market." When transactions are executed in the OTC market, a Fund seeks to deal with the primary market makers, but when advantageous it utilizes the services of brokers.
In effecting portfolio transactions, the Adviser or the Subadviser seeks best execution of trades either (1) at the most favorable and competitive rate of commission charged by any broker or member of an exchange, or (2) with respect to agency transactions, at a higher rate of commission if reasonable in relation to brokerage and research services provided to a Fund or the Adviser or the Subadviser by such member or broker. Such services may include, but are not limited to, any one or more of the following: information as to the availability of securities for purchase or sale and statistical or factual information or opinions pertaining to investments. The Adviser or Subadviser may use research and services provided to it by brokers in servicing all the funds in the First Investors Group of Funds; however, not all such services may be used by the Adviser or the Subadviser in connection with a Fund. No portfolio orders are placed with an affiliated broker, nor does any affiliated broker-dealer participate in these commissions.
The Adviser or Subadviser may combine transaction orders placed on behalf of a Fund and any other fund in the First Investors Group of Funds, any Fund of Executive Investors Trust and First Investors Life Insurance Company, affiliates of the Funds for the purpose of negotiating brokerage commissions or obtaining a more favorable transaction price; and where appropriate, securities purchased or sold may be allocated, in terms of price and amount, to a Fund according to the proportion that the size of the transaction order actually placed by a Fund bears to the aggregate size of the transaction orders simultaneously made by other participants in the transaction.
For the fiscal year ended October 31, 1993, Made In The U.S.A. Fund paid $51,648 in brokerage commissions. For the period February 22, 1993 (commencement of operations) through October 31, 1993, Utilities Income Fund paid $139,950 in brokerage commissions. Of that amount, $600 was paid in brokerage commissions to brokers who furnished research services on portfolio transactions in the amount of $200,850. For the period October 4, 1993 (commencement of operations) through October 31, 1993, Growth & Income Fund did not pay any brokerage commissions.
For the fiscal year ended October 31, 1994, Made In The U.S.A. Fund and Utilities Income Fund paid $24,767 and $236,585, respectively, in brokerage commissions. For the fiscal year ended October 31, 1994, Growth & Income Fund paid $23,249 in brokerage commissions. Of that amount $6,732 was paid in brokerage commissions to brokers who furnished research services on portfolio transactions in the amount of $4,704,802.
For the fiscal year ended October 31, 1995 Growth & Income Fund paid $40,513 in brokerage commissions. Of that amount, $4,973 was paid in brokerage commissions to brokers who furnished research services on portfolio transactions in the amount of $3,545,732. For the fiscal year ended October 31, 1995, Made In The U.S.A. Fund paid $16,178 in brokerage commissions. Of that amount, $2,345 was paid in brokerage commissions to brokers who furnished research services on portfolio transactions in the amount of $1,387,834. For the fiscal year ended October 31, 1995, Utilities Income Fund paid $76,984 in brokerage commissions. Of that amount, $20,160 was paid in brokerage commissions to brokers who furnished research services on portfolio transactions in the amount of $8,245,784.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION AND OTHER SERVICES
Reduced Sales Charges--Class A Shares
Reduced sales charges are applicable to purchases made at one time of Class A shares of any one or more of the Funds or of any one or more of the Eligible Funds, as defined in the Prospectus, by "any person," which term shall include an individual, or an individual, his or her spouse and children under the age of 21, or a trustee or other fiduciary of a single trust, estate or fiduciary account (including a pension, profit-sharing or other employee benefit trust created pursuant to a plan qualified under section 401 of the Internal Revenue Code of 1986, as amended (the "Code")), although more than one beneficiary is involved; provided, however, that the term "any person" shall not include a group of individuals whose funds are combined, directly or indirectly, for the purchase of redeemable securities of a registered investment company, nor shall it include a trustee, agent, custodian or other representative of such a group of individuals.
Ownership of Class A and Class B shares of any Eligible Fund, except as noted below, qualify for a reduced sales charge on the purchase of Class A shares. Class A shares purchased at net asset value, Class A shares of the Money Market Funds, or shares owned under a Contractual Plan are not eligible for the purchase of Class A shares of a Fund at a reduced sales charge through a Letter of Intent or the Cumulative Purchase Privilege.
Letter of Intent. Any of the eligible persons described above may, within 90 days of their investment, sign a statement of intent ("Letter of Intent") in the form provided by the Underwriter, covering purchases of Class A shares of any one or more of the Funds and of the other Eligible Funds to be made within a period of thirteen months, provided said shares are currently being offered to the general public and only in those states where such shares may be legally sold, and thereby become eligible for the reduced sales charge applicable to the total amount purchased. A Letter of Intent filed after the date of investment is considered retroactive to the date of investment for determination of the thirteen-month period. The Letter of Intent is not a binding obligation on either the investor or the Fund. During the term of a Letter of Intent, Administrative Data Management Corp. ("Transfer Agent") will hold Class A shares representing 5% of each purchase in escrow, which shares will be released upon completion of the intended investment.
Purchases of Class A Shares made under a Letter of Intent are made at the sales charge applicable to the purchase of the aggregate amount of shares covered by the Letter of Intent as if they were purchased in a single transaction. The applicable quantity discount will be based on the sum of the then current value at public offering price (i.e., net asset value plus applicable sales charge) of all Class A shares and the net asset value of all Class B shares of a Fund and of the other Eligible Funds, including Class B shares of the Money Market Funds, currently owned, together with the aggregate offering price of purchases to be made under the Letter of Intent. If all such shares are not so purchased, a price adjustment is made, depending upon the actual amount invested within such period, by the redemption of sufficient Class A shares held in escrow in the name of the investor (or by the investor paying the commission differential). A Letter of Intent can be amended (1) during the thirteen-month period if the purchaser files an amended Letter of Intent with the same expiration date as the original Letter of Intent, or (2) automatically after the end of the period, if total purchases credited to the Letter of Intent qualify for an additional reduction in the sales charge. The Letter of Intent privilege may be modified or terminated at any time by the Underwriter.
Cumulative Purchase Privilege. Upon written notice to FIC, Class A shares of a Fund are also available at a quantity discount on new purchases if the then current value at the current public offering price (i.e., net asset value plus applicable sales charge) of all Class A shares and the net asset value of all Class B shares of a Fund and of the other Eligible Funds, including Class B shares of the Money Market Funds, previously purchased and then owned, plus the value of Class A shares being purchased at the current public offering price, amount to $25,000 or more. Such quantity discounts may be modified or terminated at any time by the Underwriter.
Purchase of Shares. When you open a Fund account, you must specify which class of shares you wish to purchase. If not, your order will be processed as follows: (1) if you are opening an account with a new registration with First Investors your order will not be processed until the Fund receives notification of which class of shares to purchase; (2) if you have existing First Investors accounts solely in either Class A shares or Class B shares with the identical registration, your investment in the Fund will be made in the same class of shares as your existing account(s); (3) if you are an existing First Investors shareholder and own a combination of Class A and Class B shares with an identical registration, your investment in the Fund will be made in Class B shares; and (4) if you own in the aggregate at least $250,000 in any combination of classes, your investment will be made in Class A shares.
First Investors Money Line. This service allows you to invest in a Fund through automatic deductions from your bank checking account. Scheduled investments may be made on a bi-weekly, semi-monthly, monthly, quarterly, semi-annual or annual basis provided a minimum total of $600 is invested per year. Shares of the Fund are purchased at the public offering price determined at the close of business on the day your designated bank account is debited and a confirmation will be sent to you after every transaction. You may decrease the amount or discontinue this service at any time by calling Shareholder Services or writing to Administrative Data Management Corp., 581 Main Street, Woodbridge, NJ 07095- 1198, Attn: Control Dept. To increase the amount, send a written request to the Transfer Agent at the address noted above, which may take up to five days to process. Money Line application forms are available from your Representative or by calling Shareholder Services at 1-800-423-4026.
Automatic Payroll Investment. You also may arrange for automatic investments into a Fund on a systematic basis through salary deductions, provided your employer has direct deposit capabilities. Shares of the Fund are purchased at the public offering price determined as of the close of business on the day the electronic fund transfer is received by the Fund, and a confirmation will be sent to you after every transaction. You may change the amount or discontinue the service by contacting your employer. An application is available from your Representative or by calling Shareholder Services at 1-800-423- 4026. Arrangements must also be made with your employer's payroll department.
Cross-Investment of Cash Distributions. You may elect to invest in Class A shares of a Fund at net asset value all the cash distributions from the same class of shares of another Eligible Fund. The investment will be made at the net asset value per share of the Fund, generally determined as of the close of business, on the business day immediately following the record date of any such distribution. You may also elect to invest cash distributions of a Fund's Class A shares into the same class of another Eligible Fund, including the Money Market Funds. If your distributions are to be invested in a new account, you must invest a minimum of $600 per year. See "Dividends and Other Distributions" in the Prospectus. To arrange for cross-investing, call Shareholder Services at 1-800-423-4026.
Investment of Systematic Withdrawal Plan Payments. You may elect to invest in Class A shares of a Fund at net asset value through payments from a Systematic Withdrawal Plan you maintain with any other Eligible Fund. Scheduled investments may be made on a monthly, quarterly, semi-annual or annual basis. You may also elect to invest Systematic Withdrawal Plan payments of Class A shares from a Fund into the same class of another Eligible Fund, including the Money Market Funds. If your Systematic Withdrawal Payments are to be invested in a new account, you must invest a minimum of $600 per year. See "Systematic Withdrawal Plan," below. To arrange for Systematic Withdrawal Plan investments, call Shareholder Services at 1-800-423-4026.
Systematic Withdrawal Plan. Shareholders who own noncertificated shares may establish a Systematic Withdrawal Plan ("Withdrawal Plan"). If you have a Fund account with a net asset value of at least $5,000, you may elect to receive monthly, quarterly, semi-annual or annual checks for any designated amount (minimum $25). You may have the payments sent directly to you or persons you designate. Regardless of the amount of your Fund account, you may also elect to the have the Systematic Plan payments automatically (i) invested at net asset value in shares of the same class of any other Eligible Fund, including the Money Market Funds, or (ii) paid to First Investors Life Insurance Company for the purchase of a life insurance policy or a variable annuity. If your Systematic Plan payments are to be invested in a new Eligible Fund account, you must invest a minimum of $600 per year. If you own Class B shares in a retirement account and qualify to receive distributions under the Code, you may elect to receive redemptions at regular intervals. The redemption proceeds, less any applicable CDSC, will be automatically sent to you directly. Dividends and other distributions, if any, are reinvested in additional shares of the same class of the Fund. Shareholders may add shares to the Withdrawal Plan or terminate the Withdrawal Plan at any time. Withdrawal Plan payments will be suspended when a distributing Fund has received notice of a shareholder's death on an individual account. Payments may recommence upon receipt of written alternate payment instructions and other necessary documents from the deceased's legal representative. Withdrawal payments will also be suspended when a payment check is returned to the Transfer Agent marked as undeliverable by the U.S. Postal Service after two consecutive mailings.
Class B shareholders who may establish a Plan may elect to receive up to 8% of the net asset value of their account (calculated as set forth below) each year without incurring any CDSC. Shares not subject to a CDSC (such as shares representing reinvestment of distributions) will be redeemed first and will count toward the 8% limitation. If the shares not subject to a CDSC are insufficient for this purpose, then shares subject to the lowest CDSC will be redeemed next until the 8% limit is reached. The 8% figure is calculated on a pro rata basis at the time of the first payment made pursuant to the Plan and recalculated thereafter on a pro rata basis at the time of each Plan payment. Therefore, shareholders who have chosen the Plan based on a percentage of the net asset value of their account of up to 8% will be able to receive Plan payments without incurring a CDSC. However, shareholders who have chosen a specific dollar amount (for example, $100 per month from a fund that pays income distributions monthly) for their periodic Plan payment should be aware that the amount of that payment not subject to a CDSC may vary over time depending on the net asset value of their account. For example, if the net asset value of the account is $10,000 at the time of payment, the shareholder will receive $100 free of the CDSC (8% of $10,000 divided by 12 monthly payments). However, if at the time of a future payment the net asset value of the account has fallen to $9,400, the shareholder will receive $94 free of any CDSC (8% of $9,400 divided by 12 monthly payments) and $6 subject to the lowest applicable CDSC. This privilege may be revised or terminated at any time.
The withdrawal payments derived from the redemption of sufficient shares in the account to meet designated payments in excess of dividends and other distributions may deplete or possibly extinguish the initial investment, particularly in the event of a market decline, and may result in a capital gain or loss depending on the shareholder's cost. Purchases of additional shares of a Fund concurrent with withdrawals are ordinarily disadvantageous to shareholders because of tax liabilities and sales charges. To establish a Withdrawal Plan, call Shareholder Services at 1-800-423-4026.
Conversion of Class B Shares. Class B Shares of a Fund will automatically convert to Class A shares of that Fund, based on the relative net asset values per share of the two classes, as of the close of business on the first business day of the month in which the eighth anniversary of the initial purchase of such Class B shares occurs. For these purposes, the date of initial purchase shall mean (1) the first business day of the month in which such Class B shares were issued, or (2) for Class B shares obtained through an exchange or a series of exchanges, the first business day of the month in which the original Class B shares were issued. For conversion purposes, Class B shares purchased through the reinvestment of dividends and other distributions paid in respect of Class B shares will be held in a separate sub-account. Each time any Class B shares in the shareholder's regular account (other than those in the sub-account) convert to Class A shares, a pro rata portion of the Class B shares in the sub-account also will convert to Class A shares. The portion will be determined by the ratio that the shareholder's Class B shares converting to Class A shares bears to the shareholder's total Class B shares not acquired through dividends and other distributions.
The availability of the conversion feature is subject to the continuing applicability of a ruling of the Internal Revenue Service ("IRS"), or an opinion of counsel, that: (1) the dividends and other distributions paid on Class A and Class B shares will not result in "preferential dividends" under the Code; and (2) the conversion of shares does not constitute a taxable event. If the conversion feature ceased to be available, the Class B shares of the Fund would not be converted and would continue to be subject to the higher ongoing expenses of the Class B shares beyond eight years from the date of purchase. FIMCO has no reason to believe that these conditions for the availability of the conversion feature will not continue to be met.
If a Fund implements any amendments to its Class A Plan that would increase materially the costs that may be borne under such Plan by Class A shareholders, Class B shares will stop converting into Class A shares unless a majority of Class B shareholders, voting separately as a class, approve the proposal.
Waivers of CDSC on Class B Shares. The CDSC imposed on Class B shares does not apply to: (a) any redemption pursuant to the tax-free return of an excess contribution to an IRA or other qualified retirement plan if the Fund is notified at the time of such request; (b) any redemption of a lump-sum or other distribution from qualified retirement plans or accounts provided the shareholder has attained the minimum age of 70 1/2 years and has held the Class B shares for a minimum period of three years; (c) any redemption by advisory accounts managed by the Adviser or any of its affiliates or for shares held by the Adviser or any of its affiliates; (d) any redemption by a tax-exempt employee benefit plan if continuance of the investment would be improper under applicable laws or regulations; (e) any redemption or transfer of ownership of Class B shares following the death or disability, as defined in Section 72(m)(7) of the Code, of a shareholder if the Fund is provided with proof of death or disability and with all documents required by the Transfer Agent within one year after the death or disability; and (f) any redemption of shares which were purchased with the proceeds from a redemption of shares of a fund in another fund group for which no sales charge was paid. For more information on what specific documents are required, call Shareholder Services at 1-800-423-4026.
Signature Guarantees. The words "Signature Guaranteed" must appear in direct association with the signature of the guarantor. Although each Fund reserves the right to require signature guarantees at any other time, signature guarantees are required whenever: (1) the amount of the redemption is $50,000 or more, (2) an exchange in the amount of $50,000 or more is made into the Money Market Funds, (3) a redemption check is to be made payable to someone other than the registered accountholder, other than institutions on behalf of the shareholder, (4) a redemption check is to be mailed to an address other than the address of record, other than to another financial institution for the benefit of a shareholder, (5) an account registration is being transferred to another owner, (6) an account, other than an individual, joint, UGMA or UTMA nonretirement account or a trustee-to-trustee transfer of a retirement account, is being exchanged or redeemed, (7) the redemption request is for certificated shares, or (8) your address of record has changed within 60 days prior to a redemption request.
Reinvestment after Redemption. If you redeem Class A or Class B shares in your Fund account, you can reinvest within ninety days from the date of redemption all or any part of the proceeds in shares of the same class of the same Fund or any other Eligible Fund (including the Money Market Funds), at net asset value, on the date the Transfer Agent receives your purchase request. If proceeds of a redemption of Class B shares for which a CDSC has been paid, you will be credited for the amount of the CDSC. If you reinvest less than the entire proceeds, you will be credited with a pro rata portion of the CDSC. All credits will be paid in Class B shares of the fund into which the reinvestment is being made. The period you owned the original Class B shares prior to redemption will be added to the period of time you own Class B shares acquired through reinvestment for purposes of determining (a) the applicable CDSC upon a subsequent redemption and (b) the date on which Class B shares automatically convert to class A shares. If your reinvestment is into a new account, other than the Money Market Funds, it must meet the minimum investment and other requirements of the fund into which the reinvestment is being made. If you reinvest into a new Money Market Fund within one year from the date of redemption, the minimum investment is $500. To take advantage of this option, send your reinvestment check along with a written request to the Transfer Agent within 90 days from the date of your redemption. Include your account number and a statement that you are taking advantage of the "Reinvestment Privilege."
Telephone Transactions. To exchange or redeem noncertificated Fund shares by telephone, you must select this option on your original Account Application or complete the telephone privileges authorization section on the Special Services Application. You may use the privilege five days after the Transfer Agent has processed your Account Application or Special Services Application. Telephone exchanges are available between nonretirement accounts and between IRA accounts of the same class of shares registered in the same name. Telephone exchanges are also available from an individually registered nonretirement account to an IRA account of the same class of shares in the same name (provided an IRA application is on file). Telephone exchanges are not available for exchanges of Fund shares for plan units.
As stated in the Fund's Prospectus, Series Fund II, the Adviser, the Underwriter and their officers, directors and employees will not be liable for any loss, damage, cost or expense arising out of any instruction (or any interpretation of such instruction) received by telephone which they reasonably believe to be authentic. In acting upon telephone instructions, these parties use procedures which are reasonably designed to ensure that such instructions are genuine, such as (1) obtaining some or all of the following information: account number; name(s) and social security number registered to the account; and personal identification; (2) recording all telephone transactions; and (3) sending written confirmation of each transaction to the registered owner.
Profit-Sharing/Money Purchase Pension Plans. FIC offers prototype Profit-Sharing, Money Purchase Pension and 401(k) Retirement Plans ("Retirement Plans") approved by the Internal Revenue Service ("IRS") for corporations, sole proprietorships and partnerships. The Custodial Agreement for the above captioned Money Purchase Pension and Profit Sharing Plan provides that First Financial Savings Bank, S.L.A. ("First Financial Savings"), an affiliate of FIC, will furnish all required custodial services.
FIC offers additional versions of prototype qualified retirement plans for eligible employers, including 401(k), money purchase, profit sharing and target benefit plans.
Currently, there are no annual service fees chargeable to participants in connection with a Retirement Plan account. Participants are, however, charged $5.00 for opening a Retirement Plan account, other than a 401(k) Retirement Plan account. Each Fund currently pays the annual $10.00 custodian fee for each Retirement Plan account, if applicable, maintained with such Fund. This policy may be changed at any time by a Fund on 45 days' written notice. First Financial Savings has reserved the right to waive its fees at any time or to change the fees on 45 days' prior written notice.
The Retirement Plan documents contain further specific information about the Retirement Plans and may be obtained from your First Investors Representative. Prior to establishing a Retirement Plan, you are advised to consult with your legal and tax advisers.
Individual Retirement Accounts. A qualified individual may purchase shares of a Fund through an individual retirement account ("IRA") or, as an employee of a qualified employer, through a Simplified Employee Pension-IRA ("SEP-IRA") or a Salary Reduction Simplified Employee Pension-IRA ("SARSEPIRA") furnished by FIC. Under the related Custodial Agreements, First Financial Savings acts as custodian of each of these retirement plans.
The Funds offer IRA accounts with specific provisions tailored to meet the needs of certain groups of investors. The custodian fees are disclosed in the IRA documents provided to investors in such accounts.
A taxpayer generally may make an annual IRA contribution no greater than the lesser of: (a) 100% of his or her compensation, or (b) $2,000 (or $2,250 when also contributing to a spousal IRA). However, contributions are deductible only under certain conditions. The requirements as to SEP-IRAs and SARSEP-IRAs are described in IRS Form 5305-SEP and 5305A-SEP, respectively, which is provided to employers. Employers are required to provide copies of Forms 5305-SEP and 5305A-SEP to their eligible employees. A disclosure statement setting forth complete details of the IRA is given to each participant before the contribution is invested.
Currently, there are no annual service fees chargeable to a participant in connection with an IRA, SEP-IRA or SARSEP-IRA. Each Fund currently pays the annual $10.00 custodian fee for each IRA account maintained with such Fund. This policy may be changed at any time by a Fund on 45 days' written notice to the holder of any IRA, SEP-IRA or SARSEP-IRA. First Financial Savings has reserved the right to waive its fees at any time or to change the fees on 45 days' prior written notice to the holder of any IRA.
An application and other documents necessary to establish an IRA, SEP-IRA or SARSEP-IRA, are available from your Representative. Prior to establishing an IRA, SEP-IRA or SARSEP-IRA, you are advised to consult with your legal and tax advisers.
Retirement Benefit Plans for Employees of Eligible Organizations. FIC makes available model custodial accounts under Section 403(b)(7) of the Code ("Custodial Accounts") to provide retirement benefits for employees of certain eligible public educational institutions and other eligible non-profit charitable, religious and humane organizations. The Custodial Accounts are designed to permit contributions (up to a "maximum exclusion allowance") by employees through salary reduction. First Financial Savings acts as custodian of these accounts.
Contributions may be made to a Custodial Account under the Optional Retirement Program for Employees of Texas Institutions of Higher Education ("ORP"), either by salary reduction agreement or otherwise, in accordance with the terms and conditions of the ORP, and under the Texas Deferred Compensation Plan Program for eligible state employees by salary reduction agreement.
Currently, there are no annual service fees chargeable to participants in connection with a Custodial Account. Each Fund currently pays the annual $10.00 custodian fee for each Custodial Account maintained with such Fund. This policy may be changed at any time by a Fund on 45 days' written notice to a Custodial Account participant. First Financial Savings has reserved the right to waive its fees at any time or to change the fees on 45 days' prior written notice to a Custodial Account participant.
An application and other documents necessary to establish a Custodial Account are available from your First Investors Representative. Persons desiring to create a Custodial Account are advised to confer with their legal and tax advisers concerning the specifics of this type of retirement benefit plan.
Mandatory income tax withholding, at the rate of 20%, may be required for Federal income tax purposes on "eligible rollover" distributions made from any of the foregoing retirement plans (other than IRAs, including SEP-IRAs and SARSEP-IRAs). If the recipient elects to directly transfer an eligible rollover distribution to an "eligible retirement plan" that permits acceptance of such distributions, no withholding will apply. For distributions that are not "eligible rollover" distributions, the recipient can elect, in writing, not to require any withholding. This election must be submitted immediately before, or must accompany, the distribution request. The amount, if any, of any such optional withholding depends on the amount and type of the distribution. Appropriate election forms are available from the Custodian or Shareholder Services. Other types of withholding nonetheless may apply.
Distribution Fees. A participant/shareholder's account under any of the foregoing retirement plans (including IRAs) may be charged a distribution fee (at the time of withdrawal) of $7.00 for a single distribution of the entire account and $1.00 for each periodic distribution therefrom.
In order to continue to qualify for treatment as a regulated investment company ("RIC") under the Code, a Fund -- each Fund being treated as a separate corporation for these purposes -- must distribute to its shareholders for each taxable year at least 90% of its investment company taxable income (consisting generally of net investment income, net short-term capital gain and, for Growth & Income Fund, net gains from certain foreign currency transactions) ("Distribution Requirement") and must meet several additional requirements. For each Fund these requirements include the following: (1) the Fund must derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or, for Growth & Income Fund, foreign currencies, or other income (including gains from options, futures or forward contracts) derived with respect to its business of investing in securities or, for Growth & Income Fund, those currencies ("Income Requirement"); (2) the Fund must derive less than 30% of its gross income each taxable year from the sale or other disposition of securities, or any of the following, that were held for less than three months -- options or futures, or foreign currencies (or forward contracts) that are not directly related to the Fund's principal business of investing in securities (or options and futures with respect thereto) ("Short-Short Limitation"); (3) at the close of each quarter of the Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. Government securities, securities of other RICs and other securities, with those other securities limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of the Fund's total assets and that does not represent more than 10% of the issuer's outstanding voting securities; and (4) at the close of each quarter of the Fund's taxable year, not more than 25% of the value of its total assets may be invested in securities (other than U.S. Government securities or the securities of other RICs) of any one issuer.
Dividends and other distributions declared by a Fund in October, November or December of any year and payable to shareholders of record on a date in any of those months are deemed to have been paid by the Fund and received by the shareholders on December 31 of that year if the distributions are paid by the Fund during the following January. Accordingly, those distributions will be taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from a Fund's investment company taxable income may be eligible for the dividends-received deduction allowed to corporations. The eligible portion may not exceed the aggregate dividends received by the Fund from U.S. corporations. However, dividends received by a corporate shareholder and deducted by it pursuant to the dividends-received deduction are subject indirectly to the alternative minimum tax.
If shares of a Fund are sold at a loss after being held for six months or less, the loss will be treated as long-term, instead of short-term, capital loss to the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the extent it fails to distribute by the end of any calendar year substantially all of its ordinary income for that year and capital gain net income for the one-year period ending on October 31 of that year, plus certain other amounts.
Dividends and interest received by Growth & Income Fund may be subject to income, withholding or other taxes imposed by foreign countries that would reduce the yield on its securities. Tax conventions between certain countries and the United States may reduce or eliminate these foreign taxes, however, and many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors.
Growth & Income Fund may invest in the stock of "passive foreign investment companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. Under certain circumstances, if the Fund holds stock of a PFIC, it will be subject to Federal income tax on a portion of any "excess distribution" received on the stock or of any gain on disposition of the stock (collectively "PFIC income"), plus interest thereon, even if the Fund distributes the PFIC income as a taxable dividend to its shareholders. The balance of the PFIC income will be included in the Fund's investment company taxable income and, accordingly, will not be taxable to it to the extent that income is distributed to its shareholders.
If Growth & Income Fund invests in a PFIC and elects to treat the PFIC as a "qualified electing fund," then in lieu of the foregoing tax and interest obligation, the Fund would be required to include in income each year its pro rata share of the qualified electing fund's annual ordinary earnings and net capital gain (the excess of net long-term capital gain over net short-term capital loss) -- which would have to be distributed to satisfy the Distribution Requirement and avoid imposition of the Excise Tax -- even if those earnings and gain were not received by the Fund. In most instances it will be very difficult, if not impossible, to make this election because of certain requirements thereof.
Proposed regulations have been published pursuant to which open-end RICs, such as Growth & Income Fund, would be entitled to elect to "mark-to-market" their stock in certain PFICs. "Marking-tomarket," in this context, means recognizing as gain for each taxable year the excess, as of the end of that year, of the fair market value of such a PFIC's stock over the adjusted basis in that stock (including mark-to-market gain for each prior year for which an election was in effect).
For Growth & Income Fund, income from foreign currencies (except certain gains therefrom that may be excluded by future regulations) will qualify as permissible income under the Income Requirement. Income from the Fund's disposition of foreign currencies that are not directly related to its principal business of investing in securities also will be subject to the Short-Short Limitation if they are held for less than three months.
Made In The U.S.A. Fund and Utilities Income Fund may acquire zero coupon securities issued with original issue discount. As the holder of those securities, each such Fund must include in its income the original issue discount that accrues on the securities during the taxable year, even if the Fund receives no corresponding payment on the securities during the year. Similarly, each such Fund must include in its gross income securities it receives as "interest" on pay-in-kind securities. Because each Fund annually must distribute substantially all of its investment company taxable income, including any original issue discount, in order to satisfy the Distribution Requirement and to avoid imposition of the Excise Tax, the Fund may be required in a particular year to distribute as a dividend an amount that is greater than the total amount of cash it actually receives. Those distributions will be made from a Fund's cash assets or from the proceeds of sales of portfolio securities, if necessary. Each Fund may realize capital gains or losses from those sales, which would increase or decrease its investment company taxable income and/or net capital gain. In addition, any such gains may be realized on the disposition of securities held for less than three months. Because of the Short-Short Limitation, any such gains would reduce a Fund's ability to sell other securities, or options or certain forward contracts held for less than three months that it might wish to sell in the ordinary course of its portfolio management.
The use of hedging strategies, such as writing (selling) and purchasing options and futures contracts and entering into forward contracts, involves complex rules that will determine for income tax purposes the character and timing of recognition of the gains and losses Utilities Income Fund and Growth & Income Fund realize in connection therewith. Income from foreign currencies (except certain gains therefrom that may be excluded by future regulations), and income from transactions in options, futures and forward contracts derived by a Fund with respect to its business of investing in securities or foreign currencies, will qualify as permissible income under the Income Requirement. However, income from Utilities Income Fund's disposition of options and futures contracts will be subject to the ShortShort Limitation if they are held for less than three months. Income from Growth & Income Fund's disposition of foreign currencies and forward contracts that are not directly related to its principal business of investing in securities also will be subject to the Short-Short Limitation if they are held for less than three months.
If a Fund satisfies certain requirements, then any increase in value of a position that is part of a "designated hedge" will be offset by any decrease in value (whether realized or not) of the offsetting hedging position during the period of the hedge for purposes of determining whether the Fund satisfies the Short-Short Limitation. Thus, only the net gain (if any) from the designated hedge will be included in gross income for purposes of that limitation. Each Fund intends that, when it engages in hedging strategies, it will qualify for this treatment, but at the present time it is not clear whether this treatment will be available for all of the Fund's hedging transactions. To the extent this treatment is not available, a Fund may be forced to defer the closing out of options, futures or certain forward contracts beyond the time when it otherwise would be advantageous to do so, in order for the Fund to continue to qualify as a RIC.
A Fund may advertise its performance of each of its classes in various ways.
The "average annual total return" ("T") of each class is an average annual compounded rate of return. The calculation produces an average annual total return for the number of years measured. It is the rate of return based on factors which include a hypothetical initial investment of $1,000 ("P") over a number of years ("n") with an Ending Redeemable Value ("ERV") of that investment, according to the following formula:
The "total return" uses the same factors, but does not average the rate of return on an annual basis. Total return is determined as follows:
Total return is calculated by finding the average annual change in the value of an initial $1,000 investment over the period. In calculating the ending redeemable value for Class A shares, each Fund will deduct the maximum sales charge of 6.25% (as a percentage of the offering price) from the initial $1,000 payment and, for Class B shares, the applicable CDSC imposed on a redemption of Class B shares held for the period is deducted. All dividends and other distributions are assumed to have been reinvested at net asset value on the initial investment ("P"). Average annual total return and total return may also be based on investment at reduced sales charge levels or at net asset value. Any quotation of return not reflecting the maximum sales charge will be greater than if the maximum sales charge were used.
Return information may be useful to investors in reviewing a Fund's performance. However, certain factors should be taken into account before using this information as a basis for comparison with alternative investments. No adjustment is made for taxes payable on distributions. Return will fluctuate over time and return for any given past period is not an indication or representation by a Fund of future rates of return on its shares. At times, the Adviser may reduce its compensation or assume expenses of a Fund in order to reduce the Fund's expenses. Any such waiver or reimbursement would increase the Fund's return during the period of the waiver or reimbursement.
October 31, 1995 October 31, 1995 Made In The U.S.A. Fund 16.76% 5.91% Utilities Income Fund 13.74 3.70 Growth & Income Fund 11.98 7.51
Made In The U.S.A. Fund 15.80% Growth & Income Fund 17.78
Each Fund may include in advertisements and sales literature, information, examples and statistics to illustrate the effect of compounding income at a fixed rate of return to demonstrate the growth of an investment over a stated period of time resulting from the payment of dividends and capital gain distributions in additional shares. These examples may also include hypothetical returns comparing taxable versus tax-deferred growth which would pertain to an IRA, section 403(b)(7) Custodial Account or other qualified retirement program. The examples used will be for illustrative purposes only and are not representations by the Funds of past or future yield or return.
From time to time, in reports and promotional literature, the Funds may compare their performance to, or cite the historical performance of, Overnight Government repurchase agreements, U.S. Treasury bills, notes and bonds, certificates of deposit, and six-month money market certificates or indices of broad groups of unmanaged securities considered to be representative of, or similar to, the Funds' portfolio holdings, such as:
Lipper Analytical Services, Inc. ("Lipper") is a widely-recognized independent service that monitors and ranks the performance of regulated investment companies. The Lipper performance analysis includes the reinvestment of capital gain distributions and income dividends but does not take sales charges into consideration. The method of calculating total return data on indices utilizes actual dividends on ex-dividend dates accumulated for the quarter and 1 The inception dates for Class A shares of the Funds are as follows: Made In The U.S.A. Fund August 24, 1992; Utilities Income Fund - February 22, 1993; and Growth & Income Fund October 4, 1993. 2 The commencement date for the offering of Class B shares is January 12, 1995.
end. This calculation is at variance with SEC release 327 of August 8, 1972, which utilizes latest 12 month dividends. The latter method is the one used by S&P.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication of Morningstar, Inc. Morningstar proprietary ratings reflect historical risk-adjusted performance and are subject to change every month. Funds with at least three years of performance history are assigned ratings from one star (lowest) to five stars (highest). Morningstar ratings are calculated from the funds' three-, five-, and ten-year average annual returns (when available) and a risk factor that reflects fund performance relative to three-month Treasury bill monthly returns. Fund's returns are adjusted for fees and sales loads. Ten percent of the funds in an investment category receive five stars, 22.5% receive four stars, 35% receive three stars, 22.5% receive two stars, and the bottom 10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly publication which tracks principal return, total return and yield on the Salomon Brothers Broad Investment-Grade Bond Index and the components of the Index.
Telerate Systems, Inc., a computer system to which the Adviser subscribes which daily tracks the rates on money market instruments, public corporate debt obligations and public obligations of the U.S. Treasury and agencies of the U.S. Government.
The Wall Street Journal, a daily newspaper publication which lists the yields and current market values on money market instruments, public corporate debt obligations, public obligations of the U.S. Treasury and agencies of the U.S. Government as well as common stocks, preferred stocks, convertible preferred stocks, options and commodities; in addition to indices prepared by the research departments of such financial organizations as Lehman Bros., Merrill Lynch, Pierce, Fenner and Smith, Inc., First Boston, Salomon Brothers, Morgan Stanley, Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette, Value Line, Datastream International, James Capel, S.G. Warburg Securities, County Natwest and UBS UK Limited, including information provided by the Federal Reserve Board, Moody's, and the Federal Reserve Bank.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a monthly corporate government index publication which lists principal, coupon and total return on over 100 different taxable bond indices which Merrill Lynch tracks. They also list the par weighted characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly publication which tracks principal, coupon and total return on the Lehman Govt./Corp. Index and Lehman Aggregate Bond Index, as well as all the components of these Indices.
Standard & Poor's 500 Composite Stock Price Index and the Dow Jones Industrial Average of 30 stocks are unmanaged lists of common stocks frequently used as general measures of stock market performance. Their performance figures reflect changes of market prices and quarterly reinvestment of all distributions but are not adjusted for commissions or other costs.
The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics, is a commonly used measure of inflation. The Index shows changes in the cost of selected consumer goods and does not represent a return on an investment vehicle.
The NYSE composite of component indices--unmanaged indices of all industrial, utilities, transportation, and finance stocks listed on the NYSE.
The Russell 2500 Index, prepared by the Frank Russell Company, consists of U.S. publicly traded stocks of domestic companies that rank from 500 to 3000 by market capitalization. The Russell 2500 tracks the return on these stocks based on price appreciation or depreciation and does not include dividends and income or changes in market values caused by other kinds of corporate changes.
The Russell 2000 Index, prepared by the Frank Russell Company, consists of U.S. publicly traded stocks of domestic companies that rank from 1000 to 3000 by market capitalization. The Russell 2000 tracks the return on these stocks based on price appreciation or depreciation and does not include dividends and income or changes in market values caused by other kinds of corporate changes.
Reuters, a wire service that frequently reports on global business.
Standard & Poor's Utilities Index is an unmanaged capitalization weighted index comprising common stock in approximately 40 electric, natural gas distributors and pipelines, and telephone companies. The Index assumes the reinvestment of dividends.
Moody's Stock Index, an unmanaged index of utility stock performance.
From time to time, in reports and promotional literature, performance rankings and ratings reported periodically in national financial publications such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may also be used. In addition, quotations from articles and performance ratings and ratings appearing in daily newspaper publications such as THE WALL STREET JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited.
Audits And Reports. The accounts of the Funds are audited twice a year by Tait, Weller & Baker, independent certified public accountants, Two Penn Center Plaza, Philadelphia, PA, 19102-1707. Shareholders of each Fund receive semi-annual and annual reports, including audited financial statements, and a list of securities owned.
Transfer Agent. Administrative Data Management Corp., 10 Woodbridge Center Drive, Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer agent for the Funds and as redemption agent for regular redemptions. The fees charged to each Fund by the Transfer Agent are $5.00 to open an account; $3.00 for each certificate issued; $.65 per account per month; $10.00 for each legal transfer of shares; $.45 per account per dividend declared; $5.00 for each exchange of shares into a Fund; $5.00 for each partial withdrawal or complete liquidation; and $1.00 per account per report required by any governmental authority. Additional fees charged to the Funds by the Transfer Agent are assumed by the Underwriter. The Transfer Agent reserves the right to change the fees on prior notice to the Funds. The $5 administrative fee for exchange transactions into a Fund, which is generally to be charged to the shareholder, is being borne on a voluntary basis by the Fund for an indefinite period. Upon request from shareholders, the Transfer Agent will provide an account history. For account histories covering the most recent three year period, there is no charge. The Transfer Agent charges a $5.00 administrative fee for each account history covering the period 1983 through 1990 and $10.00 per year for each account history covering the period 1974 through 1982. Account histories prior to 1974 will not be provided. For the fiscal year ended October 31, 1995, Growth & Income Fund, Made In The U.S.A. Fund and Utilities Income Fund paid $134,247, $30,814 and $186,056, respectively, in transfer agent fees. The Transfer Agent's telephone number is 1-800-423-4026.
5% Shareholders. As of December 26, 1995, the following beneficially owned more than 5% of the outstanding Class B shares of Made In The U.S.A. Fund:
Trading by Portfolio Managers and Other Access Persons. Pursuant to Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, Series Fund II and the Adviser have adopted Codes of Ethics restricting personal securities trading by portfolio managers and other access persons of the Fund. Among other things, access persons, other than the disinterested Directors of Series Fund II: (a) must have all trades pre-cleared by the Adviser; (b) are restricted from short-term trading; (c) must have duplicate statements and transactions confirmations reviewed by a compliance officer; and (d) are prohibited from purchasing securities of initial public offerings.
DESCRIPTION OF CORPORATE BOND AND
STANDARD & POOR'S RATINGS GROUP
The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform any audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default-capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal. "BB" indicates the least degree of speculation and "C" the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The "BB" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The "B" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The "CCC" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior debt that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is being paid.
D Debt rated "D" is in payment default. The "D" rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major categories.
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities, fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat greater than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated "Baa" are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba Bonds which are rated "Ba" are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa Bonds which are rated "Caa" are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca Bonds which are rated "Ca" represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS GROUP
S&P's commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings are graded into several categories, ranging from "A-1" for the highest quality obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus (+) designation.
Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations which have an original maturity not exceeding one year. Obligations relying upon support mechanisms such as letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
Prime-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior ability for repayment of senior short-term debt obligations. P-1 repayment ability will often be evidenced by many of the following characteristics:
- Leading market positions in well-established industries. - High rates of return on funds employed. - Conservative capitalization structure with moderate reliance on debt and ample asset protection. - Broad margins in earnings coverage of fixed financial charges and high internal cash generation. - Well-established access to a range of financial markets and assured sources of alternate liquidity.
Although it does not presently intend to engage in these strategies in coming year, Utilities Income Fund may use some or all of the following hedging instruments:
Options on Equity and Debt Securities--A call option is a short-term contract pursuant to which the purchaser of the option, in return for a premium, has the right to buy the security underlying the option at a specified price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option during the option term, to deliver the underlying security against payment of the exercise price. A put option is a similar contract that gives its purchaser, in return for a premium, the right to sell the underlying security at a specified price during the option term. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option during the option term, to buy the underlying security at the exercise price.
Options on Stock Indexes--A stock index assigns relative values to the stocks included in the index and fluctuates with changes in the market values of those stocks. A stock index option operates in the same way as a more traditional stock option, except that exercise of a stock index option is effected with cash payment and does not involve delivery of securities. Thus, upon exercise of a stock index option, the purchaser will realize, and the writer will pay, an amount based on the difference between the exercise price and the closing price of the stock index.
Stock Index Futures Contracts--A stock index futures contract is a bilateral agreement pursuant to which one party agrees to accept, and the other party agrees to make, delivery of an amount of cash equal to a specified dollar amount times the difference between the stock index value at the close of trading of the contract and the price at which the futures contract is delivery of the stocks comprising the index is made. Generally, contracts are closed out prior to the expiration date of the contract.
Interest Rate Futures Contracts--Interest rate futures contracts are bilateral agreements pursuant to which one party agrees to make, and the other party agrees to accept, delivery of a specified type of debt security at a specified future time and at a specified price. Although such futures contracts by their terms call for actual delivery or acceptance of debt securities, in most cases the contracts are closed out before the settlement date without the making or taking of delivery.
Options on Futures Contracts--Options on futures contracts are similar to options on securities, except that an option on a futures contract gives the purchaser the right, in return for the premium, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put), rather than to purchase or sell a security, at a specified price at any time during the option term. Upon exercise of the option, the delivery of the futures position to the holder of the option will be accompanied by delivery of the accumulated balance that represents the amount by which the market price of the futures contract exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the future. The writer of an option, upon exercise, will assume a short position in the case of a call and a long position in the case of a put.
as of October 31, 1995
FIRST INVESTORS SERIES FUND II, INC.
1. Significant Accounting Policies--First Investors Series Fund II, Inc. (the "Fund"), a Maryland corporation, is registered under the Investment Company Act of 1940 (the "1940 Act") as a diversified, open-end management investment company. The Fund consists of three Series, First Investors Growth & Income Fund, First Investors Made In The U.S.A. Fund and First Investors Utilities Income Fund, and accounts separately for the assets, liabilities and operations of each Series. The objective of each Series is as follows:
Growth & Income Fund seeks long-term growth of capital and current income. This Series seeks to achieve its objective by investing at least 65% of its total assets in securities that provide the potential for growth and offer income, such as dividend-paying stocks and securities convertible into common stocks.
Made In The U.S.A. Fund seeks long-term capital growth. This Series seeks to achieve its objective by investing at least 75% of its total assets in common and preferred stocks of companies that its investment adviser considers to have potential for capital growth. In addition, at least 65% of the Series' total assets normally will be invested in securities of issuers that (1) have at least two-thirds of their employees located in the United States, or (2) produce in the United States at least two-thirds of the value of the parts constituting the products sold by the issuer, or (3) provide in the United States at least two-thirds of the value of the services provided by the issuer.
Utilities Income Fund primarily seeks high current income. Long-term capital appreciation is a secondary objective. This Series seeks to achieve its objectives by investing at least 65% of its total assets in equity and debt securities issued by companies primarily engaged in the public utilities industry.
A. Security Valuation--Except as provided below, a security listed or traded on an exchange or the NASDAQ National Market System is valued at its last sale price on the exchange or system where the security is principally traded, and lacking any sales, the security is valued at the mean between the closing bid and asked prices. Each security traded in the over-the-counter market (including securities listed on exchanges whose primary market is believed to be over-the- counter) is valued at the mean between the last bid and asked prices based upon quotes furnished by a market maker for such securities. Securities may also be priced by a pricing service. The pricing service uses quotations obtained from investment dealers or brokers, information with respect to market transactions in comparable securities and other available information in determining value. Short-term corporate notes which are purchased at a discount are valued at amortized cost. Securities for which market quotations are not readily available and other assets are valued on a consistent basis at fair value as determined in good faith by or under the supervision of the Fund's officers in a manner specifically authorized by the Board of Directors.
B. Federal Income Taxes--No provision has been made for federal income taxes on net income or capital gains, since it is the policy of each Series to continue to comply with the special provisions of the Internal Revenue Code applicable to investment companies and to make sufficient distributions of income and capital gains (in excess of any available capital loss carryovers) to relieve it from all, or substantially all, such taxes.
At October 31, 1995, capital loss carryovers were as follows:
INCOME FUND $ 111,457 $ 111,457 $ --
INCOME FUND 4,727,380 3,991,114 736,266
C. Distributions to Shareholders--Dividends from net investment income of the Growth & Income Fund and Utilities Income Fund are declared and paid quarterly and dividends from net investment income of the Made In The U.S.A. Fund are declared and paid annually. Distributions from net realized capital gains of all Series are normally declared and paid annually. Income dividends and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for capital loss carryforwards, deferral of wash sales and amortization of deferred organization expenses.
D. Expense Allocation--Expenses directly charged or attributable to a Series are paid from the assets of that Series. General expenses of the Fund are allocated among and charged to the assets of each Series on a fair and equitable basis, which may be based on the relative assets of each Series or the nature of the services performed and relative applicability to each Series.
E. Deferred Organization Expenses--The organization expenses of each Series are being amortized over a five year period. Investors purchasing shares of a Series bear such expenses only as they are amortized against the investment income of that Series.
First Investors Management Company,Inc. ("FIMCO"), the Fund's investment adviser, has agreed that in the event any of the initial Class A shares of a Series purchased by FIMCO are redeemed during the amortization period, the redemption proceeds will be reduced by a pro rata portion of any unamortized organization expenses in the same proportion as the number of initial Class A shares of the Series being redeemed bears to the number of initial Class A shares of the Series outstanding at the time of redemption.
F. Other--Security transactions are accounted for on the date the securities are purchased or sold. Cost is determined, and gains and losses are based, on the identified cost basis for both financial statement and federal income tax purposes. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income and estimated expenses are accrued daily.
and Sales of Securities--For the year ended October 31, 1995, purchases and sales of securities, excluding U.S. Treasury Bills and short-term corporate notes, were as follows:
GROWTH & INCOME FUND $29,152,887 $ 8,569,978 MADE IN THE U.S.A. FUND 6,735,922 9,162,458 UTILITIES INCOME FUND 23,335,212 11,079,946
3. Advisory Fee and Other Transactions With Affiliates--Certain officers and directors of the Fund are officers and directors of its investment adviser, FIMCO, its underwriter, First Investors Corporation ("FIC"), its transfer agent, Administrative Data Management Corp. ("ADM") and/or First Financial Savings Bank, S.L.A. ("FFS"), custodian of the Fund's Individual Retirement Accounts. Officers and directors of the Fund received no remuneration from the Fund for serving in such capacities. Their remuneration (together with certain other expenses of the Fund) is paid by FIMCO or FIC.
The Investment Advisory Agreement provides as compensation to FIMCO for each Series other than the Made In The U.S.A. Fund, an annual fee, payable monthly, at the rate of .75% on the first $300 million of each Series' average daily net assets, .72% on the next $200 million, .69% on the next $250 million and .66% on average daily net assets over $750 million. The annual fee for the Made In The U.S.A. Fund is payable monthly, at the rate of 1.00% on the first $200 million of the Series' average daily net assets, .75% on the next $300 million, declining by .03% on each $250 million thereafter, down to .66% on average daily net assets over $1 billion. For the year ended October 31, 1995, total advisory fees accrued to FIMCO were $990,150 of which $347,111 was waived. In addition, expenses of $311,716 were assumed by FIMCO.
Pursuant to certain state regulations, FIMCO has agreed to reimburse each Series if and to the extent that the Series' aggregate operating expenses, including advisory fees but generally excluding interest, taxes, brokerage commissions and extraordinary expenses, exceed any limitation on expenses applicable to that Series in those states (unless waivers of such limitations have been obtained). The amount of any such reimbursement is limited to the Series' yearly advisory fee. For the year ended October 31, 1995, no reimbursement was required pursuant to these provisions.
For the year ended October 31, 1995, FIC, as underwriter, received $3,661,053 in commissions from the sale of Fund shares, after allowing $19,818 to other dealers. Shareholder servicing costs included $351,117 in transfer agent fees and out of pocket expenses accrued to ADM and $131,450 in custodian fees paid to FFS.
Pursuant to a Distribution Plan adopted under Rule 12b-1 of the 1940 Act, each Series is authorized to pay FIC a fee equal to .30% of the average net assets of the Class A shares and 1% of the average net assets of the Class B shares on an annualized basis each fiscal year, payable monthly. The fee consists of a distribution fee and a service fee. The service fee is paid for the ongoing servicing of clients who are shareholders of that Series. For the year ended October 31, 1995, these fees on the Class A shares amounted to $380,371 (of which $109,231 was waived by FIC) and $25,357 on the Class B shares.
Wellington Management Company serves as an investment sub-adviser to the Growth & Income Fund. The subadviser is paid by FIMCO and not by the Series.
The Fund's Custodian has provided credits in the amount of $22,493 against custodian charges based on the uninvested cash balances of the Fund. The Fund could possibly have used these cash balances to produce income for the Fund if they were not used to offset custodian charges of the Fund.
4. Capital--Each Series sells two classes of shares, Class A and Class B, each with a public offering price that reflects different sales charges and expense levels. Class A shares are sold with an initial sales charge of up to 6.25% of the amount invested and together with the Class B shares are subject to 12b-1 fees as described in Note 3. Class B shares are sold without an initial sales charge, but are generally subject to a contingent deferred sales charge which declines in steps from 4% to 0% during a six-year period. Class B shares automatically convert into Class A shares after eight years. Realized and unrealized gains or losses, investment income and expenses (other than 12b-1 fees and certain other class expenses) are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Of the 100,000,000 shares originally designated, the Fund has classified 50,000,000 shares as Class A and 50,000,000 shares as Class B.
5. Rule 144A Securities--Rule 144A provides a non-exclusive safe harbor exemption from the registration requirements of the Securities Act of 1933 for specified resales of restricted securities to qualified investors. At October 31, 1995, the Growth & Income Fund held one 144A security with a value of $256,250, representing less than 1% of the Series' net assets. This security is valued as disclosed in Note 1A.
To the Shareholders and Board of Directors of First Investors Series Fund II, Inc.
We have audited the accompanying statement of assets and liabilities, including the portfolios of investments, of First Investors Growth & Income Fund, First Investors Made In The U.S.A. Fund and First Investors Utilities Income Fund (comprising First Investors Series Fund II, Inc.), as of October 31, 1995, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the periods indicated thereon. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of First Investors Growth & Income Fund, First Investors Made In The U.S.A. Fund and First Investors Utilities Income Fund as of October 31, 1995, and the results of their operations, changes in their net assets and financial highlights for the periods presented, in conformity with generally accepted accounting principles.
Item 24. Financial Statements and Exhibits
(a) Financial Statements: Financial Statements are set forth in Part B, Statement of Additional Information
(1) a.8 Articles of Incorporation
(13)1,2,5 Letters of investment intent
(14)a.1 First Investors Profit Sharing/Money Purchase Pension Retirement Plan for
b.3 First Investors Individual Retirement
c.1 First Investors 403(b) Custodial
d.3 First Investors SEP-IRA and
(15)a. Class A Distribution Plan
b. Class B Distribution Plan
(17) Financial Data Schedule (filed as Exhibit 27 for electronic filing
1 Incorporated by reference from Pre-Effective Amendment No. 1 to Registrant's Registration Statement (File No. 33-46924) filed on June 17, 1992. 2 Incorporated by reference from Post-Effective Amendment No. 1 to Registrant's Registration Statement (File No. 33-46924) filed on November 20, 1992. 3 Incorporated by reference from Post-Effective Amendment No. 2 to Registrant's Registration Statement (File No. 33-46924) filed on February 10, 1993. 4 Incorporated by reference from Post-Effective Amendment No. 3 to Registrant's Registration Statement (File No. 33-46924) filed on June 30, 1993. 5 Incorporated by reference from Post-Effective Amendment No. 4 to Registrant's Registration Statement (File No. 33-46924) filed on July 26, 1993.
6 Incorporated by reference from Registrant's Rule 24f-2 Notice for its fiscal year ended October 31, 1995 filed on November 14, 1995.
7 Incorporated by reference from Post-Effective Amendment No. 5 to Registrant's Registration Statement (File No. 33-46924) filed on February 28, 1994.
8 Incorporated by reference from Post-Effective Amendment No. 9 to Registrant's Registration Statement (File No. 33-46924) filed on November 13, 1995.
Item 25. Persons Controlled by or under common control with Registrant
There are no persons controlled by or under common control with the Registrant.
Item 26. Number of Holders of Securities
Title of Class November 30, 1995
Made In The U.S.A. Fund 2,363 49 Utilities Income Fund 13,111 508 Growth & Income Fund 9,892 665
Article X of the By-Laws of Registrant provides as follows:
Section 10.01. Indemnification of Officers, Directors, Employees and Agents: The Corporation shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative ("Proceeding"), by reason of the fact that he or she is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, partner, trustee or agent of another corporation, partnership, joint venture, trust, or other enterprise, against all reasonable expenses (including attorneys' fees) actually incurred, and judgments, fines, penalties and amounts paid in settlement in connection with such Proceeding to the maximum extent permitted by law, now existing or hereafter adopted. Notwithstanding the foregoing, the following provisions shall apply with respect to indemnification of the Corporation's directors, officers, and investment adviser (as defined in the 1940 Act):
(a) Whether or not there is an adjudication of liability in such Proceeding, the Corporation shall not indemnify any such person for any liability arising by reason of such person's willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office or under any contract or agreement with the Corporation ("disabling conduct").
(b) The Corporation shall not indemnify any such person unless:
(1) the court or other body before which the Proceeding was brought (a) dismisses the Proceeding for insufficiency of evidence of any disabling conduct, or (b) reaches a final
decision on the merits that such person was not liable by reason of disabling conduct; or
(2) absent such a decision, a reasonable determination is made, based upon a review of the facts, by (a) the vote of a majority of a quorum of the directors of the Corporation who are neither interested persons of the Corporation as defined in the 1940 Act, nor parties to the Proceeding, or (b) if a majority of a quorum of directors described above so directs, or if such quorum is not obtainable, based upon a written opinion by independent legal counsel, that such person was not liable by reason of disabling conduct.
(c) Reasonable expenses (including attorney's fees) incurred in defending a Proceeding involving any such person will be paid by the Corporation in advance of the final disposition thereof upon an undertaking by such person to repay such expenses unless it is ultimately determined that he or she is entitled to indemnification, if:
(1) such person shall provide adequate security for his or her
(2) the Corporation shall be insured against losses arising by reason of such advance; or
(3) a majority of a quorum of the directors of the Corporation who are neither interested persons of the Corporation as defined in the 1940 Act nor parties to the Proceeding, or independent legal counsel in a written opinion, shall determine, based on a review of readily available facts, that there is reason to believe that such person will be found to be entitled to indemnification.
Section 10.02. Insurance of Officers, Directors, Employees and Agents: The Corporation may purchase and maintain insurance or other sources of reimbursement to the extent permitted by law on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, partner, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in or arising out of his position.
Section 10.03. Non-exclusivity: The indemnification and advancement of expenses provided by, or granted pursuant to, this Article X shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Articles of Incorporation, these By-Laws, any agreement, vote of stockholders or directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office.
The Registrant's Investment Advisory Agreement provides as follows:
The Manager shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Company or any Series in connection with the matters to which this Agreement relate except a loss resulting from the willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. Any person, even though also an officer, partner, employee, or agent of the Manager, who may be or become an officer, Board member, employee or agent of the Company shall be deemed, when rendering services to the Company or acting in any business of the Company, to be rendering such services to or acting solely for the Company and not as an officer, partner, employee, or agent or one under the control or direction of the Manager even though paid by it.
The Registrant's Underwriting Agreement provides as follows:
The Underwriter agrees to use its best efforts in effecting the sale and public distribution of the Shares through dealers and in performing its duties in redeeming and repurchasing the Shares, but nothing contained in this Agreement shall make the Underwriter or any of its officers, directors or shareholders liable for any loss sustained by the Fund or any of its officers, directors or shareholders, or by any other person on account of any act done or omitted to be done by the Underwriter under this Agreement, provided that nothing contained herein shall protect the Underwriter against any liability to the Fund or to any of its shareholders to which the Underwriter would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence in the performance of its duties as Underwriter or by reason of its reckless disregard of its obligations or duties as Underwriter under this Agreement. Nothing in this Agreement shall protect the Underwriter from any liabilities which it may have under the Securities Act of 1933, as amended ("1933 Act"), or the 1940 Act.
Reference is hereby made to the Maryland Corporations and Associations Annotated Code, Sections 2-417, 2-418 (1986).
The general effect of this Indemnification will be to indemnify the officers and directors of the Registrant from costs and expenses arising from any action, suit or proceeding to which they may be made a party by reason of their being or having been a director or officer of the Registrant, except where such action is determined to have arisen out of the willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the director's or officer's office.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable. See Item 32 herein.
Item 28. Business and Other Connections of Investment Adviser
First Investors Management Company, Inc., the Registrant's Investment Adviser, also serves as Investment Adviser to:
First Investors Global Fund, Inc. First Investors Cash Management Fund, Inc. First Investors Fund For Income, Inc. First Investors Government Fund, Inc. First Investors High Yield Fund, Inc. First Investors Insured Tax Exempt Fund, Inc. First Investors Life Series Fund First Investors Multi-State Insured Tax Free Fund First Investors New York Insured Tax Free Fund, Inc. First Investors Special Bond Fund, Inc. First Investors Tax-Exempt Money Market Fund, Inc. First Investors U.S. Government Plus Fund
Affiliations of the officers and directors of the Investment Adviser are set forth in Part B, Statement of Additional Information, under "Directors and Officers."
(a) First Investors Corporation, Underwriter of the Registrant, is also underwriter for:
First Investors Global Fund, Inc. First Investors Cash Management Fund, Inc. First Investors Fund For Income, Inc. First Investors Government Fund, Inc. First Investors High Yield Fund, Inc. First Investors Insured Tax Exempt Fund, Inc. First Investors Life Series Fund First Investors Multi-State Insured Tax Free Fund First Investors New York Insured Tax Free Fund, Inc. First Investors Tax-Exempt Money Market Fund, Inc. First Investors U.S. Government Plus Fund
(b) The following persons are the officers and directors of the Underwriter:
Name and Principal Office with First Office with Business Address Investors Corporation Registrant
Glenn O. Head Chairman President 95 Wall Street and Director and Director
Marvin M. Hecker President None
John T. Sullivan Director Chairman of the 95 Wall Street Board of Directors
Roger L. Grayson Director Director
Joseph I. Benedek Treasurer Treasurer
Lawrence A. Fauci Senior Vice President None 95 Wall Street and Director
Kathryn S. Head Vice President, Director 581 Main Street Chief Financial Woodbridge, NJ 07095 Officer and Director
Louis Rinaldi Senior Vice None
Frederick Miller Vice President None
Jane W. Kruzan Director None
Name and Principal Office with First Office with Business Address Investors Corporation Registrant
Larry R. Lavoie Secretary and None 95 Wall Street General Counsel
Matthew Smith Vice President None
Jeremiah J. Lyons Director None
Kellen M. Carson Vice President None
Anne Condon Vice President None
Howard M. Factor Vice President None
Item 30. Location of Accounts and Records
Physical possession of the books, accounts and records of the Registrant are held by First Investors Management Company, Inc. and its affiliated companies, First Investors Corporation and Administrative Data Management Corp., at their corporate headquarters, 95 Wall Street, New York, NY 10005 and administrative offices, 581 Main Street, Woodbridge, NJ 07095, except for those maintained by the Registrant's Custodian, The Bank of New York, 48 Wall Street, New York, NY 10286.
The Registrant undertakes to carry out all indemnification provisions of its Articles of Incorporation, Advisory Agreement, Subadvisory Agreement and Underwriting Agreement in accordance with Investment Company Act Release No. 11330 (September 4, 1980) and successor releases.
Insofar as indemnification for liability arising under the Securities Act of 1933, as amended (the "1933 Act"), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions under Item 27 herein, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes to furnish a copy of its latest annual report to shareholders, upon request and without charge, to each person to whom a prospectus is delivered.
99.B15.1 Class A Distribution Plan 99.B15.2 Class B Distribution Plan 27.011 FDS - Made In The U.S.A. Fund - Class A 27.012 FDS - Made In The U.S.A. Fund - Class B 27.021 FDS - Utilities Income Fund - Class A 27.022 FDS - Utilities Income Fund - Class B 27.031 FDS - Growth & Income Fund - Class A 27.032 FDS - Growth & Income Fund - Class B
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant represents that this Amendment meets all the requirements for effectiveness pursuant to Rule 485(b) under the Securities Act of 1933, and has duly caused this PostEffective Amendment to this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 4th day of January, 1996.
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, this Amendment to this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
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0000823535-96-000006_0006.txt
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STATE HOUSE - BOSTON, MA SUPPLEMENT TO DECLARATION OF TRUST We, J. Gary Burkhead, Senior Vice President and Arthur S. Loring, FIDELITY U.S. TREASURY MONEY MARKET FUND do certify that, in accordance with ARTICLE XII, SECTION 7 of the Declaration of Trust of FIDELITY U.S. TREASURY MONEY MARKET FUND the following Supplement to said Declaration of Trust was duly adopted by the Board of Trustees pursuant to a unanimous written consent dated May 18, 1990. VOTED: That the Declaration of Trust dated September 9, 1989 be, and it hereby is, amended as follows: That Article 1, Section 1 of the Declaration of Trust of this Trust shall be amended to read as follows: "This Trust shall be known as `Spartan U.S. Treasury Money Market Fund'." That Article 1, Section 2(b) of the Declaration of Trust of this Trust shall be amended to read as follows: "The `Trust' refers to `Spartan U.S. Treasury Money Market Fund'."
The foregoing Supplement to the Declaration of Trust will become effective August 10, 1990 so long as this Supplement is filed in accordance with Chapter 182, Section 2, of the General Laws. IN WITNESS whereof and under the penalties of perjury, we have hereunto signed our names this 15th day of August in the year of 1990. /s/J. Gary Burkhead /s/Arthur S. Loring J. Gary Burkhead Arthur S. Loring
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485BPOS
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EX-99.B24B1C
| 1996-01-12T00:00:00
| 1996-01-12T16:08:42
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0000008177-96-000002
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0000008177-96-000002_0000.txt
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<DESCRIPTION>ATLANTIC AMERICAN CORPORATION, CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 12, 1996
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (Commission File (I.R.S. Employer Identification incorporation or organization) Number) Number)
4370 PEACHTREE ROAD, N.E., ATLANTA, GEORGIA 30319 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 266-5500
(Former name, former address and former fiscal year, if changed
Item 2. Acquisition or Disposition of Assets.
On December 31, 1995, pursuant to an agreement (the "Stock Purchase Agreement"), Atlantic American Corporation (the "Company"), acquired all of the shares of capital stock of American Southern Insurance Company ("American Southern") from Fuqua Enterprises, Inc. (the "Seller") for a purchase price of $34,000,000. As a result of the transaction, American Southern became a wholly owned subsidiary of the Company. The assets of American Southern include investments, receivables, cash and other assets. The Company intends to continue to use these assets for the purpose of selling insurance. The purchase price was paid in the form of a cash payment of approximately $22,642,000 (representing the proceeds of a loan from Wachovia Bank of Georgia, N.A.) and the issuance of a Promissory Note to the seller for approximately $11,358,000. No material relationship exists between the Seller or its shareholders and the Company or any of its affiliates, directors or officers or any associate of any such director or officer.
On January 5, 1996, Atlantic American Corporation entered into a Merger Agreement pursuant to which it will acquire all of the remaining publicly-held shares of its subsidiary, Bankers Fidelity Life Insurance Company. Atlantic American currently owns 93% of the outstanding stock of Bankers Fidelity. The transaction will be completed through the merger of a newly formed wholly-owned subsidiary of Atlantic American into Bankers Fidelity, with Bankers Fidelity being the surviving corporation in the merger. As a result of the merger, the public shareholders of Bankers Fidelity will receive $6.25 in cash for each share of common stock, for an aggregate of approximately $1,264,000. Consummation of the transaction is subject to approval at a shareholders' meeting and receipt of any necessary regulatory approvals.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired: to be filed by amendment as soon as practicable; but, not later than March 12, 1996.
(b) Pro Forma Financial Information: to be filed by amendment as soon as practicable; but, not later than March 12, 1996.
(2.1) Stock Purchase Agreement by and between Atlantic American Corporation and Fuqua Enterprises , Inc., dated as of October 16, 1995.
(99.1) Credit Agreement, dated as of December 29, 1995, between Atlantic American Corporation and Wachovia Bank of Georgia, N.A.
(99.2) Press Release dated January 2, 1996.
(99.3) Press Release dated January 9, 1996.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: January 12, 1996 By: /s/
Exhibit 2.1 Stock Purchase Agreement by and between Atlantic American Corporation and Fuqua Enterprises , Inc., dated as of October 16, 1995.
Exhibit 99.1 Credit Agreement, dated as of December 29, 1995, between Atlantic American Corporation and Wachovia Bank of Georgia, N.A.
Exhibit 99.2 Press Release dated January 2, 1996.
Exhibit 99.3 Press Release dated January 9, 1996.
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8-K
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8-K
| 1996-01-12T00:00:00
| 1996-01-12T15:36:55
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0000950130-96-000101
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0000950130-96-000101_0002.txt
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Restructuring, Financing and Distribution Agreement, dated as of January 7, 1996 among the Registrant, Loral Corporation, Loral Telecommunications Acquisition, Inc. and certain other wholly-owned subsidiaries of Wings Corporation.
dated as of January 7, 1996
(TO BE RENAMED "LORAL SPACE & COMMUNICATIONS CORPORATION")
Exhibit A Form of Spinco Stockholders Agreement Exhibit A-1 Globalstar Warrant Term Sheet Exhibit B Form of Spinco Preferred Stock Certificate of Designation Exhibit C Form of Spinco By-Laws Exhibit D Spinco Shareholder Rights Plan Exhibit E Spinco Employment Arrangements
RESTRUCTURING, FINANCING AND DISTRIBUTION AGREEMENT, dated as of January 7, 1996, by and among Loral Corporation, a New York corporation (the "Company"), Loral Aerospace Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("Holdings"), Loral Aerospace Corp., a Delaware corporation and a wholly-owned subsidiary of Holdings ("Aerospace"), Loral General Partner, Inc., a Delaware corporation and a wholly-owned subsidiary of Aerospace ("LGP"), Loral Globalstar, L.P., a Delaware limited partnership and a wholly-owned, indirect subsidiary of LGP ("LG"), Loral Globalstar Limited, a Cayman Islands corporation and a wholly-owned subsidiary of LGP ("Cayman"), Loral Telecommunications Acquisition, Inc. (to be renamed "Loral Space & Communications Corporation"), a Delaware corporation and a wholly-owned subsidiary of the Company ("Spinco"), and Lockheed Martin Corporation, a Maryland corporation ("Parent").
WHEREAS, each of the Boards of Directors of the Company, Holdings, Aerospace, LGP and Cayman, and the general partner of LG have determined to cause certain of the transfers and other transactions contemplated in connection with the Restructuring (as hereafter defined);
WHEREAS, the Board of Directors of the Company has also determined to cause the distribution of shares of Spinco Common Stock (as hereafter defined) to the holders as of the Record Date (as hereafter defined) of the Company Common Stock (as hereafter defined) and to the holders of certain Cancelled Company Options (as hereafter defined);
WHEREAS, the Company and Spinco and the other parties hereto have determined that it is desirable to set forth the principal corporate transactions required to effect such transfers, share issuances and distribution and to set forth certain other agreements that will govern certain other matters prior to or following such distribution;
WHEREAS, the Company has entered into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), with Parent and LAC Acquisition Corporation, a New York corporation and a wholly-owned subsidiary of Parent (the "Purchaser"), providing for the Offer and the Merger (each as hereafter defined), as a result of which the Company, as the corporation surviving the Merger, will become a wholly-owned subsidiary
WHEREAS, in order to induce the parties to enter into this Agreement and in consideration of the Company's willingness to enter into the Merger Agreement, the parties hereto and certain other parties are entering or will enter into the Tax Sharing Agreement and the Stockholders Agreement (such capitalized terms, as hereafter defined) providing for certain ongoing relationships among the parties;
NOW, THEREFORE, in consideration of the foregoing and the agreements, provisions and covenants contained herein, the parties hereto agree as follows:
Section 1.1. General. For convenience and brevity, certain terms used in various parts of this Agreement (including the Schedules) are listed in alphabetical order and defined or referred to below (such terms to be equally applicable to both singular and plural forms of the terms defined or referred to):
"Action" means any action, claim, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal.
"Adjusted GAAP" means, except as otherwise set forth in Section 1.1(a) of the Disclosure Schedule, U.S. generally accepted accounting principles as in effect on the date hereof, applied on a basis consistent with the Company Financial Statements.
"Aerospace" shall have the meaning set forth in the recitals to this Agreement.
"Affiliate" of any specified person or entity means (x) any director or officer of, or any person or entity that beneficially owns at least 50% of the capital stock or other equity interests of, such specified person or entity, or (y) any other person or entity directly or indirectly controlling, controlled by, or under common control with, such specified person or entity, at any time during the period for which the determination of affiliation is being made; provided that the Company and the Retained Subsidiaries, on the one hand, and Spinco and the Spinco Companies, on the other hand, shall not, after giving effect to the Restructuring, be deemed to be Affiliates of each other for purposes of this Agreement.
"Agent" means the distribution agent appointed by the Company (subject to the prior written consent of Parent, which may not be unreasonably withheld) to distribute shares of Spinco Common Stock pursuant to the Distribution.
"Agreement" means this Restructuring, Financing and Distribution Agreement, together with all exhibits and schedules hereto, as the same may be amended from time to time in accordance with the terms hereof.
"Asset" means, with respect to any party, except as otherwise provided herein, any and all of such party's right, title and interest in and to all of the rights, properties, assets, claims, contracts and businesses of every kind, character and description, whether real, personal or mixed, whether accrued, contingent or otherwise, and wherever located, owned or used primarily by such party and its subsidiaries, including, without limitation, the following: (i) all cash, cash equivalents, notes and accounts receivable (whether current or non-current); (ii) all certificates of deposit, banker's acceptances and other investment securities; (iii) all registered and unregistered trademarks, service marks, service names, trade styles and trade names (including, without limitation, trade dress and other names, marks and slogans) and all associated goodwill; all statutory, common law and registered copyrights; all patents; all applications for any of the foregoing together with all rights to use all of the foregoing and all other rights
in, to, and under the foregoing; all know-how, inventions, discoveries, improvements, processes, formulae (secret or otherwise), specifications, trade secrets, whether patentable or not, licenses and other similar agreements, confidential information, and all drawings, records, books or other indicia, however evidenced, of the foregoing; (iv) all rights existing under all Contracts and other business arrangements; (v) all real estate and all plants, buildings and other improvements thereon; (vi) all leasehold improvements and all machinery, equipment (including all transportation and office equipment), fixtures, trade fixtures and furniture; (vii) all office supplies, production supplies, spare parts, other miscellaneous supplies and other tangible property of any kind; (viii) all raw materials, work-in-process, finished goods, consigned goods and other inventories; (ix) all computer hardware, software, computer programs and systems and documentation relating thereto; all databases and reference and resource materials; (x) all prepayments or prepaid expenses; (xi) all claims, causes of action, choices in action, rights of recovery and rights of set-off of any kind; (xii) the right to receive mail, accounts receivable payments and other communications; (xiii) all customer lists and records pertaining to customers and accounts, personnel records, all lists and records pertaining to suppliers and agents, and all books, ledgers, files and business records of every kind; (xiv) all advertising materials and all other printed or written materials; (xv) all permits, licenses, approvals and authorizations of governmental authorities or third parties relating to the ownership, possession or operation of the Assets; (xvi) all capital stock, partnership interests and other equity or ownership interests or rights, directly or indirectly, in any subsidiary or other entity; (xvii) all goodwill as a going concern and all other intangible properties; and (xviii) all employee contracts, including, without limitation, the right thereunder to restrict the employee from competing in certain respects.
"Business Day" means any calendar day which is not a Saturday, Sunday or public holiday under the Laws of New York.
"Cancelled Company Option" means any option or other right to acquire shares of Company Common Stock which (i) has been granted by the
or director of the Company or any of its Subsidiaries, (ii) is outstanding immediately prior to, and remains unexercised as of, the Record Date, and (iii) will be cancelled pursuant to Section 2.10 of the Merger Agreement.
"Capital Contribution" shall mean any capital or other investment in the Spinco Business, Spinco or any Spinco Company (including, without limitation, (x) the acquisition of any equity or other interests in Spinco or any Spinco Company during such time period (except as otherwise expressly contemplated pursuant to the provisions of Article II hereof), (y) any contribution of cash, cash equivalents, marketable securities, receivables, inventory, prepaid expenses, real or personal property or any other assets to the Spinco Business, Spinco or any Spinco Company (except as otherwise expressly contemplated pursuant to the provisions of Article II hereof) and (z) the assumption of or payment by the Company or any Company Subsidiary of any Spinco Liabilities, and any prepayment, redemption, purchase or defeasance of Spinco Indebtedness (if any) or any other Spinco Liabilities) by the Company or any Company Subsidiary; provided that the term "Capital Contribution" shall not include (1) any amounts which are transferred following the date hereof and prior to the Offer Purchase Date and which are either (i) in connection with administrative and other similar services which are provided to any of the Spinco Companies in the ordinary course of the Company's business and which are consistent with the past practices of the Company (provided that the cost of any such services may only be allocated in a manner consistent with the past practices of the Company), or (ii) (A) pursuant to the express terms and conditions of any Existing Intercompany Agreement and (B) in the ordinary course of business and in a manner consistent with past practice, (2) the Spinco Guarantee Warrants, or (3) the DBS Investment (as defined in the definition of Spinco Liabilities).
"Casualty Program" means collectively, the series of programs pursuant to which various insurance carriers provide insurance coverage to the Company and its subsidiaries in respect of claims or occurrences relating to workers' compensation liability, general liability, products
employer's liability for all periods up to the Distribution Date.
"Cayman" shall have the meaning set forth in the recitals to this Agreement.
"CCD Lawsuit" means the litigation entitled Loral Fairchild Corp. vs. Sony Corporation, et al.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the recitals to this Agreement.
"Company Common Stock" means the common stock of the Company, par value $0.25 per share.
"Company Financial Statements" means the audited consolidated financial statements of the Company and its subsidiaries for the fiscal year ending March 31, 1995 (a copy of which is set forth in the Company's Annual Report on Form 10K for the year ended March 31, 1995).
"Confidentiality Agreement" means the confidentiality agreement dated as of December 4, 1995 between Parent and the Company.
"Continental" means Continental Satellite Corporation, a California corporation.
"Contract" means any contract, agreement, lease, license, sales order, purchase order, instrument or other commitment that is binding on any person or entity or any part of its property under applicable Law.
"Court Order" means any judgment, decree, injunction, order or ruling of any Governmental Entity that is binding on any person or its property under applicable Law.
"Disclosure Schedule" means the disclosure schedule dated as of the date hereof and attached hereto. References to a particular section of the Disclosure Schedule shall only refer or modify the specific Section of this Agreement to which such Schedule relates (i.e.,
Section 6.2(c) of the Disclosure Schedule shall refer to or modify only Section 6.2(c) of this Agreement), unless otherwise expressly set forth herein.
"Distribution" means the distribution of the shares of Spinco Common Stock owned by the Company to holders of Company Common Stock and to holders of Cancelled Company Options pursuant to the provisions of this Agreement (including, without limitation, the provisions of Section 3.2(b) hereof).
"Distribution Conditions" means each of the conditions set forth in clauses (i) through (ix) of Section 10.1(a) hereof.
"Distribution Date" means the date as of which the Distribution shall be effected as determined by the Board of Directors of the Company, subject to the terms and conditions of this Agreement (including, without limitation, the provisions of Section 3.2(a) hereof).
"Distribution Declaration Date" means the date on which the Board of Directors of the Company takes action to declare the Distribution and establish the Record Date.
"Existing Intercompany Agreement" means any written Intercompany Agreement or regular, established accounting practice, consistently applied, which is in existence prior to December 31, 1995.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FCC" means the U.S. Federal Communications Commission.
"Final Order" means any consent, approval or other action of the FCC (a) relating to any of the transactions contemplated pursuant to either this Agreement or the Merger Agreement and (b) (i) which has not been vacated, reversed, stayed, set aside, annulled or suspended, (ii) with respect to which no timely appeal, request for stay or petition for rehearing, reconsideration or review by any party or by the FCC on its own motion, is pending, (iii) as to which the time for filing any such appeal, request, petition or other similar
document has expired, and (iv) as to which the time for reconsideration or review by the FCC on its own motion under the Communications Act (as defined in the Merger Agreement) and the rules and regulations of the FCC has expired.
"Form 10" means the registration statement on Form 10 to be filed by Spinco with the SEC to effect the registration of the Spinco Common Stock pursuant to the Exchange Act.
"Globalstar" means Globalstar, L.P., a Delaware limited partnership.
"Globalstar Bank Guarantee" means the Guarantee, dated as of December 15, 1995, made by Loral in favor of Chemical Bank, as agent for the lenders from time to time parties to the Globalstar Credit Agreement.
"Globalstar Credit Agreement" means the Credit Agreement, dated as of December 15, 1995 (as amended, supplemented or otherwise modified from time to time in accordance with the provisions of Section 2.5 hereof), among Globalstar, Chemical Bank, as agent for the lenders from time to time parties thereto and the other parties thereto.
"Globalstar Partners" means those Persons (or any Affiliates thereof) holding direct or indirect partnership interests in either Globalstar, LQSS or LQP.
"Guarantee Warrants" means those warrants to purchase shares of common stock of GTL (or warrants to purchase partnership interests in Globalstar, as the case may be), which warrants are to be issued in connection with the Globalstar Bank Guarantee to the Company and, under certain circumstances, to certain parties which hold partnership interests in Globalstar, as more fully described in the Globalstar Warrant Memorandum and the term sheet set forth on Exhibit A-1 attached hereto.
"Globalstar Warrant Memorandum" means the December 21, 1995 memorandum from Michael B. Targoff to Enrique Fernandez relating to, among other things, the Globalstar Bank Guarantee and the Globalstar Credit Agreement.
"Governmental Entity" means any United States or any foreign, federal, state or local government, court, administrative agency or commission or other governmental or regulatory body or authority.
"GTL" means Globalstar Telecommunications Limited, a company organized under the laws of Bermuda.
"Holdings" shall have the meaning set forth in the recitals to this Agreement.
"Indemnifiable Losses" means, with respect to any claim by an Indemnified Party for indemnification pursuant to Articles II, V, VI or VIII hereof, any and all damages, losses, deficiencies, Liabilities, obligations, penalties, judgments, settlements, claims, payments, fines, interest, costs and expenses (including, without limitation, the costs and expenses of any and all Actions, demands, assessments, judgments, settlements and compromises relating thereto and the costs and expenses of attorneys', accountants', consultants' and other professionals' fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder), including direct and consequential damages, but excluding punitive damages (other than punitive damages awarded to any third party against an Indemnified Party) suffered by such Indemnified Party with respect to such claim.
"Indemnified Party" means any party which is seeking indemnification from an Indemnifying Person pursuant to the provisions of Articles II, V, VI or VIII hereof.
"Indemnifying Party" means any party hereto from which any Indemnified Party is seeking indemnification pursuant to the provisions of Articles II, V, VI or VIII hereof.
"Information" shall have the same meaning as defined in Section 7.2 hereof.
"Information Statement" means the information statement to be sent to the holders of the Company's equity securities in connection with the Distribution.
"Intellectual Property Rights" means all right, title, interest and all license and other rights, to the extent held by the Company and its Subsidiaries immediately prior to the Restructuring, with respect to each of the following items: all patents, patent applications, copyrights, copyright applications, trademarks, trademark applications and trade names, in each case as used in the business of the Company and its Subsidiaries as conducted immediately prior to the Restructuring.
"Intercompany Agreements" means any Contracts between any entities included within the Retained Business (including, without limitation, the Company and the Retained Subsidiaries), on the one hand, and any entities included within the Spinco Business (including, without limitation, Spinco and the Spinco Companies), on the other hand.
"K&F" means K&F Industries, Inc., a Delaware corporation.
"LG" shall have the meaning set forth in the recitals to this Agreement.
"LGP" shall have the meaning set forth in the recitals to this Agreement.
"LQP" means Loral/QUALCOMM Partnership, L.P., a Delaware limited partnership.
"LQSS" means Loral/QUALCOMM Satellite Services, L.P., a Delaware limited partnership.
"Law" means any statute, law, rule, regulation, ordinance, order, decree or judgment of any Governmental Entity, including, without limitation, those covering environmental, energy, safety, health, antidiscrimination, antitrust, wage and hour, and price and wage control matters.
"Lehman Partnerships" means each of Shearson Lehman Brothers Capital Partners II, L.P., Lehman Brothers Merchant Banking Portfolio Partnership L.P., Lehman Brothers Offshore Investment Partnership L.P. and Lehman Brothers Offshore Investment Partnership-Japan L.P.
"Lehman Preferred Stock" means the shares of Series S Redeemable Preferred Stock, par value $.10 per share, of Holdings which are held by any of the Lehman Partnerships, any of their respective transferees or any other persons.
"Liability" means, with respect to any party, except as otherwise expressly provided herein, any direct or indirect liability (whether absolute, accrued, contingent, reflected on a balance sheet (or in the notes thereto) or otherwise, and whether known or unknown), indebtedness, obligation, expense, claim, deficiency, guarantee or endorsement of or by any person (including, without limitation, those arising under any Law or Action or under any award of any court, tribunal or arbitrator of any kind, and those arising under any contract, commitment or undertaking).
"Lien" means any mortgage, pledge, lien, encumbrance, charge, adverse claim (whether pending or, to the knowledge of the person against whom the adverse claim is being asserted, threatened), defect of title or restriction of any nature whatsoever on any property or property interest (regardless of whether such property or property interest is real or personal, tangible or intangible, or otherwise), or a security interest of any kind, including, without limitation, any conditional sale or other title retention agreement, any third party option or other agreement to sell and any filing of or agreement to give, any financing statement under the Uniform Commercial Code (or equivalent statute) of any jurisdiction (other than a financing statement which is filed or given solely to protect the interest of a lessor).
"Merger" shall have the meaning set forth in the Merger Agreement.
"Merger Agreement" shall have the meaning set forth in the recitals to this Agreement.
"NYSE" means the New York Stock Exchange, Inc.
"Offer" shall have the meaning set forth in the Merger Agreement.
"Offer Purchase Date" means the date on which the Purchaser accepts for payment and pays for Shares tendered pursuant to the Offer.
"Parent" shall have the meaning set forth in the recitals to this Agreement.
"Parent Indemnified Parties" shall have the same meaning as defined in Section 5.2(a) hereof.
"Person" or "person" means and includes any individual, partnership, joint venture, corporation, association, joint stock company, trust, unincorporated organization or similar entity and any Governmental Entity.
"Purchaser" shall have the meaning set forth in the recitals to this Agreement.
"Record Date" means the date determined by the Board of Directors of the Company as the record date for the Distribution, subject to the terms and conditions of this Agreement (including, without limitation, the provisions of Section 3.2(a) hereof).
"Restructuring" means collectively, the transactions contemplated pursuant to the provisions of Article II hereof.
"Retained Action" shall have the same meaning as defined in Section 5.6 hereof.
"Retained Assets" means all Assets of the Company and each Retained Subsidiary (including, without limitation, (A) all shares of capital stock, partnership interests and other equity or ownership interests or ownership rights in all subsidiaries and other entities owned directly or indirectly by the Company or any of the Retained Subsidiaries, (B) all rights to Assets held by such subsidiaries and entities, (C) except as provided in Sections 4.1 and 4.2 hereof, all cash and cash equivalents held by the Company or any of the Retained Subsidiaries, (D) the Company Names and Company Proprietary Names (such terms, as defined in Section 6.4 hereof), (E) the Retained Actions and all other Actions commenced by the Company or any Retained Subsidiary (to the extent such Actions constitute Assets), and (F) the licenses of
Intellectual Property Rights referred to in Section 6.7 hereof to be granted to Parent, the Company and each of their respective Affiliates), other than the Spinco Assets.
"Retained Business" means all businesses of the Company and the Retained Subsidiaries and all businesses included within the Retained Assets (including, without limitation, the Company's electronic combat business, the Company's training and simulation business, the Company's tactical weapons business, the Company's command, control, communications and intelligence (C3I)/reconnaissance business and the Company's systems integration business (each as described in the Company's Annual Report on Form 10K for the year ended March 31, 1995)), as conducted by the Company and its subsidiaries as of the Distribution Date and all former businesses of the Company and the Retained Subsidiaries; provided that the term "Retained Business" shall not include the SpincoBusiness.
"Retained Employees" shall mean all current and former officers and employees of the Company and its subsidiaries, other than the Spinco Employees.
"Retained Liabilities" means all of the Liabilities of the Company and each of the Retained Subsidiaries, other than the Spinco Liabilities.
"Retained Subsidiaries" means all of the Subsidiaries of the Company, other than the Spinco Companies.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Severance Agreement" means any Contract which provides for the payment of any cash or other consideration to an officer, director or employee of the Company or any of its Subsidiaries upon the consummation of either the Offer, the Merger, the Restructuring or the Distribution.
"Spinco" shall have the meaning set forth in the recitals to this Agreement.
"Spinco Assets" means all right, title and interest, to the extent held by the Company and its Subsidiaries or any of the other Spinco Companies immediately prior to the Restructuring, with respect to each of the following items: (a) all shares of capital stock of and all partnership interests in (as the case may be) the Spinco Companies, (b) the Spinco Cash Amount, (c) the Spinco Names and Spinco Proprietary Name Rights (such terms, as defined in Section 6.4 hereof), (d) any Actions commenced by a Spinco Company the subject matter of which is otherwise a Spinco Asset or any Action which relates primarily to a Spinco Asset (to the extent such Actions constitute Assets), (e) shares of capital stock of Loral Travel Services Inc. and Loral Properties Inc., (f) that portion of the leasehold interest relating to the office space on not more than two floors reasonably designated by Spinco within 30 days after the date hereof with respect to the building located at 600 Third Avenue, New York, New York and such existing furniture, fixtures, and office equipment located on such floors which is reasonably designated by Spinco within thirty (30) days after the date hereof, (g) the licenses of Intellectual Property Rights referred to in Section 6.7 hereof to be granted to Spinco or the Spinco Companies, (h) the CCD Lawsuit, and (i) the FCC license applications and other Assets listed on Section 1.1(b) of the Disclosure Schedule. The term "Spinco Assets" shall also include (A) the Cash Guarantee Fees accruing to the benefit of the Company and (B) the number of Guarantee Warrants equal to the product of (x) the aggregate number of Guarantee Warrants which might be issued and (y) a ratio of the Spinco Assumed Guarantee Amount (as defined in Section 2.5(d) hereof) to the total amount of Obligations (as defined in Section 2.5 hereof) under the Globalstar Bank Guarantee in connection with the Globalstar Bank Guarantee, but shall not include any other Guarantee Warrants which may be issued from time to time to the Company.
"Spinco Balance Sheet" means the unaudited, pro forma, consolidated balance sheet (including the related notes) of the Spinco Business as of September 30, 1995 set forth in Section 1.1(d) of the Disclosure Schedule.
"Spinco Business" means each business and each former business which is or was conducted by Spinco or a Spinco Company as of the Distribution Date or which is or was included within the Spinco Assets.
"Spinco Cash Amount" means the cash amount referred to in Section 2.1(a)(xiv) hereof.
"Spinco Common Stock" means the common stock, par value $0.01 per share, of Spinco, together with the associated preferred stock purchase rights to be issued pursuant to a rights agreement to be entered into between Spinco and a rights agent to be selected by Spinco.
"Spinco Companies" means (a) each of SSL, GTL, K&F, Globalstar, LGP, LG, Cayman, LQSS, LQP, Continental and the companies referred to in paragraph (e) of the definition of "Spinco Assets", and (b) all Subsidiaries of any of the entities listed in paragraph (a) above after giving effect to the Restructuring.
"Spinco Employees" means (x) those persons who are employed as officers or employees of Spinco and the Spinco Companies or otherwise employed in the Spinco Business immediately prior to or effective as of the Distribution Date, and (y) all former officers and employees of Spinco, any Spinco Company or the Spinco Business who, immediately prior to the termination of their employment, were employed by Spinco, any Spinco Company or the Spinco Business. In the event any person shall have been employed by Spinco or any of the Spinco Companies, as well as by the Company or any of the Retained Subsidiaries, such person shall be considered a Spinco Employee if at the Distribution Date such person's primary employment shall be with Spinco, any of the Spinco Companies or the Spinco Business.
"Spinco Indebtedness" means (a) any and all of the following items which are incurred or entered into by Spinco or any Spinco Company or otherwise incurred or entered into in connection with the Spinco Business: (i) indebtedness for money borrowed, (ii) indebtedness which is evidenced by notes, debentures, bonds or other similar instruments; (iii) any lease of any property (whether real, personal or mixed) that, in accordance with generally accepted accounting principles, either would be required to be classified and accounted lease on a balance sheet or otherwise be disclosed as such in a note to any such balance sheet; (iv) all obligations issued or assumed as the deferred purchase price of property, all conditional sale obligations and all obligations under any title retention agreement; and (v) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction; (b) all obligations of the type referred to in clauses (i), (ii), (iii), (iv) and (v) of paragraph (a) above of which Spinco, any Spinco Company or the Spinco Business is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including any guarantees of such obligations; and (c) all obligations of the type referred to in clauses (i), (ii), (iii), (iv) and (v) of paragraph (a) above or referred to in paragraph (b) above, which are secured by any Lien on any property or asset of Spinco, any Spinco Company, any Affiliate of Spinco or the Spinco Business.
"Spinco Indemnified Parties" shall have the same meaning as defined in Section 5.3(a) hereof.
"Spinco Liabilities" means (a) all of the Liabilities of Spinco and the Spinco Companies to third parties and all Liabilities relating to or arising out of the Spinco Assets or the conduct of the Spinco Business (in all cases, whether arising before or after the date hereof); (b) all Liabilities reflected or reserved against in the Spinco Balance Sheet and all similar Liabilities arising after the date thereof; (c) any Actions commenced by a Spinco Company the subject matter of which is otherwise a Spinco Asset or any Action which relates primarily to a Spinco Asset (to the extent such Actions constitute Liabilities); (d) except as otherwise provided in Article VIII hereof, the Liabilities of the Company and its subsidiaries, including, without limitation, Spinco and the Spinco Companies, in respect of Spinco Employees (in all cases, whether arising before or after the date hereof) (excluding, however, all wages, salary, bonus and other similar amounts accrued prior to the Distribution Date in respect of Spinco New York Employees); (e) all Liabilities relating to or arising out of the Spinco Assets or the conduct of the Spinco Business (in all cases, whether arising before or after the date hereof) with respect to which the Company or any Retained Subsidiary has agreed, prior to the Distribution Date, to indemnify any third party in any manner with re- spect thereto or has agreed to otherwise be, or is otherwise, liable with respect thereto; (f) all Company Transfer Expenses (as defined in Section 2.6 hereof) and all other Indemnifiable Losses referred to in Section 2.6 hereof; (g) all Spinco Excess Costs (as defined in Section 11.3 hereof); and (h) the amount of any and all consideration paid, and any and all Liabilities incurred, by the Company, Spinco, any Spinco Company or any Retained Subsidiary or any of their respective Affiliates, following the date hereof but prior to the consummation of the Restructuring, in connection with the acquisition of any securities issued by Continental (whether held by any third party or otherwise) or any Assets of Continental, but only to the extent that the aggregate fair market value of such consideration and Liabilities exceeds in the aggregate $7,500,000.00 (for purposes of this clause (h), the term "Continental" shall include any other Person, program or business which conducts direct broadcast satellite operations similar in nature to those operations conducted or proposed to be conducted by Continental) (the parties hereto acknowledge and agree that, if the Company acquires any such securities or Assets, that all amounts paid or Liabilities incurred in connection therewith not in excess of such $7,500,000.00 threshold (the "DBS Investment"), shall not otherwise be included within the term "Spinco Liabilities"). Notwithstanding the foregoing, the term "Spinco Liabilities" shall not include any Liabilities of the Company arising pursuant to the express provisions of the Globalstar Bank Guarantee (as amended pursuant to the provisions of Section 2.5 hereof), except as otherwise expressly provided in Section 2.5 hereof.
"Spinco New York Employees" means those Spinco Employees who are located prior to the date hereof at the office building located at 600 Third Avenue, New York, New York; provided that the term "Spinco New York Employees" shall not include any employees whose primary employment is with the Spinco Business and shall not include senior executive officers of the Company.
"Spinco Preferred Stock" means the Series A Non-Voting Convertible Preferred Stock, par value $0.01 per share, of Spinco, having the rights, powers, privileges and other terms set forth in the Certificate of Incorporation of Spinco (which, pursuant to Section 2.3(a) hereof, shall be in substantially the provisions set forth on Exhibit B attached hereto (with such changes thereto as Parent and the Company may approve prior to the Offer Purchase Date)).
"SSL" means Space Systems/Loral, Inc., a Delaware corporation.
"SSL Lawsuit" means the litigation entitled "Space Systems/Loral, Inc. v. Martin Marietta Corporation."
"SSL Stockholders Agreements" means each of (a) the Stockholders Agreement by and among the Company, Holdings, SSL, Aerospatiale Societe Nationale Industrielle, Alcatel Espace and Alenia Aeritalia & Selenia S.p.A., dated as of April 22, 1991 (as amended by Amendment No. 1, dated as of November 10 1992), and (b) the Stockholders Agreement by and among Holdings, Aerospace, the Company and the Lehman Partnerships, dated as of November 13, 1992.
"Stockholders Agreement" means the Stockholders Agreement to be entered into between the Company and Spinco following the date hereof, the material terms of which are set forth on Exhibit A to this Agreement.
"Subsidiary" or "subsidiary" of any party means (a) a corporation, a majority of the voting or capital stock of which is as of the time in question directly or indirectly owned by such party and (b) any other partnership, joint venture, association, joint stock company, trust, unincorporated organization or similar entity, in which such party, directly or indirectly, owns a majority of the equity interest thereof or has the power to elect or direct the election of a majority of the members of the governing body of such entity or otherwise has control over such entity (e.g., as the managing partner of a partnership).
"Tax Sharing Agreement" means the Tax Sharing Agreement, in the form of Exhibit A to the Merger Agreement, pursuant to which the Company and Spinco have provided for certain tax matters, including, without limitation, indemnification, allocation of tax benefits and filing of tax returns.
Section 1.2. References to Time. All references in this Agreement to times of the day shall be to New York City time.
THE RESTRUCTURING AND RELATED TRANSACTIONS
Section 2.1. Transfers of Assets.
(a) Subject to the terms and conditions of this Agreement:
(i) prior to the Distribution Date, LG shall transfer to Cayman all of its right, title and interest in and to all shares of capital stock owned by LG in GTL, by means of a distribution to Cayman of such equity
(ii) immediately following the actions referred to in the immediately preceding clause, Cayman shall transfer to LGP all of its right, title and interest in and to all shares of capital stock of GTL owned by Cayman and may transfer all, or a portion of, the partnership interests in LG owned by Cayman, by means of a dividend to LGP of such equity securities;
(iii) immediately following the actions referred to in the immediately preceding clause, LGP shall transfer to Aerospace all of its right, title and interest in and to all shares of capital stock of Cayman and GTL owned by LGP and may transfer all, or a portion of, the partnership interests in LG owned by LGP, by means of a dividend to Aerospace of such equity
(iv) immediately following the actions referred to in the immediately preceding clause, Aerospace shall transfer to Holdings all of its right, title and interest in and to all shares of capital stock owned by Aerospace in Cayman, GTL, LGP and SSL and all partnership interests in LG owned by it, by means of a dividend to Holdings of such equity securities;
(v) immediately following the actions referred to in the immediately preceding clause, Holdings shall transfer to the Company all of its right, title and interest in and to (x) all shares of capital stock owned by Holdings in Cayman, GTL, LGP and Continental, (y) 64.125 percent (64.125%) of the shares of capital stock owned by Holdings in SSL, and (z) all partnership interests in LG owned by Holdings, by means of a dividend of
(vi) immediately following the actions referred to in the immediately preceding clause, LGP may transfer to Spinco or to any Spinco Subsidiary designated by Spinco, all (or any other portion thereof reasonably designated by Spinco) of LGP's right, title and interest in the partnership interests in LG and LQP;
(vii) immediately following the actions referred to in the preceding clauses, the Company shall transfer to Spinco all of its right, title and interest in and to all shares of capital stock owned by the Company in Cayman, GTL, K&F, LGP, SSL and Continental and all partnership interests in LG owned by the Company, in exchange for, among other things, the issuance by Spinco to the Company of the shares of Spinco Common Stock;
(viii) immediately following the actions referred to in the immediately preceding clause, the Company shall transfer to Spinco (and the Company shall cause each of its subsidiaries to transfer to Spinco) all of their right, title and interest in and to all Spinco Assets not otherwise transferred to Spinco pursuant to the provisions of this Section 2.1(a), in the case of assets not held directly by the Company, by a distribution to the Company and, in each case by means of a contribution by the Company to the capital of Spinco of such Spinco Assets (provided that the foregoing provisions shall not be construed to constitute a transfer by the Company to Spinco of any capital stock of Spinco owned at that time by the
(ix) immediately following the actions referred to in the immediately
clause, Spinco shall transfer to the Company (and Spinco shall cause each of its Subsidiaries to transfer to the Company) all of its right, title and interest in and to all Retained Assets not otherwise transferred to the Company pursuant to the provisions of this Section 2.1(a) (if any), in each case by means of a dividend of such Retained Assets (provided that the foregoing provisions shall not be construed to constitute a transfer by the Spinco to Company of the rights of Spinco under this Agreement);
(x) immediately following the actions referred to in the immediately preceding clause, the Company shall assume and shall in due course pay, perform and discharge (or shall cause to be assumed and cause in due course to be paid, performed and discharged), all of the Retained Liabilities to which the Spinco Business or the Spinco Assets are then subject or
(xi) immediately following the actions referred to in the immediately preceding clause, Spinco shall assume and shall in due course pay, perform and discharge (or shall cause to be assumed and cause in due course to be paid, performed and discharged), all of the Spinco Liabilities to which the Retained Business or the Retained Assets are then subject or otherwise
(xii) following, or prior to, the actions referred to in the preceding clauses, Holdings shall transfer all its right, title and interest in its shares of capital stock of SSL owned by it that are not transferred pursuant to clause (v), above, either to Spinco or, pursuant to Section 2.7, to the Lehman Partnerships;
(xiii) in connection with the actions referred to in the preceding clauses, Spinco shall issue to the Company the shares of Spinco Common Stock referred to in Section 2.4 hereof; and
(xiv) following the actions referred to in the preceding clauses and following Parent's acceptance for payment of Shares of Company Common Stock in connection with the Offer, on or prior to
the Distribution Date and prior to the Distribution, Parent shall transfer to the Company, as a contribution to capital, $712,400,000 in immediately available funds, less any amount which the parties hereto have at such time agreed is owed to Parent pursuant to the provisions of Sections 4.1(a) and 4.1(c) hereof (the aggregate of such cash amount being hereinafter referred to as the "Spinco Cash Amount"), and the Company shall then immediately contribute the Spinco Cash Amount to Spinco, as a contribution to capital, of which $344,000,000.00 shall be in exchange for the Spinco Preferred Stock and the balance shall be treated as additional consideration for the Spinco Common Stock.
(b) Notwithstanding anything else in this Agreement to the contrary but subject to the provisions of Section 2.6 hereof, this Agreement shall not constitute an agreement to assign, convey or transfer any Action, Liability, Asset or Contract or any claim or right or any benefit arising thereunder or resulting therefrom as to which (x) a prior right of assignment, conveyance or transfer exists (including, without limitation, a Third Party Call Right (as defined in Section 2.6 hereof)) which has not been waived as of the Distribution Date or (y) consent to assignment, conveyance or transfer thereof is required but has not been obtained as of the Distribution Date (including, without limitation, any Asset which has been pledged to any third party creditor and with respect to which such pledge has not been released prior to the Distribution Date). Subject to the preceding sentence and the provisions of Section 6.2 hereof, to the extent that any such contributions and transfers shall not have been so consummated prior to the Distribution Date, the parties shall cooperate to effect such consummation as promptly thereafter as shall be practicable, and as between the Company and Spinco, as of the Distribution Date, (i) the Company shall be deemed to have contributed to Spinco, and Spinco shall have and be deemed to have obtained, complete and sole beneficial ownership over all of the Spinco Assets, together with all of the rights, powers and privileges incident thereto which are held by the Company and the Retained Subsidiaries, and Spinco shall be deemed to have assumed in accordance with the terms of this Agreement all of the Spinco Liabilities and all of the duties, obligations and responsibilities of the Company and the Retained Subsidiaries incident thereto, whether or not all instruments of transfer and assumption shall have been executed and delivered, and (ii) Spinco shall be deemed to have transferred to the Company and the Retained Subsidiaries, and the Company and the Retained Subsidiaries shall have and be deemed to have obtained, complete and sole beneficial ownership over all of the Retained Assets which are being transferred from Spinco and the Spinco Companies pursuant to the provisions of this Section 2.1(a), together with all of the rights, powers and privileges incident thereto which are held by Spinco and the Spinco Companies, and the Company and the Retained Subsidiaries shall be deemed to have assumed in accordance with the terms of this Agreement all of the Retained Liabilities and all of the duties, obligations and responsibilities of Spinco and the Spinco Companies incident thereto, whether or not all instruments of transfer and assumption shall have been executed and delivered.
Section 2.2. Methods of Transfer and Assumption. The parties hereto agree that (a) the transfers of Assets contemplated pursuant to Section 2.1 hereof shall be effected by delivery by Spinco to the Company, and by the Company to Spinco, as the case may be, of (i) with respect to those Assets which are evidenced by capital stock certificates or similar instruments, certificates duly endorsed in blank or accompanied by stock powers or other instruments of assignment executed in blank, (ii) with respect to any real property interest and/or any improvements thereon, a quitclaim deed or the equivalent thereof in accordance with local practice, and (iii) with respect to all other Assets, such good and sufficient instruments of contribution, transfer and delivery, in form and substance reasonably satisfactory to the Company, Parent and Spinco, as shall be necessary to vest in the Company or Spinco, as the case may be, all of the right, title and interest of Spinco or the Company, as the case may be, in and to any such Assets, (b) the assumption of the Retained Liabilities contemplated pursuant to Section 2.1(a)(x) hereof shall be effected by delivery by the Company to Spinco of such good and sufficient instruments of assumption, in form and substance reasonably satisfactory to the Company, Parent and Spinco, as shall be necessary for the assumption by the Company of the Retained Liabilities, and (c) the assumption of the Spinco Liabilities contemplated hereof shall be effected by delivery by Spinco to the Company of such good and sufficient instruments of assumption, in form and substance reasonably satisfactory to the Company, Parent and Spinco, as shall be necessary for the assumption by Spinco of the Spinco Liabilities. Each of the parties hereto also agrees to deliver to any other party hereto such other documents, instruments and writings as may be reasonably requested by such other parties hereto in connection with the transactions contemplated hereby. Notwithstanding any other provisions of this Agreement to the contrary, (x) the instruments of transfer or assumption referred to in this Section 2.2 shall not, without the prior written consent of Parent, include any separate representations and warranties, and (y) in the event and to the extent that there is any conflict between the provisions of this Agreement and the provisions of any of the instruments of transfer or assumption referred to in this Section 2.2, the provisions of this Agreement shall prevail and govern.
Section 2.3. Company Approval of Certain Spinco Actions; Formation of Spinco. Unless otherwise provided in this Agreement, the Company shall cooperate with Spinco and the Spinco Companies in effecting, and if so requested by Spinco the Company shall, as the sole stockholder of Spinco, ratify any actions that are reasonably necessary or desirable to be taken by Spinco to effectuate the transactions contemplated by this Agreement in a manner consistent with the terms of this Agreement, including, without limitation, the following: (a) amending the Certificate of Incorporation of Spinco so that the provisions thereof shall at the Distribution Date have the provisions set forth on Exhibit B attached hereto and such other terms and conditions as Parent and Spinco shall reasonably approve (with such changes thereto as Parent and the Company may approve prior to the Offer Purchase Date); (b) amending the By-Laws of Spinco so that the provisions thereof shall at the Distribution Date have the provisions set forth on Exhibit C attached hereto and such other terms and conditions as Parent and Spinco shall reasonably approve (with such changes thereto as Parent and the Company may approve prior to the Offer Purchase Date); (c) adopting a shareholder rights plan of Spinco having substantially the same provisions, as of the Distribution Date, as those set forth on Exhibit D attached hereto (with such changes thereto as the Board of Directors of the Company may approve in its reasonable discretion prior to the Offer Purchase Date); (d) adopting, preparing and implementing appropriate plans, agreements and arrangements for Spinco Employees and Spinco non-employee directors (including, without limitation, employee benefit plans, agreements and arrangements substantially similar to those set forth on Exhibit E attached hereto (with such changes thereto as the Board of Directors of the Company may approve in its reasonable discretion prior to the Offer Purchase Date)); and (e) electing to the Board of Directors of Spinco those persons referred to in Section 6.3 hereof so that such persons shall be able to serve as the sole members of Spinco's Board of Directors as of the Distribution Date.
Section 2.4. Issuance of Spinco Stock to the Company. Spinco agrees to issue to the Company, (a) contemporaneously with the transfers of Assets and assumption of Liabilities contemplated in connection with the Restructuring, one share of Spinco Common Stock for each share of Company Common Stock held of record as of the Record Date and such number of shares of Spinco Preferred Stock as may be necessary to satisfy the representations and warranties set forth in Section 4.1(c) of the Stockholders Agreement (which shares of Spinco Preferred Stock shall, in the aggregate, be convertible into such number of shares of Spinco Common Stock as shall equal 20% of the total number of shares of Spinco Common Stock to be outstanding on a fully-diluted basis, immediately after giving effect to the Distribution and after giving effect to the conversion of such Spinco Preferred Stock). In addition, Spinco agrees to issue to the Company on or prior to the Record Date such additional shares of Spinco Common Stock as may be required in order for the Company to fulfill its obligations pursuant to Section 3.2 hereof.
Section 2.5. Treatment of Globalstar Bank Guarantee.
(a) Spinco shall, and prior to the Offer Purchase Date the Company shall, use their respective reasonable efforts to amend the Globalstar Bank Guarantee so that, following the Restructuring, (x) the provisions of Section 10 of the Globalstar Bank Guarantee shall be deleted and shall have no force and effect against the Company or any of its Affiliates (provided that, in the event that the Globalstar Bank Guarantee is amended in the manner provided in this Section 2.5, Parent agrees to assume the obligations of the Company as guarantor under the Globalstar Bank Guarantee), and (y) the aggregate amount of indebtedness being guaranteed by the Company (or Parent, as the case may be) under the Globalstar Bank Guarantee shall not exceed $250,000,000; provided that the amendments contemplated in this sentence shall be in such form and substance as shall be reasonably acceptable to Parent. Notwithstanding anything to the contrary contained in this Agreement, except as otherwise expressly provided in this Section 2.5, neither the Company nor Spinco shall, nor shall they permit any of their respective Affiliates to, (i) amend or in any way modify either the Globalstar Bank Guarantee, the Globalstar Credit Agreement, the Guarantee Warrants or any other Contract, in a manner which adversely affects any of the benefits, rights or obligations of the Company with respect to either the Globalstar Bank Guarantee, the Globalstar Credit Agreement or the Guarantee Warrants, without obtaining the prior written consent of Parent (which consent may not be unreasonably withheld), or (ii) waive or diminish any rights of subrogation of the Company with respect to the Globalstar Bank Guarantee or take any other action which adversely affects any of the benefits, rights or obligations of the Company with respect to either the Globalstar Bank Guarantee, the Globalstar Credit Agreement or the Guarantee Warrants, without obtaining the prior written consent of Parent (provided that the consent of Parent need not be obtained with respect to the diminution of any rights of subrogation held by the Company and its Affiliates where (A) Globalstar determines within 90 days to either issue to the Company subordinated indebtedness of Globalstar having an aggregate principal amount (the repayment of which, together with interest thereon, may be deferred for up to 3 years) equal to, or equity interests in Globalstar having a fair market value equal to, the aggregate of the amounts paid or incurred or Liabilities assumed by the Company or its Affiliates in connection with the Globalstar Bank Guarantee, and (B) the Company and its Affiliates are treated no less favorably with respect to the matters set forth in this clause (ii) than the manner in which Spinco and those of the Globalstar Partners who have assumed liability in connection with the Globalstar Bank Guarantee are treated with respect to such matters.
(b) Spinco shall, and prior to the Offer Purchase Date the Company shall, use its respective reasonable efforts to cause the Globalstar Partners to assume the obligations of the Company (or Parent, as the case may be) as guarantor under the Globalstar Bank Guarantee in an aggregate amount of up to the Maximum Partner Assumed Guarantee Amount (as defined below), and to cause the Company (or Parent, as the case may be) to be released in respect thereof. The parties hereto acknowledge that the Guarantee Warrants will be initially issued to the Company, Spinco and the Globalstar Partners in direct proportion to the amount of liability in respect of the Globalstar Bank Guarantee for which each such person has agreed to be liable, that is, 60% to the Company and 40% to Spinco, and that 100% of the deferred cash fees payable in respect of the Globalstar Bank Guarantee (the "Cash Guarantee Fee") will be initially payable solely to Spinco, subject to reallocation to Globalstar Partners assuming such obligations as provided in Section 2.6(d).
(c) Spinco agrees to indemnify, defend and hold harmless the Company and each Parent Indemnified Party in accordance with the indemnification provisions of Article V hereof, from and against any and all Indemnifiable Losses of the Company and any such Parent Indemnified Party which both (i) arise out of, relate to or result from the Globalstar Bank Guarantee or any failure by Globalstar to pay when due any principal, interest or other amounts owing under the Globalstar Credit Agreement or any failure by Globalstar to perform and abide by all other obligations, covenants, conditions and agreements applicable to it under such Globalstar Credit Agreement, and (ii) exceed in the aggregate $150,000,000.00; provided that in no event shall Spinco's liability in connection with the Globalstar Bank Guarantee exceed the Spinco Assumed Guarantee Amount (as defined below). Spinco hereby pledges to the Company, and grants the Company a security interest in, all Guarantee Warrants held at any time by Spinco or its Subsidiaries (and all rights, benefits and proceeds in respect thereof), as collateral in respect of Spinco's indemnity obligations set forth in the immediately preceding sentence, and the Company shall be entitled to exercise all of the rights, powers and remedies (whether arising pursuant to this Agreement, statute, common law, equity or otherwise) for the protection and rights under this Section 2.5. Spinco hereby agrees to deliver to the Company all certificates representing Guarantee Warrants promptly following receipt thereof. Upon receipt from Spinco of any certificates representing Guarantee Warrants, the Company shall hold such certificates as pledgee thereof. The Company shall have all rights with respect to the Guarantee Warrants owned by Spinco and pledged to the Company hereunder as afforded a secured party under the Uniform Commercial Code. The Company agrees to transfer to Spinco or as Spinco shall direct and release its security interest in any Guarantee Warrants of Spinco held by the Company which are required to be transferred pursuant to Section 2.5(d) hereof. The Company shall also release the Guarantee Warrants from the lien of the security interest granted hereunder at the later of (i) the release of the Company from the Globalstar Bank Guarantee and (ii) the satisfaction in full of Spinco's in full of Spinco's indemnification obligations hereunder with respect to Globalstar Bank Guarantee. Upon delivery to the Company by Spinco of the pledged Guarantee Warrants, the Company shall confirm to Spinco in writing that the Company will be holding such Guarantee Warrants as pledge thereof.
(d) For purposes of this Section 2.5, (i) the term "Maximum Partner Assumed Guarantee Amount" shall mean the sum of (A) $150,000,000.00 in principal amount of indebtedness, plus (B) sixty percent (60%) of the aggregate of all interest amounts thereon in accordance with the Globalstar Credit Agreement (other than unpaid principal) which are owed under the Globalstar Credit Agreement, (ii) the term "Actual Partner Assumed Guarantee Amount" shall mean the aggregate amount of guarantee obligations with respect to which all Globalstar Partners have actually guaranteed pursuant to the provisions of this Section 2.5, and (iii) the term "Spinco Assumed Guarantee Amount" shall mean the sum of (A) $100,000,000.00 in principal amount of indebtedness, plus (B) forty percent (40%) of the aggregate of all interest amounts and other Obligations (such term, as defined in the Globalstar Bank Guarantee)(other than unpaid principal) which are owed under the Globalstar Credit Agreement; provided that the Spinco Assumed Guarantee Amount shall be reduced on a dollar-for-dollar basis by the amount of the Actual Partner Assumed Guarantee Amount (if any) (provided that the Spinco Assumed Guarantee Amount shall in no event be less that (x) Spinco will convey to each Globalstar Partner which assumes a portion of the Globalstar Bank Guarantee Obligation a pro rata share of the Cash Guarantee Fees and, with respect to the first $100,000,000 of obligations so assumed, a pro rata share of the Guarantee Warrants and (y) the Company will convey to each such Globalstar Partner, with respect to the next $50,000,000 of obligations so assumed, a pro rata share of the Guarantee Warrants.
Section 2.6. Transfers of Spinco Capital Stock Subject to Rights of First Offer, Etc.
(a) Third Party Call Rights. In the event that any Spinco Assets consist of shares of capital stock of a Spinco Company, which shares are subject to any right of first offer, right of first refusal, call right, third party option or other similar contractual right (including, without limitation, any rights of first offer (if any) arising out of the SSL Stockholders Agreements) on the part of any party (other than the Company, any Retained Subsidiary, Spinco and any Spinco Company) (such third party, a "Third Party Transferee") to require that such shares be sold or otherwise transferred to such Third Party Transferee (any such right, a "Third Party Call Right", and any such shares subject to such right, the "Restricted Spinco Shares"), then Spinco shall (x) deliver or cause to be delivered all notice(s) which are required to be delivered by the Company, Spinco, any Retained Subsidiary or any Spinco Company in connection with any such Third Party Call Rights (unless delivery of such notice(s) has been waived by the recipient(s) thereof), and (y) use its reasonable efforts to cause each such Third Party Transferee to waive all Third Party Call Rights held by such Third Party Transferee. In the event that Spinco is unable to obtain any such waiver with respect to any Restricted Spinco Shares prior to the Distribution Date, then such Restricted Spinco Shares shall not be assigned, conveyed or transferred to Spinco pursuant to this Agreement unless and until such Restricted Spinco Shares are no longer subject to acquisition by any Third Party Transferee pursuant to any Third Party Call Rights (provided that, prior to such assignment, conveyance or transfer to either the Third Party Transferee pursuant to this Section 2.6 or to Spinco pursuant to this Agreement, such Restricted Spinco Shares shall, to the extent applicable, be subject to the sions of Section 2.1(b) hereof). In the event that a Third Party Transferee exercises any Third Party Call Right with respect to any Restricted Spinco Shares, then (i) such Restricted Spinco Shares shall be transferred to such Third Party Transferee in accordance with the terms and conditions of the Third Party Call Right relating thereto, and (ii) the Company shall turn over promptly to Spinco all cash and other amounts if and when received by the Company or any Retained Subsidiary from such Third Party Transferee in connection therewith. The parties hereto acknowledge and agree that the amounts referred to in clause (ii) of the preceding sentence shall be received and held in trust and may not be set off or reduced by any amounts which may otherwise be owed to any of the Parent Indemnified Parties pursuant to this Agreement.
(b) Third Party Put Rights. In the event that any party (other than the Company, any Retained Subsidiary, Spinco and any Spinco Company) (such third party, a "Third Party Transferor") has any put right or other similar contractual right (including, without limitation, any put rights (if any) arising out of the SSL Stockholders Agreements) to require that the Company or any Retained Subsidiary acquire any shares of capital stock of a Spinco Company which are then beneficially owned or held by such Third Party Transferor (any such right, a "Third Party Put Right", and any such shares subject to such right, the "Spinco Put Shares"), then Spinco shall (x) deliver or cause to be delivered all notice(s) which are required to be delivered by the Company, Spinco, any Retained Subsidiary or any Spinco Company in connection with any such Third Party Put Rights (unless delivery of such notice(s) has been waived by the recipient(s) thereof), and (y) use its reasonable efforts to cause such Third Party Transferor to waive all Third Party Put Rights held by such Third Party Transferor. In the event that Spinco is unable to obtain any such waiver with respect to any Restricted Spinco Shares and any such Third Party Transferor exercises any Third Party Put Right with respect to any Spinco Put Shares, then (i) Spinco shall pay to the Company in immediately available funds (and without any deductions or setoffs) prior to the date of such acquisition (but in no event later than the third Business Day prior to the anticipated date of such acquisition) the sum of (x) the entire amount which is required to be paid to
Transferor in connection with such Third Party Put Right, and (y) all Company Transfer Expenses (as defined below) for which documentation evidencing such Company Transfer Expenses has been provided to Spinco prior to such date (except, in the case of either clause (x) or (y) above, for those amounts which have already been paid in full by Spinco), (ii) the Company or the Retained Subsidiary which is responsible for acquiring such Spinco Put Shares upon the exercise of such Third Party Put Right shall acquire such Spinco Put Shares in accordance with the terms and conditions of the Third Party Put Right relating thereto, and (iii) following receipt of the amounts payable by Spinco to the Company pursuant to clause (i) above and following receipt of the certificates representing any Spinco Put Shares acquired pursuant to clause (ii) above, the Company (or any Retained Subsidiary which received such certificates) shall thereafter deliver promptly to Spinco (or any Spinco Company designated by Spinco) such certificates, accompanied by such endorsements or instruments of transfer as may be reasonably requested by Spinco.
(c) Payment of Expenses; Indemnification. Spinco agrees that it shall reimburse the Company and all Parent Indemnified Parties promptly with respect to all costs and expenses incurred by the Company and all other Parent Indemnified Parties (including, without limitation, all costs and expenses of attorneys', accountants', consultants' and other similar persons) in connection with any Actions relating to (x) the exercise or purported exercise of any Third Party Call Right or any Third Party Put Right or (y) the consummation of any transactions contemplated pursuant to the provisions of this Section 2.6 (all such costs and expenses, the "Company Transfer Expenses"). Spinco agrees that all Indemnifiable Losses (including, without limitation, all Company Transfer Expenses) of the Company and all Parent Indemnified Parties arising out of, relating to or resulting from, directly or indirectly, the performance or failure to perform by any party hereto of the provisions of this Section 2.6 or any of the transfers in any way relating thereto (other than as a result of any willful breach, on or after the Offer Purchase Date, on the part of the Company or any Retained Subsidiary) shall in each case be deemed to be Spinco Liabilities, and, in each case, shall be subject to the indemnification provisions set forth in Article V hereof.
Section 2.7. Exchange of Lehman Preferred Stock. Spinco shall, and prior to the Offer Purchase Date the Company shall, use their respective best efforts to cause the Lehman Partnerships and all other holders of the Lehman Preferred Stock (if any) to exchange all issued and outstanding shares of Lehman Preferred Stock for shares of capital stock or other equity securities of either Spinco, any Spinco Company or any Subsidiary of Spinco. Spinco agrees to indemnify, defend and hold harmless the Company and each Parent Indemnified Party in accordance with the indemnification provisions of Article V hereof, from and against any and all Indemnifiable Losses of the Company and any such Parent Indemnified Party arising out of, relating to or resulting from the ownership of any shares of Lehman Preferred Stock by the Lehman Partnerships and all other holders of the Lehman Preferred Stock (if any).
Section 3.1. Cooperation Prior to the Distribution. As promptly as practicable after the date hereof and prior to the Distribution Date:
(a) Subject to the provisions of paragraph (b) below, the Company and Spinco shall prepare an Information Statement (which shall set forth appropriate disclosure concerning Spinco and the Spinco Companies, the Spinco Business, the Distribution and certain other matters) and Spinco shall file with the SEC the Form 10 (which shall include or incorporate by reference the Information Statement). The Company and Spinco shall use their respective reasonable efforts to cause the Form 10 to be declared effective under the Exchange Act or, if either the Company or Parent reasonably determines that the Distribution may not be effected without registering the Spinco Common Stock pursuant to the Securities Act, the Company shall use its best efforts to cause the Spinco Common Stock to be registered pursuant to the Securities Act and thereafter effect the Distribution in accordance with the terms of this Agreement, including, without limitation, by preparing and filing on an appropriate form of registration statement under the Securities Act covering the Spinco Common Stock best efforts to cause such registration statement to be declared effective. Following the effectiveness of such Form 10 (or registration statement, as the case may be), the Company shall mail the Information Statement to the holders of the Company Common Stock.
(b) Before filing with the SEC the Form 10, or the registration statement referred to in Section 3.1(a), as the case may be, or any amendments or supplements thereto, the Company shall furnish to Parent (or Parent's counsel) copies of all such documents proposed to be filed, in order to give Parent (or Parent's counsel) sufficient time to review such documents, and such documents may thereafter be filed subject to any timely and reasonable comments of Parent (or Parent's counsel). On or prior to the Offer Purchase Date, the Company shall (i) deliver to Parent (or Parent's counsel) promptly, following the receipt thereof, copies of all written communications between the Company and the SEC relating to either the Information Statement or the Form 10 (or the registration statement referred to in Section 3.1(a), as the case may be), and (ii) advise Parent (or Parent's counsel) promptly of, and provide Parent (or Parent's counsel) with the opportunity to participate in (to the extent reasonably practicable), all telephonic and other non-written communications between the Company and the SEC relating to either the Information Statement or the Form 10 (or the registration statement referred to in Section 3.1(a), as the case may be). The Company shall respond promptly to any comments from the SEC with respect thereto, after consultation with Parent (or Parent's counsel), and shall take such other actions as shall be reasonably required in order to have the Form 10 declared effective under the Exchange Act, or the registration statement referred to in Section 3.1(a) hereof declared effective under the Securities Act, as the case may be, as soon as reasonably practicable following the date hereof. Before filing with the SEC the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company to be filed by the Company in connection with the Offer, and all amendments or supplements thereto, the Company shall furnish to Parent (or Parent's counsel) copies of all such documents proposed to be filed, in order to give Parent (or Parent's counsel) sufficient time to review such documents, and such documents may thereafter be filed subject to any timely and reasonable comments of Parent (or Parent's date hereof, the Company shall, and shall cause its Affiliates to, provide promptly to Parent, Purchaser and their respective counsel all such information as such persons may reasonably request in connection with the Tender Offer Statement on Schedule 14D-1 of the Purchaser or Parent to be filed in connection with the Offer.
(c) The Company and Spinco shall cooperate in preparing, filing with the SEC and causing to become effective any registration statements or amendments thereto which are appropriate to reflect the establishment of, or amendments to, any employee benefit and other plans contemplated by this Agreement.
(d) The Company and Spinco shall take all such action as may be necessary or appropriate under state securities or "Blue Sky" Laws in connection with the transactions contemplated by this Agreement.
(e) The Company and Spinco shall prepare, and Spinco shall file and seek to make effective, an application to permit listing of the Spinco Common Stock either on the NYSE or any other national securities exchange or national market system as may be selected by Spinco in its sole discretion (to the extent permitted pursuant to the listing requirements of such exchange or national market system).
(f) The Company and Spinco shall prepare and file an application with the FCC (the "FCC Application") requesting the FCC's consent to the transfer of control of any licenses, permits, approvals or other authorizations issued by the FCC to the Company and its Subsidiaries in connection with their telecommunications and space systems business, including those licenses, permits, approvals and authorizations set forth in Section 3.1(f) of the Disclosure Schedule.
(g) In addition to the actions specifically provided for elsewhere in this Agreement and except as otherwise expressly set forth in this Agreement, each of the parties hereto shall use its respective best efforts to take, or cause to be taken, all actions, and, to execute and deliver, or cause to be executed and delivered, such additional documents and instruments, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under agreements to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, using its best efforts to obtain the consents and approvals, to enter into any amendatory agreements and to make the filings and applications necessary or desirable to have been obtained, entered into or made in order to consummate the transactions contemplated by this Agreement. Without limiting the generality of the foregoing sentence, each of the parties hereto shall use its respective best efforts to ensure that the conditions set forth in Article X hereof are satisfied (insofar as such matters are within the control of such party). Notwithstanding any other provisions set forth in this Agreement (including, without limitation, the provisions of this Section 3.1(g)), neither the Company, nor Spinco nor any of their respective Affiliates shall, without first obtaining the prior written consent of the Parent, take or commit to take any action, in connection with obtaining any consent, waiver or approval or effecting any of the transactions contemplated in connection with the Closing or otherwise, (i) except as otherwise expressly provided in this Agreement, that would result in the payment of any funds (other than normal and usual filing fees) or the incurrence of any liability by the Company or any Retained Subsidiary, (ii) that would result in the divestiture or holding separate of any assets, businesses or operations of the Company or any of the Retained Subsidiaries, (iii) that might materially limit or impair Parent's or the Company's or any Retained Subsidiary's freedom of action with respect to, or its ability to retain or exercise control over, any assets, businesses or operations of the Company or any Retained Subsidiaries (other than any limitations or restrictions expressly set forth in the Merger Agreement, the Tax Sharing Agreement, the Stockholders Agreement or any other agreement to be entered into pursuant to this Agreement or the Merger Agreement prior to the Offer Purchase Date), or (iv) that might otherwise adversely affect Parent, or, following the Offer Purchase Date, either the Company or any Retained Subsidiary.
(a) Subject to the terms and conditions of this Agreement, the Company's Board of Directors (or any duly appointed committee thereof) shall in its reasonable discretion establish the Record Date and the
Distribution Date and any appropriate procedures in connection with the Distribution (subject in each case to the provisions of applicable Law) as soon as reasonably practicable following the date hereof or on such other dates as Parent may reasonably request; provided that (x) the Record Date may not be earlier than the twentieth day following the date on which the Offer is commenced and also may not be earlier than the tenth day following the Distribution Declaration Date and (y) the parties hereto shall use their reasonable efforts to cause the Record Date to be established so as to occur immediately prior to the acceptance for payment by the Purchaser of the shares of Common Stock pursuant to the Offer (provided that in no event shall the Record Date be established so as to occur as of or at any time after the acceptance for payment by the Purchaser of the shares of Common Stock pursuant to the Offer); provided further that if all conditions to the Offer have been satisfied or waived prior to the date on which all of the Distribution Conditions have been satisfied (or waived, to the extent expressly permitted by the provisions of Section 10.1 hereof), then the Purchaser shall be permitted, but not required, to accept for payment at such time the shares of Common Stock pursuant to the Offer notwithstanding the fact that the Distribution Conditions have not been satisfied or waived (provided that prior to such acceptance for payment Purchaser first obtains the consent of the Company, which consent may not be unreasonably withheld) (as further described in clause (a)(iii) below). The parties hereto acknowledge and agree that payment of the Distribution shall be conditioned on (x) the satisfaction (or waiver, to the extent expressly permitted by the provisions of Section 10.1 hereof) of each of the Distribution Conditions on a date which is prior to the fiftieth (50th) day following the Record Date and (y) Parent and Purchaser not having taken any action, on or after the Distribution Declaration Date, to extend or delay the expiration of the Offer to a date which is later than the Record Date. The parties hereto further acknowledge and agree that:
(i) if the Distribution Conditions are satisfied (or waived, to the extent expressly permitted by the provisions of Section 10.1 hereof) prior to the fiftieth (50th) day following the Record Date, the conditions to the Distribution shall be deemed to have been
date is on or prior to the Offer Purchase Date, the Record Date shall be deemed to have occurred immediately prior to the time at which the Purchaser has accepted for payment the shares of Company Common Stock pursuant to the Offer and the Distribution shall occur one Business
(ii) if the Offer Purchase Date has not yet occurred and the Distribution Conditions are not satisfied or waived prior to the fiftieth (50th) day following the Record Date, (A) the Distribution shall not be paid, the declaration of the Distribution shall be null and void, and no holder of Company Common Stock shall have any rights whatsoever to receive any part of the Distribution, and (B) the Company's Board of Directors shall establish a new Record Date in a manner consistent with the provisions of the first sentence of this
(iii) if the Offer Purchase Date has already occurred and the Distribution Conditions are not expected to be satisfied or waived prior to the fiftieth (50th) day following the Record Date, the parties hereto agree to use their respective best efforts to restructure the Distribution in a manner which shall permit the holders of Company Common Stock of record immediately prior to the consummation of the Offer to participate in a distribution of shares of Spinco capital stock in order to preserve for such holders the material economic benefits of the Distribution; provided that, in connection with any such restructuring of the Distribution, the parties hereto must first obtain the prior consent (which consent may not be unreasonably withheld of a majority of the remaining Continuing Directors (such term, as defined in Section 8.4 of the Merger Agreement), if any (it being understood and agreed that the consent of the remaining Continuing Directors may be reasonably withheld by such remaining Continuing Directors in the event that counsel to such remaining Continuing Directors advises such persons that, in such counsel's reasonable opinion, any such restructuring of the Distribution would adversely affect in any material respect the holders of Company Common Stock of record immediately prior to the
with respect to the income tax or securities law consequences of the Distribution).
(b) Subject to Section 10.1 hereof, following the declaration by the Company's Board of Directors of the Record Date but prior to the Distribution Date, the Company shall deliver to the Agent one or more share certificates representing all of the outstanding shares of Spinco Common Stock (or other Spinco capital stock if necessary in the circumstances set forth in paragraph (a)(iii) above) to be distributed in the Distribution and shall instruct the Agent to distribute on the Distribution Date, (i) one share of Spinco Common Stock (or other Spinco capital stock if necessary in the circumstances set forth in paragraph (a)(iii) above) for each share of Company Common Stock owned to holders of record of Company Common Stock on the Record Date (subject to the provisions of any restricted stock or other benefit plan of the Company) and (ii) one share of Spinco Common Stock (or other Spinco capital stock if necessary in the circumstances set forth in paragraph (a)(iii) above) for each share of Company Common Stock subject to a Cancelled Company Option to the respective holders of such Cancelled Company Options (provided that the Agent shall not distribute the shares referred to in the preceding clause (ii) until promptly after the effective time of the Merger). Spinco agrees to provide all share certificates that the Agent shall require in order to effect the Distribution. All shares of Spinco Common Stock issued in the Distribution shall be duly authorized, validly issued, fully paid, non-assessable and free of preemptive rights.
(c) Each of the parties hereto agrees that, immediately upon consummation of the Distribution, the Company shall not hold or beneficially own directly or indirectly any shares of Spinco Common Stock.
Section 3.3. Termination of Certain Claims. Following the Distribution Date, Spinco shall have no claims against the Company, any Retained Subsidiary or any Affiliate of either based on any breach by the Company, and Retained Subsidiary or any of their respective Affiliates of any obligations under this Agreement that occurred on or prior to the Offer Purchase Date, all of such claims being hereby irrevocably waived and terminated as of the Offer Purchase Date; provided that the fore- going shall not limit the Company's liability for any breach by the Company or any Retained Subsidiary of any of their respective obligations under this Agreement that occurs following the Offer Purchase Date.
Section 4.1. Settlement of Intercompany Accounts.
(a) Except as expressly provided for in this Article IV, all intercompany and interdivisional receivables, payables, loans, cash overdrafts and other accounts in existence as of the Distribution Date between Spinco and the Spinco Companies, on the one hand, and the Company and the Retained Subsidiaries, on the other hand, under the Company's cash management program or otherwise (other than accounts, if any, which (x) are owed to or by any Spinco Company which is not an Affiliate of Spinco or the Company, (y) arose pursuant to the express terms and conditions of any Existing Intercompany Agreement and (z) are not yet payable pursuant to the provisions of such Intercompany Agreement), shall be settled by payment in full of such amounts effective immediately prior to the Restructuring. Following the date hereof, (i) no such intercompany transactions shall be entered into except (x) pursuant to the express terms and conditions of any Existing Intercompany Agreement and (y) in the ordinary course of business and in a manner consistent with past practice, and (ii) except with the prior written consent of the Parent, neither the Company, any Retained Subsidiary, Spinco or any Spinco Company shall enter into any Intercompany Agreement following the date hereof and prior to the Offer Purchase Date, except for any Intercompany Agreement which (x) is on terms and conditions entered into in the ordinary course of business and in a manner consistent with past practices and (y) is not otherwise significantly adverse to (i) the business, properties, operations, prospects, results of operations or condition (financial or otherwise) of the Company, any Retained Subsidiary or the Retained Business or (ii) the ability of the Company or any of the Retained Subsidiaries to perform their respective obligations under this
Agreement, the Tax Sharing Agreement or the Stockholders Agreement.
(b) Following the Distribution Date, each of the Company and Spinco shall give the other party and any independent auditors of such other party full access at all reasonable times to the books and records of the Company and Spinco (and each of their respective Subsidiaries) relating to periods prior to the Distribution Date for purposes of verifying the amounts to be paid immediately prior to the Restructuring pursuant to Section 4.1(a) above and for resolving any disputes related thereto. The amounts settled shall, to the extent applicable, be calculated in accordance with Adjusted GAAP.
(c) Except as otherwise expressly provided in Section 2.1(a) hereof, the Company and Spinco covenant and agree that no Capital Contributions may be made following the date hereof and prior to the Offer Purchase Date; provided that the Company may make a Capital Contribution at any time after (i) the Company notifies Parent in writing of the details of such Capital Contribution, and (ii) the parties hereto agree to reduce the Spinco Cash Amount otherwise payable by Parent as a result of such Capital Contribution (which shall include interest thereon (calculated at a compounded rate of interest equal to the commercial paper rate available to the Company as of the date hereof) following the date of such Capital Contribution) and (iii) the parties agree at such time as to the appropriate amount of such reduction in the event of a Capital Contribution which is in a form other than cash.
Section 4.2. Settlements for Cash Collections and Disbursements After the Distribution Date.
(a) For each calendar month commencing with the month in which the Distribution Date occurs and, unless sooner terminated by agreement of the parties, continuing for a period of two (2) years thereafter, (i) within 10 Business Days of the end of the month in question, the Company shall prepare, and Spinco shall fully cooperate in preparing, a statement of transactions which shall reflect a complete analysis of any cash collections and cash disbursements by the Company and the Retained Subsidiaries on behalf of Spinco and the Spinco Companies (including those relating to the Spinco Business) during the relevant month and (ii) within 10 Business Days of the end of the month in question, Spinco shall prepare, and the Company shall fully cooperate in preparing, a statement of transactions which shall reflect a complete analysis of any cash collections and cash disbursements by Spinco and the Spinco Companies on behalf of the Company and the Retained Subsidiaries during the relevant month (including those relating to the Retained Business); provided in each case that, with respect to the first such monthly period such statement shall not reflect any cash collections or disbursements occurring prior to the Distribution Date.
(b) Not later than five Business Days following delivery of each such monthly statement, Spinco shall pay to the Company or the Company shall pay to Spinco, as the case may be, in cash an amount necessary to eliminate the account balance as reflected in each such statement. Payments made pursuant to this Section 4.2 shall not, for any purposes of this Agreement, constitute Indemnifiable Losses or be set off against any other payments to be made, Liabilities asserted or claims made pursuant to this Agreement, including but not limited to Article V hereof, unless the Company and Spinco otherwise agree in writing.
(c) Following the end of the two-year period referred to in Section 4.2(a) above (or such earlier period as the parties hereto may agree), (i) the Company shall promptly turn over to Spinco all cash and other similar amounts received by the Company and the Retained Subsidiaries which properly constitute Assets attributable to the Spinco Business and (ii) Spinco shall promptly turn over to the Company all cash and other similar amounts received by Spinco and the Spinco Companies which properly constitute Assets attributable to the Retained Business.
Section 4.3. Transition Services. Following the Distribution Date and ending on the later of (i) the sixth month anniversary of the Distribution Date and (ii) December 31, 1996 (such period, the "Transition Services Period"), the Company shall provide to Spinco, at such times and in such amounts as may be reasonably requested by Spinco, those data processing, procurement support, travel support, communications, tax, accounting, legal, insurance, employee benefits and similar services which have been customarily provided by the Company and the Retained Subsidiaries to the Spinco Business during the twelve months prior to the date hereof (collectively, the "Transition Services"). The Transition Services shall be provided at a cost calculated in accordance with the cost the Company currently assesses to the Spinco Companies and the Spinco Business for the same or similar services. Following the end of the calendar month in which any such Transition Services are performed, the Company shall provide to Spinco an invoice (the "Transition Services Invoice") setting forth in summary detail the Transition Services which were provided during such calendar month and the appropriate cost thereof. Spinco shall pay to the Company in cash in immediately available funds, in a reasonably prompt manner following the delivery by the Company of a Transition Services Invoice, the amounts due with respect to the Transition Services reflected on such Transition Services Invoice. The Transition Services Period may be extended for up to two six-month periods in the event that Spinco notifies the Company at least 30 days prior to the expiration of the then- current Transition Services Period of its intention to so extend the Transition Services Period.
Section 4.4. Termination of Intercompany Arrangements. Each of the parties hereto agrees that, except as otherwise expressly provided in this Article IV, all Existing Intercompany Agreements in effect immediately prior to the Distribution Date shall not be deemed altered, amended or terminated as a result of this Agreement or the consummation of the transactions contemplated hereby and shall otherwise remain in effect immediately after giving effect to the Restructuring (provided that nothing contained in this Agreement shall be deemed to limit any party's ability to terminate any such Intercompany Agreement following the Distribution Date in accordance with the provisions of such Intercompany Agreement).
Section 5.1. Survival of Agreements. The obligations under this Article V of each of Spinco and the Spinco Companies, on the one hand, and the Company and the Retained Subsidiaries, on the other hand, shall survive the sale or other transfer by it of any Assets or businesses or the assignment by it of any Liabilities. To the extent that Spinco or any of the Spinco Companies transfers directly or indirectly to any other person all or substantially all of the Spinco Assets or the Spinco Business, Spinco will cause the transferee of such SpincoAssets or Spinco Business to assume specifically its obligations under this Agreement with respect thereto and will cause such transferee to fulfill its obligations related to such Spinco Liabilities. Such assumption will not relieve Spinco of its obligations in respect thereof. To the extent that the Company or any of the Retained Subsidiaries transfers directly or indirectly to any other person all or substantially all of the Retained Assets or the Retained Business the Company will cause the transferee of such Retained Assets or Retained Business to assume specifically its obligations under this Agreement with respect thereto and will cause such transferee to fulfill its obligations related to such Retained Liabilities. Such assumption will not relieve the Company of its obligations in respect thereof. Spinco, on the one hand, and the Company, on the other hand, agree that such transferee may exercise all of Spinco's or the Company's rights hereunder, as the case may be, with respect to such Assets or businesses.
Section 5.2. Spinco's Agreement to Indemnify.
(a) In addition to any indemnification required by Articles II, VI and VIII hereof, subject to the terms and conditions set forth in this Agreement, from and after the Distribution Date, Spinco shall indemnify, defend and hold harmless the Company, each Retained Subsidiary, the Purchaser and Parent and each of their respective directors, officers, employees, representatives, advisors, agents and Affiliates (collectively, the "Parent Indemnified Parties") from, against and in respect of any and all Indemnifiable Losses of the Parent Indemnified Parties arising out of, relating to or re- sulting from, directly or indirectly, (i) any misrepresentation or breach of warranty made by or on behalf of Spinco or, on or prior to the Offer Purchase Date, made by or on behalf of the Company, which misrepresentation or breach of warranty is contained in this Agreement or the Stockholders Agreement, (ii) any breach of any agreement or covenant under this Agreement or the Stockholders Agreement on the part of Spinco or, on or prior to the Offer Purchase Date, on the part of the Company, (iii) any and all Spinco Liabilities, (iv) the conduct of the Spinco Business or any part thereof on, prior to or following the Distribution Date, (v) any transfer of Spinco Assets to, or assumption of Spinco Liabilities by, Spinco or any Spinco Company in accordance with this Agreement or otherwise in connection with the Restructuring (other than any costs and expenses which have been expressly assumed by the Company pursuant to the provisions of this Agreement), (vi) any Indemnifiable Loss resulting from any claims that any statements or omissions relating to or describing, directly or indirectly, Spinco, any Spinco Company, the Spinco Business, any Spinco Asset or any Spinco Liability, and which occur on or prior to the Offer Purchase Date (A) in the Information Statement, the Form 10 or in any registration statement filed pursuant to Section 3.1 hereof (in each case other than with respect to any statements or omissions made in reliance upon and in conformity with information furnished in writing by Parent, the Purchaser or their Affiliates, representatives or advisors and other than any statements or omissions which relate solely to the Merger Agreement and this Agreement and the transactions contemplated thereby and hereby), or (B) in any document(s) filed with the SEC by Spinco or any Spinco Company after the date hereof pursuant to either the Securities Act or the Exchange Act (in each case other than with respect to any statements or omissions which relate solely to the Merger Agreement and this Agreement and the transactions contemplated thereby and hereby), which, in the case of either clause (A) or (B) above, are false or misleading with respect to any material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, (vii) the failure of the Company or Spinco to obtain any Final Order or other consent or approval of the FCC with respect to any of the transactions contemplated pursuant to either this Agreement or the Merger Agreement and (viii) any Excluded Indemnifiable Losses (as defined below). Notwithstanding the foregoing, Spinco's indemnification obligations pursuant to this Section 5.2 shall not in any event include any Indemnifiable Losses arising out of or relating to Transaction Suits (as defined in Section 6.5), except to the extent of any Indemnifiable Losses (such Indemnifiable Losses, the "Excluded Indemnifiable Losses") which the Company is able to demonstrate resulted directly from (a) any statement or omission on the part of Spinco or any of its Affiliates in the documents referred to in Section 5.2(a)(vi) above or (b) any business activities, Assets or Liabilities of Spinco, any of the Spinco Companies or the Spinco Business.
(b) Notwithstanding Spinco's obligations to indemnify Parent Indemnified Parties pursuant to Section 5.2(a) hereof, Spinco shall be obligated to indemnify the Parent Indemnified Parties only for those Indemnifiable Losses under clauses (i), (ii) or (vi) of Section 5.2(a) hereof as to which the Parent Indemnified Parties have given Spinco written notice thereof on or prior to the third anniversary of the Distribution Date (it being understood that there shall be no corresponding time limitation with respect to any Indemnifiable Losses arising under clauses (iii), (iv), (v), (vii) and (viii) of Section 5.2(a) hereof); provided further that claims with respect to breaches of covenants and agreements set forth in this Agreement or the Stockholders Agreement shall survive for the applicable statute of limitations period. Notwithstanding the foregoing, if on or before the expiration of such indemnification period any Parent Indemnified Party has given notice to Spinco pursuant to Section 5.4 hereof of any matter which would be the basis for a claim of indemnification by such Parent Indemnified Party pursuant to Section 5.2(a), such Parent Indemnified Party shall have the right after the expiration of such indemnification period to assert or to continue to assert such claim and to be indemnified with respect thereto.
Section 5.3. The Company's Agreement to Indemnify.
(a) In addition to any indemnification required by Articles II, VI and VIII hereof, subject to the terms and conditions set forth in this Agreement, from and after the Distribution Date, the Company shall indemnify, defend and hold harmless Spinco, each Spinco
Company and each of their respective directors, officers, employees, representatives, advisors, agents and Affiliates (collectively, the "Spinco Indemnified Parties") from, against and in respect of any and all Indemnifiable Losses of the Spinco Indemnified Parties arising out of, relating to or resulting from, directly or indirectly, (i) any breach of any agreement or covenant set forth in this Agreement or in the Stockholders Agreement on the part of Parent or the Purchaser or, following the Offer Purchase Date, on the part of the Company, (ii) any and all Retained Liabilities, (iii) the conduct of the Retained Business or any part thereof on, prior to or following the Distribution Date, (iv) any Indemnifiable Loss resulting from any claims that any statements or omissions (A) relating to or describing, directly or indirectly, Parent or the Purchaser, and which occur on or prior to the Offer Purchase Date in any Solicitation/Recommendation Statement on Schedule 14D-9 of the Company filed in connection with the Offer, the Information Statement, the Form 10 or in any registration statement filed pursuant to Section 3.1 or Section 3.3 hereof (in each case only to the extent of any statements or omissions made in reliance upon and in conformity with information furnished in writing by Parent, the Purchaser or their Affiliates, representatives or advisors), (B) in any Tender Offer Statement on Schedule 14D-1 of the Purchaser or Parent filed in connection with the Offer (other than any statements or omissions made in reliance upon and in conformity with information furnished in writing by the Company, any Retained Subsidiary, Spinco, any Spinco Company or any of their respective Affiliates, representatives or advisors), or (C) in any other document(s) filed after the date hereof by Parent or the Purchaser with the SEC pursuant to either the Securities Act or the Exchange Act (e.g., statements or omissions made in a Current Report on Form 8-K filed by either Parent or the Purchaser after the date hereof pursuant to the Exchange Act), which, in the case of either clauses (A), (B) or (C) above, are false or misleading with respect to any material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (v) any Indemnifiable Loss arising out of or resulting from Transaction Suits (other than Excluded Indemnifiable Losses). Notwithstanding the foregoing and anything to the contrary in this Agreement or any other be entered into pursuant to this Agreement, the Company shall not be required to indemnify, defend and hold harmless any Spinco Indemnified Party from and against any Indemnifiable Loss resulting from any claims that the statements included in the Information Statement, the Form 10 or in any registration statement filed pursuant to Section 3.1 or Section 3.3 hereof (in each case other than statements or omissions made in reliance upon and in conformity with information furnished in writing by Parent, the Purchaser or their Affiliates, representatives or advisors expressly for use therein) are false or misleading with respect to any material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(b) Notwithstanding the Company's obligations to indemnify the Spinco Indemnified Parties pursuant to Section 5.3(a) hereof, the Company shall be obligated to indemnify the Spinco Indemnified Parties only for those Indemnifiable Losses under Sections 5.3(a)(i) and 5.3(a)(iv) hereof as to which the Spinco Indemnified Parties have given the Company written notice thereof on or prior to the expiration of any applicable statute of limitations period (it being understood that there shall be no corresponding time limitation with respect to any Indemnifiable Losses arising under clauses (ii) and (iii) of Section 5.3(a) hereof). Notwithstanding the foregoing, if on or before the expiration of such indemnification period any Spinco Indemnified Party has given notice to the Company pursuant to Section 5.4 hereof of any matter which would be the basis for a claim of indemnification by such Spinco Indemnified Party pursuant to Section 5.3(a), such Spinco Indemnified Party shall have the right after the expiration of such indemnification period to assert or to continue to assert such claim and to be indemnified with respect thereto.
Section 5.4. Procedure for Indemnification. All claims for indemnification under this Article V shall be asserted and resolved as follows:
(a) In the event that any claim or demand, or other circumstance or state of facts which could give rise to any claim or demand, for which an Indemnifying Party may be liable to an Indemnified Party hereunder is asserted against or sought to be collected by a third party (an "Asserted Liability"), the Indemnified Party shall promptly notify the Indemnifying Party in writing of such Asserted Liability, specifying the nature of such Asserted Liability and the amount or the estimated amount thereof to the extent then feasible (which estimate shall not be conclusive of the final amount of such claim or demand) (the "Claim Notice"); provided that no delay on the part of the Indemnified Party in giving any such Claim Notice shall relieve the Indemnifying Party of any indemnification obligation hereunder unless (and then solely to the extent that) the Indemnifying Party is materially prejudiced by such delay. The Indemnifying Party shall have 20 days (or less if the nature of the Asserted Liability requires) from its receipt of the Claim Notice (the "Notice Period") to notify the Indemnified Party whether or not the Indemnifying Party desires, at the Indemnifying Party's sole cost and expense and by counsel of its own choosing, which shall be reasonably satisfactory to the Indemnified Party, to defend against such Asserted Liability; provided that if, under applicable standards of professional conduct a conflict on any significant issue between the Indemnifying Party and any Indemnified Party exists in respect of such Asserted Liability, then the Indemnifying Party shall reimburse the Indemnified Party for the reasonable fees and expenses of one additional counsel to be retained in order to resolve such conflict, promptly upon presentation by the Indemnified Party of invoices or other documentation evidencing such amounts to be reimbursed. If the Indemnifying Party undertakes to defend against such Asserted Liability, the Indemnifying Party shall control the investigation, defense and settlement thereof; provided that (i) the Indemnifying Party shall use its reasonable efforts to defend and protect the interests of the Indemnified Party with respect to such Asserted Liability, (ii) the Indemnified Party, prior to or during the period in which the Indemnifying Party assumes control of such matter, may take such reasonable actions as the Indemnified Party deems necessary to preserve any and all rights with respect to such matter, without such actions being construed as a waiver of the Indemnified Party's rights to defense and indemnification pursuant to this Agreement, and (iii) the Indemnifying Party shall not, without the prior written consent of the Indemnified Party, consent to any settlement which (A) imposes any Liabilities on the Indemnified Party (other than those Liabili- ties which the Indemnifying Party agrees to promptly pay or discharge), and (B) with respect to any non-monetary provision of such settlement, would be likely, in the Indemnified Party's reasonable judgment, to have an adverse effect on the business operations, assets, properties or prospects of Parent, the Company or the Retained Business (in the case of a Parent Indemnified Party), Spinco or the Spinco Business (in the case of a Spinco Indemnified Party), or such Indemnified Party. Notwithstanding the foregoing, the Indemnified Party shall have the right to control, pay or settle any Asserted Liability which the Indemnifying Party shall have undertaken to defend so long as the Indemnified Party shall also waive any right to indemnification therefor by the Indemnifying Party. If the Indemnifying Party undertakes to defend against such Asserted Liability, the Indemnified Party shall cooperate fully with the Indemnifying Party and its counsel in the investigation, defense and settlement thereof. If the Indemnified Party desires to participate in any such defense it may do so at its sole cost and expense. If the Indemnifying Party does not undertake within the Notice Period to defend against such Asserted Liability, then the Indemnifying Party shall have the right to participate in any such defense at its sole cost and expense, but the Indemnified Party shall control the investigation, defense and settlement thereof (provided that the Indemnified Party may not settle any such Asserted Liability without obtaining the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld by the Indemnifying Party; provided that in the event that the Indemnifying Party is in material breach at such time of the provisions of this Section 5.4, then the Indemnified Party shall not be obligated to obtain such prior written consent of the Indemnifying Party) at the reasonable cost and expense of the Indemnifying Party (which shall be paid by the Indemnifying Party promptly upon presentation by the Indemnified Party of invoices or other documentation evidencing the amounts to be indemnified). The Indemnified Party and the Indemnifying Party agree to make available to each other, their counsel and other representatives, all information and documents available to them which relate to such claim or demand (subject to the confidentiality provisions of Section 7.5 hereof); provided that no party hereto shall be obligated to disclose any information which would result in the waiver of any attorney- client, attorney work product or other similar privileges, if the disclosure of such information would be materially prejudicial to such disclosing party. The Indemnified Party and the Indemnifying Party and the Company and its employees also agree to render to each other such assistance and cooperation as may reasonably be required to ensure the proper and adequate defense of such claim or demand.
(b) In the event that an Indemnified Party should have a claim against the Indemnifying Party hereunder which does not involve a claim or demand being asserted against or sought to be collected from it by a third party, the Indemnified Party shall send a Claim Notice with respect to such claim to the Indemnifying Party. The Indemnifying Party shall have 20 days from the date such Claim Notice is delivered during which to notify the Indemnified Party in writing of any good faith objections it has to the Indemnified Party's Claim Notice or claims for indemnification, setting forth in reasonable detail each of the Indemnifying Party's objections thereto. If the Indemnifying Party does not deliver such written notice of objection within such 20-day period, the Indemnifying Party shall be deemed to have accepted responsibility for the prompt payment of the Indemnified Party's claims for indemnification, and shall have no further right to contest the validity of such indemnification claims. If the Indemnifying Party does deliver such written notice of objection within such 20-day period, the Indemnifying Party and the Indemnified Party shall attempt in good faith to resolve any such dispute within 30 days of the delivery by the Indemnifying Party of such written notice of objection. If the Indemnifying Party and the Indemnified Party are unable to resolve any such dispute within such 30-day period, then either the Indemnifying Party or the Indemnified Party shall be free to pursue any remedies which may be available to such party under applicable Law.
Section 5.5. Miscellaneous Indemnification Provisions.
(a) The Indemnifying Party agrees to indemnify any successors of the Indemnified Party to the same extent and in the same manner and on the same terms and conditions as the Indemnified Party is indemnified by the Indemnifying Party under this Article V. In the event that any claim for indemnification
Articles II, V, VI or VIII hereof meets the criteria of more than one of the types of claims for which indemnification is provided for under such provisions, the Indemnified Party, in its sole discretion, shall classify such claim and only be required to include such claim, and the recoveries for indemnification therefrom, in one of such categories. No investigation made by any party hereto shall affect any representation or warranty of the other party's hereto contained in this Agreement or in the Schedules attached hereto or any certificate, document or other instrument delivered in connection herewith. The consummation by Parent of the Offer pursuant to the terms and conditions of the Merger Agreement, either with or without knowledge of a breach of warranty or covenant or misrepresentation by any party hereto, shall not constitute a waiver of any claim by any Parent Indemnified Party for Indemnifiable Losses with respect to such breach or misrepresentation. In determining the amount of Indemnifiable Losses to which a Parent Indemnified Party or Spinco Indemnified Party (as the case may be) is entitled to indemnification hereunder, an arbitration panel, court or tribunal may take into consideration, where appropriate and without duplication, any diminution in the aggregate value of the Retained Business or the Spinco Business (as the case may be). Notwithstanding anything to the contrary contained in this Agreement, the assignment of any party's rights hereunder to any other person or entity shall not limit, affect or prejudice the ability of the assigning party to continue to enforce any rights of indemnification hereunder or other rights hereunder in accordance with the terms and conditions of this Agreement.
(b) In determining the amount of any indemnity payable under this Article V, such amount shall be reduced by (x) any related tax benefits if and when actually realized or received (but only after taking into account any tax benefits (including, without limitation, any net operating losses or other deductions) to which the Indemnified Party would be entitled without regard to such item), except to the extent such recovery has already been taken into account in determining the amount of any indemnity payable under Articles II, V, VI or VIII hereof, and (y) any insurance recovery if and when actually realized or received, in each case in respect of such Asserted Liability. Any such recovery shall be promptly repaid by the Indemnified Party to the Indemni- fying Party following the time at which such recovery is realized or received pursuant to the previous sentence, minus all reasonably allocable costs, charges and expenses incurred by the Indemnified Party in obtaining such recovery. Notwithstanding the foregoing, if (x) the amount of Indemnifiable Losses for which the Indemnifying Party is obligated to indemnify the Indemnified Party is reduced by any tax benefit or insurance recovery in accordance with the provisions of the previous sentence, and (y) the Indemnified Party subsequently is required to repay the amount of any such tax benefit or insurance recovery or such tax benefit or insurance recovery is disallowed, then the obligation of the Indemnifying Party to indemnify with respect to such amounts shall be reinstated immediately and such amounts shall be paid promptly to the Indemnified Party in accordance with the provisions of this Agreement.
(c) In the event that a dispute between any Indemnifying Party and any Indemnified Party concerning the existence of a right or obligation to indemnity under this Agreement is determined by any arbitration panel or any court or tribunal, the reasonable fees and expenses of the attorneys for the party which is principally prevailing in such action shall be paid by the party which is not principally prevailing in such action.
(d) All amounts owing under this Article V shall bear interest at a fluctuating rate of interest equal to the rate of interest from time to time announced by Citibank, N.A. in New York, New York as its prime lending rate, computed from the time such Damage, cost or expense was incurred or suffered to the date of payment therefor.
(e) The remedies provided by this Article V shall be the parties' sole and exclusive remedies for the recovery of any Indemnifiable Losses resulting, from or arising out of or related to misrepresentations, breaches of warranties, and non-fulfillment of obligations under this Agreement, except those arising from or arising out of or related to fraud; provided that the provisions of this Section 5.5(e) shall not limit the ability of any party to seek injunctive or similar relief pursuant to Section 11.11 hereof.
(f) The parties hereto agree that, notwithstanding any other provision in this Agreement to the contrary, in the event of any breach of the representation and warranty set forth in Section 6.1(c)(i) hereof, in addition to the indemnities provided for in this Article V, Spinco shall either (a) secure the prompt release of the Company, the Retained Companies, the Retained Business and any affected Parent Indemnified Party from all obligations and Liabilities relating to those Spinco Liabilities or Spinco Indebtedness for which the Company, the Retained Companies, the Retained Business or any affected Parent Indemnified Party is or has become liable, directly or indirectly, as borrower, surety, guarantor or otherwise (or with respect to which any of the Retained Assets is or has become bound by or subject to) or (b) promptly prepay, redeem, purchase or defease (pursuant to a trust arrangement reasonably acceptable to Parent) in full all such Spinco Liabilities or Spinco Indebtedness. Spinco shall take or cause to be taken all actions, execute such agreements, documents or instruments, and do or cause to be done all things, necessary, proper or advisable under the terms of the agreements governing the Spinco Liability or Spinco Indebtedness in question and under the provisions of applicable Law, or as Parent may otherwise reasonably request, in connection with the fulfillment of Spinco's obligations under this Section 5.5(f).
Section 5.6. Pending Litigation. Following the Distribution Date, (a) Spinco shall have exclusive authority and control over the investigation, prosecution, defense and appeal of all pending Actions relating primarily to the Spinco Business, the Spinco Assets or the Spinco Liabilities (each, a "Spinco Action"), and may settle or compromise, or consent to the entry of any judgment with respect to, any such Action without the consent of the Company, and (b) the Company shall have exclusive authority and control over the investigation, prosecution, defense and appeal of all pending Actions relating primarily to the Retained Business, the Retained Assets or the Retained Liabilities (each, a "Retained Action"), and may settle or compromise, or consent to the entry of any judgment with respect to, any such Action without the consent of Spinco; provided that if both the Company and Spinco are named as parties to any Spinco Action or Retained Action, neither the Company nor Spinco (nor any of their respective Subsidiaries) may settle or
compromise, or consent to the entry of any judgment with respect to, any such Action without the prior written consent of the other party (which consent may not be unreasonably withheld) if such settlement, compromise or consent to such judgment includes any form of injunctive relief binding upon such other party. Spinco shall indemnify, defend and hold harmless each of the Parent Indemnified Parties, and the Company shall indemnify and hold harmless each of the Spinco Indemnified Parties, in the manner provided in this Article V, from and against all Indemnifiable Losses arising out of or resulting from each such Action over which such indemnifying party has authority and control pursuant to this Section 5.6.
Section 5.7. Construction of Agreements. Notwithstanding any other provision in this Agreement to the contrary, in the event and to the extent that there shall be a conflict between the provisions of this Article V and the provisions of any other part of this Agreement or any exhibit or schedule hereto, the provisions of this Article V shall control, and in the event and to the extent that there shall be a conflict between the provisions of this Agreement (including, without limitation, the provisions of this Article V) and the provisions of the Tax Sharing Agreement, the provisions of the Tax Sharing Agreement shall control.
Section 6.1. Representations or Warranties; Disclaimers.
(a) It is the explicit intent of each party hereto that no party to this Agreement or to the Merger Agreement is making any representation or warranty whatsoever, express or implied, in this Agreement, the Merger Agreement, the Tax Sharing Agreement or the Stockholders Agreement or in any other agreement contemplated hereby or thereby, except those representations and warranties expressly set forth in this Agreement. Each of the parties hereto agrees, to the fullest extent permitted by Law, that none of them nor any of their Affiliates, agents or representatives shall have any liability or responsibility whatsoever to any such other
hereto or such other party's Affiliates, agents or representatives on any basis (including, without limitation, in contract or tort, under federal or state securities laws or otherwise) based upon any information provided or made available, or statements made, to any such other party or such other party's Affiliates, agents or representatives (or any omissions therefrom), including, without limitation, in respect of the specific representations and warranties set forth in this Agreement and the Merger Agreement and the covenants and agreements set forth in the Merger Agreement, except (i) as and only to the extent expressly set forth in the indemnification provisions of Article V hereof and as otherwise expressly set forth herein (subject to the limitations and restrictions contained herein), and (ii) with respect to breaches of the covenants and agreements set forth in this Agreement.
(b) Without limiting the generality of the foregoing, it is understood and agreed (a) that neither Parent, the Company nor any of the Retained Subsidiaries is, in this Agreement or in any other agreement or document contemplated by this Agreement, representing or warranting in any way as to the value or freedom from encumbrance of, or any other matter concerning, any Spinco Assets, (b) that the Spinco Assets are being transferred "as is, where is" and (c) that, subject to the obligations of the Company set forth in Sections 2.1(b) and 6.2 hereof, Spinco shall bear the risk that any conveyances of the Spinco Assets might be insufficient or that Spinco's or any of the Spinco Company's title to any Retained Assets shall be other than good and marketable and free from encumbrances. Similarly, it is understood and agreed that neither Parent, the Company nor any of the Retained Subsidiaries is, in this Agreement or in any other agreement or document contemplated by this Agreement, representing or warranting to Spinco or any Spinco Indemnified Party in any way that the obtaining of the consents and approvals, the execution and delivery of any amendatory agreements and the making of the filings and applications contemplated by this Agreement shall satisfy the provisions of any or all applicable agreements or the requirements of all applicable Laws or judgments.
(c) Spinco represents and warrants to the Company that (i) except as expressly provided in the
Globalstar Bank Guarantee (as amended pursuant to the provisions of Section 2.5 hereof), neither the Company nor any of the Retained Subsidiaries will, after giving effect to the Restructuring, be liable directly or indirectly, as borrower, surety, guarantor, indemnitor or otherwise, with respect to (and that none of the Retained Assets shall be bound by or subject to) any of the Spinco Liabilities or any Spinco Indebtedness, (ii) there are no Intercompany Agreements in effect as of the date hereof, which, either individually or in the aggregate, are materially adverse to (i) the business, properties, operations, prospects, results of operations or condition (financial or otherwise) of the Retained Business or (ii) the ability of the Company or any of the Retained Subsidiaries to perform their respective obligations under this Agreement, the Tax Sharing Agreement or the Stockholders Agreement, (iii) there are no Spinco Assets which have been used within the Retained Business within one year prior to the date hereof, other than those Spinco Assets which are listed on Section 6.2(c) of the Disclosure Schedule, (iv) except as set forth in Section 6.1(c)(iv) of the Disclosure Schedule, neither Spinco nor any Spinco Company shall, immediately after giving effect to the Restructuring and the Distribution, own, hold or lease, in whole or in part, any of the assets, properties, licenses and rights which are reasonably necessary to carry on the Retained Business as presently conducted, and (v) prior to, on or shortly after the Distribution Date, GTL or Globalstar (as the case may be) will issue to the Company the Guarantee Warrants described in the Globalstar Warrant Memorandum and the term sheet set forth on Exhibit A-1 attached hereto, which warrants will be on the terms and conditions described in the Globalstar Warrant Memorandum and shall otherwise be on such terms and conditions as are customary to transactions of a similar nature.
Section 6.2. Further Assurances; Subsequent Transfers.
(a) To the extent that any of the transfers, distributions and deliveries required to be made pursuant to Article II shall not have been so consummated prior to the Distribution Date, the parties shall cooperate and use their best efforts to effect such consummation as promptly thereafter as reasonably practicable. Each of the parties hereto will
further instruments of transfer and distribution and will take such other actions as any party hereto may reasonably request in order to effectuate the purposes of this Agreement and to carry out the terms hereof. Without limiting the generality of the foregoing, at any time and from time to time after the Distribution Date, at the request of Spinco or any of its Subsidiaries, each party hereto will, and will cause each of its Subsidiaries to, execute and deliver such other instruments of transfer and distribution, and take such action as any party hereto may reasonably request in order to more effectively transfer, convey and assign to such requesting party or to the Subsidiaries of such requesting party and to confirm the right, title or interest held by such requesting party or any of the Subsidiaries of such requesting party, in the Assets to be transferred to such requesting party (or its Subsidiaries) pursuant to this Agreement, to put such requesting party and its Subsidiaries in actual possession and operating control thereof and to permit such requesting party and its Subsidiaries to exercise all rights with respect thereto (including, without limitation, rights under contracts and other arrangements as to which the consent of any third party to the transfer thereof shall not have previously been obtained) and to properly assume and discharge the related Liabilities.
(b) Each of the parties hereto agrees to use its respective best efforts, at the Company's reasonable expense, to obtain any consents required to transfer and assign to (i) Spinco all agreements, leases, licenses and other rights of any nature whatsoever relating to the Spinco Assets, and (ii) the Company all agreements, leases, licenses and other rights of any nature whatsoever relating to the Retained Assets. In the event and to the extent that any party hereto or any of its Subsidiaries is unable to obtain any such required consents, (i) such party (or any Subsidiary that is a party to such agreements, leases, licenses and other rights, as the case may be) shall continue to be bound thereby (such person, the "Record Holder") and (ii) the party to which such Asset would otherwise be transferred pursuant to this Agreement (the "Beneficial Holder") shall pay, perform and discharge fully all the obligations of the Record Holder thereunder from and after the Distribution Date and indemnify such Record Holder for all Indemnifiable Losses arising out of such
such Record Holder. The Record Holder shall, without further consideration therefor, pay, assign and remit to the Beneficial Holder promptly all monies, rights and other consideration received in respect of such performance. The Record Holder shall exercise or exploit its rights and options under all such agreements, leases, licenses and other rights and commitments referred to in this Section 6.2(b) only as reasonably directed by the Beneficial Holder and at the Beneficial Holder's expense. If and when any such consent shall be obtained or such agreement, lease, license or other right shall otherwise become assignable, the Record Holder shall promptly assign all its rights and obligations thereunder to the Beneficial Holder without payment of further consideration and the Beneficial Holder shall, without the payment of any further consideration therefor, assume such rights and obligations.
(c) In the event that, subsequent to the Distribution Date, the Company or any of the Retained Subsidiaries shall either (i) receive written notice from Spinco or any of the Spinco Companies that certain specified Assets of the Company or any of the Retained Subsidiaries which properly constitute Spinco Assets were not transferred to it on or prior to the Distribution Date or (ii) determine that certain Assets of the Company or any of the Retained Subsidiaries which constitute Spinco Assets were not transferred to Spinco or any of the Spinco Companies on or prior to the Distribution Date, then as promptly as practicable thereafter, the Company shall, and shall cause its Subsidiaries to, take all steps reasonably necessary to transfer and deliver any and all of such Assets to Spinco or its Subsidiaries at the recipient's reasonable expense. In the event that, subsequent to the Distribution Date, Spinco or any of the Spinco Companies shall either (i) receive written notice from the Company or any of the Retained Subsidiaries that certain specified Assets were transferred to Spinco or its Subsidiaries which properly constitute Retained Assets, or (ii) determine that certain Assets of Spinco or the Spinco Companies which constitute Retained Assets were transferred to Spinco or the Spinco Companies, then as promptly as practicable thereafter, Spinco shall, and shall cause the Spinco Companies to, take all steps reasonably necessary to transfer and deliver any and all of such Assets to the Company or the
iaries at the recipient's reasonable expense without the payment by the Company of any consideration therefor.
Section 6.3. The Spinco Board. Spinco and the Company shall take all actions which may be required to elect or otherwise appoint, on or prior to the Distribution Date, those individuals that the Board of Directors of the Company (as in effect prior to the consummation of the Offer) may designate as directors of Spinco.
Section 6.4. Use of Names. Following the Distribution Date, Spinco and each of the Spinco Companies shall have the sole and exclusive ownership of and right to use, as between the Company and each of the Retained Subsidiaries, on the one hand, and Spinco and each of the Spinco Companies, on the other hand, the "Loral" name and each of the names used (or formerly used) in the Spinco Business (the "Spinco Names"), and each of the trade marks, trade names, service marks and other proprietary rights related to such Spinco Names as set forth on Section 6.4 of the Disclosure Schedule (the "Spinco Proprietary Name Rights"); provided that the Company, the Retained Business and each of the Retained Subsidiaries is hereby granted a perpetual, fully paid-up, worldwide, non-exclusive license with respect to such Spinco Names and Spinco Proprietary Name Rights to the extent necessary to enable the Company, the Retained Business and each of the Retained Subsidiaries to continue to use such rights in their respective businesses with respect to (x) those governmental Contracts of the Retained Business (and any programs thereunder) in existence as of the Offer Purchase Date or those governmental programs for which a bid has been submitted prior to the Offer Purchase Date, and (y) those products and services of the type manufactured or sold by them on the date hereof or at any time during the last five years or under current development by them as of the date hereof. Following the Distribution Date, the Company and each of the Retained Subsidiaries shall have the sole and exclusive ownership of and right to use, as between Spinco and each of the Spinco Companies, on the one hand, and the Company and each of the Retained Subsidiaries, on the other hand, all names used (or formerly used) by the Company or any of the Retained Subsidiaries as of such date other than the Spinco Names (the "Company Names"), and all other trade marks, trade names, service marks and other proprietary rights owned or used by the Company or any of the Retai-
ned Subsidiaries as of such date other than the Spinco Proprietary Name Rights (the "Company Proprietary Name Rights"). Notwithstanding the foregoing, following the Distribution Date, (x) the Company shall, and shall cause its Subsidiaries and other Affiliates to, take all action reasonably necessary to cease using, and change as soon as commercially practicable (including by amending any charter documents), any corporate or other names which are the same as or confusingly similar to any of the Spinco Names or any of the Spinco Proprietary Name Rights, and (y) Spinco shall, and shall cause its Subsidiaries and other Affiliates to, take all action reasonably necessary to cease using, and change as soon as commercially practicable (including by amending any charter documents), any corporate or other names which are the same as or confusingly similar to any of the Company Names or any of the Company Proprietary Name Rights.
Section 6.5. Litigation Relating to Transaction.
(a) Following the date hereof, in the event that any Action is commenced against the Company or any of its Subsidiaries challenging either the Merger Agreement, this Agreement, the Tax Sharing Agreement or the Stockholders Agreement or any of the transactions contemplated therein or herein (any such Action, a "Transaction Suit"), then the Company shall provide promptly to Parent copies of all material pleadings sent or received after the date hereof by the Company or its counsel with respect to any such Transaction Suit(s).
(b) Parent shall be entitled to participate in the defense of each Transaction Suit and to employ counsel at its own expense to assist in the handling of each such Transaction Suit. The Company shall not settle or compromise any Transaction Suit or consent to the entry of any judgment with respect to any such Transaction Suit, without the prior written consent of Parent (which consent shall not be unreasonably withheld).
(c) Following the Distribution Date, Spinco shall be entitled to participate in the defense of each Transaction Suit to which it or any of its Affiliates is a party, and to employ counsel at its own expense to assist in the handling of each such Transaction Suit.
Following the Distribution Date, the Company shall not settle or compromise any Transaction Suit to which Spinco or any of its Affiliates is a party or consent to the entry of any judgment with respect to any such Transaction Suit, without the prior written consent of Spinco (which consent shall not be unreasonably withheld).
Section 6.6. Spinco Equity Arrangements. On or prior to the Offer Purchase Date, Spinco, the Company and each Retained Subsidiary which will be a holder of Spinco Preferred Stock immediately after giving effect to the Restructuring, shall each execute and deliver to the other counterparts of a stockholders agreement with respect to such Spinco Preferred Stock in substantially the form set forth in Exhibit A hereto.
Section 6.7. Post-Closing Business Relationships.
(a) License of Existing Intellectual Property Rights. The Company and the Retained Subsidiaries hereby grant to each of Spinco and the Spinco Companies, effective as of the Distribution Date, a perpetual, fully paid-up, worldwide, non-exclusive license with respect to the Intellectual Property Rights to the extent necessary to enable Spinco and the Spinco Companies to continue to use the Intellectual Property Rights in their respective businesses with respect to those products and services thereof of the type manufactured or sold by them on the date hereof or at any time during the last five years or under current development by them as of the date hereof; provided that neither Spinco nor any of the Spinco Companies shall be permitted to sublicense or otherwise transfer any of the Intellectual Property Rights referred to in this Section 6.7(a) to any Person other than an Affiliate of Spinco. Each of Spinco and the Spinco Companies acknowledges and agrees that neither the Company nor the Retained Subsidiaries nor any of their respective Affiliates is making any representations or warranties with respect to the ownership, validity, efficacy or other matters relating to any of the Intellectual Property Rights referred to in this Section 6.7(a).
(b) License of Certain Other Intellectual Property Rights. During the period commencing after the Distribution Date and ending on the
thereof, the Company and the Retained Subsidiaries shall, at the request of Spinco or any Spinco Company, grant to Spinco or such Spinco Company a non- exclusive license for those applications reasonably related to the Spinco Business with respect to any Intellectual Property Rights not already covered by paragraph (a) above, which grant shall be made on terms and conditions no less favorable than those terms and conditions which may from time to time be extended generally by Parent to third parties with respect to similar products, services or applications; provided that neither the Company nor any of the Retained Subsidiaries shall be obligated to license to Spinco or any Spinco Company any of the Intellectual Rights referred to in this Section 6.7(b) if such Intellectual Property Rights relate to any product or service which competes with or will compete with those products or services of the type manufactured or sold by Parent, any Subsidiary of Parent, the Company or any of the Retained Subsidiaries on the date thereof or at any time during the previous five years or under current development by them as of the date thereof.
(c) Certain General Licensing Provisions. The license of Intellectual Property Rights granted pursuant to this Section 6.7 shall not affect the rights of the Company or any of the Retained Subsidiaries to use, disclose or otherwise freely deal with any Intellectual Property Rights licensed hereunder and shall be subject to and limited by (x) all Contracts and obligations, entered into prior to the date on which the license in question was granted, in any way affecting the Company's ability to license the Intellectual Property Rights and (y) the provisions of applicable Law. Spinco agrees to indemnify, defend and hold harmless the Company and each Parent Indemnified Party in accordance with the indemnification provisions of Article V hereof, from and against any and all Indemnifiable Losses of the Company and any such Parent Indemnified Party arising out of, relating to or resulting from the license of any Intellectual Property Rights to Spinco or any Spinco Company pursuant to the provisions of Section 6.7(a) above or any failure by Spinco or any Spinco Company to perform and abide by all obligations, restrictions, conditions and agreements applicable to the Intellectual Property Rights licensed to Spinco or any Spinco Company pursuant to the provisions of Section 6.7(a) above.
(d) Technical Services. During the period commencing after the Distribution Date and ending on the third anniversary thereof (and for successive periods of three years provided that Spinco notifies the Company in writing, no less than six months nor more than nine months prior to the end of the three-year period in question, of Spinco's intention to continue seeking the services set forth in this Section 6.7(d) during the following three-year period), and subject to existing commitments, obligations and availability, and upon reasonable notice, Parent and its Subsidiaries shall use their reasonable efforts to make available to Spinco and the Spinco Companies those personnel and facilities reasonably designated by Parent or the Company to provide such research and development, technological and technical consulting and support services and other similar consulting and support services (such services, the "Technical Services"), to the extent reasonably requested by Spinco or the Spinco Companies from time to time. The Technical Services shall be provided at a cost calculated in accordance with the "fully-allocated" cost (which shall include all direct and indirect expenses of Parent or the Company or any of their respective Subsidiaries or any other entity which is providing the Technical Services in question, and which shall be allocated in a manner consistent with the Parent's or the Company's past practices (as the case may be) with respect to the allocation of costs to its Subsidiaries. Following the end of the calendar month in which any such Technical Services are performed, the Company shall provide to Spinco or the Spinco Subsidiary in question an invoice (the "Technical Services Invoice") setting forth in summary detail the Technical Services which were provided during such calendar month and the appropriate cost thereof. Spinco or the Spinco Subsidiary in question shall pay to the Company in cash in a reasonably prompt manner following the delivery by the Company of a Technical Services Invoice, the amounts due with respect to the Technical Services reflected on such Technical Services Invoice. The parties hereto acknowledge and agree that (x) the specific terms and conditions of the Technical Services to be provided hereunder (to the extent not otherwise specified and to the extent not inconsistent with the provisions of this Section 6.7(d)) shall be on terms and conditions similar to those terms and conditions which may from time to time be extended generally by or to Parent to or from third parties with respect to similar services (except as the parties may otherwise mutually agree) and (y) any Intellectual Property Rights created primarily in connection with the delivery of Technical Services to Spinco or the Spinco Subsidiary (as the case may be) shall be the property of Spinco or the Spinco Subsidiary (as the case may be); provided that Parent, the Company and each of their respective Affiliates are hereby granted a perpetual, fully paid-up, worldwide, non-exclusive license with respect to all such Intellectual Property Rights (provided further that neither Parent nor any of its Affiliates shall be permitted to sublicense or otherwise transfer any of the Intellectual Property Rights referred to in this Section 6.7(d) to any Person other than an Affiliate of such party). Notwithstanding anything to the contrary contained in this Section 6.7(d), SSL shall not be entitled to request or to receive, either directly or indirectly, any Technical Services or any Intellectual Property Rights relating thereto (nor may Spinco, nor any Affiliate of either Spinco or SSL, request or receive any such Technical Services or Intellectual Property Rights on behalf of SSL) unless and until SSL shall have entered into an unconditional release (which shall be in form and substance reasonably acceptable to Parent) in favor of Parent and its Affiliates with respect to any and all Liabilities relating to the SSL Lawsuit (provided that in the event that SSL delivers to Parent a release which satisfies the provisions of this sentence, Parent agrees to promptly deliver to SSL a similar release with respect to such SSL Lawsuit).
Section 6.8. No Restrictions on Post-Closing Competitive Activities. It is the explicit intent of each of the parties hereto that the provisions of this Agreement shall not include any non-competition or other similar restrictive arrangements with respect to the range of business activities which may be conducted by the parties hereto. Accordingly, each of the parties hereto acknowledges and agrees that nothing set forth in this Agreement shall be construed to create any explicit or implied restriction or other limitation on (a) the ability of any party hereto to engage in any business or other activity which competes with the business of any other party hereto, or (b) the ability of any party to engage in any specific line of business or engage in any business activity in any specific geographic area.
(a) The parties hereto acknowledge and agree that prior to the Distribution Date, the Company shall have complete and exclusive control and management over the CCD Lawsuit. On the Distribution Date, immediately prior to the Distribution, Spinco shall acquire an interest in the CCD lawsuit pursuant to the transfers set forth in Section 2.1(a)(viii), which transfers shall be effected by the Company and its Subsidiaries, with the consent of Parent (which shall not be unreasonably withheld), entering into any agreements or stipulations, including, but not limited to, an assignment of the action to Spinco, as may reasonably be required to (i) grant to Spinco complete and exclusive control and management of the CCD Lawsuit (including, but not limited to, the prosecution, defense or settlement of such action) and (ii) grant to Spinco the exclusive right to any and all proceeds or awards resulting or derived from the CCD Lawsuit; provided that Spinco shall pay all fees and expenses relating to the CCD Lawsuit and Spinco hereby agrees to indemnify, defend and hold harmless the Company and each Parent Indemnified Party in accordance with the indemnification provisions of Article V hereof, from and against any and all Indemnifiable Losses of the Company and any such Parent Indemnified Party with respect to the CCD Lawsuit (including, without limitation, with respect to any countersuit relating thereto). The Company agrees that it shall provide reasonable cooperation to Spinco in connection with the CCD Lawsuit, including, but not limited to, reasonable access to such books, records and employees of the Company as may be reasonably necessary in order for Spinco to prosecute or defend the CCD Lawsuit or any other Action related thereto.
(b) Notwithstanding anything to the contrary contained in this Section 6.9, Spinco shall not, without the prior written consent of Parent, consent to any settlement which (A) imposes any Liabilities on Parent (other than those Liabilities which Spinco agrees to promptly pay or discharge), and (B) with respect to any non-monetary provision of such settlement, would be likely, in Parent's reasonable judgment, to have an adverse effect on the business operations, assets, properties or prospects of Parent, the Company or the Retained Business. Nothing in this Section 6.9 shall be construed in any manner to vitiate any of the collective
rights of the Company, the Retained Subsidiaries and Spinco under the CCD Lawsuit and the rights being asserted thereunder in relation to any third party, and the parties hereto shall take all reasonable actions necessary to ensure the foregoing.
ACCESS TO INFORMATION AND SERVICES
Section 7.1. Provision of Corporate Records. Except as provided in the following sentence, on the Distribution Date, the Company shall deliver to Spinco all corporate books and records (including all active agreements, active litigation files and government filings) which are corporate records of Spinco or any of the Spinco Companies and which relate primarily to the Spinco Assets, the Spinco Business or the Spinco Liabilities, including, without limitation, original corporate minute books, stock ledgers and certificates and corporate seals of each corporation the capital stock of which is included in the Spinco Assets. Notwithstanding the foregoing, the Company shall have the right to retain the original copies of any such documents which also relate to the Retained Assets, the Retained Business or the Retained Liabilities, provided that it provides Spinco with copies of, and reasonable access to, such materials after the Distribution Date. Also on the Distribution Date, the Company shall provide to Spinco lists of trademarks, patents, copyrights and other intellectual property set forth in clause (iii) of the definition of "Assets" herein included in the Spinco Assets.
Section 7.2. Access to Information. Subject to the confidentiality provisions of Section 7.5 hereof, from and after the Distribution Date (i) Spinco shall afford to the Company and its authorized accountants, counsel and other designated representatives reasonable access (including, without limitation, using reasonable efforts to give access to persons or firms possessing Information (as defined below)) and duplicating rights during normal business hours to all records, books, contracts, instruments, computer data and other data and information (collectively, "Information") within Spinco's possession relating to the Spinco Assets, the Spinco Business and the Spinco Liabilities, insofar as such
access is reasonably required by the Company, and (ii) the Company shall afford to Spinco and its authorized accountants, counsel and other designated representatives reasonable access (including, without limitation, using reasonable efforts to give access to persons or firms possessing Information) and duplicating rights during normal business hours to all Information within the Company's possession relating to the Retained Assets, the Retained Business and the Retained Liabilities, insofar as such access is reasonably required by Spinco. Information may be requested under this Article VII for, without limitation, audit, accounting, claims, litigation and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations.
Section 7.3. Production of Witnesses. From and after the Distribution Date, each party shall use reasonable efforts to make available to the other party, upon written request, its officers, directors, employees and agents as witnesses to the extent that any such person may reasonably be required in connection with any legal, administrative or other proceedings in which the requesting party may from time to time be involved.
Section 7.4. Retention of Records. Except as otherwise required by Law or agreed to in writing, Spinco and the Company shall each retain, for a period of at least seven years following the Distribution Date, all significant Information relating to (i) in the case of the Company, the Spinco Business and (ii) in the case of Spinco, the Retained Business. Notwithstanding the foregoing, either Spinco or the Company may destroy or otherwise dispose of any of such Information at any time, provided that, prior to such destruction or disposal, (a) Spinco or the Company, as the case may be, shall provide no less than 90 or more than 120 days' prior written notice to the other party, specifying the Information proposed to be destroyed or disposed of and (b) if the other party shall request in writing prior to the scheduled date for such destruction or disposal that any of the Information proposed to be destroyed or disposed of be delivered to the other party, Spinco or the Company, as the case may be, shall promptly arrange for the delivery of such of the Information as was requested, at the expense of the other party.
(a) Each party shall hold, and shall cause its officers, employees, agents, consultants and advisors to hold, in strict confidence, unless compelled to disclose by judicial or administrative process or, in the reasonable opinion of its counsel, by other requirements of Law, all confidential, proprietary or other non-public information or trade secrets concerning the other party (or such other party's business operations or the business operations of such other party's Affiliates) which is furnished it by such other party or its representatives pursuant to either the Merger Agreement, this Agreement or the Confidentiality Agreement (collectively, the "Confidential Information"). None of the parties hereto nor any of their respective Affiliates shall use for their own benefit or purposes, or release or disclose to any other person or entity, any such Confidential Information (except, to the extent reasonably required, for disclosure to those of such party's auditors, attorneys and other representatives who agree to be bound by the provisions of this Section 7.5). Notwithstanding the foregoing, in the event any party hereto is requested to disclose any Confidential Information to any third party pursuant to any judicial or administrative process or, in the reasonable opinion of its counsel, any other requirements of Law, the party from whom such disclosure is sought shall (x) notify the other parties hereto as soon as reasonably practicable of such request for disclosure, (y) disclose only that portion of the Confidential Information which it reasonably believes, following the advice of counsel, is necessary in order to comply with such judicial or administrative process or other requirements of Law, and (z) cooperate with the other parties hereto in seeking to narrow the scope of any such third party request for disclosure).
(b) Notwithstanding the foregoing, the term "Confidential Information" shall not include information (a) which is or becomes generally available to the public other than as a result of disclosure of such information by the disclosing party or any of its Affiliates or representatives, (b) becomes available to the recipient of such information on a non-confidential basis from a source which is not, to the recipient's knowledge, bound by a confidentiality or other similar agreement, or by any other legal, contractual or fiduciary obligation
which prohibits disclosure of such information to the other party hereto, or (c) which can be demonstrated to have been developed independently by the representatives of such recipient which representatives have not had any access to any information which would otherwise be deemed to be "Confidential Information" pursuant to the provisions of this Section 7.5.
Section 8.1. Officers and Employees. Except as otherwise specified by Spinco prior to the Offer Purchase Date, the executive officers of the Company shall be the executive officers of Spinco on and after the Distribution Date. Effective as of the Distribution Date, (a) those Retained Employees who are employed by the Company or any of its subsidiaries immediately prior to the Distribution Date shall become employees of the Company in the same capacities as then held by such employees (or in such other capacities as the Company shall determine in its sole discretion) and (b) those Spinco Employees, together with those persons whose primary employment is with the Spinco Business, who are employed by the Company or any of its subsidiaries immediately prior to the Distribution Date shall become employees of Spinco in the same capacities as then held by such employees (or in such other capacities as Spinco shall determine in its sole discretion).
(a) As soon as practicable after, and in any event within 90 days after, and effective as of, the Distribution Date, Spinco shall establish a defined benefit pension plan and trust intended to qualify under Section 401(a) and Section 501(a) of the Code (the "Spinco Pension Plan"). The Company shall, within 180 days following the Distribution Date, but in no event prior to the receipt by the Company of written evidence of the adoption of the Spinco Pension Plan and the trust thereunder by Spinco and either (A) the receipt by the Company of a copy of a favorable determination letter issued by the IRS with respect to the Spinco Pension Plan or (B) an opinion, satisfactory to the Company's
of Spinco's counsel to the effect that the terms of the Spinco Pension Plan and its related trust qualify under Section 401(a) and Section 501(a) of the Code, direct the Trustees of the Loral Corporation Pension Plan and the Retirement Plan of Loral Aerospace Corp. (the "Company Pension Plans") to transfer in cash or in kind, as agreed to by the Company and Spinco, from the trusts under the Company Pension Plans to the trust under the Spinco Pension Plan, an amount determined by the certified actuary of the Company Pension Plans (the "Company Actuary") which shall be equal to, with respect to each such Company Pension Plan, (A) the product of (i) the fair market value of the assets held under such Company Pension Plan as of the last day of the month prior to the month in which the transfer occurs (the "Valuation Date") and (ii) a fraction, the numerator of which is equal to the present value of all accrued benefits under such Company Pension Plan as of the Distribution Date in respect of Spinco Employees and the denominator of which is equal to the present value of all accrued benefits under such Company Pension Plan less (B) the payments made by such Company Pension Plan between the Distribution Date and the date of transfer in respect of Spinco Employees. From the Valuation Date to the date of transfer, the assets to be transferred will be credited with interest at the interest rate available on a 30-day treasury note at the auction date on or immediately preceding the Valuation Date.
The calculation of the present value of such benefits shall be in accordance with Section 414(1) of the Code and the regulations promulgated thereunder and in all cases utilizing the assumptions used by the Company for reporting accrued benefit obligations under FAS No. 87 in its 1995 Annual Report. For purposes of this calculation, the present value of accrued benefits shall be determined on a termination basis in accordance with the standards of Section 414(l) of the Code. The determination by the Company Actuary shall be final and binding, provided, however, that the Company Actuary shall provide the actuary selected by Spinco with all the documentation reasonably necessary for Spinco to verify such determination; provided, further, that if the Spinco actuary certifies, in writing within 60 days of receiving such supporting documentation, that he disagrees with the Company Actuary then, first the chief financial officers of the Company and Spinco shall negotiate, in good faith,
to resolve such dispute, and if unable to come to an agreement, then the Company and Spinco shall agree upon and engage an impartial actuary, who shall be entitled to the privileges and immunities of an arbitrator, to resolve any disagreement and whose determination as to any such disagreement (if not contrary to ERISA) shall be conclusive, final and binding. The parties shall share equally all costs and fees of such impartial actuary. At the time of transfer of the amount set forth in this Section 8.2, Spinco and the Spinco Pension Plan shall assume all liabilities for all accrued benefits under the Company Pension Plans in respect of Spinco Employees and each of the Company and the Company Pension Plans shall be relieved of all liabilities for such benefits. As soon as practicable after, and in any event within 90 days after, and effective as of, the Distribution Date, Spinco shall cause SSL to establish a trust intended to qualify under Section 501(a) of the Code ("Spinco SSL Trust") and intended to hold the assets of the Retirement Plan of SSL (the "SSL Plan"). The Company shall, within 180 days following the Distribution Date, but in no event prior to the receipt by the Company of written evidence of the adoption of the Spinco SSL Trust, direct the Trustees of the Loral Master Pension Trust (the "Master Trust") to transfer in cash or in kind as agreed to by SSL and the Company from the Master Trust to the Spinco SSL Trust, the assets held by the Master Trust under the SSL Plan. Upon the transfer of assets in accordance with this Section 8.2(a), Spinco agrees to indemnify and hold harmless the Company, its officers, directors, employees, agents and affiliates from and against any and all Indemnifiable Losses arising out of or related to the Spinco Pension Plan and the SSL Plan, including all benefits accrued by Spinco Employees prior to the Distribution Date under the Company Pension Plans and the SSL Plan. Spinco and the Company shall provide each other with such records and information as may be necessary or appropriate to carry out their obligations under this Section or for the purposes of administration of the Spinco Pension Plan and the SSL Plan, and they shall cooperate in the filing of documents required by the transfer of assets and liabilities described herein. Notwithstanding anything contained herein to the contrary, no such transfer shall take place until the 31st day following the filing of all required Forms 5310-A in connection therewith.
(b) Individual Account Plan. As soon as practicable after the Distribution Date, but in no event later than 90 days after the Distribution Date, Spinco shall establish a defined contribution plan and trust intended to qualify under Section 401(a) and Section 501(a) of the Code (the "Spinco Savings Plan"). The Company shall, within 180 days following the Distribution Date, but in no event prior to the receipt by the Company of written evidence of the adoption of the Spinco Savings Plan and the trust thereunder by Spinco and either (A) the receipt by the Company of a copy of a favorable determination letter issued by the IRS with respect to the Spinco Savings Plan or (B) an opinion, satisfactory to the Company's counsel, of Spinco's counsel to the effect that the terms of the Spinco Savings Plan and its related trust qualify under Section 401(a) and Section 501(a) of the Code, direct the trustee of the Loral Master Savings Plan and the Loral Aerospace Savings Plan (the "Company Savings Plans") to transfer to the trustee of the Spinco Savings Plan the account balances under the Company Savings Plans as of the date of transfer in respect of Spinco Employees in cash or in kind, as agreed to by the Company and Spinco; provided, however, all outstanding loans shall be transferred in kind. Upon such transfer, the Spinco Savings Plan shall assume all liabilities for all accrued benefits under the Company Savings Plans in respect of Spinco Employees that are transferred to the Spinco Savings Plan and the Company Savings Plans shall be relieved of all liabilities for such accrued benefits. The Company and Spinco shall cooperate in the filing of documents required by the transfer of assets and liabilities described herein. Notwithstanding anything contained herein to the contrary, no such transfer shall take place until the 31st day following the filing of all required Forms 5310-A in connection therewith. Upon the transfer of assets in accordance with this section 8.2(b), Spinco agrees to indemnify and hold harmless the Company, its officers, directors, employees, agents and affiliates from and against any and all Indemnifiable Losses arising out of or relating to the Spinco Savings Plan, including all benefits accrued by Spinco Employees prior to the Distribution Date.
(c) Welfare Benefit Plans. As of the Distribution Date, Spinco Employees shall cease to participate in the employee welfare benefit plans
in defined in ERISA) maintained or sponsored by the Company (the "Prior Welfare Plans") and shall commence to participate in welfare benefit plans of Spinco (the "Replacement Welfare Plans") which Replacement Welfare Plans shall, in the case of any such plan that is subject to the requirements of Section 4980B of the Code, provide for substantially identical benefits on substantially identical terms and conditions that were provided by Prior Welfare Plans immediately prior to the Distribution Date. Spinco will, (i) waive all limitations as to pre-existing condition exclusions and waiting periods with respect to participation and coverage requirements applicable to Spinco Employees under the Replacement Welfare Plans, other than limitations or waiting periods that were in effect with respect to such employees under the Prior Welfare Plans and that have not been satisfied as of the Distribution Date, and (ii) provide each Spinco Employee with credit for any co-payments and deductibles paid prior to the Distribution Date in satisfying any deductible or out-of-pocket requirements under the Replacement Welfare Plans. After the Distribution Date, Spinco shall be responsible for any claims by Spinco Employees for benefits relating to claims incurred but not reported prior to the Distribution Date. The Company shall use its best efforts to ensure that, except as provided otherwise in the Merger Agreement or Distribution Agreement, the consummation of the transactions contemplated by this Distribution Agreement shall not entitle any employee to severance benefits under any severance plan or arrangement of the Company or any of its Subsidiaries.
(d) Collective Bargaining Agreements. As of the Distribution Date, with respect to those collective bargaining agreements to which the Company or any of its Affiliates is a party and which cover Spinco Employees, Spinco shall assume all liabilities and obligations of the Company and each of its Affiliates thereunder, but only to the extent that such liabilities and obligations relate to any Spinco Employees.
(e) Certain Liabilities. Spinco hereby agrees to indemnify the Company and its Affiliates against, and agrees to hold them harmless from any and all Indemnifiable Losses incurred or suffered as a result of any claim by any Spinco Employee which arises under federal, state or local
limitation, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1990, the Equal Pay Act, the Americans with Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974 and all other statutes regulating the terms and conditions of employment), regulation or ordinance, under the common law or in equity (including any claims for wrongful discharge or otherwise), or under any policy, agreement, understanding or promise, written or oral, formal or informal, between the Company and the Spinco Employee, whether arising out of actions, events or omissions that occurred (or, in the case of omissions, failed to occur) prior to, or after, the Distribution Date. The Company hereby agrees to indemnify Spinco and its Affiliates against, and agrees to hold it harmless from any and all Indemnifiable Losses incurred or suffered as a result of any claim by any Retained Employee which arises under federal, state or local statute (including, without limitation, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1990, the Equal Pay Act, the Americans with Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974 and all other statutes regulating the terms and conditions of employment), regulation or ordinance, under the common law or in equity (including any claims for wrongful discharge or otherwise), or under any policy, agreement, understanding or promise, written or oral, formal or informal, between the Company and the Retained Employee, whether arising out of actions, events or omissions that occurred (or, in the case of omissions, failed to occur) prior to, or after, the Distribution Date. The indemnification provided for in this Section 8.2 shall be subject to the terms and conditions of the indemnification provisions of Article V hereof.
(f) As of the Distribution Date, with respect to any employee liabilities or obligations arising under the Company's (i) split dollar life insurance arrangements with certain executives, (ii) the Loral Supplemental Executive Retirement Plan (the "SERP"), and (iii) retiree welfare plans (including retiree medical plans), (all such liabilities in (i), (ii) and (iii), "Enumerated Liabilities"):
(A) On or prior to the Distribution Date, the Company
more grantor rabbi trusts (the "SERP Trust") of which the participants in the SERP shall be the beneficiaries and shall contribute to such trust an amount equal to the present value of all accrued benefits under the SERP as of the Distribution Date (the parties hereto acknowledge that such amount shall not exceed $11 million).
(B) The Company shall retain and be solely responsible for all liabilities and obligations whatsoever of both the Retained Business and the Spinco Business for all Enumerated Liabilities with respect to Retained Employees and shall retain any assets relating to such liabilities.
(C) Spinco shall assume and be solely responsible for all liabilities and obligations whatsoever of both the Retained Business and the Spinco Business for all Enumerated Liabilities with respect to Spinco Employees and the Company shall transfer, or allocate, as applicable, to Spinco as soon as practicable following the Distribution Date any assets relating to such liabilities. The assets held in the SERP Trust shall be allocated, to the extent practicable, in accordance with the principles set forth in Section 8.2(a).
Section 8.3. Other Liabilities and Obligations. As of the Distribution Date, with respect to claims relating to any employee liability or obligation not otherwise provided for in this Agreement or the Merger Agreement, including, without limitation, accrued holiday, vacation and sick day benefits, (a) the Company shall assume and be solely responsible for all liabilities and obligations whatsoever of both the Retained Business and the Spinco Business for all such claims made by Retained Employees and (b) Spinco shall assume and be solely responsible for all liabilities and obligations whatsoever of both the Retained Business and the Spinco Business for all such claims made by all Spinco Employees. Notwithstanding the foregoing, wages and salary accrued prior to the Distribution Date in respect of
Spinco New York Employees and deferred directors' fees shall be the sole responsibility of the Retained Business.
Section 8.4. Preservation of Rights to Amend or Terminate Plans. No provision of this Agreement, shall be construed as a limitation on the right of the Company or Spinco to amend any plan or terminate its participation therein which the Company or Spinco would otherwise have under the terms of such plan or otherwise, and no provision of this Agreement shall be construed to create a right in any employee or beneficiary of such employee under a plan that such employee or beneficiary would not otherwise have under the terms of such plan itself.
Section 8.5. Reimbursement; Indemnification. Spinco and the Company acknowledge that the Company, on the one hand, and Spinco, on the other hand, may incur costs and expenses (including, without limitation, contributions to plans and the payment of insurance premiums) pursuant to any of the employee benefit or compensation plans, programs or arrangements which are, as set forth in this Agreement, the responsibility of the other party. Accordingly, the Company and Spinco agree to reimburse each other, as soon as practicable but in any event within 30 days of receipt from the other party of appropriate verification, for all such costs and expenses reduced by the amount of any tax reduction or recovery of tax benefit realized by the Company or Spinco, as the case may be, in respect of the corresponding payment made by it. All Liabilities retained, assumed or indemnified by Spinco pursuant to this Article VIII shall in each case be deemed to be Spinco Liabilities, and all Liabilities retained, assumed or indemnified by the Company pursuant to this Article VIII shall in each case be deemed to be Retained Liabilities, and, in each case, shall be subject to the indemnification provisions set forth in Article V hereof.
Section 8.6 Actions By Spinco. Any action required to be taken under this Article VIII may be taken by a Subsidiary of Spinco, the Spinco Companies, or a Subsidiary of the Spinco Companies.
Section 9.1. General. Except as otherwise agreed in writing between the parties, the Company shall maintain until the Distribution Date all policies of liability, fire, extended coverage, fidelity, fiduciary, workers' compensation and other forms of insurance in effect as of the date hereof insuring the products, properties, Assets and operations contemplated to be transferred to Spinco and each of the Spinco Companies.
Section 9.2. Certain Insured Claims. The Company shall (a) use reasonable efforts, upon Spinco's written request and at Spinco's sole expense, to continue to maintain and renew for the benefit of Spinco and each of the Spinco Companies the insurance policies under the Casualty Program with respect to claims having an occurrence date (as the term "occurrence date" is customarily defined) prior to the Distribution Date, relating to, or arising out of the conduct of, the Spinco Business, the Spinco Assets or the Spinco Liabilities, and (b) use reasonable efforts and cooperate with Spinco, upon Spinco's written request and at Spinco's sole expense, to obtain coverage, recoveries and other benefits under such policies for the benefit of Spinco and each of the Spinco Companies, including, without limitation, by filing and pursuing claims with respect to obtaining such coverage, recoveries and other benefits; provided that in no event shall the Company be obligated to litigate or pursue any other extra-contractual remedies against any insurer; provided further that all claims pursuant to this Section 9.2 shall be submitted, investigated, processed and paid in accordance with the claims handling procedures used by the Company and its Affiliates from time to time with respect to other like claims. The Company will reimburse Spinco and each of the Spinco Companies for any recovery obtained by it pursuant to such claims. The Company shall make available to Spinco such of its employees as Spinco may reasonably request as witnesses or deponents in connection with Spinco's pursuit of claims.
Section 10.1. Condition to Restructuring and Distribution.
(a) The obligations of each of the Company, Holdings, Aerospace LGP, LG, Cayman and Spinco to effect the Restructuring and the Distribution (other than those obligations which are normally expected to precede the Restructuring or the Distribution) shall be subject to the satisfaction of the following conditions: (i) the Purchaser shall have notified the Company that it is prepared to immediately accept for payment shares of Company Common Stock pursuant to the terms and conditions of the Offer as set forth in the Merger Agreement, (ii) the Record Date shall have been set by the Company's Board of Directors, (iii) the Form 10 (or the registration statement referred to in Section 3.1(a) hereof) shall have been declared effective by the SEC, (iv) the Spinco Common Stock shall have been accepted for listing or quotation in accordance with Section 3.1(e) hereof, (v) no Court Order or Law shall have been enacted, promulgated, issued or entered against any of the parties hereto which (x) prohibits or materially restricts consummation of any of the transactions contemplated by this Agreement and (y) remains in effect as of the date on which the satisfaction of this condition is determined, (vi) the Company and the Retained Subsidiaries (other than Spinco and the Spinco Companies) shall have obtained all consents required to be obtained by the Company as a result of or in connection with the transactions contemplated by this Agreement in order to avoid a material Default under any material Contract to or by which the Company, Spinco or any of their respective Subsidiaries is a party or may be bound, or otherwise necessary to permit the Company and each of the Retained Subsidiaries to conduct their business in a manner consistent with its past practices, (vii) all consents and approvals of, and notices to and filings with, any Governmental Entity or any other person or entity arising out of or relating to the consummation of the transactions contemplated by this Agreement, shall have been obtained or made (as the case may be), (viii) the Globalstar Bank Guarantee shall have been amended pursuant to Section 2.5 hereof so that the provisions thereof shall, following the Restructuring, be amended in the manner contemplated by Section 2.5 hereof (with such changes thereto as Parent and the Company may approve prior to the Offer Purchase Date), and (ix) the Lehman Partnerships and all other holders of the Lehman Preferred Stock (if any) shall have exchanged all issued and outstanding shares of Lehman Preferred Stock for shares of capital stock or other equity securities of either Spinco, any Spinco Company or any Subsidiary of Spinco pursuant to Section 2.7 hereof.
(b) The parties hereto acknowledge and agree that (x) Parent may waive, on behalf of all parties hereto, the conditions set forth in clauses (viii) and (ix) of Section 10.1(a) above, (y) Parent may waive, on behalf of all parties hereto, the condition set forth in clauses (v), (vi) and (vii) of Section 10.1(a) above so long as (1) Parent reasonably believes that consummation of the Distribution at such time will have no material adverse effect on Spinco or the Spinco Business and (2) Parent agrees to indemnify Spinco pursuant to the provisions of Article V hereof with respect to any Indemnifiable Losses which result from any material adverse effect on Spinco or the Spinco Business which results directly from such waiver, and (z) the Company may not waive any of the conditions set forth in Sections 10.1(a)(i) through 10.1(a)(ix) above without first obtaining the prior written consent of Parent (which may not be unreasonably withheld). In the event that all of the Distribution Conditions have been satisfied (or waived, to the extent expressly permitted by the provisions of the preceding sentence), the Company, Holdings, Aerospace and Spinco shall consummate the Restructuring and the Distribution, and all other transactions related thereto, on the date on the date on which such Distribution Conditions have been so satisfied or waived (or as soon as practicable following such date in the event that such parties are unable to consummate the Restructuring and the Distribution, and all other transactions related thereto, on such date). The respective obligations of each party hereto to perform those of its obligations which are to be performed following consummation of the Restructuring and the Distribution, shall be conditioned on the consummation of the Restructuring and the Distribution in accordance with the provisions of this Agreement.
Section 10.2. Termination. This Agreement (i) may be terminated and the Distribution abandoned at any time prior to the Offer Purchase Date by the mutual written agreement of each of the parties hereto or (ii) shall be terminated automatically and the Distribution abandoned upon any termination of the Merger Agreement in accordance with the terms and conditions thereof. In the event that this Agreement shall be terminated pursuant to this Section 10.2, all obligations of the parties hereto under this Agreement shall terminate without further liability or obligation of any party hereto to the other parties hereto under this Agreement or otherwise, except (i) for any breach by such party of the terms and provisions of this Agreement prior to the date of such termination and (ii) as stated in Section 11.3 hereof.
Section 10.3. Amendments; Waivers. This Agreement may be amended, modified or supplemented only by written agreement of each of the parties hereto. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument executed by such party. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants, agreements or conditions contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by any party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same at any subsequent time or times hereunder.
Section 11.1. Survival of Indemnities; Release. The representations and warranties made in Section 6.1 of this Agreement shall survive for a period of three years from the Distribution Date, but shall not survive any termination of this Agreement; provided that claims with respect to breaches of covenants and agreements set forth in this Agreement shall survive for the applicable statute of limitations period. Except as otherwise expressly provided in this Agreement (including, without limitation, the indemnification provisions of Article V hereof), each of the parties (a) agrees that no claims or causes of action may be brought against the Company, Holdings, Aerospace, Spinco, Parent or the Purchaser or any of their Affiliates, agents or representatives based upon, directly or indirectly, any of the representations and warranties contained in this Agreement after three years following the Distribution Date (other than causes of actions commenced after such three-year period to seek recourse for claims asserted during such three- year period that are not resolved by the parties), and (b) hereby waives and releases all other claims and causes of action, that may be asserted or brought against the Company, Holdings, Aerospace, Spinco, Parent or the Purchaser or any of their Affiliates, agents or representatives directly or indirectly based upon or arising under this Agreement or the Merger Agreement, or the transactions contemplated hereby or thereby. Notwithstanding the foregoing, this Section 11.1 shall not limit any covenant or agreement of the parties in this Agreement, the Merger Agreement, the Tax Sharing Agreement or the Stockholders Agreement which contemplates performance after the Distribution Date (including, without limitation, the covenants and agreements set forth in Sections 2.1(b) and 6.2 hereof), except for the covenants and agreements in the Merger Agreement to the extent of their performance prior to the Distribution Date.
Section 11.2. Entire Agreement. This Agreement (including the schedules and exhibits and the agreements and other documents referred to herein, including, without limitation, the Merger Agreement, the Tax Sharing Agreement and the Stockholders Agreement) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior negotiations, commitments, agreements and understandings, both written and oral, between the parties or any of them with respect to the subject matter hereof (including, without limitation, the provisions of the Confidentiality Agreement).
Section 11.3. Fees and Expenses. Except as otherwise provided in this Agreement, the Merger Agreement, the Tax Sharing Agreement or the Stockholders Agreement, and subject to the proviso below, all costs and expenses incurred by the Company and each of the Retained Subsidiaries and by Spinco in connection with (x) the preparation, execution and delivery of this Agreement, the Merger Agreement, the Tax Sharing Agreement and the Stockholders Agreement and (y) consummating such party's obligations hereunder and thereunder (including, without limitation, investment banking, legal, accounting, audit and printing costs and expenses), shall be paid by the Company, upon the submission to the Company of appropriate documentation detailing such costs and expenses); provided that the investment banking costs and expenses incurred by the Company (including any legal or other costs and expenses but excluding any indemnification-related costs and expenses) incurred by the Company relating to the provision of such investment banking services) in connection with the transactions contemplated by this Agreement and the Merger Agreement which exceed $12,000,000 (such excess amount of such investment banking costs and expenses, the "Spinco Excess Costs"), shall not be considered to be expenses of the Company, but shall be deemed to be Spinco Liabilities and shall be paid by Spinco on or promptly after the Distribution Date.
Section 11.4. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 11.5. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or when delivered by hand or (c) the expiration of five Business Days after the day when mailed by certified or registered mail, postage prepaid, addressed at the following addresses (or at such other address for a party as shall be specified by like notice):
(a) If to the Company, or Aerospace, to:
New York, New York 10022 Attention: Peter Allan Atkins, Esq. Lou R. Kling, Esq.
New York, New York 10022 Attention: C. Douglas Kranwinkle, Esq. Jeffrey J. Rosen, Esq.
(b) If to Spinco, to:
Loral Space & Communications Corporation New York, New York 10016
New York, New York 10022 Attention: Robert B. Hodes, Esq. Bruce R. Kraus, Esq.
Section 11.6. Successors and Assigns; No Third Party Beneficiaries. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto (whether by operation of law or otherwise) without the prior written consent of the other parties hereto (which consent may not be unreasonably withheld), except that any party shall have the right, without the consent of any other party hereto, to assign all or a portion of its rights, interests and obligations hereunder to one or more direct or indirect subsidiaries, but no such assignment of obligation shall relieve the assigning party from its responsibility therefor. Notwithstanding the foregoing, Spinco shall be permitted to assign its rights and obligations under this Agreement to one of its Affiliates (the "Spinco Transferee") prior to the Record Date so long as (x) such assignment shall not relieve Spinco from its joint responsibility therefor and (y) such assignment does not adversely affect any of the rights, benefits or obligations of Parent or any of the Parent Indemnified Parties under this Agreement or the Merger Agreement; provided that in the event of any such assignment to the Spinco Transferee, all references to Spinco shall be automatically deemed to be references to Spinco. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and, except for the provisions of Sections 8.1 hereof, nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement; provided, however, that the Indemnified Parties are intended to be third party beneficiaries of the provisions of Article V hereof, and shall have the right to enforce such provisions as if they were parties hereto.
Section 11.7. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Section 11.8. Interpretation. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.
Section 11.9. Schedules. The Disclosure Schedule shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein.
Section 11.10. Legal Enforceability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without affecting the validity or enforceability of the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.
Section 11.11. Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally (a) agrees that all suits, actions or other legal proceedings arising out of this Agreement or any of the transactions contemplated hereby (a "Suit") shall be brought and adjudicated solely in the United States District Court for the Southern District of New York, or, if such court will not accept jurisdiction, in any court of competent civil jurisdiction sitting in New York City, New York, (b) submits to the non-exclusive jurisdiction of any such court for the purpose of any such Suit and (c) waives and agrees not to assert by way of motion, as a defense or otherwise in any such Suit, any claims that it is not subject to the jurisdiction of the above courts, that such Suit is brought in an inconvenient forum or that the venue of such Suit is improper. Each of the parties hereto also irrevocably and unconditionally consents to the service of any process, summons, pleadings, notices or other papers in a manner permitted by the notice
provisions of Section 11.5 hereof and agrees that any such form of service shall be effective in connection with any such Suit; provided that nothing contained in this Section 11.11 shall affect the right of any party to serve process, pleadings, notices or other papers in any other manner permitted by applicable Law.
Section 11.12. Specific Performance. Each of the parties hereto acknowledges and agrees that in the event of any breach of this Agreement, each non-breaching party would be irreparably and immediately harmed and could not be made whole by monetary damages. It is accordingly agreed that the parties hereto (a) will waive, in any action for specific performance, the defense of adequacy of a remedy at law and (b) shall be entitled, in addition to any other remedy to which they may be entitled at law or in equity, to compel specific performance of this Agreement in any action instituted in any court referred to in Section 11.11 hereof.
IN WITNESS WHEREOF, each of the parties has caused this Restructuring, Financing and Distribution Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the day and year first above written.
dated as of _________, 1996
LORAL SPACE & COMMUNICATIONS CORPORATION
STOCKHOLDERS AGREEMENT, dated as of ________, 1996 (the "Agreement"), by and among Loral Corporation, a New York corporation ("Loral"), and Loral Space & Communications Corporation, a __________ corporation (the "Company"). Loral and those of its Affiliates who are transferees with respect to any of the Equity Securities (as defined below), are sometimes collectively referred to herein as the "Stockholders".
WHEREAS, the Company, Lockheed Martin Corporation, a Maryland corporation ("LMC"), Loral and certain subsidiaries of Loral entered into a Restructuring, Financing and Distribution Agreement, dated as of January 7, 1996 (the "Restructuring Agreement"; all capitalized terms used in this Agreement but not otherwise defined herein, shall have the respective meanings assigned to such terms in the Restructuring Agreement), pursuant to which, after giving effect to the Restructuring and the Distribution, Loral acquired _______ shares of Series A Non-Voting Convertible Preferred Stock, par value $0.01 per share, of the Company (the "Preferred Stock"); and
WHEREAS, the Company and Loral desire to establish in this Agreement certain conditions with respect to the relationship between the Stockholders and
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and in the Restructuring Agreement, the parties hereto agree as follows:
Section 1.1. Restrictions on Certain Actions by the Stockholders. (a) During the Term (as defined in Article V below), each Stockholder will not, and will cause each of its Affiliates (such term, as used in this Agreement, as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act) not to, singly or as part of a partnership, limited partnership, syndicate or other group (as those terms are used in Section 13(d)(3) of the Exchange Act), directly or indirectly:
(i) acquire, offer to acquire, or agree to acquire, by purchase, gift or otherwise, any Equity Securities (as defined below in Section 1.1(c)), except pursuant to a stock split, stock dividend, rights offering, recapitalization, reclassification, merger, consolidation, corporate reorganization or similar transaction; provided that at any time in which the Stockholders hold, in the aggregate, less than twenty percent (20%) of the Total Voting Power, then the Stockholders may acquire Equity Securities so that the Stockholders hold, in the aggregate, up to twenty percent (20%) of the Total Voting Power;
(ii) make, or in any way actively participate in, any "solicitation" of "proxies" to vote (as such terms are defined in Rule 14a- 1 under the Exchange Act), solicit any consent or communicate with or seek to advise or influence any third party with respect to the voting of any Equity Securities or become a "participant" in any "election contest" (as such terms are defined or used in Rule 14a-11 under the Exchange Act), in each case with respect to the Company;
(iii) form, join or encourage the formation of, any "person" within the meaning of Section 13(d)(3) of the Exchange Act with respect to any Equity Securities; provided that this Section 1.1(a)(iii) shall not prohibit any such arrangement solely among the Stockholders and any of
(iv) deposit any Equity Securities into a voting trust or subject any such Equity Securities to any arrangement or agreement with respect to the voting thereof; provided that this Section 1.1(a)(iv) shall not prohibit any such arrangement solely among the Stockholders and any of
(v) initiate, propose or otherwise solicit stockholders for the approval of one or more stockholder proposals with respect to the Company as described in Rule 14a-8 under the Exchange Act, or induce or attempt to induce any other third party to initiate any stockholder proposal;
(vi) except as otherwise contemplated or permitted by this Agreement (including, without limitation, pursuant to Section 1.2 hereof), seek to place a representative on the Board of Directors of the Company or seek the removal of any member of the Board of Directors of the Company, except with the approval of the Board of Directors or management of the
(vii) except with the approval of the Board of Directors or management of the Company, call or seek to have called any meeting of the
(viii) except through its representatives on the Board of Directors (or any committee thereof) of the Company (if any) and except as otherwise contemplated by this Agreement or the Restructuring Agreement (including the agreements and other documents referred to therein, including, without limitation, the Tax Sharing Agreement), otherwise act to seek to control the management or policies of the Company, except with the approval of the Board of Directors or management of the Company;
(ix) sell or otherwise transfer in any manner any Equity Securities to any "person" (within the meaning of Section 13(d)(3) of the Exchange Act) who, immediately following such sale or transfer, would, to the best of the Stockholder's knowledge, own more than four percent (4%) of any class of Equity Securities or who, without the approval of
the Board of Directors of the Company, (A) has publicly proposed a business combination or similar transaction with, or a change of control of, the Company or who has publicly proposed a tender offer for Equity Securities or (B) who has discussed with Loral or any of its respective Affiliates the possibility of proposing a business combination or similar transaction with, or a change in control of, the Company;
(x) sell or otherwise transfer in any manner to any person (as defined in clause (ix) above) in any single transaction or series of related transactions more than 2% of the outstanding Equity Securities;
(xi) solicit, seek to effect, negotiate with or provide any information to any other party with respect to, or make any statement or proposal, whether written or oral, to the Board of Directors of the Company or any director or officer of the Company or otherwise make any public announcement or proposal whatsoever with respect to, any form of business combination transaction involving the Company, including, without limitation, a merger, exchange offer or liquidation of the Company's assets, or any corporate reorganization or similar transaction with respect to the Company, except in each case with the approval of the Board of Directors or management of the Company; or
(xii) instigate or encourage any third party to do any of the foregoing.
Notwithstanding clauses (ix) and (x) above, the Stockholders may effect any transaction contemplated by Article III hereof.
(b) Notwithstanding the provisions of this Section 1.1, nothing herein shall apply with respect to any Equity Securities acquired from any person other than a Stockholder (x) held by any pension, retirement or other benefit plan managed by any Stockholder or any of its subsidiaries or other Affiliates or (y) held in any account managed for the benefit of another person, by any subsidiary or other Affiliate of any of the Stockholders which is engaged in the financial services business. In addition, notwithstanding the provisions of this Section 1.1, nothing herein shall prohibit or restrict any transfer of Equity Securities to or among any of the subsidiaries or other Affiliates of any of the Stockholders (provided that such subsidiary or Affiliate agrees to be bound to the provisions of this Agreement, upon which such subsidiary or Affiliate shall be entitled to all rights and benefits, and shall be subject to all obligations, of a Stockholder under this Agreement).
(c) For the purposes of this Agreement, (i) the term "Equity Securities" shall mean the Preferred Stock and any securities entitled to vote generally in the election of directors of the Company, or any direct or indirect rights or options to acquire any such securities or any securities convertible or exercisable into or exchangeable for such securities (provided that, in the event that the Guaranty Warrants (as defined below) become warrants to acquire Equity Securities, such Guaranty Warrants and any securities issued pursuant to the exercise of such Guaranty Warrants, shall not (so long, in each case, as they are held by the Stockholder) constitute Equity Securities for purposes of determining the appropriate number of shares of Common Equity Securities which Loral is entitled to acquire hereunder, including in connection with the determination of the Target Percentage pursuant to Section 1.4(a) hereof), (ii) the term "Voting Power" shall mean the voting power in the general election of directors of the Company, (iii) the term "Total Voting Power" shall mean the total combined Voting Power of all the Equity Securities then outstanding, including, without limitation, the Preferred Stock, and, insofar as the Preferred Stock is concerned, it is deemed to have Voting Power equal to that of the Common Stock into which it is convertible, (iv) the term "Change of Control" shall mean the occurrence of any of the following events: (A) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner of Equity Securities which represent at least forty percent (40%) of the Total Voting Power, or (B) during any one-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office, (v) the term "beneficial owner", and terms having similar import, shall mean any direct or indirect "beneficial owner", as such term is defined in Rules 13d-3 and 13d-5 under the Exchange Act, and (vi) the term "Guaranty Warrants" shall mean those warrants which accrue to the benefit of the Company in connection with the Globalstar Bank Guarantee, as described in the Globalstar Warrant Memorandum.
(a) At any time after the date hereof (but subject to the provisions of Section 1.2(b) below), following a written request by Loral to the Company (such request, the "HSR Notice"), the Company and the Stockholders will (i) take promptly all actions necessary to make the filings required of the Stockholders, the Company or any of their respective Affiliates under the HSR Act (as defined in the Merger Agreement) with respect to the right to convert Preferred Stock and continue to own the securities so received, the ownership and voting of Equity Securities by the Stockholders, any of the transactions contemplated by this Agreement or any other similar matters (all such exercise, ownership, voting, transaction and other similar matters, the "Filing Matters"), (ii) comply at the earliest practicable date with any request for additional information or documentary material received by the Company or the Stockholders or any of their Affiliates from any of the Federal Trade Commission, the Antitrust Division of the Department of Justice, state attorneys general, the Commission, or other governmental or regulatory authorities (all such authorities, the "Antitrust Authorities"), and (iii) cooperate with each other in connection with any of the filings referred to in clause (i) above and in connection with resolving any investigation or other inquiry commenced by any of the Antitrust Authorities. To the extent reasonably requested by Loral, the Company shall use all reasonable efforts to resolve such objections, if any, as may be asserted with respect to the Filing Matters. If any administrative, judicial or legislative action or proceeding is instituted (or threatened to be challenging any aspect of the Filing Matters as violative of any Antitrust Law, each of the Stockholders and the Company shall cooperate with each other to contest and resist any such action or proceeding, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) that is in effect and that restricts, prevents or prohibits the exercise by the Stockholders of the right to convert Preferred Stock and continue to own the securities so received, or the exercise by Loral of its rights with respect to the ownership and voting of Equity Securities or any of the transactions contemplated by this Agreement (any such decree, judgment, injunction or other order is hereafter referred to as an "Order"), including, without limitation, by pursuing all reasonable avenues of administrative and judicial appeal, provided that nothing contained in this Section 1.2(a) shall be construed to require any party hereto to hold separate or divest any of their respective assets or businesses or agree to any substantive restriction thereon or on the conduct thereof. Each of the Company and Loral shall promptly inform the other party of any material communication received by such party from any Antitrust Authority regarding any of the Filing Matters or any of the other transactions contemplated hereby. For the purposes of this Agreement, the term "HSR Clearance Date" shall mean the first date on which (x) any applicable waiting period under the HSR Act with respect to the Filing Matters shall have expired or been terminated, (y) there shall not be pending any Action commenced by any Antitrust Authority relating to any of the Filing Matters or any of the other transactions contemplated hereby, and (z) there shall not be in effect any Order.
(b) Notwithstanding the provisions of Section 1.2(a) above, in the event that Loral delivers the HSR Notice to the Company, the Company shall be entitled to postpone for a reasonable period of time (but in no event later than 45 days), any filing referred to in Section 1.2(a)(i) above if the Company determines in its reasonable judgment and in good faith that such filing would delay the obtaining of any approval from an Antitrust Authority with respect to any announced or imminent material acquisition or disposition which would require a filing by the Company under the HSR Act. In the event of such postponement, Loral shall have the right to withdraw its HSR Notice and may deliver any such HSR Notice at any time thereafter.
(a) General Voting Provisions. Subject to the provisions of Section 1.3(b) below, prior to the HSR Clearance Date, no Stockholder shall have the right to convert Preferred Stock into common stock or the right to vote any Equity Securities with respect to the election of directors of the Company or on any other matters submitted to a vote of the stockholders of the Company (other than those matters set forth in Section 1.3(b) below). Following the HSR Clearance Date, each Stockholder shall have the right to vote its Equity Securities to the extent permitted by the terms thereof on any matters submitted to a vote of the stockholders of the Company (including, without limitation, those matters set forth in Section 1.3(b) below); provided that following the HSR Clearance Date any Stockholder shall have the right to vote any Equity Securities to the extent permitted by the terms thereof with respect to the election of directors of the Company only (i) as recommended by the Board of Directors or management of the Company or (ii) in the same proportions as the holders of Equity Securities (other than Stockholders) vote their Securities. On each matter with respect to which a Stockholder is entitled to vote pursuant to this Section 1.3, each such Stockholder shall be present, in person or represented by proxy, at all such stockholder meetings of the Company so that all Equity Securities beneficially owned by it shall be counted for the purpose of determining the presence of a quorum at such meetings. For purposes of this Section 1.3, all references to the term "vote" shall include the execution and delivery of any written consent with respect to the taking of any stockholder action in lieu of a meeting of stockholders.
(b) Exceptions to General Voting Provisions. Notwithstanding anything to the contrary contained in this Agreement, each Stockholder shall have the right to vote freely, in any manner in which they determine, with respect to any of the following matters:
(i) any amendment to or modification or repeal of any provision of the Company's Certificate of Incorporation including any of the
any certificate of designation or By-laws (or similar organizational
(ii) any merger, consolidation, corporate reorganization or similar transaction involving the Company;
(iii) any sale, lease, exchange, transfer or other disposition, directly or indirectly, in a single transaction or series of related transactions, of all or substantially all of the assets of the Company or
(iv) any plan or proposal for the liquidation or dissolution of the Company or any assignment by the Company for the benefit of creditors, or any filing by the Company of a petition in bankruptcy; or
(v) any restructuring, extension, modification, substitution, refinancing or amendment of any indebtedness of the Company.
(c) Company Call. If, within one year following the date hereof, the Stockholders vote against any Call Event Triggering Transaction (as defined below), the Company shall have the right, for 10 days following the date on which such vote is held, to purchase, and the Stockholders shall be required to sell to the Company, all, but not less than all, of the Equity Securities held by the Stockholders at a per share cash price equal to the Call Event Trigger Price (as defined below). The Company may exercise such right by delivering to each Stockholder, within such 10-day period, a written notice stating that the Company has irrevocably agreed to purchase in cash all (but not less than all) of the Equity Securities held by the Stockholders at the Call Event Trigger Price upon the terms and conditions set forth in this Section 1.3(c). The closing with respect to the purchase of Equity Securities by the Company pursuant to this Section 1.3(c) shall be on a mutually determined closing date which shall not be more than 15 days after the date on which the Company's written notice referred to above is delivered to the Stockholders. The closing shall be held at 10:00 A.M., local time, at the principal office of the Company, or at such other time or place as the parties mutually agree. On such closing
Stockholder shall deliver (i) certificates representing the shares of Equity Securities being sold, free and clear of any lien, claim or encumbrance, and (ii) such instruments of transfer and evidence of ownership and authority as the Company may reasonably request. The purchase price shall be paid by the Company to each Stockholder by wire transfer of immediately available funds no later than 2:00 P.M. on the closing date to the account(s) designated by the Stockholders prior to such closing date. For purposes of this Section 1.3(c), (i) the term "Call Event Triggering Transaction" shall mean any transaction described in Sections 1.3(b)(ii) and 1.3(b)(iii) between the Company, on the one hand, and any Spinco Company (or any other Subsidiary of either the Company or a Spinco Company), on the other; provided that the term "Call Event Triggering Transaction" shall not include any transaction involving any party which is not a Spinco Company (or any other Subsidiary of either the Company or a Spinco Company), (ii) the term "Call Event Trigger Price" shall mean the sum of (x) $344,000,000.00, plus (y) all amounts expended by the Stockholders following the date hereof in connection with the acquisition of Equity Securities other than acquisitions from another Stockholder following the date hereof, minus (z) any net sales proceeds received by the Stockholders following the date hereof in connection with the sale of Equity Securities (other than sales to another Stockholder) following the date hereof.
(a) General Provisions Relating to Loral Option. If, within one year following the date hereof, any Option Event Triggering Transaction (as defined below) occurs, Loral shall have the right, within 90 days after the consummation of the Option Event Triggering Transaction, to purchase, and the Company (for purposes of this Section 1.4, all references to the "Company" shall be deemed to include the Surviving Corporation (as defined below), shall be required to sell to Loral, a number of shares of Preferred Stock which would cause Loral to own Equity Securities with Voting Power equal to the Target Percentage (as defined below) of the Total Voting Power immediately after giving effect to the consummation of the Option Event Triggering Transaction, at a per share cash price equal to the Option Event Trigger Price (as defined below). Loral may exercise such right by deliv- ering to the Company, within such 90-day period, a written notice stating that Loral (or any Subsidiary of Loral designated by Loral; for purposes of this Section 1.4, all references to "Loral" shall be deemed to include such designated Subsidiary) has irrevocably agreed to purchase in cash the number of shares of Preferred Stock specified in the preceding sentence, at the Option Event Trigger Price, upon the terms and conditions set forth in this Section 1.4. The closing with respect to the purchase of Preferred Stock by the Company pursuant to this Section 1.4 shall be on a mutually determined closing date which shall not be more than 15 days after the date on which Loral's written notice referred to above is delivered to the Company. The closing shall be held at 10:00 A.M., local time, at the principal office of the Company, or at such other time or place as the parties mutually agree. On such closing date, the Company shall issue to Loral certificates representing the shares of Preferred Stock being sold, which shall be validly issued, fully paid and non-assessable and free and clear of any lien, claim or encumbrance. The purchase price shall be paid by Loral to the Company by wire transfer of immediately available funds no later than 2:00 P.M. on the closing date to the account designated in writing by the Company prior to such closing date. For purposes of this Section 1.4, (i) the term "Option Event Triggering Transaction" shall mean any transaction described in clauses (ii), (iii) or (iv) of Section 1.3(b) hereof, involving as parties, among others, the Company or any of its Affiliates (other than GTL and Globalstar), on the one hand, and either GTL or Globalstar or any of their respective Subsidiaries, on the other, (ii) the term "Option Event Trigger Price" shall mean a $6.00 per share cash purchase price, subject to adjustment pursuant to the provisions of Section 1.4(b) hereof, (iii) the term "Surviving Corporation" shall mean any successor to the rights and obligations of the Company as a result of or in connection with any Option Event Triggering Transaction, and (v) the term "Target Percentage" shall mean a percentage amount equal to the percentage of the Total Voting Power represented by the Equity Securities held by the Stockholders immediately prior to the closing of the Option Event Triggering Transaction; provided, however, that if there has occurred within the five days preceding such closing an event that diluted the Voting Power of the Equity Securities held by the Stockholders, the Target shall be determined as of the date five days prior to the closing of such Option Event Triggering Transaction.
(b) Adjustment of Loral Option Event Trigger Price. The Option Event Trigger Price shall be equitably adjusted from time to time after the date hereof to take into account of any of the following events: (i) if the Company shall pay a dividend or make any other distribution with respect to any Equity Securities which is payable in the form of Equity Securities or in the form of any other Asset (other than normal, periodic cash dividends of the Company), (ii) if the Company shall subdivide its outstanding common stock, (iii) if the Company shall combine its outstanding common stock into a smaller number of shares, (iv) if the Company shall issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a merger, consolidation or other business combination involving the Company), or (v) in any other similar transaction affecting the Company or the number or value of the outstanding Equity Securities. The parties acknowledge and agree that each such equitable adjustment shall preserve for Loral the economic benefits of the Loral option set forth in Section 1.4(a) above.
Section 1.5. Globalstar Warrant Put Option. In the event of any of the following transactions (each such transaction, a "Warrant Trigger Event"):
(i) any merger, consolidation, corporate reorganization or similar transaction involving Globalstar or GTL;
(ii) any sale, lease, exchange, transfer or other disposition, directly or indirectly, of all or substantially all of the assets of
(iii) any liquidation or dissolution of Globalstar or GTL;
in which it is proposed that the Globalstar Warrants be converted into cash or the right to receive cash, or any other interest (or the right to receive any other interest) in Globalstar other than common stock thereof the Stockholders shall have the right (the "Limited Warrant Put") to require the Company to
Warrants for a price equal to their Option Privilege Value (as defined below). The Stockholders may exercise the Limited Warrant Put by delivering to the Company, at least 10 days prior to the scheduled closing of the Warrant Trigger Event, a notice to such effect accompanied by appropriate documentation or certificates evidencing the Globalstar Warrants. The Option Privilege Price shall be payable by the Company 10 days after the determination thereof. As used herein, the term "Option Privilege Price" means the greater of (x) the consideration payable in respect of the Globalstar Warrants in the Warrant Trigger Event and (y) the hypothetical fair market value that would be assigned to the Globalstar Warrants at the date of the Warrant Trigger Event assuming (1) that no Warrant Trigger Event were to occur then or at any time prior to the expiration of the Globalstar Warrants, (2) that the Globalstar Warrants would remain outstanding until such expiration in accordance with their terms, exercisable for shares of or interests in the issuer thereof, and (3) that such issuer would remain a public company during such period. The Option Privilege Price shall be determined by an investment banking firm of national standing selected by agreement of the Company and the Stockholders or, failing such agreement, by agreement of Bear Stearns Co. Inc. and Lehman Brothers. Such investment banking firm shall, in determining the Option Privilege Price, give full effect to (i) the spread between the exercise price and the fair market value of the securities into which the Globalstar Warrants are exercisable and (ii) the value of the "option privilege" in the Globalstar Warrants (that is, the value of the right, without risking any capital, to speculate on and benefit from appreciation in the underlying securities).
2.1. Certain Transactions. Notwithstanding anything contained in this Agreement to the contrary, a Stockholder may without restriction:
(i) assign, pledge, mortgage, hypothecate, or otherwise encumber or transfer all or any of its
Equity Securities in connection with any bona fide financing arrangement entered into by such person or otherwise in connection with any indebtedness owed by such Stockholder; provided that in the event that the Stockholder in question defaults, the creditor's rights and obligations with respect to the voting and transfer of such Equity Securities and the registration thereof shall be the same as the Stockholder in question had under the provisions of this Agreement and the creditor in question shall be deemed to be a Stockholder under this
(ii) transfer any Equity Securities to another Stockholder or any subsidiary or other Affiliate thereof (provided that such subsidiary or Affiliate agrees to be bound to the provisions of this Agreement, upon which such subsidiary or Affiliate shall be entitled to all rights and benefits, and shall be subject to all obligations, of a Stockholder under this Agreement);
(iii) transfer any Equity Securities pursuant to any registered public offering in connection with the provisions of Article III hereof or pursuant to the provisions of Rule 144 (or any similar provision then in force) under the Securities Act provided that such transfer under Rule 144 or any similar provision meets the volume restrictions set forth in Rule 144 as in effect on the date hereof; or
(iv) transfer any Equity Securities pursuant to any merger, consolidation, corporate reorganization, restructuring or any other similar transaction affecting the Company or pursuant to any involuntary transfer.
Section 2.2. Rights Pursuant to a Tender Offer. Each Stockholder (any such Stockholder shall, for purposes of this Section 2.2, be referred to as a "Tendering Stockholder") shall have the right to sell or exchange all its Equity Securities pursuant to a tender or exchange offer for the Equity Securities (an "Offer"). However, during the Term, prior to such sale or exchange, the Tendering Stockholder shall give the Company the opportunity to purchase such Equity Securities in the following manner:
(i) The Tendering Stockholder shall give notice (the "Tender Notice") to the Company in writing of its intention to sell or exchange Equity Securities in response to an Offer no later than three calendar days prior to the latest time (including any extensions) by which Equity Securities must be tendered in order to be accepted pursuant to such Offer, specifying the amount of Equity Securities proposed to be tendered by the Tendering Stockholder (the "Tendered Shares") and the purchase price per share specified in the Offer at the time of the Tender Notice.
(ii) If the Tender Notice is given, the Company shall have the right to purchase all, but not less than all, of the Tendered Shares exercisable by giving written notice (an "Exercise Notice") to the Tendering Stockholder at least two calendar days prior to the latest time after delivery of the Tender Notice by which Equity Securities must be tendered in order to be accepted pursuant to the Offer (including any extensions thereof) and depositing in any escrow or similar arrangement reasonably acceptable to the Tendering Stockholder, a sum in cash sufficient to purchase all Tendered Shares at the price then being offered in the Offer, without regard to any provision thereof with respect to proration or conditions to the offeror's obligation to purchase. The delivery by the Company of an Exercise Notice and deposit of funds as provided above will, except as provided below, constitute an irrevocable agreement by the Company to purchase, and the Tendering Stockholder to sell, the Tendered Shares in accordance with the terms of this Section 2.2, whether or not the Offer or any other tender or exchange offer (a "Competing Tender Offer") for Equity Securities that was outstanding during the Offer is consummated.
(iii) The purchase price to be paid by the Company for any Equity Securities purchased by it pursuant to this Section 2.2 shall be the highest price offered or paid in the Offer or in any Competing Tender Offer. For purposes hereof, the price offered or paid in a tender or exchange offer for Voting Shares shall be deemed to be the price offered or paid pursuant thereto, without regard to
any provisions thereof with respect to proration or conditions to the offeror's obligation to purchase. If the purchase price per share specified in the Offer includes any property other than cash (the "Offer Noncash Property"), the purchase price per share at which the Company shall be entitled to purchase all, but not less than all, of the Equity Securities specified in the Tender Notice shall be (y) the amount of cash per share, if any, specified in such Offer (the "Cash Portion"), plus (z) an amount of cash per share equal to the value of the Offer Noncash Property per share (the "Cash Value of Offer Noncash Property"), as determined in good faith by the mutual agreement of the parties hereto, or if the parties cannot agree, by an independent, nationally recognized investment banking firm selected by the Tendering Stockholders and reasonably acceptable to the Company. If the Company exercises its right of first refusal by giving an Exercise Notice, the closing of the purchase of the Equity Securities with respect to such right (the "Closing") shall take place at 3:00 p.m., local time (or, if earlier, two hours before the latest time by which Equity Securities must be tendered in order to be accepted pursuant to the Offer), on the last day on which Equity Securities must be tendered in order to be accepted pursuant to the Offer (including any extensions thereof) (the "Last Tender Date"), and the Company shall pay the purchase price for the Equity Securities specified above. The Tendering Stockholder shall be entitled to rescind its Tender Notice at any time prior to the Last Tender Date by notice in writing to the Company; provided that if on or before the Last Tender Date, the Company publicly announces that the Company has approved, proposed or entered into an agreement with respect to (either individually or together with any other persons) a recapitalization, reorganization or business combination with respect to the Company or all or substantially all of its assets, or a self-tender offer, the Tendering Stockholder shall be entitled to rescind its Tender Notice by notice in writing to the Company at any time prior to the Closing on the Last Tender Date. If the Tendering Stockholder rescinds its Tender Notice pursuant to the immediately preceding sentence, the Company's Exercise Notice with respect to such Offer shall be
deemed to be immediately rescinded and the Tendering Stockholder's disposition of its Equity Securities in response to the Offer with respect to which the Tender Notice is rescinded or any other Offer shall again be subject to all of the provisions of this Section 2.2.
(iv) If the Company does not exercise its right of first refusal set forth in this Section 2.2 within the time specified for such exercise by giving an Exercise Notice, then the Tendering Stockholder shall be free to accept, for all its Equity Securities, the Offer with respect to which the Tender Notice was given or any Competing Tender Offer (including any increases and extensions thereof).
Section 3.1. Registration Upon Request.
(a) At any time commencing on the date hereof and continuing thereafter, each Stockholder (any such Stockholder, whether registering securities pursuant to this Section 3.1 or Section 3.2, shall be referred to as a "Registering Stockholder") shall have the right to make written demand upon the Company, on not more than five separate occasions (subject to the provisions of this Section 3.1), to register under the Securities Act, any common stock or other securities of the Company held by it (the securities subject to such demand hereunder or subject to the provisions of Section 3.2 being referred to in each case as the "Subject Securities"), and the Company shall use its best efforts to cause such securities to be registered under the Securities Act as soon as reasonably practicable so as to permit the sale thereof promptly; provided that each such demand shall cover at least ________ shares of Common Stock (subject to adjustment for stock splits, reverse stock splits, stock dividends and similar events after the date hereof). In connection therewith, the Company shall prepare, and as soon as reasonably practicable but in no event later than 90 days of the receipt of the request, file, on Form S-3 if permitted or otherwise on the appropriate form, a registration statement under the Securities Act to effect such registration. Such registration shall be effected in accordance with the intended method or methods of disposition specified by the Registering Stockholders (including, but not limited to, an offering on a delayed or continuous basis pursuant to Rule 415 (or any successor rule to similar effect) promulgated under the Securities Act). Each Registering Stockholder agrees to provide all such information and materials and to take all such action as may be reasonably required in order to permit the Company to comply with all applicable requirements of the Securities Act and the SEC and to obtain any desired acceleration of the effective date of such registration statement. If the offering to be registered is to be underwritten, the managing underwriter shall be selected by the Registering Stockholders and shall be reasonably satisfactory to the Company. Notwithstanding the foregoing, the Company (i) shall not be obligated to prepare or file more than one registration statement other than for purposes of a stock option or other employee benefit or similar plan during any twelve-month period, (ii) shall be entitled to postpone for a reasonable period of time (but in no event later than 60 days), the filing of any registration statement otherwise required to be prepared and filed by the Company if (A) the Company is, at such time, conducting or about to conduct an underwritten public offering of securities and is advised by its managing underwriter or underwriters in writing (with a copy to the Registering Stockholders), that such offering would, in its or their opinion, be materially adversely affected by the registration so requested, or (B) the Company determines in its reasonable judgment and in good faith that the registration and distribution of the Subject Securities would interfere with any announced or imminent material financing, acquisition, disposition, corporate reorganization or other material transaction of a similar type involving the Company. In the event of such postponement, the Registering Stockholders shall have the right to withdraw the request for registration by giving written notice to the Company within 20 days after receipt of the notice of postponement (and, in the event of such withdrawal, such request shall not be counted for purposes of determining the number of registrations to which the Registering Stockholders are entitled pursuant to this Section 3.1).
(b) The Company shall not grant to any other holder of its securities, whether currently outstanding or issued in the future, any incidental or piggyback registration rights with respect to any registration statement filed pursuant to a demand registration under this Section 3.1 and without the prior consent of the Registering Stockholders, the Company will not itself, and will not permit any other holder of its securities to, participate in any offering made pursuant to a demand registration under this Section 3.1. The Company may grant to other holders of its securities incidental or piggyback registration rights on a primary offering by the Company which are no more favorable to such holders than the provisions set forth in Section 3.2 are to the Stockholders. If the Registering Stockholders consents to the inclusion of offers and sales of any other securities in a registration pursuant to this Section 3.1 and the underwriter(s) retained in connection with such registration subsequently advise the Registering Stockholders that such offering would be adversely affected by the inclusion of such other securities, the Registering Stockholders may in their sole discretion exclude all or some of such securities from such registration.
(c) Any registration requested by any Registering Stockholder pursuant to this Section 3.1 shall not be deemed to have been effected (and, therefore, not requested for purposes of this Section 3.1), (i) unless it has become effective, (ii) if after it has become effective such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason other than a misrepresentation or an omission by the Registering Stockholders and, as a result thereof, the Subject Securities requested to be registered cannot be completely distributed in accordance with the plan of distribution set forth in the related registration statement or (iii) if the closing pursuant to the purchase agreement or underwriting agreement entered into in connection with such registration does not occur. Any registration effected pursuant to Section 3.2 shall not be deemed to have been requested by a Registering Stockholder for purposes of this Section 3.1.
Section 3.2. Incidental Registration Rights. If the Company proposes to register any of its Equity Securities under the Securities Act for its own
(other than (i) pursuant to Section 3.1 hereof, (ii) securities to be issued pursuant to a stock option or other employee benefit or similar plan, and (iii) securities proposed to be issued in exchange for securities or assets of, or in connection with a merger or consolidation with, another corporation), the Company shall, as promptly as practicable, give written notice to the Registering Stockholders of the Company's intention to effect such registration. If, within 15 days after receipt of such notice, a Registering Stockholder submits a written request to the Company specifying the amount of Equity Securities that it proposes to sell or otherwise dispose of in accordance with this Section 3.2, the Company shall use its best efforts to include the securities specified in the Registering Stockholder's request in such registration. If the offering pursuant to such registration statement is to be made by or through underwriters, the managing underwriters shall be chosen by the Company and shall be reasonably satisfactory to the Registering Stockholders and the Company, and the Registering Stockholders and such underwriter shall execute an underwriting agreement in customary form. If the managing underwriter reasonably determines in good faith and advises the Registering Stockholders in writing that the inclusion in the registration statement of all the Equity Securities proposed to be included would interfere with the successful marketing of the securities proposed to be registered, then the Company and the Registering Stockholders shall negotiate in good faith to agree upon an equitable adjustment in the number or amount of securities of each to be included in such underwriting (provided that in the event that the Company and the Registering Stockholders are unable to agree upon an equitable adjustment in the number or amount of securities of each to be included in such underwriting, then the number of securities which the Company and the Registering Stockholders propose to register shall be reduced pro rata (based upon the respective market values of each party's respective share of the total number of securities proposed to be registered). No registration effected under this Section 3.2 shall relieve the Company of its obligation to effect any registration upon request under Section 3.1. If the Registering Stockholders are permitted to participate in a proposed offering pursuant to this Section 3.2, the Company thereafter may determine either not to file a registration statement relating thereto, or to withdraw such registration statement, or otherwise not to consummate such offering, without any liability hereunder. Any underwriters participating in a distribution of the Subject Securities pursuant to Sections 3.1 and 3.2 hereof shall use all reasonable efforts to effect as wide a distribution as is reasonably practicable, and in no event shall any sale of Subject Securities be made knowingly to any person (including its Affiliates and any group in which that person or its Affiliates shall be a member, or the Registering Stockholders or the underwriters know of the existence of such a group or Affiliate) that, immediately prior to giving effect to any such sale, beneficially owned Equity Securities representing five percent (5%) or more of the Total Voting Power. The Registering Stockholders and the Company shall use all reasonable efforts to secure the agreement of the underwriters, in connection with any underwritten offering of its Equity Securities, to comply with the foregoing.
Section 3.3. Registration Mechanics. (a) In connection with any offering of Subject Securities registered pursuant to Section 3.1 or 3.2 herein, the Company shall (i) furnish to the Registering Stockholders such number of copies of any prospectus (including preliminary and summary prospectuses) and conformed copies of the registration statement (including amendments or supplements thereto and, in each case, all exhibits) and such other documents as any Registering Stockholder may reasonably request; (ii)(A) use its best efforts to register or qualify the Subject Securities covered by such registration statement under such blue sky or other state securities laws for offer and sale as the Registering Stockholders shall reasonably request and (B) keep such registration or qualification in effect for so long as the registration statement remains in effect; provided that the Company shall not be obligated to qualify to do business as a foreign corporation under the laws of any jurisdiction in which it shall not then be qualified or to file any general consent to service of process in any jurisdiction in which such a consent has not been previously filed or subject itself to taxation in any jurisdiction wherein it would not otherwise be subject to tax but for the requirements of this Section 3.3; (iii) use its best efforts to cause all Subject Securities covered by such registration statement to be registered with or approved by such other federal or state government agencies or authorities as may be necessary, in the opinion of counsel to the Registering Stockholders, to enable the
Registering Stockholders to consummate the disposition of such Subject Securities; (iv) notify the Registering Stockholders any time when a prospectus relating thereto is required to be delivered under the Securities Act upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made, and (subject to the good faith determination of the Company's Board of Directors as to whether to permit sales under such registration statement), at the request of any Registering Stockholder promptly prepare and furnish to it a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, in light of the circumstances under which they were made; (v) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC; (vi) use its best efforts to list the Subject Securities covered by such registration statement on the New York Stock Exchange or on any other Exchange on which the Subject Securities are then listed, if required by the rules of any such Exchange; (vii) use its best efforts to obtain a "cold comfort" letter from the independent public accountants for the Company in customary form and covering matters of the type customarily covered by such letters as may be reasonably requested by the Registering Stockholders, in the event of a registration effected pursuant to Section 3.1 hereof; (viii) execute and deliver all instruments and documents (including in an underwritten offering an underwriting agreement in customary form) and take such other actions and obtain such certificates and opinions as the Registering Stockholders reasonably request in order to effect an underwritten public offering; and (ix) before filing any registration statement or any amendment or supplement thereto, and as far in advance as is reasonably practicable, furnish to each Registering Stockholder and its counsel copies of such documents. In connection with any offering of Subject Securities registered pursuant to Section 3.1 or 3.2, the Company shall (x) furnish to the underwriter, if any, unlegended certificates representing ownership of the Subject Securities being sold in such denominations as requested and (y) instruct any transfer agent and registrar of the Subject Securities to release any stop transfer orders with respect to such Subject Securities. Upon any registration becoming effective pursuant to Section 3.1, the Company shall use its best efforts to keep such registration statement current for a period of 60 days (or 90 days, if the Company is eligible to use a Form S-3, or successor form) or such shorter period as shall be necessary to effect the distribution of the Subject Securities.
(b) Before filing with the SEC any registration statement referred to herein or any amendments or supplements thereto, the Company shall furnish to the Registering Stockholders or their respective counsel copies of all such documents proposed to be filed, in order to give the Registering Stockholders or their respective counsel sufficient time to review such documents, and such documents may thereafter be filed subject to any timely and reasonable comments of the Registering Stockholders or their respective counsel. The Company shall (i) deliver promptly to the Registering Stockholders or their respective counsel copies of all written communications between the Company and the SEC relating to the registration statement, and (ii) advise the Registering Stockholders or their respective counsel promptly of, and provide the Registering Stockholders or their respective counsel with the opportunity to participate in (to the extent reasonably practicable), all telephonic and other non-written communications between the Company and the SEC relating to such registration statement. The Company shall respond promptly to any comments from the SEC with respect thereto, after consultation with the Registering Stockholders or their respective counsel, and shall take such other actions as shall be reasonably required in order to have each such registration statement declared effective under the Securities Act as soon as reasonably practicable following the date hereof.
(c) Each Registering Stockholder agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in subdivision (iv) of this Section 3.3, it will forthwith discontinue its disposition of Subject Securities pursuant to the registration statement relating to such Subject Securi- ties until its receipt of the copies of the supplemented or amended prospectus contemplated by subdivision (iv) of this Section 3.3 and, if so directed by the Company, will deliver to the Company all copies (other than permanent file copies) then in its possession of the prospectus relating to such Subject Securities current at the time of receipt of such notice. If any Registering Stockholder's disposition of Subject Securities is discontinued pursuant to the foregoing sentence unless the Company thereafter extends the effectiveness of the registration statement to permit dispositions of Subject Securities by the Registering Stockholder for an aggregate of 60 days (or 90 days, if the Company is eligible to use a Form S-3, or successor form), whether or not consecutive, the registration statement shall not be counted for purposes of determining the number of registrations to which the Registering Stockholders are entitled pursuant to Section 3.1.
Section 3.4. Expenses. The Registering Stockholders shall pay all agent fees and commissions and underwriting discounts and commissions related to Subject Securities being sold by the Registering Stockholders and the fees and disbursements of its counsel and accountants and the Company shall pay all fees and disbursements of its counsel and accountants in connection with any registration pursuant to this Article III. All other fees and expenses in connection with any registration statement (including, without limitation, all registration and filing fees, all printing costs, all fees and expenses of complying with securities or blue sky laws) shall (i) in the case of a registration pursuant to Section 3.1, be borne equally by the Registering Stockholders and the Company and (ii) in the case of a registration pursuant to Section 3.2, be shared pro rata based upon the respective market values of the securities to be sold by theCompany, the Registering Stockholders and any other holders participating in such offering; provided that the Registering Stockholders shall not be obligated to pay any expenses relating to work that would otherwise be incurred by the Company including, but to limited to, the preparation and filing of periodic reports with the SEC.
Section 3.5. Indemnification and Contribution. (a) In the case of any offering registered pursuant to this Article III, the Company agrees to indemnify and hold each Registering Stockholder, each underwriter, if any, of the Subject Securities under such registration and each person who controls any of the foregoing within the meaning of Section 15 of the Securities Act, and any officer, employee or partner of the foregoing, harmless against any and all losses, claims, damages, or liabilities (including reasonable legal fees and other reasonable expenses incurred in the investigation and defense thereof) to which they or any of them may become subject under the Securities Act or otherwise (collectively "Losses"), insofar as any such Losses shall arise out of or shall be based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the registration statement relating to the sale of such Subject Securities (as amended if the Company shall have filed with the SEC any amendment thereof), or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) any untrue statement or alleged untrue statement of a material fact contained in the prospectus relating to the sale of such Subject Securities (as amended or supplemented if the Company shall have filed with the SEC any amendment thereof or supplement thereto), or the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that the indemnification contained in this Section 3.5 shall not apply to such Losses which shall arise primarily out of or shall be based primarily upon any such untrue statement or alleged untrue statement, or any such omission or alleged omission, which shall have been made in reliance upon and in conformity with information furnished in writing to the Company by the Registering Stockholders or any such underwriter, as the case may be, specifically for use in connection with the preparation of the registration statement or prospectus contained in the registration statement or any such amendment thereof or supplement therein.
(b) In the case of each offering registered pursuant to this Article III, the Registering Stockholders and each underwriter, if any, participating therein shall agree, substantially in the same manner and to the same extent as set forth in the preceding paragraph, severally to indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, and the directors and executive officers of the Company, with respect to any statement in or omission from such registration statement or prospectus contained in such registration statement (as amended or as supplemented, if amended or supplemented as aforesaid) if such statement or omission shall have been made in reliance upon and in conformity with information furnished in writing to the Company by the Registering Stockholders or such underwriter, as the case may be, specifically for use in connection with the preparation of such registration statement or prospectus contained in such registration statement or any such amendment thereof or supplement thereto.
(c) Each party indemnified under this Section 3.5 shall, promptly after receipt of notice of the commencement of any claim ("Claim") against such indemnified party in respect of which indemnity may be sought hereunder, notify the indemnifying party in writing of the commencement thereof. The failure of any indemnified party to so notify an indemnifying party shall not relieve the indemnifying party from any liability in respect of such Claim which it may have to such indemnified party on account of the indemnity contained in this Section 3.5, unless (and only in the event) the indemnifying party was materially prejudiced by such failure, and in no event shall such failure relieve the indemnifying party from any other liability which it may have to such indemnified party. In case any Claim in respect of which indemnification may be sought hereunder shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it may desire, jointly with any other indemnifying party similarly notified, to assume the defense thereof through counsel reasonably satisfactory to the indemnified party by notifying the indemnified party in writing of such election within 10 days after receipt of the indemnified party's initial notice of the Claim, and after such notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 3.5 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation (unless such indemnified party reasonably objects to such assumption on the grounds that there may be defenses available to it which are different from or in addition to those available to such indemnifying party in which event the indemnified party shall be reimbursed by the indemnifying party for the reasonable expenses incurred in connection with retaining separate legal counsel). If the indemnifying party undertakes to defend against such Claim within such 10-day period, the indemnifying party shall control the investigation, defense and settlement thereof; provided that (i) the indemnifying party shall use its reasonable efforts to defend and protect the interests of the indemnified party with respect to such Claim, (ii) the indemnified party, prior to or during the period in which the indemnifying party assumes control of such matter, may take such reasonable actions as the indemnified party deems necessary to preserve any and all rights with respect to such matter, without such actions being construed as a waiver of the indemnified party's rights to defense and indemnification pursuant to this Agreement, and (iii) the indemnifying party shall not, without the prior written consent of the indemnified party, consent to any settlement which (A) imposes any Liabilities on the indemnified party (other than those Liabilities which the indemnifying party agrees to promptly pay or discharge), and (B) with respect to any non- monetary provision of such settlement, would be likely, in the indemnified party's reasonable judgment, to have an adverse effect on the business operations, assets, properties or prospects of any Stockholder (in the event that a Registering Stockholder or any of its Affiliates is the indemnified party), or the Company (in the event that the Company is an indemnified party), or such indemnified party. If the indemnifying party does not undertake within such 10-day period to defend against such Claim, then the indemnifying party shall have the right to participate in any such defense at its sole cost and expense, but the indemnified party shall control the investigation, defense and settlement thereof (provided that the indemnified party may not settle any such Claim without obtaining the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld by the indemnifying party; provided that in the event that the indemnifying party is in material breach at such time of the provisions of this Section 3.5, then the indemnified party shall not be obligated to obtain such prior written consent of the indemnifying party) at the reasonable cost and expense of the indemnifying party
(which shall be paid by the indemnifying party promptly upon presentation by the indemnified party of invoices or other documentation evidencing the amounts to be indemnified). In addition to the foregoing, no indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which the indemnified party could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability arising out of such claim or proceeding.
(d) If the indemnification provided for in this Section 3.5 is unavailable to an indemnified party or is insufficient to hold such indemnified party harmless from any Losses in respect of which this Section 3.5 would otherwise apply by its terms (other than by reason of exceptions provided herein), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall have a joint and several obligation to contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative benefits received by and fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the offering to which such contribution relates as well as any other relevant equitable considerations. The relative benefit shall be determined by reference to, among other things, the amount of proceeds received by each party from the offering to which such contribution relates. The relative fault shall be determined by reference to, among other things, each party's relative knowledge and access to information concerning the matter with respect to which the claim was asserted, and the opportunity to correct and prevent any statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any investigation or proceeding, to the extent such party would have been indemnified for such expenses if the indemnification provided for in this Section 3.5 was available to such party.
(e) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 3.5 were determined by pro rata any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. 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.
Section 3.6. Rule 144. The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Stockholder, make publicly available other information), and it will take such further action as any Stockholder may reasonably request, all to the extent required from time to time to enable such Stockholder to sell Subject Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Stockholder, the Company will deliver to such Stockholder a written statement as to whether it has complied with such requirements.
SECTION 3.7. Holdback Agreement. The Company agrees that it and its Affiliates will not effect any sale, offer for sale, or grant any option to purchase any shares of common stock (or securities convertible into or exchangeable or exercisable for common stock) (collectively, "Sales") during the 10-day period prior to, and the 90-day period (or such longer period, not to exceed 120 days, as the managing underwriter(s) therefor determines) beginning on the effective date of a registration statement filed pursuant to Section 3.1 without the consent of such managing underwriter(s). The Stockholders agree not to effect any Sales during the 10-day period prior to, and the 90-day period (or such longer period, not to exceed 120 days, as the managing underwriter(s) therefor determines) beginning on the effective date of a registration statement relating to a primary offering (other than one described in clauses (i), (ii) or (iii) of the first sentence of Section 3.2 hereof) without the consent of such managing underwriter(s); provided that this sentence shall be of no force and effect if the Company effects a Sale or files any registration statement for the benefit of any other party during such 120-day period.
SECTION 4.1. Representations and Warranties of the Company. The Company hereby represents and warrants to each of the Stockholders as follows:
(a) The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated by this Agreement are within its corporate powers and have been duly authorized by all necessary corporate action on its part. This Agreement constitutes a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, (i) except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally, including the effect of statutory and other laws regarding fraudulent conveyances and preferential transfers, and (ii) subject to the limitations imposed by general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity).
(b) The execution, delivery and performance of this Agreement by the Company does not and will not contravene or conflict with or constitute a default under the Company's Certificate of Incorporation or By-laws or any of its material Contracts.
(c) Immediately after giving effect to both the Restructuring and the Distribution (including, without limitation, after giving effect to the distribution of shares of Spinco Common Stock to the holders of common stock of Loral and the holders of options with respect to common stock of Loral, who or which may be entitled to receive shares of Spinco Common Stock pursuant to or in connection with the Distribution Agreement, the
otherwise), (i) the Company's authorized capital stock shall consist of ________ shares of Spinco Common Stock and ________ shares of Preferred Stock, of which ________ shares of Spinco Common Stock and ________ shares of Preferred Stock shall be issued and outstanding, (ii) Loral will be the record and beneficial owner of _______ shares of Preferred Stock, all of which will be validly issued and fully paid and nonassessable and all of which will be free of all Liens, (iii) except for the shares of Spinco Common Stock and the shares of Preferred Stock specified in clause (i) above, there will be no other Equity Securities, and (iv) the Wing Stockholders will hold, in the aggregate, at least twenty percent (20%) of the Total Voting Power.
Section 5.1. Term. The term (the "Term") of this Agreement shall commence on the date hereof and shall continue until the earlier of (x) the date on which the Voting Power of the Equity Securities, on a fully diluted basis, beneficially owned by Loral and its Affiliates shall represent less than five percent (5%) of the Total Voting Power, (y) the seventh anniversary of the date hereof, or (z) a Change of Control (as defined in Section 1.1(c) above). Upon expiration of the Term, the provisions of this Agreement shall terminate, and be of no further force or effect, automatically without any further action on the part of any parties hereto; provided that the provisions of Articles III and VI shall continue without regard to the term limitation set forth in this sentence; provided further that no such termination shall relieve any party of any liability to the other parties hereto, to the extent such liability is incurred prior to the expiration of the Term.
Section 6.1. Certain Restrictions. The Company shall not take or recommend to its stockholders any action, including any amendment of its Certificate of Incorporation, By-laws or stockholder rights plan, if any, which would impose restrictions applicable to Loral and not to other securityholders generally based upon the size of Loral' security holdings, the business in which it is engaged or other considerations applicable to it and not to securityholders generally. In addition, the Company shall not take or recommend to its stockholders any action, including any amendment of its Certificate of Incorporation, By-laws or stockholder rights plan, if any, which would likely adversely affect in any material respect, either directly or indirectly, any of the rights or obligations of the Stockholders under the provisions of this Agreement.
The Stockholders agree that the Company may adopt a stockholders rights plan similar to the stockholders rights plan adopted by Loral except that Loral (and its Affiliates and associates) shall not be deemed to be an "Acquiring Person" unless Loral and its Affiliates become the beneficial owner of 25% or more of the outstanding shares of common stock of the Company.
Section 6.2. Entire Agreement. This Agreement and the Restructuring Agreement (including the schedules and exhibits and the agreements and other documents referred to therein, including, without limitation, the Tax Sharing Agreement and the Transition Services Agreements) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior negotiations, commitments, agreements and understandings, both written and oral, between the parties or any of them with respect to the subject matter hereof.
Section 6.3. Fees and Expenses. Except as otherwise provided in this Agreement, all costs and expenses incurred by the Stockholders and the Company in connection with consummating such party's obligations hereunder or otherwise shall be paid by the party incurring such cost or expense.
Section 6.4. Access to Information. During the Term, the Company shall provide to each Stockholder reasonable access to the books and records of the Company and its subsidiaries during the regular business hours of the Company and such subsidiaries, following the Company's receipt of a written notice from such Stockholder requesting such access; provided that the Company shall not be required to provide any confidential information if the Company reasonably determines that the providing of such information would result in (x) a violation of applicable antitrust laws or (y) create a substantial likelihood of a significant adverse effect on the Company; provided, further, that the Stockholder shall keep confidential any confidential information disclosed to it except as required by law, service of process, interrogatories, or similar legal process, and except for any such information which becomes publicly available through no fault of the Stockholder.
Section 6.5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF (EXCEPT IN THOSE CIRCUMSTANCES WHERE THE CORPORATE LAW OF THE COMPANY'S JURISDICTION OF ORGANIZATION REQUIRES THE APPLICATION OF THE LAW OF THE COMPANY'S JURISDICTION OF ORGANIZATION WITH RESPECT TO A PARTICULAR MATTER).
Section 6.6. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or when delivered by hand or (c) the expiration of five Business Days after the day when mailed by certified or registered mail, postage prepaid, addressed at the following addresses (or at such other address for a party as shall be specified by like notice):
(a) If to any of the Stockholders, to:
New York, New York 10022 Attention: Peter Allan Atkins, Esq. Lou R. Kling, Esq.
New York, New York 10022 Attention: C. Douglas Kranwinkle, Esq. Jeffrey J. Rosen, Esq.
(b) If to the Company, to:
Loral Space & Communications Corporation
New York, New York 10022 Attention: Robert B. Hodes, Esq. Bruce R. Kraus, Esq.
In addition to providing any notice required to be given by the Company pursuant to its Certificate of Incorporation in the manner specified therein, the Company shall send to each Stockholder by telecopy in accordance with this Section 6.6 a copy of each such notice.
Section 6.7. Successors and Assigns; Reclassifications; No Third Party Beneficiaries. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto (whether by operation of law or otherwise) without the prior written consent of the other parties hereto (which consent may not be unreasonably withheld), except that any party shall have the right, without the consent of any other party hereto, to assign all or a portion of its rights, interests and obligations hereunder to one or more direct or indirect subsidiaries, but no such assignment of obligation shall relieve the assigning party from its responsibility therefor. In the event of any recapitalization or reclassification of any Equity Securities, or any merger, consolidation or other transaction with like effect, the securities issued in replacement or exchange for such Equity Securities shall be deemed Equity Securities hereunder. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement; provided that the indemnified parties referred to in Section 3.5 hereof are intended to be third party beneficiaries of the provisions of Section 3.5 hereof, and shall have the right to enforce such provisions as if they were parties hereto.
Section 6.8. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Section 6.9. Further Assurances. Each party hereto or person subject hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party hereto or person subject hereto may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
Section 6.10. Interpretation. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. Unless otherwise specified in this Agreement, all references in this Agreement to "days" shall be deemed to be references to calendar days.
Section 6.11. Legal Enforceability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without affecting the validity or enforceability of the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.
Section 6.12. Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally (a) agrees that all suits, actions or other legal proceedings arising out of this Agreement or any of the transactions contemplated hereby (a "Suit") shall be brought and adjudicated solely in the United States District Court for the District of Delaware, or, if such court will not accept jurisdiction, in the Delaware Chancery Court or any court of competent civil jurisdiction sitting in New Castle County, Delaware, (b) submits to the non-exclusive jurisdiction of any such court for the purpose of any such Suit and (c) waives and agrees not to assert by way of motion, as a defense or otherwise in any such Suit, any claims that it is not subject to the jurisdiction of the above courts, that such Suit is brought in an inconvenient forum or that the venue of such Suit is improper. Each of the parties hereto also irrevocably and unconditionally consents to the service of any process, summons, pleadings, notices or other papers in a manner permitted by the notice provisions of Section 6.6 hereof and agrees that any such form of service shall be effective in connection with any such Suit; provided that nothing contained in this Section 6.12 shall affect the right of any party to serve process, pleadings, notices or other papers in any other manner permitted by applicable Law.
Section 6.13. Specific Performance. Each of the parties hereto acknowledges and agrees that in the event of any breach of this Agreement, each non-breaching party would be irreparably and immediately harmed and could not be made whole by monetary damages. It is accordingly agreed that the parties hereto (a) will waive, in any action for specific performance, the defense of adequacy of a remedy at law and (b) shall be entitled, in addition to any other remedy to which they may be entitled at law or in equity, to compel specific performance of this Agreement in any action instituted in any court referred to in Section 6.12 hereof.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the day and year first above written.
GLOBALSTAR WARRANT - SUMMARY TERM SHEET - PRINCIPAL TERMS
Reference is hereby made to (x) the Restructuring, Financing and Distribution Agreement dated as of January 8, 1996 (the "Restructuring Agreement") among Lockheed Martin Corporation, Loral Corporation, Spinco and the other parties thereto, and (y) the Globalstar Warrant Memorandum (as defined in the Restructuring Agreement). All capitalized terms which are not otherwise defined herein shall have the meanings ascribed to such terms in the Restructuring Agreement.
Issuer: Globalstar Telecommunications Limited or, if not available, Globalstar L.P. (the "Company").
No. of Shares: As set forth in the Globalstar Warrant Memorandum, subject to adjustment based on the antidilution provisions described below. (If issuer is Globalstar L.P., the term "shares" will refer to L.P. interests.)
Warrant Exercise Price: As set forth in the Globalstar Warrant Memorandum, subject to adjustment based on the antidilution provisions described below.
Acceleration of Vesting: In the event the Company merges with or into another company (unless the warrants continue to represent the rights to purchase equity in the surviving company on the same terms, except for equitable adjustment of price and number of shares purchasable), sells all or substantially all of its assets, liquidates, etc., the Company must give notice to the holder prior to the consummation of the transaction and must give the holder the option of exercising the warrant prior to consummation of such transaction.
. Stock Splits, Recaps, etc. - will result in increased number of Warrant Shares (unless reverse split, etc.)
. Rights, Options, Warrants, Convertible Securities - will result in increased number of Warrant Shares pursuant to a prescribed formula, but only to the extent that such shares, rights, options, warrants or convertible securities are issued or distributed generally to all holders of the Common Stock.
. Issuance of Common Stock at Lower Values - if shares are issued below the then current fair market value of such shares, adjustment will be made on a proportionate basis pursuant to a prescribed formula, but only to the extent that such shares,
convertible securities are issued or distributed generally to all holders of the Common Stock.
. Extraordinary Distributions/Stock Dividends -extraordinary cash dividends (over 10% of current market value on record date), distributions of properties, assets, etc. in partial liquidation and stock dividends will result in adjustment.
. Distributions of Debt - Warrant Shares subject to adjustment in accordance with a prescribed formula.
. Distributions includes repurchases and redemptions.
Registration Rights on Warrant Shares: Customary
SERIES A NON-VOTING CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151(g) of the General Corporation Law of the State of Delaware
The undersigned, Senior Vice President of Loral Telecommunications Acquisition, Inc., a Delaware corporation (the "Corporation"), in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, hereby certifies that pursuant to authority vested in the Board of Directors of the Corporation by the provisions of its Certificate of Incorporation, the Board of Directors has duly adopted the following resolution creating a series of Preferred Stock of the Corporation designated as the Series A Non-Voting Convertible Preferred Stock:
WHEREAS, the Certificate of Incorporation of the Corporation authorizes __________ shares of capital stock, of which 1,000 shares are authorized as Common Stock, $.01 par value per share ("Common Stock"), and __________ shares are authorized as Preferred Stock, $.01 par value per share ("Preferred Stock");
WHEREAS, the Certificate of Incorporation of the Corporation authorizes the Board of Directors to provide for the issuance of shares of Preferred Stock in series and to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations and
NOW, THEREFORE, BE IT RESOLVED, that, pursuant to the Certificate of Incorporation, the Board of Directors hereby fixes the designation and preferences and relative rights, qualifications, limitations and restrictions of a series of Preferred Stock.
RESOLVED, that each share of Preferred Stock described herein shall rank equally in all respects and shall be subject to the following provisions:
(1) Number and Designation. ______ shares of Preferred Stock of the Corporation shall be designated as Series
A Non-Voting Convertible Preferred Stock (the "Series A Preferred Stock").
(2) Dividends and Distributions. (a) Subject to paragraphs (2)(b) and (4) below, the Corporation shall pay, and the holders of shares of Series A Preferred Stock shall be entitled to receive, and to share equally and ratably, share for share with the Common Stock, in such dividends and distributions on the Common Stock or the Series A Preferred Stock as may be declared from time to time by the Board of Directors, whether payable in cash, property or securities of the Corporation. The record date for determining the holders of Series A Preferred Stock entitled to receive dividends and distributions shall be the same as the record date for determining the holders of Common Stock entitled to receive dividends and distributions. Dividends and distributions shall be paid to the holders of Series A Preferred Stock entitled to receive such dividends and distributions at the close of business on the date on which such dividends and distributions are paid or made by the Corporation in respect of the Common Stock.
(b) In the event that the Corporation declares and pays a dividend or makes any distribution on its Common Stock in the form of (x) shares of additional Common Stock, (y) options, warrants or rights to acquire Common Stock or (z) other securities of the Corporation convertible into or exchangeable for Common Stock, the holders of the Series A Preferred Stock shall receive in lieu of such securities: (1) an equal number of shares of additional Series A Preferred Stock, in the case of clause (x) above; (2) options, warrants or rights to acquire an equal number of additional shares of Series A Preferred Stock on terms otherwise identical to such options, warrants or rights distributed to the holders of Common Stock, in the case of clause (y) above; and (3) securities convertible into or exchangeable for an equal number of shares of Series A Preferred Stock on terms otherwise identical to the convertible or exchangeable securities distributed to the holders of Common Stock, in the case of clause (z) above.
(c) All dividends or distributions paid with respect to shares of the Series A Preferred Stock shall be paid pro rata to the holders entitled thereto.
(d) Each fractional share of Series A Preferred Stock outstanding shall be entitled to a ratable proportionate amount of all dividends and other distributions accruing, paid or made with respect to each outstanding share of Series A Preferred Stock and all such dividends and other distributions with respect to such outstanding fractional shares shall be payable in the same manner and at such times as provided for in paragraphs (2)(a), (2)(b) and (4) hereof with respect to dividends and other distributions on each outstanding share of Series A Preferred Stock.
(3) Voting Rights. (a) Except as otherwise set forth herein and as otherwise provided by law, the holders of the Series A Preferred Stock shall not be entitled to vote on any matter relating to the business or affairs of the Corporation and shall not be included in determining the number of Shares voting or entitled to vote on any such matters.
(b) Notwithstanding the foregoing, each issued and outstanding share of Series A Preferred Stock shall be entitled to one vote for each share of Common Stock into which such share of Series A Preferred Stock is convertible, and shall be included as aforesaid in the number of shares voting and entitled to vote with respect to the following matters presented to the stockholders of the Corporation for their action or consideration:
i) any amendment to or modification or repeal of any provision of the Corporation's Certificate of Incorporation or By-laws (or similar organizational
ii) any merger, consolidation, corporate reorganization or similar
iii) any sale, lease, exchange, transfer or other disposition, directly or indirectly, in a single transaction or series of related transactions, of all or substantially all of the assets of the Corporation or
iv) any plan or proposal for the liquidation or dissolution of the Corporation or any assignment by the Corporation for the benefit of creditors, or any filing by the Corporation of a petition in bankruptcy; or
v) any restructuring, extension, modification, substitution, refinancing or amendment of any indebtedness of the Corporation.
Except as otherwise provided herein or by law, the holders of the Series A Preferred Stock shall vote together with the holders of the Common Stock as a single class.
(c) In addition to the voting rights set forth above, the consent of the holders of at least a majority of the shares of the Series A Preferred Stock at the time outstanding, voting together as a single class, shall be necessary for any amendment to the Certificate of Incorporation or By-laws of the Corporation, if such amendment would adversely affect the rights, powers, privileges or preferences of the Series A Preferred Stock.
(4) Rights on Liquidation. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the shares of the Series A Preferred Stock then outstanding shall to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership thereof, an amount equal to $.01 per share for each outstanding share of Series A Preferred Stock. If upon the occurrence of such event the assets thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full preferential amount, the entire assets of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock. After the payment or distribution to the holders of the Series A Preferred Stock of such preferential amount, the holders of the Series A Preferred Stock and the Common Stock then outstanding shall be entitled to receive ratably (based, in the case of the Series A Preferred Stock, on the number of shares of Common Stock into which such Series A Preferred Stock was last convertible) all remaining assets of the Corporation to be distributed.
(5) Conversion. (a) Each share of Series A Preferred Stock may be converted, at the option of the holder thereof, at any time (i) after the HSR Clearance Date or (ii) upon the transfer (in accordance with the provisions of the Stockholders Agreement) of such share of Series A Preferred Stock to a Person other than a Stockholder or any Affiliate thereof, in the manner hereinafter provided, into one (subject to any adjustment required below) fully paid and nonassessable share of Common Stock; provided, however, that on any liquidation of the Corporation, the right of conversion shall terminate at the close of business on the business day immediately preceding the date fixed for the payment of any amounts distributable on liquidation to the holders of the Series A Preferred Stock.
(b) Each conversion of shares of Series A Preferred Stock into shares of Common Stock shall be effected by the prior written notice thereof by the holder of the Series A Preferred Stock and the surrender of the certificates representing the shares to be converted at the principal office of the Corporation (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of the Series A Preferred Stock as shown on the books of the Corporation) at any time during normal business hours. Such notice shall state the name or names (with addresses) and denominations in which the certificate or certificates for such shares of Common Stock are to be issued and shall include instructions for reasonable delivery thereof. Each conversion shall be deemed to have been effected as of the close of business on the date on which such certificates have been surrendered and such notice has been received. At such time, the rights of the holder of the surrendered Series A Preferred Stock as such holder shall cease, and the Person in whose name the certificates for shares of Common Stock will be issued upon such conversion shall be deemed to have become the holder of record of the Common Stock represented thereby.
(c) Promptly after the surrender of the certificates and the receipt of written notice, the Corporation shall issue and deliver in accordance with the surrendering holder's instructions (i) the certificates for the shares of Common Stock issuable upon such conversion and (ii) certificates representing any surrendered shares of Series A Preferred Stock which were delivered to the Corporation in connection with such conversion but which were not requested to be converted and, therefore, were not converted.
(d) The issuance of certificates for Common Stock upon conversion of Series A Preferred Stock shall be made without charge to the holders of such shares for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Common Stock; provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Series A Preferred Stock being converted.
(e) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the conversion of the Series A Preferred Stock, such number of shares of Common Stock issuable upon conversion of all outstanding Series A Preferred Stock. All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirement of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately transmitted by the Corporation upon issuance).
(f) The Corporation shall not close its books against the transfer of shares of Series A Preferred Stock in any manner which would interfere with the timely conversion of any shares of Series A Preferred Stock. The Corporation shall assist and cooperate with any holder of Series A Preferred Stock required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Series A Preferred Stock hereunder (including, without limitation, making any filings required to be made by the Corporation).
(6) Stock Splits; Adjustments. (a) If the Corporation shall in any manner subdivide (by stock split, stock dividend or otherwise) or combine (by reverse stock split or otherwise) the outstanding shares of Common Stock, the outstanding shares of the Series A Preferred Stock shall be proportionately subdivided or combined, as the case may be, and effective provision shall be made for the protection of all conversion and voting rights of the Series A Preferred Stock hereunder.
(b) If the Corporation shall issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a merger, consolidation or other business combination involving the Corporation), or in any other similar transaction affecting the Corporation or the number or value of Common Stock outstanding, effective provision shall be made for the protection of all conversion and voting rights of the Series A Preferred Stock hereunder.
(7) General Provisions. (a) The term "Affiliate" as used herein shall have the meaning set forth in the Stockholders Agreement.
(b) The term "Antitrust Authority" as used herein shall have the meaning set forth in the Stockholders Agreement.
(c) The terms "HSR Clearance Date" and "HSR Act" as used herein shall have the meanings set forth in the Stockholders Agreement.
(d) The term "Person" as used herein means an individual or a corporation, partnership, association, trust or any other entity or organization.
(e) The term "outstanding," when used herein with reference to shares of stock, shall mean issued shares, excluding shares held by the Corporation.
(f) The term "Stockholders Agreement" as used herein means that certain Stockholders Agreement, dated as of _________, 1996, by and among Loral Corporation, Loral Aerospace Holdings, Inc., Loral Aerospace Corp. and Loral Telecommunications Acquisition, Inc.
(g) The term "Stockholders" as used herein shall have the meaning set forth in the Stockholders Agreement.
(h) The headings of the paragraphs, subparagraphs, clauses and subclauses of this Certificate of Designation are for convenience of reference only and shall not define, limit or affect any of the provisions hereof.
(i) Subject to Section 3 hereof, any right, preference, privilege or power of, or restriction provided for the benefit of, the Series A Preferred Stock set forth herein may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Corporation and the consent of the holders of not less than a majority of the shares of Series A Preferred Stock then outstanding, and any amendment or waiver so effected shall be binding upon the Corporation and all holders of Series A Preferred Stock.
IN WITNESS WHEREOF, the undersigned, Senior Vice President of Loral Telecommunications Acquisition, Inc., has signed this Certificate of Designation this ___ day of ____________, 1996 and affirms under penalties of perjury that it is the act and deed of the Corporation and that the facts stated herein are true.
2. Limitations on and methods for changing size of the board
3. Limitations on shareholder rights to:
A. act by written consent
E. propose actions that would facilitate change of
4. Lock-ins (supermajority provisions for amending charter and by-
5. Shareholder rights plan (Poison pill)
A shareholder rights plan substantially identical to that of the shareholder rights plan adopted by Loral (as submitted to and approval by the Board of Directors of Loral prior to the date hereof) except that Loral and its affiliates and its associates shall not be deemed to be an "Acquiring Person" unless Loral and its affiliates become the beneficial owner of 25% or more of the outstanding shares of common stock (including securities convertible or exercisable into common stock) of the Company, together with such other changes to the shareholder rights plan as the parties may reasonably agree.
EXHIBIT E TO DISTRIBUTION AGREEMENT
1. The Company Pension Plans
2. The Company Savings Plans
3. The Prior Welfare Plans
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8-K
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EX-99.1
| 1996-01-12T00:00:00
| 1996-01-12T15:27:00
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0000950156-96-000032
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0000950156-96-000032_0000.txt
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File Nos. 33-38848 and 811-5812
(Members of the Landmark(SM) Family of Funds)
This Prospectus describes two diversified money market mutual funds in the Landmark Family of Funds: Premium Liquid Reserves and Premium U.S. Treasury Reserves. Each Fund has its own investment objectives and policies. Citibank, N.A. is the investment adviser.
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIOS OF SECURITIES, PREMIUM LIQUID RESERVES AND PREMIUM U.S. TREASURY RESERVES SEEK THEIR INVESTMENT OBJECTIVES BY INVESTING ALL OF THEIR INVESTABLE ASSETS IN CASH RESERVES PORTFOLIO AND U.S. TREASURY RESERVES PORTFOLIO, RESPECTIVELY (EACH CALLED A "PORTFOLIO"). EACH PORTFOLIO HAS THE SAME INVESTMENT OBJECTIVES AND POLICIES AS ITS CORRESPONDING FUND. SEE "SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE" ON PAGE 7. INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. EACH FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; HOWEVER, THERE CAN BE NO ASSURANCE THAT EITHER FUND WILL BE ABLE TO DO SO. PROSPECTIVE INVESTORS SHOULD BE AWARE THAT SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. This Prospectus concisely sets forth information about the Funds that a prospective investor should know before investing. A Statement of Additional Information dated January 2, 1996 (and incorporated by reference in this Prospectus) has been filed with the Securities and Exchange Commission. Copies of the Statement of Additional Information may be obtained without charge, and further inquiries about the Funds may be made, by contacting the investor's Shareholder Servicing Agent (see inside back cover for address and phone number).
Condensed Financial Information ........................................ 4 Valuation of Shares .................................................... 9 Net Income and Distributions ........................................... 10 Appendix -- Permitted Investments and
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
See the body of the Prospectus for more information on the topics discussed in this summary.
THE FUNDS: This Prospectus describes two money market mutual funds: Premium Liquid Reserves and Premium U.S. Treasury Reserves. Each Fund has its own investment objectives and policies. Each Fund seeks its objectives by investing its investable assets in a Portfolio having the same investment objectives and policies as that Fund. There can be no assurance that either Fund will achieve its objectives.
INVESTMENT OBJECTIVES AND POLICIES: PREMIUM LIQUID RESERVES. To provide its shareholders with liquidity and as high a level of current income as is consistent with the preservation of capital. Through Cash Reserves Portfolio, the Fund invests in U.S. dollar-denominated money market obligations with maturities of 397 days or less issued by U.S. and non-U.S. issuers.
PREMIUM U.S. TREASURY RESERVES. To provide its shareholders with liquidity and as high a level of current income from U.S. Government obligations as is consistent with the preservation of capital. Through U.S. Treasury Reserves Portfolio, the Fund invests in obligations issued by the U.S. Government with maturities of 397 days or less.
INVESTMENT ADVISER AND DISTRIBUTOR: Citibank, N.A., ("Citibank" or the "Adviser"), a wholly-owned subsidiary of Citicorp, is the investment adviser of each Portfolio. Citibank and its affiliates manage more than $73 billion in assets worldwide. The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS" or the "Distributor") is the distributor of shares of each Fund. See "Management."
PURCHASES AND REDEMPTIONS: Customers of Shareholder Servicing Agents may purchase and redeem shares of the Funds on any Business Day. See "Purchases" and "Redemptions."
PRICING: Shares of the Funds are purchased and redeemed at net asset value (normally $1.00 per share), without a sales load or redemption fees. While there are no sales loads, shares of each Fund are subject to a distribution fee. See "Purchases" and "Management -- Distribution Arrangements."
EXCHANGES: Shares may be exchanged for shares of most other Landmark Funds. See "Exchanges."
DIVIDENDS: Declared daily and distributed monthly. Shares begin accruing dividends on the day they are purchased. See "Net Income and Distributions."
REINVESTMENT: Dividends may be received either in cash or in Fund shares at net asset value, subject to the policies of a shareholder's Shareholder Servicing Agent. See "Net Income and Distributions."
WHO SHOULD INVEST: Each Fund is designed for investors seeking liquidity, preservation of capital and current income, and for whom growth of capital is not a consideration. Premium Liquid Reserves is also designed for investors seeking a convenient means of accumulating an interest in a professionally managed, diversified portfolio consisting of short-term U.S. dollar- denominated money market obligations issued by U.S. and non-U.S. issuers. Premium U.S. Treasury Reserves is designed for investors seeking a convenient means of accumulating an interest in a professionally managed, diversified portfolio consisting of short-term U.S. Government obligations. See "Investment Information."
RISK FACTORS: There can be no assurance that either Fund or its corresponding Portfolio will achieve its investment objectives. In addition, while each Fund intends to maintain a stable net asset value of $1.00 per share, there can be no assurance that either Fund will be able to do so. Investments in high quality, short-term instruments may, in many circumstances, result in a lower yield than would be available from investments with a lower quality or a longer term.
Investors in Premium Liquid Reserves should be able to assume the special risks of investing in non-U.S. securities, which include possible adverse political, social and economic developments abroad, differing regulations to which non-U.S. issuers are subject and different characteristics of non-U.S. economies and markets. In addition, the prices of securities of non-U.S. issuers may be more volatile than those of comparable U.S. issuers.
Certain investment practices also may entail special risks. Prospective investors should read "Risk Considerations" for more information about risk factors.
The following table summarizes estimated shareholder transaction and annual operating expenses for each Fund and for its corresponding Portfolio.* Each Fund invests all of its investable assets in its corresponding Portfolio. The Trustees of each Fund believe that the aggregate per share expenses of that Fund and its corresponding Portfolio will be less than or approximately equal to the expenses that the Fund would incur if the assets of the Fund were invested directly in the types of securities held by its Portfolio. For more information on costs and expenses, see "Management" -- page 11 and "General Information -- Expenses" -- page 15.
SHAREHOLDER TRANSACTION EXPENSES ................. None None ANNUAL FUND OPERATING EXPENSES, AFTER FEE WAIVERS AND REIMBURSEMENTS (AS A PERCENTAGE OF AVERAGE NET ASSETS): Investment Management Fee(1) ..................... .06% .05% 12b-1 Fees(1)(2) ................................. .00% .00% Administrative Services Fees(1) ................ .16% .16% Shareholder Servicing Agent Fees ............... .10% .10% Other Operating Expenses ....................... .08% .14% Total Fund Operating Expenses(1) ................. .40% .45%
* This table is intended to assist investors in understanding the various costs and expenses that a shareholder of a Fund will bear, either directly or indirectly. The table shows the fees paid to various service providers after giving effect to expected voluntary partial fee waivers.
(1) Absent fee waivers and reimbursements, investment management fees, 12b-1 fees, administrative services fees and total fund operating expenses would be .15%, .10%, .40% and .83% for Premium Liquid Reserves and .15%, .10%, .40% and .89% for Premium U.S. Treasury Reserves. There can be no assurance that the fee waivers and reimbursements reflected in the table will continue at their present levels. Under each Fund's administrative services plan, the aggregate of the fee paid to the Administrator and the fees paid to the Shareholder Servicing Agents may not exceed .45% of the Fund's average daily net assets on an annualized basis for the Fund's then-current fiscal year. Individual components of the aggregate may vary from time to time.
(2) Fees under the 12b-1 distribution plan are asset-based sales charges. Long-term shareholders in a Fund could pay more in sales charges than the economic equivalent of the maximum front-end sales charges permitted by the National Association of Securities Dealers, Inc.
More complete descriptions of the following expenses of the Funds and the Portfolios are set forth on the following pages: (i) investment management fees -- page 11, (ii) distribution fees -- page 13, (iii) administrative services fees -- page 12, and (iv) shareholder servicing agent fees -- page 12.
EXAMPLE: A shareholder would pay the following expenses on a $1,000 investment, assuming redemption at the end of each period indicated below:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS PREMIUM LIQUID RESERVES .. $4 $13 $22 $51 RESERVES ............... $5 $14 $25 $57 The Example assumes that all dividends are reinvested, and expenses are based on each Fund's fiscal year ended August 31, 1995, after waivers and reimbursements. If waivers and reimbursements were not in place, the amounts in the Example would be $8, $26, $46 and $102 for Premium Liquid Reserves and $9 $28, $49 and $110 for Premium U.S. Treasury Reserves. The assumption of a 5% annual return is required by the Securities and Exchange Commission for all mutual funds, and is not a prediction of either Fund's future performance. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF EITHER FUND. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The following tables provide condensed financial information about the Funds for the periods indicated. This information should be read in conjunction with the financial statements appearing in each Fund's Annual Report to Shareholders, which are incorporated by reference in the Statement of Additional Information. The financial statements and notes, as well as the tables below, covering periods through August 31, 1995 have been audited by Price Waterhouse LLP (for the fiscal years ended August 31, 1995 and August 31, 1994) and Deloitte & Touche LLP (for periods prior to the fiscal year ended August 31, 1994), independent accountants, on behalf of Premium Liquid Reserves, and by Deloitte & Touche LLP on behalf of Premium U.S. Treasury Reserves. The accountants' reports are included in the applicable Fund's Annual Report. Copies of the Annual Reports may be obtained without charge from an investor's Shareholder Servicing Agent (see inside of back cover for address and phone number).
INVESTMENT OBJECTIVES: The investment objective of PREMIUM LIQUID RESERVES is to provide its shareholders with liquidity and as high a level of current income as is consistent with the preservation of capital.
The investment objective of PREMIUM U.S. TREASURY RESERVES is to provide its shareholders with liquidity and as high a level of current income from U.S. Government obligations as is consistent with the preservation of capital.
The investment objective of each Fund may be changed by its Trustees without approval by that Fund's shareholders, but shareholders will be given written notice at least 30 days before any change is implemented. Of course, there can be no assurance that either Fund will achieve its investment objective.
INVESTMENT POLICIES: PREMIUM LIQUID RESERVES seeks its objective by investing all of its investable assets in Cash Reserves Portfolio. Cash Reserves Portfolio seeks the same objective as the Fund by investing in high quality U.S. dollar-denominated money market instruments. These instruments include short-term obligations of the U.S. Government and repurchase agreements covering these obligations, bank obligations (such as certificates of deposit, bankers' acceptances and fixed time deposits) of U.S. and non-U.S banks and obligations issued or guaranteed by the governments of Western Europe, Scandinavia, Australia, Japan and Canada. The U.S. Government obligations in which the Portfolio invests include U.S. Treasury bills, notes and bonds, and instruments issued by U.S. Government agencies or instrumentalities. Some obligations of U.S. Government agencies and instrumentalities are supported by the "full faith and credit" of the United States, others by the right of the issuer to borrow from the U.S. Treasury and others only by the credit of the agency or instrumentality. For more information regarding the Portfolio's permitted investments and investment practices, see the Appendix -- Permitted Investments and Investment Practices on page 16.
PREMIUM U.S. TREASURY RESERVES seeks its objective by investing all of its investable assets in U.S. Treasury Reserves Portfolio. U.S. Treasury Reserves Portfolio seeks the same objective as the Fund by investing in U.S. Treasury bills, notes and bonds, and instruments issued by U.S. Government agencies or instrumentalities which are supported by the "full faith and credit" of the United States. U.S. Treasury Reserves Portfolio will not enter into repurchase agreements. For more information regarding the Portfolio's permitted investments and investment practices, see the Appendix -- Permitted Investments and Investment Practices on page 16. ALTHOUGH THE PORTFOLIO INVESTS IN U.S. GOVERNMENT OBLIGATIONS, NEITHER AN INVESTMENT IN THE FUND NOR AN INVESTMENT IN THE PORTFOLIO IS INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
$1.00 NET ASSET VALUE. Each Fund employs specific investment policies and procedures designed to maintain a constant net asset value of $1.00 per share. There can be no assurance, however, that a constant net asset value will be maintained on a continuing basis. See "Net Income and Distributions."
MATURITY AND QUALITY. All of the Portfolios' investments mature or are deemed to mature within 397 days from the date of acquisition, and the average maturity of the investments held by each Portfolio (on a dollar-weighted basis) is 90 days or less. All of the Portfolios' investments are in high quality securities which have been determined by the Adviser to present minimal credit risks. To meet a Portfolio's high quality standards a security must be rated in the highest rating category for short-term obligations by at least two nationally recognized statistical rating organizations (each, an "NRSRO") assigning a rating to the security or issuer or, if only one NRSRO assigns a rating, that NRSRO or, in the case of an investment which is not rated, of comparable quality as determined by the Adviser. Investments in high quality, short-term instruments may, in many circumstances, result in a lower yield than would be available from investments in instruments with a lower quality or a longer term.
PERMITTED INVESTMENTS. For more information regarding permitted investments and investment practices, see the Appendix -- Permitted Investments and Investment Practices on page 16. The Funds will not necessarily invest or engage in each of the investments and investment practices in the Appendix but reserve the right to do so.
INVESTMENT RESTRICTIONS. The Statement of Additional Information contains a list of specific investment restrictions which govern the investment policies of the Funds and the Portfolios. Certain of these specific restrictions may not be changed without shareholder approval. Except as otherwise indicated, the Funds' and Portfolios' investment objectives and policies may be changed without shareholder approval. If a percentage or rating restriction (other than a restriction as to borrowing) is adhered to at the time an investment is made, a later change in percentage or rating resulting from changes in the Portfolios' securities will not be a violation of policy.
BROKERAGE TRANSACTIONS. The primary consideration in placing the Portfolios' security transactions with broker-dealers for execution is to obtain and maintain the availability of execution at the most favorable prices and in the most effective manner possible.
The risks of investing in each Fund vary depending upon the nature of the securities held, and the investment practices employed, on its behalf. Certain of these risks are described below.
"CONCENTRATION" IN BANK OBLIGATIONS. Cash Reserves Portfolio invests at least 25% of its assets, and may invest up to 100% of its assets, in bank obligations. This concentration policy is fundamental, and may not be changed without the consent of the Portfolio's investors. Banks are subject to extensive governmental regulation which may limit both the amounts and types of loans and other financial commitments which may be made and interest rates and fees which may be charged. The profitability of this industry is largely dependent upon the availability and cost of capital funds for the purpose of financing lending operations under prevailing money market conditions. Also, general economic conditions play an important part in the operation of this industry and exposure to credit losses arising from possible financial difficulties of borrowers might affect a bank's ability to meet its obligations.
NON-U.S. SECURITIES. Investors in Premium Liquid Reserves should be aware that investments in non-U.S. securities involve risks relating to political, social and economic developments abroad, as well as risks resulting from the differences between the regulations to which U.S. and non-U.S. issuers and markets are subject. These risks may include expropriation, confiscatory taxation, withholding taxes on dividends and interest, limitations on the use or transfer of Portfolio assets and political or social instability. In addition, non-U.S. companies may not be subject to accounting standards or governmental supervision comparable to U.S. companies, and there may be less public information about their operations. Non-U.S. markets may be less liquid and more volatile than U.S. markets, and may offer less protection to investors such as the Portfolio.
INVESTMENT PRACTICES. Certain of the investment practices employed for the Portfolios may entail certain risks. See the Appendix -- Permitted Investments and Investment Practices on page 16.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE: Unlike other mutual funds which directly acquire and manage their own portfolio securities, each Fund seeks its investment objective by investing all of its investable assets in its corresponding Portfolio, a registered investment company. Each Portfolio has the same investment objective and policies as its corresponding Fund. In addition to selling beneficial interests to a Fund, a Portfolio may sell beneficial interests to other mutual funds, collective investment vehicles, or institutional investors. Such investors will invest in the Portfolio on the same terms and conditions and will pay a proportionate share of the Portfolio's expenses. However, the other investors investing in the Portfolio are not required to sell their shares at the same public offering price as the Fund due to variations in sales commissions and other operating expenses. Therefore, investors in a Fund should be aware that these differences may result in differences in returns experienced by investors in the different funds that invest in that Portfolio. Such differences in returns are also present in other mutual fund structures. Information concerning other holders of interests in the Portfolios is available from the Funds' distributor, LFBDS, at the address and telephone number indicated on the back cover of this Prospectus.
The investment objective of each Fund may be changed by its Trustees without the approval of the Fund's shareholders, but not without written notice thereof to shareholders at least 30 days prior to implementing the change. If there is a change in a Fund's investment objective, shareholders should consider whether the Fund remains an appropriate investment in light of their then current financial positions and needs. The investment objective of each Portfolio may also be changed without the approval of the investors in the Portfolio, but not without written notice thereof to the investors in the Portfolio (and, if a Fund is then invested in the Portfolio, notice to Fund shareholders) at least 30 days prior to implementing the change. There can, of course, be no assurance that the investment objective of either a Fund or its Portfolio will be achieved. See "Investment Objective, Policies and Restrictions -- Investment Restrictions" in the Statement of Additional Information for a description of the fundamental policies of each Fund and its Portfolio that cannot be changed without approval by the holders of a "majority of the outstanding voting securities" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of the Fund or Portfolio. Except as stated otherwise, all investment guidelines, policies and restrictions described herein and in the Statement of Additional Information are non- fundamental.
Certain changes in a Portfolio's investment objective, policies or restrictions or a failure by a Fund's shareholders to approve a change in the Portfolio's investment objective or restrictions, may preclude the Fund from investing its investable assets in the Portfolio or require the Fund to withdraw its interest in the Portfolio. Any such withdrawal could result in an "in kind" distribution of securities (as opposed to a cash distribution) from the Portfolio which may or may not be readily marketable. If securities are distributed, the Fund could incur brokerage, tax or other charges in converting the securities to cash. The in kind distribution may result in the Fund having a less diversified portfolio of investments or adversely affect the liquidity of the Fund. Notwithstanding the above, there are other means for meeting shareholder redemption requests, such as borrowing. The absence of substantial experience with this investment structure could have an adverse effect on an investment in the Funds.
Smaller funds investing in a Portfolio may be materially affected by the actions of larger funds investing in the Portfolio. For example, if a large fund withdraws from the Portfolio, the remaining funds may subsequently experience higher pro rata operating expenses, thereby producing lower returns. Additionally, because the Portfolio would become smaller, it may become less diversified, resulting in increased portfolio risk; however, these possibilities exist for traditionally structured funds which have large or institutional investors who may withdraw from a fund. Also, funds with a greater pro rata ownership in the Portfolio could have effective voting control of the operations of the Portfolio. If a Fund is requested to vote on matters pertaining to its Portfolio (other than a vote by the Fund to continue the operation of the Portfolio upon the withdrawal of another investor in the Portfolio), the Fund will hold a meeting of its shareholders and will cast all of its votes proportionately as instructed by such shareholders. The Fund will vote the shares held by Fund shareholders who do not give voting instructions in the same proportion as the shares of Fund shareholders who do give voting instructions. Shareholders of the Fund who do not vote will have no effect on the outcome of such matters.
Each Fund may withdraw its investment from its Portfolio at any time, if the Fund's Board of Trustees determines that it is in the best interest of the Fund to do so. Upon any such withdrawal, the Board of Trustees would consider what action might be taken, including the investment of all of the investable assets of the Fund in another pooled investment entity having the same investment objective as the Fund or the retaining of an investment adviser to manager the Fund's assets in accordance with the investment policies described above. In the event the Fund's Trustees were unable to find a substitute investment company in which to invest the Fund's assets or were unable to secure directly the services of an investment adviser, the Trustees would determine the best course of action.
For a description of the management of the Portfolios, see "Management" -- page 11. For descriptions of the expenses of the Portfolios, see "Management" and "General Information -- Expenses" -- page 15. For a description of the investment objectives, policies and restrictions of the Portfolios, see "Investment Information" -- page 6.
Net asset value per share of each Fund is determined each day the New York Stock Exchange is open for trading (a "Business Day"). This determination is made once each day as of 3:00 p.m., Eastern time, for Premium Liquid Reserves, and 12:00 noon, Eastern time, for Premium U.S. Treasury Reserves, by adding the market value of all securities and other assets of a Fund (including its interest in its Portfolio), then subtracting the liabilities charged to the Fund, and then dividing the result by the number of outstanding shares of the Fund. The amortized cost method of valuing Portfolio securities is used in order to stabilize the net asset value of shares of each Fund at $1.00; however, there can be no assurance that a Fund's net asset value will always remain at $1.00 per share. The net asset value per share is effective for orders received and accepted by the Distributor prior to its calculation.
The amortized cost method involves valuing a security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. Although the amortized cost method provides certainty in valuation, it may result in periods during which the stated value of a security is higher or lower than the price the Portfolio would receive if the security were sold.
Shares of the Funds are offered continuously and may be purchased on any Business Day without a sales load at the shares' net asset value (normally $1.00 per share) next determined after an order is transmitted to and accepted by the Distributor. Shares may be purchased either through a securities broker which has a sales agreement with the Distributor or through a bank or other financial institution which has an agency agreement with the Distributor. Shares of the Funds are being offered exclusively to customers of a Shareholder Servicing Agent (i.e., a financial institution, such as a federal or state-chartered bank, trust company, savings and loan association or savings bank, or a securities broker, that has entered into a shareholder servicing agreement concerning a Fund). Each Fund and the Distributor reserve the right to reject any purchase order and to suspend the offering of Fund shares for a period of time.
While there is no sales load imposed on shares of the Funds, the Distributor receives fees from each Fund pursuant to a Distribution Plan. See "Management -- Distribution Arrangements."
Each shareholder's account is established and maintained by his or her Shareholder Servicing Agent, which will be the shareholder of record of the Fund. Each Shareholder Servicing Agent may establish its own terms, conditions and charges with respect to services it offers to its customers. Charges for these services may include fixed annual fees and account maintenance fees. The effect of any such fees will be to reduce the net return on the investment of customers of that Shareholder Servicing Agent.
Shareholder Servicing Agents will not transmit purchase orders to the Distributor until they have received the purchase price in federal or other immediately available funds. If Fund shares are purchased by check, there will be a delay (usually not longer than two business days) in transmitting the purchase order until the check is converted into federal funds.
Shares of each Fund may be exchanged for shares of other Landmark Funds that are made available by a shareholder's Shareholder Servicing Agent, or may be acquired through an exchange of shares of those funds. No initial sales charge is imposed on shares being acquired through an exchange unless the shares being acquired are subject to a sales charge that is greater than the current sales charge of the Fund (in which case an initial sales charge will be imposed at a rate equal to the difference). Contingent deferred sales charges may apply to redemptions of some shares of other Landmark Funds disposed of or acquired through an exchange.
Shareholders must place exchange orders through their Shareholder Servicing Agents, and may do so by telephone if their account applications so permit. For more information on telephone transactions see "Redemptions." All exchanges will be effected based on the relative net asset values per share next determined after the exchange order is received by the Distributor. See "Valuation of Shares." Shares of the Funds may be exchanged only after payment in federal funds for the shares has been made.
This exchange privilege may be modified or terminated at any time, upon at least 60 days' notice when such notice is required by SEC rules, and is available only in those jurisdictions where such exchanges legally may be made. See the Statement of Additional Information for further details. Before making any exchange, shareholders should contact their Shareholder Servicing Agents to obtain more information and prospectuses of the Landmark Funds to be acquired through the exchange.
Fund shares may be redeemed at their net asset value (normally $1.00 per share) next determined after a redemption request in proper form is received by a shareholder's Shareholder Servicing Agent. Shareholders may redeem shares of a Fund only by authorizing their Shareholder Servicing Agents to redeem such shares on their behalf through the Distributor.
REDEMPTIONS BY MAIL. Shareholders may redeem Fund shares by sending written instructions in proper form (as determined by a shareholder's Shareholder Servicing Agent) to their Shareholder Servicing Agents. Shareholders are responsible for ensuring that a request for redemption is in proper form.
REDEMPTIONS BY TELEPHONE. Shareholders may redeem or exchange Fund shares by telephone, if their account applications so permit, by calling their Shareholder Servicing Agents. During periods of drastic economic or market changes or severe weather or other emergencies, shareholders may experience difficulties implementing a telephone exchange or redemption. In such an event, another method of instruction, such as a written request sent via an overnight delivery service, should be considered. The Funds and each Shareholder Servicing Agent will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. These procedures may include recording of the telephone instructions and verification of a caller's identity by asking for the shareholder's name, address, telephone number, Social Security number, and account number. If these or other reasonable procedures are not followed, the Fund or the Shareholder Servicing Agent may be liable for any losses to a shareholder due to unauthorized or fraudulent instructions. Otherwise, the shareholder will bear all risk of loss relating to a redemption or exchange by telephone.
PAYMENT OF REDEMPTIONS. The proceeds of a redemption are paid in federal funds normally on the Business Day the redemption is effected, but in any event within seven days. If a shareholder requests redemption of shares which were purchased recently, a Fund may delay payment until it is assured that good payment has been received. In the case of purchases by check, this can take up to ten days. See "Determination of Net Asset Value" in the Statement of Additional Information regarding the Funds' right to pay the redemption price in kind with securities (instead of cash).
Questions about redemption requirements should be referred to the shareholder's Shareholder Servicing Agent. The right of any shareholder to receive payment with respect to any redemption may be suspended or the payment of the redemption price postponed during any period in which the New York Stock Exchange is closed (other than weekends or holidays) or trading on the Exchange is restricted or if an emergency exists.
The net income of each Fund is determined each Business Day (and on such other days as is necessary in order to comply with the 1940 Act). This determination is made once during each such day as of 3:00 p.m., Eastern time, for Premium Liquid Reserves, and 12:00 noon, Eastern time, for Premium U.S. Treasury Reserves. All the net income of each Fund is declared as a dividend to shareholders of record at the time of such determination. Shares begin accruing dividends on the day they are purchased, and accrue dividends up to and including the day prior to redemption. Dividends are distributed monthly on or prior to the last Business Day of each month. Unless a shareholder elects to receive dividends in cash (subject to the policies of the shareholder's Shareholder Servicing Agent), dividends are distributed in the form of full and fractional additional shares of the applicable Fund at the rate of one share of the Fund for each one dollar of dividend income.
Since the net income of each Fund is declared as a dividend each time the net income of the Fund is determined, the net asset value per share of each Fund is expected to remain at $1.00 per share immediately after each such determination and dividend declaration. Any increase in the value of a shareholder's investment in a Fund, representing the reinvestment of dividend income, is reflected by an increase in the number of shares of the Fund in the shareholder's account.
It is expected that each Fund will have a positive net income at the time of each determination thereof. If for any reason a Fund's net income is a negative amount, which could occur, for instance, upon default by an issuer of a portfolio security, the Fund would first offset the negative amount with respect to each shareholder account from the dividends declared during the month with respect to those accounts. If and to the extent that negative net income exceeds declared dividends at the end of the month, the Fund would reduce the number of outstanding Fund shares by treating each shareholder as having contributed to the capital of the Fund that number of full and fractional shares in the Shareholder's account which represents the Shareholder's share of the amount of such excess. Each shareholder would be deemed to have agreed to such contribution in these circumstances by investment in a Fund.
TRUSTEES AND OFFICERS: Each Fund is supervised by the Board of Trustees of Landmark Premium Funds. Each Portfolio is supervised by its own Board of Trustees. In each case, a majority of the Trustees are not affiliated with the Adviser. In addition, a majority of the disinterested Trustees of the Funds are different from a majority of the disinterested Trustees of their corresponding Portfolios. More information on the Trustees and officers of the Funds and the Portfolios appears under "Management" in the Statement of Additional Information.
INVESTMENT ADVISER: CITIBANK. Each Fund draws on the strength and experience of Citibank. Citibank offers a wide range of banking and investment services to customers across the United States and throughout the world, and has been managing money since 1822. Its portfolio managers are responsible for investing in money market, equity and fixed income securities. Citibank and its affiliates manage more than $73 billion in assets worldwide, including the Landmark Funds and Portfolios. Citibank is a wholly-owned subsidiary of Citicorp.
Citibank manages the assets of each Portfolio pursuant to separate investment advisory agreements ("Advisory Agreements"). Subject to policies set by the Portfolios' Trustees, Citibank makes investment decisions for the Portfolios.
ADVISORY FEES. For its services under the Advisory Agreements, the Adviser receives investment advisory fees, which are accrued daily and paid monthly, of 0.15% of each Portfolio's average daily net assets on an annualized basis for the Portfolio's then-current fiscal year. The Adviser has voluntarily agreed to waive a portion of its investment advisory fee.
For the fiscal year ended August 31, 1995, the investment advisory fees payable to Citibank were as follows: for Cash Reserves Portfolio, $4,097,854, of which $2,306,161 was voluntarily waived (after waiver, 0.06% of the Portfolio's average daily net assets for that fiscal year); and for U.S. Treasury Reserves Portfolio, $1,148,418, of which $753,105 was voluntarily waived (after waiver, 0.05% of the Portfolio's average daily net assets for that fiscal year).
BANKING RELATIONSHIPS. Citibank and its affiliates may have deposit, loan and other relationships with the issuers of securities purchased on behalf of the Portfolios, including outstanding loans to such issuers which may be repaid in whole or in part with the proceeds of securities so purchased. Citibank has informed the Funds and the Portfolios that, in making its investment decisions, it does not obtain or use material inside information in the possession of any division or department of Citibank or in the possession of any affiliate of Citibank.
BANK REGULATORY MATTERS. The Glass-Steagall Act prohibits certain financial institutions, such as Citibank, from underwriting securities of open-end investment companies, such as the Funds or the Portfolios. Citibank believes that its services under the Advisory Agreements and the activities performed by it or its affiliates as Shareholder Servicing Agents and sub-administrator are not underwriting and are consistent with the Glass-Steagall Act and other relevant federal and state laws. However, there is no controlling precedent regarding the performance of the combination of investment advisory, shareholder servicing and sub-administrative activities by banks. State laws on this issue may differ from applicable federal law and banks and financial institutions may be required to register as dealers pursuant to state securities laws. Changes in either federal or state statutes or regulations, or in their interpretations, could prevent Citibank or its affiliates from continuing to perform these services. If Citibank or its affiliates were to be prevented from acting as the Adviser, sub-administrator or a Shareholder Servicing Agent, the affected Funds or Portfolios would seek alternative means for obtaining these services. The Funds do not expect that shareholders would suffer any adverse financial consequences as a result of any such occurrence.
ADMINISTRATIVE SERVICES PLANS: The Funds and Portfolios have administrative services plans ("Administrative Services Plans") which provide that the applicable Fund or Portfolio may obtain the services of an administrator, a transfer agent, a custodian, a fund accountant, and, in the case of the Funds, one or more Shareholder Servicing Agents, and may enter into agreements providing for the payment of fees for such services. Under the Funds' Administrative Services Plan, the total of the fees paid to each Fund's Administrator and Shareholder Servicing Agents may not exceed 0.45% of the Fund's average daily net assets on an annualized basis for the Fund's then-current fiscal year. Within this overall limitation, individual fees may vary. Under each Portfolio's Administrative Services Plan, fees paid to the Portfolio's Administrator may not exceed 0.05% of the Portfolio's average daily net assets on an annualized basis for the Portfolio's then-current fiscal year. See "Administrators," "Shareholder Servicing Agents" and "Transfer Agent, Custodian and Fund Accountant."
ADMINISTRATORS: LFBDS provides certain administrative services to the Funds and U.S. Treasury Reserves Portfolio, and Signature Financial Group (Cayman), Ltd., either directly or through a wholly-owned subsidiary ("SFG"), provides certain administrative services to Cash Reserves Portfolio, in each case under administrative services agreements. These administrative services include providing general office facilities, supervising the overall administration of the Funds and the Portfolios, and providing persons satisfactory to the Boards of Trustees to serve as Trustees and officers of the Funds and Portfolios. These Trustees and officers may be directors, officers or employees of LFBDS, SFG or their affiliates.
For these services, the Administrators receive fees accrued daily and paid monthly of 0.35% of the average daily net assets of each Fund and 0.05% of the assets of each Portfolio, in each case on an annualized basis for the Fund's or the Portfolio's then-current fiscal year. However, each of the Administrators has voluntarily agreed to waive a portion of the fees payable to it.
LFBDS and SFG are wholly-owned subsidiaries of Signature Financial Group, Inc. "Landmark" is a service mark of LFBDS.
SUB-ADMINISTRATOR: Pursuant to sub-administrative services agreements, Citibank performs such sub-administrative duties for the Funds and Portfolios as from time to time are agreed upon by Citibank and LFBDS or SFG. Citibank's compensation as sub-administrator is paid by LFBDS or SFG.
SHAREHOLDER SERVICING AGENTS: The Funds have entered into separate shareholder servicing agreements with each Shareholder Servicing Agent pursuant to which that Shareholder Servicing Agent provides shareholder services, including answering customer inquiries, assisting in processing purchase, exchange and redemption transactions and furnishing Fund communications to shareholders. For these services, each Shareholder Servicing Agent receives a fee from each Fund at an annual rate of 0.10% of the average daily net assets of the Fund represented by shares owned by investors for whom such Shareholder Servicing Agent maintains a servicing relationship.
Some Shareholder Servicing Agents may impose certain conditions on their customers in addition to or different from those imposed by the Funds, such as requiring a minimum initial investment or charging their customers a direct fee for their services. Each Shareholder Servicing Agent has agreed to transmit to its customers who are shareholders of a Fund appropriate prior written disclosure of any fees that it may charge them directly and to provide written notice at least 30 days prior to imposition of any transaction fees.
TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT: State Street Bank and Trust Company (or its affiliate State Street Canada, Inc.) acts as transfer agent and dividend disbursing agent for each Fund. State Street (or its affiliate State Street Canada, Inc.) acts as the custodian of each Fund's and each Portfolio's assets. Securities held for a Portfolio may be held by a sub- custodian bank approved by the Portfolio's Trustees. State Street also provides fund accounting services to the Funds and the Portfolios and calculates the daily net asset value for the Funds and the Portfolios.
DISTRIBUTION ARRANGEMENTS: LFBDS is the Distributor of each Fund's shares and also serves as distributor for each of the other Landmark Funds and as a Shareholder Servicing Agent for certain investors. As Distributor, LFBDS bears the cost of compensating personnel involved in the sale of shares of the Funds and bears all costs of travel, office expenses (including rent and overhead) and equipment. In those states where LFBDS is not a registered broker-dealer, shares of the Funds are sold through Signature Broker-Dealer Services, Inc., as dealer.
Under a plan of distribution for Premium Liquid Reserves and Premium U.S. Treasury Reserves (the "Plan"), each Fund pays the Distributor a fee at an annual rate not to exceed 0.10% of the average daily net assets of the Fund in anticipation of, or as reimbursement for, expenses incurred by the Distributor in connection with the sale of shares, such as advertising expenses and the expenses of printing (excluding typesetting) and distributing prospectuses and reports used for sales purposes, expenses of preparing and printing sales literature and other distribution-related expenses. However, the Distributor has agreed to waive a portion of these fees for each Fund. The Plan was adopted in accordance with Rule 12b-1 under the 1940 Act.
The Funds and the Distributor provide to the Trustees quarterly a written report of amounts expended pursuant to the Plan and the purposes for which the expenditures were made.
From time to time LFBDS may make payments for distribution and/or shareholder servicing activities out of its past profits or any other sources available to it.
This discussion of taxes is for general information only. Investors should consult their own tax advisers about their particular situations.
Each Fund intends to meet requirements of the Internal Revenue Code applicable to regulated investment companies so that it will not be liable for any federal income or excise taxes.
Shareholders are required to pay federal income tax on any dividends and other distributions received. Generally, distributions from a Fund's net investment income and short-term capital gains will be taxed as ordinary income. Distributions from long-term net capital gains will be taxed as such regardless of how long the shares of a Fund have been held. Dividends and distributions are treated in the same manner for federal tax purposes whether they are paid in cash or as additional shares.
Distributions derived from interest on U.S. Government obligations may be exempt from state and local taxes in certain states. Early each year, each Fund will notify its shareholders of the amount and tax status of distributions paid to shareholders for the preceding year.
The account application asks each new shareholder to certify that the shareholder's Social Security or taxpayer identification number is correct and that the shareholder is not subject to 31% backup withholding for failing to report income to the IRS. A Fund may be required to withhold (and pay over to the IRS for the shareholder's credit) 31% of certain distributions paid to shareholders who fail to provide this information or otherwise violate IRS regulations.
Investors should consult their own tax advisers regarding the status of their accounts under state and local laws.
Fund performance may be quoted in advertising, shareholder reports and other communications in terms of yield, effective yield, tax equivalent yield, total rate of return or tax equivalent total rate of return. All performance information is historical and is not intended to indicate future performance. Yields and total rates of return fluctuate in response to market conditions and other factors.
Each Fund may provide its period and average annualized "total rates of return" and Premium U.S. Treasury Reserves may also provide "tax equivalent total rates of return." The "total rate of return" refers to the change in the value of an investment in the Fund over a stated period and is compounded to include the value of any shares purchased with any dividends or capital gains declared during such period. Period total rates of return may be "annualized." An "annualized" total rate of return assumes that the period total rate of return is generated over a one-year period. The "tax equivalent total rate of return" refers to the total rate of return that a fully taxable money market fund would have to generate in order to produce an after-tax total rate of return equivalent to that of Premium U.S. Treasury Reserves. The use of a tax equivalent total rate of return allows investors to compare the total rates of return of Premium U.S. Treasury Reserves, the dividends from which may be exempt from state personal income taxes, with the total rates of return of funds the dividends from which are not so tax exempt.
Each Fund may provide annualized "yield" and "effective yield" quotations, and Premium U.S. Treasury Reserves may also provide "tax equivalent yield" quotations. The "yield" of a Fund refers to the income generated by an investment in the Fund over a seven-day period (which period is stated in any such advertisement or communication). This income is then annualized; that is, the amount of income generated by the investment over that period is assumed to be generated each week over a 365-day period and is shown as a percentage of the investment. The "effective yield" is calculated similarly, but when annualized the income earned by the investment during that seven-day period is assumed to be reinvested. The effective yield is slightly higher than the yield because of the compounding effect of this assumed reinvestment. The "tax equivalent yield" refers to the yield that a fully taxable money market fund would have to generate in order to produce an after-tax yield equivalent to that of Premium U.S. Treasury Reserves. The use of a tax equivalent yield allows investors to compare the yield of Premium U.S. Treasury Reserves, the dividends from which may be exempt from state personal income tax, with yields of funds the dividends from which are not so tax exempt. A Fund may also provide yield, effective yield and tax equivalent yield quotations for longer periods.
Of course, any fees charged by a shareholder's Shareholder Servicing Agent will reduce that shareholder's net return on his or her investment. See the Statement of Additional Information for more information concerning the calculation of yield and total rate of return quotations for the Funds.
ORGANIZATION: Each Fund is a diversified series of Landmark Premium Funds, which is a Massachusetts business trust which was organized on May 23, 1989. Each Fund also is an open-end management investment company registered under the 1940 Act.
Under the 1940 Act, a diversified series or diversified investment company must invest at least 75% of its assets in cash and cash items, U.S. Government securities, investment company securities and other securities limited as to any one issuer to not more than 5% of the total assets of the investment company and not more than 10% of the voting securities of the issuer.
Under Massachusetts law, shareholders of a business trust may, under certain circumstances, be held personally liable as partners for the trust's obligations. However, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed and the trust itself was unable to meet its obligations.
Each Portfolio is a separate trust organized under the laws of the State of New York. The Declaration of Trust of each Portfolio provides that a Fund and other entities investing in a Portfolio are each liable for all obligations of that Portfolio. However, it is not expected that the liabilities of a Portfolio would ever exceed its assets.
VOTING AND OTHER RIGHTS: Landmark Premium Funds (the "Trust") may issue an unlimited number of shares, may create new series of shares and may divide shares in each series into classes. Each share of each Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each series of the Trust have equal voting rights except that, in matters affecting only a particular Fund or class, only shares of that particular Fund or class are entitled to vote.
At any meeting of shareholders of a Fund, a Shareholder Servicing Agent may vote any shares of which it is the holder of record and for which it does not receive voting instructions proportionately in accordance with instructions it receives for all other shares of which that Shareholder Servicing Agent is the holder of record.
The Trust's activities are supervised by the Trust's Board of Trustees. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will usually be sought only for changes in a Fund's or Portfolio's fundamental investment restrictions and for the election of Trustees under certain circumstances. Trustees may be removed by shareholders under certain circumstances. Each share of each Fund is entitled to participate equally in dividends and other distributions and the proceeds of any liquidation of that Fund.
CERTIFICATES: The Funds' Transfer Agent maintains a share register for shareholders of record, i.e., Shareholder Servicing Agents. Share certificates are not issued.
RETIREMENT PLANS: Investors may be able to establish new accounts in a Fund under one of several tax-sheltered plans. Such plans include IRAs, Keogh or Corporate Profit-Sharing and Money-Purchase Plans, 403(b) Custodian Accounts, and certain other qualified pension and profit-sharing plans. Investors should consult with their Shareholder Servicing Agents and tax and retirement advisers.
EXPENSES: For the fiscal year ended August 31, 1995, total operating expenses of the Funds, after allocating to each Fund its share of its Portfolio's expenses and after giving effect to fee waivers or reimbursements, were as follows: for Premium Liquid Reserves, 0.40% of the Fund's average daily net assets for that fiscal year; and for Premium U.S. Treasury Reserves, 0.45% of the Fund's average daily net assets for that fiscal year. All fee waivers and reimbursements are voluntary and may be reduced or terminated at any time.
The Statement of Additional Information dated the date hereof contains more detailed information about the Funds and the Portfolios, including information related to (i) investment policies and restrictions, (ii) the Trustees, officers, Adviser and Administrators, (iii) securities transactions, (iv) the Funds' shares, including rights and liabilities of shareholders, (v) the method used to calculate performance information, (vi) programs for the purchase of shares, and (vii) the determination of net asset value.
No person has been authorized to give any information or make any representations not contained in this Prospectus in connection with the offering made by this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Funds or their distributor. This Prospectus does not constitute an offering by the Funds or their distributor in any jurisdiction in which such offering may not lawfully be made.
TREASURY RECEIPTS. Each Portfolio may invest in Treasury Receipts, which are unmatured interest coupons of U.S. Treasury bonds and notes which have been separated and resold in a custodial receipt program administered by the U.S. Treasury.
COMMERCIAL PAPER. Cash Reserves Portfolio may invest in commercial paper, which is unsecured debt of corporations usually maturing in 270 days or less from its date of issuance.
ASSET-BACKED SECURITIES. Cash Reserves Portfolio may invest in asset-backed securities, which represent fractional interests in underlying pools of assets, such as car installment loans or credit card receivables. The rate of return on asset-backed securities may be affected by prepayment of the underlying loans or receivables. Reinvestment of principal may occur at higher or lower rates than the original yield.
REPURCHASE AGREEMENTS. Cash Reserves Portfolio may enter into repurchase agreements. Repurchase agreements are transactions in which an institution sells the Portfolio a security at one price, subject to the Portfolio's obligation to resell and the selling institution's obligation to repurchase that security at a higher price normally within a seven day period. There may be delays and risks of loss if the seller is unable to meet its obligation to repurchase.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory requirements and in order to generate additional income, each Portfolio may lend its portfolio securities to broker-dealers and other institutional borrowers. Such loans must be callable at any time and continuously secured by collateral (cash or U.S. Government securities) in an amount not less than the market value, determined daily, of the securities loaned. It is intended that the value of securities loaned by a Portfolio would not exceed 33 1/3% of the Portfolio's net assets.
In the event of the bankruptcy of the other party to a securities loan or a repurchase agreement, the Portfolio could experience delays in recovering either the securities lent or cash. To the extent that, in the meantime, the value of the securities lent have increased or the value of the securities purchased have decreased, the Portfolio could experience a loss.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS. Each Portfolio may invest up to 10% of its net assets in securities for which there is no readily available market. These illiquid securities may include privately placed restricted securities for which no institutional market exists. The absence of a trading market can make it difficult to ascertain a market value for illiquid investments. Disposing of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for the Portfolio to sell them promptly at an acceptable price.
FOR CITIBANK PRIVATE BANKING CLIENTS: Citibank, N.A. 153 East 53rd Street, New York, NY 10043 Call Your Citibank Private Banking Account Officer, Registered Representative or (212) 559-5959
FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS: Citibank, N.A. 153East 53rd Street, New York, NY 10043
FOR CITIBANK NORTH AMERICAN INVESTOR SERVICES CLIENTS: Citibank, N.A. 111 Wall Street, New York, NY 10043 Call Your Account Manager or (212) 657-9100
New York Tax Free Reserves
National Tax Free Income Fund New York Tax Free Income Fund
Emerging Asian Markets Equity Fund
*Affiliated Person of Administrator and Distributor
153 East 53rd Street, New York, NY 10043
The Landmark Funds Broker-Dealer Services, Inc. 6 St. James Avenue, Boston, MA 02116
State Street Bank and Trust Company 225 Franklin Street, Boston, MA 02110
160 Federal Street, Boston, MA 02110
(FOR PREMIUM U.S. TREASURY RESERVES) 125 Summer Street, Boston, MA 02110
150 Federal Street, Boston, MA 02110
PM/P/96/RB Printed on Recycled Paper [Recycle Symbol]
PREMIUM LIQUID RESERVES January 2, 1996 (Members of the LandmarkSM Family of Funds)
Premium Liquid Reserves ("Liquid Reserves") and Premium U.S. Treasury Reserves ("U.S. Treasury Reserves" and together with Liquid Reserves, the "Funds") are each separate series of Landmark Premium Funds (the "Trust"). The address and telephone number of the Trust are 6 St. James Avenue, Boston, Massachusetts 02116, (617) 423-1679. The Trust invests all of the investable assets of Liquid Reserves and U.S. Treasury Reserves in, respectively, Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio (the "Portfolios"). The address of Cash Reserves Portfolio is Elizabethan Square, George Town, Grand Cayman, British West Indies. The address and telephone number of U.S. Treasury Reserves Portfolio are 6 St. James Avenue, Boston, Massachusetts 02116, (617) 423-1679.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
Investment Objectives, Policies and Restrictions 3 Determination of Net Asset Value 14 Description of Shares, Voting Right and Liabilities 26 Certain Additional Tax Matters 28 Independent Accountants and Financial Statements 29
This Statement of Additional Information sets forth information which may be of interest to investors but which is not necessarily included in the Funds' Prospectus, dated January 2, 1996, by which shares of the Funds are offered. This Statement of Additional Information should be read in conjunction with the Prospectus, a copy of which may be obtained by an investor without charge by contacting the Funds' Distributor (see back cover for address and phone number).
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
The Trust is a no-load, open-end management investment company which was organized as a business trust under the laws of the Commonwealth of Massachusetts on May 23, 1989. Shares of the Trust are divided into two separate series, Premium Liquid Reserves and Premium U.S. Treasury Reserves, which are described in this Statement of Additional Information. References in this Statement of Additional Information to the Prospectus are to the Prospectus, dated January 2, 1996, of the Funds by which shares of the Funds are offered.
Each of the Funds is a type of mutual fund commonly referred to as a "money market fund." The net asset value of each of the Funds' shares is expected to remain constant at $1.00, although there can be no assurance that this will be so on a continuing basis. (See "Determination of Net Asset Value.")
The Trust seeks the investment objectives of the Funds by investing all the investable assets of Liquid Reserves and U.S. Treasury Reserves in, respectively, Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio. Each of the Portfolios is a diversified open-end management investment company. Each Portfolio has the same investment objectives and policies as its corresponding Fund.
Citibank, N.A. ("Citibank" or the "Adviser") is the investment adviser to each of the Portfolios. The Adviser manages the investments of each Portfolio from day to day in accordance with the investment objectives and policies of that Portfolio. The selection of investments for each Portfolio, and the way they are managed, depend on the conditions and trends in the economy and the financial marketplaces.
The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS" or the "Administrator") supervises the overall administration of the Trust and U.S. Treasury Reserves Portfolio. Signature Financial Group (Cayman), Ltd., either directly or through a wholly-owned subsidiary ("SFG"), supervises the overall administration of Cash Reserves Portfolio. The Boards of Trustees of the Trust and the Portfolios provide broad supervision over the affairs of the Trust and of the Portfolios, respectively. Shares of each Fund are continuously sold by LFBDS, the Funds' distributor (the "Distributor"), only to investors who are customers of a financial institution, such as a federal or state-chartered bank, trust company, savings and loan association or savings bank, or a securities broker, that has entered into a shareholder servicing agreement with the Trust with respect to that Fund (collectively, "Shareholder Servicing Agents"). Although shares of the Funds are sold without a sales load, LFBDS may receive fees from the Funds pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act").
2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objectives of PREMIUM LIQUID RESERVES are to provide shareholders of the Fund with liquidity and as high a level of current income as is consistent with the preservation of capital.
The investment objectives of PREMIUM U.S. TREASURY RESERVES are to provide shareholders of the Fund with liquidity and as high a level of current income from U.S. Government obligations as is consistent with the preservation of capital.
The investment objectives of each of the Funds may be changed without approval by the Fund's shareholders. Of course, there can be no assurance that either Fund will achieve its investment objectives.
The Trust seeks the investment objectives of the Funds by investing all of the investable assets of Liquid Reserves and U.S. Treasury Reserves in, respectively, Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio, each of which has the same investment objectives and policies as its corresponding Fund. The Prospectus contains a discussion of the various types of securities in which each Portfolio may invest and the risks involved in such investments. The following supplements the information contained in the Prospectus concerning the investment objectives, policies and techniques of each Fund and each Portfolio. Since the investment characteristics of each Fund will correspond directly to those of the Portfolio in which it invests, the following is a supplementary discussion with respect to each Portfolio.
The Trust may withdraw the investment of either Fund from its corresponding Portfolio at any time, if the Board of Trustees of the Trust determines that it is in the best interests of the Fund to do so. Upon any such withdrawal, a Fund's assets would be invested in accordance with the investment policies described below with respect to its corresponding Portfolio. Except for the concentration policy of Liquid Reserves with respect to bank obligations described in paragraph (1) below, which is fundamental and may not be changed without the approval of Liquid Reserves' shareholders, the approval of a Fund's shareholders would not be required to change any of that Fund's investment policies. Likewise, except for the concentration policy of Cash Reserves Portfolio with respect to bank obligations described in paragraph (1) below, which is fundamental and may not be changed without the approval of Cash Reserves Portfolio's investors, the approval of the investors in a Portfolio would not be required to change that Portfolio's investment objectives or any of that Portfolio's investment policies discussed below, including those concerning securities transactions.
Cash Reserves Portfolio seeks its investment objective through investments limited to the following types of high quality U.S. dollar-denominated money market instruments. All investments by Cash Reserves Portfolio mature or are deemed to mature within 397 days from the date of acquisition and the average maturity of the investments held by the Portfolio (on a dollar-weighted basis) is 90 days or less. All investments by the Portfolio are in "high quality" securities (i.e., securities rated in the highest rating category for short-term obligations by at least two nationally recognized statistical rating organizations (each, an "NRSRO") assigning a rating to the security or issuer or, if only one NRSRO assigns a rating, that NRSRO or, in the case of an investment which is not rated, of comparable quality as determined by the Adviser) and are determined by the Adviser to present minimal credit risks. Investments in high quality, short-term instruments may, in many circumstances, result in a lower yield than would be available from investments in instruments with a lower quality or a longer term. Under the 1940 Act, Liquid Reserves and Cash Reserves Portfolio are each classified as "diversified," although in the case of Liquid Reserves, all of its investable assets are invested in the Portfolio. A "diversified investment company" must invest at least 75% of its assets in cash and cash items, U.S. Government securities, investment company securities (e.g., interests in the Portfolio) and other securities limited as to any one issuer to not more than 5% of the total assets of the investment company and not more than 10% of the voting securities of the issuer.
(1) Bank obligations -- Cash Reserves Portfolio invests at least 25% of its investable assets, and may invest up to 100% of its assets, in bank obligations. These obligations include, but are not limited to, negotiable certificates of deposit, bankers' acceptances and fixed time deposits. Cash Reserves Portfolio limits its investments in U.S. bank obligations (including their non-U.S. branches) to banks having total assets in excess of $1 billion and which are subject to regulation by an agency of the U.S. Government. The Portfolio may also invest in certificates of deposit issued by banks the deposits in which are insured by the Federal Deposit Insurance Corporation ("FDIC"), through either the Bank Insurance Fund or the Savings Association Insurance Fund, having total assets of less than $1 billion, provided that the Portfolio at no time owns more than $100,000 principal amount of certificates of deposit (or any higher principal amount which in the future may be fully insured by FDIC insurance) of any one of those issuers. Fixed time deposits are obligations which are payable at a stated maturity date and bear a fixed rate of interest. Generally, fixed time deposits may be withdrawn on demand by the Portfolio, but they may be subject to early withdrawal penalties which vary depending upon market conditions and the remaining maturity of the obligation. Although fixed time deposits do not have a market, there are no contractual restrictions on the Portfolio's right to transfer a beneficial interest in the deposit to a third party. This concentration policy is fundamental and may not be changed without the approval of the investors in Cash Reserves Portfolio.
U.S. banks organized under federal law are supervised and examined by the Comptroller of the Currency and are required to be members of the Federal Reserve System and to be insured by the FDIC. U.S. banks organized under state law are supervised and examined by state banking authorities and are members of the Federal Reserve System only if they elect to join. However, state banks which are insured by the FDIC are subject to federal examination and to a substantial body of federal law and regulation. As a result of federal and state laws and regulations, U.S. branches of U.S. banks, among other things, are generally required to maintain specified levels of reserves, and are subject to other supervision and regulation designed to promote financial soundness.
Cash Reserves Portfolio limits its investments in non-U.S. bank obligations (i.e., obligations of non-U.S. branches and subsidiaries of U.S. banks, and U.S. and non-U.S. branches of non-U.S. banks) to U.S. dollar-denominated obligations of banks which at the time of investment are branches or subsidiaries of U.S. banks which meet the criteria in the preceding paragraphs or are branches of non-U.S. banks which (i) have more than $10 billion, or the equivalent in other currencies, in total assets; (ii) in terms of assets are among the 75 largest non-U.S. banks in the world; (iii) have branches or agencies in the United States; and (iv) in the opinion of the Adviser, are of an investment quality comparable with obligations of U.S. banks which may be purchased by the Portfolio. These obligations may be general obligations of the parent bank, in addition to the issuing branch or subsidiary, but the parent bank's obligations may be limited by the terms of the specific obligation or by governmental regulation. The Portfolio also limits its investments in non-U.S. bank obligations to banks, branches and subsidiaries located in Western Europe (United Kingdom, France, Germany, Belgium, the Netherlands, Italy, Switzerland), Scandinavia (Denmark, Norway, Sweden), Australia, Japan, the Cayman Islands, the Bahamas and Canada. Cash Reserves Portfolio does not purchase any bank obligation of the Adviser or an affiliate of the Adviser.
Since Cash Reserves Portfolio may hold obligations of non-U.S. branches and subsidiaries of U.S. banks, and U.S. and non-U.S. branches of non-U.S. banks, an investment in Liquid Reserves involves certain additional risks. Such investment risks include future political and economic developments, the possible imposition of non-U.S. withholding taxes on interest income payable on such obligations held by the Portfolio, the possible seizure or nationalization of non-U.S. deposits and the possible establishment of exchange controls or other non-U.S. governmental laws or restrictions applicable to the payment of the principal of and interest on certificates of deposit or time deposits that might affect adversely such payment on such obligations held by the Portfolio. In addition, there may be less publicly-available information about a non-U.S. branch or subsidiary of a U.S. bank or a U.S. or non-U.S. branch of a non-U.S. bank than about a U.S. bank and such branches and subsidiaries may not be subject to the same or similar regulatory requirements that apply to U.S. banks, such as mandatory reserve requirements, loan limitations and accounting, auditing and financial record-keeping standards and requirements.
The provisions of federal law governing the establishment and operation of U.S. branches do not apply to non-U.S. branches of U.S. banks. However, Cash Reserves Portfolio may purchase obligations only of those non-U.S. branches of U.S. banks which were established with the approval of the Board of Governors of the Federal Reserve System (the "Board of Governors"). As a result of such approval, these branches are subject to examination by the Board of Governors and the Comptroller of the Currency. In addition, such non-U.S. branches of U.S. banks are subject to the supervision of the U.S. bank and creditors of the non-U.S. branch are considered general creditors of the U.S. bank subject to whatever defenses may be available under the governing non-U.S. law and to the terms of the specific obligation. Nonetheless, Cash Reserves Portfolio generally will be subject to whatever risk may exist that the non-U.S. country may impose restrictions on payment of certificates of deposit or time deposits.
U.S. branches of non-U.S. banks are subject to the laws of the state in which the branch is located or to the laws of the United States. Such branches are therefore subject to many of the regulations, including reserve requirements, to which U.S. banks are subject. In addition, Cash Reserves Portfolio may purchase obligations only of those U.S. branches of non-U.S. banks which are located in states which impose the additional requirement that the branch pledge to a designated bank within the state an amount of its assets equal to 5% of its total liabilities.
Non-U.S. banks in whose obligations Cash Reserves Portfolio may invest may not be subject to the laws and regulations referred to in the preceding two paragraphs.
(2) Obligations of, or guaranteed by, non-U.S. governments. Cash Reserves Portfolio limits its investments in non-U.S. government obligations to obligations issued or guaranteed by the governments of Western Europe (United Kingdom, France, Germany, Belgium, the Netherlands, Italy, Switzerland), Scandinavia (Denmark, Norway, Sweden), Australia, Japan and Canada. Generally, such obligations may be subject to the additional risks described in paragraph 1 above in connection with the purchase of non-U.S. bank obligations.
(3) Commercial paper rated Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Ratings Group ("Standard & Poor's") or, if not rated, determined to be of comparable quality by the Adviser, such as unrated commercial paper issued by corporations having an outstanding unsecured debt issue currently rated Aaa by Moody's or AAA by Standard & Poor's.
(4) Obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. These include issues of the U.S. Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies and instrumentalities established under the authority of an Act of Congress. Some of the latter category of obligations are supported by the full faith and credit of the United States, others are supported by the right of the issuer to borrow from the U.S. Treasury, and still others are supported only by the credit of the agency or instrumentality. Examples of each of the three types of obligations described in the preceding sentence are (i) obligations guaranteed by the Export-Import Bank of the United States, (ii) obligations of the Federal Home Loan Mortgage Corporation, and (iii) obligations of the Student Loan Marketing Association, respectively.
(5) Repurchase agreements, providing for resale within 397 days or less, covering obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities which may have maturities in excess of 397 days. A repurchase agreement arises when a buyer purchases an obligation and simultaneously agrees with the vendor to resell the obligation to the vendor at an agreed-upon price and time, which is usually not more than seven days from the date of purchase. The resale price of a repurchase agreement is greater than the purchase price, reflecting an agreed-upon market rate which is effective for the period of time the buyer's funds are invested in the obligation and which is not related to the coupon rate on the purchased obligation. Obligations serving as collateral for each repurchase agreement are delivered to the Portfolio's custodian either physically or in book entry form and the collateral is marked to the market daily to ensure that each repurchase agreement is fully collateralized at all times. A buyer of a repurchase agreement runs a risk of loss if, at the time of default by the issuer, the value of the collateral securing the agreement is less than the price paid for the repurchase agreement. If the vendor of a repurchase agreement becomes bankrupt, Cash Reserves Portfolio might be delayed, or may incur costs or possible losses of principal and income, in selling the collateral. The Portfolio may enter into repurchase agreements only with a vendor which is a member bank of the Federal Reserve System or which is a "primary dealer" (as designated by the Federal Reserve Bank of New York) in U.S. Government obligations. The Portfolio will not enter into any repurchase agreements with the Adviser or an affiliate of the Adviser. The restrictions and procedures described above which govern the Portfolio's investment in repurchase agreements are designed to minimize the Portfolio's risk of losses in making those investments.
(6) Asset-backed securities, which may include securities such as Certificates for Automobile Receivables ("CARS") and Credit Card Receivable Securities ("CARDS"), as well as other asset-backed securities that may be developed in the future. CARS represent fractional interests in pools of car installment loans, and CARDS represent fractional interests in pools of revolving credit card receivables. The rate of return on asset-backed securities may be affected by early prepayment of principal on the underlying loans or receivables. Prepayment rates vary widely and may be affected by changes in market interest rates. It is not possible to accurately predict the average life of a particular pool of loans or receivables. Reinvestment of principal may occur at higher or lower rates than the original yield. Therefore, the actual maturity and realized yield on asset-backed securities will vary based upon the prepayment experience of the underlying pool of loans or receivables. (See "Asset-Backed
Cash Reserves Portfolio does not purchase securities which the Portfolio believes, at the time of purchase, will be subject to exchange controls or non-U.S. withholding taxes; however, there can be no assurance that such laws may not become applicable to certain of the Portfolio's investments. In the event exchange controls or non-U.S. withholding taxes are imposed with respect to any of the Portfolio's investments, the effect may be to reduce the income received by the Portfolio on such investments.
As set forth above, Cash Reserves Portfolio may purchase asset-backed securities that represent fractional interests in pools of retail installment loans, both secured (such as Certificates for Automobile Receivables) and unsecured, leases or revolving credit receivables, both secured and unsecured (such as Credit Card Receivable Securities). These assets are generally held by a trust and payments of principal and interest or interest only are passed through monthly or quarterly to certificate holders and may be guaranteed up to certain amounts by letters of credit issued by a financial institution affiliated or unaffiliated with the trustee or originator of the trust.
Underlying automobile sales contracts, leases or credit card receivables are subject to prepayment, which may reduce the overall return to certificate holders. Nevertheless, principal repayment rates tend not to vary much with interest rates and the short-term nature of the underlying loans, leases or receivables tends to dampen the impact of any change in the prepayment level. Certificate holders may also experience delays in payment on the certificates if the full amounts due on underlying loans, leases or receivables are not realized by the Portfolio because of unanticipated legal or administrative costs of enforcing the contracts or because of depreciation or damage to the collateral (usually automobiles) securing certain contracts, or other factors. If consistent with its investment objectives and policies, Cash Reserves Portfolio may invest in other asset-backed securities that may be developed in the future.
Consistent with applicable regulatory requirements and in order to generate income, each of the Portfolios may lend its securities to broker-dealers and other institutional borrowers. Such loans will usually be made only to member banks of the U.S. Federal Reserve System and to member firms of the New York Stock Exchange ("NYSE") (and subsidiaries thereof). Loans of securities would be secured continuously by collateral in cash, cash equivalents, or U.S. Treasury obligations maintained on a current basis at an amount at least equal to the market value of the securities loaned. The cash collateral would be invested in high quality short-term instruments. A Portfolio would have the right to call a loan and obtain the securities loaned at any time on customary industry settlement notice (which will not usually exceed five days). During the existence of a loan, a Portfolio would continue to receive the equivalent of the interest or dividends paid by the issuer on the securities loaned and would also receive compensation based on investment of the collateral. The Portfolio would not, however, have the right to vote any securities having voting rights during the existence of the loan, but would call the loan in anticipation of an important vote to be taken among holders of the securities or of the giving or withholding of their consent on a material matter affecting the investment. As with other extensions of credit, there are risks of delay in recovery or even loss of rights in the collateral should the borrower fail financially. However, the loans would be made only to entities deemed by the Adviser to be of good standing, and when, in the judgment of the Adviser, the consideration which can be earned currently from loans of this type justifies the attendant risk. If the Adviser determines to make loans, it is not intended that the value of the securities loaned by a Portfolio would exceed 33 1/3% of the value of its net assets.
U.S. Treasury Reserves Portfolio seeks its investment objective by investing in obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities including issues of the U.S. Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies and instrumentalities established under the authority of an Act of Congress which are supported by the full faith and credit of the United States. U.S. Treasury Reserves Portfolio will not enter into repurchase agreements.
The Trust, on behalf of the Funds, and the Portfolios have each adopted the following policies which may not be changed without approval by holders of a "majority of the outstanding shares" of the applicable Fund or Portfolio, which as used in this Statement of Additional Information means the vote of the lesser of (i) 67% or more of the outstanding voting securities of the Fund or Portfolio present at a meeting, if the holders of more than 50% of the outstanding "voting securities" of the Fund or Portfolio are present or represented by proxy, or (ii) more than 50% of the outstanding "voting securities" of the Fund or the Portfolio. The term "voting securities" as used in this paragraph has the same meaning as in the 1940 Act. Whenever the Trust is requested to vote on a change in the investment restrictions of a Portfolio (or, in the case of Cash Reserves Portfolio, its concentration policy described in paragraph (1) under "Investment Policies"), the Trust will hold a meeting of the corresponding Fund's shareholders and will cast its vote as instructed by the shareholders. Each Fund will vote the shares held by its shareholders who do not give voting instructions in the same proportion as the shares of that Fund's shareholders who do give voting instructions. Shareholders of the Funds who do not vote will have no effect on the outcome of these matters.
Neither the Trust, on behalf of a Fund, nor a Portfolio may:
(1) borrow money, except that as a temporary measure for extraordinary or emergency purposes either the Trust or the Portfolio may borrow from banks in an amount not to exceed 1/3 of the value of the net assets of the Fund or the Portfolio, respectively, including the amount borrowed (moreover, neither the Trust (on behalf of the Fund) nor the Portfolio may purchase any securities at any time at which borrowings exceed 5% of the total assets of the Fund or the Portfolio, respectively (taken in each case at market value)) (it is intended that the Fund and the Portfolio would borrow money only from banks and only to accommodate requests for the repurchase of shares of the Fund or the withdrawal of all or a portion of a beneficial interest in the Portfolio while effecting an orderly liquidation of securities); for additional related restrictions, see clause (i) under the caption "State and Federal Restrictions" below;
(2) purchase any security or evidence of interest therein on margin, except that either the Trust, on behalf of the Fund, or the Portfolio may obtain such short term credit as may be necessary for the clearance of purchases and
(3) underwrite securities issued by other persons, except that all the assets of the Fund may be invested in the Portfolio and except insofar as either the Trust or the Portfolio may technically be deemed an underwriter under the Securities Act of 1933 in selling a security;
(4) make loans to other persons except (a) through the lending of securities held by either the Fund or the Portfolio, but not in excess of 33 1/3% of the Fund's or the Portfolio's net assets, as the case may be, (b) through the use of repurchase agreements (or, in the case of Liquid Reserves and Cash Reserves Portfolio, fixed time deposits) or the purchase of short term obligations, or (c) by purchasing all or a portion of an issue of debt securities of types commonly distributed privately to financial institutions; for purposes of this paragraph 4 the purchase of a portion of an issue of debt securities which is part of an issue to the public (and in the case of Liquid Reserves and Cash Reserves Portfolio, short term commercial paper) shall not be considered the making of a loan; for additional related restrictions, see clause (x) under the caption "State and Federal Restrictions" below;
(5) purchase or sell real estate (including limited partnership interests but excluding securities secured by real estate or interests therein), interests in oil, gas or mineral leases, commodities or commodity contracts in the ordinary course of business (the Trust on behalf of each Fund and the Portfolio reserve the freedom of action to hold and to sell real estate acquired as a result of the ownership of securities by the Fund or the Portfolio);
(6) in the case of U.S. Treasury Reserves and U.S. Treasury Reserves Portfolio, concentrate its investment in any particular industry; provided that nothing in this Investment Restriction is intended to affect the ability to invest 100% of U.S. Treasury Reserves' assets in U.S. Treasury Reserves
(7) in the case of Liquid Reserves and Cash Reserves Portfolio, concentrate its investments in any particular industry, but, if it is deemed appropriate for the achievement of its investment objective, up to 25% of the assets of Liquid Reserves or Cash Reserves Portfolio, respectively (taken at market value at the time of each investment) may be invested in any one industry, except that the Portfolio will invest at least 25% of its assets and may invest up to 100% of its assets in bank obligations; provided that, if the Trust withdraws the investment of Liquid Reserves from Cash Reserves Portfolio, the Trust will invest the assets of the Fund in bank obligations to the same extent and with the same reservation as the Portfolio; and provided, further that nothing in this Investment Restriction is intended to affect Liquid Reserves' ability to invest 100% of its assets in Cash Reserves Portfolio; or
(8) issue any senior security (as that term is defined in the 1940 Act) if such issuance is specifically prohibited by the 1940 Act or the rules and regulations promulgated thereunder, except as appropriate to evidence a debt incurred without violating Investment Restriction (1) above.
In order to comply with certain state and federal statutes and regulatory policies, neither the Trust, on behalf of either of the Funds, nor the corresponding Portfolio will as a matter of operating policy:
(i) borrow money for any purpose in excess of 10% of the total assets of the Fund or Portfolio (taken in each case at cost),
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of the net assets of the Fund or Portfolio (taken in each case at market value),
(iii) sell any security which it does not own unless by virtue of its ownership of other securities it has at the time of sale a right to obtain securities, without payment of further consideration, equivalent in kind and amount to the securities sold; and provided, that if such right is conditional the sale is made upon the same conditions,
(iv) invest for the purpose of exercising control or management, except that all of the assets of the Fund may be invested in the corresponding
(v) purchase securities issued by any registered investment company, except that all of the assets of the Fund may be invested in the corresponding Portfolio and except by purchase in the open market where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission, and except when such purchase, though not made in the open market, is part of a plan of merger or consolidation; provided, however, that the Trust (on behalf of the Fund) and the Portfolio will not purchase the securities of any registered investment company if such purchase at the time thereof would cause more than 10% of the total assets of the Fund or the Portfolio, respectively (taken in each case at the greater of cost or market value) to be invested in the securities of such issuers or would cause more than 3% of the outstanding voting securities of any such issuer to be held by the Fund or Portfolio; and provided, further, that neither the Fund nor the Portfolio shall purchase securities issued by any open-end investment company,
(vi) taken together with any investments described in clause (x) below, invest more than 10% of the net assets of the Fund or the Portfolio in securities that are not readily marketable, including debt securities for which there is no established market (and, in the case of Liquid Reserves and Cash Reserves Portfolio, fixed time deposits) and repurchase agreements maturing in more than seven days, except that all the assets of the Fund may be invested in
(vii) purchase securities of any issuer if such purchase at the time thereof would cause it to hold more than 10% of any class of securities of such issuer, for which purposes all indebtedness of an issuer shall be deemed a single class, except that all the assets of the Fund may be invested in the
(viii) purchase or retain any securities issued by an issuer any of whose officers, directors, trustees or security holders is an officer or Trustee of the Trust or the Portfolio, or is an officer or director of the Adviser, if after the purchase of the securities of such issuer by the Trust, on behalf of the Fund, or the Portfolio, one or more of such persons owns beneficially more than 1/2 of 1% of the shares or securities, or both, all taken at market value, of such issuer, and such persons owning more than 1/2 of 1% of such shares or securities together own beneficially more than 5% of such shares or securities, or both, all taken at market value,
(ix) write, purchase or sell any put or call option or any combination
(x) taken together with any investments described in clause (vi) above, invest in securities which are subject to legal or contractual restrictions on resale (other than, in the case of Liquid Reserves and Cash Reserves Portfolio, repurchase agreements and fixed time deposits maturing in not more than seven days) if, as a result thereof, more than 10% of the net assets of the Fund or the Portfolio, respectively, (in each case taken at market value) would be so invested (including, in the case of Liquid Reserves and Cash Reserves Portfolio, repurchase agreements maturing in more than seven days), except that all the assets of the Fund may be invested in the Portfolio,
(xi) purchase securities of any issuer if such purchase at the time thereof would cause more than 10% of the voting securities of such issuer to be held by the Fund or the Portfolio, respectively, except that all the assets of the Fund may be invested in the Portfolio, or
(xii) make short sales of securities or maintain a short position, unless at all times when a short position is open it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short, and unless not more than 10% of the net assets of the Fund or the Portfolio respectively (in each case taken at market value) is held as collateral for such sales at any one time (the Funds and the Portfolios do not presently intend to make such sales).
These policies are not fundamental and may be changed by the Trust with respect to a Fund without approval by the Fund's shareholders, or by a Portfolio without approval by the corresponding Fund or its other investors, in each case in response to changes in the various state and federal requirements.
If a percentage restriction or a rating restriction (other than a restriction as to borrowing) on investment or utilization of assets set forth above or referred to in the Prospectus is adhered to at the time an investment is made or assets are so utilized, a later change in percentage resulting from changes in the value of the securities held by a Fund or a Portfolio or a later change in the rating of a security held by the Fund or the Portfolio is not considered a violation of policy.
Any current yield quotation of a Fund which is used in such a manner as to be subject to the provisions of Rule 482(d) under the Securities Act of 1933, as amended, consists of an annualized historical yield, carried at least to the nearest hundredth of one percent, based on a specific seven calendar day period and is calculated by dividing the net change in the value of an account having a balance of one share at the beginning of the period by the value of the account at the beginning of the period and multiplying the quotient by 365/7. For this purpose the net change in account value would reflect the value of additional shares purchased with dividends declared on the original share and dividends declared on both the original share and any such additional shares, but would not reflect any realized gains or losses as a result of the Fund's investment in the Portfolio or any unrealized appreciation or depreciation on portfolio securities. In addition, any effective yield quotation of a Fund so used shall be calculated by compounding the current yield quotation for such period by multiplying such quotation by 7/365, adding 1 to the product, raising the sum to a power equal to 365/7, and subtracting 1 from the result.
Any tax equivalent yield quotation of a Fund is calculated as follows: If the entire current yield quotation for such period is tax-exempt, the tax equivalent yield will be the current yield quotation divided by 1 minus a stated income tax rate or rates. If a portion of the current yield quotation is not tax-exempt, the tax equivalent yield will be the sum of (a) that portion of the yield which is tax-exempt divided by 1 minus a stated income tax rate or rates and (b) the portion of the yield which is not tax-exempt.
A total rate of return quotation for a Fund is calculated for any period by (a) dividing (i) the sum of the net asset value per share on the last day of the period and the net asset value per share on the last day of the period of shares purchasable with dividends and capital gains distributions declared during such period with respect to a share held at the beginning of such period and with respect to shares purchased with such dividends and capital gains distributions, by (ii) the public offering price on the first day of such period, and (b) subtracting 1 from the result. Any annualized total rate of return quotation is calculated by (x) adding 1 to the period total rate of return quotation calculated above, (y) raising such sum to a power which is equal to 365 divided by the number of days in such period, and (z) subtracting 1 from the result.
Any tax equivalent total rate of return quotation of a Fund is calculated as follows: If the entire current total rate of return quotation for such period is tax-exempt, the tax equivalent total rate of return will be the current total rate of return quotation divided by 1 minus a stated income tax rate or rates. If a portion of the current total rate of return quotation is not tax-exempt, the tax equivalent total rate of return will be the sum of (a) that portion of the total rate of return which is tax-exempt divided by 1 minus a stated income tax rate or rates and (b) the portion of the total rate of return which is not tax-exempt.
Set forth below is total rate of return information, assuming that dividends and capital gains distributions, if any, were reinvested, for the Funds for the periods indicated, at the beginning of which periods no sales charges were applicable to purchases of shares of the Funds.
The annualized yield of Premium Liquid Reserves for the seven-day period ended August 31, 1995 was 5.60%. The effective compound annualized yield of Premium Liquid Reserves for such period was 5.78%. The annualized yield of Premium U.S. Treasury Reserves for the seven-day period ended August 31, 1995 was 5.11%, the effective compound annualized yield of Premium U.S. Treasury Reserves for such period was 5.24% and the annualized tax equivalent yield of Premium U.S. Treasury Reserves for such period was 5.81% (assuming a combined state and local tax rate of 12.051% for New York City residents).
4. DETERMINATION OF NET ASSET VALUE
The net asset value of each of the shares of each Fund is determined on each day on which the NYSE is open for trading. This determination is made once during each such day as of 3:00 p.m., Eastern time, for Liquid Reserves and 12:00 noon, Eastern time, for U.S. Treasury Reserves, by dividing the value of the Fund's net assets (i.e., the value of its investment in its Portfolio and other assets less its liabilities, including expenses payable or accrued) by the number of shares of the Fund outstanding at the time the determination is made. As of the date of this Statement of Additional Information, the NYSE is open for trading every weekday except for the following holidays (or the days on which they are observed): New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It is anticipated that the net asset value of each share of each Fund will remain constant at $1.00 and, although no assurance can be given that they will be able to do so on a continuing basis, as described below, the Funds and Portfolios employ specific investment policies and procedures to accomplish this result.
The value of a Portfolio's net assets (i.e., the value of its securities and other assets less its liabilities, including expenses payable or accrued) is determined at the same time and on the same days as the net asset value per share of the corresponding Fund is determined. The net asset value of a Fund's investment in the corresponding Portfolio is equal to the Fund's pro rata share of the total investment of the Fund and of other investors in the Portfolio less the Fund's pro rata share of the Portfolio's liabilities.
The securities held by a Fund or Portfolio are valued at their amortized cost. Amortized cost valuation involves valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. If fluctuating interest rates cause the market value of the securities held by the Fund or Portfolio to deviate more than 1/2 of 1% from their value determined on the basis of amortized cost, the Fund or Portfolio's Board of Trustees will consider whether any action should be initiated, as described in the following paragraph. Although the amortized cost method provides certainty in valuation, it may result in periods during which the stated value of an instrument is higher or lower than the price the Fund or Portfolio would receive if the instrument were sold.
Pursuant to the rules of the Securities and Exchange Commission ("SEC"), the Trust's and the Portfolios' Boards of Trustees have established procedures to stabilize the value of the Funds' and Portfolios' net assets within 1/2 of 1% of the value determined on the basis of amortized cost. These procedures include a review of the extent of any such deviation of net asset value, based on available market rates. Should that deviation exceed 1/2 of 1% for a Fund or a Portfolio, the Trust's or Portfolio's Board of Trustees of the applicable Fund or Portfolio will consider whether any action should be initiated to eliminate or reduce material dilution or other unfair results to the investors in the Fund or Portfolio. Such action may include withdrawal in kind, selling securities prior to maturity and utilizing a net asset value as determined by using available market quotations. The Funds and Portfolios maintain a dollar-weighted average maturity of 90 days or less, do not purchase any instrument with a remaining maturity greater than 397 days or (in the case of Liquid Reserves and Cash Reserves Portfolio) subject to a repurchase agreement having a duration of greater than 397 days, limit their investments, including repurchase agreements, to those U.S. dollar-denominated instruments that are determined by the Adviser to present minimal credit risks and comply with certain reporting and recordkeeping procedures. The Trust and Portfolios also have established procedures to ensure that securities purchased by the Funds and Portfolios meet high quality criteria. (See "Investment Objectives, Policies and Restrictions -- Investment Policies.")
Subject to compliance with applicable regulations, the Trust and the Portfolios have each reserved the right to pay the redemption price of shares of the Funds or beneficial interests in the Portfolios, either totally or partially, by a distribution in kind of readily marketable securities (instead of cash). The securities so distributed would be valued at the same amount as that assigned to them in calculating the net asset value for the shares or beneficial interests being sold. If a holder of shares or beneficial interests received a distribution in kind, such holder could incur brokerage or other charges in converting the securities to cash.
The Trust or the Portfolios may suspend the right of redemption or postpone the date of payment for shares of a Fund or beneficial interests in a Portfolio more than seven days during any period when (a) trading in the markets the Fund or Portfolio normally utilizes is restricted, or an emergency, as defined by the rules and regulations of the SEC, exists making disposal of the Fund's or Portfolio's investments or determination of its net asset value not reasonably practicable; (b) the NYSE is closed (other than customary weekend and holiday closings); or (c) the SEC has by order permitted such suspension.
The Trustees and officers of the Trust and the Portfolios, their ages and their principal occupations during the past five years are set forth below. Their titles may have varied during that period. Asterisks indicate that those Trustees and officers are "interested persons" (as defined in the 1940 Act) of the Trust or a Portfolio. Unless otherwise indicated below, the address of each Trustee and officer is 6 St. James Avenue, Boston, Massachusetts. The address of Cash Reserves Portfolio is Elizabethan Square, George Town, Grand Cayman, British West Indies. The address of U.S. Treasury Reserves Portfolio is 6 St. James Avenue, Boston, Massachusetts.
PHILIP W. COOLIDGE; 44* -- President of the Trust and the Portfolios; Chairman, Chief Executive Officer and President, Signature Financial Group, Inc. and The Landmark Funds Broker-Dealer Services, Inc. (since December, 1988).
MARK T. FINN; 52 -- President and Director, Delta Financial, Inc. (since June, 1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd. (Commodity Trading Advisory Firm) (since April, 1990); Director, Vantage Consulting Group (since October, 1988). His address is 3500 Pacific Avenue, P.O. Box 539, Virginia Beach, Virginia.
DONALD B. OTIS; 76 -- Director of Investor Relations, International Business Machines Corporation (retired February, 1982). His address is 6300 Midnight Pass Road, Sarasota, Florida.
WILLIAM S. WOODS, JR.; 75 -- Vice President - Investments, Sun Company, Inc. (retired, April, 1984). His address is 35 Colwick Road, Cherry Hill, New Jersey.
ELLIOTT J. BERV; 52 -- Chairman and Director, Catalyst, Inc. (Management Consultants) (since August, 1992); President, Chief Operating Officer and Director, Deven International, Inc. (International Consultants) (June, 1991 to July, 1992); President and Director, Elliott J. Berv & Associates (Management Consultants) (since May, 1984). His address is 15 Stornoway Drive, Cumberland Foreside, Maine.
PHILIP W. COOLIDGE; 44* -- President of the Trust and the Portfolios; Chairman, Chief Executive Officer and President, Signature Financial Group, Inc. and The Landmark Funds Broker-Dealer Services, Inc. (since December, 1988).
MARK T. FINN; 52 -- President and Director, Delta Financial, Inc. (since June, 1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd. (Commodity Trading Advisory Firm) (since April, 1990); Director, Vantage Consulting Group (since October, 1988). His address is 3500 Pacific Avenue, P.O. Box 539, Virginia Beach, Virginia.
WALTER E. ROBB, III; 69 -- President, Benchmark Advisors, Inc. (Corporate Financial Advisors) (since 1989); Trustee of certain registered investment companies in the MFS Family of Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
OFFICERS OF THE TRUST AND THE PORTFOLIOS
PHILIP W. COOLIDGE; 44* -- President of the Trust and the Portfolios; Chairman, Chief Executive Officer and President, Signature Financial Group, Inc. and The Landmark Funds Broker-Dealer Services, Inc. (since December, 1988).
DAVID G. DANIELSON; 30* -- Assistant Treasurer of the Trust and the Portfolios; Assistant Manager, Signature Financial Group, Inc. since May 1991; Graduate Student, Northeastern University from April 1990 to March 1991.
JOHN R. ELDER; 47* -- Treasurer of the Trust and the Portfolios; Vice President, Signature Financial Group, Inc. (since April 1995); Treasurer, Phoenix Family of Mutual Funds (Phoenix Home Life Mutual Insurance Company) (from 1983 to March 1995).
LINDA T. GIBSON; 30* -- Assistant Secretary of the Trust and the Portfolios; Legal Counsel, Signature Financial Group, Inc. (since June 1991); law student, Boston University School of Law (from September 1989 to May 1992); Product Manager, Signature Financial Group, Inc. (January 1989 to September 1989).
SUSAN JAKUBOSKI; 31* -- Vice President, Assistant Treasurer and Assistant Secretary of Cash Reserves Portfolio and Assistant Secretary of the Trust (since August, 1994); Manager, Signature Financial Group (Cayman) Ltd. (since August, 1994); Senior Fund Administrator, Signature Financial Group, Inc. (since August, 1994); Assistant Treasurer, Signature Broker-Dealer Services, Inc. (since September, 1994); Fund Compliance Administrator, Concord Financial Group (November, 1990 to August, 1994); Senior Fund Accountant, Neuberger & Berman Management, Inc. (from February, 1988 to November, 1990); Customer Service Representative, I.B.J. Schroder (prior to 1988). Her address is Elizabethan Square, George Town, Grand Cayman, Cayman Islands, BWI.
JAMES S. LELKO; 30* -- Assistant Treasurer of the Trust and the Portfolios; Assistant Manager, Signature Financial Group, Inc. since January 1993; Senior Tax Compliance Accountant, Putnam Companies since prior to December 1992.
THOMAS M. LENZ; 37* -- Secretary of the Trust and the Portfolios; Vice President and Associate General Counsel, Signature Financial Group, Inc. (since November 1989); Attorney, Ropes & Gray (September 1984 to November 1989).
MOLLY S. MUGLER; 44* -- Assistant Secretary of the Trust and the Portfolios; Legal Counsel and Assistant Secretary, Signature Financial Group, Inc. (since December, 1988); Assistant Secretary, The Landmark Funds Broker-Dealer Services, Inc. (since December, 1988).
BARBARA M. O'DETTE; 36*-- Assistant Treasurer of the Trust and the Portfolios; Assistant Treasurer, Signature Financial Group, Inc. and The Landmark Funds Broker-Dealer Services, Inc. (since December, 1988).
ANDRES E. SALDANA; 33* -- Assistant Secretary of the Trust and the Portfolios; Legal Counsel and Assistant Secretary, Signature Financial Group, Inc. since November 1992; Attorney, Ropes & Gray from September 1990 to November 1992.
DANIEL E. SHEA; 33* -- Assistant Treasurer of the Trust and the Portfolios; Assistant Manager of Fund Administration, Signature Financial Group, Inc. since November 1993; Supervisor and Senior Technical Advisor, Putnam Investments since prior to 1990.
The Trustees and officers of the Trust and the Portfolios also hold comparable positions with certain other funds for which LFBDS or an affiliate serves as the distributor or administrator.
As of December 15, 1995, all Trustees and officers as a group owned less than 1% of each Fund's outstanding shares. As of the same date, more than 95% of the outstanding shares of Liquid Reserves and more than 95% of the outstanding shares of U.S. Treasury Reserves were held of record by Citibank, N.A. or an affiliate, as a Shareholder Servicing Agent of the Funds, for the accounts of their respective clients.
The Declaration of Trust of each of the Trust and the Portfolios provides that the Trust or such Portfolio, as the case may be, will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust or such Portfolio, as the case may be, unless, as to liability to the Trust or such Portfolio or its respective investors, it is finally adjudicated that they engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in their offices, or unless with respect to any other matter it is finally adjudicated that they did not act in good faith in the reasonable belief that their actions were in the best interests of the Trust or such Portfolio, as the case may be. In the case of settlement, such indemnification will not be provided unless it has been determined by a court or other body approving the settlement or other disposition, or by a reasonable determination, based upon a review of readily available facts, by vote of a majority of disinterested Trustees of the Trust or such Portfolio, or in a written opinion of independent counsel, that such officers or Trustees have not engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of their duties.
Citibank manages the assets of each Portfolio pursuant to separate investment advisory agreements (the "Advisory Agreements"). Subject to such policies as the Board of Trustees of a Portfolio may determine, the Adviser manages the securities of the Portfolio and makes investment decisions for the Portfolio. The Adviser furnishes at its own expense all services, facilities and personnel necessary in connection with managing the Portfolios' investments and effecting securities transactions for each Portfolio. Each of the Advisory Agreements will continue in effect as long as such continuance is specifically approved at least annually by the Board of Trustees of the applicable Portfolio or by a vote of a majority of the outstanding voting securities of the applicable Portfolio, and, in either case, by a majority of the Trustees of the applicable Portfolio who are not parties to such Advisory Agreement or interested persons of any such party, at a meeting called for the purpose of voting on the Advisory Agreement.
Each of the Advisory Agreements provides that the Adviser may render services to others. Each Advisory Agreement is terminable without penalty on not more than 60 days' nor less than 30 days' written notice by the applicable Portfolio when authorized either by a vote of a majority of the outstanding voting securities of the applicable Portfolio or by a vote of a majority of the Board of Trustees of the applicable Portfolio, or by the Adviser on not more than 60 days' nor less than 30 days' written notice, and will automatically terminate in the event of its assignment. Each Advisory Agreement provides that neither the Adviser nor its personnel shall be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of security transactions for the applicable Portfolio, except for willful misfeasance, bad faith or gross negligence or reckless disregard of its or their obligations and duties under the Advisory Agreement.
The Prospectus contains a description of the fees payable to the Adviser for services under the Advisory Agreements.
Cash Reserves Portfolio: For the fiscal years ended August 31, 1993, 1994 and 1995 the fees paid to Citibank under the Advisory Agreement were $2,108,642, $1,806,314 (of which $943,419 was voluntarily waived) and $4,097,854 (of which $2,306,161 was voluntarily waived), respectively.
U.S. Treasury Reserves Portfolio: For the fiscal year ended December 31, 1992, the eight-month period ended August 31, 1993 and the fiscal years ended August 31, 1994 and 1995, the fees paid to Citibank under the Advisory Agreement were $933,117, $570,108, $850,924 (of which $506,109 was voluntarily waived), and $1,148,418 (of which $753,105 was voluntarily waived), respectively.
Pursuant to Administrative Services Agreements (the "Administrative Services Agreements"), LFBDS provides the Trust and U.S. Treasury Reserves Portfolio, and SFG provides Cash Reserves Portfolio, with general office facilities, and LFBDS supervises the overall administration of the Trust and U.S. Treasury Reserves Portfolio and SFG supervises the overall administration of Cash Reserves Portfolio, including, among other responsibilities, the negotiation of contracts and fees with, and the monitoring of performance and billings of, the independent contractors and agents of the Trust and the Portfolios; the preparation and filing of all documents required for compliance by the Trust and the Portfolios with applicable laws and regulations; and arranging for the maintenance of books and records of the Trust and the Portfolios. LFBDS and SFG provide persons satisfactory to the Board of Trustees of the Trust and the Portfolios to serve as Trustees and officers of the Trust and the Portfolios. Such Trustees and officers may be directors, officers or employees of LFBDS, SFG or their affiliates.
The Prospectus contains a description of the fees payable to LFBDS and SFG under the Administrative Services Agreements.
Liquid Reserves: For the fiscal years ended August 31, 1993, 1994 and 1995, the fees payable to LFBDS from the Fund under the Administrative Services Agreement and a prior administrative services agreement with the Trust were $126,597, $288,055 and $458,618 (of which $53,106, $89,434 and $11,881 were voluntarily waived). For the same periods, the fees paid or payable to SFG under the Administrative Services Agreement with Cash Reserves Portfolio and a prior administrative services agreement with Cash Reserves Portfolio were $702,881 and $602,105 (of which $596,227 and $602,105 were voluntarily waived) and $1,365,951 (all of which was voluntarily waived).
U.S. Treasury Reserves: For the fiscal year ended December 31, 1992, the eight-month period ended August 31, 1993 and the fiscal years ended August 31, 1994 and 1995, the fees payable to LFBDS from U.S. Treasury Reserves under the Administrative Services Agreement and the prior administrative services agreement with the Trust were $91,593 (of which $34,542 was voluntarily waived), $83,005 (of which $18,018 was voluntarily waived), $348,031 (of which $69,228 was voluntarily waived) and $395,992 (of which $9,857 was voluntarily waived). For the fiscal year ended December 31, 1992, the eight-month period ended August 31, 1993 and the fiscal years ended August 31, 1994 and 1995, the fees payable to LFBDS under the Administrative Services Agreement with U.S. Treasury Reserves Portfolio were $311,039 (of which $72,119 was voluntarily waived), and $190,036, $283,642 and $382,806 (all of which were voluntarily waived).
The Administrative Services Agreement with the Trust acknowledges that the names "Landmark" and "Landmark Funds" are the property of LFBDS and provides that if LFBDS ceases to serve as the administrator of the Trust, the Trust will change its name so as to delete the word "Landmark" or the words "Landmark Funds." The Administrative Services Agreement with the Trust also provides that LFBDS may render administrative services to others and may permit other investment companies in addition to the Trust to use the word "Landmark" or the words "Landmark Funds" in their names.
The Administrative Services Agreement with the Trust continues in effect as to a Fund if such continuance is specifically approved at least annually by the Trust's Board of Trustees or by a vote of a majority of the outstanding voting securities of such Fund and, in either case, by a majority of the Trustees of the Trust who are not interested parties of the Trust or LFBDS. The Administrative Services Agreement with the Trust terminates automatically if it is assigned and may be terminated as to a Fund by the Trust without penalty by vote of a majority of the outstanding voting securities of the Fund or by either party on not more than 60 days' nor less than 30 days' written notice. The Administrative Services Agreement with the Trust also provides that neither LFBDS nor its personnel shall be liable for any error of judgment or mistake of law or for any act or omission in the administration or management of the Trust, except for willful misfeasance, bad faith or gross negligence in the performance of its or their duties or by reason of reckless disregard of its or their obligations and duties under the Administrative Services Agreement.
LFBDS has agreed to reimburse the Funds for their operating expenses (exclusive of interest, taxes, brokerage, and extraordinary expenses) which in any year exceed the limits prescribed by any state in which the Funds' shares are qualified for sale. The expenses incurred by the Funds for distribution purposes pursuant to the Trust's Distribution Plans are included within such operating expenses only to the extent required by any state in which the Funds' shares are qualified for sale. The Trust may elect not to qualify the Funds' shares for sale in every state. The Trust believes that currently the most restrictive expense ratio limitation imposed by any state is 2 1/2% of the first $30 million of a Fund's average net assets for its then-current fiscal year, 2% of the next $70 million of such assets, and 1 1/2% of such assets in excess of $100 million. For the purpose of this obligation to reimburse expenses, the Funds' annual expenses are estimated and accrued daily, and any appropriate estimated payments will be made by LFBDS. Subject to the obligation of LFBDS to reimburse the Funds for their excess expenses as described above, the Trust has, under its Administrative Services Agreement, confirmed its obligation for payment of all other expenses of the Funds.
The Administrative Services Agreements with the Portfolios provide that LFBDS or SFG, as the case may be, may render administrative services to others. The Administrative Services Agreement with each of the Portfolios terminates automatically if it is assigned and may be terminated without penalty by a vote of a majority of the outstanding voting securities of the Portfolio or by either party on not more than 60 days' nor less than 30 days' written notice. The Administrative Services Agreement with each of the Portfolios also provides that neither LFBDS or SFG, as the case may be, nor its personnel shall be liable for any error of judgment or mistake of law or for any act or omission in the administration or management of the Portfolio, except for willful misfeasance, bad faith or gross negligence in the performance of its or their duties or by reason of reckless disregard of its or their obligations and duties under the Administrative Services Agreement.
LFBDS and SFG are wholly-owned subsidiaries of Signature Financial Group, Inc.
Pursuant to Sub-Administrative Services Agreements (the "Sub-Administrative Agreements"), Citibank performs such sub-administrative duties for the Trust and the Portfolios as are from time to time agreed upon by Citibank and, as the case may be, LFBDS or SFG. Citibank's sub-administrative duties may include providing equipment and clerical personnel necessary for maintaining the organization of the Trust and the Portfolios, participation in preparation of documents required for compliance by the Trust and the Portfolios with applicable laws and regulations, preparation of certain documents in connection with meetings of Trustees and shareholders of the Trust and Portfolios, and other functions which would otherwise be performed by LFBDS as set forth above. For performing such sub-administrative services, Citibank receives such compensation as is from time to time agreed upon by Citibank and, as the case may be, LFBDS or SFG not in excess of the amount paid to LFBDS or SFG for its services under the applicable Administrative Services Agreement. All such compensation is paid by LFBDS or SFG, as the case may be.
The Trust has adopted a Distribution Plan (the "Distribution Plan") in accordance with Rule 12b-1 under the 1940 Act after having concluded that there is a reasonable likelihood that the Distribution Plan will benefit the Funds and their shareholders. The Distribution Plan provides that the Distributor receives a fee from each Fund at an annual rate not to exceed 0.10% of the Fund's average daily net assets in anticipation of, or as reimbursement for, expenses incurred in connection with the sale of shares of the Fund, such as advertising expenses and the expenses of printing (excluding typesetting) and distributing prospectuses and reports used for sales purposes, expenses of preparing and printing sales literature and other distribution related expenses.
The Distribution Plan continues in effect if such continuance is specifically approved at least annually by a vote of both a majority of the Trust's Trustees and a majority of the Trust's Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Distribution Plan or in any agreement related to such Plan ("Qualified Trustees"). The Distribution Plan requires that at least quarterly the Trust and the Distributor provide to the Board of Trustees and the Board of Trustees review a written report of the amounts expended (and the purposes therefor) under the Distribution Plan. The Distribution Plan further provides that the selection and nomination of the Trust's Qualified Trustees is committed to the discretion of the Trust's disinterested Trustees then in office. The Distribution Plan may be terminated with respect to the applicable Fund at any time by a vote of a majority of the Trust's Qualified Trustees or by a vote of a majority of the outstanding voting securities of that Fund. The Distribution Plan may not be amended to increase materially the amount of the Funds' permitted expenses thereunder without the approval of a majority of the outstanding voting securities of the applicable Fund and may not be materially amended in any case without a vote of the majority of both the Trust's Trustees and the Trust's Qualified Trustees. The Distributor will preserve copies of any plan, agreement or report made pursuant to the Distribution Plan for a period of not less than six years from the date of the Distribution Plan, and for the first two years the Distributor will preserve such copies in an easily accessible place.
As contemplated by the Distribution Plan, LFBDS acts as the agent of the Funds in connection with the offering of shares of the Funds pursuant to a Distribution Agreement (the "Distribution Agreement"). After the prospectus and periodic reports have been prepared, set in type and mailed to existing shareholders, the Distributor pays for the printing and distribution of copies of the prospectuses and periodic reports which are used in connection with the offering of shares of the Funds to prospective investors. The Prospectus contains a description of fees payable to the Distributor under the Distribution Agreement.
Liquid Reserves: For the fiscal years ended August 31, 1993, 1994 and 1995, the fees payable to the Distributor from Liquid Reserves under the Distribution Agreement were $253,194 (of which $207,096 was voluntarily waived), $192,037 (of which $190,409 was voluntarily waived) and $305,745 (of which $267,152 was voluntarily waived), respectively.
U.S. Treasury Reserves: For the eight-month period ended August 31, 1993 and the fiscal years ended August 31, 1994 and 1995, the fees payable from U.S. Treasury Reserves to the Distributor under the Distribution Agreement were $166,010, $232,020 and $263,994, of which $74,637, $105,017 and $104,884 were voluntarily waived.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
The Trust has adopted an Administrative Services Plan (the "Administrative Plan") which provides that the Trust may obtain the services of an administrator, a transfer agent, a custodian and one or more Shareholder Servicing Agents, and may enter into agreements providing for the payment of fees for such services. Under the Administrative Plan, the aggregate of the fee paid to the Administrator from each Fund and the fees paid to the Shareholder Servicing Agents from each Fund may not exceed 0.45% of the applicable Fund's average daily net assets on an annualized basis for the Fund's then-current fiscal year. The Administrative Plan continues in effect if such continuance is specifically approved at least annually by a vote of both a majority of the Trust's Trustees and a majority of the Trust's Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Administrative Plan or in any agreement related to such Plan ("Qualified Trustees"). The Administrative Plan requires that the Trust provide to the Trust's Board of Trustees and the Trust's Board of Trustees review, at least quarterly, a written report of the amounts expended (and the purposes therefor) under the Administrative Plan. The Administrative Plan may be terminated at any time with respect to a Fund by a vote of a majority of the Trust's Qualified Trustees or by a vote of a majority of the outstanding voting securities of the Fund. The Administrative Plan may not be amended to increase materially the amount of permitted expenses thereunder without the approval of a majority of the outstanding voting securities of a Fund and may not be materially amended in any case without a vote of the majority of both the Trust's Trustees and the Trust's Qualified Trustees.
The Trust has entered into a shareholder servicing agreement (a "Servicing Agreement") with each Shareholder Servicing Agent and a Transfer Agency and Service Agreement and a Custodian Agreement with State Street Bank and Trust Company ("State Street") pursuant to which State Street (or its affiliate State Street Canada, Inc.) acts as transfer agent and custodian for the Trust. For additional information, including a description of fees paid to the Shareholder Servicing Agents under the Servicing Agreements, see "Management-Shareholder Servicing Agents" in the Prospectus. For the fiscal years ended August 31, 1993, 1994 and 1995, aggregate fees payable from Liquid Reserves to Shareholder Servicing Agents were $1,012,776, of which $759,582 was voluntarily waived, $576,110, of which $384,073 was voluntarily waived and $917,235 (of which $611,490 was voluntarily waived). For the fiscal year ended December 31, 1992, the eight-month period ended August 31, 1993 and the fiscal years ended August 31, 1994 and 1995, the aggregate fees payable from U.S. Treasury Reserves to Shareholder Servicing Agents under the Servicing Agreements were $732,747, of which $549,560 was voluntarily waived, $664,039, of which $498,030 was voluntarily waived, $696,061 of which $464,041 was voluntarily waived, and $791,983 (of which $527,989 was voluntarily waived), respectively.
The Portfolios have also adopted Administrative Services Plans (the "Portfolio Administrative Plans") which provide that the Portfolios may obtain the services of an administrator, a transfer agent and a custodian, and may enter into agreements providing for the payment of fees for such services. Under the Portfolio Administrative Plans, the administrative services fee payable to either LFBDS or SFG, as the case may be, may not exceed 0.05% of a Portfolio's average daily net assets on an annualized basis for its then-current fiscal year. Each Portfolio Administrative Plan continues in effect if such continuance is specifically approved at least annually by a vote of both a majority of the applicable Portfolio's Trustees and a majority of the Portfolio's Trustees who are not "interested persons" of the Portfolio and who have no direct or indirect financial interest in the operation of the Portfolio Administrative Plan or in any agreement related to such Plan ("Qualified Trustees"). Each Portfolio Administrative Plan requires that the applicable Portfolio provide to its Board of Trustees and the Board of Trustees review, at least quarterly, a written report of the amounts expended (and the purposes therefor) under the Portfolio Administrative Plan. Each Portfolio Administrative Plan may be terminated at any time by a vote of a majority of the Portfolio's Qualified Trustees or by a vote of a majority of the outstanding voting securities of the applicable Portfolio. Neither Portfolio Administrative Plan may be amended to increase materially the amount of permitted expenses thereunder without the approval of a majority of the outstanding voting securities of the applicable Portfolio and may not be materially amended in any case without a vote of the majority of both the Portfolio's Trustees and the Portfolio's Qualified Trustees.
Each Portfolio has entered into a Transfer Agency and Service Agreement and a Custodian Agreement with State Street pursuant to which State Street (or its affiliate State Street Canada, Inc.) acts as transfer agent and custodian and performs fund accounting services for the Portfolios.
The Portfolios' purchases and sales of portfolio securities usually are principal transactions. Portfolio securities are normally purchased directly from the issuer or from an underwriter or market maker for the securities. There usually are no brokerage commissions paid for such purchases. The Portfolios do not anticipate paying brokerage commissions. Any transaction for which a Portfolio pays a brokerage commission will be effected at the best price and execution available. Purchases from underwriters of portfolio securities include a commission or concession paid by the issuer to the underwriter, and purchases from dealers serving as market makers include the spread between the bid and asked price.
Allocation of transactions, including their frequency, to various dealers is determined by the Adviser in its best judgment and in a manner deemed to be in the best interest of investors in the applicable Portfolio rather than by any formula. The primary consideration is prompt execution of orders in an effective manner at the most favorable price.
Investment decisions for each Portfolio will be made independently from those for any other account, series or investment company that is or may in the future become managed by the Adviser or its affiliates. If, however, a Portfolio and other investment companies, series or accounts managed by the Adviser are contemporaneously engaged in the purchase or sale of the same security, the transactions may be averaged as to price and allocated equitably to each account. In some cases, this policy might adversely affect the price paid or received by the Portfolio or the size of the position obtainable for the Portfolio. In addition, when purchases or sales of the same security for a Portfolio and for other investment companies or series managed by the Adviser occur contemporaneously, the purchase or sale orders may be aggregated in order to obtain any price advantages available to large denomination purchases or sales.
No portfolio transactions are executed with the Adviser, or with any affiliate of the Adviser, acting either as principal or as broker.
7. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trust's Board of Trustees to issue an unlimited number of full and fractional Shares of Beneficial Interest ($0.00001 par value) of each series and to divide or combine the shares of any series into a greater or lesser number of shares of that series without thereby changing the proportionate beneficial interests in that series. Currently, the Funds are the only two series of shares of the Trust. Each share represents an equal proportionate interest in a Fund with each other share. Upon liquidation or dissolution of a Fund, the Fund's shareholders are entitled to share pro rata in the Fund's net assets available for distribution to its shareholders. The Trust reserves the right to create and issue additional series of shares. Shares of each series participate equally in the earnings, dividends and distribution of net assets of the particular series upon the liquidation or dissolution of the series. Shares of each series are entitled to vote separately to approve advisory agreements or changes in investment policy, but shares of all series may vote together in the election or selection of Trustees and accountants for the Trust. In matters affecting only a particular Fund, only shares of that Fund are entitled to vote.
Shareholders are entitled to one vote for each share held on matters on which they are entitled to vote. Shareholders in the Trust do not have cumulative voting rights, and shareholders owning more than 50% of the outstanding shares of the Trust may elect all of the Trustees of the Trust if they choose to do so and in such event the other shareholders in the Trust would not be able to elect any Trustee. The Trust is not required and has no present intention of holding annual meetings of shareholders but the Trust will hold special meetings of a Fund's shareholders when in the judgment of the Trust's Trustees it is necessary or desirable to submit matters for a shareholder vote. Shareholders have under certain circumstances (e.g., upon application and submission of certain specified documents to the Trustees by a specified number of shareholders) the right to communicate with other shareholders in connection with requesting a meeting of shareholders for the purpose of removing one or more Trustees. Shareholders also have the right to remove one or more Trustees without a meeting by a declaration in writing by a specified number of shareholders. No material amendment may be made to the Trust's Declaration of Trust without the affirmative vote of the holders of a majority of its outstanding shares.
The Trust's Declaration of Trust provides that, at any meeting of shareholders of the Trust or of any series of the Trust, a Shareholder Servicing Agent may vote any shares of which it is the holder of record and for which it does not receive voting instructions proportionately in accordance with the instructions it receives for all other shares of which it is the holder of record. Shares have no preference, pre-emptive, conversion or similar rights. Shares, when issued, are fully paid and non-assessable, except as set forth below.
The Trust may enter into a merger or consolidation, or sell all or substantially all of its assets (or all or substantially all of the assets belonging to any series of the Trust), if approved by the vote of the holders of two-thirds of the Trust's outstanding shares voting as a single class, or of the affected series of the Trust, as the case may be, except that if the Trustees of the Trust recommend such sale of assets, merger or consolidation, the approval by vote of the holders of a majority of the Trust's or the affected series' outstanding shares would be sufficient. The Trust or any series of the Trust, as the case may be, may be terminated (i) by a vote of a majority of the outstanding voting securities of the Trust or the affected series or (ii) by the Trustees by written notice to the shareholders of the Trust or the affected series. If not so terminated, the Trust will continue indefinitely.
Share certificates will not be issued.
The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of such a business trust may, under certain circumstances, be held personally liable as partners for its obligations and liabilities. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust and provides for indemnification and reimbursement of expenses out of Trust property for any shareholder held personally liable for the obligations of the Trust. The Declaration of Trust also provides that the Trust may maintain appropriate insurance (e.g., fidelity bonding and errors and omissions insurance) for the protection of the Trust, its shareholders, Trustees, officers, employees and agents covering possible tort and other liabilities. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed and the Trust itself was unable to meet its obligations.
The Trust's Declaration of Trust further provides that obligations of the Trust are not binding upon the Trustees individually but only upon the property of the Trust and that the Trustees will not be liable for any action or failure to act, but nothing in the Declaration of Trust protects a Trustee against any liability to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office.
Each Portfolio is organized as a trust under the laws of the State of New York. Each Portfolio's Declaration of Trust provides that investors in the Portfolio (e.g., other investment companies (including the corresponding Fund), insurance company separate accounts and common and commingled trust funds) are each liable for all obligations of the Portfolio. However, the risk of a Fund incurring financial loss on account of such liability is limited to circumstances in which both inadequate insurance existed and the applicable Portfolio itself was unable to meet its obligations. It is not expected that the liabilities of either Portfolio would ever exceed its assets.
Each investor in a Portfolio, including the corresponding Fund, may add to or reduce its investment in the Portfolio on each business day. At 3:00 p.m., Eastern time, in the case of Cash Reserves Portfolio, and 12:00 noon, Eastern time, in the case of U.S. Treasury Reserves Portfolio, on each such business day, the value of each investor's interest in the Portfolio is determined by multiplying the net asset value of the Portfolio by the percentage representing that investor's share of the aggregate beneficial interests in the Portfolio effective for that day. Any additions or withdrawals, which are to be effected on that day, are then effected. The investor's percentage of the aggregate beneficial interests in the Portfolio is then re-computed as the percentage equal to the fraction (i) the numerator of which is the value of such investor's investment in the Portfolio as of 3:00 p.m., Eastern time, for Cash Reserves Portfolio or 12:00 noon, Eastern time, for U.S. Treasury Reserves Portfolio, on such day plus or minus, as the case may be, the amount of any additions to or withdrawals from the investor's investment in the Portfolio effected on such day, and (ii) the denominator of which is the aggregate net asset value of the Portfolio as of 3:00 p.m., Eastern time, for Cash Reserves Portfolio or 12:00 noon, Eastern time, for U.S. Treasury Reserves Portfolio, on such day plus or minus, as the case may be, the amount of the net additions to or withdrawals from the aggregate investments in the Portfolio by all investors in the Portfolio. The percentage so determined is then applied to determine the value of the investor's interest in the Portfolio as of 3:00 p.m., Eastern time, for Cash Reserves Portfolio or 12:00 noon, Eastern time, for U.S. Treasury Reserves Portfolio, on the following business day of the Portfolio.
8. CERTAIN ADDITIONAL TAX MATTERS
Each of the Funds has elected to be treated and intends to qualify each year as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of Fund distributions and the composition and holding period of the Fund's portfolio assets. Provided all such requirements are met and all of a Fund's net investment income and realized capital gains are distributed to shareholders in accordance with the timing requirements imposed by the Code, no federal income or excise taxes will be required to be paid by the Fund. If a Fund should fail to qualify as a regulated investment company for any year, the Fund would incur a regular corporate federal income tax upon its taxable income and Fund distributions would generally be taxable as ordinary dividend income to shareholders. Each of the Portfolios believes that it will not be required to pay any federal income or excise taxes.
Investment income received by Liquid Reserves from non-U.S. investments may be subject to foreign income taxes withheld at the source; Liquid Reserves does not expect to be able to pass through to shareholders any foreign tax credits with respect to those foreign taxes. The United States has entered into tax treaties with many foreign countries that may entitle Liquid Reserves to a reduced rate of tax or an exemption from tax on these investments. It is not possible to determine Liquid Reserves' effective rate of foreign tax in advance since that rate depends upon the proportion of the Cash Reserves Portfolio's assets ultimately invested within various countries.
Because each Fund expects to earn primarily interest income, it is expected that no Fund distributions will qualify for the dividends-received deduction for corporations.
9. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Price Waterhouse LLP and Price Waterhouse are the independent and chartered accountants for Liquid Reserves and Cash Reserves Portfolio, providing audit services and assistance and consultation with respect to the preparation of filings with the SEC. Deloitte & Touche LLP were the independent certified public accountants for Liquid Reserves and Cash Reserves Portfolio through December 31, 1993. The selection of Price Waterhouse LLP and Price Waterhouse was based on management's decision with respect to certain areas of expertise and service capabilities. There was no disagreement between the Fund, the Portfolio and Deloitte & Touche LLP with respect to the accounting and audit services provided by such firm. Deloitte & Touche LLP are the independent certified public accountants for U.S. Treasury Reserves and U.S. Treasury Reserves Portfolio, providing audit services and assistance and consultation with respect to the preparation of filings with the SEC.
The audited financial statements of Liquid Reserves (Statement of Assets and Liabilities at August 31, 1995, Statement of Operations for the year ended August 31, 1995, Statement of Changes in Net Assets for the years ended August 31, 1995 and 1994, Financial Highlights for each of the years in the four-year period ended August 31, 1995 and for the period from May 3, 1990 (commencement of operations) to August 31, 1990, Notes to Financial Statements and Independent Auditor's Report) and of Cash Reserves Portfolio (Portfolio of Investments at August 31, 1995, Statement of Assets and Liabilities at August 31, 1995, Statement of Operations for the year ended August 31, 1995, Statement of Changes in Net Assets for the years ended August 31, 1995 and 1994, Financial Highlights for each of the years in the four-year period ended August 31, 1995, the Notes to Financial Statements and the Independent Auditor's Report), each of which is included in the Annual Report to Shareholders of Liquid Reserves, are incorporated by reference into this Statement of Additional Information and have been so incorporated in reliance upon the report of Price Waterhouse LLP and Price Waterhouse (for the fiscal years ended August 31, 1994 and 1995) and Deloitte & Touche LLP (for periods prior to the fiscal year ended August 31, 1994), as experts in accounting and auditing.
The audited financial statements of U.S. Treasury Reserves (Statement of Assets and Liabilities at August 31, 1995, Statement of Operations for the year ended August 31, 1995, Statement of Changes in Net Assets for the years ended August 31, 1995 and 1994, Financial Highlights for the years ended August 31, 1995 and 1994, the eight months ended August 31, 1993, the year ended December 31, 1992 and the period from March 1, 1991 (commencement of operations) to December 31, 1991, the Notes to Financial Statements and Independent Auditors' Report) and of U.S. Treasury Reserves Portfolio (Portfolio of Investments at August 31, 1995, Statement of Assets and Liabilities at August 31, 1995, Statement of Operations for the year ended August 31, 1995, Statement of Changes in Net Assets for the years ended August 31, 1995 and 1994, Financial Highlights for the years ended August 31, 1995 and 1994, for the eight-month period ended August 31, 1993, for the year ended December 31, 1992 and for the period March 1, 1991 (commencement of operations) to December 31, 1991, Notes to Financial Statements and the Independent Auditors' Report), each of which is included in the Annual Report to Shareholders of U.S. Treasury Reserves, are incorporated by reference into this Statement of Additional Information and have been so incorporated in reliance upon the report of Deloitte & Touche LLP, independent certified public accountants, as experts in accounting and auditing.
A copy of each of the Annual Reports accompanies this Statement of Additional Information.
153 East 53rd Street, New York, NY 10043 Call Your Citibank Private Banking Account Officer, Registered Representative or (212) 559-5959
FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS: Citibank, N.A. 153 East 53rd Street, New York, NY l0043
FOR NORTH AMERICAN INVESTOR SERVICES CLIENTS: Citibank, N.A. 111 Wall Street, New York, NY 10043 Call Your Account Manager or (212) 657-9100
*Affiliated Person of Administrator and Distributor
153 East 53rd Street, New York, NY 10043
The Landmark Funds Broker-Dealer Services, Inc. 6 St. James Avenue, Boston, MA 02116
State Street Bank and Trust Company 225 Franklin Street, Boston, MA 02110
160 Federal Street, Boston, MA 02110 (LANDMARK PREMIUM U.S. TREASURY RESERVES) 125 Summer Street, Boston, MA 02110
150 Federal Street, Boston, MA 02110
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| 1996-01-12T09:55:23
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0000033798-96-000002
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0000033798-96-000002_0002.txt
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WAIVER AND SEVENTH AMENDMENT, dated as of December 29, 1995 (this "Waiver and Amendment"), to the Loan and Security Agreement, dated as of December 15, 1993 (as heretofore amended, supplemented or otherwise modified, the "Loan Agreement"), between BankAmerica Business Credit, Inc. (the "Lender") and Grossman's Inc. (the "Borrower").
W I T N E S S E T H :
WHEREAS, the Lender and the Borrower are parties to the Loan
WHEREAS, the Borrower has requested that the Lender amend the Loan Agreement in certain respects and waive compliance with certain provisions contained therein; and
WHEREAS, the Lender is willing to agree to such amendment and waiver but only on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein have the respective meanings ascribed thereto in the Loan Agreement.
Section 2. Amendment of Loan Agreement and Letter of Credit Agreement. The Loan Agreement and Letter of Credit Agreement shall be, and upon the fulfillment of the conditions set forth in Section 7 hereof are, amended as follows:
2.1 Section 1.1 of the Loan Agreement (Defined Terms) is hereby amended by:
(a) deleting in its entirety the definition "Adjusted Tangible Net Worth" and substituting therefor the following:
"'Adjusted Tangible Net Worth' means, at any date: (a) the book value (after deducting related depreciation, obsolescence, amortization, valuation, and other proper reserves as determined in accordance with GAAP) at which the Adjusted Tangible Assets would be shown on a balance sheet of the Borrower and its Subsidiaries on a consolidated basis at such date prepared in accordance with GAAP: less (b) the amount at which the Borrower's and its Subsidiaries' liabilities on a consolidated basis would be shown on such balance sheet; provided, that "Adjusted Tangible Net Worth" shall exclude (i) the effect of the establishment (or reversal) after December 15, 1993 of a minimum pension liability in accordance with the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 87, (ii) any net gain or loss from the sale after the effective date of the Waiver and Seventh Amendment of any assets of the Borrower (other than Inventory in the ordinary course of business), (iii) the effect of any store closing charges taken or incurred by the Borrower with respect to the closing of any of its stores after the effective date of the Waiver and Seventh Amendment and on or before March 31, 1997, (iv) any discount of the promissory note issued by Kmart described in Section 6 of the Waiver and Seventh Amendment and (v) the severance costs relating to the termination of employees of the Borrower employed at the Borrowers headquarters."
(b) deleting in its entirety the definition "Applicable Percent" and substituting therefor the following:
"'Applicable Percent' shall mean fifty percent (50%); provided, that if the Borrower shall satisfy in full the terms and conditions set forth in Section 6 of the Waiver and Seventh Amendment, "Applicable Percent" shall mean fifty-five percent (55%) unless and until the Borrower shall notify the Lender in writing that the "Applicable Percent" shall no longer be fifty-five percent (55%), in which case the Applicable Percent shall mean fifty percent (50%)."
(c) deleting in its entirety the definition "Availability" and substituting therefor the following:
(a) the lesser at any point in time of: (i) $75,000,000 or (ii) the sum of (A) fifty percent (50%) of the Net Amount of Eligible Accounts of the Borrower plus (B) an amount equal to the Applicable Percent of the value of Eligible Inventory of the Borrower, calculated in accordance with GAAP at the lower of average cost (determined in accordance with the Borrower's accounting practices) or market value plus (C) an amount equal to fifty percent (50%) of the undrawn amount of all Letters of Credit issued to secure the payment by the Borrower of the purchase price of inventory purchased by the Borrower in the ordinary course of its business, minus
(b) the sum of: (i) the unpaid principal balance of Revolving Loans at that time plus the amount, if any, of (A) amounts drawn under the Letters of Credit to the extent not already included in the Revolving Loans, and (B) the undrawn amount of all Letters of Credit plus (ii) reserves, in the Lender's sole discretion, for accrued interest on the Revolving Loans plus (iii) subject to the provisions of Section 6.2(b), reserves with respect to rent payments due and owing by the Borrower relating to premises leased by the Borrower for which a landlord's waiver, in form and substance satisfactory to the Lender, has not been obtained plus (iv) reserves for rebates due the Borrower on Inventory purchases made by the Borrower and reserves for shrinkage of Inventory (in each instance in this clause (iv) to the extent not reflected in the valuation of such Inventory as provided in clause (a)(ii)(B) above) plus (v) reserves in the Lenders sole discretion with respect to any individual store of the Borrower in the event that operating losses (before allocation of selling, general and administrative expenses of the Borrower) for any such store exceed $250,000 plus (vi) in the event that the Applicable Percent is fifty- five percent (55%) and only so long as such percentage is fifty-five percent (55%), in the Lenders sole discretion (A) reserves with respect to sales of those stores described on Schedule 6 to the Waiver and Seventh Amendment in an amount equal to 50% of the excess of (x) the aggregate Net Cash Proceeds generated from sales of such stores over (y) $4,000,000 and (B) reserves in the event that the Borrower accepts in full payment of the promissory note issued by
Kmart to be pledged to the Lender under Section 6 of the Waiver and Seventh Amendment less than the full outstanding principal amount thereof plus (vii) all other reserves which the Lender in its sole discretion (exercised in good faith) deems necessary or desirable to maintain with respect to the Borrower's account, including, without limitation, any amounts which the Lender may be obligated to pay in the future for the account of the Borrower."
(d) deleting in their entirety the definitions "Bank of Boston Letter of Credit" and "Insurance Company Letters of Credit".
(e) adding the phrase "the acquisition of" immediately after the words "in respect of the cost of" in the definition "Capital Expenditures".
(f) adding the following definition in the correct alphabetical order:
"'Waiver and Seventh Amendment' means that certain Waiver and Seventh Amendment, dated as of December 29, 1995, between the Borrower and the Lender."
2.2 Section 2.3 of the Loan Agreement (Letters of Credit) is hereby amended by deleting that portion of clause (a) of the third sentence thereof commencing with the phrase "the sum of (i)" and substituting therefor the amount "$15,000,000".
2.3 Section 3.1 of the Loan Agreement (Interest) is hereby amended by:
(a) deleting the phrase "one percent (1.00%)" in the first sentence of paragraph (a) thereof and substituting therefor the phrase "one and three-quarters percent (1-3/4%)".
(b) deleting the phrase "three percent (3.00%)" in the second sentence of paragraph (a) thereof and substituting therefor the phrase "three and three-quarters percent (3-3/4%)".
2.4 Section 6.10 of the Loan Agreement (Collection of Accounts; Payments) is hereby amended by:
(a) adding the following sentence immediately after the second sentence of clause (a) thereof:
"Notwithstanding anything herein to the contrary, the Lender may deliver any such notice to the bank at any time in the Lender's sole discretion (whether or not an Event or Event of Default has occurred or is continuing).
(b) deleting the phrase "during the continuance of an Event of Default" in the penultimate sentence of clause (a) thereof and substituting therefor the following:
"in the Lender's sole discretion (whether or not an Event or an Event of Default has occurred or is continuing)".
2.5 Section 6.15 of the Loan Agreement (Power of Attorney) is hereby amended by deleting the phrase "during the continuance of an Event or an Event of Default" in clause (i) of paragraph (a) thereof.
2.6 Section 7.2 of the Loan Agreement (Financial Information) is hereby amended by adding the following paragraphs (l) and (m) thereto:
"(l) As soon as available, but in any event not later than 45 days after the close of each fiscal quarter of the Borrower, a report detailing for the fiscal quarter just ended and for the period from the beginning of the Fiscal Year to the end of such fiscal quarter the cash and Net Cash Proceeds generated by the Borrower from its asset sales and the cash store closing expenses of the Borrower.
(m) As soon as available, but in any event not later than 45 days after the close of each fiscal quarter of the Borrower, operating profit and loss statements for each store of the Borrower."
2.7 Section 9.18 of the Loan Agreement (Capital Expenditures) is hereby amended by deleting in its entirety the penultimate paragraph thereof.
2.8 Section 9.20 of the Loan Agreement (Minimum Interest Coverage) is hereby amended by deleting such Section in its entirety and substituting therefor the following:
"9.20 Minimum Interest Coverage. The Borrower shall not permit the ratio (the "Interest Coverage Ratio") of (a) Adjusted Net Earnings from Operations for any period specified below plus interest expense of the Borrower and its Subsidiaries for such period and provision for income taxes of the Borrower and its Subsidiaries for such period plus depreciation and amortization expense of the Borrower and its Subsidiaries for such period to (b) interest expense of the Borrower and its Subsidiaries for such period to be less than the ratio set forth opposite any such period:
2.9 Section 9.21 of the Loan Agreement (Adjusted Tangible Net Worth) is hereby amended by deleting such Section in its entirety and substituting therefor the following:
"9.21 Adjusted Tangible Net Worth. The Borrower shall not permit Adjusted Tangible Net Worth to be less than the following amounts on any of the following respective dates:
2.10 Section 9.22 of the Loan Agreement (Fixed Maturity Coverage) is hereby amended by deleting the ratio "1.3/1" opposite the phrase "1996 Fiscal Year and each Fiscal Year thereafter" in the chart therein contained and substituting therefor the ratio "1.1/1".
2.11 New Sections 9.24 and 9.25 are added to the Loan Agreement and read as follows:
"9.24 Sufficient Cash From Asset Sales. The Borrower shall generate sufficient cash (as reasonably determined by the Lender) from the sale of its assets out of the ordinary course of business in order to timely pay all of its cash store closing expenses.
9.25 Proceeds of Store Sales and Note. Without limitation of any obligation of the Borrower contained elsewhere in any Loan Document to remit Proceeds and other payments arising from the sale or other disposition of its property, the Borrower agrees to promptly remit (and in any event within two Business Days after its receipt thereof) to the Lender to be applied to the payment of the Obligations (x) all Net Cash Proceeds derived from the sale or other disposition of any stores described on Schedule 6 to the Waiver and Seventh Amendment which constitute Collateral and (y) all payments received by the Borrower on or with respect to the promissory note issued by Kmart described in Section 6 of the Waiver and Seventh Amendment if such promissory note constitutes Collateral."
2.12 Section 10.16 of the Loan Agreement (Collection Account) is hereby amended by deleting the phrase "after an Event has occurred" contained therein and substituting therefor the phrase "in the Lender's sole discretion (whether or not an Event or Event of Default has occurred or is continuing)".
2.13 Section 12.1 of the Loan Agreement (Term and Termination) is hereby amended by deleting the phrase "the third anniversary of the Closing Date" and substituting therefor the date "April 30, 1997".
2.14 Section 13.10 of the Loan Agreement (Fees and Expenses) is hereby amended by deleting the amount "$500" in clause (f) thereof and substituting therefor the amount "$575".
2.15 Section 8 of the Letter of Credit Agreement is hereby amended by deleting the phrase "one and one-quarter percent (1.25%)" in the first sentence thereof and substituting therefor the phrase "one and three-quarters percent (1-3/4%)".
Section 3. Representations and Warranties. To induce the Lender to enter into this Waiver and Amendment, the Borrower hereby represents and warrants to the Lender as follows, with the same effect as if such representations and warranties were set forth in the Loan Agreement:
(a) The Borrower has the corporate power and authority to enter into this Waiver and Amendment and has taken or will take all corporate action required to authorize or ratify its execution and delivery of this Waiver and Amendment and its performance of the Loan Agreement and Letter of Credit Agreement, as amended hereby (as so amended, the "Amended Agreements"). This Waiver and Amendment has been duly executed and delivered by the Borrower and the Amended Agreements constitute the valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms. The execution, delivery and performance by the Borrower of this Waiver and Amendment and the Amended Agreements will not violate the Borrower's certificate of incorporation or by-laws or any agreement or legal requirement binding on the Borrower.
(b) On the date hereof and after giving effect to the terms of this Waiver and Amendment, (i) the Loan Agreement and the other Loan Documents are in full force and effect and constitute the Borrower's binding obligations, enforceable against the Borrower in accordance with their respective terms; (ii) no Event or Event of Default has occurred and is continuing; and (iii) the Borrower does not have any defense to or setoff, counterclaim or claim against payment of the Obligations and enforcement of the Loan Documents based upon a fact or circumstance existing or occurring on or prior to the date hereof.
Section 4. Waiver. Subject to fulfillment of the conditions set forth in Section 7 hereof, the Lender hereby waives compliance with (i) Section 9.21 (Adjusted Tangible Net Worth) of the Loan Agreement for December 31, 1995, (ii) Sections 9.20 (Minimum Interest Coverage) and 9.22 (Fixed Maturity Coverage) of the Loan Agreement for the Fiscal Year ended December 31, 1995, (iii) paragraph (q) of Section 11.1 (Events of Default) of the Loan Agreement and (iv) paragraph (p) of Section 11.1 (Events of Default) of the Loan Agreement with respect to Project-Pro's, Inc. so long as the aggregate amount of debts of such Subsidiary Guaranteed by the Borrower shall not at any time exceed $2,500,000.
Section 5. Forbearance. Subject to fulfillment of the conditions set forth in Section 7 hereof and the provisions of this Section 5, the Lender hereby agrees that it shall not on or before April 30, 1997 exercise any rights or remedies which are available to the Lender solely as a result of the occurrence of an Event of Default under Section 11.1(e) of the Loan Agreement arising from the failure of the Borrower to repay in full on January 1, 1996 the Borrower's 14% debentures due January 1, 1996, but only if (x) neither any holder of such debentures nor the trustee therefor shall (A) obtain any judgments or other judicial remedies or relief against the Borrower or any of its properties or (B) commence the exercise of any rights or remedies to attach or otherwise obtain any interest in any property of the Borrower and (y) no Person or Persons (other than Chemical Bank) to whom the Borrower owes indebtedness or other obligations (including, without limitation, lease obligations) of $2,000,000 or more in the aggregate for all such Persons shall have obtained any judgments or other judicial remedies or relief against the Borrower or any of its properties, in each instance under clauses (x) and (y) above, as a result, directly or indirectly (including, without limitation, by virtue of cross-default provisions), of such failure of the Borrower to repay such debentures on their scheduled maturity. The foregoing shall not constitute a waiver of such Event of Default or of the Lenders rights and remedies with respect to such Event of Default nor of any other Event of Default that may occur (including, without limitation, under Section 11.1(e) of the Loan Agreement) nor shall the foregoing constitute a forbearance of any of the Lenders rights and remedies for any other Event of Default which may arise with respect to or as a result of such debentures (including, without limitation, any failure to timely make any payments of principal on the debentures if the payment due January 1, 1996 is extended or deferred to one or more later dates or the filing of any involuntary petition or the commencement of an action or other proceeding against the Borrower otherwise seeking relief under any bankruptcy or insolvency law).
The Borrower agrees that (i) it shall not, directly or indirectly, amend, modify, supplement or waive compliance with (or consent to any of the foregoing) any provision of the Borrowers 14% debentures due January 1, 1996 (including, without limitation, any modification of the payment terms thereof) or the indenture related thereto without the prior written consent of the Lender in each instance and (ii) the failure to comply with clause (i) of this sentence shall constitute an Event of Default and shall invalidate and terminate the forbearance of the exercise by the Lender of rights and remedies as provided in the first sentence of this Section 5.
Section 6. Additional Collateral. In addition to the conditions set forth in Section 7 hereof, as a condition to the Applicable Percent becoming fifty-five percent (55%) as contemplated in Section 2.1(b) hereof the Borrower shall obtain the written consent of the Lender thereto and shall satify the following:
(a) The Borrower shall duly execute and deliver to the Lender mortgages or deeds of trust (each such mortgage or deed of trust, as it may be amended, modified or supplemented from time to time in accordance with its terms, a "Mortgage") in respect of real property owned by the Borrower set forth on Schedule 6 hereto (such real property, the "Mortgage Collateral") so as to create in the Lender's favor, upon recordation thereof, a valid, perfected and enforceable first priority mortgage and lien on the Mortgage Collateral and all improvements thereon or therein, such Mortgages to be in form and substance satisfactory to the Lender.
(b) The Borrower shall cause the Mortgages to be duly recorded in the appropriate recording office or offices and shall pay all fees and taxes payable in connection therewith.
(c) The Borrower shall furnish to the Lender, at the Borrower's expense, one or more policies of mortgagee title insurance, in form, substance and amount satisfactory to the Lender, insuring that each of the Mortgages is a valid and perfected first priority mortgage and lien in favor of the Lender on the interest of the Borrower in the real property and improvements described therein, and that the Borrower has good and marketable title thereto, issued by a title insurance company reasonably satisfactory to the Lender, together with satisfactory evidence that all title insurance premiums therefor have been fully paid. The Borrower shall furnish to the Lender certified surveys of real property and such legal opinions, environmental questionnaires, certificates, agreements and documents as the Lender may reasonably request with respect to the Mortgages and the Mortgage Collateral. The Borrower shall additionally provide to the Lender with respect to any real property to be subject to a Mortgage on or prior to the taking of such Mortgage such appraisals of such real property as shall be requested by the Lender or required under applicable law, including, without limitation, the Financial Institution Reform, Recovery and Enforcement Act of 1989, as amended (FIRREA).
(d) The Borrower shall duly execute and deliver to the Lender a pledge agreement, in form and substance satisfactory to the Lender, pursuant to which the Borrower shall grant to the Lender a valid, perfected and enforceable first priority security interest in the promissory note dated September 26, 1995 by Kmart to the order of the Borrower in the original principal amount of $15,800,000. The Borrower shall deliver such promissory note to the Lender duly endorsed to the order of the Lender in a manner satisfactory to the Lender. The Borrower shall furnish to the Lender such legal opinions, agreements and documents with respect to such pledge agreement and promissory note as the Lender may reasonably request.
(e) The Lender shall receive any and all consents and approvals, in form and substance satisfactory to the Lender, as are necessary to permit the granting of the first priority perfected security interests and liens contemplated under this Section 6 or to avoid the occurrence of a default under any agreement or document to which the Borrower is a party or by which it or any of its properties may be bound, including, without limitation, the Borrowers 14% debentures due January 1, 1996.
Section 7. Effectiveness. This Waiver and Amendment shall be effective upon fulfillment of the following conditions:
(a) the receipt by the Lender of a counterpart hereof duly executed by the Borrower; and
(b) the receipt by the Lender of a waiver and amendment fee in the amount of $150,000.
Section 8. Limited Effect. This Waiver and Amendment shall be limited solely to the matters expressly set forth herein and shall not (a) constitute an amendment or waiver of any other term or condition of the Loan Agreement or of any instrument or agreement referred to therein or (b) subject to Section 5 hereof, prejudice any right or rights which the Lender may now have or may have in the future under or in connection with the Loan Agreement or any instrument or agreement referred to therein. Except as expressly waived or amended hereby, all of the covenants and provisions of the Loan Agreement and the Letter of Credit Agreement are and shall continue to be in full force and effect.
Section 9. GOVERNING LAW. THIS WAIVER AND AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
Section 10. Counterparts. This Waiver and Amendment may be executed by the parties hereto in any number of separate counterparts, each of which shall be an original, and all of which taken together shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver and Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written.
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8-K
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EX-10
| 1996-01-12T00:00:00
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0000950112-96-000055
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0000950112-96-000055_0000.txt
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dated January 12, 1996 to PROSPECTUS dated October 11, 1995 of WALTER INDUSTRIES, INC.
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED NOVEMBER 30, 1995
Incorporated in Delaware IRS Employer Identification No. 13-3429953
1500 North Dale Mabry, Tampa, Florida 33607
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X . No .
There were 54,868,766 shares of common stock of the registrant outstanding at November 30, 1995.
PART I - FINANCIAL INFORMATION WALTER INDUSTRIES, INC. AND SUBSIDIARIES
Cash (includes short-term investments of $56,817,000 and $84,872,000) (Note 3) $ 78,841 $ 128,007 Short-term investments, restricted (Note 3) 150,126 128,002 Instalment notes receivable (Note 4) 4,238,155 4,256,866 Less - Provision for possible losses ( 26,388) ( 26,556) Unearned time charges (2,864,560) (2,869,282) Trade and other receivables, less $8,193,000 and $7,998,000 provision for possible losses 166,677 182,822 Federal income tax receivable 99,875 99,875 Inventories, at lower of cost (first in, first out or average) or market: Goods in process 33,015 29,593 Raw materials and supplies 53,071 53,453 Houses held for resale 1,952 1,599
Property, plant and equipment, at cost 1,212,017 1,186,407 depletion and amortization ( 556,222) ( 523,615)
Investments and other assets 49,713 49,889 Deferred income taxes 7,216 16,544 Unamortized debt expense 30,509 34,167 Excess of purchase price over net assets acquired (Note 1) 352,927 372,896
Bank overdrafts (Note 3) $ 16,390 $ 33,746 Accounts payable and accrued expenses 186,492 259,044 Income taxes payable 53,712 53,261 Long-term senior debt 2,205,152 2,220,370 Other long-term liabilities 51,133 51,693
Capital in excess of par value 1,159,338 1,159,384 Retained earnings (deficit) ( 794,018) ( 793,165) Excess of additional pension liability over unrecognized prior years service cost ( 5,950) ( 5,950)
Total stockholders' equity 359,919 360,774
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
For the three months ended
Net sales $ 310,527 $ 299,695 Interest income from Chapter 11 proceedings (Note 1) - 1,676
Cost of sales 249,794 237,737 Depreciation, depletion and amortization 18,925 17,930 Selling, general and administrative 33,492 31,621 Postretirement health benefits 6,843 6,435 Provision for possible losses 722 1,169 Chapter 11 costs (Note 1) - 7,803 Interest and amortization of debt discount Amortization of excess of purchase price over net assets acquired (Note 1) 9,744 10,316
Current ( 739) ( 14,679) Net income (loss) $( 1,094) $ 4,920
Net loss per share - Primary $( .02)
The results of operations for the three month periods ended November 30, 1995 and 1994 are not necessarily indicative of results of operations for a full fiscal year. All of the amounts are unaudited, but, in the opinion of the Company, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of each period have been made. Per share information for the three months ended November 30, 1994 is not relevant given the significant change in capital structure which occurred as a result of the Company's reorganization pursuant to the Consensual Plan (see Note 1).
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
For the six months ended
Net sales $ 626,634 $ 576,847 Interest income from Chapter 11 proceedings (Note 1) - 3,094
Cost of sales 499,627 461,856 Depreciation, depletion and amortization 37,442 34,687 Selling, general and administrative 66,596 63,971 Postretirement health benefits 13,522 13,082 Provision for possible losses 1,660 2,466 Chapter 11 costs (Note 1) - 11,952 Interest and amortization of debt discount Amortization of excess of purchase price over net assets acquired (Note 1) 19,969 20,884
Current ( 1,500) ( 27,574) Net income (loss) $( 853) $ 6,353
Net income per share - Primary $( .02)
The results of operations for the six month periods ended November 30, 1995 and 1994 are not necessarily indicative of results of operations for a full fiscal year. All of the amounts are unaudited, but, in the opinion of the Company, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of each period have been made. Per share information for the six months ended November 30, 1994 is not relevant given the significant change in capital structure which occurred as a result of the Company's reorganization pursuant to the Consensual Plan (see Note 1).
WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
For the six months ended Net income (loss) $( 853) $ 6,353 Charges to income not affecting cash: Depreciation, depletion and amortization 37,442 34,687 Provision for deferred income taxes 9,328 ( 11,608) Provision for other long-term liabilities ( 560) ( 208) Amortization of excess purchase price over net assets acquired (Note 1) 19,969 20,884 Amortization of debt discount and expense 3,841 6,570 Decrease (increase) in: Short-term investments, restricted ( 22,124) 12,292 Instalment notes receivable, net (Note 4) 13,821 2,311 Trade and other receivables, net 16,145 ( 19,460) Prepaid expenses 170 ( 4,468)
Bank overdrafts (Note 3) ( 17,356) ( 11,550) Accounts payable and accrued expenses ( 16,125) ( 412) Income taxes payable 451 ( 1,220) Accrued interest ( 876) 26,297 Liabilities subject to Chapter 11 proceedings (Note 1): Accounts payable and accrued expenses - ( 790) Cash flows from operations 52,935 72,312
Issuance of long-term debt 65,000 - Retirement of long-term senior debt ( 80,218) ( 59,423) Additions to unamortized debt expense ( 183) - Payment of liabilities subject to Chapter 11 proceedings (Note 1) ( 56,429) - Fractional share payments ( 2) - Cash flows from financing activities ( 71,832) ( 59,423)
Additions to property, plant and equipment, net of normal retirements ( 30,445) ( 25,666) Decrease in investments and other assets 176 318 Cash flows from investing activities ( 30,269) ( 25,348)
Net decrease in cash and cash equivalents ( 49,166) ( 12,459) Cash and cash equivalents at beginning of period 128,007 203,303 Cash and cash equivalents at end of period (Note 3) $ 78,841 $ 190,844
WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 - Recent History
Walter Industries, Inc. (formerly Hillsborough Holdings Corporation) (the "Company") was organized in 1987 for the purpose of acquiring Jim Walter Corporation ("Original Jim Walter"). The Company's financial statements reflect the allocation of the purchase price of Original Jim Walter based upon the fair value of the assets acquired and the liabilities assumed. On December 27, 1989, the Company and most of its subsidiaries each filed a voluntary petition for reorganization under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Middle District of Florida, Tampa Division (the "Bankruptcy Court"). The Company emerged from bankruptcy on March 17, 1995 (the "Effective Date") pursuant to the Amended Joint Plan of Reorganization Dated as of December 9, 1994, as modified on March 1, 1995 (as so modified the "Consensual Plan"). Despite the confirmation and effectiveness of the Consensual Plan, the Bankruptcy Court continues to have jurisdiction over, among other things, the resolution of disputed prepetition claims against the Company and other matters that may arise in connection with or relate to the Consensual Plan.
Note 2 - Principles of Consolidation
The Company through its direct and indirect subsidiaries currently offers a diversified line of products and services for homebuilding, water and waste water transmission, residential and non-residential construction, and industrial markets. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany balances have been eliminated.
Note 3 - Cash and Restricted Short-Term Investments
Cash includes short-term investments with original maturities of less than one year. The Company's cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Checks issued but not yet presented to the banks for payment are classified as bank overdrafts.
Restricted short-term investments include temporary investment of reserve funds and collections on instalment notes receivable owned by Mid-State Trusts II, III, IV and V ($125,820,000). These funds are available only to pay expenses of the Trusts and principal and interest on indebtedness of the Trusts. Miscellaneous other segregated accounts restricted to specific uses ($24,306,000), are also included in restricted short-term investments.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
Note 4 - Installment Notes Receivable
The net decrease in instalment notes receivable for the six month periods ended November 30, 1995 and 1994 consists of sales and resales, net of repossessions and provision for possible losses, of $75,616,000 and $77,831,000 and cash collections on account, payouts in advance of maturity and reductions in account balances (in the six months ended November 30, 1995 resulting from settlement agreements entered into with South Carolina and Texas homeowners) of $89,437,000 and $80,142,000, respectively. The cost of the settlement agreements was accrued in the fiscal year ended May 31, 1995.
Mid-State Trusts II, III, and IV are business trusts organized by Mid-State Homes, Inc. ("Mid-State"), which owns all of the beneficial interest in Trust III and Trust IV. Trust IV owns all of the beneficial interest in Trust II. The Trusts were organized for the purpose of purchasing instalment notes receivable from Mid-State from the net proceeds from the issuance of the Trust II Mortgage-Backed Notes, the Trust III Asset Backed Notes and the Trust IV Asset Backed Notes with outstanding balances at November 30, 1995 of $540,500,000; $160,672,000, and $930,230,000, respectively. The assets of Trust II, Trust III and Trust IV, including the instalment notes receivable, are not available to satisfy claims of general creditors of the Company and its subsidiaries. The liabilities of Mid-State Trusts II, III and IV for their publicly issued debt are to be satisfied solely from the proceeds of the underlying instalment notes and are non-recourse to the Company and its subsidiaries. Of the gross amount of instalment notes receivable at November 30, 1995 of $4,238,155,000 with an economic balance of $2,038,661,000, receivables owned by Trust II had a gross book value of $1,279,356,000 and an economic balance of $785,080,000, receivables owned by Trust III had a gross book value of $445,645,000 and an economic balance of $228,984,000, and receivables owned by Trust IV had a gross book value of $1,884,666,000 and an economic balance of $789,459,000. Mid-State Trust V, a business trust in which Mid-State Homes holds all the beneficial interest, was organized to hold instalment notes receivable as collateral for borrowings to provide temporary financing to Mid-State for its current purchases of instalment notes and mortgages from Jim Walter Homes, Inc. ("Jim Walter Homes"). At November 30, 1995, receivables owned by Mid-State Trust V had a gross book value of $502,072,000 and an economic balance of $182,876,000, with outstanding borrowings of $80,000,000.
Note 5 - Litigation and Other Matters
As previously reported in Note 11 of Notes to Financial Statements for the year ended May 31, 1995, Jim Walter Homes and Mid-State have filed an adversary action for declaratory judgment against all South Carolina homeowners who purchased their homes between July 1, 1982 and December 27, 1989.
On September 15, 1995, Jim Walter Homes and Mid-State entered into a Stipulation and Settlement Agreement with the homeowners substantially along the lines previously reported. On September 25, 1995, the Bankruptcy Court entered an order that provisionally certified the settlement class, provisionally approved the settlement reached, provisionally designated the class representatives and provisionally designated class counsel. The order also provided that any homeowner that did not want to be a member of the proposed class must have filed with the Bankruptcy Court on or before November 6, 1995 a notice of their intention to "opt out" or not participate in the agreement. On November 22, 1995, the Bankruptcy Court entered an order that gave final approval to the settlement. Three individuals "opted out" of the class and will have their claims, if any, adjudicated by the Bankruptcy Court through a proof of claims process.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
As previously reported in Note 11 of Notes to Financial Statements for the year ended May 31, 1995, Jim Walter Homes and Mid-State reached a settlement on litigation brought by certain homeowners in Texas. Certain of the Texas homeowners (nine as of January 8, 1996) have not signed the settlement documents and Jim Walter Homes and Mid-State continue to work with their counsel. The Bankruptcy Court has set a hearing for April 12, 1996 to discuss the status of the non-settling homeowners. The settling homeowners who have a remaining account balance began making monthly payments on September 15, 1995.
Note 6 - Stockholders' Equity
As of November 30, 1995, there were 54,868,766 shares of common stock outstanding. Pursuant to the Consensual Plan, 494,313 shares were issued on September 13, 1995 to all former stockholders of the Company as of the Effective Date of the Consensual Plan. Also on September 13, 1995, pursuant to the Consensual Plan, 3,880,140 shares of common stock were issued to an escrow account. To the extent that certain federal income tax matters of the Company are resolved satisfactorily, up to a maximum 3,880,140 of the escrowed shares will be distributed to all former stockholders of the Company as of the Effective Date. To the extent such matters are not resolved satisfactorily, the escrowed shares will be returned to the Company and cancelled.
Note 7 - Segment Information
Information relating to the Company's business segments is set forth below. Due to divestitures of several building materials subsidiaries in recent years, the Company has restructured certain of its segment information. Prior year information has been restated.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
Three months ended November 30, Sales and Revenues:
Homebuilding and related financing $ 102,702 $ 103,206 Water and waste water transmission products 110,108 109,689 Industrial and other products 66,827 68,953
Consolidated sales and revenues $ 378,136 $ 363,330
Contributions to Operating Income (a):
Homebuilding and related financing $ 13,644 $ 13,579 Water and waste water transmission products 7,367 7,144 Industrial and other products 3,062 1,920 other expense (b) ( 26,322) ( 14,661) Income taxes ( 4,798) ( 9,109)
Net income (loss) $( 1,094) $ 4,920
(a) - Includes amortization of excess of purchase price over net assets acquired (goodwill) of $9,744,000 in 1995 and $10,316,000 in 1994. A breakdown by segment is as follows:
Three months ended November 30,
Homebuilding and related financing $ 7,670 $ 8,243 Water and waste water transmission products 3,046 3,044 Natural resources ( 331) ( 332) Industrial and other products 654 654 Corporate ( 1,295) ( 1,293)
(b) - Excludes interest expense incurred by the Homebuilding and Related Financing Group of $32,596,000 in 1995 and $31,197,000 in 1994. The balance of unallocated expenses consisting of unallocated interest, corporate expenses and Chapter 11 costs in 1994 are attributable to all groups and cannot be reasonably allocated to specific groups.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
Six months ended November 30, Sales and Revenues:
Homebuilding and related financing $ 203,466 $ 206,288 Water and waste water transmission products 229,556 215,023 Industrial and other products 136,386 130,904
Consolidated sales and revenues $ 758,284 $ 703,970
Contributions to Operating Income (a):
Homebuilding and related financing $ 27,528 $ 24,998 Water and waste water transmission products 16,184 14,505 Industrial and other products 4,929 3,657 other expense (b) ( 51,743) ( 24,764) Income taxes ( 10,828) ( 15,966)
Net income (loss) $( 853) $ 6,353
(a) - Includes amortization of excess of purchase price over net assets acquired (goodwill) of $19,969,000 in 1995 and $20,884,000 in 1994. A breakdown by segment is as follows:
Six months ended November 30,
Homebuilding and related financing $ 15,795 $ 16,713 Water and waste water transmission products 6,125 6,122 Natural resources ( 666) ( 667) Industrial and other products 1,318 1,317 Corporate ( 2,603) ( 2,601)
(b) - Excludes interest expense incurred by the Homebuilding and Related Financing Group of $64,249,000 in 1995 and $62,317,000 in 1994. The balance of unallocated expenses consisting of unallocated interest, corporate expenses and Chapter 11 costs in 1994 are attributable to all groups and cannot be reasonably allocated to specific groups.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company emerged from bankruptcy on March 17, 1995. Accordingly, the Company's Consolidated Statement of Operations for the three months ended and six months ended November 30, 1995 are not comparable to the Consolidated Statement of Operations for the periods ended November 30, 1994.
The following unaudited pro forma consolidated statement of operations for the three months ended and six months ended November 30, 1994 have been prepared to illustrate the estimated effects of the Consensual Plan and related financings as if they had occurred as of June 1, 1994. This discussion should be read in conjunction with such pro forma consolidated statement of operations and the consolidated financial statements and notes thereto of Walter Industries, Inc. and subsidiaries for the three months ended and six months ended November 30, 1995, particularly Note 7 - "Segment Information" which presents sales and operating income by operating group.
Changes from the historical financial statements in the pro forma consolidated statement of operations consist of the following adjustments (all amounts in thousands):
(1) Interest income from Chapter 11 proceedings of $1,676 in the three month period and $3,094 in the six month period, which would not have been realized assuming the Consensual Plan became effective June 1, 1994, have been eliminated.
(2) Chapter 11 costs of $7,803 in the three month period and $11,952 in the six month period, which would not have been incurred assuming the Consensual Plan became effective June 1, 1994, have been eliminated.
(3) Interest and amortization of debt discount and expense has been increased $19,489 in the three month period and $39,032 in the six month period to give retroactive effect as if all indebtedness to be repaid pursuant to the Consensual Plan was so done as of June 1, 1994 and the $490 million of Series B Senior Notes had been outstanding for the full three months and six months ended November 30, 1994. Borrowings under the Trust IV Asset Backed Notes were assumed to increase during the period June 1, 1994 through November 30, 1994 proportionately with the comparable period increase in the outstanding economic balance of the instalment notes sold by Mid-State to Trust IV on March 16, 1995. No borrowings were assumed under the Mid-State Trust V Variable Funding Loan Agreement as this time period was prior to the Mid-State Trust IV cut off date for purchases of instalment notes from Mid-State. No working capital borrowings were assumed under the Bank Revolving Credit Facility. Pro forma interest expense, however, includes letter of credit fees and unused working capital commitment fees.
(4) The provision for income taxes has been adjusted at the applicable statutory rates to give effect to the pro forma adjustments described above.
(5) Net loss per share has been computed based on the weighted average number of common shares outstanding.
Three months ended November 30, 1995 and 1994
Net sales and revenues for the three months ended November 30, 1995 increased $16.5 million, or 4.6%, over the prior year period (on a pro forma basis), with a 2.6% increase in pricing and/or mix and a 2.0% increase in volume. The increase in net sales and revenues was the result of improved sales and revenues in the Water and Waste Water Transmission Products and Natural Resources Groups, partially offset by lower sales and revenues in the Homebuilding and Related Financing and Industrial and Other Products Groups.
Water and Waste Water Transmission Products Group sales and revenues were $419,000, or less than 1%, ahead of the prior year period. The increase was the result of higher selling prices for ductile iron pressure pipe, fittings and castings, partially offset by reduced sales volumes for ductile iron pressure pipe and fittings. The order backlog at November 30, 1995 was 115,360 tons, which represents approximately three months shipments compared to 121,548 tons at May 31, 1995 and 131,631 tons at November 30, 1994. Operating income of $7.4 million exceeded the prior year period by $223,000. The improved performance resulted from the increased selling prices, partially offset by the reduced sales volumes and higher raw material costs, especially scrap iron, a major raw material component.
Natural Resources Group sales and revenues exceeded the prior year period by $18.4 million, or 23.1%. The increase resulted from greater sales volumes for coal and methane gas, higher outside gas and timber royalty income and a $3.7 million gain from the sale of gas royalty interests in certain mineral properties, partially offset by lower average selling prices for coal and methane gas. A total of 2.02 million tons of coal was sold in the 1995 period versus 1.69 million tons in the 1994 period, a 20% increase. The increase in tonnage sold was the result of greater shipments to certain export customers, partially offset by lower shipments to Alabama Power Company ("Alabama Power") and Japanese steel mills. The average price per ton of coal sold decreased $.20 from $42.62 in the 1994 period to $42.42 in the 1995 period reflecting a substantially higher percentage of lower priced coal shipped to certain export customers. Blue Creek Mine No. 5 ("Mine No. 5") was shutdown from November 17, 1993 through December 16, 1993 and from early April 1994 until May 16, 1994 as a result of a fire due to spontaneous combustion heating. Representatives of Jim Walter Resources, the Mine Safety and Health Administration, Alabama State Mine Inspectors and the United Mine Workers of America agreed that the longwall coal panel being mined in Mine No. 5 at the time the fire recurred in April 1994 would be abandoned and sealed off. Development mining for the two remaining longwall coal panels in this section of the mine resumed on May 16, 1994 and mining on the first longwall panel resumed on January 17, 1995. Production was adversely impacted until such date; however, a portion of the increased costs is expected to be recovered from business interruption insurance and the Company has commenced litigation seeking to enforce such insurance. In late November 1995 Mine No. 5 experienced an unexpected recurrence of spontaneous combustion heating conditions and the mine was shut down. Efforts to contain and extinguish the fire appear to have been successful; however, the mine remains shut down while representatives of Jim Walter Resources and mine safety officials assess the timing for resuming production. Although Jim Walter Resources' three other mines remain in full production, results of the Natural Resources Group are now expected to be adversely impacted in the fiscal third quarter which ends February 29, 1996 as a result of the higher costs associated with the continuing problems at Mine No. 5. Operating income of $6.0 million was $94,000 below the prior year period. This performance was the result of higher costs per ton of coal produced ($39.52 in the 1995 period versus $38.37 in the 1994 period) reflecting various geological problems and the decreases in selling prices for coal and methane gas, partially offset by the increase sales volumes for coal and methane gas, the greater outside gas and timber royalty income and the gain from the sale of certain gas royalty interests.
Homebuilding and Related Financing Group sales and revenues were $504,000, or less than 1%, below the prior year period. This performance reflects a 6.4% decrease in the number of homes sold, from 1,085 units in the 1994 period to 1,016 units in the 1995 period, partially offset by a 4.2% increase in the average net selling price per home sold from $39,300 in 1994 to $40,900 in 1995. The decrease in unit sales reflects continuing strong competitive conditions in virtually every Jim Walter Homes sales region. The higher average net selling price in the 1995 period reflects a price increase instituted February 1, 1995 to compensate for higher building material costs. Jim Walter Homes' backlog at November 30, 1995 was 1,589 units compared to 1,529 units at May 31, 1995 and 1,849 units at November 30, 1994. Time charge income (revenues received from Mid-State Homes' instalment note portfolio) decreased slightly, from $55.8 million in the 1994 period to $55.6 million in the 1995 period. The decrease in time charge income is attributable to a reduction in the total number of accounts, partially offset by an increase in the average balance per account in the portfolio. Operating income of $13.6 million (net of interest expense) was $65,000 greater than the prior year period. This performance was due to improved homebuilding gross profit margins reflecting the higher average net selling prices per home sold and lower lumber costs, partially offset by the lower number of homes sold, the decrease in time charge income and higher interest expense in the 1995 period ($32.6 million) as compared to that incurred in the 1994 period ($31.2 million).
Industrial and Other Products Group sales and revenues were $2.1 million, or 3.1%, below the prior year period. Reduced sales volumes of aluminum foil and sheet products, furnace coke, mineral wool, window components and metal building and foundry products were partially offset by increased selling prices for aluminum foil and sheet products, furnace coke, window components and metal building and foundry products combined with greater sales volumes of resin coated sand and patterns and tooling. The Group's operating income of $3.1 million exceeded the prior year period by $1.1 million. The improved performance resulted from increased income from aluminum foil and sheet products, furnace coke, resin coated sand and patterns and tooling. These increases were partially offset by a lower performance in the window components business due to the decrease in sales volume.
Cost of sales, exclusive of depreciation, of $249.8 million was 80.4% of net sales compared with $237.7 million and 79.3% in the 1994 period. The cost of sales percentage increase was primarily the result of reduced gross profit margins for pipe products, coal and window components, partially offset by improved gross profit margins on home sales, aluminum foil and sheet products, furnace coke, resin coated sand and patterns and tooling.
Selling, general and administrative expenses of $33.5 million was 8.9% of net sales and revenues versus $31.6 million and 8.7% in the 1994 period.
Interest and amortization of debt discount and expense was $54.9 million in the 1995 period versus $55.8 million, on a pro forma basis, in the 1994 period reflecting lower average outstanding debt balances. The prime interest rate was 8.75%in the 1995 period compared to a range of 7.75% to 8.5% in the 1994 period.
The Company's effective tax rate in the 1995 period and on a pro forma basis in the 1994 period differed substantially from the statutory tax rate due primarily to amortization of excess of purchase price over net assets acquired (goodwill) which is not deductible for tax purposes.
The net loss for the three months ended November 30, 1995 was $1.1 million compared to a net loss of $3.4 million, on a pro forma basis, in the 1994 period reflecting all of the previously mentioned factors.
Six Months Ended November 30, 1995 and 1994
Net sales and revenues for the six months ended November 30, 1995 increased $57.4 million, or 8.2%, over the prior year period (on a pro forma basis), with a 5.6% increase in volume and a 2.6% increase in pricing and/or mix. The increase in net sales and revenues was the result of improved sales and revenues in the Water and Waste Water Transmission Products, Natural Resources and Industrial and Other Products Groups, partially offset by lower sales and revenues in the Homebuilding and Related Financing Group.
Water and Waste Water Transmission Products Group sales and revenues were $14.5 million, or 6.8%, ahead of the prior year period. The increase was the result of higher sales prices and volumes for ductile iron pressure pipe, valves and hydrants and improved castings sales prices. Operating income of $16.2 million exceeded the prior year period by $1.7 million. The improved performance resulted from the increased sales volumes and prices, partially offset by higher raw material costs, especially scrap iron, a major raw material component.
Natural Resources Group sales and revenues exceeded the prior year period by $39.3 million, or 26.5%. The increase resulted from greater sales volumes for coal and methane gas, higher outside gas and timber royalty income and a $3.7 million gain from the sale of gas royalty interests in certain mineral properties, partially offset by lower average selling prices for coal and methane gas. A total of 3.94 million tons of coal was sold in the 1995 period versus 3.10 million tons in the 1994 period, a 27% increase. The increase in tonnage sold was the result of greater shipments to Japanese steel mills and certain export customers, partially offset by lower shipments to Alabama Power. The average price per ton of coal sold decreased $.84 from $43.30 in the 1994 period to $42.46 in the 1995 period due to a combination of slightly lower pricing to Alabama Power and a substantially higher percentage of lower priced coal shipped to Japanese steel mills and certain export customers. As previously mentioned, Mine No. 5 was shutdown from November 17, 1993 through December 16, 1993 and from early April 1994 until May 16, 1994 as a result of a fire due to spontaneous combustion heating. Representatives of Jim Walter Resources, the Mine Safety and Health Administration, Alabama State Mine Inspectors and the United Mine Workers of America agreed that the longwall coal panel being mined in Mine No. 5 at the time the fire recurred in April 1994 would be abandoned and sealed off. Development mining for the two remaining longwall coal panels in this section of the mine resumed on May 16, 1994 and mining on the first longwall panel resumed on January 17, 1995. Production was adversely impacted until such date; however, a portion of the increased costs is expected to be recovered from business interruption insurance and the Company has commenced litigation seeking to enforce such insurance. In late November 1995 Mine No. 5 experienced an unexpected recurrence of spontaneous combustion heating conditions and the mine was shut down. Efforts to contain and extinguish the fire appear to have been successful; however, the mine remains shut down while representatives of Jim Walter Resources and mine safety officials assess the timing for resuming production. Although Jim Walter Resources' three other mines remain in full production, results of the Natural Resources Group are now expected to be adversely impacted in the fiscal third quarter which ends February 29, 1996 as a result of the higher costs associated with the continuing problems at Mine No. 5. Operating income of $13.1 million exceeded the prior year period by $9.2 million. The improved performance principally resulted from the increased sales volumes of coal and methane gas, improved mining productivity which resulted in lower costs per ton of coal produced ($37.00 in the 1995 period versus $40.44 in the 1994 period), greater outside gas and timber royalty income and the gain from the sale of certain gas royalty interests, partially offset by the decreases in selling prices for coal and methane gas.
Industrial and Other Products Group sales and revenues were $5.5 million, or 4.2%, greater than the prior year period. Increased selling prices for furnace coke, aluminum foil and sheet products, window components and metal building and foundry products combined with greater sales volumes of furnace and foundry coke, chemicals, resin coated sand and patterns and tooling were partially offset by reduced sales volumes of window components, aluminum sheet and foil products and metal building and foundry products. The Group's operating income of $4.9 million exceeded the prior year period by $1.3 million. The improved performance resulted from increased income for aluminum foil and sheet products, furnace and foundry coke, resin coated sand and patterns and tooling due to the sales volume and price increases. These increases were partially offset by lower income in the window components business resulting from the decrease in sales volume, increased raw material costs, especially aluminum, a major raw material component, and reduced efficiencies due to prolonged start up problems associated with the consolidation and relocation of JW Window Components, Inc.'s Hialeah, Florida and Columbus, Ohio operations to Elizabethton, Tennessee.
Homebuilding and Related Financing Group sales and revenues were $2.8 million, or 1.4%, below the prior year period. This performance reflects a 9.6% decrease in the number of homes sold, from 2,147 units in the 1994 period to 1,941 units in the 1995 period, partially offset by a 5.1% increase in the average net selling price per home sold from $39,400 in 1994 to $41,400 in 1995. The decrease in unit sales reflects continuing strong competitive conditions in virtually every Jim Walter Homes sales region. The higher average net selling price in the 1995 period reflects a price increase instituted February 1, 1995 to compensate for higher building material costs. Time charge income (revenues received from Mid-State Homes' instalment note portfolio) decreased slightly from $112.6 million in the 1994 period to $111.9 million in the 1995 period. The decrease is attributable to a reduction in the total number of accounts, partially offset by an increase in the average balance per account in the portfolio. Operating income (net of interest expense) was $2.5 million greater than the prior year period. This increase resulted from improved homebuilding gross profit margins reflecting the higher average net selling price per home sold and lower lumber costs, partially offset by the decrease in time charge income and higher interest expense in the 1995 period ($64.2 million) as compared to that incurred in the 1994 period ($62.3 million).
Cost of sales, exclusive of depreciation, of $499.6 million was 79.7% of net sales in the 1995 period versus $461.9 million and 80.1% in the 1994 period. The cost of sales percentage decrease was primarily the result of improved gross profit margins on home sales, coal, furnace coke, aluminum foil and sheet products, resin coated sand and patterns and tooling, partially offset by reduced margins for pipe products and window components.
Selling, general and administrative expenses of $66.6 million were 8.8% of net sales and revenues in the 1995 period versus $64.0 million and 9.1% in the 1994 period.
Interest and amortization of debt discount and expense was $109.5 million in the 1995 period as compared to $111.8 million, on a pro forma basis, in the 1994 period reflecting lower average outstanding debt balances. The prime interest rate ranged from 8.75% to 9.0% in the 1995 period compared to a range of 7.25% to 8.5% in the 1994 period.
The Company's effective tax rate in the 1995 period and on a pro forma basis in the 1994 period differed substantially from the statutory tax rate due primarily to amortization of excess purchase price over net asset acquired (goodwill) which is not deductible for tax purposes.
The net loss for the six months ended November 30, 1995 was $853,000 as compared to a net loss of $12.4 million, on a pro forma basis, in the 1994 period reflecting all of the previously mentioned factors.
On December 27, 1989, the Company and 31 of its subsidiaries each filed a voluntary petition for reorganization under Chapter 11 with the Bankruptcy Court. On December 3, 1990, one additional small subsidiary also filed a voluntary petition for reorganization under Chapter 11 with the Bankruptcy Court. Two other small subsidiaries did not file petitions for reorganization under Chapter 11. The filing of the voluntary petitions resulted from a sequence of events stemming primarily from an inability of the Company's interest reset advisors to reset interest rates on approximately $624 million of outstanding indebtedness, which indebtedness by its terms required that the interest rates thereon be reset to the rate per annum such indebtedness should bear in order to have a bid value of 101% of the principal amount thereof as of December 2, 1989. The reset advisors' inability to reset the interest rates was primarily attributable to two factors: (i) uncertainties arising from the then pending asbestos-related veil piercing litigation, including the possibility either that such litigation would lead to the prohibition of further asset sales and debt repayment or that substantial new asbestos-related claims might become assertible against the Company, which uncertainties materially hindered the ability of the Company and its subsidiaries to pursue a refinancing or sell assets to reduce debt, and (ii) general turmoil in the high yield bond markets at such time, both of which depressed the bid value of such notes.
On March 17, 1995, the Company and its subsidiaries emerged from bankruptcy. Pursuant to the Consensual Plan, the Company has repaid substantially all of its unsecured claims and senior and subordinated indebtedness subject to the Chapter 11 reorganization proceedings.
A substantial controversy exists with regard to federal income taxes allegedly owed by the Company. Proofs of claim have been filed by the Internal Revenue Service in the amounts of $110,560,883 with respect to fiscal years ended August 31, 1980 and August 31, 1983 through August 31, 1987, $31,468,189 with respect to fiscal years ended May 31, 1988 (nine months) and May 31, 1989 and $44,837,693 with respect to fiscal years ended May 31, 1990 and May 31, 1991. Objections to the proofs of claim have been filed by the Company and the various issues are being litigated in the Bankruptcy Court. The Company believes that such proofs of claim are substantially without merit and intends to defend such claims against the Company vigorously.
Since May 31, 1995, total debt has decreased $15.2 million principally resulting from quarterly principal payments on the Mid-State Trust II Mortgage- Backed Notes ($43.5 million), Mid-State Trust III Asset Backed Notes ($12.9 million) and Mid-State Trust IV Asset Backed Notes ($23.6 million), partially offset by the issuance of long-term debt under the Mid-State Trust V Variable Funding Loan Agreement ($65.0 million).
The Company and certain of its subsidiaries have entered into a Bank Revolving Credit Facility, providing up to $150 million at any time outstanding for working capital needs with a sub-limit for trade and standby letters of credit in an amount not in excess of $40 million at any time outstanding and a sub- facility for swingline advances in an amount not in excess of $15 million at any time outstanding. At November 30, 1995, $18.0 million of letters of credit were outstanding under this agreement.
The Series B Senior Notes Due 2000, the Bank Revolving Credit Facility and the Trust V Variable Funding Loan Agreement contain a number of significant covenants that, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur additional indebtedness, make capital expenditures, pay dividends, create liens on assets, enter into leases, make investments or acquisitions, engage in mergers or consolidations or engage in certain transactions with subsidiaries and affiliates and otherwise restrict corporate activities (including change of control and asset sale transactions). In addition, under the Bank Revolving Credit Facility, the Company is required to maintain specified financial ratios and comply with certain financial tests, including interest coverage, fixed charge coverage ratios, maximum leverage ratios and minimum earnings before interest, taxes, depreciation and amortization expense, some of which become more restrictive over time. The Company believes it will meet these financial tests over the terms of these debt agreements.
On January 22, 1996, the existing $150 million Bank Revolving Credit Facility is scheduled to be replaced with credit facilities containing a $350 million revolving credit facility. See "Liquidity and Capital Resources" below. The replacement credit facilities will contain covenants and financial tests similar to those contained in the existing $150 million Bank Revolving Credit Facility. The Company believes that it will meet the financial tests of the replacement credit facilities over the term of the agreement.
At November 30, 1995, cash and short-term investments, net of bank overdrafts were approximately $62.5 million. Operating cash flows for the six months ended November 30, 1995 together with the use of available cash balances were primarily used for working capital requirements, payment of liabilities resulting from Chapter 11 proceedings and previously accrued in the fiscal year ended May 31, 1995, retirement of long-term senior debt, interest payments and capital expenditures.
Working capital is required to fund adequate levels of inventories and accounts receivable. Commitments for capital expenditures at November 30, 1995 are not material; however, it is estimated that gross capital expenditures of the Company and its subsidiaries for the balance of the year ending May 31, 1996 will approximate $46 million.
Because the Company's operating cash flow is significantly influenced by the general economy and, in particular, the level of construction, current results should not necessarily be used to predict the Company's liquidity, capital expenditures, investment in instalment notes receivable or results of operations. The Company believes that the Mid-State Trust V Variable Funding
Loan Agreement will provide Mid-State Homes with the funds needed to purchase the instalment notes and mortgages generated by Jim Walter Homes. It is contemplated that one or more permanent financings similar to the Mid-State Trusts II, II and IV financings will be required over the next four years in order to repay borrowings under the Variable Funding Loan Agreement.
On November 21, 1995, the Company signed a commitment letter with NationsBank National Association (South) ("NationsBank") obligating NationsBank to provide (or form a syndicate to provide) credit facilities consisting of a $375 million revolving credit facility, a $125 million six-year term loan and a $50 million seven-year term loan (collectively, the "Credit Facilities"). The $375 million revolving credit facility will include a sub-facility for trade and other standby letters of credit in an amount up to $40 million at any time outstanding and a sub-facility for swingline advances in an amount not in excess of $15 million at any time outstanding. The Company is in the final stages of negotiating definitive documentation for the Credit Facilities with a syndicate of banks led by NationsBank, and the closing is scheduled for January 22, 1996.
The Credit Facilities will be used, together with a drawing of approximately $50 million under the Variable Funding Loan Agreement, to redeem in full the $490 million aggregate principal amount of 12.19% Series B Senior Notes Due 2000 (the "Senior Notes") at a redemption price equal to 101% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption. In addition, the Credit Facilities will provide for the Company's ongoing general working capital requirements in replacement of the current Bank Revolving Credit Facility. The Company has sent redemption notices to all holders of its Senior Notes setting a January 22, 1996 redemption date. Simultaneously with the closing of the Credit Facilities, the Company will terminate the existing Bank Revolving Credit Facility.
Interest savings from the refinancing are expected to exceed $20 million annually. The Company believes that it will be able to generate sufficient operating cash flow to make all required interest and principal payments on its indebtedness, to make all its planned capital expenditures and to meet substantially all its operating needs.
PART II - OTHER INFORMATION
See Note 5 of Notes to Consolidated Condensed Financial Statements contained in Part I - Financial Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Earnings per share calculation for the three months ended and six months ended November 30, 1995 Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None Filed
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
/s/ W. H. Weldon /s/ F. A. Hult W. H. Weldon F. A. Hult Executive Vice President and Vice President and Controller and Principal Financial Officer Principal Accounting Officer
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0000912057-96-000457
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0000912057-96-000457_0000.txt
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 1996
THE SECURITIES ACT OF 1933
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number)
(Address, including zip code and telephone number, including area code, of Registrant's principal executive offices)
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT (Name, address, including zip code, and telephone number, including area code, of agent for service)
LARRY W. SONSINI, ESQ. WILLIAM D. SHERMAN, ESQ. JOHN A. FORE, ESQ. C. JEFFREY CHAR, ESQ. WILSON SONSINI GOODRICH & ROSATI, PC MORRISON & FOERSTER 650 PAGE MILL ROAD 755 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304 PALO ALTO, CALIFORNIA 94304
The Registrant hereby withdraws from registration 375,000 shares of its Common Stock registered to cover an over-allotment option granted to the Underwriters. The over-allotment option was not exercised and has expired with respect to the unexercised shares. The Registration Statement is hereby amended, as appropriate, to reflect the expiration of such option.
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hillsboro, State of Oregon, on the 12th of January, 1996.
By: /s/ RODNEY F. SLOSS
Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
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0000908996-96-000001
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0000908996-96-000001_0000.txt
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As Filed with the Securities and Exchange Commission on January 12, 1996.
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X / Pre-Effective Amendment No. ___ / /
Post-Effective Amendment No. 7 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8 / X /
(Check appropriate box or boxes)
PIONEER REAL ESTATE SHARES (Formerly, Pioneer Winthrop Real Estate Investment Fund) (Exact name of registrant as
60 State Street, Boston, Massachusetts 02109 (Address of principal executive office) Zip Code
(Registrant's Telephone Number, including Area Code)
Joseph P. Barri, Hale and Dorr, 60 State Street, Boston, MA 02109 (Name and address of agent for service)
It is proposed that this filing will become effective (check appropriate box):
___ immediately upon filing pursuant to paragraph (b)
_X_ on January 18, 1996 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on [date] pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2) ___ on [date] pursuant to paragraph (a)(2) of Rule 485
The Registrant has registered an indefinite number of shares pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended. The Registrant has filed its Rule 24f-2 Notice for its current fiscal year on or about February 27, 1995.
Cross-Reference Sheet Showing Location in Prospectus and Statement of Additional Information of Information Required by Items of the Registration Form
Form N-1A Item Number and Caption Location
1. Cover Page............................ Cover Page
3. Condensed Financial Information....... Financial Highlights
4. General Description of Registrant..... Investment Objectives and
5. Management of the Fund................ Management of the Fund
6. Capital Stock and Other Securities.... Investment Objectives and
7. Purchase of Securities Being Offered.. Fund Share Alternatives; Services; How to Buy Fund
8. Redemption or Repurchase.............. Fund Share Alternatives;
9. Pending Legal Proceedings............. Not Applicable
Form N-1A Item Number and Caption Location
10. Cover Page............................ Cover Page
11. Table of Contents..................... Cover Page
12. General Information and History....... Cover Page; General Information
13. Investment Objectives and Policies.... Investment Policies and
14. Management of the Fund................ Management of the Fund; Advisory
15. Control Persons and Principle Holders of Securities....................... Management of the Fund
16. Investment Advisory and Other Services............................ Management of the Fund; Advisory
17. Brokerage Allocation and Other
18. Capital Stock and Other Securities.... Methods of Accounting for Profits or Losses from the Sale
19. Purchase Redemption and Pricing of Securities Being Offered............ Determination of Net Asset
20. Tax Status............................ Tax Status
22. Calculation of Performance Data....... Investment Results
23. Financial Statements.................. Financial Statements
Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this Registration Statement.
This Post-Effective Amendment No. 7 to the Registration Statement on Form N-1A of Pioneer Real Estate Shares (the "Registrant") consists of the following documents and papers:
Cross Reference Sheet required by Rule 481(a) under the Securities Act of 1993.
Part A -- The Prospectus dated January __, 1996 of the Registrant is hereby incorporated herein by reference from Post-Effective Amendment No. 6 to the Registrant's Registration Statement as filed with the Securities and Exchange Commission pursuant to Rule 485(a)(1) on November 14, 1995.
Part B -- Statement of Additional Information dated January __, 1996 of the Registrant is hereby incorporated herein by reference from Post-Effective Amendment No. 6 to the Registrant's Registration Statement as filed with the Securities and Exchange Commission pursuant to Rule 485(a)(1) on November 14, 1995
Financial statements for the period from July 1, 1994 through December 31, 1994, incorporated by reference into the above-referenced Statement of Additional Information, are hereby incorporated herein by reference.
Unaudited financial statements for the period from January 1, 1995 through June 30, 1995 are hereby incorporated herein by reference from the Registrant's Semi-Annual Report to Shareholders as filed with the Securities and Exchange Commission on August 25, 1995, Accession No. 0000908996-95-000027.
Part C -- Other Information
Exhibit Index required by Rule 483(a) under the Securities Act of 1993
Item 24. Financial Statements and Exhibits.
The financial statements of the Registrant are incorporated by reference from the Annual Report to Shareholders for the period ended December 31, 1994 and the 1995 Report to Shareholders for the period ended June 30, 1995 is incorporated by reference as filed with the Securities and Exchange Commission on August 25, 1995, Accession No. 0000908996-95-000027.
1.1 Agreement and Declaration of Trust*
1.3 Amendment to Certificate of Trust.***
1.4 Amendment to Agreement and Declaration of Trust.***
1.5 Establishment and Designation of Classes.****
5. Management Contract between the Registrant
6.1. Underwriting Agreement between the Registrant and
6.2. Form of Dealer Sales Agreement.**
8. Custodian Agreement between the Registrant and Brown
9. Investment Company Service Agreement between the Registrant and Pioneering Services Corporation.*
10. Opinion and Consent of Counsel.***
11. Consent of Independent Public Accountants.****
15.1 Distribution Plan relating to Class A shares.*
15.2 Distribution Plan relating to Class B shares.****
15.3 Distribution Plan relating to Class C shares.****
18. Multiple Class Plan pursuant to Rule 18f-3.****
* Filed with Post-Effective Amendment No. 4 to the Registration Statement on April 25, 1995 and incorporated herein by reference.
** Filed with Pre-Effective Amendment No. 1 on September 20, 1993 and incorporated herein by reference.
*** Filed with Post-Effective Amendment No. 5 to the Registration Statement on November 8, 1995 and incorporated herein by reference.
**** Filed with Post-Effective Amendment No. 6 to the Registration Statement on November 14, 1995 and incorporated herein by reference.
Item 25. Persons Controlled By or Under Common Control With Registrant.
The Pioneer Group, Inc., a Delaware corporation ("PGI"), owns 100% of the outstanding capital stock of Pioneering Management Corporation, a Delaware corporation ("PMC"), Pioneering Services Corporation ("PSC"), Pioneer Capital Corporation ("PCC"), Pioneer Fonds Marketing GmbH ("GmbH"), Pioneer SBIC Corp. ("SBIC"), Pioneer Associates, Inc., Pioneer International Corporation, Pioneer Plans Corporation ("PPC"), Pioneer Goldfields Limited ("PGL"), and Pioneer Investments Corporation ("PIC"), all Massachusetts corporations. PMC owns 100% of the outstanding capital stock of Pioneer Funds Distributor, Inc. ("PFD"), a Massachusetts corporation. PGI also owns 100% of the outstanding capital stock of Pioneer Metals and Technology, Inc. ("PMT"), a Delaware corporation, and Pioneer First Polish Trust Fund Joint Stock Company ("First Polish"), a Polish corporation. PGI owns 90% of the outstanding shares of Teberebie Goldfields Limited ("TGL"). Pioneer Fund, Pioneer II, Pioneer Three, Pioneer Bond Fund, Pioneer Intermediate Tax-Free Fund, Pioneer Growth Trust, Pioneer Europe Fund, Pioneer International Growth Fund, Pioneer Short- Term Income Trust, Pioneer Tax-Free State Series Trust and Pioneer America Income Trust (each of the foregoing, a Massachusetts business trust), and Pioneer Interest Shares, Inc. (a Nebraska corporation) and Pioneer Growth Shares, Pioneer Income Fund, Pioneer India Fund, Pioneer Tax-Free Income Fund, Pioneer Emerging Markets Fund, Pioneer Money Market Trust, Pioneer Small Company Fund, Pioneer Variable Contracts Trust and the Registrant (each of the foregoing, a Delaware business trust) are all parties to management contracts with PMC. PCC owns 100% of the outstanding capital stock of SBIC. SBIC is the sole general partner of Pioneer Ventures Limited Partnership, a Massachusetts limited partnership. John F. Cogan, Jr. owns approximately 15% of the outstanding shares of PGI. Mr. Cogan is Chairman of the Board, President and Trustee of the Registrant and of each of the Pioneer mutual funds; Director and President of PGI; President and Director of PPC, PIC, Pioneer International Corporation and PMT; Director of PCC and PSC; Chairman of the Board and Director of PMC, PFD and TGL; Chairman, President and Director of PGL; Chairman of the Supervisory Board of GmbH; Chairman and Member of Supervisory Board of First Polish; and Chairman and Partner, Hale and Dorr.
Item 26. Number of Holders of Securities
Title of Class as of December 29, 1995
Class A Shares of Beneficial Interest 2,431
Class B Shares of Beneficial Interest 0 Class C Shares of Beneficial Interest 0
Except for the Agreement and Declaration of Trust dated March 10, 1995 establishing the Registrant as a Trust under Delaware law, there is no contract, arrangement or statute under which any director, officer, underwriter or affiliated person of the Registrant is insured or indemnified. The Agreement and Declaration of Trust provides that no Trustee or officer will be indemnified against any liability to which the Registrant would otherwise be subject by reason of or for willful misfeasance, bad faith, gross negligence or reckless disregard of such person's duties.
Insofar as indemnification for liability arising under the Securities Act of 1933, as amended (the "Act"), may be available to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment of the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
The business and other connections of the officers and directors of the Registrant's investment adviser, Pioneering Management Corporation, are listed on the Form ADV of Pioneering Management Corporation as currently on file with the Commission (File No. 801-8255), the text of which is hereby incorporated by reference.
The following sections of such Form ADV are incorporated herein by reference:
(a) Items 1 and 2 of Part 2;
(b) Section IV, Business Background, of each Schedule D.
(a) See Item 25 above.
(b) Directors and Officers of PFD:
Positions and Offices Positions and Offices Name with Underwriter with Registrant
John F. Cogan, Jr. Director and Chairman Chairman of the Board,
Robert L. Butler Director and President None
David D. Tripple Director Executive Vice
Steven M. Graziano Senior Vice President None
Stephen W. Long Senior Vice President None
John W. Drachman Vice President None
Barry G. Knight Vice President None
William A. Misata Vice President None
Anne W. Patenaude Vice President None
Elizabeth B. Rice Vice President None
Gail A. Smyth Vice President None
Constance D. Spiros Vice President None
Marcy Supovitz Vice President None
Steven R. Berke Assistant None
Mary Sue Hoban Assistant None
William H. Keough Treasurer Treasurer
Roy P. Rossi Assistant Treasurer None
Joseph P. Barri Clerk Secretary
Robert P. Nault Assistant Clerk Assistant Secretary
Item 30. Location of Accounts and Records.
The accounts and records are maintained at the Registrant's office at 60 State Street, Boston, Massachusetts; contact the Treasurer.
The Registrant is not a party to any management-related service contract, except as described in the Prospectus and Statement of Additional Information.
(c) The Registrant undertakes to deliver, or cause to be delivered with the Prospectus, to each person to whom the Prospectus is sent or given a copy of the Registrant's report to shareholders furnished pursuant to and meeting the requirements of Rule 30d-1 under the Investment Company Act of 1940 from which the specified information is incorporated by reference, unless such person currently holds securities of the Registrant and otherwise has received a copy of such report, in which case the Registrant shall state in the Prospectus that it will furnish, without charge, a copy of such report on request, and the name, address and telephone number of the person to whom such a request should be directed.
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Post-Effective Amendment to its Registration Statement on Form N-1A (which meets all the requirements for effectiveness pursuant to Rule 485(b) under the Securities Act of 1933) to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston and The Commonwealth of Massachusetts, on the 10th day of January, 1996.
By: /s/ John F. Cogan, Jr. John F. Cogan, Jr.
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment has been signed below by the following persons in the capacities and on the date indicated:
John F. Cogan, Jr.* ) John F. Cogan, Jr., President ) William H. Keough, Treasurer ) John F. Cogan, Jr.* ) John F. Cogan, Jr. ) Richard H. Egdahl, M.D.* ) Richard H. Egdahl, M.D. ) Margaret B. W. Graham* ) Margaret B. W. Graham )
* By: /s/ Joseph P. Barri January 10, 1996
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0000070538-96-000002
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0000070538-96-000002_0000.txt
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<DESCRIPTION>NATIONAL SERVICE INDUSTRIES, INC. 10-Q
Exhibit Index on Page 11
Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934
For quarter ended November 30, 1995 Commission file number 1-3208
(Exact Name of Registrant as Specified in its Charter)
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
1420 Peachtree Street, N. E., Atlanta, Georgia 30309-3002 (Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (applicable only to corporate issuers).
Common Stock - $1.00 Par Value - 48,391,636 shares as of January 9, 1996.
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
NOVEMBER 30, 1995 AND AUGUST 31, 1995 ....... 3
CONSOLIDATED STATEMENTS OF INCOME - THREE MONTHS ENDED NOVEMBER 30, 1995 AND 1994 4
CONSOLIDATED STATEMENTS OF CASH FLOWS - ........... 5 THREE MONTHS ENDED NOVEMBER 30, 1995 AND 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ........ 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ......... 9
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
Cash and cash equivalents ........................... $ 92,569 $ 79,402 Short-term investments .............................. 2,550 3,598 Receivables, less reserves for doubtful accounts of $7,643 at November 30, 1995 and $6,467 at August 31, 1995 ..................... 255,372 266,056 Inventories, at the lower of cost (on a first-in, first-out basis) or market .............. 188,581 185,789 Linens in service, net of amortization .............. 91,618 88,605 Deferred income taxes ............................... 9,325 10,221 Total Current Assets .............................. 650,848 640,410
Property, Plant, and Equipment, at cost: Buildings and leasehold improvements ................ 193,442 192,023 Machinery and equipment ............................. 514,498 503,868 Total Property, Plant, and Equipment .............. 738,409 726,907 Less - Accumulated depreciation and Property, Plant, and Equipment - net ............ 352,100 349,904
Goodwill and other intangibles ...................... 98,834 101,410 Total Other Assets ................................ 136,849 141,032 Total Assets .................................... $1,139,797 $1,131,346
Current maturities of long-term debt ................ $ 83 $ 87 Notes payable ....................................... 6,592 6,399 Accounts payable .................................... 75,121 81,524 Accrued salaries, commissions, and bonuses .......... 37,519 43,944 Current portion of self insurance reserves .......... 16,825 16,276 Other accrued liabilities ........................... 63,729 54,340 Total Current Liabilities ......................... 199,869 202,570
Long-Term Debt, less current maturities ............... 26,745 26,776 Deferred Income Taxes ................................. 64,287 65,756 Self Insurance Reserves, less current portion ......... 66,870 67,830 Other Long-Term Liabilities ........................... 25,454 24,010
Series A participating preferred stock, $.05 stated value, 500,000 shares authorized, none issued Preferred stock, no par value, 500,000 shares Common stock, $1 par value, 80,000,000 shares authorized, 57,918,978 shares issued at November 30, 1995 and August 31, 1995 ...................... 57,919 57,919 Paid-in capital ..................................... 9,379 8,065 Retained earnings ................................... 756,834 746,256 Less - Treasury stock, at cost (9,540,932 shares at November 30, 1995 and 9,609,261 shares at August 31, 1995) ......................................... 67,560 67,836 Total Stockholders' Equity .................... 756,572 744,404
Total Liabilities and Stockholders $ 1,139,797 $1,131,346
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollar amounts in thousands, except per-share data)
Net sales of products .......................... $ 359,842 $ 344,882 Service revenues ............................... 132,708 136,102 Total Revenues ............................... 492,550 480,984
Cost of products sold .......................... 227,439 219,187 Cost of services ............................... 74,364 75,846 Selling and administrative expenses ............ 152,383 149,695 Interest expense ............................... 1,079 830 Other expense, net ............................. 190 1,691 Total Costs and Expenses ..................... 455,455 447,249
Income before Provision for Income Taxes.......... 37,095 33,735
Provision for (Benefit from) Income Taxes:
Net Income ....................................... $ 23,269 $ 21,114
Net income ..................................... $ .48 $ .43
Cash dividends ................................. $ .28 $ .27
Weighted Average Number of Shares Outstanding (thousands) ........................ 48,343 49,244
The accompanying notes to consolidated financial statements are an integral part of these statements.
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
The accompanying notes to consolidated financial statements are an integral part of these statements.
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The interim consolidated financial statements included herein have been prepared by the company without audit and the condensed consolidated balance sheet as of August 31, 1995 has been derived from audited statements. These statements reflect all adjustments, all of which are of a normal, recurring nature, which are, in the opinion of management, necessary to present fairly the consolidated financial position as of November 30, 1995, the consolidated results of operations for the three months ended November 30, 1995 and 1994, and the consolidated cash flows for the three months ended November 30, 1995 and 1994. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the company's Annual Report on Form 10-K for the fiscal year ended August 31, 1995.
The results of operations for the three months ended November 30, 1995 are not necessarily indicative of the results to be expected for the full fiscal year because the company's revenues and income are generally higher in the second half of its fiscal year and because of the uncertainty of general business conditions.
Three Months Ended November 30 Lighting Equipment ....... $ 208,278 $ 203,806 $ 16,378 $ 13,690 Textile Rental ........... 132,708 136,102 9,753 11,316 Chemical ................. 92,107 87,952 9,705 9,301 Other .................... 59,457 53,124 3,090 3,069 $ 492,550 $ 480,984 38,926 37,376 Interest Expense ......... (1,079) (830) Total .................... $ 37,095 $ 33,735
Major classes of inventory as of November 30, 1995 and August 31, 1995 were as follows: Raw Materials and Supplies ................... $ 83,123 $ 87,470 Finished Goods ............................... 96,110 88,440
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and related notes.
National Service Industries' balance sheet remained strong at November 30, 1995, with net working capital of $451.0 million, up from $437.8 million at August 31, 1995, and a current ratio of 3.3, compared with 3.2 at year end. Cash and short-term investments increased to $95.1 million from $83.0 million at August 31. During the quarter just ended, the company invested $14.6 million in capital expenditures and acquisitions. Long-term debt and other long-term liabilities were 13.6 percent of total capitalization, down slightly from 13.7 percent at August 31. Cash provided by operating activities was $35.1 million, compared with $44.1 million for the first quarter last year.
Capital expenditures, exclusive of acquisition spending, were $14.3 million for the first quarter this year and $11.8 million for the same period a year ago. The lighting equipment division invested in equipment replacement and process improvements and tooling for new products. Textile rental division spending consisted of information systems enhancements and replacement and improvement of facilities, equipment and vehicles. Prior-year spending included the lighting equipment division's manufacturing equipment replacements and improvements and construction of the Mexican production facility and the textile rental division's fleet upgrades and facility improvements. Acquisition spending was minimal in both periods.
Dividend payments totaled $13.5 million, or 28 cents per share, during the quarter ended November 30, 1995, compared with $13.3 million, or 27 cents per share, for the prior-year period. Effective January, 1996, the regular quarterly dividend rate was increased 3.6 percent to 29 cents per share, or an annual rate of $1.16 per share.
For the periods presented, capital expenditures, working capital needs, dividends, acquisitions, and share repurchases were financed primarily with internally generated funds, supplemented by short-term borrowings in the European market. Contractual commitments for capital and acquisition spending during the coming twelve months total $16 million. For the current fiscal year, the company expects actual capital expenditures to be somewhat higher than levels of recent years, which, excluding acquisition spending, were $59 million in 1995, $43 million in 1994, and $36 million in 1993. Current liquid assets and internally generated funds are expected to be more than adequate to meet anticipated cash requirements for the next twelve months, although some interim borrowings might be incurred to meet short-term needs. The company has complimentary lines of credit totaling $152 million, of which $110 million has been provided domestically and $42 million is available on a multi-currency basis primarily from a European bank.
National Service Industries' earnings per share for the first quarter of its new fiscal year increased 12.1 percent to 48 cents. Sales for the quarter, which ended November 30, 1995, increased 2.4 percent to $493 million. Net income of $23.3 million was 10.2 percent higher than the $21.1 million reported in last year's first quarter. Since there were, on average, 901,000 fewer shares outstanding during this year's quarter, earnings per share increased at the greater rate of 12.1 percent.
The lighting equipment division continued its growth with first quarter sales advancing 2.2 percent to $208 million from $204 million last year. Pricing improvements were offset somewhat by lower unit volumes. Operating income advanced 19.6 percent to 7.9 percent of revenues, compared with 6.7 percent the year earlier, as the improved pricing and a more favorable product mix increased profit margins.
The textile rental sector posted a 2.5 percent decrease in sales, from $136 million to $133 million, largely because of branches divested last year. However, operating income declined to 7.3 percent of revenues from 8.3 percent the prior-year first quarter. The decline was due to continued structural changes in the healthcare market and to somewhat higher processing costs resulting in part from this year's extended hurricane season.
Chemical segment sales, benefiting from both improved pricing and unit volume gains, advanced 4.7 percent to $92 million from $88 million the year earlier. Operating income was 10.5 percent of revenues, just under the 10.6 percent posted in the first quarter last year.
Sales of the Other segment (insulation service and envelopes) rose 11.9 percent overall. However, the excellent first quarter results of Atlantic Envelope, bolstered by pricing gains, were offset by softness in North Bros.' insulation service income.
Corporate expense was greater in the first quarter last year due in large part to the company's adoption of Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits," and the resulting accrual related primarily to severance agreements and the liability for life insurance coverage for certain eligible disabled employees.
Interest expense on European loans was higher than in the prior-year period due to increased borrowings at somewhat higher average interest rates.
The provision for income taxes in the first quarter was 37.3 percent of pretax income, compared with 37.4 percent for the same period last year. Changes in the year-to-year effective rates resulted from variations in the relative amounts of tax exempt income.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders held January 3, 1996, all nominees for director were elected to the board without opposition and Arthur Andersen LLP was appointed as independent auditor for the current fiscal year.
The board of directors at its regular meeting held December 20, 1995 elected Chester J. Popkowski as Vice President, Treasurer.
On January 3, 1996 the board of directors named James S. Balloun as chairman and chief executive officer effective February 1, replacing current chairman and chief executive D. Raymond Riddle, who is retiring. Mr. Balloun, 57, has spent his business career with McKinsey and Company, serving most recently as a director and member of the Shareholders, Principals and MGM Election Committees.
At the January meeting, the board of directors also elected Kenyon W. Murphy as Vice President, Secretary and Assistant Counsel.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits are listed on the Index to Exhibits (page 11).
(b) There were no reports on Form 8-K for the three months ended November 30, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE January 12, 1996 /s/ DAVID LEVY
DATE January 12, 1996 /S/ J. ROBERT HIPPS
EXHIBIT 11 ............. - Computation of Net Income per Share of 12
EXHIBIT 27 ............. - Financial Data Schedules 13
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10-Q
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10-Q
| 1996-01-12T00:00:00
| 1996-01-12T13:12:36
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0000891618-96-000013
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0000891618-96-000013_0003.txt
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<DESCRIPTION>ANNUAL REPORT FOR THE FISCAL YEAR ENDED 10/29/95
* The fiscal year ends on the last Sunday in October each year. The fiscal year-end for the periods presented are October 29, 1995, October 30, 1994, October 31, 1993, October 25, 1992, and October 27, 1991.
**Retroactively restated for the two-for-one stock split in the form of a 100 percent stock dividend effective October 12, 1995 (see note nine to the consolidated financial statements).
[CHART 1] [CHART 2] [CHART 3]
For the fiscal year ended October 29, 1995, Applied Materials achieved record net sales of $3.1 billion, record new orders of $3.9 billion and a backlog of $1.5 billion compared to $715.2 million of backlog at the end of fiscal 1994.
The Company's net sales increased by 84 percent for fiscal 1995 compared to fiscal 1994 and 54 percent for fiscal 1994 compared to fiscal 1993. This increase was driven by a strong worldwide demand for the Company's advanced wafer process technology, multi-chamber equipment and installed base support services. The increased demand for the Company's multi-chamber systems (the Precision 5000, Endura and Centura platforms) reflects the robust demand for advanced semiconductor devices and the industry's continued investment in systems capable of performing processes required for smaller device geometries, as well as the complex multi-level metal structures of the most advanced semiconductor devices. The Company's installed base support services revenue increased 47 percent from fiscal 1994, reflecting our global customers' requirements for high reliability and uptime specifications.
Applied Materials operates in all major geographic regions of the worldwide semiconductor industry with 68 percent of the Company's net sales in fiscal 1995 to customers located outside North America compared to 63 percent in fiscal 1994 and 62 percent in fiscal 1993. Major North American manufacturers of microprocessors, memory and logic devices continued their capacity expansions both in Europe and in the United States. Fiscal 1995 sales in Asia-Pacific and Korea continued to show significant increases from fiscal 1994 levels, reflecting customers' needs for increased dynamic random access memory (DRAM) capacity in South Korea and increased DRAM, logic and foundry capacity in Taiwan and Singapore. Sales in Japan increased from the prior fiscal year as Japanese DRAM manufacturers increased their eight-inch wafer capacity for 16 Mbit production and 64 Mbit pilot lines.
Gross margin as a percentage of net sales was 46 percent in fiscal 1995 and 1994 and 44 percent in fiscal 1993. The economies of scale in the manufacturing and the service and support operations were offset by production inefficiencies and costs incurred to meet the significant ramp in product shipments during fiscal 1995.
Operating expenses as a percentage of net sales were 23 percent in fiscal 1995 compared to 26 percent and 29 percent in fiscal 1994 and 1993, respectively. The reduction during the past three years results primarily from the Company's accelerated revenue growth and management of the growth in operating expenses. The Company plans to continue to increase investments in strategic facilities expansion, information systems technology and personnel to support its current and future volumes of business. Thus, there can be no assurance that current operating expense levels as a percentage of net sales are indicative of future operating expenses as a percentage of net sales.
The Company's future results depend, to a considerable extent, on its ability to maintain a competitive advantage in both the products and services it provides. For this reason, Applied Materials believes it is critical to continue to make substantial investments in research and development to ensure the flow of innovative, productive, high-quality products and support services. Research, development and engineering spending grew to $330 million or 11 percent of net sales in 1995 compared to $189 million or 11 percent of net sales in 1994 and $140 million or 13 percent of net sales in 1993. This considerable investment reflects the Company's commitment to meet its customers' requirements which are driven by rapid technological advancement. New products introduced during fiscal 1995 include the Endura VHP (Very High Productivity) PVD system, Precision Implant 9500 xR, MxP+ Dielectric Etch Chamber, RPS Centura, DxZ Process Chamber, the rapid thermal processing (RTP) system, and the Precision Implant xR80. The Company also introduced additional sub-atmospheric chemical vapor deposition processes for existing products.
Marketing, selling and administrative expenses as a percentage of net sales were 13 percent, 14 percent and 16 percent in fiscal 1995, 1994 and 1993, respectively. During each of these fiscal years, the Company increased spending in marketing and selling programs to support the development of international markets and increase awareness of new products. Increases in administrative expenses over the last three fiscal years have been primarily to support the Company's growth. As a percentage of net sales, these expenses have decreased due to the revenue growth rate exceeding the growth rate in marketing, selling and administrative expenses.
Applied Materials' effective income tax rate was 35 percent in fiscal 1995 and 1994 and 33 percent in fiscal 1993. The two percentage point increase in the effective tax rate from fiscal 1993 is primarily the result of changes in U.S. tax laws and variations in the Company's composition of worldwide income and foreign taxes. The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," prospectively on November 1, 1993 and recorded a one-time $7 million credit as the favorable impact of the accounting change. In fiscal 1996, the Company's effective tax rate is anticipated to remain at 35 percent.
While international markets provide the Company with significant growth opportunities, periodic economic downturns, fluctuations in interest and foreign currency exchange rates, trade balance issues, and potential economic and political instability are all risks which could affect global product and service demand. Significant operations of the Company are conducted in Japanese yen. Forward exchange contracts and options are purchased to hedge certain existing firm commitments and foreign currency denominated transactions expected to occur during the next year. Gains and losses on hedge contracts are reported as a component of the related transaction. Because the impact of movements in currency exchange rates on foreign exchange contracts offsets the related impact on the underlying items being hedged, these financial instruments do not subject the Company to speculative risk that would otherwise result from changes in currency exchange rates. While not significant in fiscal 1995, the strength of the Japanese yen relative to the U.S. dollar resulted in a favorable impact to the Company's results of operations after the effect of foreign currency hedging activities. Exchange rate fluctuations between the local currencies of the Company's subsidiaries and the U.S. dollar did not materially affect the consolidated balance sheet.
Financial Condition, Liquidity and Capital Resources
At October 29, 1995, the Company had $769 million in cash, cash equivalents and short-term investments, compared to $422 million at October 30, 1994. The increase is due primarily to the increase in earnings, $321 milllion raised by the sale of common stock in July 1995, the issuance of $73 million in medium-term notes, other long-term debt borrowings, and increases in accounts payable and accrued expenses offset by capital expenditures and increased levels of accounts receivable and inventory. Accounts receivable increased $412 million from October 1994 primarily due to increased sales volumes. Inventories increased $182 million from October 1994 primarily to support increased demand for products and spare parts. Capital expenditures of $266 million consisted primarily of facility improvements and expansion, demonstration and test equipment and information systems.
Major facility improvement and expansion projects are currently underway in Texas, California, Japan, Taiwan, and Korea. These projects reflect efforts by the Company to manage its manufacturing and applications lab capacity to ensure that customer needs will continue to be met. Capital expenditures are expected to approximate $500 million during 1996. This amount includes funds for further expansion of facilities and investments in demonstration and test equipment, information systems and other capital items. These expenditures are anticipated to be financed by operating cash flows, cash on hand and the Company's existing debt arrangements. Domestic and foreign credit facilities available at October 29, 1995 totaled $189 million.
During fiscal 1995, the Company registered $267 million in medium-term notes to be issued from time to time, at fixed or variable interest rates, as determined at the time of issuance. As of October 29, 1995, the Company had issued $73 million of 6.65 to 7.00 percent fixed rate, 5- and 10-year notes. The Company's liquidity is affected by many factors, some based on the normal on-going operations of the business and others related to the uncertainties of the industry and global economies. Although the Company's cash requirements will fluctuate based on the timing and extent of these factors, management believes that cash generated from operations, together with the liquidity provided by existing cash and investment balances and current borrowing arrangements, will be sufficient to satisfy commitments for capital expenditures and other cash requirements for the next fiscal year.
The Company entered into a joint venture agreement in September 1993 with Komatsu Ltd. to form Applied Komatsu Technology, Inc. (AKT), a joint venture corporation whose mission is to develop, manufacture and market systems used to produce flat panel displays (see note five to the consolidated financial statements). During fiscal 1995, AKT continued to expand its product offerings and revenue base and in the fourth quarter recognized net income for the first time. Applied Materials believes that AKT will not materially impact the Company's financial condition or results of operations during fiscal 1996.
See accompanying notes to the consolidated financial statements.
See accompanying notes to the consolidated financial statements.
consolidated STATEMENTS OF CASH FLOWS
Cash payments for interest were $22,349, $14,120 and $14,187 for 1995, 1994 and 1993, respectively. Cash payments for income taxes were $221,430, $79,498 and $31,177 for 1995, 1994, and 1993, respectively. See accompanying notes to the consolidated financial statements.
notes to consolidated FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of all significant intercompany balances and transactions. The Company's 50 percent joint venture investment in Applied Komatsu Technology, Inc. (AKT) is accounted for using the equity method and is included in other long-term assets. The Company's fiscal years reported are the 52- or 53-week periods which end on the last Sunday of October.
Cash Equivalents All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.
Short-Term Investments Prior to fiscal 1995, short-term investments were carried at cost, which approximated market value. Effective October 31, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities." SFAS 115 requires investment securities to be classified as trading, available for sale, or held to maturity. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the classification at each balance sheet date. As of October 29, 1995, all investments in the short-term investment portfolio are classified as available for sale. Under SFAS 115, investments classified as available for sale are required to be recorded at fair value and any temporary difference between an investment's cost and its fair value is required to be recorded as a separate component of stockholders' equity. This adoption had no material effect on the Company's financial statements. Prior year consolidated financial statements have not been restated to reflect this change.
Inventory Valuation Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out (FIFO) basis.
Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation is provided using a straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the useful lives of the improvements or the lease term, whichever is shorter. Gains and losses on sales of property, plant and equipment are reflected in income. Maintenance and repairs are charged to income as incurred. Improvements which extend the useful life of property, plant and equipment are capitalized.
Revenue Recognition Revenue related to systems is generally recognized upon shipment, which usually precedes customer acceptance. A provision for the estimated future cost of system installation and warranty is recorded at the time revenue is recognized. Service revenue is recognized ratably over the period of the related contract.
Derivative Financial Instruments In fiscal 1995, the Company adopted Statement of Financial Accounting Standards No. 119 (SFAS119), "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments." Estimated fair values have been determined using available market information and various valuation methods depending on the type of instrument. The Company enters into derivative financial instruments such as forward exchange contracts to hedge certain firm commitments denominated in foreign currencies and purchases currency option contracts to hedge certain anticipated, but not yet committed, transactions expected to be denominated in foreign currencies. The purpose of the Company's foreign currency management activity is to protect the Company from the risk that eventual cash flows from foreign currency denominated may be adversely affected by changes in exchange rates. The term of the currency instruments used is consistent with the timing of the committed or anticipated transactions being hedged. The Company does not hold or issue financial instruments for trading or speculative purposes. Deferred results of forward and option contracts are recognized in income when the related transactions being hedged are recognized.
Foreign Currency Translation The Company's subsidiaries located in Japan and Europe operate using local functional currencies. Accordingly, all assets and liabilities of these operations are translated at current exchange rates at the end of the period and revenues and costs at average exchange rates in effect during the period. The resulting cumulative translation adjustments are recorded as a separate component of stockholders' equity.
Subsidiaries in Korea and in the Asia-Pacific region use the U.S. dollar as the functional currency. Accordingly, assets and liabilities are translated at period-end exchange rates, except for inventories and property, plant and equipment, which are translated at historical rates. Revenues and expenses are translated at average exchange rates in effect during the period, except for costs related to balance sheet items which are held and translated at historical rates. Foreign currency translation gains and losses are included in income as they are incurred.
Earnings Per Share Earnings per common share and equivalents is computed using the weighted average number of common shares and equivalents outstanding (see note nine).
Reclassifications Certain amounts in fiscal years prior to fiscal 1995 have been reclassified to conform to the fiscal 1995 presentation.
Investments At October 29, 1995, the fair value of the Company's short-term investments approximated cost. Information about the contractual maturities of short-term investments at October 29, 1995 is as follows:
At October 29, 1995, $201,684,000 of investments in debt securities are included in cash and cash equivalents on the balance sheet.
Gross unrealized holding gains and losses and gross realized gains and losses on sales of short-term investments were not significant as of or for the year ended October 29, 1995. The Company manages its cash equivalents and short-term investments as a single portfolio of highly marketable securities, all of which are intended to be available to meet the Company's current cash requirements.
notes to consolidated FINANCIAL STATEMENTS
Derivative Financial Instruments At October 29, 1995, deferred premiums on purchased option contracts were $4,682,000, and deferred gains and losses on forward contracts were not material. At October 29, 1995, the Company had forward exchange contracts to sell U.S. dollars for foreign currency with notional amounts of $308,879,000 and forward exchange contracts to buy U.S. dollars for foreign currency with notional amounts of $460,721,000. At October 29, 1995, the Company has currency option contracts to sell yen with gross notional amounts of $400,000,000. All currency forward and option contracts have maturities of less than two years and are primarily to buy or sell Japanese yen in exchange for U.S. dollars. Management believes that these contracts should not subject the Company to undue risk from foreign exchange movements because gains and losses on these contracts should offset gains and losses on the assets, liabilities and transactions being hedged. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments, but it does not expect any counterparties to fail to meet their obligations.
Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash equivalents, short-term investments, trade accounts receivable, and financial instruments used in hedging activities.
The Company invests in a variety of financial instruments such as certificates of deposit, municipal bonds and treasury bills. The Company, by policy, limits the amount of credit exposure with any one financial institution or commercial issuer.
The Company's customers consist of semiconductor manufacturers located throughout the world. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from them. The Company maintains an allowance for uncollectible accounts receivable based upon expected collectibility of all accounts receivable.
Fair Value of Financial Instruments For certain of the Company's financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, notes payable, accounts payable, and accrued expenses, the carrying amounts approximate fair value due to their short maturities. Consequently, such instruments are not included in the following table which provides information regarding the estimated fair values of other financial instruments, both on and off the balance sheet:
The estimated fair value for long-term debt is based primarily on quoted market prices for the same or similar issues. The fair value of forward exchange contracts is based on quoted market prices of comparable instruments. At October 29, 1995, the fair value of foreign currency option contracts was $29,400,000 and the premiums paid were $5,410,000. The fair value and premium amounts of foreign currency option contracts were not material as of October 30, 1994.
4. Property, Plant and Equipment
5. Applied Komatsu Technology Joint Venture
In September 1993, the Company entered into an agreement with Komatsu Ltd. to form Applied Komatsu Technology, Inc. (AKT), a joint venture corporation to develop, manufacture and market systems used to produce flat panel displays. The Company's initial investment in AKT aggregated $6,916,000, which included the net book value of contributed cash and certain tangible and intangible assets, as well as the costs of formation. Komatsu Ltd. contributed $35,000,000 of cash to AKT. The Company's investment in AKT was reduced to zero as a result of its share of AKT's net losses in fiscal 1993 and 1994. The difference between the Company's investment and its interest in the book value of AKT's net assets will be amortized when AKT achieves sustained profitability. Royalties received by the Company on AKT sales did not materially affect the Company's results of operations in fiscal 1995, 1994 or 1993.
The Company has credit facilities for borrowings in various currencies up to $250,595,000 on an unsecured basis; $125,000,000 represents a revolving credit agreement in the U.S. with a group of eight banks. This agreement includes facility fees, allows for borrowings at rates including the lead bank's prime reference rate, requires compliance with certain financial and nonfinancial covenants and expires in September 1998. The remaining $125,595,000 of credit facilities are primarily with Japanese and European banks at rates indexed to their prime reference rate. At October 29, 1995, $61,748,000 was outstanding under Japanese credit facilities at an average annual rate of 2 percent.
Japanese debt is due in equal periodic installments and is secured by property and equipment having an approximate net book value of $80,707,000 at October 29, 1995.
The unsecured senior notes are fixed-rate and require annual principal payments each April 1 from 1995 through 1999. There is a prepayment penalty based on current interest rates and the remaining time to maturity. The notes contain covenants that include limitations on additional borrowings, liens placed on assets, dividends and certain other major transactions, and require compliance with certain financial tests and ratios.
The noncallable unsecured senior notes are fixed-rate and require semi-annual interest payments on March 1 and September 1 with the principal payable in 2004. The notes contain certain financial covenants that include limitations on additional borrowings by U.S. subsidiaries, liens placed on assets, and sale and leaseback transactions.
On August 24, 1995, the Company commenced a program to offer from time to time up to $266,931,000 in medium-term notes. At October 29, 1995, the Company had issued $73,000,000 of fixed-rate notes, and the remaining notes may be issued at fixed or variable rates, as determined at the time of issuance. The notes contain certain financial covenants that include limitations on additional borrowings by U.S. subsidiaries, liens placed on assets, and sale and leaseback transactions.
Aggregate principal payments required on long-term debt are:
8. Accounts Payable and Accrued Expenses
On September 14, 1995, the Company declared a two-for-one stock split in the form of a 100 percent stock dividend to holders of record of the Company's common stock on September 26, 1995. The dividend shares were distributed to stockholders on October 12, 1995. All prior period common stock and applicable share data appearing in the consolidated financial statements and notes thereto have been restated to reflect this stock dividend.
* Includes 200 shares of treasury stock issued under stock plans in 1994. Includes tax benefits of $36,940, $27,402, and $18,708 for 1995, 1994 and 1993, respectively.
notes to consolidated FINANCIAL STATEMENTS
In July 1995, the Company sold 8,050,000 shares of common stock in a public offering at a price of $41.38 per share prior to underwriters' commissions. Proceeds after underwriters' commissions and other offering costs were $321,191,000. In March 1994, the Company sold 4,600,000 shares of common stock in a public offering at a price of $25.13 per share prior to underwriters' commissions. Proceeds after underwriters' commissions and other offering costs were $110,673,000.
Common shares reserved for issuance upon exercise of outstanding stock options and shares available for future grants aggregated approximately 23,423,000 shares at October 29, 1995.
Stock Options The Company grants options to key employees and non-employee directors to purchase its common stock at fair market value at the date of grant. Generally, options vest over a four-year period. The stock option plan provides for the payment of the stock option exercise price with cash or previously owned shares of the Company's common stock at fair market value. There were 9,454,000, 7,310,000, and 11,446,000 shares available for grant at the end of fiscal 1995, 1994 and 1993, respectively. Stock option activity was as follows:
Employee Stock Purchase Plan On September 25, 1995, the Company's Board of Directors approved an Employee Stock Purchase Plan which provides substantially all employees with the right to acquire shares of the Company's common stock based on a percentage of compensation. The purchase price will be equal to 85% of the lower of the fair market values as of the beginning or end of the six-month offering period. The plan is effective December 1, 1995.
Employee Bonus Plans The Company has various employee bonus plans. A profit sharing bonus plan distributes a percentage of pretax profits to substantially all of the Company's employees up to a maximum percentage of compensation. Another plan awards annual bonuses to the Company's executive staff based on the achievement of profitability and other specific performance criteria. The Company also has agreements with certain key technical employees that provide for additional compensation related to the success of new product development as well as achievement of specified profitability criteria. Charges to expense under these plans were $55,805,000, $31,166,000 and $19,838,000 in fiscal 1995, 1994 and 1993, respectively.
Employee Savings and Retirement Plan The Employee Savings and Retirement Plan is qualified under Section 401(k) of the Internal Revenue Code. The Company contributes a percentage of the amount of salary deferral contributions made by each participating employee. Company contributions become 20 percent vested after an employee's third year of service and vest an additional 20 percent for each year of service thereafter, becoming fully vested after seven years of service. All Company contributions are invested in the Company's common stock. Expenses were $14,837,000, $6,417,000 and $4,935,000 for fiscal 1995, 1994 and 1993, respectively.
Defined Benefit Plans of Foreign Subsidiaries Certain of the Company's foreign subsidiaries have defined benefit pension plans covering substantially all of their eligible employees. The benefits under these plans are based on years of service and final average compensation levels. Funding is limited to statutory requirements. The provisions under these plans aggregated $4,240,000, $3,344,000 and $2,973,000, consisting principally of service cost, for fiscal 1995, 1994 and 1993, respectively. The aggregate accumulated benefit obligation, projected benefit obligation and fair value of plan assets at October 29, 1995 were $15,769,000, $22,623,000 and $8,125,000, respectively.
Effective November 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The Company adopted SFAS 109 prospectively, and amounts presented for fiscal 1993 have not been restated. The cumulative effect of adopting SFAS 109 resulted in a one-time credit of $7,000,000, or $0.04 per share, and is reported separately in the consolidated statement of operations. Adoption of SFAS 109 did not have any other significant effects on the fiscal 1994 tax provision.
The adoption of SFAS 109 changed the Company's method of accounting for income taxes from the deferred method, pursuant to APB 11, to an asset and liability approach. Under APB 11, deferred taxes were recognized for income and expense items that were reported in different years for financial reporting and income tax purposes. Under the asset and liability approach of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their existing tax bases.
Provisions are made for estimated United States and foreign income taxes, less available tax credits and deductions, which may be incurred on the remittance of the Company's share of foreign subsidiaries' undistributed earnings.
notes to consolidated FINANCIAL STATEMENTS
The components of income from consolidated companies before taxes and cumulative effect of accounting change were as follows:
The components of the provision for income taxes were as follows:
*Excludes cumulative effect of accounting change.
The provision for income taxes differs from the amount computed by applying the statutory U.S. federal income tax rate as follows:
*Excludes cumulative effect of accounting change.
The components of the net deferred income tax asset under SFAS 109 are as follows:
For fiscal 1993, the components of the deferred tax provision under APB 11 were as follows:
12. Industry Segment and Foreign Operations
The Company currently operates exclusively in the semiconductor wafer fabrication equipment industry. The Company's sales and service operations are the principal revenue producing activities. For geographical reporting, revenues are attributed to the geographic location of the sales and service organizations, and costs directly and indirectly incurred in generating revenues are similarly assigned. Corporate assets consist primarily of cash, cash equivalents and short-term investments. Corporate operating expenses consist primarily of general and administrative expenses not allocable to geographic regions.
notes to consolidated FINANCIAL STATEMENTS
During fiscal years 1995 and 1994, no sales to individual customers were greater than 10 percent of net sales. Sales to one customer represented 16 percent of the Company's net sales in 1993.
Intercompany transfers of products from the United States to other regions were $1,267,077,000, $538,442,000 and $370,668,000 in fiscal years 1995, 1994 and 1993, respectively, and from Europe were $81,429,000, $67,934,000 and $28,462,000 in 1995, 1994 and 1993, respectively. Transfers and commission arrangements between geographic areas are at prices sufficient to recover a reasonable profit. At October 29, 1995, net accounts receivable from customers located in the United States were $160,095,000, while net accounts receivable from customers located in Japan, Korea, Europe and the Asia-Pacific regions were $368,895,000, $58,571,000, $141,195,000, and $88,974,000, respectively.
The Company leases certain of its facilities and equipment under noncancelable operating leases and has options to renew most leases, with rentals to be negotiated. In February 1993, the Company entered into a four-year operating lease for previously leased office and general operating facilities in Santa Clara, California, providing for monthly payments which vary based on the London interbank offering rate (LIBOR). At the end of this lease, the Company has the option to acquire the property at its original cost or arrange for the property to be acquired. The Company is contingently liable under an 85 percent first-loss clause for up to $33,786,000 at October 29, 1995. Management believes that this contingent liability will not have a material adverse effect on the Company's financial position or results of operations. In addition, the Company must maintain compliance with financial covenants similar to those included in its credit facilities.
Total rent expense in fiscal 1995, 1994 and 1993 was $41,672,000, $28,083,000 and $23,870,000, respectively. Aggregate minimum future rental commitments are:
Selected trade notes, representing Japan's accounts receivable, are discounted at financial institutions with recourse. As of October 29, 1995, $107,447,000 of such receivables were outstanding.
The Company is the plaintiff in two patent infringement lawsuits against another company. The defendant has filed a counterclaim in one of these lawsuits and has other claims against the Company in three separate patent infringement lawsuits. The Company has also filed a declaratory judgment action against the aforementioned company.Trials have been successfully completed in the two lawsuits initiated by the Company; the Court found the Company's patents valid and infringed. The Company also initiated a suit for patent infringement against a second company; the defendant filed counterclaims for unfair competition which were severed and stayed. The Company recently filed a second suit against this same company alleging claims of patent infringement and seeking a declaration of invalidity of the defendant's patents. The defendant company also filed suit against the Company on the same patents. Finally, the Company is named as a defendant in a lawsuit in which the plaintiff alleges the Company infringes five patents. The Company is also named as a defendant in other litigation arising in the normal course of business. Also in the normal course of business, the Company from time to time receives and makes inquiries with regard to possible patent infringement. Management believes that it is unlikely that the outcome of these lawsuits or of the patent infringement inquiries will have a material adverse effect on the Company's financial position or results of operations.
notes to consolidated FINANCIAL STATEMENTS
14. Unaudited Quarterly Consolidated Financial Data
Management is responsible for the preparation and integrity of the consolidated financial statements appearing in the Annual Report. The financial statements were prepared in conformity with generally accepted accounting principles appropriate in the circumstances and, accordingly, include some amounts based on management's best judgments and estimates. Financial information in the Annual Report is consistent with that in the financial statements.
Management is responsible for maintaining a system of internal business controls and procedures to provide reasonable assurance, at an appropriate cost/benefit relationship, that assets are safeguarded and that transactions are authorized, recorded and reported properly. The internal control system is augmented by appropriate reviews by management, written policies and guidelines, careful selection and training of qualified personnel, and a written Code of Business Ethics applicable to all employees of the Company. Management believes that the Company's internal controls provide reasonable assurance that assets are safeguarded against material loss from unauthorized use or disposition and that the financial records are reliable for preparing financial statements and other data and maintaining accountability for assets.
The Audit Committee of the Board of Directors, composed solely of Directors who are not officers of the Company, meets periodically with the independent accountants, our internal auditors and management to discuss internal business controls, auditing and financial reporting matters. The Committee reviews with the independent accountants the scope and results of the audit effort. The Committee also meets with the independent accountants without management present to ensure that the independent accountants have free access to the Committee.
The independent accountants, Price Waterhouse LLP, are engaged to examine the consolidated financial statements of the Company and conduct such tests and related procedures as they deem necessary in accordance with generally accepted auditing standards. The opinion of the independent accountants, based upon their audit of the consolidated financial statements, is contained in this Annual Report.
To the Stockholders and Board of Directors of Applied Materials, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and of cash flows present fairly, in all material respects, the financial position of Applied Materials, Inc. and its subsidiaries at October 29, 1995 and October 30, 1994 and the results of their operations and their cash flows for each of the three years in the period ended October 29, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 11 to the consolidated financial statements, the Company changed its method of accounting for income taxes effective November 1, 1993.
The preceding table sets forth the high and low closing sale prices as reported on the Nasdaq National Market during the last two years. Stock prices reported prior to October 12, 1995 have been restated to reflect the two-for-one stock split in the form of a 100 percent stock dividend (see note nine to the consolidated financial statements).
APPENDIX TO 1995 ANNUAL REPORT
In this Appendix, the following descriptions of certain graphs in the Company's 1995 Annual Report that are omitted from the EDGAR version are more specific with respect to the actual numbers, amounts and percentages than is determinable from the graphs themselves. The Company submits such more specific descriptions only for the purpose of complying with the requirements for transmitting this Annual Report on Form 10-K electronically via EDGAR; such more specific descriptions are not intended in any way to provide information that is additional to the information otherwise provided in the Annual Report.
Graph Title: REVENUE PER EMPLOYEE Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and 1991 and vertical axis containing thousands of dollars. Revenue per employee is $291, $255, $228, $192, and $180 thousand for 1995, 1994, 1993, 1992, and 1991, respectively.
Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and 1991 and vertical axis containing dollars in millions. Assets are split by Cash and Short-term Investments and Other Assets. Cash and Short-term Investments are $769, $422, $266, $223, and $140 million for 1995, 1994, 1993, 1992, and 1991, respectively. Other Assets are $2,196, $1,280, $854, $631, and $521 million for 1995, 1994, 1993, 1992, and 1991, respectively.
Graph Title: DEBT TO EQUITY RATIO Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and 1991 and vertical axis containing percent. Debt to equity ratio is 17%, 22%, 22%, 24%, and 33% for 1995, 1994, 1993, 1992, and 1991, respectively.
Graph Title: SALES BY GEOGRAPHIC REGION Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and 1991 and vertical axis containing dollars in millions. Each bar is split by the United States, Japan, Europe, Korea, and Asia-Pacific. The following table lists the amount of net sales by geographic region in millions of dollars:
Graph Title: R D & E EXPENSES Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and 1991 and vertical axis containing dollars in millions. Data contained in the graph is located on page 26 of the 1995 Annual Report in the Selected Consolidated Financial Data Table on the Research, development and engineering line item.
Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and 1991 and vertical axis containing dollars in millions. Capital expenditures are split by Land, Buildings and Improvements and Other. Land, Buildings and Improvements are $118, $107, $49, $33, and $45 million for 1995, 1994, 1993, 1992, and 1991, respectively. Other is $148, $73, $46, $28, and $18 million for 1995, 1994, 1993, 1992, and 1991, respectively.
Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and 1991, and vertical axis containing dollars in millions. Data contained in the graph is located on page 26 of the 1995 Annual Report in the Selected Consolidated Financial Data Table on the Working capital line item.
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0000225926-96-000005
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0000225926-96-000005_0000.txt
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Fiscal year ended September 30, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
10100 Reunion Place, Suite 630, San Antonio, Texas 78216 (Address of Principal Executive offices) (Zip Code)
Registrant's telephone number, including area code: (210) 525-1599
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value
Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
The aggregate market value as of December 15, 1995, of voting stock held by non_affiliates of the registrant (based upon the average bid and asked price) was $105,166.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ]
As of December 15, 1995, 59,954,042 shares of the registrant's Common Stock were outstanding.
GENERAL DEVELOPMENT OF THE COMPANY
Taurus Petroleum, Inc. ("TPI" or the "Company") is an independent oil and gas exploration, development and production company with headquarters in San Antonio, Texas. In April, 1977 Taurus Oil Corporation was organized in Colorado. In November, 1984 Taurus Oil Corporation and The Methane Gas Company were merged into TPI under Chapter 11 of the Bankruptcy Reform Act of 1978, as amended. In January, 1987 TPI acquired Ridgeway Exco, Inc. as a wholly owned subsidiary. TPI owns interest in 67 productive oil and gas wells located in Texas, Louisiana, Wyoming, Oklahoma, and Montana, and operates 39
TPI sold 1 well during fiscal 1995.
Financial Information about Industry Segments
The Company is engaged solely in the oil and gas exploration and production business in the continental United States. The Company has no other industry segments.
The Company was formed to engage in oil and gas exploration and production. TPI occasionally buys and sells, or otherwise acquires, oil and gas leases and participates with others in drilling oil and gas wells. The Company also occasionally buys, sells, or otherwise acquires existing oil and gas production. When crude oil and natural gas are discovered and produced by TPI or its partners, the resulting products are sold at the well head to crude oil purchasers and pipeline companies in the immediate area where production originates.
The principal markets for oil are refineries and crude oil transmission companies which have facilities near TPI's producing properties. The principal markets for gas are companies which have pipelines located near gas producing properties. TPI has purchasers for its present production and does not anticipate difficulty in finding purchasers for any new production; however, the availability of markets for oil and gas and the prices obtained for production depends upon a number of factors beyond TPI's control. Such factors include but are not limited to the availability of pipelines and other means of transportation, Federal and State regulations on the production, transport and sale of oil and gas, weather conditions and gas proration.
Information relating to major purchasers of the Company's products is included in Note 5 to the Notes to Consolidated Financial Statements included in Item 8.
There presently exists a steady market for any oil that may be produced by the Company; therefore, the loss of any major oil purchaser would not be detrimental to the Company. The market for oil continues to be volatile, posted prices during the past calendar year have ranged from $ 15.48 to $ 18.18 per barrel for West Texas Intermediate, a benchmark price. The posted price for West Texas Intermediate on December 1, 1995 was $16.75 per barrel. During fiscal 1995 the average oil price received by the Company was $ 16.67 per barrel as compared to $14.31 in fiscal 1994 and $14.81 per barrel in fiscal 1993.
Average gas prices received by the Company decreased to $ 1.35 for fiscal 1995 as compared to $1.76 per MCF for fiscal 1994. The Company had realized a $ 1.81 per MCF average in fiscal 1993. Gas prices stabilized during fiscal 1994 and 1993 as compared to the extremely volatile market in the preceding fiscal year of 1992. On December 1, 1995 January natural gas settled at $ 1.97 per MMBtu. In fiscal 1994 the same contract settled at $1.65 per MMBtu.
The Company's business may be deemed seasonal to the extent that natural gas demand normally increases during winter months. Also, any operational repairs or enhancements may be curtailed during winter months.
The Company's working capital are generated primarily from the sale of its oil and gas production and overhead reimbursement. The amount of oil and gas sold is dependent on market conditions, production capacity, weather conditions, and other factors related to extraction of minerals. As of September 30, 1995 the Company had a negative working capital of $ 155,938. The Company's increase in negative working capital is primarily due to the increase in accounts payable to Validus Operating, Inc. for management fees.
The Company does not have any backlog orders.
The Company's business is not subject to renegotiation or termination of contracts or subcontracts at the election of the Government.
Oil and gas exploration and the acquisition of producing and undeveloped properties is a highly competitive and speculative business. TPI does not hold a significant competitive position in the oil and gas industry. In seeking suitable opportunities TPI competes with a number of other companies, including large oil and gas companies with greater financial resources and technical capabilities. These companies may have a competitive advantage in acquiring suitable properties for exploration, contracting for drilling equipment and hiring qualified personnel.
TPI's success in increasing its reserves depends on its ability to select, acquire and market suitable drilling prospects or conclude favorable mergers or acquisitions of producing properties.
The oil and gas industry is subject to extensive Federal and State regulation governing both the conduct of operations and the marketing of hydrocarbons once production is established. Matters which are subject to Federal or State control include permits to drill, the location of wells and limitations on production for conservation. The economics of oil and gas exploration and development are particularly sensitive to changes in tax laws and administrative regulations relating to the petroleum industry, and it is not possible to predict future changes in the laws and their effects on TPI.
The Federal Government and various State governments have laws and regulations regarding the control of contamination of the environment which may require the acquisition of a permit before drilling commences, prohibit drilling activities on certain lands lying within wilderness areas where pollution may arise, and impose substantial penalties for pollution resulting from drilling operations. Violation of environmental laws and regulations may result in the imposition of fines and, in certain circumstances, the entry of an order for the abatement of the conditions or suspension of the activities giving rise to the violation. Although TPI is subject to these regulations, TPI does not believe its business operations presently impair environmental quality. Compliance with environmental laws could have an adverse effect upon the capital expenditures, earnings and competitive position of TPI. Since inception TPI has not made any material capital expenditures for environmental control facilities and has no plans to do so.
As of December 15, 1995, the Company had no full-time employees.
The following table sets forth the estimated quantities of proved reserves for TPI as of September 30, 1995, 1994, and 1993, and the present value of estimated future net revenues from these reserves on a non_escalated basis, discounted by ten percent per year. The estimate of proved reserves and related valuations were determined by an independent petroleum engineering firm.
For additional information pertaining to the Company's reserves, see Note 7 to the Notes to Consolidated Financial Statements included in Item 8.
No estimates of proved oil or gas reserves were filed with or included in reports to any other Federal authority or agency since the beginning of the last fiscal year. The Company's future oil reserves dropped due to the sale of one oil property. The drop in future revenue is due largely to longer life expectancy of current gas wells resulting in more expenses and a very low future gas price estimated at $ 1.23. The January price is currently $ 1.97.
The table below sets forth information with respect to TPI's producing oil and gas properties for the fiscal years ended September 30, 1995, 1994, and 1993.
Productive wells, developed acreage and undeveloped acreage in which TPI owns interests are located in the United States and consisted of the following as of September 30, 1995:
The company participated in the development of a waterflood in Wyoming and rework of outside operated properties.
The Company is not obligated to provide a fixed or determinable quantity of oil or gas in the future under any contract or agreement.
No legal proceedings currently exist.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of fiscal 1995 to a vote of security holders, through the solicitation of proxies or otherwise.
Item 5. Market for Registrant's Common Equity and Related Stockholder
As of December 15, 1995, there were approximately 5,000 stockholders of record and 59,954,042 shares of TPI's Common Stock, $.001 par value, outstanding.
The Company has never paid dividends on its Common Stock.
The Company's Common Stock is traded on the over-the-counter market and the quotes are carried in the "pink sheets". There are very few trades in the Company's common stock. The following sets forth the range of high and low closing bid prices of the Common Stock from October l, 1993, through November 30, 1995. These prices are believed to be representative inter-dealer quotations, without retail markup, markdown or commissions, and may not represent actual transactions.
Item 6. Selected Financial Data
The following table includes certain selected financial data of TPI for the fiscal years indicated:
Item 7. Management's Discussion and Analysis of Financial Condition and
Consolidated net losses were $137,056, $ 83,119 and $111,250 for fiscal 1995, 1994 and 1993, respectively. Operating revenue decreased $ 98,110 during fiscal 1995, and decreased $ 22,258 during fiscal 1994 as compared to fiscal 1993. The decrease in operating revenue in fiscal 1995 was due to the decrease in the price the Company received for its gas along with a reduction in the quantities of oil and gas production due primarily to the natural production decline in the Company's properties and the disposal of one producing property.
The Company produced 3,380 barrels of oil during fiscal 1995 as compared to 5,696 barrels in fiscal 1994 and 6,285 in fiscal 1993. Gas production in fiscal 1995 was 61,227 MCF as compared to 88,893 MCF in fiscal 1994 and 90,945 MCF in fiscal 1993. The decrease in oil production is due to the aging of the Company's oil properties combined with the continued disposition of wells. The reduction in gas production is attributed to the natural aging of the gas properties. The average price received during fiscal 1995 was $16.67 per barrel, up from the average price per barrel of $14.31 for the prior year. The average price received per MCF of gas in fiscal 1995 was $1.35, a decrease of $0.41 as compared to fiscal 1994. The fiscal 1994 price decreased $0.05 to $1.76 from $1.81 received in fiscal 1993.
Administrative overhead revenue in fiscal 1995 decreased $1,544 compared to fiscal 1994. This decrease is the result of the loss of administrative overhead from properties that have been sold or plugged.
Lease operating expenses for the Company were $121,043, $117,700 and $163,829 for fiscal 1995, 1994 and 1992, respectively. The increase in 1995 as compared to fiscal 1994 is primarily due to lease operating increases on a waterflood project in Wyoming and a large expenditure for pollution abatement on outside operated properties in Texas.
The Company's depreciation and depletion ("D&D") expense decreased by $ 7,155 in fiscal 1995 as compared to 1994. The decrease in fiscal 1994 and fiscal 1995 was the result of production volumes being a smaller percentage of reserves .
The Company's general and administrative expenses decreased by $ 4,319 in fiscal 1995. This decrease is associated with managements continued efforts to reduce expenses.
Interest expense increased to $10,468 in fiscal 1995 as compared to $ 7,656 and $ 4,369 in fiscal 1994 and 1993, respectively. This is the result of the Company converting a portion of its management fee payable to long-term debt in December of 1992.
For the fiscal year 1995, the Company sold one property. The Company sold no producing properties in fiscal 1994 and one in fiscal 1993.
The Company's current liabilities exceed current assets by $155,938 at September 30, 1995 as compared to a negative working capital of $52,607 at September 30, 1994.
The Company had a negative cash flow of $103,819 (Net income plus depreciation and depletion) during fiscal 1995 as compared to the negative cash flows of $ 42,727 for fiscal 1994 and $ 51,593 for fiscal 1993. The negative cash flows in fiscal 1995, 1994 and 1993 were funded by loans from its controlling shareholders, existing cash, issuance of Common Stock and sale of one property.
On December 7, 1992 the Company issued 20,000,000 shares of TPI Common Stock to Validus Operating, Inc. ("Validus") at $.005 per share as consideration for $100,000 of the management fees payable to Validus. In addition, TPI converted a portion of the management fee payable of $99,000 to a long-term note. Also, on September 30, 1993 TPI converted $50,000 of the management fee payable to Validus to long-term note. Validus has represented that it will require payment of future management fees and the notes payable only to the extent of available cash flow of TPI.
In addition, on December 7, 1992, the Company issued 2,000,000 shares of newly issued TPI Common Stock to Brian Cornish at $.005 per share as consideration for the $10,000 owed to Mr. Cornish.
The Company's primary source of cash, other than normal operations, has been through the issuance of Common Stock, and if needed, cash from the sale of property and equipment will be used to provide cash flow.
Management is aware that positive steps are needed to increase the Company's size. Management is pursuing various options to attract capital. The options being considered include, further infusions of cash and producing oil and gas properties by the controlling shareholders, bank debt secured by the Company's producing oil and gas properties, and acquisitions and mergers with other oil and gas producing companies. The Company has also implemented a program managing outside properties for a management fee.
Item 8. Financial Statements and Supplementary Data
The information required by this item starts on the next page.
Submitted in Response to Item 8 for the Year Ended September 30, 1995
Report of Ernst & Young LLP Independent Auditors
Board of Directors and Stockholders Taurus Petroleum, Inc.
We have audited the consolidated financial statements of Taurus Petroleum, Inc. and subsidiaries listed in the accompanying index to consolidated financial statements (Item 14(a)). Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the management of Taurus Petroleum, Inc. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements listed in the accompanying index to financial statements (Item 14(a)) present fairly, in all material respects, the consolidated financial position of Taurus Petroleum, Inc. and subsidiaries at September 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
The accompanying financial statements have been prepared assuming that Taurus Petroleum, Inc. will continue as a going concern. As more fully described in Note 1, the Company has incurred recurring operating losses and has a working capital deficiency. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Notes to Consolidated Financial Statements September 30, 1995, 1994 and 1993
(1)Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of Taurus Petroleum, Inc. ("TPI" or the "Company") and its wholly owned subsidiaries. The Company's only significant subsidiary is Ridgeway Exco, Inc. ("Ridgeway"). All intercompany balances and transactions have been eliminated in consolidation.
These financial statements have been prepared on the "going concern" basis, which presumes that the (Company) will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
The Company's continuation as a "going concern" is dependent on the establishment of profitable operations, and upon either the continued financial support of the principal shareholder or upon the ability of the Company to raise additional capital. Management is pursuing various options to attrect capital, including infusions of cash and producing oil and gas properties and mergers. The outcome of these matters cannot be predicted at this time. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue in business.
The Company follows the successful efforts method of accounting for its oil and gas producing activities. Under this method of accounting, all property acquisition costs and well costs of exploratory and development wells are capitalized when incurred, pending determination of whether the well will be productive. If any exploratory well is nonproductive, the capitalized costs of drilling the well, net of any salvage value, are charged to expense. The cost of development wells are capitalized, whether the well is productive or nonproductive. Unproved properties are assessed periodically to determine whether there has been a decline in value, and if such decline is indicated, a loss is recognized. Geological and geophysical costs and the costs of carrying and retaining undeveloped properties, including delay rentals, are expensed as incurred.
Depreciation and depletion are computed separately on each individual prospect. Proved property leasehold and mineral rights are depleted on the unit-of-production method over the estimated total proved reserves of the individual prospects. Completed well costs are depreciated on the unit-of-production method over the estimated proved developed reserves of each well.
The Company uses the present value of net revenue from proved oil and gas reserves, based on constant prices in assessing the recorded net investment in proved oil and gas properties.
Depreciation of other property and equipment is computed on the straight line method over estimated useful lives ranging from 5 to 10 years.
The Company records income taxes under Financial Accounting Standards Board Statement No. 109 using the liability method (See Note 3). Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of Statement No. 109, income tax expense was determined using the deferred method. Deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the differences originated.
Loss per common share was computed by dividing the net loss by the weighted average number of common shares outstanding during the respective periods.
For purposes of the statement of cash flows, all highly liquid investments with original maturities of three months or less are considered to be cash equivalents.
The Company recognizes revenue for its oil and gas sales when produced and delivered to the purchaser.
Sale or Disposition of Oil and Gas Properties
Gain or loss at time of the disposition is determined on an individual property basis.
The Company recognizes the sale of gas when the gas is produced and delivered to the purchaser. At this time the Company's exposure with respect to gas imbalances is minimal. The Company has no gas imbalance situations involving its operated properties. Outside operated properties may have gas imbalance situations. However, if present, the effect to the Company would be minimal, due to the Company's small ownership in outside operated properties.
Notes payable consist of unsecured notes in the original amounts of $99,000 and $50,000 due in monthly installments through 2002 and 2004 respectively. The notes are payable to Validus Operating, Inc. and bear interest at the prime rate, six and one half percent at September 30, 1995. See note 6 for additional information regarding payment terms.
At September 30, 1995, maturities of the notes during each of the next four years amount to approximately $14,900.
Effective October l, 1992, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109, "Accounting for Income Taxes". As permitted under the new rules, prior years' financial statements have not been restated. There was no cumulative effect of adopting Statement No. 109 as of October 1, 1992.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. There are no significant temporary differences.
Deferred tax assets consist of the Company's net operating losses. Due to past operating losses and the probable limitations on the future use of the operating loss carryforwards as discussed below, a valuation allowance to offset the deferred tax assets has been established at September 30, 1995.
The Company has combined net operating loss (NOL) carryforwards to fiscal year ending September 30, 1996, for Federal income tax purposes of approximately $6,625,000. Approximately $2,710,000 of TPI's NOL carryforwards and $14,000 of unused investment tax credits relate to the period prior to November 19, 1984, the date of reorganization. In the year these benefits are utilized, the benefit will be accounted for as a credit to stockholders' equity. NOLs existing at July 15, 1987, approximately $5,325,000, including approximately $2,000,000 relating to Ridgeway prior to its acquisition by TPI are limited due to Section 382 of the Internal Revenue Code (the Code) as revised by the Tax Reform Act of 1986. Section 382 limits the amount of combined carryforwards which can be utilized to approximately $100,000 per year. Although additional common stock has been issued, management believes that the NOLs arising after July 15, 1987, of approximately $1,300,000 are currently not subject to the Section 382 limitation. Should it be determined that an ownership change has occurred, a further limitation on the utilization of the Company's NOL will occur. The Ridgeway NOL's are also subject to the separate return limitation years rule. The remainder of the NOL carryforwards not utilized to offset future taxable income will expire at various dates through 2008.
The Company also has combined unused investment tax credits of approximately $14,327. These credits are subject to certain limitations as set forth in Section 382 of the Code. If the investment tax credit carryforwards are not utilized, they will expire at various dates between 1995 and 2000.
On April 24, 1986, the Board of Directors of TPI adopted the 1986 Incentive Stock Option Plan (the "Option Plan"), reserving 500,000 shares for issuance under the Option Plan. Under the Option Plan, the Board of Directors may grant options to the officers and key employees of TPI and its subsidiaries. As of September 30, 1991 all options granted under this plan have expired. At September 30, 1995, options to purchase 500,000 shares remain available for grant under the Plan.
Sales to individual customers which as a percentage of total revenue exceeded 10% were as follows:
Brian E. Cornish and Associates ("BECA"), an investment company controlled by Brian E. Cornish, advanced $10,000 to TPI in April, 1990. On December 7, 1992 the Company issued 2,000,000 shares of Common Stock at $.005 to Brian E. Cornish in consideration for the amount owed.
TPI is operated by Validus Operating, Inc. (Validus) under a Management Agreement, which was originally effective April 1, 1990, and has been extended through January 31, 1996. Under the terms of this agreement, Validus is entitled $10,000 per month for its services. Validus is an oil and gas operating company controlled by Thomas P. McDonnell ("McDonnell"). Mr. McDonnell a principal shareholder of TPI, currently serves as a member of the Board of Directors and is Chief Operating Officer, President, and Treasurer of TPI. On December 7, 1992, the Company issued 20,000,000 shares of TPI Common Stock to Validus at $.005 per share as consideration for $100,000 of the management fees payable to Validus. In addition, TPI converted the remaining management fee payable at September 30, 1992 of $99,000 to a long_term note payable. Also on September 30, 1993 TPI converted an additional $50,000 of management fee payable to a long_term note payable. Validus has represented that it will require payment of future management fees, notes payable and accounts payable to related parties only to the extent of available cash flow.
(7)Disclosures About Oil and Gas Producing Activities
At September 30, 1995 and 1994, capitalized costs and the accumulated depreciation and depletion relating to the Company's oil and gas producing activities, all of which are in the United States, were as follows:
Costs incurred, capitalized and expensed in connection with oil and gas producing activities for the years ended September 30, 1995, 1994, and 1993 were as follows:
Results of operations from oil and gas producing activities for the years ended September 30, 1995, 1994, and 1993 were as follows:
No income taxes are reflected in the above table due to the effect of tax credits and loss carryforwards related to oil and gas producing activities.
A summary of changes in quantities of proved oil and gas reserves for the years ended September 30, 1995, 1994, and 1993 is as follows (all reserves are proved developed) (unaudited):
The standardized measure of discounted future net cash flows relating to proved oil and gas reserves at September 30, 1995, 1994, and 1993 are as follows (unaudited):
The changes in the standardized measure of discounted future net cash flows relating to proved oil and gas reserves for the years ended September 30, 1995, 1994, and 1993 are as follows (unaudited):
The estimate of proved reserves and related valuations for 1995, 1994 and 1993 were determined by an independent petroleum engineering firm. The standardized measure of discounted future net cash flows relating to proved oil and gas reserves and the changes in standardized measure of discounted future net cash flows relating to proved oil and gas reserves were presented in accordance with the provisions of Statement of Financial Accounting Standard No. 69. The standardized measure does not purport to represent the fair market value of the Company's proved oil and gas reserves. An estimate of fair market value would also take into account, among other factors, anticipated future changes in prices and costs and a discount factor more representative of the time value of money and the risks inherent in reserve estimates. Under the standardized measure future cash inflows were computed by applying year-end prices to estimated future production of year_end reserves. Future production and development costs are computed by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at year_end, based on year_end costs and assuming continuation of existing economic conditions. No future income taxes are reflected due to the effect of tax credits and loss carryforwards related to oil and gas producing activities. Future net cash flows are discounted at a rate of 10% annually to derive the standardized measure of discounted future net cash flows.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 10. Directors and Executive Officers of the Registrant
Each director elected at the 1995 annual meeting will hold office until the next annual meeting and until a successor is elected and qualified.
The following table provides information with respect to all directors of the Company and all persons nominated to become directors:
Principal Occupation Age Term as Director
BRIAN E. CORNISH - Chairman and Chief 56 August 13, 1987 - present (1) Executive Officer of TPI; Geologist and Managing Director of B.E. Cornish & Associates Pty. Ltd., Chairman and Managing Director of Cornwall Resource Corporation N.L.
DAVID S. CROCKETT,JR., - Director, 51 July 12, 1988 - present (2) Secretary of TPI; President of David S. Crockett & Co., Certified Public
CHRISTOPHER N. CURNOW - Director 50 November 19, 1987 - present (3) and Vice President, Exploration of Resource Corporation N.L. and Chief Executive Officer of Centaur Petroleum Pty. Ltd.
THOMAS P. MCDONNELL, - Director, Chief 43 July 11, 1990 - present (4) Operating Officer, President and Treasurer of TPI; President of Validus Operating, Inc.; Chairman of Epoch Resources, Inc.
(1) Mr. Cornish was elected to the Board of Directors on August 13, 1987, pursuant to Stock Purchase Agreements executed by the Company and the Cornwall Group.
(2) Mr. Crockett was elected to the Board of Directors on July 12, 1988, pursuant to Stock Purchase Agreements executed by the Company and the Cornwall Group. Elected by the Board of Directors as Secretary effective September 30, 1992.
(3) Mr. Curnow was elected to the Board of Directors on November 19, 1987, pursuant to Stock Purchase Agreements executed by the Company and the Cornwall Group.
(4) Mr. McDonnell was elected to the Board of Directors on July 11, 1990 pursuant to Stock Purchase Agreements executed by the Company and Mr. McDonnell.
Each executive officer elected at the 1995 annual meeting of directors will hold office until the next annual meeting of directors and until a successor is elected and qualified.
The following table provides information with respect to all executive officers of the Company and all persons chosen to become executive officers:
Brian E. Cornish 56 Chairman of the Board and Chief Executive Officer
Thomas P. McDonnell 43 Chief Operating Officer, President, and Treasurer
Christopher N. Curnow 50 Director and Vice President, Exploration
David S. Crockett 51 Secretary
Brian E. Cornish was elected to the Board of Directors on August 13, 1987, and became Chairman of the Board on July 12, 1988. Effective January l, 1989, Mr. Cornish became Chairman of the Board and Chief Executive Officer of the Company. Mr. Cornish is a practicing petroleum geologist who graduated from the University of Adelaide in Economic Geology in 1960. He subsequently has gained wide experience in resource exploration both in the Australian and international oil exploration industry which included a number of years with The Superior Oil Co. Group. He has been a consulting geologist to a number of resource oriented corporations. Mr. Cornish is an active member of a number of professional petroleum and mineral organizations both in Australia and the United States. Since 1967 he has been the Geologist and Managing Director of B.E. Cornish & Associates Pty. Ltd., geological and technical consultants, of Sydney, Australia. Mr. Cornish is Chairman and Managing Director of both Cornwall Resource Corporation N.L. and its wholly owned subsidiary CPC Petroleum Corporation N.L. of Sydney.
Thomas P. McDonnell was elected to the Board of Directors July 11, 1990. Effective July 11, 1990, Mr. McDonnell was appointed Chief Operating Officer, President and Treasurer of the Company. Mr. McDonnell is a graduate of the University of Florida, where he received his BS degree in Electrical Engineering in 1975. Mr. McDonnell received an MBA from Corpus Christi State University in 1978. Mr. McDonnell was employed by Schlumberger Offshore Services as a Openhole Logging Engineer from 1975 to 1978. Mr. McDonnell was a District Manager of an Openhole logging District for Birdwell Division of SSC from 1978 to 1980. In 1980 Mr. McDonnell was employed by WENCO Engineering as a Petroleum Engineer. WENCO is an engineering firm specializing in production exploration and reservoir engineering. Mr. McDonnell was involved in reservoir engineering for private companies; however his main position involved supervising exploration and development. From 1981 to 1987 Mr. McDonnell was employed as President of McDonnell Oil and Gas Consultants, Inc. In this position Mr. McDonnell consulted in the drilling and completion of numerous wells in Oklahoma, Texas and Tennessee. He also operated over 50 wells in the Midcontinent Region. In 1984 Mr. McDonnell formed Validus Operating, Inc. He is the President and Chairman of the Board.
Validus Operating, Inc. is an oil and gas production company with production in Texas, Oklahoma and New Mexico. Along with operating its own properties, Validus Operating, Inc. operates properties as a third party. Mr. McDonnell is also Chairman of the Board of Epoch Resources, Inc. an oil and gas production company with operations in Texas and Oklahoma.
Christopher N. Curnow was elected to the Board of Directors on November 19, 1987. On December 15, 1988, Mr. Curnow was elected Vice President, Exploration of the Company. Mr. Curnow has over 20 years' experience in the petroleum industry since graduating from the University of Adelaide with a Bachelor of Science (Honors) degree in 1968. Mr. Curnow spent 13 years with Exxon Corporation both in Australia and Canada, the USA, and Malaysia. During these years he gained a wide range of experience in technical, operational and management aspects of the oil industry. Since 1981 Mr. Curnow has been a consultant specializing in the management and technical supervision of oil and gas activities of several Australian companies. Mr. Curnow has been associated with Cornwall Resource Corporation N.L. since January 1986 and has been responsible for the management of the petroleum interests of the Cornwall Group of Companies. Since 1982 Mr. Curnow has been Chief Executive Officer of Centaur Petroleum Pty. Ltd., a company engaged in oil exploration in Australia. Mr. Curnow is a Director of Cornwall Resource Corporation N.L. of Sydney, Australia.
David S. Crockett, Jr. was elected to the Board of Directors on July 12, 1988. On September 30, 1992 Mr. Crockett was elected Secretary of the Company. Mr. Crockett has been President of David S. Crockett & Co., certified public accountants, since July 1972. Since April 1983 Mr. Crockett has been Assistant Treasurer, and since May 1984 Vice President of Stonetex Oil Corp.
During the last fiscal year no executive officer received any cash compensation.
During the last fiscal year no options were granted to or exercised by any executive officers of the Company.
1986 Incentive Stock Option Plan
The 1986 Incentive Stock Option Plan initially reserved 500,000 shares of TPI Common Stock for future issuance to its officers and key employees. Under the plan, the Board of Directors may grant options to its officers and key employees of TPI and its subsidiaries. The plan authorizes the granting of options which are (a) nontransferable; (b) exercisable at prices not less than the fair market value of the stock at date of grant; provided, however, that options granted to persons owning more than 10% of the total combined voting power of TPI may not have exercise prices less than 110% of the fair market value of the stock on the date of the grant; and (c) exercisable for periods up to ten years from date of grant. Payment of the exercise price can be paid with shares of TPI valued at the fair market value of such shares at the date of exercise. The plan will terminate on April 24, 1996. There is no minimum holding period before the options can be exercised and the length of the exercise period is at the discretion of the Board of Directors. Options granted to date under the plan have expired. Options to purchase 500,000 TPI shares remain available for grant under the 1986 plan. No options were granted or accrued pursuant to the plan during the last fiscal year. This plan was approved by the Company's stockholders on April 6, 1987.
Directors receive reimbursement for travel and out_of_pocket expenses incurred while on TPI business or while attending meetings of the Board of Directors. No travel expenses of were incurred by directors during fiscal year 1994.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
The following table presents information at December 16, 1995, with respect to any person or group who is known to the Company to be the beneficial owner of more than 5% of the Company's Common Stock.
of Name and Address of Beneficial Percent Class Beneficial Owner Ownership of Class Common Validus Operating, Inc. 20,000,000 33.36% $.001 10100 Reunion Place Direct
Common Thomas P. McDonnell 8,262,602 13.78% $.001 10100 Reunion Place Direct
Common Centaur Petroleum Pty. Ltd. 11,174,611 18.64% $.001 12 Winsham Road Direct par value Karrinyup, Australia 6018
Common Christopher N. Curnow 4,250,000 7.09% par value Karrinyup, Australia 6018
Common Brian E. Cornish 6,250,000 10.42% $.001 Level 17, 168 Walker Street Direct par value North Sydney, NSW, Australia 2060
The following table presents information at December 16, 1995, with respect to shares of the Company's Common Stock beneficially owned by the Company's directors and nominees for directors and by all directors and officers of the Company as a group. of Name of Beneficial Percent Class Beneficial Owner Ownership of Class Common Brian E. Cornish 6,250,000 10.42%
Common David S. Crockett, Jr. - -
Common Christopher N. Curnow 15,425,611 (1) 25.73%
Common Thomas P. McDonnell 28,262,602 (2) 47.14%
Common All Directors and 49,938,213 83.29% $.001 officers as a group Direct or par value of four persons Indirect
(1) Includes shares of Centaur Petroleum Pty. Ltd. which is controlled by Christopher N. Curnow.
(2) Includes shares of Validus Operating, Inc. which is wholly_owned by Thomas P. McDonnell.
There are no arrangements known to the Company which may at a subsequent date result in a change in control of the Company.
Item 13. Certain Relationships and Related Transactions
Brian E. Cornish and Associates ("BECA") an investment company controlled by Brian E. Cornish, advanced $10,000 to TPI in April, 1990. On December 7, 1992 the Company issued 2,000,000 shares of Common Stock to Brian E. Cornish in consideration for the amount owed.
TPI is operated by Validus Operating, Inc. under a Management Agreement, which was originally effective April 1, 1990 and has been extended through January 31, 1996. Under the terms of this agreement, Validus will receive $10,000 per month for its services. Validus is an oil and gas operating company controlled by Thomas P. McDonnell. Mr. McDonnell currently serves as a member of the Board of Directors and is Chief Operating Officer, President, and Treasurer of TPI. On December 7, 1992 the Company issued 20,000,000 shares of TPI Common Stock to Validus at $.005 per share as consideration for $100,000 of the management fees payable to Validus. In addition, TPI converted the remaining management fee payable of $99,000 a to long_term note payable. Also on September 30, 1993 TPI converted an additional $50,000 of management fee payable to long_term note payable. The principal of both notes will be amortized over a 10 year period at the prevailing monthly prime rate of interest. Currently the prime rate stands at 6.50 %.
David Crockett, Jr. is currently a member of the TPI Board of Directors and Corporate Secretary. In addition to his duties as a Director, Mr. Crockett provides consulting services to TPI regarding accounting and financing matters.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8_K
(a) Index to financial statements covered by report of independent auditors:
(1) The following financial statements are included in Item 8 in this report:
i. Report of Independent Auditors is included on page 11.
ii. Consolidated Balance Sheets as of September 30, 1995 and 1994 are included on pages 12.
Operations for the years ended September 30, 1995, 1994 and 1993 are included on page 13.
Stockholders' Equity for the years ended September 30, 1995, 1994, and 1993 are included on page 14.
Cash Flows for the years ended September 30, 1995, 1994 and 1993 are included on pages 15.
Financial Statements are included on pages 16 through 21.
(2) The following financial statement schedules are filed as a part of this report:
i. Schedule VIII - Valuation and Qualifying Accounts for the years ended September 30, 1995, 1994 and 1993 are included on page 31.
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K filed through December 23, 1995.
(c) The exhibits listed in the Index of Exhibits included on page 29 and 30 are filed herewith as a part of this report.
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date January 9, 1996 By/s/Brian E. Cornish
Chairman of the Board, Chief
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the undersigned on behalf of the registrant and in the capacity and on the date indicated.
Date January 9, 1996 /s/Thomas P. McDonnell
Majority of the Board of Directors
Date January 9, 1996 /s/Brian E. Cornish
Date January 9, 1996 /s/Christopher N. Curnow
Date January 9, 1996 /s/Thomas P. McDonnell
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession.
Stock Purchase Agreement between Taurus Petroleum, Inc. and Cornwall Petroleum Holdings, Inc. dated July 15, 1987 (Exhibit 2.1 to the Form 8_K dated July 15, 1987, of Taurus Petroleum, Inc.) is incorporated herein by reference. Also included as a part of Exhibit 2.1 are the first pages and signature pages of the Agreements between Taurus Petroleum, Inc. ("TPI") and B. E. Cornish & Associates, Inc.("Associates") and between TPI and Coolibah Petroleum, Inc.("Coolibah") and pages 1, 13, 21 and 38 of the Agreement between TPI and J.D.C. McLean ("McLean"). All other pages of the Agreement between TPI and Associates, Coolibah and McLean are identical to those of the agreement between TPI and Cornwall Petroleum Holdings, Inc.
(3) Articles of Incorporation and By-Laws.
Articles of Amendment to the Articles of Incorporation of Taurus Petroleum, Inc. dated May 26, 1988 (Exhibit 3 to the Form 10-K for the fiscal year ended September 30, 1988) is incorporated herein by reference.
By-Laws of the Company (Exhibit 3.1 to the Form 10-K for the fiscal year ended September 30, 1985) is incorporated herein by reference.
Articles of Amendment to the Articles of Incorporation of Taurus Petroleum, Inc. dated June 12, 1986 (Exhibit 3.1 to the Form 10-K for the fiscal year ended September 30, 1986) is incorporated herein by reference.
Composite Restated Articles of Incorporation as for June 12, 1986, of Taurus Petroleum, Inc. (Exhibit 3.2 to the Form 10-K for the fiscal year ended September 30, 1986) is incorporated herein by reference.
(4) Instruments Defining the Rights of Security Holders.
The form of Common Stock share certificate (Exhibit 4 to September 30, 1984, Annual Report on Form 10-K and Articles V, VI, VII and XIV of the Amended Articles of the Form 10-K for the fiscal year ended September 30, 1986) is incorporated herein by reference.
(9) Voting Trust Agreement. Not applicable.
Stock Purchase agreement between Taurus Petroleum, Inc. and Validus Operating, Inc. dated December 7, 1992 (Exhibit (1) of Form 8-K dated December 18, 1992) is incorporated herein by reference.
Stock Purchase agreement between Taurus Petroleum, Inc. and Brian E. Cornish, dated December 7, 1992 (Exhibit (2) of Form 8-K dated December 18, 1992) is incorporated herein by reference.
Loan Agreement between Taurus Petroleum, Inc. and Validus Operating, Inc. dated December 7, 1992 (Exhibit (3) of Form 8-K dated December 18, 1992) is incorporated herein by reference.
Management Agreement between Taurus Petroleum, Inc. and Validus Operating, Inc. dated April 1, 1990 (Exhibit (10) of Form 10-K dated January 4, 1991) is incorporated herein by reference.
Loan Agreement between Taurus Petroleum, Inc. and Validus Operating, Inc. dated September 30, 1993 (Exhibit (10) of Form 10-K for fiscal year ended September 30, 1993) is incorporated herein by reference.
(11) Statement Regarding Computation of Per Share Earnings. Not applicable.
(12) Statement Regarding Computation of Ratios. Not applicable.
(13) Annual Report to Security Holders, Form 10-Q, or Quarterly Report to Security Holders. Not applicable.
(16) Letter Regarding Change in Certifying Accountant. Not applicable
(18) Letter Regarding Change in Accounting Principles. Not applicable.
(19) Previously Unfiled Documents. Not applicable.
(22) Subsidiaries of the Registrant. The Company has one significant subsidiary, Ridgeway Exco, Inc., a Colorado corporation.
(23) Published Report Regarding Matters Submitted to Vote of Security Holders. Not applicable.
(24) Consent of Experts and Counsel. Not applicable.
(25) Power of Attorney. Not applicable.
(28) Additional Exhibits. Not applicable.
(29) Information from Reports Furnished to State Insurance Regulatory Authorities. Not applicable.
|
10-K
|
10-K
| 1996-01-12T00:00:00
| 1996-01-12T14:18:47
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0000950152-96-000077
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0000950152-96-000077_0005.txt
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BRUSSELS, BELGIUM TEL (513) 443-6600 CINCINNATI, OHIO FAX (513) 443-6635 CLEVELAND, OHIO 2000 COURTHOUSE PLAZA NE [email protected] COLUMBUS, OHIO P.O. BOX 8801 PALM BEACH, FLORIDA DAYTON, OHIO 45401-8801 WASHINGTON, D.C. DIAL NUMBER:
We have acted as counsel to The Duriron Company, Inc., an Ohio corporation (the "Company"), in connection with the issuance of shares of the common stock, $1.25 par value per share ("Share"), of the Company under the Durametallic Corporation 1991 Stock Option Plan, as amended (the "Option Plan"), and the Durametallic Corporation Executive Incentive Bonus Plan, as amended (the "Bonus Plan" and, with the Option Plan, the "Plans"), and the preparation of Post-Effective Amendment No. 1 on Form S-8 to the Company's Registration Statement on Form S-4 (Registration No. 33-62527) being filed with the Securities and Exchange Commission in connection therewith.
Please be advised that we have examined such proceedings and records of the Company, and have made investigation of such other matters, as in our judgment permits us to render an informed opinion on the matters set forth herein. Based upon the foregoing, it is our opinion that:
(i) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of New York, with full power to issue and sell the Shares pursuant to the Plans;
(ii) The Shares which may be issued under the Bonus Plan and upon the exercise of options granted under the Option Plan have been duly authorized and, when issued by the Company pursuant to the Bonus Plan or issued or sold by the Company upon the exercise of options granted under the Option Plan (and payment of the exercise price with respect thereto), such Shares will be legally issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to Post-Effective Amendment No. 1 on Form S-8 to the Company's Registration Statement on Form S-4 with respect to the Plans and to the use of our firm name, and the statements made with respect to us, appearing under Item 5 of Part II of such Post-Effective Amendment No. 1.
/s/ Thompson Hine & Flory P.L.L.
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S-8 POS
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EX-5.1
| 1996-01-12T00:00:00
| 1996-01-12T11:23:00
|
0000950109-96-000213
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0000950109-96-000213_0002.txt
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[LOGO OF CFX CORPORATION APPEARS HERE] NEWS RELEASE IMMEDIATE For Additional Information Contact:
Mark A. Gavin, Chief Financial Officer Paul D. Spiess, Executive Vice President Safety Fund Contact: Christopher W. Bramley
AGREE TO MERGE AND FORM
Keene, NH, January 5, 1996 -- CFX Corporation (AMEX: CFX), headquartered in Keene, New Hampshire and The Safety Fund Corporation, (NASDAQ: SFCO), headquartered in Fitchburg, Massachusetts, announced today that they have signed a definitive agreement for the merger of Safety Fund into CFX. As a result of the transaction, Safety Fund National Bank, Safety Fund's bank subsidiary, would operate as a subsidiary of CFX.
Pursuant to the definitive agreement and in the event that the transaction is accounted for as a pooling-of-interests, each of Safety Fund's outstanding shares of Common Stock has the potential to be converted into 1.7 shares of CFX's Common Stock. The actual number of shares of CFX's Common Stock issuable in the transaction is subject to adjustment based on the average price of CFX Common Stock for the ten trading days immediately before CFX receives the last regulatory approval required to consummate the transaction. In the event that the average price of CFX Common Stock is below $12.43, the exchange ratio becomes 1.806 shares; and if the average price of CFX Common Stock is above $18.65, the exchange ratio becomes 1.629 shares. Safety Fund has the right to terminate the agreement if the average price of CFX Common Stock is below $11.65 per share unless CFX agrees to increase the exchange ratio.
The transaction is tax free to the owners of Safety Fund and is subject to regulatory approval and the approval of both CFX's and Safety Fund's shareholders. It is anticipated that the transaction will be accounted for by the pooling-of-interests method of accounting. However, if the transaction is required to be accounted for under the purchase method of accounting, the stock exchange ratio would be 1.52 shares, subject to adjustments based on the average price of CFX Common Stock.
Based on the closing price of CFX Common Stock on January 4, 1996 of $15.375 and assuming the pooling-of-interests method of accounting and a 1.7 exchange ratio, the indicated value of the transaction would be $26.14 per share, which is equivalent to a price of $39.21 per share prior to the 3 for 2 stock split declared by Safety Fund in the fourth quarter of 1995. The total aggregate consideration would be $43.4 million based on such assumptions. The agreement also provides CFX with an option to acquire up to 19.9% of the outstanding Safety Fund Common Stock under certain circumstances.
In announcing the transaction, Peter J. Baxter, President and Chief Executive Officer of CFX Corporation, stated, "I am extremely pleased to have the opportunity to affiliate with such a strong commercial banking franchise. Safety Fund National Bank's commercial banking culture and trust operations complement CFX's mortgage banking capability and community banking heritage. Also, this affiliation allows CFX to add to its existing investment in Massachusetts and capture a significant position in the north central part of the Commonwealth. The addition of Safety Fund to our family of banks underscores the ongoing commitment of CFX Corporation to providing a superior community banking alternative to cities and towns in central New England."
Mr. Baxter added, "Under the leadership of Christopher W. Bramley, Safety Fund brings to CFX a strong and capable management team that will remain after the consummation of this acquisition to service the Massachusetts marketplace and pursue additional opportunities. We are also looking forward to the addition of four Safety Fund Directors to the Board of CFX Corporation.
We anticipate that after 20% ($2.8 million pre-tax) expense savings, the transaction will be accretive to earnings per share in the first year. Upon consummation of the merger, CFX will take a special charge of approximately $2.5 million to earnings for one time costs of the transaction."
Christopher W. Bramley, President and Chief Executive Officer of Safety Fund, said, "We are very pleased to affiliate with a strong, well-managed and locally controlled financial institution. Safety Fund will continue to provide the same high level of service to our customers, while being able to offer a greater array of products and services. CFX's strong capital base will enhance Safety Fund's ability to compete and grow while increasing the availability of credit to our marketplace."
Mr. Bramley added, "While we believe that this transaction represents not only fair value for our shareholders, it also substantially increases shareholder liquidity while securing an historically high dividend rate."
The parties expect to complete the transaction in the second half of 1996.
Separately, the Board of Directors of Safety Fund today approved a shareholder rights plan that is designed to provide protection from a number of tactics that third parties could use to disrupt the proposed merger of CFX and Safety Fund and gain control of Safety Fund without offering a fair price to all shareholders.
Under the rights plan, each Safety Fund shareholder of record as of January 5, 1996, will receive a dividend of one non-voting right for each share of the company's common stock owned. Initially, the rights are attached to the company's common shares, are not exercisable and do not represent any significant value to shareholders. The rights become exercisable and valuable if any person (other than CFX Corporation) acquires 15% or more of Safety Fund's common stock. At that time, each right will entitle all holders (including CFX but excluding any other person acquiring 15% or more of Safety Fund's common stock) to purchase common stock at a substantial discount. The exercise of the rights would have a substantial dilutive effect on any person (other than CFX) that acquires 15% or more of Safety Fund's common stock.
The Board may redeem the rights at $.01 per right at any time prior to the acquisition by a person or group of beneficial ownership of 15% or more of Safety Fund's common stock.
A summary of the terms of the rights plan will be mailed to all Safety Fund shareholders.
CFX Corporation is a multi-bank holding company with total assets of $879 million, as of September 30, 1995. The Company's two banking subsidiaries are CFX Bank, headquartered in Keene, New Hampshire, and Orange Savings Bank, headquartered in Orange, Massachusetts. CFX Mortgage, Inc., CFX Bank's mortgage banking subsidiary, services approximately $652 million in mortgage loans for others. The Company operates 23 full service offices, 2 loan production offices, and 50 automated teller and remote service banking locations in New Hampshire and north central Massachusetts.
The Safety Fund Corporation is a bank holding company with total assets of $293 million as of September 30, 1995. The Company's banking subsidiary, Safety Fund National Bank, operates a trust division with $350 million in assets and has twelve full service offices located throughout Worcester County, Massachusetts.
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8-K
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EX-2.B
| 1996-01-12T00:00:00
| 1996-01-12T16:40:45
|
0000950124-96-000207
|
0000950124-96-000207_0000.txt
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<DESCRIPTION>NOTICE & PROXY STATEMENT/PROXY CARD
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant _X_ Filed by a Party other than the Registrant Check the appropriate box: ___ Confidential, for Use of the Commission Only (as permitted ___ Soliciting Material Pursuant to Section 240.14a-11(c) or
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than
Payment of Filing Fee (Check the appropriate box) ___ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A ___ $500 per each party to the controversy pursuant to Exchange Act Rule ___ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
_X_ Fee paid previously with preliminary materials ___ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: $125 2) Form, Schedule or Registration Statement No.: Schedule 14A 3) Filing Party: MACC Private Equities Inc. 4) Date Filed: December 14, 1995
101 Second Street, S.E., Suite 800
To the Shareholders of MACC Private Equities Inc:
The Annual Meeting of Shareholders of our Corporation will be held on Tuesday, February 27, 1996, at 10:00 a.m. at the Second Floor Ballroom of the Five Seasons Hotel, 350 First Avenue N.E., in Cedar Rapids, Iowa.
A Notice of the meeting, a Proxy and Proxy Statement containing information about matters to be acted upon are enclosed. In addition, the MACC Private Equities Inc. Annual Report for the fiscal year ended September 30, 1995, is enclosed and provides information regarding the financial results of the Corporation for the year. Holders of Common Stock are entitled to vote at the Annual Meeting on the basis of one vote for each share held. If you attend the Annual Meeting in February, you retain the right to vote in person even though you previously mailed the enclosed Proxy.
It is important that your shares be represented at the meeting whether or not you are personally in attendance, and I urge you to review carefully the Proxy Statement and sign, date and return the enclosed Proxy at your earliest convenience. I look forward to meeting you and, together with our Directors and Officers, reporting our activities and discussing the Corporation's business and its prospects. I hope you will be present.
101 Second Street, S.E., Suite 800
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD FEBRUARY 27, 1996
To the Shareholders of MACC Private Equities Inc:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of MACC Private Equities Inc., a Delaware corporation (the "Corporation"), will be held on Tuesday, February 27, 1996, at 10:00 a.m., central time, at the Second Floor Ballroom of the Five Seasons Hotel, 250 First Avenue N.E., in Cedar Rapids, Iowa, for the following purposes:
1. To elect three directors to serve until the 1999 Annual Meeting of Shareholders or until their respective successors shall be elected and qualified;
2. To ratify the appointment of KPMG Peat Marwick LLP as
3. To approve for a one-year period the policy and practice of the Corporation of issuing shares of Common Stock of the Corporation at less than net asset value per share; and
4. To transact such other business as may properly come before the meeting and any adjournment thereof.
Only holders of Common Stock of the Corporation of record at the close of business on December 29, 1995, will be entitled to notice of, and to vote at, the meeting and any adjournment thereof.
By Order of the Board of Directors
Your officers and directors desire that all shareholders be present or represented at the Annual Meeting. Even if you plan to attend in person, please date, sign and return the enclosed proxy in the enclosed postage-prepaid envelope at your earliest convenience so that your shares may be voted. If you do attend the meeting in February, you retain the right to vote even though you mailed the enclosed proxy. The proxy must be signed by each registered holder exactly as the stock is registered.
101 Second Street, S.E., Suite 800
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD FEBRUARY 27, 1996
This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of MACC Private Equities Inc., a Delaware corporation (the "Corporation"), of proxies to be voted at the Annual Meeting of Shareholders to be held on Tuesday, February 27, 1996, or any adjournment thereof. The date on which this Proxy Statement and the enclosed form of proxy are first being sent or given to shareholders of the Corporation is on or about January 12, 1996.
The Annual Meeting of the Shareholders is to be held for the purposes of (1) electing three persons to serve as directors of the Corporation until the 1999 Annual Meeting of Shareholders, or until their respective successors shall be elected and qualified (see ELECTION OF DIRECTORS); (2) ratifying the appointment by the Board of Directors of KPMG Peat Marwick LLP as independent auditors (see RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS); (3) approving for a one-year period the policy and practice of the Corporation of issuing shares of Common Stock of the Corporation at less than net asset value per share (see ISSUANCE OF COMMON STOCK); and (4) transacting such other business as may properly come before the meeting or any adjournment thereof.
To be elected a director, each nominee must receive the favorable vote of the holders of a majority of the shares of Common Stock entitled to vote and represented at the Annual Meeting. In order to ratify the appointment of KPMG Peat Marwick as independent auditors for the Corporation for the year ending September 30, 1996, the ratification proposal must receive the favorable vote of a majority of the shares of Common Stock entitled to vote and represented at the Annual Meeting. In order to approve for a one-year period the policy and practice of the Corporation of issuing shares of Common Stock at less than net asset value per share, the proposal must receive the favorable vote of: (1) a majority of the outstanding shares of Common Stock entitled to vote at the meeting; and (2) a majority of the outstanding shares of Common Stock entitled to vote at the meeting which are not held by affiliated persons of the Corporation.
The Board of Directors unanimously recommends that the shareholders vote FOR the election as directors of the persons named under ELECTION OF DIRECTORS, FOR the ratification of the appointment of KPMG Peat Marwick LLP as independent auditors, and FOR the approval for a one-year period of the policy and practice of the Corporation of issuing shares of Common Stock of the Corporation at less than net asset value per share.
The record date for holders of Common Stock entitled to notice of, and to vote at, the Annual Meeting of Shareholders is the close of business on December 29, 1995, at which time the Corporation had outstanding and entitled to vote at the meeting 996,539 shares of Common Stock.
The presence, in person or by proxy, of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Annual Meeting is necessary to constitute a quorum. Abstentions and shares held by brokers, banks, other institutions and nominess that are voted on any matter at the Annual Meeting are included in determining the presence of a quorum for the transaction of business at the commencement of the Annual Meeting and on those matters for which the broker, nominee or fiduciary has authority to vote. In deciding all questions, a shareholder shall be entitled to one vote, in person or by proxy, for each share of Common Stock held in his name at the close of business on the record date.
Each proxy delivered to the Corporation, unless the shareholder otherwise specifies therein, will be voted FOR the election as directors of the persons named under ELECTION OF DIRECTORS, FOR the ratification of the appointment by the Board of Directors of KPMG Peat Marwick LLP as independent auditors and FOR the approval for a one-year period of the policy and practice of the Corporation of issuing shares of Common Stock of the Corporation at less than net asset value per share. In each case where the shareholder has appropriately specified how the proxy is to be voted, it will be voted in accordance with his specification. As to any other matter or business which may be brought before the meeting, a vote may be cast pursuant to the accompanying proxy in accordance with the judgment of the person or persons voting the same, but neither management nor the Board of Directors of the Corporation knows of any such other matter or business. Any shareholder has the power to revoke his proxy at any time insofar as it is then not exercised by giving notice of such revocation, either personally or in writing, to the Secretary of the Corporation or by the execution and delivery to the Corporation of a new proxy dated subsequent to the original proxy.
Stock Ownership of Certain Beneficial Owners
As of November 30, 1995, there were 996,539 shares outstanding. No person is known by the Corporation to own beneficially more than 5% of its shares. As of that date, the Corporation's Officers and Directors as a group, seven in number, beneficially owned 52,837 shares of the Corporation's stock, representing approximately 5.3% of outstanding shares.
The Corporation's Bylaws provide for a Board of Directors composed of seven Directors, divided into three classes. Directors are elected to serve three-year terms. Three directors are proposed to be elected at the meeting to serve until the 1999 Annual Meeting of Shareholders or until their respective successors shall be elected and qualified. The persons named in the accompanying form of proxy intend to vote such proxy for the election of the nominees named below as directors of the Corporation to serve until the 1999 Annual Meeting of Shareholders or until their respective successors shall be elected and qualified, unless otherwise properly indicated on such proxy. If any nominee shall become unavailable for any reason, the persons named in the accompanying form of proxy are expected to consult with the Board of Directors of the Corporation in voting the shares represented by them at the Annual Meeting. The Board of Directors has no reason to doubt the availability of any of the nominees and no reason to believe that any of the nominees will be unable or unwilling to serve the entire term for which election is sought.
The names of the nominees, along with certain information concerning them, are set forth below.
Mr. Bass, age 60, has been a director of the Corporation and of the Corporation's wholly-owned subsidiary, MorAmerica Capital Corporation ("MorAmerica Capital"), since 1994. From 1988 to present, Mr. Bass has also served as Vice Chairman of First Southwest Company, a regional investment banking firm. Mr. Bass specializes in corporate finance, investment management and public finance. Mr. Bass is also presently a Director and Chairman of the Audit Committee of First Nationwide Bank F.S.B., Keystone Consolidated Industries (also Chairman of the Audit Committee), Source Services, Inc., and Chairman of the Board of Richman Gordman 1/2 Price Stores, Inc. Mr. Bass holds a B.B.A. in finance from Southern Methodist University.
Mr. Schroder, age 52, has been President, Secretary and a Director of the Corporation since 1994. Since 1985, Mr. Schroder has been a principal of InvestAmerica Venture Group, Inc. ("Venture Group") and is presently President and a Director. From 1985 to 1994, Venture Group provided management and investment services to MorAmerica Capital. Venture Group presently provides management and investment services to a private investment partnership, the Iowa Venture Capital Fund, L.P. Mr. Schroder is also President, Secretary and a Director of InvestAmerica N.D. Management, Inc., which provides management and investment services to North Dakota Small Business Investment Company ("NDSBIC"), A North Dakota Limited Partnership. Mr. Schroder is also President, Secretary and a Director of InvestAmerica N.D., L.L.C., the general partner of NDSBIC. Mr. Schroder is President and a Director of the investment advisor to the Corporation and to MorAmerica Capital, InvestAmerica Investment Advisors, Inc. (the "Investment Advisor"). As a representative of the Investment Advisor and Venture Group, Mr. Schroder also serves on the boards of directors of several of the Corporation's portfolio companies.
Mr. Comey, age 49, has served as Vice President, Treasurer and a Director of the Corporation since 1994. Mr. Comey was named Executive Vice President of the Company in 1995. Since 1986, Mr. Comey has been a principal of Venture Group and is presently Executive Vice President, Treasurer and a Director. From 1985 to 1994, Venture Group provided management and investment services to MorAmerica Capital. Venture Group presently provides management and investment services to a private investment partnership, the Iowa Venture Capital Fund, L.P. Mr. Comey is also Executive Vice President, Treasurer and a Director of InvestAmerica N.D. Management, Inc., which provides management and investment services to NDSBIC. Mr. Comey is also Executive Vice President, Treasurer, and a Director of InvestAmerica N.D., L.L.C., the general partner of NDSBIC. Mr. Comey is a Director, Executive Vice President, Treasurer, and Assistant Secretary of the Investment Advisor. As a representative of the Investment Advisor and Venture Group, Mr. Comey also serves on the boards of directors of several of the Corporation's portfolio companies.
The following table sets forth the name of each nominee for election to the Board of Directors of the Corporation and the amount and percentage of Common Stock of the Corporation beneficially owned (as that term is defined in the rules and regulations of the Securities and Exchange Commission) by each nominee as of November 30, 1995.
* Each of the persons named in the above table has sole voting and investment power with respect to the shares indicated to be beneficially owned.
(1) As principals, officers and directors of the Investment Advisor, Messrs. Schroder and Comey are "interested persons" of the Corporation, as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940.
The names of the other Directors of the Corporation, whose terms of office extend beyond the 1996 Shareholders Meeting, along with certain information concerning them, are set forth below.
Mr. Madden, age 66, has been a consultant to development stage companies. Since 1995, Mr. Madden has been an independent trustee of Berthel Growth and Income Trust I. In 1986, Mr. Madden organized the Institute for Entrepreneurial Management in the University of Iowa College of Business Administration. As Director of the Institute, Mr. Madden advises potential and new entrepreneurs and teaches courses on entrepreneurship in the M.B.A. program.
Mr. Wolfe, age 69, had been employed for many years by the Morris Plan companies prior to the 1985 bankruptcy of MorAmerica Financial Corporation and Morris Plan Liquidation Company (the "Debtors"), and was President of the Morris Plan Company of Iowa. Following the 1988 reorganization of the Debtors, Mr. Wolfe served as voting trustee for the MorAmerica Financial Corporation stock and President of both Debtors. Mr. Wolfe retired from most positions several years ago, but remains a director of MorAmerica Capital. Mr. Wolfe returned from retirement to serve as voting trustee and President and Director of the Debtors during the Debtors' 1993 bankruptcy case.
Mr. Dunn, age 46, has been C.E.O. since 1980 and President since 1983 of Farmers & Merchants Savings Bank of Manchester, Iowa. Mr. Dunn is also presently a member of the boards of Security Savings Bank of Eagle Grove, Iowa, and F&M Shares Corp. and Dunn Shares, Inc., both bank holding companies.
Mr. Miller, age 54, was employed by Armstrong's, Inc. department stores from 1967 until 1992. His capacities included serving as a member of the Board of Directors and Executive Committee and as Vice President and C.F.O., Treasurer and Controller. Armstrong's, founded in 1890, operated two retail department stores and filed for protection under Chapter 11 of the Bankruptcy Code in November, 1990. A liquidating plan of reorganization was confirmed in March, 1991, and its stores were closed and assets liquidated. In 1992 and 1993, Mr. Miller was custom sales manager for Custom Audio/Video, Hiawatha, Iowa. Mr. Miller is currently developing a new business for Communications Plus, as associate dealer for AT&T products and services, and developing business for Excel Mortgage, Inc., a mortgage broker located in Iowa City, Iowa.
Meetings and Committees of the Board of Directors
The Board of Directors of the Corporation has established an Audit Committee, a Nominating Committee and an Investment Committee to assist the Board in carrying out its duties. The Audit Committee makes recommendations to the Board of Directors regarding the engagement of the independent auditors for audit and non-audit services; evaluates the independence of the auditors; and reviews with the independent auditors the fee, scope and timing of audit and non-audit services. The Audit Committee also is charged with monitoring the Corporation's Policy Against Insider Trading and Prohibited Transactions and its Code of Conduct.
The Nominating Committee recommends to the Board of Directors nominations for Director of the Corporation. The Nominating Committee presently has no established procedures for considering shareholders' recommendations for Director nominees, but shareholders may propose nominees for Director by following the procedures set forth in the section of this Proxy Statement entitled "SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING."
The Investment Committee assists the full Board of Directors with oversight of the Corporation's investment portfolio and evaluates any proposed revisions to the Corporation's investment policy. The Investment Committee also
assures compliance with the Corporation's policy regarding investments made in participation with other funds managed by the Investment Advisor.
The present members of the Corporation's Audit Committee include Michael W. Dunn, James L. Miller and John D. Wolfe. Henry T. Madden, James L. Miller, and David R. Schroder and Robert A. Comey (as alternate members with a single vote on any issue) are presently members of the Investment Committee. The Nominating Committee presently consists of Henry T. Madden, John D. Wolfe and James L. Miller. During the fiscal year of the Corporation ended September 30, 1995, six meetings of the Board of Directors were held. In addition, four meetings of the Audit Committee, one meeting of the Nominating Committee and no meetings of the Investment Committee were held. Each of the directors attended all of the meetings of the Board of Directors and all of the meetings held by the committees of the Board on which that director served.
Set forth below is a line graph comparing the value of $100 invested on March 2, 1995 (the day on which the Common Stock began trading on the NASDAQ SmallCap Market) in shares of the Common Stock (based on the closing market bid price of the Common Stock) with the cumulative total return of $100 invested on the same date in the NASDAQ Stock Market Index (U.S. companies) and the NASDAQ Financial Stocks Total Return Index.
Compensation of Directors and Executive Officers
Pursuant to the investment advisory agreements of the Corporation and MorAmerica Capital with the Investment Advisor, Directors of the Corporation and of MorAmerica Capital who are also officers or directors of the Investment Advisor receive no compensation for serving on the Boards of Directors of the Corporation and of MorAmerica Capital. All other Directors of the Corporation, other than the Chairman of the Board, receive $8,000 per year plus $400 per Board of Directors meeting attended and $250 per committee meeting attended, all as total compensation for serving on the Boards of Directors of both the Corporation and MorAmerica Capital. The Corporation's Chairman of the Board receives $2,000 per month plus $400 per Board of Directors meeting attended and $250 per committee meeting attended, all as total compensation for serving as the Chairman of the Board of Directors of the Corporation and MorAmerica Capital. In addition, the Corporation reimburses all reasonable expenses of the Directors and the Chairman of the Board in attending Board of Directors and committee meetings. Directors' meetings are normally held on a quarterly basis.
The following table sets forth certain details of compensation paid to Directors during fiscal year 1995, which includes compensation for serving on the Boards of Directors of the Corporation, MorAmerica Capital and other wholly owned subsidiaries of the Corporation. The Corporation presently maintains no pension or retirement plans for its Directors.
(1) Consists only of directors' fees and does not include reimbursed expenses. The Corporation presently maintains no pension or retirement plans for its Directors.
(2) Of the $7,650 earned by Mr. Wolfe in fiscal year 1995, $7,400 was paid by the Corporation during fiscal year 1995. The remaining $250 was deferred at the election of Mr. Wolfe and will be paid without interest during fiscal year 1996.
The Corporation has no employees and does not pay any compensation to any of its officers. All of the Corporation's officers and staff are employed by the Investment Advisor, which pays all of their cash compensation.
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, officers and directors of the Corporation and persons beneficially owning 10% or more of the Corporation's Common Stock must file reports on Forms 3, 4 and 5 regarding changes in their holdings of the Corporation's securities with the Securities and Exchange Commission. Based solely upon a review of copies of these reports sent to the Secretary of the Corporation, the Corporation believes that all Forms 3, 4, and 5 required to be filed by all such persons have been properly filed with the Securities and Exchange Commission.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE ELECTION AS DIRECTORS OF THE PERSONS NAMED UNDER "ELECTION OF DIRECTORS."
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
A majority of those members of the Board of Directors of the Corporation who are not "interested persons" of the Corporation (as defined in Section 2(a)(19) of the Investment Company Act of 1940) voted in favor of the appointment of KPMG Peat Marwick LLP to serve as the Corporation's independent auditors for the fiscal year ended September 30, 1995.
As recommended by the Audit Committee of the Corporation's Board of Directors, the Board of Directors also appointed the
firm of KPMG Peat Marwick LLP as independent auditors for the fiscal year ending Septembe 30, 1996, subject to approval by the shareholders. If the Stockholders ratify the selection of KPMG Peat Marwick LLP as the Corporation's auditors, they will also serve as independent auditors for all subsidiaries of the Corporation. A representative of KPMG Peat Marwick LLP is expected to be present at the Annual Meeting with an opportunity to make a statement, and will be available to respond to appropriate questions.
In order to ratify the appointment of KPMG Peat Marwick LLP as independent auditors for the Corporation for the year ending September 30, 1996, the proposal must receive the favorable vote of a majority of the shares entitled to vote and represented at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE RATIFICATION OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT AUDITORS FOR THE CORPORATION FOR THE YEAR ENDING SEPTEMBER 30, 1996.
To date, the Corporation has relied upon several sources to fund its investment activities, including the Corporation's U.S. treasury bills, cash and cash equivalents, and the Small Business Investment Company ("SBIC") capital program operated by the Small Business Administration (the "SBA"). In response to recent federal budget reduction proposals, the availability of capital through the SBIC capital program is being debated. Both the SBA and the SBIC trade association have put forth plans to support continued SBIC capital availability. Although the Corporation does not presently need additional capital to fund its current investment activities, any possible future SBIC industry capital shortfalls would have to be sought from private or public funding sources.
One such funding source would be the issuance of some or all of the 1,003,461 shares of authorized but unissued Common Stock of the Corporation. The Corporation presently has 996,539 shares issued and outstanding. Accordingly, if the Corporation were to issue all of the remaining authorized but unissued shares of Common Stock, the number of shares issued and outstanding would increase by approximately 101%.
If the Corporation were to issue any of all of such shares, the shares would be offered at a price approximately equal to the then-prevailing market price for the Corporation's Common Stock. Since the Corporation's Common Stock began trading on The NASDAQ SmallCap Market in March, 1995, it has consistently traded at a discount from net asset value per
share. Accordingly, if the Corporation were to issue additional shares of Common Stock to fund investment activities at any time during the next year, such shares would be sold at a price less than net asset value per share if the prevailing market price for the Common Stock were less than net asset value per share.
The Corporation has elected treatment as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "Act"). Pursuant to Section 63 of the Act, a BDC may not issue shares of common stock at less than net asset value per share unless such issuance has been approved by the holders of a majority of the BDC's outstanding voting securities and by a majority of such holders who are not affiliated persons of the BDC. In addition, a majority of the directors of the BDC who are not interested persons of the BDC must first determine that any such issuance would be in the best interests of the Corporation and its shareholders, and in consultation with the underwriter, that the offering price would be not less than a price which closely approximates market price.
Such shares may be issued pursuant to a secondary public offering by the Corporation, which may involve significant delay and expense. Alternatively, the shares may be privately placed with one or more accredited investors, as that term is defined under federal securities laws, or institutional investors, including, without limitation, banks, insurance companies, pension funds and mutual funds.
Before voting on this proposal or giving proxies with regard to this matter, shareholders should consider the potentially dilutive effect of the issuance of shares of the Corporation's Common Stock at less than net asset value per share on net asset value per outstanding share of Common Stock, and that such dilutive effect may result in a decrease in the market price of the Corporation's common stock. Shareholders should also consider that holders of the Corporation's Common Stock have no subscription, preferential or preemptive rights to additional shares of the Common Stock, and thus any future issuance of shares may tend to dilute shareholders' holdings of the Common Stock as a percentage of shares outstanding.
The issuance of the additional shares of Common Stock may have an indirect effect on the gross amount of management fees paid by the Corporation to the Investment Advisor and on the amount of total expenses as a percentage of net assets. The Corporation's and MorAmerica Capital's Investment Advisory Agreements with the Investment Advisor provide for a management fee payable to the Investment Advisor as compensation for managing the investment portfolios of the Corporation and MorAmerica Capital. With regard to the Corporation, the
management fee is computed as a percentage of assets under management. The proceeds payable to the Corporation from the issuance of the additional shares of Common Stock would increase assets under management, as would any other form of capital-raising transaction, and would cause a corresponding increase in the gross amount of management fees paid to the Investment Advisor, but would not increase or decrease the management fee as a percentage of assets under management. The proceeds payable to the Corporation from the issuance of the additional shares of Common Stock may also tend to decrease the Corporation's total expenses as a percentage of net assets.
If shareholders approve this proposal, then until the 1997 Annual Meeting, no further shareholder approval would be solicited by the Corporation with regard to the issuance of the additional shares of Common Stock. The Corporation presently anticipates annually soliciting shareholders with regard to the policy and practice of issuing shares of Common Stock at a price less than net asset value per share in order to provide the Corporation with this flexibility.
In the absence of shareholder approval of this proposal, the Corporation may not have the flexibility to fund its investment activities through the issuance of additional shares of Common Stock. If shareholders approve this proposal, the Corporation will not engage in any such issuance unless the required majority of the Corporation's disinterested Directors first determines that such issuance is in the best interests of the Corporation and its shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL APPROVING FOR A ONE-YEAR PERIOD THE POLICY AND PRACTICE OF THE CORPORATION OF ISSUING SHARES OF COMMON STOCK OF THE CORPORATION AT LESS THAN NET ASSET VALUE PER SHARE.
The Board of Directors knows of no other business to be presented for action at the Meeting. If any matters do come before the the Meeting on which action can properly be taken, it is intended that the proxies shall vote in accordance with the judgment of the person or persons exercising the authority conferred by the proxy at the Meeting.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Under the rules of the Securities and Exchange Commission, any shareholder proposal to be considered by the Corporation for inclusion in the proxy material for the February, 1997
Annual Meeting of Shareholders must be received by the Secretary of the Corporation, 101 Second Street, S.E., Suite 800, Cedar Rapids, Iowa 52401, no later than September 12, 1996. The submission of a proposal does not guarantee its inclusion in the proxy statement or presentation at the annual meeting unless certain securities laws requirements are met.
In addition, under the Corporation's Bylaws, shareholders desiring to nominate persons for election as Directors or to propose other business for consideration at an annual meeting must generally notify the Secretary of the Corporation in writing not less than 60 days, nor more than 90 days prior to the first anniversary of the preceding year's annual meeting. Shareholders' notices must contain the specific information set forth in the Corporation's Bylaws. A copy of the Corporation's Bylaws will be furnished to shareholders without charge upon written request to the Secretary of the Corporation.
EXPENSES OF SOLICITATION OF PROXIES
In addition to the use of the mails, proxies may be solicited by personal interview and telephone by directors, officers and other employees of the Corporation, who will not receive additional compensation for such services. The Corporation may employ Chemical Mellon Shareholder Services to aid in the solicitation of proxies at an estimated fee of $3,500 plus $4.50 per shareholder solicited. The Corporation will also request brokerage houses, nominees, custodians and fiduciaries to forward soliciting materials to the beneficial owners of stock held of record by them and will reimburse such persons for forwarding materials. The cost of soliciting proxies will be borne by the Corporation.
The Annual Report to Shareholders covering the fiscal year ended September 30, 1995, accompanies this proxy statement, but is not deemed a part of the proxy soliciting material.
A copy of the fiscal year 1995 Form 10-K report to the Securities and Exchange Commission, excluding exhibits, will be mailed to shareholders without charge upon written request to David R. Schroder, Secretary, MACC Private Equities Inc., 101 Second Street, S.E., Suite 800, Cedar Rapids, Iowa 52401. Such requests must set forth a good faith representation that the requesting party was either a holder of record or a beneficial owner of Common Stock of the Corporation on December 29, 1995. Exhibits to the Form 10-K will be mailed upon similar request and payment of specified fees.
Please date, sign and return the proxy at your earliest convenience in the enclosed envelope. No postage is required for mailing in the United States. A prompt return of your proxy will be appreciated as it will save the expense of further mailings and telephone solicitations.
By Order of the Board of Directors
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Paul M. Bass, Jr., David R. Schroder and James L. Miller and each of them, with full power of substitution, and hereby authorizes them to represent the undersigned and to vote all of the shares of Common Stock in MACC PRIVATE EQUITIES INC. (the "Company") held of record by the undersigned on December 29, 1995, at the Annual Meeting of Stockholders of the Company to be held on February 27, 1996 and any adjournment(s) thereof.
This proxy when properly executed will be voted as directed by the undersigned stockholder. If directions are not indicated, the proxy will be voted to elect the nominees described in item 1 and for items 2, 3 and 4.
(CONTINUED, AND TO BE SIGNED ON REVERSE SIDE)
/\ FOLD AND DETACH HERE /\
Letter to our Shareholders. . . . . . . . . . . 1
Selected Financial Data . . . . . . . . . . . . 4
Analysis. . . . . . . . . . . . . . . . . . . 5
Financial Statements. . . . . . . . . . . . . . 11
Notes to Consolidated Financial Statements. . . 15
Schedule of Investments . . . . . . . . . . . . 22
Notes to Schedule of Investments. . . . . . . . 29
Report of Independent Accountants . . . . . . . 31
Shareholder Information . . . . . . . . . . . . 32
Directors and Officers. . . . . . . . . . . . . 33
The purpose of this letter to shareholders is to provide a summary of items and events that are important to understanding the business, financial condition and results of operations of MACC Private Equities Inc. (the "Corporation") and its wholly owned subsidiary, MorAmerica Capital Corporation ("MorAmerica Capital"), as of September 30, 1995.
We are pleased to report that from the effective date of the Corporation's registration statement, February 15, 1995, through its fiscal year end, September 30, 1995, the Corporation substantially achieved its primary corporate goals for fiscal year 1995. These goals included realizing growth in shareholder value, providing liquidity to support future investment activities, and achieving stability as it transitioned to operating as a public company.
Since February 15, 1995, shareholders of the Corporation have achieved significant growth in the value of their investments, both in terms of net asset value per share and market price. As indicated in the following financial statements and illustrated in the chart below, the Corporation's net asset value per share increased from $14.75 on February 15, 1995, to $17.24 on September 30, 1995, for an increase of approximately 16.9% during this seven and one-half month period. The chart also illustrates the growth in the closing market bid price for the common stock from $5 at March 31, 1995, to $7 3/8 at September 30, 1995, an increase of approximately 48% during this six-month period.
As described in detail in the "Management's Discussion and Analysis" section of this Annual Report, the Corporation and its predecessors relied in the past on MorAmerica Capital's access to the Small Business Investment Company capital program to provide liquidity for investment activities. The Corporation effectively compensated for the possible reduction in federal funding for this program by maintaining a significant portion of its assets in U.S. treasury bills, cash and cash equivalents during fiscal year 1995. These liquid assets were valued at $11,855,627 on September 30, 1995.
Based upon a number of measures, the Corporation and MorAmerica Capital achieved a number of financial results worthy of mention during the past seven and one-half months and fiscal year, respectively. As noted above, the Corporation achieved a net asset value of $17,182,121 as of September 30, 1995, outpacing by approximately 184% the projected net asset value at that date anticipated in the Plan of Reorganization of the Corporation's predecessor entities.
MorAmerica Capital achieved noteworthy results as well. For its fiscal year ended September 30, 1995, MorAmerica Capital achieved its highest number of new investments since 1984. Additionally, MorAmerica Capital earned its fifth best pretax net income level of the past fifteen years. Based on this and other developments, the Board of Directors increased MorAmerica Capital's paid-in-capital from $7,270,000 to $8,500,000. This change increases MorAmerica Capital's maximum single investment size to $1,700,000 and thus permits larger investments as called for by the Corporation's growth plans.
Operations - Investment and Divestiture Activity
For the twelve months ended September 30, 1995, the Corporation made total investments of $4,082,089 in eight new portfolio companies and in follow-on investments in three existing portfolio companies. The Corporation's investment-level objectives on a consolidated basis call for new and follow-on investments of approximately $7,000,000 during fiscal year 1996.
Divestitures and portfolio company liquidity events for both the Corporation's seven and one-half month period and for the Corporation's fiscal 1995 were significant. During the seven and one-half month period, the Corporation received publicly traded common stock of Physicians Sales and Service, Inc. (NYSE: PSSI) in a pooling of interests with Taylor Medical, Inc. Also during the period, the Corporation received publicly traded common stock of the Arcadian Corporation (NYSE: ACA). The Arcadian Corporation stock is restricted through January, 1996. In the four and one-half month period ended on February 15, 1995, the Corporation recorded net gains of $4,048,500 from the sale of NorthWord Press, Inc. in December, 1994, and $2,644,958 from the sale of Diversified CPC International, Inc. in the first half of February, 1995. The Corporation continues to review a number of promising investment prospects and will pursue profitable divestiture opportunities whenever possible.
In conclusion, fiscal year 1995 was an eventful and profitable year for the Corporation and for its shareholders. We appreciate the trust placed in us by shareholders, and we will strive to continue to reward that trust through returns on your investment.
Paul M. Bass, Jr., Chairman David R. Schroder, President
ENDED MARCH 31, 1995 JUNE 30, 1995 SPETEMBER 30, 1995
MACC Private Equities Inc. (1)
As discussed in detail in the Notes to Consolidated Financial Statements and in Management's Discussion and Analysis of Financial Condition and Results of Operations, February 15, 1995 was the effective date of a Plan of Reorganization resulting from bankruptcy proceedings of the Corporation's predecessor companies. Because the Corporation adopted fresh-start accounting, the Financial Statements on a fresh-start basis are not comparable to those of the predecessor companies. Accordingly, the Financial Statements and information in the following Selected Financial Data table are presented on a predecessor-successor company basis.
(1) Four and one-half months ended February 15, 1995 and fiscal years ended September 30, 1994, through 1991, represent selected financial data of MorAmerica Financial Corporation, the predecessor to the Corporation.
(2) Including $253,908, $624,527 and $586,095 of reorganization expenses in the four and one-half months ended February 15, 1995, 1994 and 1993, respectively.
(3) Computed using 996,539 shares outstanding at February 15, 1995.
(4) Data related to operations for the years ended September 30, 1992 and 1991 have been derived from MorAmerica Financial Corporation's unaudited consolidated statements of operations.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The Corporation was formed as a Delaware corporation on March 3, 1994. The Corporation's wholly-owned subsidiary, MorAmerica Capital, is an Iowa corporation incorporated in 1959 and which has been licensed as a small business investment corporation since that year.
The Corporation is the successor in interest to MorAmerica Financial Corporation ("MorAmerica Financial"). On February 19, 1993, MorAmerica Financial and its principal subsidiary, Morris Plan Liquidation Company ("Morris Plan"), filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Iowa, Cedar Rapids Division (the "Bankruptcy Court") (Case Nos. 93-10268LC and 93-10269LC, jointly administered). On December 28, 1993, the Bankruptcy Court confirmed the MorAmerica Financial and Morris Plan Amended Debtors' Joint Plan of Reorganization (the "Plan").
Pursuant to the terms of the Plan, MorAmerica Financial was merged with and into the Corporation on February 15, 1995. The effective date of the Plan was February 15, 1995, the date upon which all issued and outstanding shares of the Corporation's common stock were issued to creditors of the predecessor companies.
As discussed in detail in the Notes to Consolidated Financial Statements, because the Corporation adopted fresh-start accounting on February 15, 1995, the effective date of the Plan, the Financial Statements on a fresh-start basis are not comparable to those of the predecessor companies. Accordingly, the Financial Statements are presented on a predecessor-successor company basis. However, for purposes of the following discussion, the results of operations for the four and one-half months ended February 15, 1995 and the seven and one-half months ended September 30, 1995, have been combined.
Total income includes the Corporation's income from interest, dividends and fees. Net Investment income represents total income minus operating and interest expenses, net of applicable income taxes. The main objective of portfolio company investments is to achieve capital appreciation; however, a significant proportion of new portfolio investments are structured so as to provide a current yield through interest or dividends. The Corporation also earns interest on short term investments of cash funds. For the twelve months ended September 30, 1995, total income was $1,722,477, total operating expenses were $2,060,508, tax benefit equaled $170,000, and net investment expense was $168,031. The Corporation reserved $200,000 for potential losses from a personal injury lawsuit against a subsidiary of the Corporation. This amount constitutes a significant portion of other operating expenses for the seven and one-half months ended September 30, 1995. In spite of this reserve, the net investment expense of $168,031 for the twelve-month period was a substantial improvement over net investment expense in prior years. The Corporation views this as a significant step toward meeting one of the Corporation's long-term goals of achieving net investment income and increased earnings stability. In order to progress further toward this goal, the Corporation intends to repurchase during fiscal year 1996 up to five percent of the outstanding shares of the Corporation's Common
Stock from holders of fewer than 100 shares each. The Corporation believes that these repurchases may result in lower shareholder communication expenses.
Net realized gain on investments for the twelve months ended September 30, 1995 totaled $5,462,035. These gains have substantially contributed to the net change in net assets from operations of $5,341,179 for the twelve-month period. Management does not attempt to maintain a comparable level of realized gains from year to year, but instead attempts to maximize total investment portfolio appreciation through realizing gains in the disposition of securities and investing in new portfolio investments.
Financial Condition, Liquidity and Capital Resources
To date, the Corporation has relied upon several sources to fund its investment activities, including the Corporation's U.S. treasury bills, cash and cash equivalents, and the Small Business Investment Company ("SBIC") capital program operated by the Small Business Administration (the "SBA"). As of September 30, 1995, the Corporation's U.S. treasury bills, cash equivalents and cash collectively totaled $11,855,627. The Corporation believes that this provides adequate funds for the Corporation's planned $7,000,000 in new and follow on investment activities over the next twelve month period.
Liquidity for the next several years will not be impacted by principal payments on the Corporation's debentures payable because there are no scheduled principal payments until 2000. Debentures payable are composed of $10,290,000 in principal amount of SBA-guaranteed debentures issued by the Corporation's subsidary MorAmerica Capital which mature as follows: $2,450,000 in 2000, $5,690,000 in 2001 and $2,150,000 in 2003.
In response to recent federal budget reduction proposals, the availability of capital through the SBIC capital program is being debated. Both the SBA and the SBIC trade association have put forth plans to support continued SBIC capital availability. If at some point in the future the Corporation's U.S. treasury bills, cash and cash equivalents were insufficient to fund its investment activities and funding from the SBIC capital program were not available at that time, any deficiencies may have to be sought from public or private funding sources. As discussed in detail in the Corporation's Proxy Statement relating to its Annual Meeting of Shareholders to be held February 27, 1996, the Corporation has requested its shareholders to approve the policy and practice of the Corporation of issuing shares of common stock for a price less than net asset value per share in order to have the flexibility to compensate for this contingency. There can be no assurance that shareholders will approve this proposal.
During twelve months ended on September 30, 1995, the Corporation invested $4,082,089 in eleven portfolio companies. Of this amount, $3,723,144 was invested in eight new portfolio companies and $358,945 was invested in follow-on investments in three existing portfolio companies.
Set forth in the table below are the significant increases and decreases in fair value of portfolio company securities held by the Corporation at September 30, 1995.
Determination of Net Asset Value
The net asset value per share of the Corporation's outstanding common stock is determined quarterly, as soon as practicable after and as of the end of each calendar quarter, by dividing the value of total assets minus liabilities by the total number of shares outstanding at the date as of which the determination is made.
In calculating the value of the total assets, securities that are traded in the over-the-counter market or on a stock exchange are valued in accordance with the current valuation policies of the Small Business Administration ("SBA"). Under SBA regulations, publicly traded equity securities are valued by taking the average of the close (or bid price in the case of over-the-counter equity securities) for the valuation date and the preceding two days. This policy differs from the Securities and Exchange Commission's guidelines which utilize only a one day price measurement. The Company's use of SBA valuation procedures did not result in a material variance as
of September 30, 1995, from valuations using the Securities and Exchange Commission's guidelines.
All other investments are valued at fair value as determined in good faith by the Board of Directors. The Board of Directors has determined that all other investment will be valued initially at cost, but such valuation will be subject to semi-annual adjustments if the Board of Directors determines in good faith that cost no longer represents fair value.
Pursuant to Section 64(b)(1) of the Investment Company Act of 1940, a business development company is required to describe the risk factors involved in an investment in the securities of such company due to the nature of the Corporation's investment portfolio. Accordingly, the Corporation states that:
The portfolio securities of the Corporation consist primarily of securities issued by small, privately held companies. Generally, little or no public information is available concerning the companies in which the Corporation invests, and the Corporation must rely on the diligence of the Investment Advisor to obtain the information necessary for the Corporation's investment decisions. In order to maintain their status as business development companies, the Corporation and MorAmerica Capital both must invest at least 50% of their total assets in the types of portfolio investments described by Sections 55(a)(1) though 55(a)(3) of the Investment Company Act of 1940, as amended. These investments generally are securities purchased in private placement transactions from small privately held companies. Typically, the success or failure of such companies depends on the management talents and efforts of one person or a small group of persons, so that the death, disability or resignation of such person or persons could have a materially adverse impact on such companies. Moreover, smaller companies frequently have smaller product lines and smaller market shares than larger companies and may be more vulnerable to economic downturns. Because these companies will generally have highly leveraged capital structures, reduced cash flows resulting from an economic downturn may adversely affect the return on, or the recovery of, the Corporation's investments. Investment in these companies therefore involves a high degree of business and financial risk, which can result in substantial losses and should be considered speculative.
The Corporation's investments primarily consist of securities acquired directly from the issuers in private transactions, which are usually subject to restrictions on resale and are generally illiquid. No established trading
market generally exists with regard to such securities, and most of such securities are not available for sale to the public without registration under the Securities Act of 1933, as amended, which involves significant delay and expense.
The investments of the Corporation are generally long-term in nature. Many existing investments do not bear a current yield and a return on such investments will be earned only after the investment matures or is sold. Most investments to be made in the future are expected to be structured so as to return current yields throughout most of the terms of such investments, but will only produce capital gains, if any, after approximately five to eight years due to accompanying equity features. There can be no assurance, however, that any of the Corporation's investments will produce current yields or capital gains.
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MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
See accompanying notes to consolidated financial statements.
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
See accompanying notes to consolidated financial statements.
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Net Assets (Deficit)
See accompanying notes to consolidated financial statements.
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
See accompanying notes to consolidated financial statements.
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Related Matters
The consolidated financial statements include the accounts of MACC Private Equities Inc. (Equities) and its wholly owned subsidiaries, MorAmerica Capital Corporation (MACC) and MorAmerica Realty Services, Inc. (MRS) (the Company, Successor Company) on February 15, 1995 and thereafter and MorAmerica Financial Corporation and subsidiaries (the Predecessor Company) prior to February 15, 1995. Equities and MACC are qualified as business development companies under the Investment Company Act of 1940. All material intercompany accounts and transactions have been eliminated. The financial statements have been prepared in accordance with generally accepted accounting principles for investment companies. Since February 15, 1995, as discussed below, the financial statements are presented in accordance with AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7).
On February 15, 1995, the Company consummated a plan of reorganization (the Plan) as confirmed by the United States Bankruptcy Court for the Northern District of Iowa on December 28, 1993. Under terms of the Plan, the Predecessor Company, exclusive of MACC and MRS, merged into Equities. As of February 15, 1995, the Company adopted fresh-start reporting in accordance with SOP 90-7 resulting in the Company's assets and liabilities being adjusted to fair values. Since the financial statements on a fresh-start basis are not comparable with those of the Predecessor Company, the Company has presented the financial statements on a predecessor-successor company basis.
For purposes of reporting cash flows, the Company considers certificates of deposit and U.S. treasury bills with maturities of three months or less from purchase, overnight repurchase agreements, and money market deposit accounts to be cash equivalents. At September 30, 1995, such amounts totaled $6,083,215.
Loans and Investments in Portfolio Securities
Investments in securities traded on a national securities exchange (or reported on the NASDAQ national market) are stated at the average of the bid price on the three final days of the valuation period. Restricted and other securities for which quotations are not readily available are valued at fair value as determined by the board of directors. Realization of the carrying value of investments is subject to future developments (see note 3). Investment transactions are recorded on the trade date. Identified cost is used to determine realized gains and losses. Under the provisions of SOP 90-7, the fair value of loans and investments in portfolio securities on February 15, 1995, the fresh-start date, is considered the cost basis for financial statement purposes.
Allowance for Possible Loan and Note Losses
Loan and note losses are accounted for under the allowance method, whereby losses and recoveries are charged or credited directly to the allowance. The amount of the allowance is determined on the basis of several factors, including past loss experience, evaluation of potential losses in the loan and note portfolio, prevailing and anticipated economic conditions, and reviews and examination of the loan and note portfolio by management. Loans and notes, net are included in other assets and amounted to $190,255 at September 30, 1995.
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies and Related Matters,
Equities and its subsidiaries are members of a consolidated group for income tax purposes.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.
As stated in note 1, on February 15, 1995, the Company consummated the Plan as confirmed by the United States Bankruptcy Court for the Northern District of Iowa on December 28, 1993.
Under the Plan, Class H creditors under a prior plan of reorganization (Old Plan) (excluding debt to a subsidiary of MorAmerica Financial Corporation) were divided into Class H-1 (claims exceeding $7,621) and Class H-2 (claims less than $7,621). Class H-2 creditors received cash equal to approximately 5.9 percent of the outstanding principal amount of such claims. Class H-1 creditors received pro rata 31.1 percent of common stock of Equities in exchange for their claims. Class K creditors under the Old Plan were divided into Class K-1 and K-2 based upon claims less than or exceeding $1,297. Class K-2 creditors received cash equal to approximately 12.7 percent of the outstanding principal amount of such claims. Class K-1 creditors received 68.9 percent of common stock of Equities in exchange for their claims. The Class N interests under the Old Plan (MorAmerica Financial Corporation stockholders) were canceled.
The following condensed consolidated balance sheet reflects the impact that the consummation of the Plan had on the Company's financial position as of February 15, 1995, under the provisions of SOP 90-7, as discussed in note 1:
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Plan of Reorganization, Continued
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Plan of Reorganization, Continued
The balance sheet reflects adjustments to record:
To reflect the cancellation of debt through elimination of $43,592,430 of notes payable and $3,022,917 of accrued interest related to the notes payable and obligation due to the Central States Southeast and Southwest Area Health and Welfare Pension Fund.
To reflect the cancellation of old ownership rights totaling $1,515,499.
(c) Issuance of New Stock
To reflect the issuance of 996,539 shares of new common stock to prepetition debt holders.
Reflects fresh start adjustments including the reclassification of accumulated deficit and net unrealized depreciation on loans and investments in portfolio securities into additional paid-in-capital under fresh start reporting.
(3) Loans and Investments in Portfolio Securities
Loans and investments in portfolio securities include debt and equity securities in small business concerns located primarily in the Midwest, Texas, and Florida. The Company determined that the fair value of its portfolio securities was $12,315,330 at September 30, 1995. Among the factors considered by the Company in determining the fair value of investments are the cost of the investment; developments, including recent financing transactions, since the acquisition of the investment; the financial condition and operating results of the investee; the long-term potential of the business of the investee; and other factors generally pertinent to the valuation of investments.
The Company acquired its portfolio securities by direct purchase from the issuers under investment representation, and values the securities on the premise that, in most instances, they may not be sold without registration under the Securities Act of 1933. The price of securities purchased was determined by direct negotiation between the Company and the seller. All portfolio securities at September 30, 1995, except for Physician Sales and Services, Inc. (29,603 common shares carried at $1,174,123 with a cost of $270,789) and Apertus Technologies, Inc. (28,922 common shares carried at $242,222 with a cost of $250,537) are considered to be restricted in their disposition and are illiquid.
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Debentures of MACC guaranteed by the Small Business Administration (SBA) of $10,290,000 at September 30, 1995 are unsecured. Maturities of the debentures are as follows:
The debentures contain restrictions on the acquisition or repurchase of MACC's capital stock, distributions to MACC's shareholder other than out of undistributed net realized earnings, officers' salaries, and certain other matters. At September 30, 1995, none of MACC's undistributed net realized earnings (computed under SBA guidelines) of $4,333,201 were available for distribution to Equities.
Components of income tax benefit (all of which is deferred) for the seven and one-half months ended September 30, 1995 consist of $250,000 for federal benefit and $75,000 of state benefit. No income tax expense or benefit is recorded for the four and one-half month period ended February 15, 1995.
Income taxes for the seven and one-half months ended September 30, 1995 and the four and one-half months ended February 15, 1995 differed from the amounts computed by applying the United States federal income tax rate of 34 percent to pre-tax income due to the following:
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at September 30, 1995 are as follows:
The $1,012,000 of deferred tax assets include $687,000 related to net operating losses at the fresh-start date. This benefit, under SOP 90-7, has been credited to additional paid-in capital of $14,692,348, resulting in a balance of $15,379,348 at September 30, 1995.
The valuation allowance for deferred tax assets as of September 30, 1994 was $13,600,000. The net change in the total valuation allowance for the year ended September 30, 1995 was a decrease of $7,710,000. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax assets, the Company will need to generate future taxable income of approximately $17 million prior to the expiration of the net operating loss carryforwards in 2009. Taxable loss for the periods October 1, 1994 through February 15, 1995 and February 16, 1995 through September 30, 1995 was approximately $419,000. Based upon the level of historical taxable income of MACC and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at September 30, 1995.
Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of September 30, 1995 will primarily be allocated to additional paid-in capital under the provisions of SOP 90-7.
At September 30, 1995, the Company has net operating loss carryforwards for federal income tax purposes of approximately $15,500,000 which are available to offset future federal taxable income, if any, through 2009. Approximately $2,446,000 of the carryforwards are available for the year ending September 30, 1996, with approximately $1,004,000 available annually thereafter. Approximately $13,142,000 of net operating loss carryforwards at fresh-start date were lost due to ownership change rules in the Internal Revenue Code.
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Effective October 1, 1994, Equities entered into an investment advisory agreement (the Agreement) with InvestAmerica Investment Advisors, Inc. (IAIA). Four of Equities' officers are officers and stockholders of IAIA. The Agreement has a two-year term, renewable annually thereafter by the board of directors of Equities. The management fee is equal to 2.5 percent of the assets under management, on an annual basis. The management fee is calculated excluding MACC. In addition, Equities contracted to pay an incentive fee of 13.4 percent of the net capital gains (as defined in the Agreement), before taxes, on the disposition of investments. The Agreement may be terminated by either party upon sixty days written notice. Total expenses under the Agreement amounted to $69,107 for the seven and one-half months ended September 30, 1995 and $26,719 for the four and one-half months ended February 15, 1995. There were no incentive fees accrued or paid under the Agreement.
Effective October 1, 1994, MACC entered into a separate investment advisory agreement with IAIA. This agreement has a two-year term, renewable annually thereafter by the board of directors of MACC. The fee is equal to 2.5 percent of the capital under management on an annual basis, but in no event more than 2.5 percent of the assets under management on an annual basis; plus $6,000 per month through January 31, 1995 (which then decreased to $5,000 per month from February 1, 1995 to September 30, 1998). In addition, MACC contracted to pay IAIA 13.4 percent of the net realized capital gains (as defined in the agreement), before taxes, on investments in the form of an incentive fee. Capital losses and realized capital gains are not cumulative under the incentive fee computation. Total expenses (exclusive of incentive fees) under this agreement amounted to $311,875 for the seven and one-half months ended September 30, 1995 and $191,125 for the four and one-half month period ended February 15, 1995. Total incentive fees were $-0- for the seven and one-half month period ended September 30, 1995 and $1,032,800 for the four and one-half month period ended February 15, 1995. At September 30, 1995, incentive fees payable amounted to $59,195.
MRS, a wholly owned subsidiary of Equities is a defendant in a personal injury lawsuit. MRS has recorded a $200,000 provision for estimated loss on the lawsuit at September 30, 1995. Management believes that any loss on ultimate disposition of the matter will not be materially greater than the provision and is the legal responsibility of MRS. The amount provided is included in accounts payable and other liabilities on the balance sheet and in other operating expenses in the consolidated statement of operations for the seven and one-half months ended September 30, 1995.
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES Consolidated Schedule of Investments, Continued
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES Consolidated Schedule of Investments, Continued
Notes to the Consolidated Schedule of Investments
(a) For investments held at the February 15, 1995 fresh-start date, the stated cost represents the fair value of the investments at the fresh-start date.
(b) At September 30, 1995, all securities, except for Physician Sales and Services, Inc. and Apertus Technologies, Inc. are considered to be restricted in their disposition and are stated at what the board of directors considers to be fair market value.
(c) The percentages in the "equity" column express the actual or potential equity interest held by MACC Private Equities Inc. and subsidiaries (the Companies) in each issuer. The percentage represents the amount of the issuer's common stock held by the Companies as a percentage of the issuer's total outstanding common stock, or where the issuer has outstanding warrants, convertible securities, or shares reserved for employee stock options, the percentage reflects the approximate equity interest held by the Companies upon the exercise of all warrants, conversion rights, and reserved employee options.
(d) At September 30, 1995, the cost of securities for federal income tax purposes was $13,543,241 and the aggregate unrealized appreciation and depreciation based on that cost was:
(e) The Company owns a portfolio which includes investments in restricted securities of small businesses. Within this portfolio, 16 of these restricted securities include registration rights and 11 of these restricted securities do not include registration rights.
Within the 16 securities that include registration rights, the actual rights include the following general characteristics:
1. The securities generally provide for demand rights.
(a) The demand rights may only be required from a low of 25 percent of the security holders to a high of a majority of the security holders.
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES Consolidated Schedule of Investments, Continued
Notes to the Consolidated Schedule of Investments, Continued
(b) The security holders may require from one to two demand registrations.
(c) The small businesses are generally only required to use "best efforts" to comply with the demands.
2. The securities generally allow the security holders to register securities if the small business registers its securities i.e., "piggyback rights."
(a) Piggyback rights generally may be accessed by individual security holders.
(b) Under piggyback rights, the small business and its investment bankers are only required to use best efforts to comply with the right.
3. The Companies expect that, in general, the securities that they will acquire in the future will include demand and piggyback rights.
We have audited the accompanying consolidated balance sheet of MACC Private Equities Inc. and subsidiaries, including the consolidated schedule of investments, as of September 30, 1995 and the related consolidated statements of operations and cash flows for the seven and one-half months ended September 30, 1995 and the four and one-half months ended February 15, 1995, and the consolidated statements of changes in net assets (deficit) for the seven and one-half months ended September 30, 1995 and the four and one-half months ended February 15, 1995 and the year ended September 30, 1994. These consolidated financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation or examination of securities owned as of September 30, 1995. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As explained in note 1, MACC Private Equities Inc. and subsidiaries (successor company) consummated a plan of reorganization on February 15, 1995 and adopted fresh-start reporting in accordance with AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." Since the financial statements on a fresh-start basis are not comparable with those of MorAmerica Financial Corporation and subsidiaries (predecessor company), the financial statements are presented on a predecessor/successor company basis.
As explained in note 3, the consolidated financial statements include securities valued at $8,119,042 at September 30, 1995 whose values have been estimated by the board of directors in the absence of readily ascertainable market values. We have reviewed the procedures used by the board of directors in arriving at the estimated value of such securities and have inspected underlying documentation, and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material.
In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the financial position of MACC Private Equities Inc. and subsidiaries as of September 30, 1995, and the results of its operations and its cash flows for the year then ended, and changes in net assets (deficit) for the years ended September 30, 1995 and 1994 in conformity with generally accepted accounting principles.
Chemical Mellon Shareholder Services, L.L.C., 85 Challenger Road, Overpeck Centre, Ridgefield Park, New Jersey 07660 (telephone (800) 288-9541 and (800) 231-5469 (TDD)) serves as transfer agent and registrar for the Corporation's common stock. Certificates to be transferred should be mailed directly to the transfer agent, preferably by registered mail.
The Corporation had approximately 4,645 record holders of its common stock at November 2, 1995.
The Annual Meeting of Shareholders of the Corporation will be held on Tuesday, February 27, 1996, at 10:00 a.m. at the Second Floor Ballroom of the Five Seasons Hotel, 350 First Avenue N.E., Cedar Rapids, Iowa.
The Corporation has no history of paying dividends and does not anticipate declaring any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in the Corporation's business. The payment of dividends, if any, in the future is within the discretion of the Board of Directors and will depend upon the Corporation's earnings, capital requirements, financial condition and other relevant factors. The Corporation does not presently have any type of dividend reinvestment plan.
The common stock of the Corporation has been traded in the over-the-counter market through the National Association of Securities Dealers Automated Quotation ("NASDAQ") SmallCap Market since March 2, 1995, under the symbol "MACC." At the close of business on November 30, 1995, the bid price for shares of the Corporation's common stock was $6 3/4. The following high and low bid quotations for the shares during each period of the Corporation's fiscal year 1995 (since the initiation of trading) listed below were taken from quotations provided to the Corporation by the National Association of Securities Dealers, Inc.
Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
Executive Vice President and Treasurer
PAUL M. BASS, Jr., Dallas, Texas Vice Chairman of First Southwest Company, a regional investment banking firm
ROBERT A. COMEY, Cedar Rapids, Iowa Executive Vice President of the Company Executive Vice President of InvestAmerica Investment Advisors, Inc.
MICHAEL W. DUNN, Manchester, Iowa President, Farmers and Merchants Savings Bank
HENRY T. MADDEN, Iowa City, Iowa Adjunct Professor, School of Management University of Iowa and Management Consultant
JAMES L. MILLER, Cedar Rapids, Iowa
DAVID R. SCHRODER, Cedar Rapids, Iowa President of the Company, President of InvestAmerica Investment Advisors, Inc.
JOHN D. WOLFE, Mount Vernon, Iowa Retired from a career in retail banking
101 Second Street, S.E., Suite 800
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0000950156-96-000041
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0000950156-96-000041_0000.txt
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AMERICA'S #1 BALANCED FUND. [Headline in largest (white) type] FOR 15-YEAR PERFORMANCE. [Second largest (white) type size]. [Black background with black and white photo of victorious fencer with both arms raised. White box prints over background and contains the following text in CGM Mutual Fund. Balanced. Flexible. And ranked #1 in total return among balanced funds for the fifteen-year period ended 12/31/95.* Managed to protect capital from undue risk while seeking capital appreciation, CGM Mutual Fund is proof that prudence and success aren't mutually exclusive. [centered over three bars in a bar chart:] [the bars in the chart go from tallest to shortest:] 717% CGM Mutual Fund, 560% Lipper Balanced Fund Index, 512% Lipper Growth Fund Index. [Beneath the chart is the following disclosure (please note that numbers in disclosure are the same size as total return numbers in the chart; text of disclosure is slightly smaller than that of 24.31%, 15.36%, 13.94% and 15.03% are the average annual total returns of CGM Mutual Fund for 1, 5, 10 and 15 year periods ended 12/31/95. CGM Mutual Fund has been managed continuously since 1981 by Ken Heebner. [a hairline rule appears above and below the words:] [which prints in a larger size than does the ad body copy. A black horizontal box lies beneath. Printing in white within the black box are the words:] [and a fencer's foil. Below this box, text reads:] The CGM Funds, 222 Berkeley Street, Suite 1013,Boston, MA 02116 [In larger type follows the telephone number:] [Outside--and below--the white text box, the words:] [appear in white type. Beneath the floor on which the fencer stands prints the following in black against a pale background (slightly smaller type size than ad Growth Funds generally invest in equities. CGM Mutual Fund, in addition to investing in equities, may also invest in fixed income securities, which are subject to both credit and interest rate risk. This information represents past performance, which is no guarantee of future results. The investment return and principal value of your shares will fluctuate and you may have a gain or loss when you sell shares. For more complete information, including management fees, charges, and expenses, refer to the current prospectus which is available from the address above. Read it carefully before you invest or send money. *According to Lipper Analytical Services, Inc., an independent mutual fund ranking service. Lipper ranks CGM Mutual Fund #1 of 24 balanced funds for 15- year performance, #2 of 31 balanced funds for 10-year performance, #5 of 61 balanced funds for 5-year performance, and #138 of 220 balanced funds for one year performance for the periods ended 12/31/95. [Entire ad is surrounded by a decorative border containing the following words used as a repetitive pattern:] No-Load
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0000893877-96-000005
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0000893877-96-000005_0001.txt
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Due Nine Months or More
New York, New York 10048
New York, New York 10004
World Financial Center, North Tower New York, New York 10281
Pacific Telecom, Inc., a Washington corporation (the "Company"), confirms its agreement with each of you with respect to the issue and sale by the Company of up to U.S. $200,000,000 (or the equivalent thereof in other currencies) aggregate principal amount of its
Medium-Term Notes, Series C (the "Notes"). The Notes will be offered at varying maturities of nine months or more from their dates of issue. The Notes will be issued under an Indenture dated as of September 20, 1991, as amended and supplemented, between The First National Bank of Chicago, as trustee (the "Trustee"), and the Company (the "Indenture"). The Notes will be issued in minimum denominations of U.S. $1,000 and in denominations exceeding such amount by integral multiples of U.S. $1,000, will be issued only in fully registered form and will have the annual interest rates, maturities and, if appropriate, other terms set forth in a supplement to the Prospectus (as defined in Section 1(i) hereof). The Notes will be issued, and the terms thereof established, in accordance with the Indenture and, in the case of Notes sold pursuant to Section 2(a) hereof, the Medium-Term Notes Administrative Procedures attached as Exhibit A hereto (the "Procedures"). The Procedures may only be amended by written agreement of the Company and you after notice to, and with the approval of, the Trustee. If the Company determines that it shall offer Notes denominated in a foreign currency or currency unit, the Company and you agree that an amendment to the Procedures (which shall be substantially in the form of Exhibit B hereto) shall be entered into that shall contain modifications mutually acceptable to the Company and you. For the purposes of this Agreement, the term "Agent" shall mean any of you acting solely in the capacity as agent for the Company pursuant to Section 2(a) hereof and not as principal (collectively, the "Agents"), the term "Purchaser" shall mean any one of you acting solely as principal pursuant to Section 2(b) hereof and not as agent, and the term "you" shall mean you collectively whether or not at any time any of you is acting in both such capacities or in either such capacity.
Section 1. Representations and Warranties. The Company represents and warrants to, and agrees with, you as set forth below in this Section 1. Certain terms used in this Section 1 are defined in paragraph (i) hereof.
(a) The Company meets the requirements for use of Form S-3 under the Securities Act of 1933, as amended (the "Act"), and has filed with the Securities and Exchange Commission (the "Commission") a registration statement on such Form (File Number: 33-[_____]), including a prospectus, which has become effective, for the registration under the Act of U.S. $200,000,000 aggregate principal amount of debt securities (the "Securities"), including the Notes. Such registration statement, as amended at the date of this Agreement, meets the requirements set forth in paragraph (a)(1)(ix) or (a)(1)(x) of Rule 415 and complies in all other material respects with Rule 415. The Company has included in such registration statement, or has filed or will file with the Commission pursuant to the applicable paragraph of Rule 424(b), a supplement to the form of prospectus included in such registration statement relating to the Notes and the plan of distribution thereof (the "Prospectus Supplement"). In connection with the sale of Notes, the Company proposes to file with the Commission pursuant to the applicable paragraph of Rule 424(b) further amendments or supplements to the Prospectus Supplement specifying the interest rates, maturity dates and, if appropriate, other terms of the Notes sold pursuant hereto or describing the offering thereof (each such amendment or supplement, a "Pricing Supplement").
(b) On the Effective Date, as of the Execution Time, when any supplement to the Prospectus is filed with the Commission, as of the date of any Terms Agreement (as defined in Section 2(b) hereof) and at the date of delivery by the Company to you of any Notes sold hereunder (a "Closing Date"), (i) the Registration Statement, as amended as of any such time, and the Prospectus, as supplemented as of any such time, and the Indenture did, does and will, as the case may be, comply in all material respects with the requirements of the Act, the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the respective rules thereunder; (ii) the Registration Statement, as amended as of any such time, did not, does not and will not, as the case may be, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and (iii) the Prospectus, as supplemented as of any such time, did not, does not and will not, as the case may be, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to (A) that part of the Registration Statement that shall constitute the Statement of Eligibility on Form T-1 under the Trust Indenture Act of the Trustee or (B) the information contained in or omitted from the Registration Statement or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with information furnished in writing to the Company by any of you specifically for inclusion in the Registration Statement or the Prospectus (or any amendment or supplement thereto).
(c) As of the time any Notes are issued and sold hereunder, the Indenture will constitute a legal, valid and binding instrument of the Company enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights generally or by equitable principles affecting the availability of remedies, and such Notes will have been duly authorized, executed, authenticated and, when paid for by the purchasers thereof, will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture, except as limited by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights generally or by equitable principles affecting the availability of remedies.
(d) The financial statements included or incorporated by reference in the Prospectus present fairly the financial condition and operations of the Company at the respective dates or for the respective periods to which they apply; such financial statements have been prepared in each case in accordance with generally accepted accounting principles consistently applied throughout the periods involved except as otherwise indicated in the Prospectus; and Deloitte & Touche LLP, who examined the audited financial statements, are independent public accountants as required by the Act and the rules thereunder.
(e) Except as reflected in, or contemplated by, the Registration Statement and the Prospectus, as they may be amended or supplemented, since the respective most recent dates as of which information is given in the Registration Statement and the Prospectus, as so amended or supplemented, there has not been any material adverse change in the business, affairs, business prospects, property or financial condition of the Company, whether or not arising in the ordinary course of business, and since such dates there has not been any material transaction entered into by the Company other than transactions contemplated by the Registration Statement and the Prospectus, as so amended or supplemented, and transactions in the ordinary course of business; and the Company has no material contingent obligation that is not disclosed in the Registration Statement and the Prospectus, as they may be amended or supplemented.
(f) The Company is not in violation of its Restated Articles of Incorporation, as amended, or Bylaws, as amended, or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, agreement or other instrument to which it is a party or by which it may be bound, the effect of which, singly or in the aggregate, is material to the Company, and neither the execution or delivery of this Agreement or any Terms Agreement, the consummation of the transactions herein or therein contemplated, the fulfillment of the terms hereof or thereof, nor compliance with the terms and provisions hereof or thereof will conflict with, or result in a breach of, or constitute a default under (i) such Restated Articles of Incorporation or Bylaws, or any contract, agreement or other instrument to which the Company is a party or by which it may be bound or (ii) any order, rule or regulation applicable to the Company of any court or any federal or state governmental body having jurisdiction over the Company or over its properties, the effect of which, singly or in the aggregate, is material to the Company.
(g) This Agreement has been, and any Terms Agreement will be, duly authorized, executed and delivered by the Company and this Agreement is, and any such Terms Agreement will be, a legal, valid and binding agreement of the Company enforceable against the Company, except as limited by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights generally or by equitable principles affecting the availability of remedies and subject to any principles of public policy limiting the right to enforce the indemnification and contribution provisions contained herein.
(h) The statements made in the Prospectus within the coverage of Rule 175(b) under the Act were made by the Company with a reasonable basis and in good faith.
(i) The terms that follow, when used in this Agreement, shall have the meanings indicated: "Effective Date" shall mean, at any time, the later of (i) the date that the Registration Statement or any post- effective amendment or amendments thereto became or become effective (the "Initial Effective Date") and (ii) the date that the Company's Annual Report on Form 10-K for its most recently completed fiscal year
or is filed with the Commission under the Exchange Act, in each case at such time; "Execution Time" shall mean the date and time that this Agreement is executed and delivered by the Company and the Agents; "Basic Prospectus" shall mean the form of prospectus relating to the Securities contained in the Registration Statement at the Effective Date; "Prospectus" shall mean the Basic Prospectus as amended or supplemented, including by the Prospectus Supplement or any Pricing Supplement; "Registration Statement" shall mean the registration statement referred to in paragraph (a) above, including exhibits and financial statements thereto, as amended at the Execution Time; and "Rule 415" and "Rule 424(b)" shall mean such rules under the Act. Any reference herein to the Registration Statement, the Basic Prospectus, the Prospectus Supplement or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act that were filed under the Exchange Act on or before the Effective Date of the Registration Statement or the issue date of the Prospectus; and any reference herein to the terms "amend," "amended," "amendment" or "supplement" or "supplemented" with respect to the Registration Statement, the Basic Prospectus, the Prospectus Supplement or the Prospectus shall be deemed to refer to and include any document filed under the Exchange Act after, in the case of the Registration Statement, the Initial Effective Date and, in the case of the Prospectus, the issue date thereof and deemed to be incorporated therein by reference pursuant to Item 12 of Form S-3 under the Act (together with such documents filed on or before the Effective Date or issue date, as the case may be, "Incorporated Documents").
Section 2. Solicitations as Agent; Purchases as Principal.
(a) Appointment of Agents; Solicitation by the Agents of Offers to Purchase. Subject to the terms and conditions set forth herein, the Company hereby authorizes each of the Agents to act as its agent to solicit offers for the purchase of all or part of the Notes from the Company.
On the basis of the representations and warranties and subject to the terms and conditions set forth herein, each of the Agents agrees, as agent of the Company, to use its reasonable best efforts to solicit offers to purchase the Notes from the Company upon the terms and conditions set forth in the Prospectus (and any amendment or supplement thereto) and in the Procedures. In soliciting offers as agents, each Agent is acting individually, and not jointly, solely as agent of the Company and not as principal. Each Agent shall use its reasonable best efforts to assist the Company in obtaining performance by each purchaser whose offer to purchase Notes has been solicited by such Agent and accepted by the Company, but such Agent shall not, except as otherwise provided in this Agreement, have any liability to the Company in the event any such purchase is not consummated for any reason. Except as provided in Section 2(b) hereof, under no circumstances will any Agent be obligated to purchase any Notes for its own account. It is understood and agreed, however, that any Agent may purchase Notes for its own account as Purchaser pursuant to Section 2(b) hereof or otherwise.
The Company reserves the right, in its sole discretion, to instruct the Agents to suspend at any time, for any period of time or permanently, the solicitation of offers to purchase the Notes. Upon receipt of instructions from the Company, the Agents will forthwith suspend solicitation of offers to purchase Notes from the Company until such time as the Company has advised them that such solicitation may be resumed.
The Company agrees to pay each Agent a commission, on the Closing Date with respect to each sale of Notes by the Company as a result of a solicitation made by such Agent, in an amount equal to that percentage specified in Schedule I hereto of the aggregate principal amount of such Notes sold by the Company. Such commission shall be payable as specified in the Procedures.
Subject to the provisions of this Section 2(a) and to the Procedures, offers for the purchase of Notes may be solicited by an Agent as agent of the Company at such time and in such amounts as such Agent deems advisable. The Company may from time to time offer and sell Notes otherwise than through an Agent; provided, however, that so long as this Agreement shall be in effect, (i) the Company shall not solicit offers to purchase Notes through any agent without (A) amending this Agreement to appoint such agent as an additional Agent hereunder on the same terms and conditions as provided herein for the Agents and (B) giving the Agents prior notice of such appointment and (ii) the Company may accept any offer to purchase Notes through any agent other than an Agent, provided that (A) the Company shall not have solicited such offer, (B) the Company and such agent shall have entered into an agreement with respect to such purchase having terms and conditions (including, without limitation, any commissions with respect thereto) in substance identical to the terms and conditions that would apply to such purchase under this Agreement if such agent were an Agent hereunder, which may be effected by incorporating the terms and conditions of this Agreement by reference into such agreement in the form of Exhibit C hereto, and (C) the Company shall provide the Agents with notice of such offer to purchase, together with a copy of such agreement, promptly following the acceptance thereof.
If the Company shall default in its obligations to deliver Notes to a purchaser whose offer it has accepted, the Company shall hold each of you harmless against any loss, claim or damage arising from or as a result of such default.
(b) Sales of Notes to a Purchaser. Subject to the terms and conditions stated herein, whenever the Company and one of you determines that the Company shall sell Notes directly to you as Purchaser, each such sale of Notes shall be made in accordance with the terms of this Agreement and, if requested by such Agent, any supplemental agreement relating thereto between the Company and the Purchaser. Each such supplemental agreement (which may be an oral agreement confirmed in writing (including facsimile transmission), so long as such oral agreement and written confirmation contain all the information, as applicable, specified in Exhibit D hereto) is herein referred to as a "Terms Agreement" and, if written (or if a written confirmation of any such oral agreement), shall be substantially in the form of Exhibit D hereto. The Purchaser's commitment to purchase Notes pursuant to any Terms Agreement shall be deemed to have been made on the basis of the representations and warranties of the Company herein contained and shall be subject to the terms and conditions herein set forth except as otherwise may be set forth therein. Each Terms Agreement shall describe the Notes to be purchased by the Purchaser pursuant thereto, specify the principal amount of such Notes, the price to be paid to the Company for such Notes, the rate at which interest will be paid on the Notes, the Closing Date for such Notes, the place of delivery of the Notes and payment therefor, the method of payment and any modification of the requirements for the delivery of the opinions of counsel, the certificate from the Company and the letter from the Company's independent public accountants, pursuant to Sections 5(d), 5(e), 5(f) and 5(g), respectively, hereof. In connection with the resale of any Notes, the Purchaser thereof may utilize a selling or dealer group and may reallow to any broker or dealer any portion of the discount or commission payable pursuant hereto. Such Terms Agreement shall also specify the period of time referred to in Section 4(l) hereof.
Delivery of the certificates for Notes sold to the Purchaser pursuant to any Terms Agreement shall be made as agreed to between the Company and the Purchaser as set forth in such Terms Agreement, not later than the Closing Date set forth in such Terms Agreement, against payment of funds to the Company in the net amount due to the Company for such Notes by the method and in the form set forth in such Terms Agreement. If a Terms Agreement does not contain such settlement details, the settlement details specified in the Procedures shall apply with the Purchaser filling the roles specified therein of the Agent and the beneficial owner.
Section 3. Offering and Sale of Notes. Each Agent and the Company agree to perform the respective duties and obligations specifically provided to be performed by them in the Procedures.
Section 4. Covenants of the Company. The Company covenants and agrees with you that:
(a) Prior to the termination of the offering of the Notes (including by way of resale by a Purchaser of Notes purchased pursuant to a Terms Agreement), the Company will not file any amendment or supplement to the Registration Statement or the Prospectus (except for an amendment or supplement to the Basic Prospectus relating to an offering of Securities other than the Notes) unless the Company has furnished to Winthrop, Stimson, Putnam & Roberts ("Counsel for the Agents") a copy for review prior to filing and will not file any such proposed amendment or supplement to which any of you reasonably objects; the Company will cause each such amendment or supplement (other than any Incorporated Document) to be filed with the Commission pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to Counsel for the Agents of such filing; the Company will also furnish to Counsel for the Agents copies of all other material press releases or announcements to the general public relating to the financial affairs or condition of the Company; the Company will promptly advise Counsel for the Agents (i) when the Prospectus, and any amendment or supplement thereto, shall have been filed with the
Commission pursuant to Rule 424(b), (ii) when, prior to the termination of the offering of the Notes, any amendment or supplement to the Registration Statement shall have been filed or become effective, (iii) of any request by the Commission for any amendment or supplement to the Registration Statement or the Prospectus or for any additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (v) of the receipt by the Company 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; and the Company will use its reasonable best efforts to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when in the opinion of Counsel for the Agents a prospectus relating to the Notes is required to be delivered under the Act and no suspension of solicitation of offers to purchase Notes from the Company pursuant to the third paragraph of Section 2(a) hereof or this Section 4(b) shall be in effect (any such time and any other time when either (i) any of you as Purchaser shall own any Notes purchased pursuant to a Terms Agreement with the intention of reselling them or (ii) an offer to purchase any of the Notes has been accepted by the Company but the Closing Date therefor has not occurred, a "Marketing Period"), any event occurs as a result of which the Prospectus as then amended and supplemented would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary to amend or supplement the Registration Statement or the Prospectus to comply with the Act, the Exchange Act or the Trust Indenture Act or the respective rules and regulations thereunder, the Company promptly will (A) notify each of you to suspend solicitation of offers to purchase Notes (and, if so notified by the Company, each of you shall forthwith suspend such solicitation and cease using the Prospectus as then amended or supplemented), (B) prepare and file with the Commission, subject to the first clause of Section 4(a) hereof, an amendment or supplement that will correct such statement or omission or effect such compliance and (C) supply any amended or supplemented Prospectus to each of you in such quantities as you may reasonably request; and, if such amendment or supplement, and the certificate, legal opinion and accountant's letter delivered to you pursuant to Sections 4(i), 4(j) and 4(k), respectively, hereof in connection with the filing of such amendment or supplement, are satisfactory in all respects to you and Counsel for the Agents, you will, upon the filing of such amendment or supplement with the Commission and upon the effectiveness of an amendment to the Registration Statement, if such an amendment is required, resume your obligation to solicit offers to purchase Notes hereunder.
(c) The Company, so long as delivery of a prospectus relating to the Notes may be required by the Act, will file promptly all documents required to be filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act; and the Company will promptly notify each of you of any written notice given to the
Company of any intended or potential decrease in any rating of the Notes or any other debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 15c3-1 under the Exchange Act) or of a possible change in any such rating that does not indicate the direction of the possible change.
(d) As soon as practicable, the Company will make generally available to its security holders an earning statement or statements of the Company and its subsidiaries that will satisfy the provisions of Section 11(a) of the Act and Rule 158 thereunder.
(e) The Company will furnish to each of you and Counsel for the Agents, without charge, a signed copy of the Registration Statement (including exhibits thereto) and, so long as delivery of a prospectus relating to the Notes may be required by the Act, as many copies of the Prospectus, including all amendments and supplements thereto and all Incorporated Documents, as you may reasonably request.
(f) The Company will arrange for the qualification of the Notes for sale under the laws of such jurisdictions as any of you may reasonably designate, will maintain such qualifications in effect so long as required for the distribution of the Notes, and will arrange for the determination of the legality of the Notes for purchase by institutional investors.
(g) The Company shall, whether or not any sale of the Notes is consummated, (i) pay all expenses incident to the performance of its obligations under this Agreement and any Terms Agreement, including the fees and disbursements of its accountants and counsel, the cost of printing or other production and delivery of the Registration Statement and the Prospectus (including all amendments and supplements thereto), the Indenture, this Agreement, such Terms Agreement and all other documents relating to the offering of the Notes, the cost of preparing, printing, packaging and delivering the Notes, the fees and disbursements, including fees of counsel, incurred in compliance with Section 4(f) hereof, the fees and disbursements of the Trustee, the fees and disbursements of the Calculation Agent (as defined in the Prospectus) and its counsel and the fees of any agencies that rate the Notes, (ii) reimburse each of you on a monthly basis for all out-of-pocket expenses (including without limitation any advertising expenses in respect of advertising determined to be appropriate by the Company and the Agents in accordance with the Procedures) incurred by you in connection with this Agreement and (iii) pay the reasonable fees and expenses of Counsel for the Agents incurred in connection with this Agreement and the offering from time to time of the Notes.
(h) Each acceptance by the Company of an offer to purchase Notes will be deemed to be an affirmation that the representations and warranties of the Company contained in this Agreement and in the most recent certificate theretofore given to you pursuant hereto are true and correct at the time of such acceptance, and an undertaking that such representations and warranties will be true and correct at the
such Notes as though made at and as of each such time (and it is understood that such representations and warranties shall relate to the Registration Statement and the Prospectus as amended or supplemented to each such time); and each such acceptance by the Company of an offer for the purchase of Notes shall be deemed to constitute an additional representation, warranty and agreement by the Company that, as of such Closing Date, after giving effect to the issuance of such Notes, of any other Notes to be issued on or prior to such Closing Date and of any other Securities to be issued and sold by the Company on or prior to such Closing Date, the aggregate amount of Securities (including any Notes) that have been issued and sold by the Company will not exceed the amount of Securities registered pursuant to the Registration Statement.
(i) During each Marketing Period, each time that the Registration Statement or the Prospectus is amended or supplemented (other than by (i) an amendment or supplement relating to any offering of Securities other than the Notes, (ii) the filing of a Pricing Supplement by the Company with the Commission under the Act or (iii) the filing of a Current Report on Form 8-K by the Company with the Commission under the Exchange Act that is filed solely (A) under Item 5 of Form 8-K and not required to be filed to comply with Section 4(b) hereof or (B) under Item 7 of Form 8-K for the purpose of filing exhibits pursuant to Item 601 of Regulation S-K, unless in the case of clause (iii)(A) above, in the reasonable judgment of any of you or Counsel for the Agents, such information is of such a nature that a certificate of the Company should be delivered), the Company will deliver or cause to be delivered promptly to each of you a certificate of the Company, signed by the Chairman of the Board, the President, the Executive Vice President and Chief Financial Officer, the Vice President, Treasurer or the Controller, dated the date of the effectiveness of or the date of the filing with the Commission of, as the case may be, such amendment or supplement, in form reasonably satisfactory to you, of the same tenor as the certificate referred to in Section 5(f) hereof but modified to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of such effectiveness or filing.
(j) During each Marketing Period, each time that the Registration Statement or the Prospectus is amended or supplemented (other than by (i) an amendment or supplement relating to any offering of Securities other than the Notes, (ii) the filing of a Pricing Supplement by the Company with the Commission under the Act or (iii) the filing of a Current Report on Form 8-K by the Company with the Commission under the Exchange Act that is filed solely (A) under Item 5 of Form 8-K and not required to be filed to comply with Section 4(b) hereof or (B) under Item 7 of Form 8-K for the purpose of filing exhibits pursuant to Item 601 of Regulation S-K, unless, in the case of this clause (iii), in the reasonable judgment of any of you, such information is of such a nature that an opinion of counsel should be furnished), the Company shall furnish or cause to be furnished promptly to each of you a written opinion of Counsel for the Company (as defined in Section 5(d) hereof) satisfactory to each of you, dated the date of the effectiveness of or the date of the filing with the Commission of, as the case may be, such amendment or supplement, in form satisfactory to each of you, of the same
tenor as the opinion referred to in paragraph (vii) of Section 5(d) hereof but modified to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of such effectiveness or filing or, in lieu of such opinion, Counsel for the Company may furnish each of you with a letter to the effect that you may rely on the last opinion furnished to you by Counsel for the Company to the same extent as though it were dated the date of such letter authorizing reliance (except that statements in such last opinion will be deemed to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of such effectiveness or filing).
(k) During each Marketing Period, each time that the Registration Statement or the Prospectus is amended or supplemented to set forth amended or supplemental financial statements or other financial information (other than such financial information as of and for, and derived from, a fiscal quarter of the Company contained in a Current Report on Form 8-K filed by the Company with the Commission under the Exchange Act, provided that such financial information shall be included in a Quarterly Report on Form 10-Q for such fiscal quarter filed thereafter by the Company with the Commission under the Exchange Act, unless in the reasonable judgment of any of you or Counsel for the Agents, such information is of such a nature that a letter of Deloitte & Touche LLP should be furnished at the time such Form 8-K is so filed), the Company shall cause Deloitte & Touche LLP promptly to furnish each of you a letter, dated the date of the effectiveness of or the date of the filing of, as the case may be, such amendment or supplement, in form satisfactory to each of you, of the same tenor as the letter referred to in Section 5(g) hereof with such changes as may be necessary to reflect the amended and supplemental financial statements and other information included or incorporated by reference in the Registration Statement and the Prospectus, as amended or supplemented to the time of such effectiveness of filing; provided, however, that, if the Registration Statement or the Prospectus is amended or supplemented solely to include or incorporate by reference financial information as of and for a fiscal quarter, Deloitte & Touche LLP may limit the scope of such letter, which shall be satisfactory in form to each of you, to the unaudited financial statements, the related "Management's Discussion and Analysis of Financial Condition and Results of Operations" and any other information of an accounting, financial or statistical nature included in such amendment or supplement, unless, in the reasonable judgment of any of you or Counsel for the Agents, such letter should cover other information or changes in specified financial statement line items.
(l) During the period, if any, specified in any Terms Agreement, the Company shall not, without the prior consent of the Purchaser thereunder, 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 that have terms substantially similar to the Notes being sold pursuant to such Terms Agreement (other than such Notes).
(m) The Company shall not use or authorize the use of any Prospectus containing the name of any Agent in connection with sales of Notes (i) made directly by
the Company to any purchaser, unless such purchaser executes and delivers to the Company an acknowledgment substantially in the form of Exhibit E hereto, or (ii) through any agent of the Company other than an Agent, unless the name of such agent is contained in the Prospectus (including any Pricing Supplement); provided, however, that, subject to the fifth paragraph of Section 2(a) hereof, the foregoing shall not be deemed to prevent the distribution of the Prospectus by the Company to brokers or dealers registered under the Exchange Act who are not Agents or to institutional investors for the purpose of generating inquiries with respect to the Notes.
Section 5. Conditions to the Obligations of the Agents and any Purchaser. The obligations of each Agent to solicit offers to purchase the Notes as agent of the Company and the obligations of each Purchaser to purchase any Notes as principal shall be subject to the accuracy of the representations and warranties on the part of the Company contained herein on the Effective Date, as of the Execution Time, as of the date of any Terms Agreement, when any amendment or supplement to the Prospectus is filed with the Commission and as of each Closing Date (in each case with the same effect as if made at such time), to the accuracy of the statements of the Company made in any certificates pursuant to the provisions hereof, to the performance and observance by the Company of its obligations hereunder and covenants and agreements herein contained and to the following additional conditions (other than, in the case of any such Terms Agreement, paragraph (h) of this Section 5):
(a) If filing of the Prospectus, or any amendment or supplement thereto, is required pursuant to Rule 424(b), the Prospectus, and any such amendment or supplement, shall have been filed in the manner and within the time period required by Rule 424(b); no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened; and the Company shall have delivered to you a certificate of the Company signed by the Chairman of the Board, the President, the Executive Vice President and Chief Financial Officer, the Vice President, Treasurer or the Controller, dated the Execution Time, of evidence of qualification of the Company to transact business as a foreign corporation in each jurisdiction in which it owns or leases substantial properties or in which the conduct of its business requires such qualification, except where the failure to so qualify would not have a material adverse effect on the financial condition of the Company and its subsidiaries taken as a whole.
(b) None of you shall have discovered and disclosed to the Company that the Registration Statement or the Prospectus contains an untrue statement of a fact that, in the opinion of Counsel for the Agents, is material or omits to state a fact that, in the opinion of Counsel for the Agents, is material and is required to be stated therein or is necessary to make the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Notes, the Indenture, the form of the Registration Statement, the Prospectus (other than financial statements and other
financial data), each such Terms Agreement and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be satisfactory in all respects to Counsel for the Agents, and the Company shall have furnished to Counsel for the Agents all documents and information that it may reasonably request to enable them to pass upon such matters.
(d) The Company shall have furnished to each of you the opinion of Stoel Rives LLP ("Counsel for the Company"), dated the Execution Time and, if specified in any such Terms Agreement, on the Closing Date therefor, in form and substance satisfactory to Counsel for the Agents, to the effect that:
(i) the Company is a duly organized and validly existing corporation under the laws of the State of Washington;
(ii) the Company has due corporate right and corporate authority to own its properties and to carry on the business in which it is engaged as described in the Prospectus;
(iii) the Indenture has been duly authorized, executed and delivered by the Company, has been duly qualified under the Trust Indenture Act and constitutes a valid and legally binding instrument of the Company enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights generally or by equitable principles affecting the availability of remedies;
(iv) the Notes conform as to legal matters to the description thereof and the statements in regard thereto contained in the Registration Statement and the Prospectus (subject to the insertion in the Notes of the maturity dates, the interest rates and other similar terms thereof that will be
(v) the Notes have been duly authorized and, when issued in accordance with the Board Resolution (as defined in the Indenture) and when authenticated and delivered in accordance with the provisions of the Indenture and paid for by the purchasers thereof, will constitute valid and legally binding obligations of the Company enforceable against the Company in accordance with their terms, except as limited by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights generally or by equitable principles affecting the availability of remedies;
(vi) to the best of such counsel's knowledge and information, there are no legal or governmental proceedings pending or threatened against the Company or its subsidiaries that are required to be disclosed in the Registration Statement
or the Prospectus other than those disclosed therein;
(vii) the Registration Statement, at the Effective Date, and the Prospectus, at the time it was filed pursuant to Rule 424(b) (except in each case as to the financial statements and other financial and statistical data contained therein, upon which such opinion need not pass and except for Incorporated Documents), complied or complies, as the case may be, as to form in all material respects with the requirements of the Act and the Trust Indenture Act and the respective rules and regulations thereunder; each Incorporated Document as originally filed pursuant to the Exchange Act (except as to financial statements and other financial and statistical data contained therein, upon which such opinion need not pass) complied as to form when so filed in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder; the Registration Statement has become effective under the Act and, to the best of the knowledge of such counsel, no proceedings for a stop order with respect thereto are threatened or pending under Section 8 of the Act; and nothing has come to the attention of such counsel that has caused them to believe that the Registration Statement (except as to financial statements and other financial and statistical data contained therein, upon which such opinion need not pass), at the Effective Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus (except as to financial statements and other financial and statistical data contained therein, upon which such opinion need not pass), at the time it was filed pursuant to Rule 424(b), at the Execution Time and, in the case of such Terms Agreement, at the Closing Date therefor, included or includes, as the case may be, an untrue statement of a material fact or omitted or omits, as the case may be, to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(viii) this Agreement and such Terms Agreement have been duly authorized, executed and delivered by the Company;
(ix) no approval, authorization, consent or order of any governmental body is legally required for the authorization of the issuance and sale of the Notes by the Company pursuant to the terms of this Agreement, except such as may be required under the Act or under state or other securities or blue sky laws; and
(x) the sale of all or any of the Notes herein contemplated and the fulfillment of the terms hereof will not result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other material agreement for borrowed money the terms of which are known to such counsel to which the Company is a party (except as to financial covenants contained in any such instruments and
In rendering such opinion, Counsel for the Company may rely (A) as to matters involving the application of laws of the State of New York, upon the opinion of Counsel for the Agents and (B) as to matters of fact, to the extent deemed proper, on certificates of responsible officers of the Company and public officials. References to the Registration Statement and the Prospectus in this Section 5(d) include any amendment or supplement thereto at the date such opinion is rendered.
(e) Each of you shall have received the opinion of Counsel for the Agents, dated the Execution Time and, if specified in any such Terms Agreement, the Closing Date therefor, as the case may be, with respect to the matters set forth in paragraphs (i), (iii), (iv), (v), (vii) (except as to Incorporated Documents) and (viii) of Section 5(d) hereof and other related matters as such of you may reasonably require, and the Company shall have furnished to Counsel for the Agents such documents as they request for the purpose of enabling them to pass upon such matters. In rendering such opinion, Counsel for the Agents may rely (A) as to matters involving the application of the laws of Washington upon the opinion of Counsel for the Company and (B) as to matters of fact, to the extent deemed proper, on certificates of responsible officers of the Company and public officials.
(f) The Company shall have furnished to each of you a certificate of the Company, signed by the Chairman of the Board, the President, the Executive Vice President and Chief Financial Officer, the Vice President, Treasurer or the Controller, dated the Execution Time and, if specified in any such Terms Agreement, the Closing Date therefor, stating that:
(i) the representations and warranties of the Company in this Agreement are true and correct in all material respects and, in the case of such Terms Agreement, with the same effect as if made on such Closing Date and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied as a condition to the obligation of each of you to solicit offers to purchase the Notes or purchase the Notes, as the case may be;
(ii) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Company's knowledge,
(iii) such signer of such certificate has examined the Registration Statement and the Prospectus (as they may then be amended and supplemented) and, to the best of such signer's knowledge, (A) the Registration Statement (as so amended and supplemented) does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (B) the Prospectus (as so amended
and supplemented) does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading and (C) since the Effective Date there has not occurred any event required to be set forth in the Prospectus (as so amended and supplemented) that has not been so set forth.
(g) Deloitte & Touche LLP shall have furnished to each of you a letter or letters (which may refer to letters previously delivered to the Agents), dated as of the Execution Time and, if specified in such Terms Agreement, the Closing Date therefor, in form and substance satisfactory to such of you, confirming that they are independent accountants within the meaning of the Act and the Exchange Act and the respective rules thereunder and stating in effect that:
(i) in their opinion, the consolidated financial statements and schedules included or incorporated by reference in the Registration Statement and the Prospectus and audited by them comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the
(ii) on the basis of a reading of the unaudited consolidated financial statements included or incorporated by reference in the Registration Statement and the Prospectus, if any, and the latest available interim unaudited consolidated financial statements of the Company, if any, the performance of the procedures specified by the American Institute of Certified Public Accountants for a review of any such unaudited consolidated financial information as described in Statement on Auditing Standards No. 71, inquiries of officials of the Company responsible for financial and accounting matters and a reading of the minutes of meetings of the shareholders and the Company's Board of Directors through a specified date not more than five business days prior to the date of their letter, nothing came to their attention that caused them to believe that: (A) any material modification should be made to the unaudited consolidated financial statements included or incorporated by reference in the Prospectus, if any, for them to be in conformity with generally accepted accounting principles or any such unaudited consolidated financial statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the rules and regulations thereunder; (B) for the period from the date of the latest audited financial statements included or incorporated by reference in the Prospectus to the date of the latest available financial statements of the Company, there were any decreases in operating revenues, net income applicable to common stock as compared with the comparable period of the preceding year; or (C) at the date of the latest available interim consolidated balance sheet read by them and at a subsequent date not more than five business days prior to the date of such letter, there was any change in the capital stock or long-term debt of the Company or
its net assets as compared with the amounts shown in the most recent consolidated balance sheet included or incorporated by reference in the Prospectus, except in all instances for changes or decreases that the Registration Statement or the Prospectus discloses have occurred or may occur, or for changes or decreases that are described in such letter that are reasonably satisfactory to each of you; and
(iii) if unaudited pro forma financial statements are included or incorporated by reference in the Registration Statement and the Prospectus, on the basis of a reading of such unaudited pro forma financial statements, carrying out certain specified procedures, inquiries of certain officials of the Company and the company acquired or to be acquired who have responsibility for financial and accounting matters and proving the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in such pro forma financial statements, nothing came to their attention that caused them to believe that such pro forma financial statements do not comply in form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X or that such pro forma adjustments have not been properly applied to such historical amounts in the compilation of such pro forma financial statements.
Such letter would also cover such other matters as any of you shall reasonably request, including but not limited to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the financial statements included or incorporated by reference in the Registration Statement and the Prospectus and any other information of an accounting, financial or statistical nature included therein.
References to the Registration Statement and the Prospectus in this Section 6(g) include any amendment or supplement thereto at the date of such letter.
(h) Subsequent to the execution of this Agreement, there shall not have occurred and be continuing any of the following: (i) the suspension of trading in securities generally on the New York Stock Exchange or the establishment of minimum prices on such Exchange, (ii) the declaration of a banking moratorium by either Federal or New York State authorities, (iii) the occurrence of any outbreak or material escalation of hostilities or other calamity or crisis the effect of which on the financial markets of the United States is such as to make it, in the judgment of the Agents, impracticable to market the Notes, (iv) a decrease in the rating of any of the Company's debt securities by any "nationally recognized statistical rating organization" (as defined in Rule 15c3-1 under the Exchange Act), any written notice to the Company or any public announcement 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 such possible change or (v) the failure to provide the certificate, legal opinion or accountant's letter required pursuant to Sections 4(i), 4(j) and 4(k), respectively, hereof.
(i) Prior to the Execution Time and the Closing Date for any such
Agreement, as the case may be, the Company shall have furnished to each of you such further information, documents, certificates and opinions of counsel as any of you may reasonably request.
If any of the conditions specified in this Section 5 shall not have been fulfilled in all material respects when and as provided in this Agreement and, if applicable, such Terms Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement or such Terms Agreement, as the case may be, shall not be in all material respects reasonably satisfactory in form and substance to each of you and Counsel for the Agents, this Agreement and such Terms Agreement, as the case may be, and all of the obligations of each of you hereunder or thereunder, as the case may be, may be canceled at any time by such of you. Notice of such cancellation shall be given to the Company in writing or by telephone or telegraph promptly confirmed in writing.
The documents required to be delivered by this Section 5 shall be delivered at the office of Winthrop, Stimson, Putnam & Roberts, Counsel for the Agents, at One Battery Park Plaza, New York, New York, or at such other location as may be agreed upon in writing by the Company and the Agents, at the Execution Time or the Closing Date for such Terms Agreement, as the case may be.
Section 6. Right of Person Who Agreed to Purchase to Refuse to Purchase. The Company agrees that any person who has agreed to purchase and pay for any Note, including any of you and any person who purchases pursuant to a solicitation by any of the Agents, shall have the right to refuse to purchase such Note if, at the Closing Date therefor, (a) any condition set forth in Section 5 hereof (other than paragraph (h) thereof) shall not be satisfied or (b) subsequent to the agreement to purchase such Note, any change, or any development involving a prospective change, in or affecting the business or properties of the Company and its subsidiaries shall have occurred the effect of which is, in the judgment of the Purchaser or the Agent that presented the offer to purchase such Note, as applicable, so material and adverse as to make it impractical or inadvisable to proceed with the delivery of such Note or (c) subsequent to the agreement to purchase such Note, there shall have been any decrease in the rating of any of the Company's debt securities by any "nationally recognized statistical rating organization" (as defined in Rule 15c3-1 under the Exchange Act) or any written notice given to the Company or any public announcement 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 such possible change.
Section 7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each of you and each person, if any, who controls any of you within the meaning of Section 15 of the Act as follows:
(i) against any and all loss, liability, claim, damage and expense whatsoever arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus relating to the Notes (if used prior to the
Effective Date), including all documents then incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, in the Incorporated Documents, in the Registration Statement or the Prospectus, or in the Registration Statement or the Prospectus as amended or supplemented (if any amendments or supplements thereto shall have been furnished), or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading unless such untrue statement or omission or such alleged untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company by any of you expressly for use in the Registration Statement or the Prospectus (or any amendment or supplement to either thereof) or arising out of, or based upon, statements in or omissions from that part of the Registration Statement that shall constitute the Statement of Eligibility on Form T-1 of the Trustee; provided, however, any such indemnity with respect to a Prospectus shall not inure to the benefit of any of you (or of any person controlling such of you) on account of any loss, claim, damage or expense arising from the sale of Notes to any person if any amendments or supplements to such Prospectus shall have been furnished to such of you on a timely basis and in such quantities to permit such of you to send or give to such person, and it shall be established that such of you shall have failed to send or give to such person, (i) with or prior to the written confirmation of such sale, a copy of such amendment or supplement, except the Incorporated Documents, and the untrue statement or omission of a material fact contained in such Prospectus and giving rise to such loss, liability, claim, damage or expense was corrected in such amendment or supplement or (ii) with or prior to the delivery of such Notes to such person, a copy of such amendment or supplement that shall have been furnished subsequent to such written confirmation and prior to such delivery, except the Incorporated Documents, and the untrue statement or omission of a material fact contained in such Prospectus and giving rise to such loss, liability, claim, damage or expense was corrected in such amendment or supplement;
(ii) against any and all loss, liability, claim, damage and expense whatsoever to the extent of the aggregate amount paid in settlement of any litigation, commenced or threatened or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under clause (i) or (ii) above.
(b) Each of you severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Act against any and all loss, liability, claim, damage and expense described in the indemnity contained but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectus relating to the Notes or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such of you expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure so to notify an indemnifying party shall not relieve it from any liability on account to this indemnity agreement except to the extent that it has been prejudiced in any material respect by such failure or from any liability that it may have to such indemnified person otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. If it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and approved by the indemnified parties defendant in such action, unless such indemnified parties reasonably object to such assumption on the ground that there may be legal defenses available to them that are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying parties be liable for the fees and expenses of more than one counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances.
(d) If the indemnification provided for in this Section 7 is unavailable to or insufficient to hold harmless an indemnified party under Section 7(a) or 7(b) hereof in respect of any losses, liabilities, claims, damages or expenses (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, liabilities, claims, damages or expenses (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and you on the other from the relevant offering of the Notes. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then such indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and you on the other in connection with the statements or omissions that resulted in such losses, liabilities, claims, damages or expenses (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and you on the other shall be deemed to be in the same proportion as the total net proceeds from the relevant offering of the Notes (before deducting expenses) received by the Company bear to the total commissions received by you in respect of such offering (or, in the case of Notes sold pursuant to a Terms Agreement, the aggregate commissions that would have been received if such commissions had been payable), in each case as set forth on the cover page of the Prospectus Supplement or the applicable Pricing Supplement, as the case may be. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or you and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and you agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above in this Section 7(d). The amount paid or payable by an indemnified party as a result of the losses, liabilities, claims, damages or expenses (or actions in respect thereof) referred to above in this Section 7(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
(e) You confirm that the statements with respect to the public offering of the Notes set forth in the fourth sentence of the last paragraph on the cover page of the Prospectus Supplement and the statements with respect to the resale of any Note at a discount in the first paragraph, and with respect to the market making activities of any Agent set forth in the fourth paragraph, under the caption "Plan of Distribution of Notes" therein are correct and complete and were furnished in writing to the Company by you for inclusion in the Registration Statement and the Prospectus.
Section 8. Termination. (a) This Agreement will continue in effect until terminated as provided in this Section 8. This Agreement may be terminated by either the Company as to any of you or any of you, insofar as this Agreement relates to such of you, giving written notice of such termination to such of you or the Company, as the case may be. This Agreement shall so terminate at the close of business on the first business day following the receipt of such notice by the party to whom such notice is given.
(b) Each Terms Agreement shall be subject to termination in the absolute discretion of the Purchaser by notice given to the Company prior to delivery of any payment for Notes to be purchased thereunder, if prior to such time (i) trading in securities generally on the New York Stock Exchange shall have been suspended or limited or minimum prices shall have been established on such Exchange, (ii) a banking moratorium shall have been declared either by Federal or New York State authorities, (iii) there shall have occurred any outbreak or material escalation of hostilities or other calamity or crisis the effect of which on the financial markets of the United States is such as to make it, in the judgment of the Purchaser, impracticable to market such Notes or (iv) the Company is unable to provide the legal opinion, certificate or accountant's letter required under Sections 5(d), 5(f) and 5(g), respectively, hereof.
(c) In the event of any termination under Section 8(a) or 8(b) you shall have any liability to the Company and the Company shall not have any liability to any of you, except that (i) the Agents shall be entitled to any commission earned in accordance with the fourth paragraph of Section 2(a) hereof, (ii) if at the time of termination (A) any of you as Purchaser shall own any Notes purchased pursuant to a Terms Agreement with the intention of reselling them or (B) an offer to purchase any of the Notes has been accepted by the Company but the Closing Date therefor has not occurred, the covenants set forth in Section 4 hereof shall remain in effect until such Notes have been resold or delivered, as the case may be, and (iii) the covenants set forth in Sections 4(d) and 4(g) hereof, the indemnity and contribution agreements set forth in Section 7 hereof and the provisions of Sections 9 and 12 hereof shall remain in effect.
Section 9. Survival of Certain Provisions. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers and of you 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 you or the Company or any of the officers, directors or controlling persons referred to in Section 7 hereof and will survive delivery of and payment for the Notes.
Section 10. Notices. All communications hereunder and under any Terms Agreement will be in writing (which may be by telex or facsimile transmission) and effective only on receipt, and, if sent to any of you, will be mailed, delivered or transmitted and confirmed to such of you, at the address specified in Schedule I hereto; or, if sent to the Company, will be mailed, delivered or transmitted and confirmed to it at Pacific Telecom, Inc., 805 Broadway, Vancouver, Washington 98668, Attention of the Vice President and Treasurer, telephone: 360-696-6918, telecopy: 360-696-6974.
Section 11. Successors. This Agreement and any Terms 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 7 hereof and, to the extent provided in Section 6 hereof, any person who has agreed to purchase Notes, and no other person will have any right or obligation hereunder or thereunder.
Section 12. Applicable Law. This Agreement and any Terms Agreement will be governed by and construed in accordance with the laws of the State of New York.
If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement between the Company and each of you.
as of the date hereof.
The Company agrees to pay each of Salomon Brothers Inc ("Salomon"), Goldman, Sachs & Co. ("Goldman") and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill") a commission equal to the following percentage of the principal amount of each Note sold by the Company as a result of a solicitation made by such Agent:
9 months to less than 12 months .125% 12 months to less than 18 months .150% 18 months to less than 2 years .200% 2 years to less than 3 years .250% 3 years to less than 4 years .350% 4 years to less than 5 years .450% 5 years to less than 6 years .500% 6 years to less than 7 years .550% 7 years to less than 10 years .600% 10 years to less than 15 years .625% 15 years to less than 20 years .650% 20 years to less than 30 years .750% 30 years to less than 40 years .875% 40 years or more Negotiated at the
Address for Notice to you:
Notices to Salomon shall be directed to it at Seven World Trade Center, New York, New York 10048, Attention of the Medium-Term Note Department, telephone: 212-783-6848, telecopy: 212-783-2274.
Notices to Goldman shall be directed to it at 85 Broad Street, New York, New York 10004, Attention of Medium-Term Note Desk, telephone: 212-902- 1482, telecopy: 212-902-0658.
Notices to Merrill shall be directed to it at World Financial Center, North Tower, 10th Floor, New York, New York 10281-1310, Attention
The Medium-Term Notes, Series C (the "Notes") of Pacific Telecom, Inc. (the "Company") are to be offered on a continuing basis by the Company pursuant to a Selling Agency Agreement dated [_____], 1996 between each of Salomon Brothers Inc, Goldman, Sachs & Co. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, as agents of the Company (each an "Agent"), and the Company (the "Agency Agreement"). Unless otherwise defined herein, terms defined in the Indenture (as defined below) and the Notes shall be used herein as therein defined.
Each Agent has agreed to solicit purchases of Notes issued in fully registered form. The Agents will not be obligated to purchase Notes for their own account. Each Agent, as principal, may purchase Notes for its own account pursuant to the terms of a Terms Agreement. The Notes will rank equally with all other unsecured and unsubordinated debt of the Company and have been registered with the Securities and Exchange Commission (the "Commission"). The Notes will be issued under the Indenture dated as of September 20, 1991, as amended and supplemented, between The First National Bank of Chicago ("FNBC"), as trustee (the "Trustee"), and the Company (the "Indenture").
Each Note will be represented by either (i) a Global Security (as defined under "Issuance" in Part I below) delivered to FNBC, as agent for The Depository Trust Company ("DTC"), and recorded in the book-entry system maintained by DTC (a "Book-Entry Note") or (ii) a certificate delivered to the Holder thereof or a Person designated by such Holder (a "Certificated Note"). Only Notes denominated and payable in U.S. dollars may be issued as Book-Entry Notes. An owner of a Book-Entry Note will not be entitled to receive a certificate representing such Note.
The procedures to be followed during, and the specific terms of, the solicitation of orders by the Agents and the sale as a result thereof by the Company are explained below. Administrative and record-keeping responsibilities will be handled for the Company by its
Treasury Department. The Company will advise the Agents and the Trustee in writing of those persons handling administrative responsibilities with whom the Agents and the Trustee are to communicate regarding orders to purchase Notes and the details of their delivery.
Administrative procedures and specific terms of the offering are explained below. Book-Entry Notes will be issued in accordance with the administrative procedures set forth in Part I hereof, as adjusted in accordance with changes in DTC's operating requirements, and Certificated Notes will be issued in accordance with the administrative procedures set forth in Part II hereof. To the extent the administrative procedures are generally applicable to Book-Entry Notes and Certificated Notes, such administrative procedures are set forth in Part III hereof. Notes for which interest is calculated on the basis of a fixed interest rate, which may be zero, are referred to herein as "Fixed Rate Notes." Notes for which interest is calculated on the basis of a floating interest rate are referred to herein as "Floating Rate Notes." To the extent the procedures set forth below conflict with the provisions of the Notes, the Indenture, DTC's operating requirements or the Agency Agreement, the relevant provisions of the Notes, the Indenture, DTC's operating requirements and the Agency Agreement shall control.
In connection with the qualification of the Book-Entry Notes for eligibility in the book-entry system maintained by DTC, FNBC will perform the custodial, document control and administrative functions described below, in accordance with its respective obligations under a Letter of Representations dated as of [_____], 1996 from the Company and FNBC to DTC and a Medium-Term Note Certificate Agreement dated May 26, 1989 between FNBC and DTC and its obligations as a participant in DTC, including DTC's Same-Day Funds Settlement system ("SDFS").
Issuance: On any date of settlement (as defined under "Settlement" in Part III below) for one or more Book- Entry Notes, the Company will issue a single global security in fully registered form without coupons (a "Global Security") representing all such Book-Entry Notes that have the same original issue date, original issue discount provisions, if any, Interest Payment Dates, Regular Record Dates, Interest Payment Period, Redemption Date and other redemption provisions, if any, Maturity Date and, in the case of Fixed Rate Notes, Interest Rate and, in the case of Floating Rate Notes, Initial Interest Rate, Base Rate, Index Maturity, Interest Reset Period, Interest Reset Dates, Spread or Spread Multiplier, if any, Minimum Interest Rate, if any, and Maximum Interest Rate, if any
Global Security will be dated and issued as of the date of its authentication by the Trustee. Each Global Security will bear an original issue date, which will be (i) with respect to an original Global Security (or any portion thereof), the original issue date specified in such Global Security and (ii) following a consolidation of Global Securities, with respect to the Global Security resulting from such consolidation, the most recent Interest Payment Date to which interest has been paid or duly provided for on the predecessor Global Securities, regardless of the date of authentication of such resulting Global Security. No Global Security will represent (i) both Fixed Rate and Floating Rate Book-Entry Notes or (ii) any Certificated Note.
Identification Numbers: The Company and the Agents have arranged with the CUSIP Service Bureau of Standard & Poor's Corporation (the "CUSIP Service Bureau") for the reservation of a series of CUSIP numbers, which series consists of approximately 900 CUSIP numbers and relates to Global Securities representing Book-Entry Notes. FNBC, the Company and DTC have obtained from the CUSIP Service Bureau a written list of such reserved CUSIP numbers. The Trustee will assign CUSIP numbers to Global Securities as described below under Settlement Procedure "B". DTC will notify the CUSIP Service Bureau periodically of the CUSIP numbers that the Company has assigned to Global Securities. FNBC will notify the Company at any time when fewer than 100 of the reserved CUSIP numbers remain unassigned to Global Securities and, if it deems necessary, the Company will reserve additional CUSIP numbers for assignment to Global Securities. Upon obtaining such additional CUSIP numbers, the Company shall deliver a list of such additional CUSIP numbers to FNBC and DTC.
Registration: Global Securities will be issued only in fully registered form without coupons. Each Global Security will be registered in the name of CEDE & CO., as nominee for DTC, on the securities register for the Notes maintained under the Indenture. The beneficial owner of a Book-Entry Note (or one or more indirect participants in DTC designated by such owner) will designate one or more participants in DTC (with respect to such Book-Entry Note, the "Participants") to act as agent or agents for such owner in connection with the book-entry system maintained by DTC, and DTC will record in book-entry form, in accordance with instructions provided by such Participants, a credit balance with respect to such beneficial owner in such Book-Entry Note in the
account of such Participants. The ownership interest of such beneficial owner (or such participant) in such Book-Entry Note will be recorded through the records of such Participants or through the separate records of such Participants and one or more indirect participants in DTC.
Transfers: Transfers of a Book-Entry Note will be accomplished by book entries made by DTC and, in turn, by Participants (and in certain cases, one or more indirect participants in DTC) acting on behalf of beneficial transferors and transferees of such Note.
Exchanges: FNBC may deliver to DTC and the CUSIP Service Bureau at any time a written notice of consolidation (a copy of which shall be attached to the resulting Global Security described below) specifying (i) the CUSIP numbers of two or more Outstanding Global Securities that represent (A) Fixed Rate Book-Entry Notes having the same Terms and for which interest has been paid to the same date or (B) Floating Rate Book-Entry Notes having the same Terms and for which interest has been paid to the same date, (ii) a date, occurring at least 30 days after such written notice is delivered and at least 30 days before the next Interest Payment Date for such Book-Entry Notes, on which such Global Securities shall be exchanged for a single replacement Global Security and (iii) a new CUSIP number, obtained from the Company, to be assigned to such replacement Global Security. Upon receipt of such a notice, DTC will send to its participants (including FNBC) a written reorganization notice to the effect that such exchange will occur on such date. Prior to the specified exchange date, FNBC will deliver to the CUSIP Service Bureau a written notice setting forth such exchange date and such new CUSIP number and stating that, as of such exchange date, the CUSIP numbers of the Global Securities to be exchanged will no longer be valid. On the specified exchange date, FNBC will exchange such Global Securities for a single Global Security bearing the new CUSIP number and the CUSIP numbers of the exchanged Global Securities will, in accordance with CUSIP Service Bureau procedures, be canceled and not immediately reassigned.
Payments of Principal Payment of Interest Only. Promptly after each Regular and Interest: Record Date, FNBC will deliver to the Company and DTC a written notice setting forth, by CUSIP number, the amount of interest to be paid on each Global Security on the following Interest Payment Date (other than an Interest Payment Date
with Maturity) and the total of such amounts. DTC will confirm the amount payable on each Global Security on such Interest Payment Date by reference to the appropriate (daily or weekly) bond reports published by Standard & Poor's Corporation. The Company will pay to FNBC, as paying agent, the total amount of interest due on such Interest Payment Date (other than at Maturity), and FNBC will pay such amount to DTC, at the times and in the manner set forth below under "Manner of Payment." If any Interest Payment Date for a Book-Entry Note is not a Business Day, the payment due on such day shall be made on the next succeeding Business Day and no interest shall accrue on such payment for the period from and after such Interest Payment Date.
Payments at Maturity. On or about the first Business Day of each month, FNBC will deliver to the Company, DTC and the Trustee a written list of principal and interest to be paid on each Global Security at the Maturity thereof in the following month. FNBC, the Company and DTC will confirm the amounts of such principal and interest payments with respect to each such Global Security on or about the fifth Business Day preceding such Maturity. On or before such Maturity, the Company will pay to FNBC, as paying agent, the principal amount of such Global Security, together with interest due at such Maturity. FNBC will pay such amount to DTC at the times and in the manner set forth below under "Manner of Payment." If any Maturity of a Global Security representing Book-Entry Notes is not a Business Day, the payment due on such day shall be made on the next succeeding Business Day and no interest shall accrue on such payment for the period from and after such Maturity. Promptly after payment to DTC of the principal and interest due at Maturity of such Global Security, the Trustee will cancel such Global Security in accordance with the Indenture and so advise the Company. On the first Business Day of each month, FNBC will deliver to the Trustee a written statement indicating the total principal amount of Outstanding Global Securities as of the immediately preceding Business Day.
Manner of Payment. The total amount of any principal and interest due on Global Securities on any Interest Payment Date or at Maturity shall be paid by the Company to FNBC in immediately available funds no later than Noon (New York City time) on such date. The Company will make such payment on such Global Securities by instructing
from an account maintained by the Company at FNBC or by wire transfer to FNBC. The Company will confirm any such instructions in writing to FNBC. Prior to 12:30 P.M. (New York City time) on the date of Maturity or as soon as possible thereafter, FNBC will pay by separate wire transfer (using Fedwire message entry instructions in a form previously specified by DTC) to an account at the Federal Reserve Bank of New York previously specified by DTC, in funds available for immediate use by DTC, each payment of principal (together with interest thereon) due on a Global Security on such date. On each Interest Payment Date (other than at Maturity), interest payments shall be made to DTC, in funds available for immediate use by DTC, in accordance with existing arrangements between FNBC and DTC. On each such date, DTC will pay, in accordance with its SDFS operating procedures then in effect, such amounts in funds available for immediate use to the respective Participants in whose names the Book-Entry Notes represented by such Global Securities are recorded in the book-entry system maintained by DTC. None of the Company (as issuer or as paying agent), the Trustee or FNBC shall have any direct responsibility or liability for the payment by DTC to such Participants of the principal of and interest on the Book-Entry Notes.
Withholding Taxes. The amount of any taxes required under applicable law to be withheld from any interest payment on a Book-Entry Note will be determined and withheld by the Participant, indirect participant in DTC or other Person responsible for forwarding payments and materials directly to the beneficial owner of such Note.
Settlement Procedures: Settlement Procedures with regard to each Book-Entry Note sold by the Company through any Agent, as agent, shall be as follows:
A. The Presenting Agent (as defined under "Preparation of Pricing Supplement" in Part III below) will advise the Company by telephone of the following settlement information:
3. In the case of a Fixed Rate Book-Entry Note, the Interest Rate and, in the case
Book-Entry Note, the Base Rate, Initial Interest Rate (if known at such time), Index Maturity, Interest Reset Period, Interest Reset Dates, Spread or Spread Multiplier (if any), Minimum Interest Rate (if any) and Maximum Interest Rate (if any).
4. Interest Payment Dates and the Interest Payment Period.
5. Redemption Date and other redemption provisions, if any.
determined as provided in Section 2(a) of the Agency Agreement.
9. Whether or not such Book-Entry Note is an Original Issue Discount Security and, if so, the total amount of original issue discount ("OID"), the yield to maturity and the initial accrual period OID.
10. Such other terms as shall be applicable to the Note as agreed upon by the purchaser and the Company and not inconsistent with the Indenture.
B. FNBC will assign a CUSIP number to the Global Security representing such Book-Entry Note and then advise the Company by telephone (confirmed in writing at any time on the same date) or electronic transmission of the information set forth in Settlement Procedure "A" above, such CUSIP number and the name of the Presenting Agent. FNBC will also notify the Presenting Agent by telephone of such CUSIP number as soon as practicable.
C. FNBC will enter a pending deposit message through DTC's Participant Terminal System information to DTC (which shall route such information to Standard & Poor's Corporation), the Presenting Agent and, upon request, the Trustee:
1. The information set forth in Settlement Procedure "A".
2. Identification as a Fixed Rate Book-Entry Note or a Floating Rate Book-Entry Note.
3. Initial Interest Payment Date for such Book-Entry Note, number of days by which such date succeeds the related Regular Record Date and amount of interest payable on such Interest Payment Date.
4. The Interest Payment Period.
5. CUSIP number of the Global Security representing such Book-Entry Note.
6. Whether or not such Global Security will represent any other Book-Entry Note (to the extent known at such time).
D. To the extent the Company has not already done so, the Company will deliver to the Trustee a Global Security in a form that has been approved by the Company, the Agents and the Trustee.
E. The Trustee will complete such Book-Entry Note, stamp the appropriate legend, as instructed by DTC, if not already set forth thereon, and authenticate the Global Security representing such Book-Entry Note.
F. DTC will credit such Book-Entry Note to FNBC's participant account at DTC.
G. FNBC will enter an SDFS deliver order through DTC's Participant Terminal System instructing DTC to (i) debit such Book-Entry Note to FNBC's participant account and credit such Book-Entry Note to the Presenting Agent's participant account and (ii) debit the Presenting Agent's settlement account and credit FNBC's settlement account for an amount equal to the price of such Book-Entry Note less the Presenting Agent's commission. The entry of such a deliver order shall constitute a representation and warranty by FNBC to DTC that (i) the Global Security representing such Book-Entry Note has been issued and authenticated and (ii) FNBC is
Security pursuant to the Medium Term Note Certificate Agreement between FNBC and DTC.
H. The Presenting Agent will enter an SDFS deliver order through DTC's Participant Terminal System instructing DTC (i) to debit such Book-Entry Note to the Presenting Agent's participant account and credit such Book-Entry Note to the participant accounts of the Participants with respect to such Book-Entry Note and (ii) to debit the settlement accounts of such Participants and credit the settlement account of the Presenting Agent for an amount equal to the price of such Book-Entry Note.
I. Transfers of funds in accordance with SDFS deliver orders described in Settlement Procedures "G" and "H" will be settled in accordance with SDFS operating procedures in effect on the settlement date.
J. FNBC will, upon receipt of funds from the Agent in accordance with Settlement Procedure "G", wire transfer to the account of the Company maintained at SeaFirst Bank, Seattle, Washington, funds available for immediate use in the amount transferred to FNBC in accordance with Settlement Procedure "G".
K. The Presenting Agent will confirm the purchase of such Book-Entry Note to the purchaser either by transmitting to the Participants with respect to such Book-Entry Note a confirmation order or orders through DTC's instructional delivery system or by mailing a written confirmation to such purchaser.
Settlement Procedures For orders of Book-Entry Notes solicited by any and Timetables: Agent accepted by the Company for settlement on the first Business Day after the sale date, Settlement Procedures "A" through "K" set forth above shall be completed as soon as possible but not later than the respective times (New York City time) set forth below:
A 11:00 A.M. on the sale date B 12:00 Noon on the sale date C 2:00 P.M. on the sale date D 3:00 P.M. on the day before E 9:00 A.M. on the settlement date F 10:00 A.M. on the settlement date G-H 2:00 P.M. on the settlement date I 4:45 P.M. on the settlement date J-K 5:00 P.M. on the settlement date
If a sale is to be settled more than one Business Day after the sale date, Settlement Procedures "A" and "B" shall be completed as soon as practicable but no later than 11:00 A.M. and 12:00 Noon, respectively, and Settlement Procedures "C" and "D" shall be completed as soon as practicable but no later than 2:00 P.M. and 3:00 P.M., respectively, on the Business Day before the settlement date. If the Initial Interest Rate for a Floating Rate Book-Entry Note has not been determined at the time that Settlement Procedure "A" is completed, Settlement Procedures "B" and "C" shall be completed as soon as such rate has been determined but no later than 12:00 Noon and 2:00 P.M., respectively, on the Business Day before the settlement date. Settlement Procedures "I" and "J" are subject to extension in accordance with any extension of Fedwire closing deadlines and in the other events specified in SDFS operating procedures in effect on the settlement date.
If settlement of a Book-Entry Note is rescheduled or canceled, FNBC will deliver to DTC, through DTC's Participant Terminal System, a cancellation message to such effect by no later than 2:00 P.M. on the Business Day immediately preceding the scheduled settlement date.
Failure to Settle: If FNBC fails to enter an SDFS deliver order with respect to a Book-Entry Note pursuant to Settlement Procedure "G", FNBC may deliver to DTC, through DTC's Participant Terminal System, as soon as practicable, a withdrawal message instructing DTC to debit such Book-Entry Note to FNBC's participant account. DTC will process the withdrawal message, provided that FNBC's participant account contains a principal amount of the Global Security representing such Book-Entry Note that is at
least equal to the principal amount to be debited. If a withdrawal message is processed with respect to all the Book-Entry Notes represented by a Global Security, the Trustee will cancel such Global Security in accordance with the Indenture and so advise the Company and FNBC will make appropriate entries in its records. The CUSIP number assigned to such Global Security shall, in accordance with CUSIP Service Bureau procedures, be canceled and not reassigned until the Book-Entry Notes represented by such Global Security have matured or been redeemed. If a withdrawal message is processed with respect to one or more, but not all, of the Book-Entry Notes represented by a Global Security, FNBC will exchange such Global Security for two Global Securities, one of which shall represent such Book-Entry Notes as to which there has been a withdrawal and shall be canceled immediately after issuance and the other of which shall represent the other Book-Entry Notes previously represented by the surrendered Global Security and shall bear the CUSIP number of the surrendered Global Security.
If the purchase price for any Book-Entry Note is not timely paid to the Participants with respect to such Note by the beneficial purchaser thereof (or a Person, including an indirect participant in DTC, acting on behalf of such purchaser), such Participants and, in turn, the Presenting Agent may enter SDFS deliver orders through DTC's Participant Terminal System reversing the orders entered pursuant to Settlement Procedures "H" and "G", respectively. Thereafter, FNBC will deliver the withdrawal message and take the related actions described in the preceding paragraph. If such failure shall have occurred for any reason other than a default by the Presenting Agent in the performance of its obligations hereunder and under the Agency Agreement, then the Company will reimburse the Presenting Agent or FNBC as applicable, on an equitable basis for the loss of the use of the funds during the period when they were credited to the account of the Company.
Notwithstanding the foregoing, upon any failure to settle with respect to a Book-Entry Note, DTC may take any actions in accordance with its SDFS operating procedures then in effect. In the event of a failure to settle with respect to one or more, but not all, of the Book-Entry Notes to have been represented by a Global Security, the Trustee will provide, in accordance with Settlement Procedure "E", for the authentication and issuance of a Global Security representing the other
have been represented by such Global Security and will make appropriate entries in its records.
Administrative Procedures for Certificated Notes
FNBC will serve as registrar and transfer agent in connection with the Certificated Notes.
Issuance: Each Certificated Note will be dated and issued as of the date of its authentication by the Trustee. Each Certificated Note will bear an Original Issue Date, which will be (i) with respect to an original Certificated Note (or any portion thereof), its original issuance date (which will be the settlement date) and (ii) with respect to any Certificated Note (or portion thereof) issued subsequently upon transfer or exchange of a Certificated Note or in lieu of a destroyed, lost or stolen Certificated Note, the Original Issue Date of the predecessor Certificated Note, regardless of the date of authentication of such subsequently issued Certificated Note.
Registration: Certificated Notes will be issued only in fully registered form without coupons.
Transfers and A Certificated Note may be presented for transfer or Exchanges: exchange at the principal corporate trust office of the Trustee in Chicago at One First National Plaza, Mail Suite 0126, Chicago, Illinois 60670-0126 or New York City at First Chicago Trust Company of New York, 14 Wall Street, 8th Floor, New York, New York 10005, Attention: Corporate Trust Administration. Certificated Notes will be exchangeable for other Certificated Notes having identical terms but different authorized denominations without service charge. Certificated Notes will not be exchangeable for Book-Entry Notes.
Payments of Principal FNBC will pay the principal amount of each and Interest: Certificated Note at Maturity upon presentation of such Certificated Note to FNBC. Such payment, together with payment of interest due at Maturity of such Certificated Note, will be made in funds available for immediate use by FNBC and in turn by the Holder of such Certificated Note. Certificated Notes presented to FNBC at Maturity for payment will be canceled by the Trustee in
accordance with the Indenture. All interest payments on a Certificated Note (other than interest due at Maturity) will be made by check drawn on FNBC (or another Person appointed by FNBC) and mailed by FNBC to the Person entitled thereto as provided in such Note and the Indenture; provided, however, that the holder of U.S. $10,000,000 (or the equivalent thereof in other currencies) or more of Certificated Notes with similar tenor and terms will be entitled to receive payment by wire transfer in U.S. dollars. Following each Regular Record Date and Special Record Date, FNBC will furnish the Company and the Trustee with a list of interest payments to be made on the following Interest Payment Date for each Certificated Note and in total for all Certificated Notes. Interest at Maturity will be payable to the Person to whom the payment of principal is payable. FNBC will provide monthly to the Company lists of principal and interest, to the extent ascertainable, to be paid on Certificated Notes maturing (on a Maturity or Redemption Date or otherwise) in the next month.
FNBC will be responsible for withholding taxes on interest paid on Certificated Notes as required by applicable law.
If any interest Payment Date for or the Maturity of a Certificated Note is not a Business Day, the payment due on such day shall be made on the next succeeding Business Day and no interest shall accrue on such payment for the period from and after such Interest Payment Date or Maturity, as the case may be.
Settlement Procedures: Settlement Procedures with regard to each Certificated Note sold by the Company through any Agent, as agent, shall be as follows:
A. The Presenting Agent will advise the Company by telephone of the following settlement information:
1. Name in which such Certificated Note is to be registered ("Registered Owner").
2. Address of the Registered Owner and address for payment of principal and interest.
3. Taxpayer identification number of the Registered Owner (if available).
6. In the case of a Fixed Rate Certificated Note, the Interest Rate and, in the case of a Floating Rate Certificated Note, the Initial Interest Rate (if known at such time), Base Rate, Index Maturity, Interest Reset Period, Interest Reset Dates, Spread or Spread Multiplier (if any), Minimum Interest Rate (if any) and Maximum Interest Rate (if any).
7. Interest Payment Dates and the Interest Payment Period.
8. Specified Currency and whether or not the option to elect payment in a Specified Currency applies and if the Specified Currency is not U.S. dollars, the authorized denominations.
9. Redemption Date and redemption provisions, if any.
determined as provided in Section 2(a) of the Agency Agreement.
13. Whether or not such Certificated Note is an Original Issue Discount Security and, if so, the total amount of OID, the yield to maturity and the initial accrual period OID.
14. Such other terms as shall be applicable to such Certificated Note as agreed upon by the purchaser and the Company and not inconsistent with the Indenture.
B. The Company will advise FNBC by telephone (confirmed in writing at any time on the sale date) or electronic transmission of the information set forth in Settlement Procedure "A" above and the name of the Presenting Agent.
C. The Company will deliver to FNBC a
packet for such Certificated Note, which packet will contain the following documents in forms that have been approved by Company, the Agents and the Trustee:
1. Certificated Note with customer confirmation.
2. Stub One - For the Trustee.
3. Stub Two - For the Presenting Agent.
4. Stub Three - For the Company.
D. The Trustee will complete such Certificated Note and will authenticate such Certificated Note and deliver it (with the confirmation) and Stubs One and Two to the Presenting Agent, and the Presenting Agent will acknowledge receipt of such Certificated Note by stamping or otherwise marking Stub One and returning it to the Trustee. Such delivery will be made only against such acknowledgment of receipt and evidence that instructions have been given by the Presenting Agent for payment to the account of the Company at SeaFirst Bank, Seattle, Washington, in funds available for immediate use, of an amount equal to the price of such Certificated Note less the Presenting Agent's commission. In the event that the instructions given by the Presenting Agent for payment to the account of the Company are revoked, the Company will as promptly as possible wire transfer to the account of the Presenting Agent an amount of immediately available funds equal to the amount of such payment made.
E. The Presenting Agent will deliver such Certificated Note (with the confirmation) to the purchaser thereof against payment in immediately available funds. The Presenting Agent will obtain the acknowledgment of receipt of such Certificated Note by retaining Stub Two.
F. FNBC will send Stub Three to the Company by first-class mail.
Settlement Procedures For orders of Certificated Notes solicited by any Timetables: Agent, as agent, and accepted by the Company, Settlement Procedures "A" through "F" set forth above shall be completed on or before the respective times (New York City time) set forth below:
A 2:00 P.M. on the day before the B-C 3:00 P.M. on the day before the D 2:15 P.M. on the settlement date E 3:00 P.M. on the settlement date F 5:00 P.M. on the settlement date
Failure to Settle: If a purchaser fails to accept delivery of and make payment for any Certificated Note, the Presenting Agent will notify the Company and FNBC by telephone and return such Certificated Note to the Trustee. Upon receipt of such notice, the Company will immediately wire transfer to the account of the Presenting Agent an amount equal to the amount previously credited to the account of Company in respect of such Certificated Note. Such wire transfer will be made on the settlement date, if possible, and in any event not later than the Business Day following the settlement date. If the failure shall have occurred for any reason other than a default by the Presenting Agent in the performance of its obligations hereunder and under the Agency Agreement, then the Company will reimburse the Presenting Agent or FNBC, as appropriate, on an equitable basis for its loss of the use of the funds during the period when they were credited to the account of the Company. Immediately upon receipt of the Certificated Note in respect of which such failure occurred, the Trustee will cancel such Certificated Note in accordance with the Indenture and so advise the Company and FNBC will make appropriate entries in its records.
Book-Entry Notes and Certificated Notes
Maturities: Each Note will mature on a date not less than nine months after the settlement date for such Note.
Denominations: Notes will be issued in principal amounts of U.S. $1,000 or any amount in excess thereof that is an integral multiple of U.S. $1,000.
Interest: General. Interest, if any, on each Note will accrue from the original issue date for the first interest period or the last date to which interest has been paid, if any, for each subsequent interest period, on the Global Security representing such Note, and will be calculated and paid in the manner described in such Note and in the Prospectus (as defined in the Agency Agreement), as supplemented by the applicable Pricing Supplement (as defined under "Preparation of Pricing Supplement" below). Unless otherwise specified therein, each payment of interest on a Note will include interest accrued to but excluding the Interest Payment Date (provided that, in the case of Floating Rate Notes that reset weekly, interest payments will include accrued interest to and including the Regular Record Date immediately preceding the Interest Payment Date) or to but excluding Maturity (other than a Maturity of a Fixed Rate Note occurring on the 31st day of a month, in which case such payment of interest will include interest accrued to but excluding the 30th day of such month). Interest payable at the Maturity of a Book-Entry Note will be payable to the Person to whom the principal of such Book-Entry Note is payable. In the case of Book-Entry Notes, Standard & Poor's Corporation will use the information received in the pending deposit message described under Settlement Procedure "C" in Part I above in order to include the amount of any interest payable and certain other information regarding the related Global Security in the appropriate (daily or weekly) bond report published by Standard & Poor's Corporation.
Regular Record Dates. The Regular Record Date with respect to any Interest Payment Date shall be the date fifteen calendar days immediately preceding such Interest Payment Date.
Interest Payment Dates on Fixed Rate Notes. Unless otherwise specified pursuant to Settlement Procedure "A" below, interest payments on Fixed Rate Notes will be made semiannually on March 1 and September 1 of each year and at Maturity; provided, however, that in the case of a Fixed Rate Note issued between a Regular Record Date and an Interest Payment Date, the first interest payment will be made on the Interest Payment Date following the next succeeding Regular Record Date (unless the Company elects, in its sole discretion, to pay such interest on the first Interest Payment Date after the Original Issue Date and, if such Fixed Rate Note is a Book-Entry Note, such payment is made in accordance with DTC procedures).
Interest Payment Dates on Floating Rate Notes. Interest payments will be made on Floating Rate Notes monthly, quarterly, semi-annually or annually. Unless otherwise agreed upon, interest will be payable, in the case of Floating Rate Notes with a monthly Interest Payment Period, on the third Wednesday of each month; with a quarterly Interest Payment Period, on the third Wednesday of March, June, September and December of each year; with a semi-annual Interest Payment Period on the third Wednesday of the two months specified pursuant to Settlement Procedure "A" in Part I or II above, as the case may be; and with an annual Interest Payment Period, on the third Wednesday of the month specified pursuant to Settlement Procedure "A" in Part I or II above, as the case may be; provided, however, that, if an Interest Payment Date for a Floating Rate Note would otherwise be a day that is not a Business Day with respect to such Floating Rate Note, such Interest Payment Date will be the next succeeding Business Day with respect to such Floating Rate Note, except in the case of a Floating Rate Note for which the Base Rate is LIBOR, if such Business Day is in the next succeeding calendar month, such Interest Payment Date will be the immediately preceding Business Day; provided further, however, that, in the case of a Floating Rate Note issued between a Regular Record Date and an Interest Payment Date, the first interest payment will be made on the Interest Payment Date following the next succeeding Regular Record Date (unless the Company elects, in its sole discretion, to pay such interest on the first Interest Payment Date after the Original Issue Date and, if such Floating Rate Note is a Book-Entry Note, such payment is made in accordance with DTC procedures).
Notice of Interest Payment and Regular Record Dates. On the first Business Day of January, April, July and October of each year, FNBC will deliver to the Company and DTC a written list of Regular Record Dates and Interest Payment Dates that will occur with respect to Notes during the six-month period beginning on such first Business Day. Promptly after each Interest Determination Date for Floating Rate Notes, FNBC as Calculation Agent, will notify Standard & Poor's Corporation of the interest rates determined on such Interest Determination Date.
Calculation of Interest: Fixed Rate Notes. Interest on Fixed Rate Notes (including interest for partial periods) will be calculated on the basis of a 360-day year of twelve 30-day months.
Floating Rate Notes. Interest rates on Floating Rate Notes will be determined as set forth in the form of Notes. Interest on Floating Rate Notes, except as otherwise set forth therein, will be calculated on the basis of actual days elapsed and a year of 360 days, except that in the case of a Floating Rate Note for which the Base Rate is Treasury Rate, interest will be calculated on the basis of the actual number of days in the year.
Procedure for Rate The Company and the Agents will discuss from time to Setting and Posting: time the aggregate principal amount of, the issuance price of, and the interest rates to be borne by, Notes that may be sold as a result of the solicitation of orders by the Agents. If the Company decides to set prices of, and rates borne by, any Notes in respect of which the Agents are to solicit orders (the setting of such prices and rates to be referred to herein as "posting") or if the Company decides to change prices or rates previously posted by it, it will promptly advise the Agents of the prices and rates to be posted.
Acceptance and Unless otherwise instructed by the Company, each Agent Rejection of Orders: will advise the Company promptly by telephone of all orders to purchase Notes received by such Agent, other than those rejected by it in whole or in part in the reasonable exercise of its discretion. Unless otherwise agreed by the Company and the Agents, the Company has the right to accept orders to purchase Notes and may reject any such orders in whole or in part.
Preparation of If any order to purchase a Note is accepted by or on Pricing Supplement: behalf of the Company, the Company will prepare a pricing supplement (a "Pricing Supplement") reflecting the terms of such Note and will arrange to have such Pricing Supplement filed with the Commission in accordance with the applicable paragraph of Rule 424(b) under the Securities Act of 1933, as amended (the "Act"), and will furnish one copy thereof (and additional copies if requested) to the Agent that presented the order (the "Presenting Agent") at the addresses set forth in the next paragraph. The Presenting Agent will cause a Prospectus and Pricing Supplement to be delivered to the purchaser of such Note.
The Company will deliver a completed Pricing Supplement, via next day mail or telecopy to arrive no later than 11:00 A.M. on the Business Day following the trade date, to the Presenting Agent at the following locations:
If the Presenting Agent is Salomon Brothers Inc:
If the Presenting Agent is Goldman, Sachs & Co.:
New York, New York 10004
If the Presenting Agent is Merrill Lynch & Co.:
also, for record keeping purposes, please send a copy to:
Merrill Lynch, Pierce, Fenner & World Financial Center, North Tower New York, New York 10281-1310
In each instance that a Pricing Supplement is
Presenting Agent will affix the Pricing Supplement to Prospectuses prior to their use. Outdated Pricing Supplements (other than those retained for files), will be destroyed.
Suspension of Subject to the Company's representations, Solicitation; warranties and covenants contained in the Agency Amendment or Agreement, the Company Amendment or may instruct Supplement: the Agents to suspend at any time, for any period of time or permanently, the solicitation of orders to purchase Notes. Upon receipt of such instructions, the Agents will forthwith suspend solicitation until such time as the Company has advised them that such solicitation may be resumed.
In the event that at the time the Company suspends solicitation of purchases there shall be any orders outstanding for settlement, the Company will promptly advise the Agents, the Trustee and FNBC whether or not such orders may be settled and whether or not copies of the Prospectus as in effect at the time of the suspension, together with the appropriate Pricing Supplement, may be delivered in connection with the settlement of such orders. The Company will have the sole responsibility for such decision and for any arrangements that may be made in the event that the Company determines that such orders may not be settled or that copies of such Prospectus may not be so delivered.
If the Company decides to amend or supplement the Registration Statement (as defined in the Agency Agreement) or the Prospectus, it will promptly advise the Agents and furnish the Agents with the proposed amendment or supplement and with such certificates and opinions as are required, all to the extent required by and in accordance with the terms of the Agency Agreement. Subject to the provisions of the Agency Agreement, the Company may file with the Commission any such supplement to the Prospectus relating to the Notes. The Company will provide the Agents, the Trustee and FNBC with copies of any such supplement, and confirm to the Agents that such supplement has been filed with the Commission pursuant to the applicable paragraph of Rule 424(b) under the Act.
Procedures For When the Company has determined to change the Rate Changes: interest rates of Notes being offered, it will promptly advise the Agents and the Agents will forthwith suspend solicitation of orders. The Agents will telephone the Company with
to the changed interest rates. At such time as the Company has advised the Agents of the new interest rates, the Agents may resume solicitation of orders. Until such time only "indications of interest" may be recorded.
Delivery of A copy of the Prospectus and a Pricing Supplement Prospectus: relating to a Note must accompany or precede the earliest of any written offer of such Note, confirmation of the purchase of such Note and payment for such Note by its purchaser. If notice of a change in the terms of the Notes is received by the Agents between the time an order for a Note is placed and the time written confirmation thereof is sent by the Presenting Agent to a customer or its agent, such confirmation shall be accompanied by a Prospectus and Pricing Supplement setting forth the terms in effect when the order was placed. Subject to "Suspension of Solicitation; Amendment or Supplement" above, the Presenting Agent will deliver a Prospectus and Pricing Supplement as herein described with respect to each Note sold by it. The Company will make such delivery if such Note is sold directly by the Company to a purchaser (other than an Agent).
Confirmation: For each order to purchase a Note solicited by any Agent and accepted by or on behalf of the Company, the Presenting Agent will issue a confirmation to the purchaser, with a copy to the Company, setting forth the details set forth above and delivery and payment instructions.
Settlement: The receipt by the Company of immediately available funds in payment for a Note and the authentication and issuance of the Global Security representing such Note shall constitute "settlement" with respect to such Note. All orders accepted by the Company will be settled on the third Business Day following the date of sale of such Note pursuant to the timetable for settlement set forth below unless the Company and the purchaser agree to settlement on another day that shall be no earlier than the next Business Day following the date of sale.
Trustee Not to Nothing herein shall be deemed to require the Risk Funds: Trustee to risk or expend its own funds in connection with any payment to the Company, the Agents or any purchaser or holder of Notes, it being understood by all parties that payments made by the Trustee to the Company, the Agents or the
made only to the extent that funds are provided to the Trustee for such purpose.
Authenticity of The Company will cause the Trustee to furnish the Signatures: Agents from time to time with the specimen signatures of each of the Trustee's officers, employees or agents who has authorized by the Trustee to authenticate Notes, but no Agent will have any obligation or liability to the Company or the Trustee in respect of the authenticity of the signature of any officer, employee or agent of the Company or the Trustee on any Note.
Payment of Each Agent shall forward to the Company, on a Expenses: monthly basis, a statement of the out-of-pocket expenses incurred by such Agent during that month that are reimbursable to it pursuant to the terms of the Agency Agreement. The Company will remit payment to the Agents currently on a monthly basis.
Advertising Costs: The Company will determine with the Agents the amount of advertising that may be appropriate in soliciting orders to purchase the Notes. Advertising expenses will be paid by the Company.
Periodic Statements: Periodically, FNBC will send to the Company a statement setting forth the principal amount of Notes Outstanding as of that date and setting forth a brief description of any sales of Notes that the Company has advised FNBC but that have not yet been settled.
FOREIGN CURRENCY AMENDMENT NO. [_____] TO SELLING AGENCY AGREEMENT DATED [_____], 1996
[Insert Title of Foreign Currency]
The undersigned hereby agree that for the purposes of the issuance and sale of Notes denominated in [title of currency or currency unit] (the "Applicable Foreign Currency") pursuant to the Selling Agency Agreement dated [_____], 1996 between Pacific Telecom, Inc. and each of Salomon Brothers Inc, Goldman, Sachs & Co. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Agency Agreement"), the following additions and modifications shall be made to the Agency Agreement. The additions and modifications adopted hereby shall be of the same effect for the sale under the Agency Agreement of all Notes denominated in the Applicable Foreign Currency, whether offered on an agency or principal basis, but shall be of no effect with respect to Notes denominated in any currency or currency unit other than the Applicable Foreign Currency.
Except as otherwise expressly provided herein, all terms used herein that are defined in the Agency Agreement shall have the same meanings as in the Agency Agreement. The terms Agent or Agents, as used in the Agency Agreement, shall be deemed to refer only to the undersigned Agent[s] for purposes of this Amendment.
[Insert appropriate additions and modifications to the Agency Agreement (for example, to opinions of counsel, conditions to obligations
[Name(s) of Agent(s) participating in the offering of Notes in the Applicable Foreign Currency]
[Name and address of agent]
Re: Medium-Term Notes, Series C
Reference is made to the Selling Agency Agreement dated [_____], 1996 between Pacific Telecom, Inc. (the "Company") and each of Salomon Brothers Inc, Goldman, Sachs & Co. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Agreement") relating to up to $200,000,000 aggregate principal amount of Medium-Term Notes, Series C (the "Notes") to be offered from time to time by the Company. The provisions of the Agreement (a copy of which has been previously provided to each of you) are hereby incorporated by reference and each of the representations and warranties set forth therein shall be deemed to have been made to you as of the date hereof. Subject to the terms as set forth therein, the Company hereby appoints you as an Agent (as such term is defined in the Agreement) of the Company for the purposes of soliciting one offer to purchase Notes from the Company containing the terms as set forth in the above-referenced Pricing Supplement. This appointment is effective as to and extends only to the one transaction that you are presenting to the Company (see attached Term Sheet) and the Agreement shall automatically be terminated as to you upon the earlier to occur of (i) payment made in full to the Company for the Notes sold pursuant to the offer so presented and (ii) the Company or you determine not to proceed with such transaction. Upon such termination of the Agreement by the Company, neither you nor the Company shall have any liability to the other except as provided in those sections of the Agreement referenced in Section 8(c) thereof. You agree to be bound by, and comply with, all of the provisions of the Agreement applicable to Agents thereunder.
[As a condition precedent to your obligation to consummate the transaction referred to above, you shall receive the following: (i) a certificate of the Company dated [insert recent date] pursuant to [Section 5(f)] [Section 4(i)] of the Agreement; (ii) the opinion or opinions of counsel dated [insert recent date or most recent periodic update] pursuant to [Sections 5(d) and 5(e)] [Section 4(j)] of the Agreement; (iii) a letter from Deloitte & Touche LLP dated [insert recent date or most recent periodic update] delivered pursuant to Section [Section 5(g)] [Section 4(k)] of the Agreement; and (iv) a copy of the resolutions adopted by the Company with respect to the form of Note evidencing the Notes described in the above-referenced Pricing Supplement certified by an officer of the
This letter will be governed by and construed in accordance with the laws of the State of New York.
If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement between the Company and you.
as of the date hereof:
* This provision is to be negotiated between the Company and such agent at the time of the trade.
Due Nine Months or More from Date of Issue
Subject in all respects to the terms and conditions of the Selling Agency Agreement dated [_____], 1996 between you and each of Salomon Brothers Inc, Goldman, Sachs & Co. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Agreement"), the undersigned agrees to purchase the following Notes:
Aggregate Principal Amount: U.S. $
Discount: % of Principal Amount
Purchase Price: % of Principal Amount [plus accrued interest
Place for Delivery of Notes and Payment Therefor:
Notes may not be sold pursuant to Section 4(l) of the Agreement:
The undersigned hereby acknowledges that [it] is the purchaser of U.S. $[__________] of Medium-Term Notes, Series C (the "Notes") of Pacific Telecom, Inc. (the "Company") and that [it] has been furnished with a Prospectus dated [_____], 1996 (as supplemented by a Prospectus Supplement dated [_____], 1996 and a Pricing Supplement dated _____) of the Company relating to the Notes. The undersigned hereby also acknowledges that none of Salomon Brothers Inc ("Salomon"), Goldman, Sachs & Co. ("Goldman") and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill") (or any affiliate thereof) has acted as agent or underwriter in connection with the sale of the Notes purchased by the undersigned and that none of Salomon, Goldman and Merrill (or any affiliate thereof) has made any offer or otherwise solicited the undersigned with respect to the Notes.
IN WITNESS WHEREOF, the undersigned has executed this Acknowledgment this ___ day of _____, 199_.
[Name of company, if applicable]
|
S-3
|
EX-1
| 1996-01-12T00:00:00
| 1996-01-12T17:21:24
|
0000822657-96-000007
|
0000822657-96-000007_0000.txt
|
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report : December 26, 1995
(Date of earliest event reported)
The Prudential Home Mortgage Securities Company, Inc.
(State of Incorporation) (I.R.S. Employer
Address of principal executive offices (Zip Code)
(Former name, former address and former fiscal year, if changed since last report)
On December 26, 1995 a distribution was made to holders of certain series of Mortgage Pass-Through Certificates that were sold by the registrant during the current year.
ITEM 7. Financial Statements and Exhibits
(EX-99.1) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-1, relating to the
(EX-99.2) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-2, relating to the
(EX-99.3) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-3, relating to the
(EX-99.4) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-4, relating to the
(EX-99.5) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-5, relating to the
(EX-99.6) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-6, relating to the
(EX-99.7) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-7, relating to the
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
THE PRUDENTIAL HOME MORTGAGE SECURITIES COMPANY, INC.
January 03, 1996 /s/ B. DAVID BIALZAK
(EX-99.1) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-1, relating to the
(EX-99.2) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-2, relating to the
(EX-99.3) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-3, relating to the
(EX-99.4) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-4, relating to the
(EX-99.5) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-5, relating to the
(EX-99.6) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-6, relating to the
(EX-99.7) Monthly report distributed to holders of Mortgage Pass- Through Certificates, Series 1995-7, relating to the
|
8-K
|
8-K
| 1996-01-12T00:00:00
| 1996-01-12T11:06:30
|
0000008177-96-000002
|
0000008177-96-000002_0003.txt
|
<DESCRIPTION>PRESS RELEASE DATED JANUARY 2, 1996
NEWS RELEASE For further information contact: For Immediate Release John W. Hancock Senior Vice President and Treasurer
ATLANTIC AMERICAN CLOSES ON ACQUISITION OF
ATLANTA, January 2, 1996 -- Atlantic American Corporation (NASDAQ-AAME) today announced as of December 31, 1995, it closed on the acquisition of American Southern Insurance Company from Fuqua Enterprises, Inc.
Hilton Howell, Atlantic American's President and CEO, said: "We are very pleased to have closed the acquisition of American Southern Insurance Company. It is one of the most successful property and casualty insurance companies in the country and will add significantly to the financial strength and flexibility of our insurance operations."
On a pro forma basis compared with year-end 1994, this acquisition will increase Atlantic American's consolidated assets from $205.0 million to approximately $300.0 million, will double the insurance division's net premiums written from $42.8 million to approximately $86.0 million, and will increase the division's statutory capital and surplus from $29.5 million to approximately $63.5 million.
Atlantic American is a diversified holding company involved in the life, health, property and casualty insurance and retail furniture industries. Its subsidiaries include Atlantic American Life Insurance Company, Bankers Fidelity Life Insurance Company, Georgia Casualty & Surety Company, American Southern Insurance Company, American Safety Insurance Company, Leath Furniture, Inc., Modernage Furniture, Inc. and Jefferson Home Furniture Company.
|
8-K
|
EX-99.2
| 1996-01-12T00:00:00
| 1996-01-12T15:36:55
|
0000950005-96-000010
|
0000950005-96-000010_0003.txt
|
<DESCRIPTION>1995 EXECUTIVE STOCK INCENTIVE PLAN
1995 EXECUTIVE STOCK INCENTIVE PLAN
This 1995 Executive Stock Incentive Plan (the "Plan") is intended as an employment incentive and to encourage stock ownership by certain key officers and employees (collectively, "Key Persons") of Harding Associates, Inc., a Delaware corporation and its wholly owned domestic subsidiaries (collectively, the "Company") so that they may increase their proprietary interest in the success of the Company. In this way, the Company will be assisted in its efforts to attract and retain highly qualified personnel and to further align the executives' interest with that of the Company's stockholders.
(a) The Plan shall be administered by the Compensation Committee (the "Committee"), appointed by the Board of Directors from among the Directors, consisting of not less than three members, each of whom shall be a "disinterested person" within the meaning of Rule 16b-3 promulgated by the Securities and Exchange Commission as in effect prior to May 1, 1991 ("Old Rule 16b-3"), and, effective upon the date when reliance on Old Rule 16b-3 is no longer permitted, each member of the Committee shall be a "disinterested person" within the meaning of Rule 16b-3, or such successor rule or regulation, as then in effect.
(b) The Committee shall have full and complete authority in its discretion to determine, among other things, the Key Persons to whom, and the time or times at which, shares of the Company's common stock shall be awarded, the nature, timing, price and size of such awards, and whether the awards shall be made in lieu of regular compensation, bonus payments, or in addition thereto. The Committee shall have full and complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations pertaining to it, and to make all other determinations deemed necessary or desirable for the administration of the Plan.
Section 3. Participation in the Plan
(a) Participation in the Plan shall be limited to such Key Persons as shall from time to time be selected by the Committee.
(b) In determining the Key Persons to whom shares of the Company's common stock shall be granted and the number of shares to be covered by each award, the Committee shall take into consideration current position, current salary, value of the services rendered and expected to be rendered to the Company, recommendations of senior management, and other relevant factors.
(c) No member of the Board of Directors who is not also an officer or employee of the Company shall be eligible to participate in the Plan.
Section 4. Common Stock Subject to the Plan
(a) The total number of shares of the authorized common stock of the Company that may be issued pursuant to the Plan shall be 200,000 shares, and such shares shall be reserved for that purpose. The stock to be awarded pursuant to the Plan may be unissued shares or treasury shares.
(b) In the event of changes in the number of shares of common stock of the Company by reason of stock dividends, split ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares and the like, the Board of Directors shall make such adjustments as shall be just and equitable in the number of kind of shares reserved for award to Key Persons under the Plan and in any other matters that relate to the stock awards and that are affected by the changes referred to above.
Section 5. Securities Law Considerations
Neither the Plan nor the Company shall be obligated to issue any shares of common stock pursuant to the Plan at any time unless and until all applicable requirements imposed by any federal and state securities and other laws, rules and regulations, by any regulatory agencies, or by any stock exchange upon which the common stock may be listed, have been fully met. As a condition precedent to any issuance of shares of common stock and delivery of certificates evidencing such shares pursuant to the Plan, the Committee may require a Key Person to take such action and to make any such representation as the Committee in its discretion deems necessary or advisable to insure compliance with such requirements. Key Persons are responsible for complying with all applicable federal and state securities and other laws, rules and regulations in connection with any offer, sale or other transfer of the shares of the common stock issued pursuant to the Plan or any interest therein.
The Board of Directors has the right at any time and from time to time to amend or modify the Plan, except that (a) no such amendment or modification shall revoke or alter the terms of any stock award previously awarded in accordance with the Plan, without the consent of the holder of the stock, and (b) to the extent required for the Plan to comply or maintain compliance with Old Rule 16b-3 or any successor rule or regulation, such amendment or modification shall be subject to stockholder approval.
All taxes, if any, required to be withheld and payable with respect to the award of stock will be deducted from the Key Person's salary. If at any time such amounts are not adequate to cover taxes required to be withheld, the participant shall make adequate and timely arrangement with the Company for the payment of the excess as a condition of such award.
Section 8. Effectiveness of the Plan
The Plan shall become effective on the date the stockholders of the Company approve the Plan by the affirmative votes of holders of a majority of the shares present in person or represented by proxy and entitled to vote at a duly held meeting of stockholders. The Plan will terminate ten (10) years after the effective date unless sooner terminated by the Board.
|
10-Q
|
EX-10.1
| 1996-01-12T00:00:00
| 1996-01-12T14:47:51
|
0000950138-96-000010
|
0000950138-96-000010_0001.txt
|
CREDIT LYONNAIS NEW YORK BRANCH,
Dated as of November 17 , 1994
Amended and Restated as of December 29, 1995
SECTION 1. Amount and Terms of Credit . . . . . . . . . . . 1 1.01 The Commitments . . . . . . . . . . . . . . . . . 1 1.02 Minimum Amount of Each Borrowing . . . . . . . . 6 1.03 Notice of Borrowing . . . . . . . . . . . . . . 6 1.04 Disbursement of Funds . . . . . . . . . . . . . 7 1.05 Notes . . . . . . . . . . . . . . . . . . . . . 8 1.06 Conversions . . . . . . . . . . . . . . . . . . 10 1.07 Pro Rata Borrowings . . . . . . . . . . . . . . 11 1.08 Interest . . . . . . . . . . . . . . . . . . . . 11 1.09 Interest Periods . . . . . . . . . . . . . . . . 12 1.10 Increased Costs, Illegality, etc. . . . . . . . 13 1.11 Compensation . . . . . . . . . . . . . . . . . . 16 1.12 Change of Lending Office . . . . . . . . . . . . 16 1.13 Replacement of Banks . . . . . . . . . . . . . . 16
SECTION 2. Letters of Credit . . . . . . . . . . . . . . . 18 2.01 Letters of Credit . . . . . . . . . . . . . . . 18 2.02 Minimum Stated Amount . . . . . . . . . . . . . 20 2.03 Letter of Credit Requests . . . . . . . . . . . 20 2.04 Letter of Credit Participations . . . . . . . . 21 2.05 Agreement to Repay Letter of Credit Drawings and Acceptance Payments . . . . . . . . . . . . . . . . . . 23 2.06 Increased Costs . . . . . . . . . . . . . . . . 24
SECTION 3. Commitment Commission; Fees; Reductions of Commit- ment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.01 Fees . . . . . . . . . . . . . . . . . . . . . . 25 3.02 Voluntary Termination of Unutilized Commitments 26 3.03 Mandatory Reduction of Commitments . . . . . . . 27
SECTION 4. Prepayments; Payments; Taxes . . . . . . . . . . 28 4.01 Voluntary Prepayments . . . . . . . . . . . . . 28 4.02 Mandatory Repayments, Cash Collateralizations and Commitment Reductions . . . . . . . . . . . . . . . . . 30 4.03 Method and Place of Payment . . . . . . . . . . 39 4.04 Net Payments . . . . . . . . . . . . . . . . . . 39
SECTION 5. Conditions Precedent to Initial Credit Events . 41 5.01 Execution of Agreement; Notes . . . . . . . . . 42 5.02 Fees, etc. . . . . . . . . . . . . . . . . . . . 42 5.03 Opinions of Counsel . . . . . . . . . . . . . . 42 5.04 Corporate Documents; Proceedings; etc. . . . . . 42 5.05 Shareholders' Agreements; Collective Bargaining Agree ments; Permitted Debt Agreements; Tax Sharing Agreements . . . . . . . . . . . . . . . . . . . . . . . 43 5.06 Solvency; Environmental Analyses; Insurance Matters . . . . . . . . . . . . . . . . . . . . 44 5.07 Receivables Facility . . . . . . . . . . . . . . 44 5.08 Subsidiary Guaranty . . . . . . . . . . . . . . 44 5.09 Pledge Agreement . . . . . . . . . . . . . . . . 44 5.10 Security Agreement . . . . . . . . . . . . . . . 45 5.11 Mortgages; Title Insurance; Surveys; etc. . . . 46 5.12 Consent Letter . . . . . . . . . . . . . . . . . 47 5.13 Adverse Change; Governmental Approvals; etc. . . 47 5.14 Litigation . . . . . . . . . . . . . . . . . . . 48 5.15 Pro Forma Balance Sheet; Financial Statements; Projections . . . . . . . . . . . . . . . . . . . . 48 5.16 Acquisition; etc. . . . . . . . . . . . . . . . 49 5.17 Original Credit Agreement; etc. . . . . . . . . 49
SECTION 6. Conditions Precedent to All Credit Events . . . 50 6.01 No Default; Representations and Warranties . . . 50 6.02 Notice of Borrowing; Letter of Credit Request . 50
SECTION 7. Representations, Warranties and Agreements . . . 51 7.01 Corporate Status . . . . . . . . . . . . . . . . 51 7.02 Corporate Power and Authority . . . . . . . . . 51 7.03 No Violation . . . . . . . . . . . . . . . . . . 52 7.04 Governmental Approvals . . . . . . . . . . . . . 52 7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc. . . . . . . . 52 7.06 Litigation . . . . . . . . . . . . . . . . . . . 54 7.07 True and Complete Disclosure . . . . . . . . . . 55 7.08 Use of Proceeds; Margin Regulations . . . . . . 55 7.09 Tax Returns and Payments . . . . . . . . . . . . 56 7.10 Compliance with ERISA . . . . . . . . . . . . . 57 7.11 The Security Documents . . . . . . . . . . . . . 58 7.12 Representations and Warranties in Other Documents 59 7.13 Properties . . . . . . . . . . . . . . . . . . . 59 7.14 Capitalization . . . . . . . . . . . . . . . . . 60 7.15 Subsidiaries . . . . . . . . . . . . . . . . . . 61 7.16 Compliance with Statutes, etc. . . . . . . . . . 61 7.17 Investment Company Act . . . . . . . . . . . . . 61 7.18 Public Utility Holding Company Act . . . . . . . 61 7.19 Environmental Matters . . . . . . . . . . . . . 61 7.20 Labor Relations . . . . . . . . . . . . . . . . 62 7.21 Patents, Licenses, Franchises and Formulas . . . 63 7.22 Indebtedness . . . . . . . . . . . . . . . . . . 63 7.23 Transaction . . . . . . . . . . . . . . . . . . 63 7.24 Special Purpose Corporation . . . . . . . . . . 63
SECTION 8. Affirmative Covenants . . . . . . . . . . . . . 64 8.01 Information Covenants . . . . . . . . . . . . . 64 8.02 Books, Records and Inspections . . . . . . . . . 68 8.03 Maintenance of Property; Insurance . . . . . . . 68 8.04 Corporate Franchises . . . . . . . . . . . . . . 69 8.05 Compliance with Statutes, etc. . . . . . . . . . 70 8.06 Compliance with Environmental Laws . . . . . . . 70 8.07 ERISA . . . . . . . . . . . . . . . . . . . . . 71 8.08 End of Fiscal Years; Fiscal Quarters . . . . . . 72 8.09 Performance of Obligations . . . . . . . . . . . 73 8.10 Payment of Taxes . . . . . . . . . . . . . . . . 73 8.11 Additional Security; Further Assurances; Required Appraisals . . . . . . . . . . . . . . . . . . . . . . . 73 8.12 Interest Rate Protection . . . . . . . . . . . . 75 8.13 Ownership of Subsidiaries . . . . . . . . . . . 76 8.14 Permitted Acquisitions . . . . . . . . . . . . . 76 8.15 Maintenance of Corporate Separateness . . . . . 77 8.16 Cash Management System . . . . . . . . . . . . . 77
SECTION 9. Negative Covenants . . . . . . . . . . . . . . 78 9.01 Liens . . . . . . . . . . . . . . . . . . . . . 78 9.02 Consolidation, Merger, Purchase or Sale of Assets, etc. . . . . . . . . . . . . . . . . . . . . . 81 9.03 Dividends . . . . . . . . . . . . . . . . . . . 83 9.04 Indebtedness . . . . . . . . . . . . . . . . . . 84 9.05 Investments; etc. . . . . . . . . . . . . . . . 87 9.06 Transactions with Affiliates and Unrestricted Subsidiaries . . . . . . . . . . . . . . . . . 89 9.07 Capital Expenditures . . . . . . . . . . . . . . 90 9.08 Consolidated Net Interest Coverage Ratio . . . . 91 9.09 Consolidated EBITDA; Cumulative Consolidated EBITDA . . . . . . . . . . . . . . . . . . . . 92 9.10 Maximum Leverage Ratio . . . . . . . . . . . . . 94 9.11 Limitation on Modifications of and Payments on Indebtedness and Qualified Preferred Stock; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; Surviving Guaranty Payments, etc. . . . . . . . . . . . . 95 9.12 Limitation on Creation or Acquisition of Sub- sidiaries and Restricted Subsidiaries . . . 97 9.13 Limitation on Issuance of Capital Stock . . . . 97 9.14 Business . . . . . . . . . . . . . . . . . . . . 99 9.15 Limitation on Certain Restrictions on Subsidiaries . . . . . . . . . . . . . . . . . . 99 9.16 Limitation on Receivables and Receivables Facility . . . . . . . . . . . . . . . .. . . .100
SECTION 10. Events of Default . . . . . . . . . . . . . . . 100 10.01 Payments . . . . . . . . . . . . . . . . . . . 100 10.02 Representations, etc. . . . . . . . . . . . . . 100 10.03 Covenants . . . . . . . . . . . . . . . . . . . 101 10.04 Default Under Other Agreements . . . . . . . . 101 10.05 Bankruptcy, etc. . . . . . . . . . . . . . . . 101 10.06 ERISA . . . . . . . . . . . . . . . . . . . . . 102 10.07 Security Documents . . . . . . . . . . . . . . 102 10.08 Subsidiary Guaranty . . . . . . . . . . . . . . 103 10.09 Judgments . . . . . . . . . . . . . . . . . . . 103 10.10 Change of Control . . . . . . . . . . . . . . . 103 10.11 Tax Sharing Agreement . . . . . . . . . . . . . 103 10.12 Receivables Repurchases . . . . . . . . . . . . 103
SECTION 11. Definitions and Accounting Terms . . . . . . . 104 11.01 Defined Terms . . . . . . . . . . . . . . . . . 104
SECTION 12. The Agents . . . . . . . . . . . . . . . . . . 150 12.01 Appointment . . . . . . . . . . . . . . . . . . 150 12.02 Nature of Duties . . . . . . . . . . . . . . . 150 12.03 Lack of Reliance on the Administrative Agent, the Documentation Agent and the Syndication Agent . . . . . . . . . . . . . . . . . . . 151 12.04 Certain Rights of the Administrative Agent, the Documentation Agent and the Syndication Agent . . . . . . . . . . . . . . . . . . . 151 12.05 Reliance . . . . . . . . . . . . . . . . . . . 152 12.06 Indemnification . . . . . . . . . . . . . . . . 152 12.07 The Administrative Agent, the Documentation Agent and the Syndication Agent in its Individual Capacity . 152 12.08 Holders . . . . . . . . . . . . . . . . . . . . 153 12.09 Resignation by the Agents . . . . . . . . . . . 153
SECTION 13. Miscellaneous . . . . . . . . . . . . . . . . 154 13.01 Payment of Expenses, etc. . . . . . . . . . . . 154 13.02 Right of Setoff . . . . . . . . . . . . . . . . 155 13.03 Notices . . . . . . . . . . . . . . . . . . . . 155 13.04 Benefit of Agreement . . . . . . . . . . . . . 156 13.05 No Waiver; Remedies Cumulative . . . . . . . . 158 13.06 Payments Pro Rata . . . . . . . . . . . . . . . 158 13.07 Calculations; Computations . . . . . . . . . . 159 13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL . . . . . . . . . . . . 160 13.09 Counterparts . . . . . . . . . . . . . . . . . 161 13.10 Effectiveness . . . . . . . . . . . . . . . . . 161 13.11 Headings Descriptive . . . . . . . . . . . . . 162 13.12 Amendment or Waiver; etc. . . . . . . . . . . . 162 13.13 Survival . . . . . . . . . . . . . . . . . . . 164 13.14 Domicile of Loans . . . . . . . . . . . . . . . 164 13.15 Limitation on Additional Amounts, etc. . . . . 165 13.16 Confidentiality . . . . . . . . . . . . . . . . 165 13.17 Register . . . . . . . . . . . . . . . . . . . 166 13.18 Addition of New Banks; Conversion of Original Loans of Continuing Banks; Termination of Commitments of Non-Continuing Banks . . . . . . . . . . 166 13.19 Post Closing Actions . . . . . . . . . . . . . 168
CREDIT AGREEMENT, dated as of November 17, 1994 and amended and restated as of December 29, 1995, among INTERCO INCORPORATED, a Delaware corporation ("INTERCO"), BROYHILL FURNITURE INDUSTRIES, INC., a North Carolina corporation ("Broyhill"), THE LANE COMPANY, INCORPORATED, a Virginia corporation ("Lane"), THOMASVILLE FURNITURE INDUSTRIES, INC., a Pennsylvania corporation ("Thomasville" and together with INTERCO, Broyhill and Lane, each a "Borrower," and, collectively, the "Borrowers"), the Banks party hereto from time to time, CREDIT LYONNAIS NEW YORK BRANCH ("Credit Lyonnais"), as Documentation Agent, NATIONSBANK, N.A. ("NationsBank"), as Syndication Agent, and BANKERS TRUST COMPANY, as Administrative Agent (all capitalized terms used herein and defined in Section 11 are used herein as therein defined).
W I T N E S S E T H :
WHEREAS, the Borrowers (other than Thomasville), the Original Banks and the Administrative Agent are party to a Credit Agreement, dated as of November 17, 1994 (as in effect immediately prior to the Restatement Effective Date, the
WHEREAS, as part of the Acquisition, INTERCO is acquiring Thomasville and its Subsidiaries pursuant to the Stock Purchase
WHEREAS, the Borrowers, the Banks, the Documentation Agent, the Syndication Agent and the Administrative Agent desire to amend and restate the Original Credit Agreement in the form of this Agreement to, inter alia, permit the Acquisition and the financing therefor on the terms and subject to the conditions provided herein and make available to the Borrowers, on a joint and several basis, the respective credit facilities provided for
NOW, THEREFORE, the parties hereto agree that the Original Credit Agreement shall be and hereby is amended and restated in its entirety as follows:
SECTION 1. Amount and Terms of Credit.
1.01 The Commitments. (a) Subject to and upon the terms and conditions set forth herein, each Bank with an A Term Loan Commitment severally agrees, (A) in the case of each Continuing Bank, to convert into A Term Loans (as hereinafter defined), on the Restatement Effective Date, Original Term Loans made by such Continuing Bank pursuant to the Original Credit Agreement and outstanding on the Restatement Effective Date in an aggregate principal amount equal to the lesser of (x) the aggregate principal amount of such Original Term Loans made by such Continuing Bank and so outstanding or (y) such Continuing Bank's A Percentage (immediately after giving effect to the occurrence of the Restatement Effective Date) of the aggregate principal amount of Original Term Loans made by all Original Banks and outstanding on the Restatement Effective Date and/or (B) to make on the Restatement Effective Date a term loan (each, an "A Term Loan" and, collectively, the "A Term Loans") to the Borrowers, which A Term Loans (i) shall, at the option of the Borrowers, be Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 1.10(b), all Term Loans comprising the same Borrowing shall at all times be of the same Type and (B) no more than two Borrowings of A Term Loans to be maintained as Eurodollar Loans may be incurred or maintained prior to the 60th day after the Restatement Effective Date or, if later, the last day of the Interest Period applicable to the second Borrowing of Eurodollar Loans referred to in the succeeding parenthetical (each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and the first of which Borrowings may only be made on a single date, on or after the Restatement Effective Date and on or prior to the fourth Business Day following the Restatement Effective Date and the second of which Borrowings may only be made on the last day of the Interest Period of the first such Borrowing), (ii) shall equal for each Bank, in initial aggregate principal amount, an amount (which, in the case of each Continuing Bank, shall include the principal amount of Loans converted pursuant to clause (A) above) which equals the A Term Loan Commitment of such Bank on the Restatement Effective Date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(b)(i) but after giving effect to any reductions thereto on or prior to such date pursuant to Section 3.03(b)(ii)) and (iii) shall be joint and several obligations of each of the Borrowers. Once repaid, A Term Loans incurred hereunder may not be reborrowed.
(b) Subject to and upon the terms and conditions set forth herein, each Bank with a B Term Loan Commitment severally agrees to make on the Restatement Effective Date a term loan (each, a "B Term Loan" and, collectively, the "B Term Loans") to the Borrowers, which B Term Loans (i) shall, at the option of the Borrowers, be Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 1.10(b), all Term Loans comprising the same Borrowing shall at all times be of the same Type and (B) no more than two Borrowings of B Term Loans to be maintained as Eurodollar Loans may be incurred prior to the 60th day after the Restatement Effective Date or, if later, the last day of the Interest Period applicable to the second Borrowing of Eurodollar Loans referred to in the succeeding parenthetical (each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and the first of which Borrowings may only be made on the same date as the initial Borrowing of A Term Loans that are maintained as Eurodollar Loans and the second of which Borrowings may only be made on the last day of the Interest Period of the first such Borrowing), (ii) shall equal for each Bank, in initial aggregate principal amount, that amount which equals the B Term Loan Commitment of such Bank on the Restatement Effective Date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(c)(i) but after giving effect to any reductions thereto on or prior to such date pursuant to Section 3.03(c)(ii)) and (iii) shall be joint and several obligations of each of the Borrowers. Once repaid, B Term Loans incurred hereunder may not be reborrowed.
(c) Subject to and upon the terms and conditions set forth herein, each Bank with a C Term Loan Commitment severally agrees to make on the Restatement Effective Date a term loan (each, a "C Term Loan" and, collectively, the "C Term Loans") to the Borrowers, which C Term Loans (i) shall, at the option of the Borrowers, be Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 1.10(b), all Term Loans comprising the same Borrowing shall at all times be of the same Type and (B) no more than two Borrowings of C Term Loans to be maintained as Eurodollar Loans may be incurred prior to the 60th day after the Restatement Effective Date or, if later, the last day of the Interest Period applicable to the second Borrowing of Eurodollar Loans referred to in the succeeding parenthetical (each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and the first of which Borrowings may only be made on the same date as the initial Borrowing of A Term Loans incurred on or after the Restatement Effective Date that are maintained as Eurodollar Loans and the second of which Borrowings may only be made on the last day of the Interest Period of the first such Borrowing), (ii) shall equal for each Bank, in initial aggregate principal amount, that amount which equals the C Term Loan Commitment of such Bank on the Restatement Effective Date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(d)(i) but after giving effect to any reductions thereto on or prior to such date pursuant to Section 3.03(d)(ii)) and (iii) shall be joint and several obligations of each of the Borrowers. Once repaid, C Term Loans incurred hereunder may not be reborrowed.
(d) Subject to and upon the terms and conditions set forth herein, each Bank with a Revolving Loan Commitment severally agrees, at any time and from time to time on and after the Restatement Effective Date and prior to the Revolving Loan Maturity Date, to make a revolving loan or revolving loans (each, a "Revolving Loan" and, collectively, the "Revolving Loans") to the Borrowers, which Revolving Loans (i) shall, at the option of the Borrowers, be Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 1.10(b), all Revolving Loans comprising the same Borrowing shall at all times be of the same Type and (B) no more than two Borrowings of Revolving Loans to be maintained as Eurodollar Loans may be incurred prior to the 60th day after the Restatement Effective Date or, if later, the last day of the Interest Period applicable to the second Borrowing of Eurodollar Loans referred to in the succeeding parenthetical (each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and the first of which Borrowings may only be made on the same date as the initial Borrowing of A Term Loans incurred on or after the Restatement Effective Date that are maintained as Eurodollar Loans and the second of which Borrowings may only be made on the last day of the Interest Period of the first such Borrowing), (ii) may be repaid and reborrowed in accordance with the provisions hereof, (iii) shall not exceed for any Bank at any time outstanding that aggregate principal amount which, when added to the product of (x) such Bank's Adjusted Percentage and (y) the sum of (I) the aggregate amount of all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultan- eously with the incurrence of, the respective incurrence of Revolving Loans) at such time and (II) the aggregate principal amount of all Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) then outstanding, equals the Revolving Loan Commitment of such Bank at such time, (iv) shall not exceed for all Banks at any time out- standing that aggregate principal amount which, when added to (x) the aggregate amount of all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time and (y) the aggregate principal amount of all Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) then outstanding, equals the Total Revolving Loan Commitment at such time, (v) shall not exceed in aggregate principal amount on the Restatement Effective Date, when added to the aggregate principal amount of Swingline Loans incurred on such date, an amount equal to $75,000,000 and (vi) shall be the joint and several obligations of each of the Borrowers.
(e) Subject to and upon the terms and conditions herein set forth, BTCo in its individual capacity agrees to make at any time and from time to time on and after the Restatement Effective Date and prior to the Swingline Expiry Date, a revolving loan or revolving loans (each, a "Swingline Loan" and, collectively, the "Swingline Loans") to the Borrowers, which Swingline Loans (i) shall be made and maintained as Base Rate Loans, (ii) may be repaid and reborrowed in accordance with the provisions hereof, (iii) shall not exceed in aggregate prin- cipal amount at any time outstanding, when combined with the aggregate principal amount of all Revolving Loans made by Non- Defaulting Banks then outstanding and the Letter of Credit Outstandings at such time, an amount equal to the Adjusted Total Revolving Loan Commitment at such time (after giving effect to any reductions to the Adjusted Total Revolving Loan Commitment on such date), (iv) shall not exceed at any time outstanding the Maximum Swingline Amount, (v) shall not exceed in aggregate principal amount on the Restatement Effective Date, when added to the aggregate principal amount of Revolving Loans incurred on such date, an amount equal to $75,000,000, and (vi) shall be the joint and several obligations of each of the Borrowers.
(f) On any Business Day, BTCo may, in its sole discretion, give notice to the Banks that its outstanding Swingline Loans shall be funded with a Borrowing of Revolving Loans (provided that such notice shall be deemed to have been automatically given upon the occurrence of a Default or an Event of Default under Section 10.05 or upon the exercise of any of the remedies provided in the last paragraph of Section 10), in which case a Borrowing of Revolving Loans constituting Base Rate Loans (each such Borrowing, a "Mandatory Borrowing") shall be made on the immediately succeeding Business Day by all Banks with a Revolving Loan Commitment (without giving effect to any reductions thereto pursuant to the last paragraph of Section 10) pro rata based on each Bank's Adjusted Percentage (determined before giving effect to any termination of the Revolving Loan Commitments pursuant to the last paragraph of Section 10) and the proceeds thereof shall be applied directly to BTCo to repay BTCo for such outstanding Swingline Loans. Each such Bank hereby irrevocably agrees to make Revolving Loans upon one Business Day's notice pursuant to each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the date specified in writing by BTCo notwithstanding that (i) the amount of the Mandatory Borrowing may not comply with the minimum amount for Borrowings otherwise required hereunder, (ii) whether any conditions specified in Section 6 are then satisfied, (iii) whether a Default or an Event of Default then exists, (iv) the date of such Mandatory Borrowing and (v) the amount of the Total Revolving Loan Commitment or the Adjusted Total Revolving Loan Commitment at such time; provided that, in no event shall such Bank be required to make Revolving Loans in excess of such Bank's Revolving Loan Commitment. In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to any of the Borrowers), then each such Bank hereby agrees that it shall forthwith purchase (as of the date the Mandatory Borrowing would otherwise have occurred, but adjusted for any payments received from the Borrowers on or after such date and prior to such purchase) from BTCo such participations in the outstanding Swingline Loans as shall be necessary to cause such Banks to share in such Swingline Loans ratably based upon their respective Adjusted Percentages (determined before giving effect to any termination of the Revolving Loan Commitments pursuant to the last paragraph of Section 10), provided that (x) all interest payable on the Swingline Loans shall be for the account of BTCo until the date as of which the respective participation is required to be purchased and, to the extent attributable to the purchased participation, shall be payable to the participant from and after such date and (y) at the time any purchase of participations pursuant to this sentence is actually made, the purchasing Bank shall be required to pay BTCo interest on the principal amount of participation purchased for each day from and including the day upon which the Mandatory Borrowing would otherwise have occurred to but excluding the date of payment for such participation, at the overnight Federal Funds Rate for the first three days and at the rate otherwise applicable to Revolving Loans maintained as Base Rate Loans here- under for each day thereafter.
1.02 Minimum Amount of Each Borrowing. The aggregate principal amount of each Borrowing of any Term Loans shall not be less than $5,000,000 and, if greater, shall be in an integral multiple of $1,000,000. The aggregate principal amount of each Borrowing of Revolving Loans shall be not less than $1,000,000 and, if greater, shall be in an integral multiple of $500,000, provided that Mandatory Borrowings shall be made in the amounts required by Section 1.01(f). The aggregate principal amount of each Borrowing of Swingline Loans shall not be less than $500,000 and, if greater, shall be in an integral multiple of $100,000. More than one Borrowing may occur on the same date, but at no time shall there be outstanding more than twelve Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrowers desire to make a Borrowing hereunder (excluding Borrowings of Swingline Loans and Mandatory Borrowings), an Authorized Representative of the Borrowers shall give the Administrative Agent at its Notice Office at least one Business Day's prior written (or telephonic notice promptly confirmed in writing) notice of each Base Rate Loan and at least three Business Days' prior written (or telephonic notice promptly confirmed in writ- ing) notice of each Eurodollar Loan to be made hereunder, provided that any such notice shall be deemed to have been given on a certain day only if given before 11:00 A.M. (New York time) (12:00 Noon (New York time) in the case of a Borrowing of Base Rate Loans) on such day. Each such written notice or written confirmation of telephonic notice (each a "Notice of Borrowing"), except as otherwise expressly provided in Section 1.10, shall be irrevocable and shall be given by the Borrowers in the form of Exhibit A, appropriately completed to specify the aggregate principal amount of the Loans to be made pursuant to such Borrowing, the date of such Borrowing (which shall be a Business Day), whether the Loans being made pursuant to such Borrowing shall constitute A Term Loans, B Term Loans, C Term Loans or Revolving Loans and whether the Loans being made pursuant to such Borrowing are to be initially maintained as Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the initial Interest Period to be applicable thereto. The Administrative Agent shall promptly give each Bank which is re- quired to make Loans of the Tranche specified in the respective Notice of Borrowing, notice of such proposed Borrowing, of such Bank's proportionate share thereof and of the other matters re- quired by the immediately preceding sentence to be specified in the Notice of Borrowing.
(b) (i) Whenever the Borrowers desire to make a Borrowing of Swingline Loans hereunder, an Authorized Representative of the Borrowers shall give BTCo not later than 12:00 Noon (New York time) on the date that a Swingline Loan is to be made, written notice or telephonic notice promptly confirmed in writing of each Swingline Loan to be made hereunder. Each such notice shall be irrevocable and specify in each case (A) the date of Borrowing (which shall be a Business Day) and (B) the aggregate principal amount of the Swingline Loans to be made pursuant to such Borrowing.
(ii) Mandatory Borrowings shall be made upon the notice specified in Section 1.01(f), with each Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of the Mandatory Borrowings as set forth in Section 1.01(f).
(c) Without in any way limiting the obligation of the Borrowers to confirm in writing any telephonic notice of any Borrowing of Loans, the Administrative Agent may act without liability upon the basis of telephonic notice of such Borrowing, believed by the Administrative Agent in good faith to be from an Authorized Representative of any Borrower prior to receipt of written confirmation. In each such case, each Borrower hereby waives the right to dispute the Administrative Agent's record of the terms of such telephonic notice of such Borrowing of Loans.
1.04 Disbursement of Funds. Except as otherwise specifically provided in the immediately succeeding sentence, no later than 12:00 Noon (New York time) on the date specified in each Notice of Borrowing (or (x) in the case of Swingline Loans, not later than 2:00 P.M. (New York time) on the date specified pursuant to Section 1.03(b)(i) or (y) in the case of Mandatory Borrowings, not later than 12:00 Noon (New York time) on the date specified in Section 1.01(f)), each Bank with a Commitment of the respective Tranche will make available its pro rata portion of each such Borrowing requested to be made on such date (or in the case of Swingline Loans, BTCo shall make available the full amount thereof). All such amounts shall be made available in Dollars and in immediately available funds at the Payment Office of the Administrative Agent, and the Administrative Agent will make available to the Borrowers at the Payment Office the aggregate of the amounts so made available by the Banks (prior to 1:00 P.M. (New York time)) on such day, to the extent of funds actually received by the Administrative Agent prior to 12:00 Noon (New York time) on such day). Unless the Administrative Agent shall have been notified by any Bank prior to the date of Borrowing that such Bank does not intend to make available to the Administrative Agent such Bank's portion of any Borrowing to be made on such date, the Administrative Agent may assume that such Bank has made such amount available to the Administrative Agent on such date of Borrowing and the Administrative Agent may, in reliance upon such assumption, make available to the Borrowers a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Bank, the Administrative Agent shall be entitled to recover such corre- sponding amount on demand from such Bank. If such Bank does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Borrowers to immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover on demand from such Bank or the Borrowers, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrowers until the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (i) if recovered from such Bank, the overnight Federal Funds Rate and (ii) if recovered from the Borrowers, the rate of interest appli- cable to the respective Borrowing, as determined pursuant to Sec- tion 1.08. Nothing in this Section 1.04 shall be deemed to relieve any Bank from its obligation to make Loans hereunder or to prejudice any rights which the Borrowers may have against any Bank as a result of any failure by such Bank to make Loans here- under.
1.05 Notes. (a) The Borrowers' obligation to pay the principal of, and interest on, the Loans made by each Bank shall be evidenced (i) if A Term Loans, by a promissory note duly executed and delivered by the Borrowers substantially in the form of Exhibit B-1 with blanks appropriately completed in conformity herewith (each, an "A Term Note" and, collectively, the "A Term Notes"), (ii) if B Term Loans, by a promissory note duly executed and delivered by the Borrowers substantially in the form of Exhi- bit B-2 with blanks appropriately completed in conformity herewith (each, a "B Term Note" and, collectively, the "B Term Notes"), (iii) if C Term Loans, by a promissory note duly executed and delivered by the Borrowers substantially in the form of Exhibit B-3 with blanks appropriately completed in conformity herewith (each, a "C Term Note" and, collectively, the "C Term Notes"), (iv) if Revolving Loans, by a promissory note duly executed and delivered by the Borrowers substantially in the form of Exhibit B-4, with blanks appropriately completed in conformity herewith (each, a "Revolving Note" and, collectively, the "Revolving Notes") and (v) if Swingline Loans, by a promissory note duly executed and delivered by the Borrowers substantially in the form of Exhibit B-5, with blanks appropriately completed in conformity herewith (the "Swingline Note").
(b) The A Term Note issued to each Bank shall (i) be executed by the Borrowers, (ii) be payable to the order of such Bank or its registered assigns and be dated the Restatement Effective Date, (iii) be in a stated principal amount equal to the aggregate principal amount of A Term Loans made by such Bank on the Restatement Effective Date and be payable in the principal amount of A Term Loans evidenced thereby, (iv) mature on the A Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.
(c) The B Term Note issued to each Bank shall (i) be executed by the Borrowers, (ii) be payable to the order of such Bank or its registered assigns and be dated the Restatement Effective Date, (iii) be in a stated principal amount equal to the aggregate principal amount of B Term Loans made by such Bank on the Restatement Effective Date and be payable in the principal amount of B Term Loans evidenced thereby, (iv) mature on the B Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.
(d) The C Term Note issued to each Bank shall (i) be executed by the Borrowers, (ii) be payable to the order of such Bank or its registered assigns and be dated the Restatement Effective Date, (iii) be in a stated principal amount equal to the aggregate principal amount of C Term Loans made by such Bank on the Restatement Effective Date and be payable in the principal amount of C Term Loans evidenced thereby, (iv) mature on the C Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.
(e) The Revolving Note issued to each Bank shall (i) be executed by the Borrowers, (ii) be payable to the order of such Bank or its registered assigns and be dated the Restatement Effective Date, (iii) be in a stated principal amount equal to the Revolving Loan Commitment of such Bank and be payable in the principal amount of the Revolving Loans evidenced thereby, (iv) mature on the Revolving Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as pro- vided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.
(f) The Swingline Note issued to BTCo shall (i) be executed by the Borrowers, (ii) be payable to the order of BTCo or its registered assigns and be dated the Restatement Effective Date, (iii) be in a stated principal amount equal to the Maximum Swingline Amount and be payable in the principal amount of the outstanding Swingline Loans evidenced thereby from time to time, (iv) mature on the Swingline Expiry Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans evidenced thereby and (vi) be entitled to the benefits of this Agreement and the other Credit Documents.
(g) Each Bank will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will prior to any transfer of any of its Notes endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation or any error in any such notation or endorsement shall not affect the Borrowers' obligations in respect of such Loans.
1.06 Conversions. The Borrowers shall have the option to convert, on any Business Day occurring after the Restatement Effective Date, all or a portion equal to at least (1) in the case of a conversion of Term Loans, $5,000,000 (and, if greater, in an integral multiple of $1,000,000) and (2) in the case of a conversion of Revolving Loans, $1,000,000 (and, if greater, in an integral multiple of $500,000), of the outstanding principal amount of Loans made pursuant to one or more Borrowings (so long as of the same Tranche) of one or more Types of Loans into a Borrowing (of the same Tranche) of another Type of Loan, provided that (i) except as otherwise provided in Section 1.10(b), Euro- dollar Loans may be converted into Base Rate Loans only on the last day of an Interest Period applicable to the Loans being converted and no such partial conversion of Eurodollar Loans shall reduce the outstanding principal amount of such Eurodollar Loans made pursuant to a single Borrowing to less than (x) in the case of Term Loans, $5,000,000 and (y) in the case of Revolving Loans, $1,000,000, (ii) Base Rate Loans may only be converted into Eurodollar Loans if no Default or Event of Default is in existence on the date of the conversion, (iii) prior to the 60th day after the Restatement Effective Date, conversions of Base Rate Loans into Eurodollar Loans may only be made if the conversion is effective on the first day of an Interest Period referred to in clause (B) of the respective provisos to Sections 1.01(a)(i), 1.01(b)(i), 1.01(c)(i) and 1.01(d)(i) and so long as such conversion does not result in a greater number of Borrowings of Eurodollar Loans prior to the 60th day after the Restatement Effective Date or, if later, the last day of the Interest Period applicable to the second Borrowing of Eurodollar Loans referred to in said clauses, as are permitted under Sections 1.01(a) through (d), (iv) no conversion pursuant to this Section 1.06 shall result in a greater number of Borrowings of Eurodollar Loans than is permitted under Section 1.02 and (v) Swingline Loans may not be converted pursuant to this Section 1.06. Each such conversion shall be effected by the Borrowers by giving the Administrative Agent at its Notice Office prior to 12:00 Noon (New York time) at least three Business Days' prior notice (each a "Notice of Conversion") specifying the Loans to be so con- verted, the Borrowing or Borrowings pursuant to which such Loans were made and, if to be converted into Eurodollar Loans, the Interest Period to be initially applicable thereto. The Administrative Agent shall give each Bank prompt notice of any such proposed conversion affecting any of its Loans.
1.07 Pro Rata Borrowings. All Borrowings of Term Loans and Revolving Loans under this Agreement shall be incurred from the Banks pro rata on the basis of their A Term Loan Commitments, B Term Loan Commitments, C Term Loan Commitments or Revolving Loan Commitments, as the case may be, provided that all Borrowings of Revolving Loans made pursuant to a Mandatory Borrowing shall be incurred from the Banks pro rata on the basis of their Adjusted Percentages. It is understood that no Bank shall be responsible for any default by any other Bank of its obligation to make Loans hereunder and that each Bank shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Bank to make its Loans hereunder.
1.08 Interest. (a) The Borrowers jointly and severally agree to pay interest in respect of the unpaid principal amount of each Base Rate Loan from the date the proceeds thereof are made available to the Borrowers until the earlier of (i) the maturity (whether by acceleration or otherwise) of such Base Rate Loan and (ii) the conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06, at a rate per annum which shall be equal to the sum of the Applicable Margin plus the Base Rate in effect from time to time.
(b) The Borrowers jointly and severally agree to pay interest in respect of the unpaid principal amount of each Eurodollar Loan from the date the proceeds thereof are made available to the Borrowers until the earlier of (i) the maturity (whether by acceleration or otherwise) of such Eurodollar Loan and (ii) the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06 or 1.10, as applicable, at a rate per annum which shall, during each Interest Period applicable thereto, be equal to the sum of the Applicable Margin plus the Eurodollar Rate for such Interest Period.
(c) Overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan and any other overdue amount payable hereunder shall, in each case, bear interest at a rate per annum equal to the greater of (x) 2% per annum in excess of the rate otherwise applicable to Base Rate Loans from time to time and (y) the rate which is 2% in excess of the rate then borne by such Loans, in each case with such interest to be payable on a joint and several basis by the Borrowers on demand.
(d) Accrued (and theretofore unpaid) interest shall be payable (i) in respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment Date, (ii) in respect of each Eurodollar Loan, on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period and (iii) in respect of each Loan other than Swingline Loans and Revolving Loans which are Base Rate Loans, on any repayment or prepayment (on the amount repaid or prepaid), and in respect of each Loan, at maturity (whether by acceleration or otherwise) and, after such maturity, on demand.
(e) Upon each Interest Determination Date, the Administrative Agent shall determine the Eurodollar Rate for the respective Interest Period or Interest Periods and shall promptly notify the Borrowers and the Banks thereof. Each such deter- mination shall, absent manifest error, be final and conclusive and binding on all parties hereto.
1.09 Interest Periods. At the time the Borrowers give any Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, any Eurodollar Loan (in the case of the initial Interest Period applicable thereto) or on the third Business Day prior to the expiration of an Interest Period applicable to such Eurodollar Loan (in the case of any subsequent Interest Period), the Borrowers shall have the right to elect, by having an Authorized Representative of the Borrowers give the Administrative Agent notice thereof, the interest period (each an "Interest Period") applicable to such Eurodollar Loan, which Interest Period shall, at the option of the Borrowers, be a one, two, three or six-month period, provided that:
(i) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall commence on the date of Borrowing of such Eurodollar Loan (including the date of any conversion thereto from a Loan of a different Type) and each Interest Period occurring thereafter in respect of such Eurodollar Loan shall commence on the day on which the next preceding Interest Period
(iii) if any Interest Period relating to a Eurodollar Loan begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, however, that if any Interest Period for a Eurodollar Loan would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day;
(v) no Interest Period may be selected at any time when a Default or an Event of Default is then in existence;
(vi) no Interest Period in respect of any Borrowing shall be selected which extends beyond (w) the A Term Loan Maturity Date, in the case of A Term Loans, (x) the B Term Loan Maturity Date, in the case of B Term Loans, (y) the C Term Loan Maturity Date, in the case of C Term Loans or (z) the Revolving Loan Maturity Date, in the case of Revolving
(vii) no Interest Period in respect of any Borrowing of A Term Loans, B Term Loans or C Term Loans shall be selected which extends beyond any date upon which a mandatory repayment of A Term Loans, B Term Loans or C Term Loans, as the case may be, will be required to be made under Sections 4.02(b), (c) or (d) if the aggregate principal amount of A Term Loans, B Term Loans or C Term Loans, as the case may be, which have Interest Periods which will expire after such date will be in excess of the aggregate principal amount of such Tranche of Term Loans then outstanding less the aggre- gate amount of such required prepayment.
If upon the expiration of any Interest Period applic- able to a Borrowing of Eurodollar Loans, the Borrowers have failed to elect, or are not permitted to elect, a new Interest Period to be applicable to such Eurodollar Loans as provided above, the Borrowers shall be deemed to have elected to convert such Eurodollar Loans into Base Rate Loans effective as of the expiration date of such current Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that any Bank shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto but, with respect to clause (i) below, may be made only by the Administrative Agent):
(i) on any Interest Determination Date that, by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of
(ii) at any time, that such Bank shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loan because of (x) any change since the date of this Agreement in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order, guideline or request, such as, for example, but not limited to: (A) a change in the basis of taxation of payment to any Bank of the principal of or interest on such Eurodollar Loan or any other amounts payable hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or net profits of such Bank, or any franchise tax based on the net income or net profits of such Bank, in either case pursuant to the laws of the United States of America, the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein), but without duplication of any amounts payable in respect of Taxes pursuant to Section 4.04(a), or (B) a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Eurodollar Rate and/or (y) other circumstances since the date of this Agreement affecting such Bank or the interbank Eurodollar market or the position of such Bank in such market (except as a result of a deterioration in the creditworthiness of such Bank subsequent to the date hereof); or
(iii) at any time, that the making or continuance of any Eurodollar Loan has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by any Bank in good faith with any governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the interbank Eurodollar market;
then, and in any such event, such Bank (or the Administrative Agent, in the case of clause (i) above) shall promptly give notice (by telephone confirmed in writing) to the Borrowers and, except in the case of clause (i) above, to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each of the other Banks). Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Administrative Agent notifies the Borrowers and the Banks that the circumstances giving rise to such notice by the Administrative Agent no longer exist, and any Notice of Borrowing or Notice of Conversion given by the Borrowers with respect to Eurodollar Loans which have not yet been incurred (including by way of conversion) shall be deemed rescinded by the Borrowers, (y) in the case of clause (ii) above, the Borrowers jointly and severally agree to, subject to the provisions of Section 13.15 (to the extent applicable), pay to such Bank, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its sole discretion shall determine) as shall be required to compensate such Bank for such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to such Bank, showing the basis for the calculation thereof, submitted to the Borrowers by such Bank in good faith shall, absent manifest error, be final and conclusive and binding on all the parties hereto) and (z) in the case of clause (iii) above, the Borrowers shall take one of the actions specified in Section 1.10(b) as promptly as possible and, in any event, within the time period required by law. Each of the Administrative Agent and each Bank agrees that if it gives notice to the Borrowers of any of the events described in clause (i) or (iii) above, it shall promptly notify the Borrowers and, in the case of any such Bank, the Administrative Agent, if such event ceases to exist. If any such event described in clause (iii) above ceases to exist as to a Bank, the obligations of such Bank to make Eurodollar Loans and to convert Base Rate Loans into Eurodollar Loans on the terms and conditions contained herein shall be reinstated.
(b) At any time that any Eurodollar Loan is affected by the circumstances described in Section 1.10(a)(ii) or (iii), the Borrowers may (and in the case of a Eurodollar Loan affected by the circumstances described in Section 1.10(a)(iii) shall) either (x) if the affected Eurodollar Loan is then being made initially or pursuant to a conversion, cancel the respective Borrowing by giving the Administrative Agent telephonic notice (confirmed in writing) on the same date that the Borrowers were notified by the affected Bank or the Administrative Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if the affected Eurodollar Loan is then outstanding, upon at least three Business Days' written notice to the Administrative Agent, require the affected Bank to convert such Eurodollar Loan into a Base Rate Loan, provided that, if more than one Bank is affected at any time, then all affected Banks must be treated the same pursuant to this Section 1.10(b).
(c) If at any time after the date of this Agreement any Bank determines that the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Bank or any corporation controlling such Bank based on the existence of such Bank's Commitments hereunder or its obligations hereunder, then the Borrowers jointly and severally agree, subject to the provisions of Section 13.15 (to the extent applicable), to pay to such Bank, upon its written demand therefor, such additional amounts as shall be required to compensate such Bank or such other corporation for the increased cost to such Bank or such other corporation or the reduction in the rate of return to such Bank or such other corporation as a result of such increase of capital. In determining such additional amounts, each Bank will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that such Bank's reasonable good faith determination of compensation owing under this Section 1.10(c) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. Each Bank, upon determining that any additional amounts will be payable pursuant to this Section 1.10(c), will give written notice thereof to the Borrowers, which notice shall show the basis for calculation of such additional amounts.
1.11 Compensation. The Borrowers jointly and severally agree, subject to the provisions of Section 13.15 (to the extent applicable), to compensate each Bank, upon its written request (which request shall set forth the basis for requesting such com- pensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Bank to fund its Eurodollar Loans but excluding any loss of anticipated profit) which such Bank may sustain: (i) if for any reason (other than a default by such Bank or the Administrative Agent) a Borrowing of, or conversion from or into, Eurodollar Loans does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the Borrowers or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any repayment (including any repayment made pursuant to Section 4.02 or as a result of an acceleration of the Loans pursuant to Section 10) or conversion of any of its Eurodollar Loans occurs on a date which is not the last day of an Interest Period with respect thereto; (iii) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrowers; or (iv) as a consequence of (x) any other default by the Borrowers to repay its Loans when required by the terms of this Agreement or any Note held by such Bank or (y) any election made pursuant to Section 1.10(b).
1.12 Change of Lending Office. Each Bank agrees that upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.06 or Section 4.04 with respect to such Bank, it will, if requested by the Borrowers, use reasonable efforts (subject to overall policy considerations of such Bank) to designate another lending office for any Loans or Letters of Credit affected by such event, provided that such designation is made on such terms that such Bank and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of such Section. Nothing in this Section 1.12 shall affect or postpone any of the obligations of the Borrowers or the rights of any Bank provided in Sections 1.10, 2.06 and 4.04.
1.13 Replacement of Banks. (x) If any Bank becomes a Defaulting Bank or otherwise defaults in its obligations to make Loans or fund Unpaid Drawings, (y) upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.06 or Section 4.04 with respect to any Bank which results in such Bank charging to the Borrowers increased costs in excess of those being generally charged by the other Banks or (z) as provided in Section 13.12(b) in the case of certain refusals by a Bank to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks, the Borrowers shall have the right, if no Default or Event of Default will exist immediately after giving effect to the respective re- placement, to either replace such Bank (the "Replaced Bank") with one or more other Eligible Transferee or Transferees, none of whom shall constitute a Defaulting Bank at the time of such replacement (collectively, the "Replacement Bank") reasonably acceptable to the Administrative Agent or, at the option of the Borrowers, to replace only (a) the Revolving Loan Commitment (and outstandings pursuant thereto) of the Replaced Bank with an identical Revolving Loan Commitment provided by the Replacement Bank or (b) in the case of a replacement as provided in Section 13.12(b) where the consent of the respective Bank is required with respect to less than all Tranches of its Loans or Commitments, the Commitments and/or outstanding Term Loans of such Bank in respect of each Tranche where the consent of such Bank would otherwise be individually required, with identical Commitments and/or Loans of the respective Tranche provided by the Replacement Bank, provided that (i) at the time of any replacement pursuant to this Section 1.13, the Replacement Bank shall enter into one or more Assignment and Assumption Agreements pursuant to Section 13.04(b) (and with all fees payable pursuant to said Section 13.04(b) to be paid by the Replacement Bank) pur- suant to which the Replacement Bank shall acquire all of the Commitments and outstanding Loans of, and participations in Letters of Credit by (or, in the case of the replacement of only (a) the Revolving Loan Commitment, the Revolving Loan Commitment and outstanding Revolving Loans and participations in Letters of Credit or (b) any Tranche of Term Loans, the outstanding Term Loans of such Tranche), the Replaced Bank and, in connection therewith, shall pay to (x) the Replaced Bank in respect thereof an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans (or, in the case of the replacement of only (I) the Revolving Loan Commitment, the outstanding Revolving Loans or (II) any Tranche of the Term Loans, the outstanding Term Loans of such Tranche) of the Replaced Bank, (B) except in the case of the replacement of only outstanding Term Loans of a Replaced Bank, an amount equal to all Unpaid Drawings that have been funded by (and not reimbursed to) such Replaced Bank, together with all then unpaid interest with respect thereto at such time and (C) an amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced Bank (but only with respect to the relevant Tranche or Tranches, in the case of the replacement of less than all Tranches of Loans then held by the respective Replaced Bank) pursuant to Section 3.01 and (y) except in the case of the replacement of only outstanding Term Loans of a Replaced Bank, BTCo an amount equal to such Replaced Bank's Adjusted Percentage (for this purpose, determined as if the adjustment described in clause (y) of the immediately succeeding sentence had been made with respect to such Replaced Bank) of (1) any Unpaid Drawing (which at such time remains an Unpaid Drawing) and (2) any portion of any Swingline Loan for which BTCo has given a notice of a Mandatory Borrowing pursuant to Section 1.01(f) and such Replaced Bank has not provided a Revolving Loan which it was obligated to provide to the extent such amount was not theretofore funded by such Replaced Bank, and (ii) all obli- gations of the Borrowers owing to the Replaced Bank (other than those (a) specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concur- rently being, paid or (b) relating to any Tranche of Loans and/or Commitments of the respective Replaced Bank which will remain outstanding after giving effect to the respective replacement) shall be paid in full to such Replaced Bank concurrently with such replacement. Upon the execution of the respective Assignment and Assumption Agreements, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Bank, delivery to the Replacement Bank of the appropriate Note or Notes executed by the Borrowers, (x) the Replacement Bank shall become a Bank hereunder and, unless the respective Replaced Bank continues to have outstanding Term Loans or a Revolving Loan Commitment hereunder, the Replaced Bank shall cease to constitute a Bank hereunder, except with respect to indemnification provisions under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.06, 4.04, 13.01 and 13.06), which shall survive as to such Replaced Bank and (y) in the case of a replacement of a Defaulting Bank with a Non- Defaulting Bank, the Adjusted Percentages of the Banks shall be automatically adjusted at such time to give effect to such replacement (and to give effect to the replacement of a Defaulting Bank with one or more Non-Defaulting Banks).
SECTION 2. Letters of Credit.
2.01 Letters of Credit. (a) Subject to and upon the terms and conditions herein set forth, the Borrowers may request that any Issuing Bank issue, at any time and from time to time on and after the Restatement Effective Date and prior to the Revolving Loan Maturity Date, for the joint and several account of the Borrowers, one or more irrevocable letters of credit denominated in Dollars or, in the case of Trade Letters of Credit, through the creation thereunder by the respective Issuing Bank of accept- ances or any other customary agreement or method for providing for deferred payment under letters of credit ("Acceptances"), and otherwise in a form customarily used by such Issuing Bank or in such other form as has been approved by such Issuing Bank (each such letter of credit, a "Letter of Credit") in support of obligations described in the definitions of Standby Letter of Credit or Trade Letter of Credit and any other obligations of the Borrowers or any of their Restricted Subsidiaries that are reasonably acceptable to the Administrative Agent and otherwise permitted to exist pursuant to this Agreement. On the Restatement Effective Date, all Existing Letters of Credit shall be deemed to have been issued under this Agreement and shall for all purposes constitute "Letters of Credit" hereunder.
(b) Each Issuing Bank may agree, in its sole dis- cretion, and BTCo hereby agrees that in the event a requested Letter of Credit is not issued by one of the other Issuing Banks, it will (subject to the terms and conditions contained herein), at any time and from time to time on or after the Restatement Effective Date and prior to the Revolving Maturity Date, following its receipt of the respective Letter of Credit Request, issue for the account of the Borrowers one or more Letters of Credit in support of such obligations described in the definitions of Standby Letter of Credit and Trade Letter of Credit of the Borrowers or any of their Restricted Subsidiaries as is permitted to exist pursuant to this Agreement without giv- ing rise to a Default or Event of Default hereunder, provided that the respective Issuing Bank shall be under no obligation to issue any Letter of Credit of the types described above if at the time of such issuance:
(i) any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain such Issuing Bank from issuing such Letter of Credit or any requirement of law applicable to such Issuing Bank or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over such Issuing Bank shall prohibit, or request that such Issuing Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Bank with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Issuing Bank is not otherwise compensated) not in effect on the date hereof, or any unreimbursed loss, cost or expense which was not applic- able, in effect or known to such Issuing Bank as of the date hereof and which such Issuing Bank in good faith deems
(ii) such Issuing Bank shall have received notice from any Bank prior to the issuance of such Letter of Credit of the type described in the penultimate sentence of Section 2.03(b).
(c) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued the Stated Amount of which, when added to the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and prior to the issuance of, the respective Letter of Credit) at such time would exceed either (x) $60,000,000 or (y) when added to the aggregate principal amount of all Revolving Loans made by Non-Defaulting Banks and then outstanding and Swingline Loans then outstanding, an amount equal to the Adjusted Total Revolving Loan Commitment at such time, (ii) no Acceptance shall be created the Stated Amount of which, when added to the amount of all Acceptances outstanding at such time, would exceed $15,000,000 and (iii) each Letter of Credit shall by its terms terminate or be terminable by the Issuing Bank on such date that would result in all drawings thereunder, or any Acceptances created thereunder, being funded pursuant to the terms thereof prior to (x) (A) in the case of Standby Letters of Credit, the date which occurs 12 months after the date of the issuance thereof (although any such Letter of Credit may be extendable for successive periods of up to 12 months, but not beyond the Revolving Loan Maturity Date, on terms acceptable to the Issuing Bank thereof) and (B) in the case of Trade Letters of Credit, the date which occurs six months (or up to one year with the consent of the respective Issuing Bank) after the date of the issuance thereof or (y) (A) in the case of Standby Letters of Credit, the date which is five Business Days prior to the Revolving Loan Maturity Date and (B) in the case of Trade Letters of Credit, the date which is thirty Business Days prior to the Revolving Loan Maturity Date.
2.02 Minimum Stated Amount. The Stated Amount of each Letter of Credit shall be not less than $10,000 or such lesser amount as is acceptable to the respective Issuing Bank.
2.03 Letter of Credit Requests. (a) Whenever any Borrower desires that a Letter of Credit be issued by the Administrative Agent as Issuing Bank for its account, it shall have (i) executed and delivered the Letter of Credit Service Agreement in the form of Exhibit C-1 attached hereto (as amended, modified or supplemented from time to time, the "Letter of Credit Service Agreement"), which Letter of Credit Service Agreement shall be in full force and effect and (ii) made a request for the issuance of such Letter of Credit in accordance with the terms of the Letter of Credit Service Agreement. Whenever any Borrower desires that a Trade Letter of Credit be issued by an Issuing Bank other than the Administrative Agent for its account, it shall have (x) executed and delivered to the respective Issuing Bank (with copies having been sent to the Administrative Agent) at least five Business Days prior to the issuance thereof, a Trade Letter of Credit Request in the form of Exhibit C-2 attached hereto (each a "Trade Letter of Credit Request") and (y) completed and executed a letter of credit application in the form customarily used by such Issuing Bank for Trade Letters of Credit or in such other form as the Administrative Agent and the Issuing Bank shall request. Whenever any Borrower desires that a Standby Letter of Credit be issued by an Issuing Bank other than the Administrative Agent for its account it shall have executed and delivered to the respective Issuing Bank (with copies having been sent to the Administrative Agent) at least five Business Days prior to the issuance thereof, a Standby Letter of Credit Request in the form of Exhibit C-3 attached hereto (each a "Standby Letter of Credit Request"). Letter of Credit Requests shall be given in writing, or in the case of requests of Trade Letters of Credit, by telephone, if promptly confirmed in writing, or, if the Administrative Agent is the Issuing Bank, as otherwise provided in the Letter of Credit Service Agreement, provided that (I) if the express provisions of any letter of credit application conflict with the express provisions of this Agreement, the provisions of this Agreement shall control to the extent of such conflict and (II) no event (other than the failure to reimburse Letter of Credit Drawings as provided for in Section 2.05) which constitutes a default under any application shall constitute an Event of Default hereunder solely by reason of any default provisions contained in such application.
(b) The making of each Letter of Credit Request shall be deemed to be a representation and warranty by the Borrowers that such Letter of Credit may be issued in accordance with, and will not violate the requirements of, Section 2.01(c). Unless the respective Issuing Bank has received notice from any Bank before it issues a Letter of Credit that one or more of the conditions specified in Section 6 are not then satisfied, or that the issuance of such Letter of Credit would violate Section 2.01(c), then such Issuing Bank may issue the requested Letter of Credit for the account of the Borrowers in accordance with such Issuing Bank's usual and customary practices. Upon its issuance of any Letter of Credit, such Issuing Bank shall promptly notify each Bank of such issuance.
2.04 Letter of Credit Participations. (a) Immediately upon the issuance by any Issuing Bank of any Letter of Credit, such Issuing Bank shall be deemed to have sold and transferred to each Bank with a Revolving Loan Commitment, other than such Issuing Bank (each such Bank, in its capacity under this Section 2.04, a "Participant"), and each such Participant shall be deemed irrevo- cably and unconditionally to have purchased and received from such Issuing Bank, without recourse or warranty, an undivided interest and participation, to the extent of such Participant's Adjusted Percentage in such Letter of Credit, each drawing made thereunder and Acceptances created thereunder and the obligations of the Borrowers under this Agreement with respect thereto, and any security therefor or guaranty pertaining thereto. Upon any change in the Revolving Loan Commitments or Adjusted Percentages of the Banks pursuant to Section 1.13 or 13.04 or as a result of a Bank Default, it is hereby agreed that, with respect to all outstanding Letters of Credit, Acceptances and Unpaid Drawings, there shall be an automatic adjustment to the participations pursuant to this Section 2.04 to reflect the new Adjusted Percentages of the assignor and assignee Bank or of all Banks with Revolving Loan Commitments, as the case may be.
(b) In determining whether to pay or create an Acceptance under any Letter of Credit, such Issuing Bank shall have no obligation relative to the other Banks other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to substantially comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Issuing Bank under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for such Issuing Bank any resulting liability to the Borrowers or any Bank.
(c) In the event that any Issuing Bank makes any payment under any Letter of Credit issued by it or any Acceptance created thereunder and the Borrowers shall not have reimbursed such amount in full to such Issuing Bank pursuant to Section 2.05(a), such Issuing Bank shall promptly notify the Administrative Agent, which shall promptly notify each Participant of such failure, and each Participant shall promptly and unconditionally pay to such Issuing Bank the amount of such Participant's Adjusted Percentage of such unreimbursed payment in Dollars and in same day funds. If the Administrative Agent so notifies, prior to 11:00 A.M. (New York time) on any Business Day, any Participant required to fund a payment under a Letter of Credit, such Participant shall make available to such Issuing Bank in Dollars such Participant's Adjusted Percentage of the amount of such payment on such Business Day in same day funds. If and to the extent such Participant shall not have so made its Adjusted Percentage of the amount of such payment available to such Issuing Bank, such Participant agrees to pay to such Issuing Bank, forthwith on demand, such amount, together with interest thereon, for each day from such date until the date such amount is paid to such Issuing Bank at the overnight Federal Funds Rate. The failure of any Participant to make available to such Issuing Bank its Adjusted Percentage of any payment under any Letter of Credit shall not relieve any other Participant of its obligation hereunder to make available to such Issuing Bank its Adjusted Percentage of any Letter of Credit or Acceptance created thereunder on the date required, as specified above, but no Participant shall be responsible for the failure of any other Participant to make available to such Issuing Bank such other Participant's Adjusted Percentage of any such payment.
(d) Whenever any Issuing Bank receives a payment of a reimbursement obligation as to which it has received any payments from the Participants pursuant to clause (c) above, such Issuing Bank shall pay to each Participant which has paid its Adjusted Percentage thereof, in Dollars and in same day funds, an amount equal to such Participant's share (based upon the proportionate aggregate amount originally funded by such Participant to the aggregate amount funded by all Participants) of the principal amount of such reimbursement obligation and interest thereon accruing after the purchase of the respective participations.
(e) Upon the request of any Participant, each Issuing Bank shall furnish to such Participant copies of any Letter of Credit issued by it and such other documentation as may reasonably be requested by such Participant.
(f) The obligations of the Participants to make payments to each Issuing Bank with respect to Letters of Credit and Acceptances issued thereunder shall be irrevocable and not subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances:
(i) any lack of validity or enforceability of this Agreement or any of the other Credit Documents;
(ii) the existence of any claim, setoff, defense or other right which the Borrowers or any of their Subsidiaries may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), any holder of an Acceptance, the Administrative Agent, any Participant, or any other Person, whether in connection with this Agreement, any Letter of Credit, any Acceptance, the transac- tions contemplated herein or any unrelated transactions (including any underlying transaction between any Borrower and the beneficiary named in any such Letter of Credit);
(iii) any draft, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the
(v) the occurrence of any Default or Event of Default.
2.05 Agreement to Repay Letter of Credit Drawings and Acceptance Payments. (a) The Borrowers hereby jointly and severally agree to reimburse the respective Issuing Bank, by making payment to the Administrative Agent in immediately available funds at the Payment Office, for any payment or disbursement made by such Issuing Bank under any Letter of Credit or Acceptance created thereunder (each such amount, so paid until reimbursed, an "Unpaid Drawing"), immediately after, and in any event on the date of such payment or disbursement, with interest on the amount so paid or disbursed by such Issuing Bank, to the extent not reimbursed prior to 12:00 Noon (New York time) on the date of such payment or disbursement, from and including the date paid or disbursed to but excluding the date such Issuing Bank was reimbursed by the Borrowers therefor at a rate per annum which shall be the Base Rate in effect from time to time plus the Applicable Margin for Base Rate Loans, provided, however, to the extent such amounts are not reimbursed prior to 12:00 Noon (New York time) on the second Business Day following such payment or disbursement, interest shall thereafter accrue on the amounts so paid or disbursed by such Issuing Bank (and until reimbursed by the Borrowers) at a rate per annum which shall be the Base Rate in effect from time to time plus the Applicable Margin for Base Rate Loans plus 2%, in each such case, with interest to be payable by the Borrowers on demand. The respective Issuing Bank shall give the Borrowers prompt notice of each Drawing under any Letter of Credit or payment under any Acceptance created thereunder, provided that the failure to give any such notice shall in no way affect, impair or diminish the Borrowers' obligations hereunder.
(b) The obligations of the Borrowers under this Section 2.05 to reimburse the respective Issuing Bank with respect to drawings on Letters of Credit and payments under any Acceptance created thereunder (each, a "Drawing") (including interest thereon) shall be joint and several and shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which any Borrower may have or have had against any Bank (including in its capacity as issuer of the Letter of Credit or as Participant), or any nonapplication or misapplication by the beneficiary of the proceeds of such Drawing, the respective Issuing Bank's only obligation to the Borrowers being to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to substantially comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Issuing Bank under or in connection with any Letter of Credit or any Acceptance created thereunder if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for such Issuing Bank any resulting liability to the Borrowers.
2.06 Increased Costs. If at any time after the date of this Agreement, the introduction of or any change in any applicable law, rule, regulation, order, guideline or request or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by any Issuing Bank or any Participant with any request or directive by any such authority (whether or not having the force of law), or any change in generally acceptable accounting principles, shall either (i) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against Letters of Credit issued, or Acceptances created, by any Issuing Bank or participated in by any Participant, or (ii) impose on any Issuing Bank or any Participant any other conditions relating, directly or indirectly, to this Agreement, any Letter of Credit or any Acceptance created thereunder; and the result of any of the foregoing is to increase the cost to any Issuing Bank or any Participant of issuing, maintaining or participating in any Letter of Credit or any Acceptance created thereunder, or reduce the amount of any sum received or receivable by any Issuing Bank or any Participant hereunder or reduce the rate of return on its capital with respect to Letters of Credit and Acceptances created thereunder (except for changes in the rate of tax on, or determined by reference to, the net income or net profits of such Issuing Bank or such Participant, or any franchise tax based on the net income or net profits of such Bank or Participant, in either case pursuant to the laws of the United States of America, the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein), but without duplication of any amounts payable in respect of Taxes pursuant to Section 4.04(a), then, upon demand to the Borrowers by such Issuing Bank or any Participant (a copy of which demand shall be sent by such Issuing Bank or such Participant to the Administrative Agent) and subject to the provisions of Section 13.15 (to the extent applicable), the Borrowers jointly and severally agree to pay to such Issuing Bank or such Participant such additional amount or amounts as will compensate such Bank for such increased cost or reduction in the amount receivable or reduction on the rate of return on its capital. Any Issuing Bank or any Participant, upon determining that any additional amounts will be payable pursuant to this Section 2.06, will give prompt written notice thereof to the Bor- rowers, which notice shall include a certificate submitted to the Borrowers by such Issuing Bank or such Participant (a copy of which certificate shall be sent by such Issuing Bank or such Participant to the Administrative Agent), setting forth in reasonable detail the basis for the calculation of such additional amount or amounts necessary to compensate such Issuing Bank or such Participant. The certificate required to be delivered pursuant to this Section 2.06 shall, if delivered in good faith and absent manifest error, be final and conclusive and binding on the Borrowers.
SECTION 3. Commitment Commission; Fees; Reductions of Commitment.
3.01 Fees. (a) The Borrowers jointly and severally agree to pay to the Administrative Agent for distribution to each Non-Defaulting Bank with a Revolving Loan Commitment a commitment commission (the "Commitment Commission") for the period from the Restatement Effective Date to but excluding the Revolving Loan Maturity Date (or such earlier date as the Total Revolving Loan Commitment shall have been terminated), computed at a rate for each day equal to 1/2 of 1% (3/8 of 1% at any time that the Reduction Percentage equals an amount other than zero) per annum on the daily average Unutilized Revolving Loan Commitment of such Non-Defaulting Bank. Accrued Commitment Commission shall be due and payable quarterly in arrears on each Quarterly Payment Date and on the Revolving Loan Maturity Date or such earlier date upon which the Total Revolving Loan Commitment is terminated.
(b) The Borrowers jointly and severally agree to pay to the Administrative Agent for pro rata distribution to each Non-- Defaulting Bank with a Revolving Loan Commitment (based on their respective Adjusted Percentages) a fee in respect of (x) each Letter of Credit issued hereunder (the "Letter of Credit Fee"), for the period from and including the date of issuance of such Letter of Credit to the termination of such Letter of Credit, computed at a rate per annum equal to the Applicable Margin for Revolving Loans maintained as Eurodollar Loans as in effect from time to time on the daily average Stated Amount of such Letter of Credit and (y) each Acceptance (the "Acceptance Fee") for the period from and including the date of creation of such Acceptance to and including the maturity of such Acceptance, computed at a rate per annum equal to the Applicable Margin for Revolving Loans maintained as Eurodollar Loans as in effect from time to time on the daily average Stated Amount of such Acceptance. Accrued Letter of Credit Fees and Acceptance Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and upon the first day on or after the termination of the Total Revolving Loan Commitment upon which no Letters of Credit or Acceptances remain outstanding.
(c) The Borrowers jointly and severally agree to pay to the respective Issuing Bank, for its own account, a facing fee in respect of (x) each Standby Letter of Credit issued for its account hereunder (the "Letter of Credit Facing Fee") for the period from and including the date of issuance of such Standby Letter of Credit to and including the termination of such Standby Letter of Credit, computed at a rate equal to 1/4 of 1% per annum of the daily average Stated Amount of such Standby Letter of Credit, provided that in any event the minimum amount of the Letter of Credit Facing Fee payable in any 12 month period for any Standby Letter of Credit shall be $500 (it being agreed that, on each anniversary of the issuance of any Standby Letter of Credit or upon any earlier termination or expiration of a Standby Letter of Credit, if $500 exceeds the amount of Letter of Credit Facing Fees theretofore paid or then accrued with respect to such Standby Letter of Credit, in either case after the date of the issuance thereof or, if later, after the date of the last anniversary of the issuance thereof (but excluding any amounts paid after such anniversary with respect to periods ending on or prior to such anniversary, including, without limitation, as a result of the operation of this parenthetical), the amount of such excess shall be payable on the next date upon which accrued Letter of Credit Facing Fees are otherwise payable with respect to Standby Letters of Credit as provided in the following sentence) and (y) each Acceptance created by it (the "Acceptance Facing Fee", and together with the Letter of Credit Facing Fees, the "Facing Fees") for the period from and including the date of creation of such Acceptance to and including the maturity of such Acceptance, computed at a rate equal to 1/4 of 1% per annum of the daily average Stated Amount of such Acceptance. Accrued Facing Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and on the date upon which the Total Revolving Loan Commitment has been terminated and all Letters of Credit and Acceptances have been terminated in accordance with their terms.
(d) The Borrowers jointly and severally agree to pay, upon each drawing under, issuance of, or amendment to any Letter of Credit, such amount as shall at the time of such event be the administrative charge and out-of-pocket expenses which the respective Issuing Bank is generally imposing in connection with such occurrence with respect to letters of credit.
(e) The Borrowers jointly and severally agree to pay to the Agents, for their own account, such other fees as have been agreed to in writing by the Borrowers and the Agents.
3.02 Voluntary Termination of Unutilized Commitments. (a) Upon at least two Business Days' prior notice from an Authorized Representative of the Borrowers to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Banks), the Borrowers shall have the right, at any time or from time to time, without premium or penalty, to terminate the Total Unutilized Revolving Loan Commitment, in whole or in part, in integral multiples of $1,000,000, provided that (i) each such reduction shall apply proportionately to permanently reduce the Revolving Loan Commitment of each Bank with such a Commitment and (ii) the reduction to the Total Unutilized Revolving Loan Commitment shall in no case be in an amount which would cause the Revolving Loan Commitment of any Bank to be reduced (as required by preceding clause (i)) by an amount which exceeds the remainder of (x) the Unutilized Revolving Loan Commitment of such Bank as in effect immediately before giving effect to such reduction minus (y) such Bank's Adjusted Percentage of the aggregate principal amount of Swingline Loans then outstanding.
(b) In the event of certain refusals by a Bank as provided in Section 13.12(b) to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks, the Borrowers may, subject to their compliance with the requirements of said Section 13.12(b), upon five Business Days' written notice to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Banks) terminate all of the Revolving Loan Commitment of such Bank so long as all Revolving Loans, together with accrued and unpaid interest, Fees and all other amounts, owing to such Bank (other than amounts owing in respect of the Tranche of Term Loans maintained by such Bank, if such Term Loans are not being repaid pursuant to Section 13.12(b)) are repaid concurrently with the effectiveness of such termination (at which time Schedule I shall be deemed modified to reflect such changed amounts), and at such time, unless the respective Bank continues to have outstanding Term Loans hereunder, such Bank shall no longer constitute a "Bank" for purposes of this Agreement, except with respect to indemnifications under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.06, 4.04, 13.01 and 13.06), which shall survive as to such repaid Bank.
3.03 Mandatory Reduction of Commitments. (a) The Total Commitment (and the Term Loan Commitment and the Revolving Loan Commitment of each Bank) shall terminate in its entirety on February 15, 1996 unless the Restatement Effective Date shall have occurred on or prior to such date.
(b) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total A Term Loan Commitment (and the A Term Loan Commitment of each Bank) shall (i) terminate in its entirety on the Restatement Effective Date (after giving effect to the making of the A Term Loans on such date) and (ii) prior to the termination of the A Term Loan Commitment as provided in clause (i) above, be reduced from time to time to the extent required by Section 4.02.
(c) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total B Term Loan Commitment (and the B Term Loan Commitment of each Bank) shall (i) terminate in its entirety on the Restatement Effective Date (after giving effect to the making of the B Term Loans on such date) and (ii) prior to the termination of the B Term Loan Commitment as provided in clause (i) above, be reduced from time to time to the extent required by Section 4.02.
(d) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total C Term Loan Commitment (and the C Term Loan Commitment of each Bank) shall (i) terminate in its entirety on the Restatement Effective Date (after giving effect to the making of the C Term Loans on such date) and (ii) prior to the termination of the C Term Loan Commitment as provided in clause (i) above, be reduced from time to time to the extent required by Section 4.02.
(e) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Revolving Loan Commitment (and the Revolving Loan Commitment of each Bank) shall terminate in its entirety on the Revolving Loan Maturity Date.
(f) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, on each date after the Restatement Effective Date upon which a mandatory prepayment of Term Loans pursuant to any of Sections 4.02(e), (f), (g), (h), (i) and (j) is required (and exceeds in amount the aggregate principal amount of Term Loans then outstanding) or would be required if Term Loans were then outstanding, the Total Revolving Loan Commitment shall be permanently reduced by the amount, if any, by which the amount required to be applied pursuant to said Section (determined as if an unlimited amount of Term Loans were actually outstanding) exceeds the aggregate principal amount of Term Loans then outstanding.
(g) Each reduction to the Total A Term Loan Commitment, the Total B Term Loan Commitment, the Total C Term Loan Commitment and the Total Revolving Loan Commitment pursuant to this Section 3.03 (or pursuant to Section 4.02) shall be applied proportionately to reduce the A Term Loan Commitment, the B Term Loan Commitment, the C Term Loan Commitment or the Revolving Loan Commitment, as the case may be, of each Bank with such a Com- mitment.
SECTION 4. Prepayments; Payments; Taxes.
4.01 Voluntary Prepayments. (a) The Borrowers shall have the right to prepay the Loans, and the right to allocate such prepayments to Revolving Loans and/or Term Loans as the Borrowers elect, without premium or penalty, in whole or in part at any time and from time to time on the following terms and conditions: (i) an Authorized Representative of the Borrowers shall give the Administrative Agent prior to 12:00 Noon (New York time) at its Notice Office (x) at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of the Borrowers' intent to prepay Base Rate Loans (or same day notice in the case of Swingline Loans provided such notice is given prior to 11:00 A.M. (New York time)) and (y) at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of their intent to prepay Eurodollar Loans, whether A Term Loans, B Term Loans, C Term Loans, Revolving Loans or Swingline Loans shall be prepaid, the amount of such prepayment and the Types of Loans to be prepaid and, in the case of Eurodollar Loans, the specific Borrowing or Borrowings pursuant to which made, which notice the Administrative Agent shall promptly transmit to each of the Banks; (ii) each prepayment shall be in an aggregate principal amount of at least $1,000,000 (or $500,000 in the case of Swingline Loans), provided that if any partial prepayment of Eurodollar Loans made pursuant to any Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less than (1) in the case of Term Loans, $5,000,000 and (2) in the case of Revolving Loans, $1,000,000, then such Borrowing may not be continued as a Borrowing of Eurodollar Loans and any election of an Interest Period with respect thereto given by the Borrowers shall have no force or effect; (iii) at the time of any prepayment of Eurodollar Loans pursuant to this Section 4.01 on any date other than the last day of the Interest Period applicable thereto, the Borrowers shall pay the amounts required pursuant to Section 1.11; (iv) except as otherwise provided in clause (vi) below of this Section 4.01(a) and in Section 4.01(b), each prepayment in respect of any Term Loans made pursuant to this Section 4.01(a) shall be allocated among the A Term Loans, the B Term Loans and the C Term Loans on a pro rata basis (based upon the then relative aggregate outstanding principal amounts of A Term Loans, B Term Loans and C Term Loans after giving effect to all prior reductions thereto), provided that, at the option of the Borrowers, any voluntary prepayments of Term Loans pursuant to this Section 4.01(a) shall be applied (A) first, to reduce in direct order of maturity the A Term Loan Scheduled Repayments, B Term Loan Scheduled Repayments and C Term Loan Scheduled Repayments which will be due and payable within six months after the date of such prepayment (and, if the amount to be applied pursuant to this clause (A) to the Scheduled Repayments which will be due and payable on any Scheduled Repayment Date is insufficient to repay in full all such Scheduled Repayments which will be due and payable on such Scheduled Repayment Date, then such amount shall be applied to the Scheduled Repayments which will be due on such Scheduled Repayment Date on a pro rata basis, based upon the relative amounts of the Scheduled Repayments of the various Tranches which will be due on such Scheduled Repayment Date) and (B) second, to the extent in excess thereof, as provided above in this clause (iv) without regard to this proviso; provided further, that at the option of the Borrowers, if a public offering of INTERCO Common Stock is consummated within nine months after the Restatement Effective Date, the balance of the Net Cash Proceeds thereof in an aggregate amount not to exceed $100 million which shall not be applied as mandatory prepayments of Term Loans pursuant to the second proviso to Section 4.02(k) below (it being understood and agreed that the aggregate amount applied pursuant to this proviso and the second proviso to Section 4.02(k) shall in no event exceed $100 million), may be applied (A) first, to any combination of the Scheduled Repayments of (x) the A Term Loans due within 12 months after the date of the receipt of such Net Cash Proceeds in direct order of maturity, (y) the B Term Loans (with such repayments to be applied to such Scheduled Repayments as elected by the Borrowers) or (z) the C Term Loans (with such repayments to be applied to such Scheduled Repayments as elected by the Borrowers) and (B) second, to the extent in excess thereof, as provided above in this clause (iv) without regard to this proviso; (v) except as otherwise expressly provided in clauses (A) to the first and second provisos to clause (iv) above, each prepayment of any Tranche of Term Loans pursuant to this Section 4.01(a) shall be applied to reduce the then remaining Scheduled Repayments of the respective Tranche of Term Loans on a pro rata basis (based upon the then remaining principal amounts of Scheduled Repayments of the respective Tranche of Term Loans after giving effect to all prior reductions thereto); and (vi) at the Borrowers' election in connection with any prepayment of Revolving Loans, such prepayment shall not be applied to the prepayment of Revolving Loans of a Defaulting Bank.
(b) In the event of certain refusals by a Bank as provided in Section 13.12(b) to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks, the Borrowers may, upon five Business Days' written notice by an Authorized Representative of the Borrowers to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Banks) repay all Loans, together with accrued and unpaid interest, Fees, and other amounts owing to such Bank (or owing to such Bank with respect to each Tranche which gave rise to the need to obtain such Bank's individual consent) in accordance with, and subject to the re- quirements of, said Section 13.12(b) so long as (A) in the case of the repayment of Revolving Loans of any Bank pursuant to this clause (b) the Revolving Loan Commitment of such Bank is terminated concurrently with such repayment (at which time Schedule I shall be deemed modified to reflect the changed Revolving Loan Commitments) and (B) the consents required by Sec- tion 13.12(b) in connection with the repayment pursuant to this clause (b) have been obtained.
4.02 Mandatory Repayments, Cash Collateralizations and Commitment Reductions. (a)(i) On any day on which the sum of the aggregate outstanding principal amount of the Revolving Loans made by Non-Defaulting Banks, Swingline Loans and the Letter of Credit Outstandings exceeds the Adjusted Total Revolving Loan Commitment as then in effect, the Borrowers jointly and severally agree to prepay principal of Swingline Loans and, after the Swingline Loans have been repaid in full, Revolving Loans of Non- Defaulting Banks in an amount equal to such excess. If, after giving effect to the prepayment of all outstanding Swingline Loans and Revolving Loans of Non-Defaulting Banks, the aggregate amount of the Letter of Credit Outstandings exceeds the Adjusted Total Revolving Loan Commitment as then in effect, the Borrowers jointly and severally agree to pay to the Administrative Agent at the Payment Office on such date an amount of cash or Cash Equivalents equal to the amount of such excess (up to a maximum amount equal to the Letter of Credit Outstandings at such time), such cash or Cash Equivalents to be held as security for all obligations of the Borrowers to Non-Defaulting Banks hereunder in a cash collateral account to be established by the Administrative Agent.
(ii) On any day on which the aggregate outstanding principal amount of the Revolving Loans made by any Defaulting Bank exceeds the Revolving Loan Commitment of such Defaulting Bank, the Borrowers jointly and severally shall prepay prin- cipal of Revolving Loans of such Defaulting Bank in an amount equal to such excess.
(b) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date set forth below, the Borrowers jointly and severally shall be required to repay that principal amount of A Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment, as the same may be reduced as provided in Sections 4.01 and 4.02(k) and (l), an "A Term Loan Scheduled Repayment"):
Last Business Day in June, 1996 $ 7,500,000 Last Business Day in December, 1996 $ 7,500,000 Last Business Day in June, 1997 $10,000,000 Last Business Day in December, 1997 $10,000,000 Last Business Day in June, 1998 $12,500,000 Last Business Day in December, 1998 $12,500,000 Last Business Day in June, 1999 $25,000,000 Last Business Day in December, 1999 $25,000,000 Last Business Day in June, 2000 $32,500,000 Last Business Day in December, 2000 $32,500,000 Last Business Day in June, 2001 $37,500,000 A Term Loan Maturity Date $37,500,000
(c) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date set forth below, the Borrowers jointly and severally shall be required to repay that principal amount of B Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment, as the same may be reduced as provided in Sections 4.01 and 4.02(k) and (l), a "B Term Loan Scheduled Repayment"):
Last Business Day in June, 1996 $ 500,000 Last Business Day in December, 1996 $ 500,000 Last Business Day in June, 1997 $ 500,000 Last Business Day in December, 1997 $ 500,000 Last Business Day in June, 1998 $ 500,000 Last Business Day in December, 1998 $ 500,000 Last Business Day in June, 1999 $ 500,000 Last Business Day in December, 1999 $ 500,000 Last Business Day in June, 2000 $ 500,000 Last Business Day in December, 2000 $ 500,000 Last Business Day in June, 2001 $ 500,000 Last Business Day in December, 2001 $ 500,000 Last Business Day in March, 2002 $18,800,000 Last Business Day in June, 2002 $18,800,000 Last Business Day in September, 2002 $18,800,000 Last Business Day in December, 2002 $18,800,000 B Term Loan Maturity Date $18,800,000
(d) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date set forth below, the Borrowers jointly and severally shall be required to repay that principal amount of C Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment, as the same may be reduced as provided in Sections 4.01 and 4.02(k) and (l), a "C Term Loan Scheduled Repayment"):
Last Business Day in June, 1996 $ 500,000 Last Business Day in December, 1996 $ 500,000 Last Business Day in June, 1997 $ 500,000 Last Business Day in December, 1997 $ 500,000 Last Business Day in June, 1998 $ 500,000 Last Business Day in December, 1998 $ 500,000 Last Business Day in June, 1999 $ 500,000 Last Business Day in December, 1999 $ 500,000 Last Business Day in June, 2000 $ 500,000 Last Business Day in December, 2000 $ 500,000 Last Business Day in June, 2001 $ 500,000 Last Business Day in December, 2001 $ 500,000 Last Business Day in June, 2002 $ 500,000 Last Business Day in December, 2002 $ 500,000 Last Business Day in June, 2003 $23,250,000 Last Business Day in September, 2003 $23,250,000 Last Business Day in December, 2003 $23,250,000 C Term Loan Maturity Date $23,250,000
(e) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date after the Restatement Effective Date upon which INTERCO or any of its Restricted Subsidiaries receives any cash proceeds from any sale or issuance of its equity (including, without limitation, proceeds received from Preferred Stock but excluding (i) up to $1,000,000 of proceeds received during any Fiscal Year from the issuance of shares of INTERCO Common Stock as a result of the exercise of options issued pursuant to the Employee Stock Option Plan, (ii) proceeds received during any Fiscal Year from any exercise of INTERCO Warrants, (iii) proceeds received from the issuance of shares of INTERCO Common Stock or Qualified Preferred Stock as payment of consideration pursuant to a Permitted Acquisition or as consideration in connection with the creation, acquisition or Investment in an Unrestricted Subsidiary (to the extent INTERCO does not receive any cash proceeds from the issuance thereof), (iv) any amount of equity proceeds actually used, at the time of the receipt thereof, to make Guaranty Payments pursuant to Section 9.11(b)(ii)(y)(C), and (v) so long as no Default or Event of Default then exists (x) proceeds of Disqualified Preferred Stock issued pursuant to Section 9.13(b)(iii) which are used to repay or otherwise replace the Receivables Facility in accordance with the terms hereof, (y) subject to compliance with the proviso to Section 9.13(b) on the date of the respective issuance of Disqualified Preferred Stock, up to $50,000,000 of proceeds received from the issuance of Disqualified Preferred Stock pursuant to Section 9.13(b)(i), minus the sum of the aggregate liquidation preference or amount of Disqualified Preferred Stock directly issued after the Restatement Effective Date as consideration in connection with Permitted Acquisitions and the aggregate principal amount of Permitted Subordinated Indebtedness incurred on or prior to the date of the issuance of such Disqualified Preferred Stock pursuant to Section 9.04(ii)(x) and issued as consideration in connection with one or more Permitted Acquisitions or otherwise not required to be used to repay Term Loans as a result of clause (w)(ii) of the first parenthetical of Section 4.02(g), to the extent all such proceeds from the issuance of Disqualified Preferred Stock are or were used to effect Permitted Acquisitions so long as an Authorized Representative of the Borrowers has delivered a certificate to the Administrative Agent on or prior to such date stating that such proceeds shall be committed to be used to make Permitted Acquisitions within six months following the date of such issuance of Disqualified Preferred Stock, and so long as such proceeds are so used in such time frame, it being understood and agreed that any amount of proceeds not so used within such time frame shall at the end of such six month period be required to be applied as otherwise provided in this clause (e) and (z) subject to compliance with the proviso to Section 9.13(b) on the date of the respective issuance of Disqualified Preferred Stock, up to $25,000,000 of proceeds of Disqualified Preferred Stock issued pursuant to Section 9.13(b)(ii), minus the aggregate principal amount of Permitted Unsecured Indebtedness incurred on or prior to such date of issuance pursuant to Section 9.04(iii)), an amount equal to 50% (or 100% with respect to proceeds of Disqualified Preferred Stock not otherwise excluded above) of the Net Cash Proceeds of the respective sale or issuance shall be applied as a mandatory repayment of principal of outstanding Term Loans (or, if the Restatement Effective Date has not yet occurred, such amounts shall be applied as a mandatory reduction to the Total Term Loan Commitment) in accordance with the requirements of Section 4.02(k) and (l).
(f) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date after the Restatement Effective Date upon which INTERCO receives any proceeds from the exercise of the INTERCO Warrants, an amount equal to 25% of the Net Cash Proceeds of such exercise shall be applied as a mandatory repayment of principal of outstanding Term Loans (or, if the Restatement Effective Date has not yet occurred, such amount shall be applied as a mandatory reduction to the Total Term Loan Commitment) in accordance with the requirements of Section 4.02(k) and (l).
(g) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date after the Restatement Effective Date upon which INTERCO or any of its Restricted Subsidiaries receives any cash proceeds from any incurrence by INTERCO or any of its Restricted Subsidiaries of Indebtedness for borrowed money ((w) including Permitted Subordinated Indebtedness, but excluding, so long as no Default or Event of Default then exists (i) an amount of Permitted Subordinated Indebtedness incurred and simultaneously used to repay, refinance or otherwise replace the Receivables Facility in accordance with the terms hereof and (ii) subject to compliance with the proviso to Section 9.04(ii) on the date of the incurrence of such Indebtedness, up to $50,000,000 of Permitted Subordinated Indebtedness issued pursuant to Section 9.04(ii)(x), less the sum of the aggregate principal amount of Permitted Subordinate Indebtedness issued after the Restatement Effective Date as consideration in connection with Permitted Acquisitions and the aggregate amount of Disqualified Preferred Stock issued on or prior to the date of the incurrence of such Permitted Subordinated Indebtedness pursuant to Section 9.13(b)(i) and issued as consideration in connection with one or more Permitted Acquisitions or otherwise not required to repay Term Loans as a result of clause (v)(y) of Section 4.02(e), to the extent such proceeds of the incurrence of Permitted Subordinated Indebtedness are or were used to effect Permitted Acquisitions so long as an Authorized Representative of the Borrowers has delivered a certificate to the Administrative Agent on or prior to such date stating that such proceeds shall be committed to be used to make such Permitted Acquisitions within six months following the date of such incurrence of Permitted Subordinated Indebtedness, and so long as such proceeds are so used within such time frame, it being understood and agreed that any amount of proceeds not so used within such time frame shall at the end of such six month period be required to be applied as otherwise provided in this clause (g), (x) subject to compliance with the proviso to Section 9.04(iii) on the date of the incurrence of such Indebtedness, excluding up to $25,000,000 of proceeds of Permitted Unsecured Indebtedness incurred pursuant to Section 9.04(iii), minus the aggregate amount of Disqualified Preferred Stock issued on or prior to the date of the incurrence of such Permitted Unsecured Indebtedness pursuant to Section 9.13(b)(ii) and not required to repay Term Loans as a result of clause (v)(z) of Section 4.02(e), (y) including Attributed Receivables Facility Indebtedness incurred pursuant to the Receivables Facility which in aggregate principal amount exceeds $240,000,000 outstanding at any time (but excluding other Attributed Receivables Facility Indebtedness) and (z) excluding any other Indebtedness for borrowed money permitted to be incurred pursuant to Section 9.04 (excluding, however, clauses (ii), (iii) and (xi) thereof) as such Section is in effect on the Restatement Effective Date), an amount equal to 100% of the Net Cash Proceeds of the respective incurrence of Indebtedness shall be applied as a mandatory repayment of principal of outstanding Term Loans (or, if the Restatement Effective Date has not yet occurred, such amounts shall be applied as a mandatory reduction to the Total Term Loan Commitment) in accordance with the requirements of Section 4.02(k) and (l).
(h) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date after the Restatement Effective Date upon which INTERCO or any of its Restricted Subsidiaries (other than the Receivables Subsidiary) receives proceeds from any sale or other disposition of assets (including capital stock and securities held thereby, but excluding (i) sales or transfers of inventory in the ordinary course of business, (ii) sales or transfers of assets with a fair market value less than (A) $100,000 per such sale or disposition (or in a series of related sales or dispositions) and (B) with respect to any sale or transfer in an amount in excess of the amount referred to in clause (A) above, $1,000,000 in the aggregate for all such transfers in any Fiscal Year, (iii) sales or transfers of assets permitted pursuant to Sections 9.02 (v) and (vi), and (iv) sales of Excluded Assets, the Net Sales Proceeds of which do not exceed $7,000,000), an amount equal to 100% (or 80% if no Default or Event of Default is then in existence or will exist immediately after giving effect to the respective sale and so long as the Leverage Ratio on the date of the respective sale is less than 3.50:1.0) of the Net Sale Proceeds therefrom shall be applied as a mandatory repayment of principal of outstanding Term Loans (or, if the Restatement Effective Date has not yet occurred, such amounts shall be applied as a mandatory reduction to the Total Term Loan Commitment) in accordance with the requirements of Sections 4.02(k) and (l).
(i) In addition to any other mandatory repayments pursuant to this Section 4.02, on each Excess Cash Flow Payment Date, an amount equal to 75% (or 50% if no Default or Event of Default exists on the respective Excess Cash Flow Payment Date and if the Leverage Ratio on such date is less than 3.50:1.0) of the Excess Cash Flow for the relevant Excess Cash Flow Payment Period shall be applied as a mandatory repayment of principal of outstanding Term Loans in accordance with the requirements of Sections 4.02(k) and (l).
(j) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, within 10 days following each date after the Restatement Effective Date on which INTERCO or any of its Restricted Subsidiaries receives any proceeds from any Recovery Event (other than proceeds from Recovery Events in an amount less than (A) $100,000 per each Recovery Event and (B) with respect to any Recovery Event with proceeds in excess of the amount referred to in clause (A) above, $1,000,000 in the aggregate for all such Recovery Events in any Fiscal Year), an amount equal to 100% of the proceeds of such Recovery Event (net of reasonable costs including, without limitation, legal costs and expenses, and taxes incurred in connection with such Recovery Event) shall be applied as a mandatory repayment of principal of outstanding Term Loans (or, if the Restatement Effective Date has not yet occurred, such amounts shall be applied as a mandatory reduction to the Total Term Loan Commitment in accordance with the requirements of Sections 4.02(k) and (l)), provided that (x) so long as no Default or Event of Default then exists and such proceeds do not exceed $5,000,000, such proceeds shall not be required to be so applied on such date to the extent that an Authorized Representa- tive of the Borrowers has delivered a certificate to the Administrative Agent on or prior to such date stating that such proceeds shall be used or shall be committed to be used to replace or restore any properties or assets in respect of which such proceeds were paid within one year following the date of such Recovery Event (which certificate shall set forth the esti- mates of the proceeds to be so expended) and (y) so long as no Default or Event of Default then exists and to the extent that (a) the amount of such proceeds exceeds $5,000,000, (b) the amount of such proceeds, together with other cash available to the Borrowers and permitted to be spent by them or their Re- stricted Subsidiaries on Capital Expenditures during the relevant period pursuant to Section 9.07, equals at least 100% of the cost of replacement or restoration of the properties or assets in respect of which such proceeds were paid as determined by the Borrowers and as supported by such estimates or bids from contractors or subcontractors or such other supporting information as the Administrative Agent may reasonably request, (c) an Authorized Representative of the Borrower has delivered to the Administrative Agent a certificate on or prior to the date the application would otherwise be required pursuant to this Section 4.02(j) in the form described in clause (x) above and also certifying its determination as required by preceding clause (b) and certifying the sufficiency of business interruption insurance as required by succeeding clause (d), and (d) an Authorized Representative of the Borrower has delivered to the Administrative Agent such evidence as the Administrative Agent may reasonably request in form and substance reasonably satisfac- tory to the Administrative Agent establishing that the Borrowers have sufficient business interruption insurance and that the Borrowers will receive payment thereunder in such amounts and at such times as are necessary to satisfy all obligations and expenses of the Borrowers (including, without limitation, all debt service requirements, including pursuant to this Agreement) without any delay or extension thereof, for the period from the date of the respective casualty, condemnation or other event giving rise to the Recovery Event and continuing through the completion of the replacement or restoration of respective properties or assets, then the entire amount of the proceeds of such Recovery Event and not just the portion in excess of $5,000,000 shall be deposited with the Administrative Agent pursuant to a cash collateral arrangement reasonably satisfactory to the Administrative Agent whereby such proceeds shall be disbursed to the Borrowers from time to time as needed to pay actual costs incurred by them in connection with the replacement or restoration of the respective properties or assets (pursuant to such certification requirements as may be established by the Administrative Agent), provided further, that at any time while an Event of Default has occurred and is continuing, the Required Banks may direct the Administrative Agent (in which case the Administrative Agent shall, and is hereby authorized by the Bor- rowers to, follow said directions) to apply any or all proceeds then on deposit in such collateral account to the repayment of Obligations hereunder in the same manner as proceeds would be applied pursuant to the Security Agreement, and provided further, that if all or any portion of such proceeds not required to be applied to the repayment of Term Loans pursuant to the second preceding proviso (whether pursuant to clause (x) or (y) thereof) are either (A) not so used or committed to be so used within one year after the date of the respective Recovery Event or (B) if committed to be used within one year after the date of receipt of such Net Sale Proceeds and not so used within 18 months after the date of respective Recovery Event then, in either such case, such remaining portion not used or committed to be used in the case of preceding clause (A) and not used in the case of preceding clause (B) shall be applied on the date which is the first anniversary of the date of the respective Recovery Event in the case of clause (A) above or the date occurring 18 months after the date of the respective Recovery Event in the case of clause (B) above as a mandatory repayment of principal of outstanding Term Loans in accordance with the requirements of Sections 4.02(k) and (l).
(k) Any amount required to be applied to Term Loans pursuant to this Section 4.02 (other than Scheduled Repayments pursuant to Sections 4.02(b), (c) and (d)) shall, except as provided below, be allocated among the A Term Loans, the B Term Loans and the C Term Loans on a pro rata basis (based upon the relative aggregate outstanding principal amounts of A Term Loans, B Term Loans and C Term Loans after giving effect to all prior repayments thereof); provided that, at the option of the Borrowers, any mandatory repayments pursuant to Sections 4.02(e) and (i) above may be applied (x) first, in direct order of maturity to the A Term Loan Scheduled Repayments, B Term Loan Scheduled Repayments and C Term Loan Scheduled Repayments which will be due and payable within six months after the date of such repayment (and, if the amount to be applied pursuant to this clause (x) to the Scheduled Repayments which will be due and payable on any Scheduled Repayment Date is insufficient to repay in full all such Scheduled Repayments which will be due and pay- able on such Scheduled Repayment Date, then such amount shall be applied to the Scheduled Repayments which will be due on such Scheduled Repayment Date on a pro rata basis, based upon the relative amounts of the Scheduled Repayments of the various Tranches which will be due on such Scheduled Repayment Date) (y) second, to the extent in excess thereof, as provided above in this paragraph (k) without regard to this proviso; provided further, that, at the option of the Borrowers, if a public offering of INTERCO Common Stock is consummated within nine months after the Restatement Effective Date, Net Cash Proceeds thereof applied as required by Section 4.02(e) in an aggregate amount not to exceed $100 million (less any amount applied pursuant to the second proviso to Section 4.01(a)(iv)) may be applied to any combination of the Scheduled Repayments of (x) the A Term Loans due within 12 months after the date of the receipt of such Net Cash Proceeds in direct order of maturity, (y) the B Term Loans (with such repayments to be applied to such Scheduled Repayments as elected by the Borrowers) or (z) the C Term Loans (with such repayments to be applied to such Scheduled Repayments as elected by the Borrowers). All amounts to be applied to any Tranche of Term Loans as provided above shall be applied (except as otherwise expressly provided in clause (x) of the first proviso and clauses (x), (y) and (z) of the second proviso to the immediately preceding sentence) to reduce the then remaining Scheduled Repayments of the respective Tranche of Term Loans on a pro rata basis (based upon the then remaining principal amounts of Scheduled Repayments of the respective Tranche of Term Loans after giving effect to all prior reductions thereto).
(l) With respect to each repayment of Loans required by this Section 4.02, the Borrowers may designate the Types of Loans of the respective Tranche which are to be repaid and, in the case of Eurodollar Loans, the specific Borrowing or Borrowings of the respective Tranche pursuant to which made, provided that: (i) repayments of Eurodollar Loans pursuant to this Section 4.02 may only be made on the last day of an Interest Period applicable thereto unless all Eurodollar Loans of the respective Tranche with Interest Periods ending on such date of required repayment and all Base Rate Loans of the respective Tranche have been paid in full; (ii) if any repayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less than (x) in the case of Term Loans, $5,000,000 and (y) in the case of Revolving Loans, $1,000,000, such Borrowing shall be converted at the end of the then current Interest Period into a Borrowing of Base Rate Loans; and (iii) each repayment of Loans required by this Section 4.02 shall, except as otherwise expressly set forth in Sections 4.02(a), 4.02(b), 4.02(c), 4.02(d) and 4.02(k), be applied pro rata among such Loans. In the absence of a designation by the Borrowers as described in the preceding sentence, the Administrative Agent shall, subject to the above, make such designation in its sole discretion with a view, but no obligation, to minimize breakage costs owing under Section 1.11.
(m) Notwithstanding anything to the contrary contained elsewhere in this Agreement, (i) all then outstanding A Term Loans shall be repaid in full on the A Term Loan Maturity Date, (ii) all then outstanding B Term Loans shall be repaid in full on the B Term Loan Maturity Date, (iii) all then outstanding C Term Loans shall be repaid in full on the C Term Loan Maturity Date, (iv) all then outstanding Revolving Loans shall be repaid in full on the Revolving Loan Maturity Date and (v) all Swingline Loans shall be repaid on the Swingline Expiry Date.
4.03 Method and Place of Payment. Except as otherwise specifically provided herein, all payments under this Agreement or any Note shall be made to the Administrative Agent for the account of the Bank or Banks entitled thereto not later than 12:00 Noon (New York time) on the date when due and shall be made in Dollars in immediately available funds at the Payment Office of the Administrative Agent. Any payments received by the Administrative Agent after such time shall be deemed to have been received on the next Business Day. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension.
4.04 Net Payments. (a) All payments made by the Borrowers hereunder or under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 4.04(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or net profits of a Bank pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Bank is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imports, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrowers jointly and severally agree to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the Borrowers agree to reimburse each Bank, upon the written request of such Bank, for taxes imposed on or measured by the net income or net profits of such Bank pursuant to the laws of the jurisdiction in which the principal office or applicable lending office of such Bank is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which the principal office or applicable lending office of such Bank is located and for any withholding of income or similar taxes imposed by the United States of America as such Bank shall deter- mine are payable by, or withheld from, such Bank in respect of such amounts so paid to or on behalf of such Bank pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Bank pursuant to this sentence. The Borrowers will furnish to the Administrative Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by the Borrowers. The Borrowers jointly and severally agree to indemnify and hold harmless each Bank, and reimburse such Bank upon its written request, for the amount of any Taxes so levied or imposed and paid by such Bank.
(b) Each Bank that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrowers and the Administrative Agent on or prior to the Restatement Effective Date, or in the case of a Bank that is an assignee or transferee of an interest under this Agreement pursuant to Section 1.13 or 13.04 (unless the respective Bank was already a Bank hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Bank, (i) two accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying to such Bank's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Bank is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit D (any such certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8 (or successor form) certifying to such Bank's entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Bank agrees that from time to time after the Restatement Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrowers and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section 4.04(b)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Bank to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or it shall immediately notify the Borrowers and the Administrative Agent of its inability to deliver any such Form or Certificate. Notwith- standing anything to the contrary contained in Section 4.04(a), but subject to Section 13.04(b) and the immediately succeeding sentence, (x) the Borrowers shall be entitled, to the extent they are required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political sub- division or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Bank which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Bank has not provided to the Borrowers U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrowers shall not be obligated pursuant to Section 4.04(a) hereof to gross-up payments to be made to a Bank in respect of income or similar taxes imposed by the United States if (I) such Bank has not provided to the Borrowers the Internal Revenue Service Forms required to be provided to the Borrowers pursuant to this Section 4.04(b) or (II) in the case of a payment, other than interest, to a Bank described in clause (ii) above, to the extent that such forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 4.04 and except as set forth in Section 13.04(b), the Borrowers agree to pay additional amounts and to indemnify each Bank in the manner set forth in Section 4.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or with- holding of income or similar Taxes.
(c) The provisions of this Section 4.04 are subject to the provisions of Section 13.15 (to the extent applicable).
SECTION 5. Conditions Precedent to Initial Credit Events. The obligation of each Bank to make Loans, and the obligation of each Issuing Bank to issue Letters of Credit, on the Restatement Effective Date, is subject at the time of the making of such Loans or the issuance of such Letters of Credit to the satisfaction of the following conditions:
5.01 Execution of Agreement; Notes. On or prior to the Restatement Effective Date (i) this Agreement shall have been executed and delivered as provided in Section 13.10 and (ii) there shall have been delivered to the Administrative Agent for the account of each of the Banks the appropriate A Term Note, B Term Note, C Term Note and/or Revolving Note executed by the Borrowers, and to BTCo the Swingline Note executed by the Bor- rowers, in each case in the amount, maturity and as otherwise provided herein.
5.02 Fees, etc. On the Restatement Effective Date, all costs, fees and expenses (including, without limitation, legal fees and expenses) payable to the Agents and the Banks shall have been paid to the extent then due.
5.03 Opinions of Counsel. On the Restatement Ef- fective Date, the Administrative Agent shall have received (i) from the General Counsel to INTERCO and its Restricted Subsidiaries, an opinion addressed to the Agents and each of the Banks and dated the Restatement Effective Date covering the matters set forth in Exhibit E-1, (ii) from Bryan Cave, special counsel to INTERCO and its Restricted Subsidiaries, an opinion addressed to the Agents and each of the Banks and dated the Restatement Effective Date covering the matters set forth in Exhibit E-2 and (iii) from local counsel satisfactory to the Administrative Agent, opinions each of which shall be in form and substance reasonably satisfactory to the Administrative Agent and the Required Banks and shall cover the perfection of the security interests granted pursuant to the Security Agreement and the Mortgages and such other matters incident to the transactions contemplated herein as the Administrative Agent may reasonably request.
5.04 Corporate Documents; Proceedings; etc. (a) On the Restatement Effective Date, the Administrative Agent shall have received a certificate, dated the Restatement Effective Date, signed by the President, any Executive Vice President or any Vice President of Thomasville and each Subsidiary of Thomasville that is a Subsidiary Guarantor and attested to by the Secretary or any Assistant Secretary of Thomasville or the respective such Subsidiary, in the form of Exhibit F with appropriate insertions, together with copies of the Certificate of Incorporation and By-Laws of Thomasville or the respective such Subsidiary and the resolutions of Thomasville or the respective such Subsidiary referred to in such certificate, and the foregoing shall be acceptable to the Administrative Agent in its reasonable discretion.
(b) On the Restatement Effective Date, the Administrative Agent shall have received bring-down certificates of all Credit Parties (other than Thomasville and its Subsidiaries) (x) certifying that there were no changes, or providing the text of any changes, to the Certificate of Incorporation and By-Laws of such Credit Parties as delivered pursuant to Section 5.04 of the Original Credit Agreement and (y) to the effect that each such Credit Party is in good standing in its respective state of incorporation and in those states where each such Credit Party conducts business.
(c) All corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Documents shall be reasonably satisfactory in form and substance to the Administrative Agent and the Administrative Agent shall have received all information and copies of all documents and papers, including records of corporate proceedings, governmental appro- vals, good standing certificates and bring-down telegrams, if any, which the Administrative Agent reasonably may have requested in connection therewith, such documents and papers where appro- priate to be certified by proper corporate or governmental authorities.
5.05 Shareholders' Agreements; Collective Bargaining Agreements; Permitted Debt Agreements; Tax Sharing Agreements. (a) On the Restatement Effective Date, there shall have been delivered to the Administrative Agent true and correct copies, certified as true and complete by an appropriate officer of INTERCO or Thomasville of (i) all agreements entered into by Thomasville or any of its Subsidiaries governing the terms and relative rights of its capital stock and any agreements entered into by shareholders relating to any such entity with respect to its capital stock (collectively, together with any agreements referred to in Section 5.05(a)(i) of the Original Credit Agreement, and any amendments thereto referred in succeeding Section 5.05(b), the "Shareholders' Agreements"), (ii) all collective bargaining agreements applying or relating to any employee of Thomasville or any of its Restricted Subsidiaries (collectively, together with any agreements referred to in Section 5.05(a)(ii) of the Original Credit Agreement, and any amendments thereto referred in succeeding Section 5.05(b), the "Collective Bargaining Agreements"), (iii) all agreements evidencing or relating to Existing Indebtedness of Thomasville or any of its Subsidiaries (collectively, together with any agreements referred to in Section 5.05(a)(iii) of the Original Credit Agreement, and any amendments thereto referred in succeeding Section 5.05(b), the "Permitted Debt Agreements"), and (iv) all information requested by the Administrative Agent with respect to the Surviving Guaranties and the Tax Sharing Agreements; all of which Shareholders' Agreements, Collective Bargaining Agreements and Permitted Debt Agreements shall, except to the extent such agreements are of no force or effect on the Restatement Effective Date, be in form and substance reasonably satisfactory to the Administrative Agent and the Required Banks.
(b) On or prior to the Restatement Effective Date, the Administrative Agent shall have received (i) a certification from an Authorized Representative of INTERCO that all agreements and plans referenced in Section 5.05(a) of the Original Credit Agreement, previously delivered to the Administrative Agent by each Credit Party (other than Thomasville and its Subsidiaries), remain in full force and effect (or specifying which of such agreements and plans do not remain in full force and effect) and (ii) any amendments thereto or additional such agreements.
5.06 Solvency; Environmental Analyses; Insurance Matters. On or prior to the Restatement Effective Date, the Borrowers shall cause to be delivered to the Administrative Agent (i) a solvency letter in form and substance satisfactory to the Administrative Agent from Houlihan Lokey Howard & Zukin, setting forth its conclusions that, after giving effect to the Transaction and the incurrence of all the financings contemplated herein, INTERCO and its Subsidiaries (on a consolidated basis), is not insolvent, and has not been rendered insolvent by the Indebtedness in connection therewith, will not be left with unreasonably small capital with which to engage in its and/or their businesses and will not have incurred debts beyond its and/or their ability to pay such debts as they mature, (ii) environmental review and reports prepared by Jordan Jones & Goulding, Inc., the results of which will be in scope, form and substance acceptable to the Agents, and (iii) evidence of insurance complying with the requirements of Section 8.03 for the business and properties of INTERCO and its Restricted Subsidiaries, in scope, form and substance reasonably satisfactory to the Agents and naming the Collateral Agent as an additional insured and/or loss payee, and stating that such insurance shall not be cancelled or revised without 30 days' prior written notice by the insurer to the Administrative Agent.
5.07 Receivables Facility. On or prior to the Restatement Effective Date, (i) the Borrowers shall have entered into amendments to the Original Receivables Facility which will (x) extend the maturity thereof to five years from the Restatement Effective Date and (y) increase the commitments thereunder to $225 million, (ii) a sale of receivables (including receivables originated by Thomasville) shall have been effected pursuant to the Receivables Facility, as so amended, which sale shall have generated net cash proceeds of at least $55,000,000 and (iii) there shall have been delivered to the Administrative Agent true and correct copies of all Receivables Documents (including, without limitation, the amendments executed pursuant to clause (i) above) which shall be in full force and effect and shall be in form and substance satisfactory to the Administrative Agent and the Required Banks, and all conditions set forth in the Receivables Documents shall have been satisfied and not waived (unless waived with the consent of the Administrative Agent).
5.08 Subsidiary Guaranty. On the Restatement Ef- fective Date, each Subsidiary Guarantor shall have duly autho- rized, executed and delivered the Amended and Restated Subsidiary Guaranty in the form of Exhibit G hereto (as modified, supple- mented or amended from time to time, the "Subsidiary Guaranty").
5.09 Pledge Agreement. On the Restatement Effective Date, each Credit Party shall have duly authorized, executed and delivered an Amended and Restated Pledge Agreement in the form of Exhibit H (as modified, supplemented or amended from time to time, the "Pledge Agreement") and shall have delivered to the Collateral Agent, as Pledgee, all the Pledged Securities referred to therein then owned by such Credit Party, (x) endorsed in blank in the case of promissory notes constituting Pledged Securities and (y) together with executed and undated stock powers, in the case of capital stock constituting Pledged Securities.
5.10 Security Agreement. On the Restatement Effective Date, each Credit Party shall have duly authorized, executed and delivered an Amended and Restated Security Agreement in the form of Exhibit I (as modified, supplemented or amended from time to time, the "Security Agreement") covering all of such Credit Party's present and future Security Agreement Collateral, together with:
(a) proper Financing Statements (Form UCC-1) fully executed for filing under the UCC or other appropriate filing offices of each jurisdiction as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests purported to be created by the Security Agreement and evidence satisfactory to the Collateral Agent that such Financing Statements shall be filed prior to any Financing Statements filed pursuant to
(b) certified copies of Requests for Information or Copies (Form UCC-11), or equivalent reports, listing all effective financing statements that name any Credit Party as debtor and that are filed in the jurisdictions referred to in clause (a) above, together with copies of such other financing statements (none of which shall cover the Collateral except to the extent evidencing Permitted Liens or in respect of which the Collateral Agent shall have re- ceived termination statements (Form UCC-3) or such other termination statements as shall be required by local law)
(c) evidence of the completion of all other recordings and filings of, or with respect to, the Security Agreement as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests intended to be created by the Security Agreement;
(d) lockbox agreements and other agreements from deposit banks utilized pursuant to the Cash Management System, recognizing the security interests granted pursuant thereto and directing payments from deposit accounts to be made to the Concentration Account; and
(e) evidence that all other actions necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect and protect the security interests purported to be created by the Security Agreement have been taken.
5.11 Mortgages; Title Insurance; Surveys; etc. On the Restatement Effective Date, the Collateral Agent shall have received:
(i) fully executed counterparts of amendments (the "Mortgage Amendments"), in form and substance satisfactory to the Administrative Agent and the Required Banks, to each of the Existing Mortgages, together with evidence that counterparts of each of the Mortgage Amendments have been delivered to the title company insuring the Lien of the Existing Mortgages for recording in all places to the extent necessary or desirable, in the judgment of the Collateral Agent, effectively to maintain a valid and enforceable first priority mortgage lien (subject to Permitted Encumbrances relating thereto) on the Existing Mortgaged Properties in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of
(ii) endorsements of the authorized issuing agent for title insurers reasonably satisfactory to the Collateral Agent to each Existing Mortgage Policy assuring the Collateral Agent that each Existing Mortgage is a valid and enforceable first priority mortgage lien on the respective Existing Mortgaged Properties, free and clear of all defects and encumbrances except Permitted Encumbrances;
(iii) fully executed counterparts of New Mortgages, in form and substance reasonably satisfactory to the Administrative Agent, covering such of the Real Property owned or leased by the Borrowers, Thomasville or any of their Subsidiaries as shall be designated as a New Mortgaged Property on Schedule III (each a "New Mortgaged Property" and, collectively, the "New Mortgaged Properties"), together with evidence that counterparts of the New Mortgages have been delivered to the title insurance company insuring the Lien of the New Mortgages for recording in all places to the extent necessary or desirable, in the judgment of the Collateral Agent, effectively to create a valid and enforce- able first priority mortgage lien (subject to Permitted Encumbrances relating thereto) on each New Mortgaged Property in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of the Secured Creditors;
(iv) New Mortgage Policies on each New Mortgaged Property issued by title insurers reasonably satisfactory to the Collateral Agent and assuring the Collateral Agent that the New Mortgages are valid and enforceable first priority mortgage Liens on the respective New Mortgaged Properties, free and clear of all defects and encumbrances except Permitted Encumbrances and such New Mortgage Policies shall otherwise be in form and substance reasonably satisfactory to the Collateral Agent and shall include, as appropriate, an endorsement for future advances under this Agreement and the Notes and for any other matter that the Collateral Agent in its discretion may reasonably request, shall not include an exception for mechanics' liens, and shall provide for affirmative insurance and such reinsurance as the Collateral Agent in its discretion may request; and
(v) a perimeter survey (including, without limitation, notations identifying any encroachments or overlaps) in form and substance reasonably satisfactory to the Collateral Agent, of each owned New Mortgaged Property, certified by a licensed professional surveyor satisfactory to the Collateral Agent, provided that in the event such perimeter surveys shall not be available as of the Restatement Effective Date, the requirement that the same be delivered as a condition precedent under this Article 5 shall be waived if the Borrowers shall agree in writing to provide the same within 60 days after the Restatement Effective Date.
5.12 Consent Letter. On the Restatement Effective Date, the Administrative Agent shall have received a letter from CT Corporation System, presently located at 1633 Broadway, New York, New York 10019, substantially in the form of Exhibit J, indicating its consent to its appointment by each Credit Party as its agent to receive service of process as specified in Section 13.08 or in the respective Security Document.
5.13 Adverse Change; Governmental Approvals; etc. (a) On the Restatement Effective Date, nothing shall have occurred (and the Banks shall have become aware of no facts, conditions or other information not previously known) which the Administrative Agent or the Required Banks reasonably believe could have a material adverse effect on the rights or remedies of the Administrative Agent or the Banks, or on the ability of the Credit Parties to perform their respective obligations to the Administrative Agent and the Banks or which the Administrative Agent or the Required Banks reasonably believe would have a material adverse effect on the operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrowers taken as a whole or the Borrowers and their Restricted Subsidiaries taken as a whole.
(b) On the Restatement Effective Date, there shall not have occurred and be continuing material adverse change to the syndication market for credit facilities similar in nature to this Agreement and there shall not have occurred and be continuing a material disruption of or a material adverse change in financial, banking or capital markets that would have a material adverse effect on the syndication, in each case as determined by the Administrative Agent in its sole discretion.
(c) On or prior to the Restatement Effective Date, all necessary and material governmental (domestic and foreign) and third party approvals in connection with the Transaction shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents or imposes materially adverse conditions upon the consummation of the Transaction. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon the making of any Loan, issuance of any Letter of Credit or the consummation of the Transaction.
5.14 Litigation. On the Restatement Effective Date, no litigation by any entity (private or governmental) shall be pending or threatened with respect to the Transaction or any documentation executed in connection therewith (including any Credit Document), or which the Administrative Agent or the Required Banks shall reasonably believe could have a materially adverse effect on the Transaction or the business, property, assets, nature of assets, liabilities, condition (financial or otherwise) or prospects of the Borrowers taken as a whole or the Borrowers and their Restricted Subsidiaries taken as a whole.
5.15 Pro Forma Balance Sheet; Financial Statements; Projections. (a) On or prior to the Restatement Effective Date, there shall have been delivered to the Administrative Agent an unaudited pro forma consolidated and consolidating balance sheet of INTERCO and its Subsidiaries as of September 30, 1995 and after giving effect to the Transaction and prepared in accordance with generally accepted accounting principles, together with (w) historical consolidated and consolidating financial statements of INTERCO and its Subsidiaries, in each case, for the nine-month period ended September 30, 1995, (x) historical consolidated and consolidating financial statements of INTERCO and its Subsidiaries for the five Fiscal Years ended December 31, 1994, which historical statements shall (i) be audited, in the case of the income and cash flow statements for the three most recent Fiscal Years and in the case of the balance sheets for the two most recent Fiscal Years and (ii) be certified by an officer of either INTERCO or the other Borrowers, as the case may be, in the case of the five most recent Fiscal Years and (y) historical consolidated financial statements of Thomasville and its Subsidiaries for the three Fiscal Years ended December 31, 1994, the balance sheets of Thomasville and its Subsidiaries as of December 31, 1993 and December 31, 1994, the income and cash flow statement of Thomasville and its Subsidiaries for the ten-month period ended October 31, 1995, and the balance sheet of Thomasville and its Subsidiaries as of October 31, 1995.
(b) On or prior to the Restatement Effective Date there shall have been delivered to the Administrative Agent "management case" projected financial statements of INTERCO and its Restricted Subsidiaries after giving effect to the Transaction, as set forth in the Confidential Memorandum dated November, 1995, for the period from January 1, 1996 to December 31, 2003 (the "Projections"), which Projections (x) shall reflect the forecasted financial conditions and income and expenses of INTERCO and its Restricted Subsidiaries after giving effect to the Transaction and the related financing thereof and the other transactions contemplated hereby and (y) shall be satisfactory in form and substance to the Administrative Agent.
5.16 Acquisition; etc. (a) On or prior to the Restatement Effective Date, (i) INTERCO shall have acquired 100% of the capital stock of Thomasville and its Subsidiaries (the "Acquisition") pursuant to the Stock Purchase Agreement and (ii) the Banks shall have received true and correct copies of all agreements and other documents relating to such acquisition (the "Acquisition Documents"), all of which Acquisition Documents shall be in form and substance reasonably satisfactory to the Administrative Agent and the Required Banks (it being understood that the Stock Purchase Agreement delivered to the Administrative Agent and the Banks prior to the Restatement Effective Date is in form and substance reasonably satisfactory to the Administrative Agent and the Required Banks). All conditions precedent to INTERCO's obligations in respect of the consummation of the Acquisition as set forth in the Stock Purchase Agreement and the other Acquisition Documents shall have been satisfied and not waived (unless waived with the consent of the Administrative Agent and except that the landlord consent with respect to the leased property in Appomattox, Virginia need not be obtained) and the Acquisition shall have been consummated in accordance with all applicable law and the Acquisition Documents.
(b) On the Restatement Effective Date and concurrently with the consummation of the Acquisition, all existing Indebtedness of Thomasville and its Subsidiaries shall have been repaid in full (other than the Existing IRBs), and all security interests and Liens on the capital stock of, and assets owned by, Thomasville and its Subsidiaries shall have been terminated and released, other than Permitted Liens, and the Administrative Agent shall have received evidence in form, scope and substance satisfactory to it that the matter set forth in this clause (b) have been satisfied on such date.
5.17 Original Credit Agreement; etc. On the Restatement Effective Date, (i) unless otherwise agreed by the Administrative Agent and INTERCO, each Original Bank shall have surrendered to the Administrative Agent for cancellation the promissory notes issued to it pursuant to the Original Credit Agreement in respect of its Original Term Loans, Original Revolving Loans and Original Swingline Loans, (ii) each Continuing Bank shall have converted its Original Term Loan as contemplated by Section 1.01(a), (iii) all Original Term Loans being converted as described in preceding clause (ii) which were outstanding as Eurodollar Loans shall, at the time of such con- version, be converted into Base Rate Loans or borrowed as Eurodollar Loans in accordance with Section 1.01(a) and the Borrowers shall pay all breakage costs in accordance with the provisions of Section 1.11 of the Original Credit Agreement in connection therewith, (iv) all Original Revolving Loans shall be repaid in full on the Restatement Effective Date (although Revolving Loans may be incurred hereunder on the Restatement Effective Date in accordance with the provisions hereof) and, if any such Original Revolving Loans were at such time maintained as Eurodollar Loans, all breakage costs owing in connection therewith shall have been paid as contemplated by Section 1.11 of the Original Credit Agreement, (v) each Original Bank shall have received payment in full of all amounts then due and owing to it under the Original Credit Agreement, (vi) the Borrowers shall have paid all accrued and unpaid interest and fees owing under the Original Credit Agreement through the Restatement Effective Date, and (vii) the Administrative Agent shall have received evidence in form, scope and substance satisfactory to it that the matters set forth in this Section 5.17 have been satisfied on such date.
SECTION 6. Conditions Precedent to All Credit Events. The obligation of each Bank to make Loans (including Loans made on the Restatement Effective Date but excluding Mandatory Borrowings made thereafter, which shall be made as provided in Section 1.01(f)), and the obligation of an Issuing Bank to issue any Letter of Credit, is subject, at the time of each such Credit Event (except as hereinafter indicated), to the satisfaction of the following conditions:
6.01 No Default; Representations and Warranties. At the time of each such Credit Event and also after giving effect thereto (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained herein or in any other Credit Document shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on the date of the making of such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date).
6.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to the making of each Loan (excluding Swingline Loans), the Administrative Agent shall have received the notice required by Section 1.03(a). Prior to the making of any Swingline Loan, BTCo shall have received the notice required by Section 1.03(b)(i).
(b) Prior to the issuance of each Letter of Credit, the Administrative Agent and the respective Issuing Bank shall have received a Letter of Credit Request meeting the requirements of Section 2.03.
The acceptance of the benefit of each Credit Event shall constitute a representation and warranty by the Borrowers to the Agents and each of the Banks that all the conditions spec- ified in Section 5 and in this Section 6 and applicable to such Credit Event exist as of that time (except to the extent that any of the conditions specified in Section 5 are required to be satisfactory to or determined by any Bank, the Required Banks and/or the Administrative Agent). All of the Notes, certifi- cates, legal opinions and other documents and papers referred to in Section 5 and in this Section 6, unless otherwise specified, shall be delivered to the Administrative Agent at the Notice Office for the account of each of the Banks and, except for the Notes, in sufficient counterparts or copies for each of the Banks and shall be in form and substance reasonably satisfactory to the Banks.
SECTION 7. Representations, Warranties and Agreements. In order to induce the Banks to enter into this Agreement and to make the Loans, and issue (or participate in) the Letters of Credit as provided herein, each of the Borrowers makes the following representations, warranties and agreements, in each case after giving effect to the Transaction consummated on the Restatement Effective Date, all of which shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans and issuance of the Letters of Credit, with the occurrence of each Credit Event on or after the Restatement Effective Date being deemed to constitute a representation and warranty that the matters specified in this Section 7 are true and correct in all material respects on and as of the Restatement Effective Date and on the date of each such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date).
7.01 Corporate Status. INTERCO and each of its Restricted Subsidiaries (i) is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, (ii) has the corporate power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where the conduct of its business requires such qualifications, except for failures to be so qualified which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
7.02 Corporate Power and Authority. Each Credit Party has the corporate power and authority to execute, deliver and perform the terms and provisions of each of the Documents to which it is party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each of such Documents. Each Credit Party has duly executed and delivered each of the Documents to which it is party, and each of such Documents constitutes the legal, valid and binding obli- gation of such Credit Party enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law).
7.03 No Violation. Neither the execution, delivery or performance by any Credit Party of the Documents to which it is a party, nor compliance by it with the terms and provisions thereof, (i) will contravene any provision of any applicable law, statute, rule or regulation or any applicable order, writ, injunction or decree of any court or governmental instrumental- ity, (ii) will conflict with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Security Documents) upon any of the material properties or assets of INTERCO or any of its Restricted Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument, to which INTERCO or any of its Restricted Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject or (iii) will violate any provision of the Certificate of Incorporation or By- Laws of INTERCO or any of its Restricted Subsidiaries.
7.04 Governmental Approvals. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except (i) as have been obtained or made prior to the Restatement Effective Date and (ii) other than UCC-1 filings and recordings of Assignments of Security Interests in U.S. Patents and Trademarks, in each case, performed pursuant to Section 5.10, which filings and/or recordings, as the case may be, if this representation is being made on a date which is more than ten days after the Restatement Effective Date, have been made), or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the execution, delivery and performance of any Document or (ii) the legality, validity, binding effect or enforceability of any such Document except, with respect to the Transaction Documents, where the failure to so obtain would not have a Material Adverse Effect.
7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc. (a) (i) The consolidated and consolidating statements of financial condition of INTERCO and its Subsidiaries at December 31, 1994 and the related consolidated and consolidating statements of income and cash flow and changes in shareholders' equity of INTERCO and its Subsidiaries for the Fiscal Year ended on such date, and furn- ished to the Banks prior to the Restatement Effective Date and (ii) the consolidated and consolidating statements of financial condition of INTERCO and its Subsidiaries as of the end of each fiscal quarter of INTERCO ended after December 31, 1994, and the related consolidated and consolidating statements of income and cash flow of INTERCO and its Subsidiaries for such quarterly periods, and furnished to the Banks prior to the Restatement Effective Date, in each case, present fairly the financial condi- tion of INTERCO and its Subsidiaries (or INTERCO and its Restricted Subsidiaries, as the case may be) at the date of such statements of financial condition and the results of the operations of INTERCO and its Subsidiaries (or INTERCO and its Restricted Subsidiaries as the case may be) for the respective Fiscal Year or fiscal quarter, as the case may be (subject, in the case of unaudited financial statements, to normal year-end adjustments). All such financial statements have been prepared in accordance with generally accepted accounting principles and practices consistently applied, except, in the case of the quarterly financial statements, for the omission of footnotes, and certain reclassifications and ordinary end of period adjust- ments and accruals (all of which are of a recurring nature and none of which individually, or in the aggregate, would be material).
(b) Each of (i) (x) the audited statements of income and cash flow of Thomasville and its Subsidiaries for the years ended December 31, 1992, December 31, 1993 and December 31, 1994, and (y) the audited consolidated balance sheet of Thomasville and its Subsidiaries as of December 31, 1993, and December 31, 1994, together with the notes thereto and the reports thereon of KMPG Peat Marwick, and (ii) the unaudited consolidated balance sheet of Thomasville and its Subsidiaries as of October 31, 1995 and the related statement of income and cash flow for the ten-month period then ended (including in all cases the notes thereto, if any), fairly presents the financial position of and the results of operations for the entities reported on and is consistent with the books and records of Thomasville and its Subsidiaries and has been prepared in accordance with generally accepted accounting principles, consistently applied, subject in the case of the financial statements referred to in (ii) above to changes resulting from normal year-end adjustments. The books and records upon which the foregoing financial statements are based are true and complete, to the best knowledge of the Borrowers.
(c) Since December 31, 1994, there has been no material adverse change in the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrowers taken as a whole or of the Borrowers and their Restricted Subsidiaries taken as a whole, it being understood that any determination of whether such material adverse change has occurred shall take into account, inter alia, (x) any available indemnities and (y) the timing and likelihood of payment thereunder.
(d) (i) On and as of the Restatement Effective Date, after giving effect to the Transaction and to all Indebtedness (including the Loans) being incurred or assumed and Liens created by the Credit Parties in connection therewith (assuming the full utilization of all Commitments on the Restatement Effective Date), (a) the sum of the assets, at a fair valuation, of each Borrower, individually, each Borrower and its Subsidiaries, (each of the foregoing, as to itself or as to itself and its Subsidiaries, a "Solvent Entity") will exceed its or their debts; (b) each Solvent Entity has not incurred and does not intend to incur, and does not believe that it will incur, debts beyond its ability to pay such debts as such debts mature; and (c) each Solvent Entity will have sufficient capital with which to conduct its businesses. For purposes of this Section 7.05(d), "debt" means any liability on a claim, and "claim" means (i) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured.
(e) Except as fully disclosed in the financial statements delivered pursuant to Section 7.05(a) or (b) or in Schedule IV, there were as of the Restatement Effective Date no liabilities or obligations with respect to INTERCO or any of its Subsidiaries (including without limitation Thomasville and its Subsidiaries) of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in aggregate, is reasonably likely to have a Material Adverse Effect. As of the Restatement Effective Date, none of the Borrowers knows of any basis for the assertion against it of any liability or obligation of any nature whatso- ever that is not fully disclosed in the financial statements delivered pursuant to Section 7.05(a) or (b) or as disclosed in Schedule IV hereto which, either individually or in the aggre- gate, could reasonably be expected to have a Material Adverse Effect.
(f) On and as of the Restatement Effective Date, the Projections previously delivered to the Administrative Agent and the Banks have been prepared on a basis consistent with the financial statements referred to in Section 7.05(a) (other than as set forth or presented in such Projections), and there are no statements or conclusions in any of the Projections which are based upon or include information known to the Borrowers to be misleading in any material respect or which fail to take into account material information regarding the matters reported therein. On the Restatement Effective Date, the Borrowers be- lieved that the Projections were reasonable and attainable.
7.06 Litigation. There are no actions, suits or proceedings pending or, to the best knowledge of the Borrowers, threatened (i) on the Restatement Effective Date, in respect of any material Transaction Document (other than any Credit Document), (ii) with respect to any Credit Document or (iii) that could reasonably be expected to have a Material Adverse Effect.
7.07 True and Complete Disclosure. Except as provided in the immediately succeeding sentence with respect to Thomasville and its Subsidiaries, all factual information (taken as a whole) furnished by or on behalf of INTERCO or any of its Subsidiaries in writing to the Administrative Agent or any Bank (including, without limitation, all factual information contained in the Documents) for purposes of or in connection with this Agreement, the other Credit Documents or any transaction contem- plated herein or therein is, and all other such factual informa- tion (taken as a whole) hereafter furnished by or on behalf of INTERCO or any of its Subsidiaries in writing to the Administrative Agent or any Bank will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. No representation or warranty of the Borrowers in this Agreement or in the other Credit Documents with respect to Thomasville and its Subsidiaries, to the best knowledge of the Borrowers, contains as of the Restatement Effective Date any untrue statements of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading.
7.08 Use of Proceeds; Margin Regulations. (a) All proceeds of the A Term Loans (other than the portion thereof converted from Original Term Loans under Section 1.01(a) or used to repay obligations to the Original Banks under the Original Credit Agreement) shall be used by the Borrowers to (x) consummate the Transaction and (y) pay fees and expenses related thereto.
(b) All proceeds of the B Term Loans shall be used by the Borrower to (x) consummate the Transaction and (y) pay fees and expenses related thereto.
(c) All proceeds of the C Term Loans shall be used by the Borrower to (x) consummate the Transaction and (y) pay fees and expenses related thereto.
(d) All proceeds of the Revolving Loans and Swingline Loans shall be used for the Borrowers' and their Subsidiaries' ongoing general corporate purposes; provided that not more than $75,000,000 in aggregate principal amount of Revolving Loans and Swingline Loans shall be outstanding on the Restatement Effective Date.
(e) No part of the proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock. Neither the making of any Loan nor the use of the proceeds thereof nor the occurrence of any other Credit Event will violate or be inconsistent with the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System.
7.09 Tax Returns and Payments. (a) Each of INTERCO and its Restricted Subsidiaries (including, without limitation, but subject to the last sentence of this Section 7.09(a), Thomasville and its Subsidiaries) have timely filed or caused to be timely filed, on the due dates thereof or within applicable grace periods (inclusive of any permitted extensions), with the appropriate taxing authority, all Federal, state and other material returns, statements, forms and reports for taxes (the "Returns") required to be filed by or with respect to the income, properties or operations of INTERCO and its Restricted Subsidiaries. The Returns accurately reflect in all material respects all liability for taxes of INTERCO and its Restricted Subsidiaries for the periods covered thereby other than Taxes for which adequate reserves have been established in accordance with generally accepted accounting principles. Each of INTERCO and its Restricted Subsidiaries have paid all material taxes payable by them other than taxes which are not delinquent, and other than those contested in good faith and for which adequate reserves have been established in accordance with generally accepted accounting principles. Except as disclosed in the financial statements referred to in Section 7.05(a) or (b) and except as disclosed on Schedule V, there is, as of the Restatement Ef- fective Date, no material action, suit, proceeding, investiga- tion, audit, or claim now pending or, to the best knowledge of the Borrowers, threatened by any authority regarding any taxes relating to INTERCO or its Restricted Subsidiaries. As of the Restatement Effective Date, except as set forth on Schedule V, none of INTERCO or its Restricted Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of INTERCO or its Restricted Subsidiaries, or is aware of any circumstances that would cause the taxable years or other taxable periods of INTERCO or its Restricted Subsidiaries not to be subject to the normally applicable statute of limitations. As of the Restatement Effective Date, none of INTERCO or its Restricted Subsidiaries has provided, with respect to themselves or property held by them, any consent under Section 341 of the Code. Except for amounts specifically set forth in Schedule V, none of INTERCO or its Restricted Subsidiaries has incurred, or will incur, any material tax liability in connection with the Transaction and the other transactions contemplated hereby. Additionally, all of the foregoing representations are true and correct as to all Unrestricted Subsidiaries of INTERCO (to the same extent they were Restricted Subsidiaries) except to the extent any and all failures to be true and correct could not reasonably be expected to have a Material Adverse Effect. Notwithstanding anything to the contrary contained above, to the extent the foregoing representations contained in this Section 7.09 relate to Thomasville and its Subsidiaries for periods prior to the Restatement Effective Date, such representations shall be deemed untrue only if the aggregate effect of all such failures and noncompliances of the types described above with respect to Thomasville and its Subsidiaries for periods prior to the Restatement Effective Date would reasonably be expected to have a Material Adverse Effect.
(b) INTERCO'S tax basis in the shares of capital stock of (x) Converse spun-off in connection with the Converse Disposition was an amount not less than $165,000,000 at the time of the consummation thereof and (y) Florsheim spun-off in con- nection with the Florsheim Disposition was an amount not less than $50,000,000.
7.10 Compliance with ERISA. (a) Each Plan is in sub- stantial compliance with ERISA and the Code; no Reportable Event has occurred with respect to a Plan; to the best knowledge of the Borrowers, no Multiemployer Plan is insolvent or in reorganization; no Plan has an Unfunded Current Liability; no Plan, and to the best knowledge of the Borrowers, no Spunoff Plan, has an accumulated or waived funding deficiency, or has applied for an extension of any amortization period within the meaning of Section 412 of the Code; all contributions required to be made by the Borrowers, any of their respective Restricted Subsidiaries or any ERISA Affiliate with respect to a Plan, a Spunoff Plan, a Multiemployer Plan, and/or a Foreign Pension Plan have been timely made; none of the Borrowers or any of their respective Restricted Subsidiaries nor any ERISA Affiliate has incurred any liability to or on account of a Plan, a Spunoff Plan, and/or a Multiemployer Plan pursuant to Section 409, 502(i), 502(1), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, 4975 or 4980 of the Code or reasonably expects to incur any liability (including any indirect, contingent or secondary liability) under any of the foregoing Sections with respect to any Plan, a Spunoff Plan, and/or a Multiemployer Plan; no proceedings have been instituted to terminate or appoint a trustee to administer any Plan and, to the best knowledge of the Borrowers, any Spunoff Plan; no condition exists which presents a risk to the Borrowers or any of their respective Restricted Subsidiaries or any ERISA Affiliate of incurring a liability to or on account of a Plan, or to the best knowledge of the Borrowers a Spunoff Plan, and/or a Multiemployer Plan pursuant to the foregoing provisions of ERISA and the Code; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of the Borrowers, their respective Restricted Subsidiaries and their ERISA Affiliates to all Multiemployer Plans in the event of a complete withdrawal there- from, as of the close of the most recent fiscal year of each such Multiemployer Plan ended prior to the date of the most recent Credit Event, would not exceed $50,000; no lien imposed under the Code or ERISA on the assets of the Borrowers or any of their respective Restricted Subsidiaries or any ERISA Affiliate exists on account of any Plan, a Spunoff Plan, and/or a Multiemployer Plan or is likely to arise on account of any Plan, or to the best knowledge of the Borrowers, is likely to arise on account of any Spunoff Plan and/or Multiemployer Plan; and the Borrowers and their respective Restricted Subsidiaries do not maintain or con- tribute to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any employee pension benefit plan (as defined in Section 3(2) of ERISA) the obligations with respect to which could reasonably be expected to have a Material Adverse Effect. For purposes of this Section 7.10(a) "to the best knowledge of the Borrowers" with respect to any Spunoff Plan means (x) actual knowledge or (y) knowledge acquired through written or oral notice provided directly to a Borrower by any governmental agency, court, or Spunoff Plan administrator.
(b) Each Foreign Pension Plan has been maintained in substantial compliance with its terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities. None of the Borrowers nor any of their respective Restricted Subsidiaries has incurred any obligation in connection with the termination of or withdrawal from any Foreign Pension Plan. The present value of the accrued benefit liabilities (whether or not vested) under each Foreign Pension Plan, determined as of the end of each Bor- rower's most recently ended fiscal year on the basis of actuar- ial assumptions, each of which is reasonable, did not exceed the current value of the assets of such Foreign Pension Plan allocable to such benefit liabilities.
(c) Notwithstanding anything to the contrary in this Section 7.10, the representations made in this Section 7.10 shall only be untrue if the aggregate effect of all failures and noncompliances of the types described above could reasonably be expected to have a Material Adverse Effect.
7.11 The Security Documents. (a) The provisions of the Security Agreement are effective to create in favor of the Collateral Agent for the benefit of the Secured Creditors a legal, valid and enforceable security interest in all right, title and interest of the Credit Parties in the Security Agree- ment Collateral described therein, and the Security Agreement, upon the filing of Form UCC-1 financing statements or the appro- priate equivalent (which filings, if this representation is being made more than 10 days after the Restatement Effective Date, have been made), create a fully perfected first lien on, and security interest in, all right, title and interest in all of the Security Agreement Collateral described therein, to the extent that a security interest may be perfected therein by filing a financing statement under the UCC, subject to no other Liens other than Permitted Liens. The recordation of the Assignment of Security Interest in U.S. Patents and Trademarks in the form attached to the Security Agreement in the United States Patent and Trademark Office together with filings on Form UCC-1 made pursuant to the Security Agreement will be effective, under applicable law, to perfect the security interest granted to the Collateral Agent in the trademarks and patents covered by the Security Agreement. Each of the Credit Parties party to the Security Agreement has good and valid title to all Security Agreement Collateral owned by such Credit Party described therein, free and clear of all Liens except those described above in this clause (a).
(b) The security interests created in favor of the Collateral Agent, as Pledgee, for the benefit of the Secured Creditors under the Pledge Agreement constitute first priority perfected security interests in the Pledged Securities described in the Pledge Agreement, subject to no security interests of any other Person. No filings or recordings are required in order to perfect (or maintain the perfection or priority of) the security interests created in the Pledged Securities and the proceeds thereof under the Pledge Agreement.
(c) The Mortgages create, as security for the obli- gations purported to be secured thereby, a valid and enforceable perfected security interest in and mortgage lien on all of the Mortgaged Properties in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of the Secured Creditors, superior to and prior to the rights of all third persons (except that the security inter- est and mortgage lien created in the Mortgaged Properties may be subject to the Permitted Encumbrances related thereto) and subject to no other Liens (other than Permitted Liens). Schedule III contains a true and complete list of each parcel of Real Property owned or leased by INTERCO and its Restricted Subsidiaries on the Effective Date, and the type of interest therein held by INTERCO or such Restricted Subsidiary. INTERCO and each of its Restricted Subsidiaries have good and indefeasible title to all fee-owned Mortgaged Properties and valid leasehold title to all Leaseholds material to its business, in each case free and clear of all Liens except those described in the first sentence of this subsection (c).
7.12 Representations and Warranties in Other Documents. All representations and warranties set forth in the Documents other than this Agreement were true and correct in all material respects at the time as of which such representations and warranties were made (or deemed made) and shall be true and correct in all material respects as of the Restatement Effective Date as if such representations and warranties were made on and as of such date, unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date. Notwithstanding anything to the contrary contained above, to the extent that the representations and warranties set forth in the Documents other than this Agreement were made by parties other than INTERCO and its Subsidiaries, such representations and warranties shall be deemed untrue only if the aggregate effect of all inaccuracies in such representations and warranties would reasonably be expected to have a Material Adverse Effect.
7.13 Properties. INTERCO and each of its Restricted Subsidiaries have good and valid title to all material properties owned by them, including all property reflected in the balance sheets referred to in Sections 7.05(a) and (b) and in the pro forma balance sheet referred to in Section 5.15 (except as sold or otherwise disposed of since the date of such balance sheet in the ordinary course of business or otherwise as permitted hereunder), free and clear of all Liens, other than (i) as referred to in the balance sheet or in the notes thereto or in the pro forma balance sheet or (ii) Permitted Liens otherwise permitted by Section 9.01.
7.14 Capitalization. (a) On the Restatement Ef- fective Date and after giving effect to the Transaction, the authorized capital stock of INTERCO consisted of 100,000,000 shares of INTERCO Common Stock, $1.00 stated value per share, of which 50,119,816 shares were issued and outstanding as of September 30, 1995, and at least 60% of such outstanding shares are owned by the Apollo Group or a Controlled Account. As of the Restatement Effective Date, INTERCO does not have outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock, in each case other than the options outstanding pursuant to the Employee Stock Option Plan and the INTERCO Warrants.
(b) On the Restatement Effective Date and after giving effect to the Transaction, the authorized capital stock of Broyhill shall consist of 5,296,178 shares of common stock, no par value per share, 100 shares of which shall be issued and outstanding and delivered for pledge pursuant to the Pledge Agreement. All such outstanding shares of common stock have been duly and validly issued, are fully paid and nonassessable. As of the Restatement Effective Date, Broyhill does not have outstand- ing any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock.
(c) On the Restatement Effective Date and after giving effect to the Transaction, the authorized capital stock of Lane shall consist of 1,000 shares of common stock, no par value per share, all of which shall be issued and outstanding and delivered for pledge pursuant to the Pledge Agreement. All such outstand- ing shares of common stock have been duly and validly issued, are fully paid and nonassessable. As of the Restatement Effective Date, Lane does not have outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock.
(d) On the Restatement Effective Date and after giving effect to the Transaction, the authorized capital stock of Thomasville shall consist of 50,000,000 shares of common stock, $1.00 par value per share, 7,500,000 of which shall be issued and outstanding and delivered for pledge pursuant to the Pledge Agreement. All such outstanding shares of common stock have been duly and validly issued, are fully paid and nonassessable. As of the Restatement Effective Date, Thomasville does not have out- standing any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock.
7.15 Subsidiaries. (a) On the Restatement Effective Date and after giving effect to the Transaction, INTERCO has no Subsidiaries other than the other Borrowers, their respective Subsidiaries, Interfashions Industries, S.A. and its Subsidiaries, and the Receivables Subsidiary (which is owned by Broyhill, Lane, Action and Thomasville).
(b) After giving effect to the Transaction, INTERCO will have no Subsidiaries other than (i) those Subsidiaries listed on Schedule VI and (ii) new Subsidiaries created in compliance with this Agreement.
7.16 Compliance with Statutes, etc. INTERCO and each of its Subsidiaries are in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of their business and the ownership of their property (including applicable statutes, regulations, orders and restrictions relating to environmental standards and controls), except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
7.17 Investment Company Act. None of INTERCO nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended.
7.18 Public Utility Holding Company Act. None of INTERCO nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended.
7.19 Environmental Matters. (a) INTERCO and each of its Subsidiaries have complied with all applicable Environmental Laws and the requirements of any permits issued under such Environmental Laws. There are no pending or, to the best knowledge of the Borrowers after due inquiry, threatened Environ- mental Claims against INTERCO, or any of its Subsidiaries or any Real Property owned or operated by INTERCO or any of its Subsidiaries. There are no facts, circumstances, conditions or occurrences on any Real Property owned or operated by INTERCO or any of its Subsidiaries or, to the best knowledge of INTERCO or the Borrowers after due inquiry, on any property adjoining or in the vicinity of any such Real Property that, to the best knowl- edge of the Borrowers after due inquiry, could reasonably be expected (i) to form the basis of an Environmental Claim against INTERCO or any of its Subsidiaries or any such Real Property, or (ii) to cause any such Real Property to be subject to any restrictions on the ownership, occupancy, use or transferability of such Real Property by INTERCO or any of its Subsidiaries under any applicable Environmental Law.
(b) Hazardous Materials have not at any time been generated, used, treated or stored on, or transported to or from, any Real Property owned or operated by INTERCO or any of its Subsidiaries except in compliance with all applicable Environmental Laws and so as not to give rise to an Environmental Claim. Hazardous Materials have not at any time been Released on or from any Real Property owned or operated by INTERCO or any of its Subsidiaries except in compliance with all applicable Environmental Laws and so as not to give rise to an Environmental Claim.
(c) Notwithstanding anything to the contrary in this Section 7.19, the representations made in this Section 7.19 shall only be untrue if the aggregate effect of all failures and noncompliances of the types described above could reasonably be expected to have a Material Adverse Effect.
7.20 Labor Relations. None of INTERCO nor any of its Subsidiaries is engaged in any unfair labor practice that could reasonably be expected to have a material adverse effect on the Borrowers taken as a whole or the Borrowers and their Restricted Subsidiaries taken as a whole. There is (i) no unfair labor practice complaint pending against INTERCO or any of its Subsidi- aries or, to the best knowledge of the Borrowers, threatened against any of them, before the National Labor Relations Board, and no material grievance or material arbitration proceeding arising out of or under any collective bargaining agreement is so pending against INTERCO or any of its Subsidiaries or, to the best knowledge of the Borrowers, threatened against any of them, (ii) no strike, labor dispute, slowdown or stoppage pending against INTERCO or any of its Subsidiaries or, to the best knowledge of the Borrowers, threatened against INTERCO or any of its Subsidiaries and (iii) to the best knowledge of the Borrowers, no union representation proceeding pending with respect to the employees of INTERCO or any of its Subsidiaries, except (with respect to any matter specified in clause (i), (ii) or (iii) above, either individually or in the aggregate) such as could not reasonably be expected to have a Material Adverse Effect.
7.21 Patents, Licenses, Franchises and Formulas. INTERCO and its Subsidiaries own all material patents, trademarks, permits, service marks, trade names, copyrights, licenses, franchises and formulas, or rights with respect to the foregoing, and have obtained assignments of all leases and other rights of whatever nature, reasonably necessary for the present conduct of their business, without any known conflict with the rights of others which, or the failure to obtain which, as the case may be, could reasonably be expected to result in a Material Adverse Effect.
7.22 Indebtedness. Schedule VII sets forth a true and complete list of all Indebtedness for borrowed money of INTERCO and its Restricted Subsidiaries as of the Restatement Effective Date and which is to remain outstanding after giving effect to the Transaction (excluding the Loans and the Letters of Credit and the Attributed Receivables Facility Indebtedness, the "Existing Indebtedness"), in each case showing the aggregate principal amount thereof and the name of the respective borrower and any other entity which directly or indirectly guaranteed such debt all of which Existing Indebtedness is or shall be evidenced by the Permitted Debt Agreements.
7.23 Transaction. At the time of consummation thereof, the Transaction shall have been consummated in all respects in accordance with the terms of the Transaction Documents and all applicable laws. At the time of consummation of the Transaction, all consents and approvals of, and filings and registrations with, and all other actions in respect of, all governmental agencies, authorities or instrumentalities required in order to make or consummate the Transaction will have been obtained, given, filed or taken and are or will be in full force and effect (or effective judicial relief with respect thereto has been obtained), except where the failure to so obtain, give, file or take would not have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrowers taken as a whole or of the Borrowers and their Restricted Subsidiaries taken as a whole. All applicable waiting periods with respect thereto have or, prior to the time when required, will have, expired without, in all such cases, any action being taken by any competent authority which restrains, prevents, or imposes material adverse conditions upon the Transaction. Additionally, there does not exist any judgment, order or injunction prohibiting or imposing material adverse conditions upon the Transaction or the occurrence of any Credit Event or the performance by the Credit Parties of their obligations under the respective Documents. All actions taken by the Credit Parties pursuant to or in furtherance of the Transaction have been taken in material compliance with the respective Documents and all applicable laws.
7.24 Special Purpose Corporation. The Receivables Subsidiary was formed for the purpose of purchasing, and receiving contributions of, receivables from each of the Borrowers (other than INTERCO) and their respective Restricted Subsidiaries, and selling such receivables to, or obtaining secured loans from, the Receivables Purchasers, pursuant to the Receivables Facility and except in connection with the foregoing (and activities reasonably incidental thereto), the Receivables Subsidiary engages in no business activities and has no significant assets or liabilities and shall in no event purchase receivables from any Unrestricted Subsidiary.
SECTION 8. Affirmative Covenants. Each of the Borrowers hereby covenants and agrees that on and after the Restatement Effective Date and until the Total Commitment and all Letters of Credit and Acceptances have terminated and the Loans, Notes and Unpaid Drawings, together with interest, Fees and all other Obligations incurred hereunder and thereunder, are paid in full:
8.01 Information Covenants. The Borrowers will furnish to the Administrative Agent, and the Administrative Agent will promptly forward to each Bank:
(a) Monthly Reports. Within 30 days after the end of each calendar month of INTERCO (within 45 days after the end of the last month of each Fiscal Year), the consolidated and consolidating balance sheets of INTERCO and its Subsidiaries, in each case, as at the end of such month, and the related consolidated and consolidating statements of income and the consolidated statement of cash flow for such month and for the elapsed portion of the calendar year ended with the last day of such month, in each case setting forth comparative figures for the corresponding month in the prior calendar year and the budgeted figures for such month as set forth in the respective budget delivered pursuant to Section 8.01(e).
(b) Quarterly Financial Statements. As soon as available and in any event within 45 days after the close of each of the first three quarterly accounting periods in each Fiscal Year, (i) the consolidated and consolidating balance sheets of INTERCO and its Subsidiaries, in each case, as at the end of such quarterly period and the related consolidated and consolidating statements of income and the consolidated statement of cash flow for such quarterly period and for the elapsed portion of the Fiscal Year ended with the last day of such quarterly period and (ii) management's discussion and analysis of the important opera- tional and financial developments during such quarterly period.
(c) Annual Financial Statements. Within 95 days after the close of each Fiscal Year, (i) the consolidated and consolidating balance sheets of INTERCO and its Subsidiaries, in each case, as at the end of such Fiscal Year and the related consolidated and consolidating statements of income and consolidated statements of shareholders' equity and cash flow for such Fiscal Year setting forth comparative figures for the preceding Fiscal Year and (A) certified, in the case of such consolidated financial statements and (B) confirmed by a letter, in the case of the consolidating statements, delivered in substantially the form of the auditor's letter delivered to INTERCO on January 31, 1995, in each case by Peat Marwick or such other independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent, together with a report of such accounting firm stating that in the course of its regular audit of the financial statements of INTERCO and its Subsidiaries, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm obtained no knowledge of any Default or Event of Default which has occurred and is continuing or, if in the opinion of such accounting firm such a Default or Event of Default with respect to the covenants set forth in Sections 9.02 through 9.16, inclusive, has occurred and is continuing, a statement as to the nature thereof and (ii) management's discussion and analysis of the important operational and financial developments during such Fiscal Year.
(d) Management Letters. Promptly after the receipt thereof by INTERCO or any of its Restricted Subsidiaries, a copy of any "management letter" received by such Person from their certified public accountants and the management's responses thereto.
(e) Budgets. No later than 30 days following the commencement of the first day of each Fiscal Year, a budget in form satisfactory to the Administrative Agent (including budgeted statements of income and sources and uses of cash and balance sheets) prepared by INTERCO for (x) each of the twelve months of such Fiscal Year prepared in detail and (y) each of the four Fiscal Years immediately following such Fiscal Year prepared in summary form, in each case, of INTERCO and its Restricted Subsidiaries, accompanied by the statement of an Authorized Representative of INTERCO to the effect that, to the best of his knowledge, the budget is a reasonable estimate for the period covered thereby.
(f) Officer's Certificates. At the time of the delivery of the financial statements provided for in Section 8.01(a), (b) and (c), a certificate of an Authorized Representative of INTERCO to the effect that, to the best of such Authorized Representative's knowledge, no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof, which certificate shall, in the case of any such financial statements delivered in respect of a period ending on the last day of a fiscal quarter or year of INTERCO, (x) set forth the calculations required to establish whether the Borrowers were in compliance with the provisions of Section 4.02 (excluding Section 4.02(i)), 9.02, 9.03, 9.04, 9.05 and 9.07 through 9.10, inclusive, and 9.16 at the end of such fiscal quarter or year, as the case may be, (y) if delivered with the financial statements required by Section 8.01(c), set forth the amount of Excess Cash Flow for the respective Excess Cash Flow Payment Period and (z) set forth the calculation of the Leverage Ratio and Senior Debt Leverage Ratio and the amount of the Available $10 Million Dividend Basket Amount, Available $10 Million Acquisition/Investment Basket Amount, Available Retained Excess Cash Flow Amount, Available Debt Proceeds Amount, Available Unrestricted Proceeds Amount, Available Dividend Unrestricted Proceeds Amount, Available Net Income Amount, Consolidated Cumulative Net Income Amount, Consolidated Cumulative Excess Net Income Amount, Consolidated Cumulative 25% Net Income Amount, Available Permitted Acquisition Amount, Returned Investment Amount and Available Returned Investment Amount at the end of the period covered by such financial statements, and all sources and uses of proceeds relating to the calculation thereof changing during the period covered by such statements.
(g) Notice of Default or Litigation. Promptly, and in any event within three Business Days after an executive officer of any Borrower obtains knowledge thereof, notice of (i) the occurrence of any event which constitutes a Default or Event of Default and (ii) any litigation or governmental investigation or proceeding pending (x) against INTERCO or any of its Subsidiaries which could reasonably be expected to materially and adversely affect the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrowers taken as a whole or the Borrowers and their Restricted Subsidiaries taken as a whole, (y) with respect to any material Indebtedness of INTERCO and its Restricted Subsidiaries taken as a whole or (z) with respect to any Document.
(h) Other Reports and Filings. Promptly, copies of all financial information, proxy materials and other information and reports, if any, which INTERCO or any of its Restricted Subsidiaries shall file with the Securities and Exchange Commission or any successor thereto (the "SEC") or deliver to holders of its Indebtedness pursuant to the terms of the documentation governing such Indebtedness (or any trustee, agent or other representative therefor).
(i) Environmental Matters. Promptly upon, and in any event within ten Business Days after, an executive officer of INTERCO or any of its Restricted Subsidiaries obtains knowledge thereof, notice of one or more of the following environmental matters, unless such environmental matters could not, individually or when aggregated with all other such environmental matters, be reasonably expected to materially and adversely affect the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrowers taken as a whole or of the Borrowers and their Restricted Subsidiaries taken as a whole:
(i) any pending or threatened Environmental Claim against INTERCO or any of its Subsidiaries or any Real Property owned or operated by INTERCO or any of its
(ii) any condition or occurrence on or arising from any Real Property owned or operated by INTERCO or any of its Subsidiaries that (a) results in noncompliance by INTERCO or any of its Subsidiaries with any applicable Environmental Law or (b) could reasonably be expected to form the basis of an Environmental Claim against INTERCO or any of its Subsidiaries or any such
(iii) any condition or occurrence on any Real Property owned or operated by INTERCO or any of its Subsidiaries that could reasonably be expected to cause such Real Property to be subject to any restrictions on the ownership, occupancy, use or transferability by INTERCO or any of its Subsidiaries of such Real Property under any Environmental Law; and
(iv) the taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Material on any Real Property owned or operated by INTERCO or any of its Subsidiaries as required by any Environmental Law or any governmental or other administrative agency; provided that in any
event the Borrowers shall deliver to each Bank all notices received by them or any of their respective Subsidiaries from any government or governmental agency under, or pursuant to, CERCLA.
All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence or removal or remedial action, and the Borrowers' or such Subsidiary's response thereto. In addition, the Borrowers will provide the Banks with copies of all material communi- cations with any government or governmental agency relating to Environmental Laws, all communications with any Person (other than its attorneys) relating to any Environmental Claim of which notice is required to be given pursuant to this Section 8.01(i), and such detailed reports of any such Environmental Claim as may reasonably be requested by the Banks.
(j) Annual Meetings with Banks. At the request of the Administrative Agent, INTERCO shall within 120 days after the close of each Fiscal Year hold a meeting at a time and place selected by INTERCO and reasonably acceptable to the Administrative Agent with all of the Banks at which meeting shall be reviewed the financial results of the previous Fiscal Year and the financial condition of INTERCO and the budgets presented for the current Fiscal Year.
(k) Other Information. From time to time, such other information or documents (financial or otherwise) with respect to INTERCO or any of its Subsidiaries as any Bank may reasonably request in writing.
8.02 Books, Records and Inspections. The Borrowers will, and will cause each of their respective Restricted Subsidi- aries to, keep proper books of record and account in which full, true and correct entries in conformity with generally accepted accounting principles and all requirements of law shall be made of all dealings and transactions in relation to its business and activities. The Borrowers will, and will cause each of their respective Restricted Subsidiaries to, permit officers and designated representatives of the Agents or the Required Banks to visit and inspect, after reasonable notice during regular business hours and under guidance of officers of the Borrowers or such Restricted Subsidiary, any of the properties of the Borrowers or such Restricted Subsidiary, and to examine the books of account of the Borrowers or such Restricted Subsidiary and discuss the affairs, finances and accounts of the Borrowers or such Restricted Subsidiary with, and be advised as to the same by, its and their officers and independent accountants, all at such reasonable times and intervals and to such reasonable extent as such Agent or such Bank may request.
8.03 Maintenance of Property; Insurance. (a) Sched- ule VIII sets forth a true and complete listing of all insurance (including self-insurance programs) maintained by INTERCO and its Restricted Subsidiaries as of the Restatement Effective Date. The Borrowers will, and will cause each of their respective Restricted Subsidiaries to, (i) keep all property necessary in its business in good working order and condition (ordinary wear and tear excepted), (ii) maintain insurance on all its property in at least such amounts and against at least such risks as is consistent and in accordance with industry practice and (iii) furnish to the Administrative Agent, upon written request, full information as to the insurance carried. In addition to the requirements of the immediately preceding sentence, the Borrowers will at all times cause insurance of the types described in Schedule VIII to be maintained (with the same scope of coverage as that described in Schedule VIII) at levels which are at least as great as the respective amount described opposite the respective type of insurance on Schedule VIII under the column headed "Minimum Amount Required to be Maintained."
(b) Except with respect to self-insurance programs listed on Schedule VIII, the Borrowers will, and will cause their respective Restricted Subsidiaries to, at all times keep their respective property insured in favor of the Collateral Agent, and all policies (including Mortgage Policies) or certificates (or certified copies thereof) with respect to such insurance (and any other insurance maintained by the Borrowers or any of their respective Restricted Subsidiaries) (i) shall be endorsed to the Collateral Agent's satisfaction for the benefit of the Collateral Agent (including, without limitation, by naming the Collateral Agent as loss payee or as an additional insured (provided that INTERCO and its Restricted Subsidiaries shall be permitted to settle claims in an amount less than $10,000,000 per claim, so long as the proceeds from such claims are applied in accordance with Section 4.02(j))), (ii) shall state that such insurance policies shall not be cancelled without 30 days' prior written notice thereof by the respective insurer to the Collateral Agent, (iii) shall provide that the respective insurers irrevocably waive any and all rights of subrogation with respect to the Collateral Agent and the Secured Creditors, (iv) shall contain the standard non-contributory mortgagee clause endorsement in favor of the Collateral Agent with respect to hazard insurance coverage, (v) shall, except in the case of public liability insurance and workers' compensation insurance, provide that any losses shall be payable notwithstanding (A) any act or neglect of the Borrowers or any of their respective Restricted Subsidiaries, (B) the occupation or use of the properties for purposes more hazardous than those permitted by the terms of the respective policy if such coverage is obtainable at commercially reasonable rates and is of the kind from time to time customarily insured against by Persons owning or using similar property and in such amounts as are customary, (C) any foreclosure or other proceeding relating to the insured properties if such coverage is available at commercially reasonable rates or (D) any change in the title to or ownership or possession of the insured properties and (vi) shall be deposited with the Collateral Agent if such coverage is available at commercially reasonable rates.
(c) If the Borrowers or any of their respective Restricted Subsidiaries shall fail to maintain all insurance in accordance with this Section 8.03, or if the Borrowers or any of their respective Restricted Subsidiaries shall fail to so endorse and deposit all policies or certificates with respect thereto, the Administrative Agent and/or the Collateral Agent shall have the right (but shall be under no obligation) after giving notice to INTERCO (but not requiring any consent from INTERCO) to procure such insurance and the Borrowers agree to jointly and severally reimburse the Administrative Agent or the Collateral Agent, as the case may be, for all costs and expenses of pro- curing such insurance.
8.04 Corporate Franchises. The Borrowers will, and will cause each of their respective Restricted Subsidiaries (other than Interfashions Industries, S.A. and its Subsidiaries) to, do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its material rights, franchises, licenses and patents; provided, however, that nothing in this Section 8.04 shall prevent (i) sales of assets, mergers or other transactions by or among INTERCO or any of its Restricted Subsidiaries in accordance with Section 9.02 or (ii) (x) the withdrawal by INTERCO or any of the Restricted Sub- sidiaries of its qualification as a foreign corporation or the failure to qualify as a foreign corporation in any jurisdiction or (y) the amendment of the Certificate of Incorporation or By- Laws of INTERCO or any of its Subsidiaries which would not in any way materially and adversely affect the Banks, and where such withdrawal or failure or amendment, as the case may be, could not reasonably be expected to have a Material Adverse Effect. In the event INTERCO shall elect to change its corporate name, the Borrowers will afford the Administrative Agent ten Business Days' prior written notice of such change and the Borrowers will execute in advance of such change and cause to be filed and/or delivered to the Administrative Agent any financing statements or other documents reasonably requested by the Administrative Agent in order to continue perfected liens and security interests in the Collateral, all in form and substance satisfactory to the Administrative Agent.
8.05 Compliance with Statutes, etc. The Borrowers will, and will cause each of their respective Subsidiaries to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such noncom- pliances as could not, individually or in the aggregate, rea- sonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrowers taken as a whole or of the Borrowers and their Restricted Subsidiaries taken as a whole.
8.06 Compliance with Environmental Laws. (a) The Borrowers will comply, and will cause each of their respective Subsidiaries to comply, in all material respects with all Environmental Laws applicable to the ownership or use of its Real Property now or hereafter owned or operated by INTERCO or any of its Subsidiaries, will within a reasonable time period pay or cause to be paid all costs and expenses incurred in connection with such compliance, and will keep or cause to be kept all such Real Property free and clear of any Liens on such Real Property imposed pursuant to such Environmental Laws; provided that, none of INTERCO nor any of its Subsidiaries shall be required to remove any such Liens, so long as the aggregate amount of obliga- tions purported to be secured by such Liens does not exceed $1,000,000, and such Liens are being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with generally accepted accounting principles. None of INTERCO nor any of its Subsidiaries will generate, use, treat, store, release or dispose of, or permit the generation, use, treatment, storage, release or disposal of Hazardous Materials on any Real Property now or hereafter owned or operated by INTERCO or any of its Subsidiaries, or transport or permit the transportation of Hazardous Materials to or from any such Real Property except for Hazardous Materials used or stored at any such Real Properties in material compliance with all applicable Environmental Laws and reasonably required in connection with the operation, use and maintenance of any such Real Property.
(b) At the written request of the Administrative Agent or the Required Banks, which request shall specify in reasonable detail the basis therefor, at any time and from time to time, the Borrowers will provide, at the Borrowers' joint and several cost and expense, an environmental site assessment report concerning any Real Property now or hereafter owned or operated by INTERCO or any of its Subsidiaries, prepared by an environmental consulting firm approved by the Administrative Agent, indicating the presence or absence of Hazardous Materials and the potential cost of any removal or remedial action in connection with any Hazardous Materials on such Real Property; provided, that such request may be made only if (i) there has occurred and is continuing an Event of Default, (ii) the Administrative Agent reasonably believes that INTERCO, any of its Subsidiaries or any such Real Property is not in material compliance with Environmental Law, or (iii) circumstances exist that reasonably could be expected to form the basis of a material Environmental Claim against INTERCO, any of its Subsidiaries or any such Real Property. If the Borrowers fail to provide the same within 90 days after such request was made, the Administrative Agent may order the same, and the Borrowers shall grant and hereby grant to the Administrative Agent and the Banks and their agents access to such Real Property and specifically grant the Administrative Agent and the Banks an irrevocable non-exclusive license, subject to the rights of tenants, to undertake such an assessment, all at the Borrowers' joint and several expense.
8.07 ERISA. As soon as possible and, in any event, within 20 days after the Borrowers or any of their respective Restricted Subsidiaries or any ERISA Affiliate knows or has reason to know of the occurrence of any of the following, the Borrowers will deliver to the Administrative Agent, and the Administrative Agent shall promptly forward to each Bank a certificate of an Authorized Representative of the Borrowers setting forth details as to such occurrence and the action, if any, that the Borrowers, such Restricted Subsidiary or such ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Borrowers, such Restricted Subsidiary, the ERISA Affiliate, the PBGC, or a Plan participant or the Plan administrator with respect thereto: that a Reportable Event has occurred; that an accumulated funding deficiency has been incurred or an applica- tion is likely to be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to a Plan, Multiemployer Plan and/or a Spunoff Plan; that a contribution required to be made to a Plan, Multiemployer Plan and/or Foreign Pension Plan has not been timely made; that a Plan, Multiemployer Plan and/or a Spunoff Plan has been or is reasonably expected to be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Plan, Multiemployer Plan and/or a Spunoff Plan has an Unfunded Current Liability giving rise to a lien under ERISA or the Code; that proceedings are likely to be or have been instituted or notice has been given to terminate or appoint a trustee to administer a Plan, Multiemployer Plan and/or a Spunoff Plan; that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Multiemployer Plan if material in amount; that the Borrowers, any of their respective Restricted Subsidiaries or any ERISA Affiliate will or is reasonably expected to incur any material liability (including any indirect, contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan, Multiemployer Plan and/or a Spunoff Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan, Multiemployer Plan and/or a Spunoff Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA; or except as disclosed on Schedule XVII, that the Borrowers or any Restricted Subsidiary is reasonably expected to incur any liability pursuant to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any employee pension benefit plan (as defined in Section 3(2) of ERISA) which liability, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Upon request, the Borrowers will deliver to each of the Banks a complete copy of the annual report (Form 5500) of each Plan (including, to the extent required to be filed with the Internal Revenue Service in connection with such annual report, the related financial and actuarial statements and opinions and other supporting statements, certifications, schedules and information) required to be filed with the Internal Revenue Service. In addition to any certificates or notices delivered to the Banks pursuant to the first sentence hereof, copies of such annual reports and any material notices received by the Borrowers or any of their respective Restricted Subsidiaries or any ERISA Affiliate with respect to any Plan, Multiemployer Plan, Spunoff Plan and/or Foreign Pension Plan shall be delivered to the Banks no later than 20 days after the date such report has been requested or such notice has been received by the Borrowers, the Restricted Subsidiary or the ERISA Affiliate, as applicable. For purposes of this Section 8.07 "knows or has reason to know" with respect to any Spunoff Plan means knowledge acquired through written or oral notice provided directly to a Borrower by any governmental agency, court, or Spunoff Plan administrator.
8.08 End of Fiscal Years; Fiscal Quarters. INTERCO shall cause (i) each of its Fiscal Years to end on December 31, and each of its fiscal quarters to end on the last day of each March, June, September and December and (ii) each of its Restricted Subsidiaries' (x) fiscal years to end on the closest Saturday to December 31 and (y) fiscal quarters to end on the closest Saturday to the last day of each March, June, September and December.
8.09 Performance of Obligations. Each of the Borrowers will, and will cause each of its Subsidiaries to, perform all of its obligations under the terms of each mortgage, indenture, security agreement and other debt instrument by which it is bound, except such non-performances as could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrowers taken as a whole or of the Borrowers and the Restricted Subsidiaries taken as a whole.
8.10 Payment of Taxes. Each of the Borrowers will pay and discharge or cause to be paid and discharged, and will cause each of their respective Subsidiaries to pay and discharge, all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any material properties belonging to it, in each case on a timely basis, and all lawful claims which, if unpaid, might become a lien or charge upon any properties of INTERCO or any of its Restricted Subsidiaries; provided that none of INTERCO nor any of its Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained ade- quate reserves with respect thereto in accordance with generally accepted accounting principles.
8.11 Additional Security; Further Assurances; Required Appraisals. (a) The Borrowers will, and will cause each of their respective Restricted Subsidiaries to, grant to the Col- lateral Agent security interests and mortgages (an "Additional Mortgage") in such Real Property (other than Real Property encumbered by (i) liens incurred by a Restricted Subsidiary at a time when it was an Unrestricted Subsidiary, to the extent such Liens are otherwise permitted by this Agreement and (ii) Liens securing Indebtedness permitted pursuant to Section 9.04 (vii), but only until such time as such Indebtedness is repaid) of the Borrowers or any of their respective Restricted Subsidiaries as are not covered by the original Mortgages, to the extent such Real Property is acquired after the Effective Date and either (x) the cost (including assumed Indebtedness) of such Real Property is in excess of $2,500,000 or (y) the respective Additional Mort- gage has been requested by the Required Banks (each such Real Property, an "Additional Mortgaged Property"), provided that subject to Section 9.02(xi), if the Real Property located at North Scientific Street, High Point, North Carolina is not sold by March 31, 1996, then the Borrowers will, and will cause their respective Restricted Subsidiaries to, grant to the Collateral Agent an Additional Mortgage in such Real Property. All such Additional Mortgages shall be granted pursuant to documentation substantially in the form of the Mortgages delivered to the Administrative Agent on the Effective Date or in such other form as is reasonably satisfactory to the Administrative Agent and shall constitute valid and enforceable perfected Liens superior to and prior to the rights of all third Persons and subject to no other Liens except as are permitted by Section 9.01 at the time of perfection thereof. The Additional Mortgages or instruments related thereto shall have been duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Collateral Agent required to be granted pursuant to the Additional Mortgages and all taxes, fees and other charges pay- able in connection therewith shall have been paid in full.
(b) The Borrowers will, and will cause each of their respective Restricted Subsidiaries to, at the joint and several expense of the Borrowers, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, real property surveys, reports and other assurances or instruments and take such further steps relating to the Collateral covered by any of the Security Documents as the Collateral Agent may reasonably require pursuant to this Section 8.11. Furthermore, the Borrowers shall cause to be delivered to the Collateral Agent such opinions of counsel, title insurance and other related documents as may be requested by the Collateral Agent to assure itself that this Section 8.11 has been complied with.
(c) Each Borrower agrees to cause each Restricted Subsidiary established or created in accordance with Section 9.12 to execute and deliver a guaranty of all Obligations and all obligations under Interest Rate Protection Agreements in substan- tially the form of the Subsidiary Guaranty, or by becoming a party to the Subsidiary Guaranty.
(d) Each Borrower agrees to pledge all of the capital stock of each new Subsidiary (other than any Subsidiary of an Unrestricted Subsidiary) created in accordance with Section 9.12 to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Pledge Agreement.
(e) Each Borrower will cause each Restricted Subsidiary established or created in accordance with Section 9.12 to grant to the Collateral Agent a first priority Lien on all property (tangible and intangible) of such Subsidiary upon terms similar to those set forth in the Security Documents as appropriate, and satisfactory in form and substance to the Administrative Agent and Required Banks. Each Borrower shall cause each of its respective Restricted Subsidiaries, at its own expense, to execute, acknowledge and deliver, or cause the execution, acknowledgement and delivery of, and thereafter register, file or record in any appropriate governmental office, any document or instrument reasonably deemed by the Collateral Agent to be necessary or desirable for the creation and perfection of the foregoing Liens. Each Borrower will cause each of its respective Restricted Subsidiaries to take all actions requested by the Administrative Agent (including, without limitation, the filing of UCC-1's) in connection with the granting of such security interests.
(f) The security interests required to be granted pursuant to this Section 8.11 shall be granted pursuant to security documentation (which shall be substantially similar to the Security Documents already executed and delivered by INTERCO and its Restricted Subsidiaries, as applicable) or otherwise satisfactory in form and substance to the Administrative Agent and shall constitute valid and enforceable perfected security interests prior to the rights of all third Persons and subject to no other Liens except such Liens as are permitted by Section 9.01. The Additional Security Documents and other instruments related thereto shall be duly recorded or filed in such manner and in such places and at such times as are required by law to establish, perfect, preserve and protect the Liens, in favor of the Collateral Agent for the benefit of the respective Secured Creditors, required to be granted pursuant to the Additional Security Documents and all taxes, fees and other charges payable in connection therewith shall be paid, jointly and severally, in full by the Borrowers. At the time of the execution and delivery of the Additional Security Documents, the Borrowers shall cause to be delivered to the Collateral Agent such opinions of counsel, Mortgage Policies, title surveys, real estate appraisals and other related documents as may be reasonably requested by the Administrative Agent or the Required Banks to assure themselves that this Section 8.11 has been complied with.
(g) In the event that the Administrative Agent or the Required Banks at any time after the Effective Date determine in its or their good faith discretion that real estate appraisals satisfying the requirements of FIRREA (any such appraisal a "Required Appraisal") are or were required to be obtained, or should be obtained, in connection with any Mortgaged Property or Mortgaged Properties, then, within 120 days after receiving written notice thereof from the Administrative Agent or the Required Banks, as the case may be, such Required Appraisal shall be delivered, at the expense of the Borrowers, to the Administrative Agent which Required Appraisal, and the respective appraiser, shall be satisfactory to the Administrative Agent.
(h) Each of the Borrowers agrees that each action required above by Section 8.11 (a) or (b) shall be completed as soon as possible, but in no event later than 60 days after such action is requested to be taken by the Administrative Agent or the Required Banks. Each of the Borrowers further agrees that each action required by Section 8.11(c), (d), (e) and (f) with respect to the Additional Collateral shall be completed contemporaneously with the creation of such new Subsidiary.
8.12 Interest Rate Protection. The Borrowers shall maintain, for the remaining scheduled term thereof (which ends on December 31, 1997), the Interest Rate Protection Agreement which is in effect on the Restatement Effective Date, and which established a fixed or maximum interest rate in respect of $170,000,000 notional principal amount of Indebtedness. In addition to the Interest Rate Protection Agreement maintained pursuant to the immediately preceding sentence, not later than March 31, 1996, INTERCO and/or the other Borrowers shall enter into, and at all times thereafter for a period of at least three years from the entering into thereof maintain, interest rate protection pursuant to one or more Interest Rate Protection Agreements which establish a fixed or maximum interest rate (whether through swaps, caps, collars or otherwise) acceptable to the Administrative Agent in respect of at least $180,000,000 (in addition to the $170,000,000 referenced in the immediately preceding sentence) notional principal amount of Indebtedness.
8.13 Ownership of Subsidiaries. INTERCO shall at all times own 100% of the outstanding capital stock of the other Borrowers. Except to the extent otherwise expressly consented in writing by the Required Banks and except as set forth in Schedule VI, the Borrowers shall directly or indirectly own 100% of the capital stock of each of their Subsidiaries (other than as permitted pursuant to the definition of Permitted Acquisition).
8.14 Permitted Acquisitions. Subject to the provi- sions of this Section 8.14, Section 9.02(vii) and the require- ments contained in the definition of Permitted Acquisition, the Borrowers and their Restricted Subsidiaries may from time to time after the Restatement Effective Date effect Permitted Acquisitions, so long as (i) the Borrowers shall have given the Administrative Agent and the Banks at least 10 Business Days' prior written notice of any Permitted Acquisition, (ii) based on calculations made by the Borrowers on a Pro Forma Basis after giving effect to the respective Permitted Acquisition and any Indebtedness (including without limitation Permitted Acquired Debt) or Disqualified Preferred Stock incurred, issued or assumed in connection with the respective Permitted Acquisition or to finance same, (x) no Default or Event of Default will exist under, or would have existed during the periods covered by, the financial covenants contained in Sections 9.08 through 9.10, inclusive, of this Agreement and (y) if any Indebtedness or Disqualified Preferred Stock is being incurred, issued or assumed in connection with the respective Permitted Acquisition or to finance same (excluding, however, Permitted Acquired Debt in connection with any Permitted Acquisition where the only Indebtedness or Disqualified Preferred Stock being incurred, issued or assumed in connection therewith or to finance same is Permitted Acquired Debt), the Senior Debt Leverage Ratio shall not exceed 3.5:1.0, (iii) based on good faith projections prepared by the Borrowers for the period from the date of the consummation of the Permitted Acquisition to the date which is one year thereafter, the level of financial performance measured by the covenants set forth in Sections 9.08 through 9.10 inclusive shall be better than or equal to such level as would be required to provide that no Default or Event of Default would exist under the financial covenants contained in Sections 9.08 through 9.10, inclusive, of this Agreement as compliance with such covenants would be required through the date which is one year from the date of the consummation of the respective Permitted Acquisition, (iv) the Administrative Agent shall have been satisfied in its reasonable discretion that the proposed Permitted Acquisition could not reasonably be expected to result in materially increased tax, ERISA or environmental liabilities with respect to INTERCO or any of its Restricted Subsidiaries, it being understood that any determination of whether the proposed Permitted Acquisition could reasonably be expected to result in such materially increased tax, ERISA or environmental liabilities shall take into account, inter alia, (x) any available indemnities and (y) the timing and likelihood of payment thereunder and (v) the Borrowers shall have delivered to the Administrative Agent an officer's certificate executed by an Authorized Representative of the Borrowers, certifying (A) to the best of his knowledge, compliance with the requirements of preceding clauses (i), (ii) and (iii) and containing the calcula- tions required by the preceding clauses (ii) and (iii) and (B) compliance with the requirements of Section 9.02(vii).
8.15 Maintenance of Corporate Separateness. INTERCO will, and will cause each of its Subsidiaries to, satisfy customary corporate formalities, including the holding of regular board of directors' and shareholders' meetings or action by directors or shareholders without a meeting and the maintenance of corporate offices and records. None of the Borrowers nor any of their respective Restricted Subsidiaries shall make any pay- ment to a creditor of any Unrestricted Subsidiaries in respect of any liability of any Unrestricted Subsidiaries, and no bank account of any Unrestricted Subsidiary shall be commingled with any bank account of any of the Borrowers or any of their respec- tive Restricted Subsidiaries. Any financial statements distributed to any creditors of any Unrestricted Subsidiaries shall clearly establish or indicate the corporate separateness of such Unrestricted Subsidiary from the Borrowers and their respec- tive Restricted Subsidiaries. Finally, neither INTERCO nor any of its Subsidiaries shall take any action, or conduct its affairs in a manner, which is likely to result in the corporate existence of INTERCO or any of its Subsidiaries being ignored, or in the assets and liabilities of the Borrowers or any of their respective Restricted Subsidiaries being substantively consoli- dated with those of any Unrestricted Subsidiaries in a bank- ruptcy, reorganization or other insolvency proceeding.
8.16 Cash Management System. The Borrowers will, and will cause each of their respective Restricted Subsidiaries to, utilize and maintain the Cash Management System for all deposits made by any of them (including the concentration of all such deposits in the Concentration Account). The Cash Management System shall be operated solely for the business of the Borrowers and their respective Restricted Subsidiaries.
SECTION 9. Negative Covenants. The Borrowers covenant and agree that on and after the Restatement Effective Date and until the Total Commitments and all Letters of Credit and Acceptances have terminated and the Loans, Notes and Unpaid Draw- ings, together with interest, Fees and all other Obligations incurred hereunder and thereunder, are paid in full:
9.01 Liens. The Borrowers will not, and will not permit any of their respective Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of INTERCO or any of its Restricted Subsidiaries, whether now owned or hereafter acquired, or sell any such prop- erty or assets subject to an understanding or agreement, contin- gent or otherwise, to repurchase such property or assets (includ- ing sales of accounts receivable with recourse to INTERCO or any of its Restricted Subsidiaries), or assign any right to receive income or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar record- ing or notice statute; provided that the provisions of this Section 9.01 shall not prevent the creation, incurrence, filing, assumption or existence of the following (Liens described below are herein referred to as "Permitted Liens"):
(i) incipient Liens for taxes, assessments or govern- mental charges or levies not yet due and payable or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting principles in the United States (or the equivalent thereof in any country in which a Foreign Sales Corporation or a Foreign Subsidiary is doing business, as applicable);
(ii) Liens in respect of property or assets of the Borrowers or any of their Restricted Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of the Borrowers' or such Restricted Subsidiary's property or assets or materially impair the use thereof in the operation of the business of the Borrowers or such Restricted Subsidiary or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfei- ture or sale of the property or assets subject to any such
(iii) Liens in existence on the Restatement Effective Date which are listed, and the property subject thereto described, in Schedule IX, but only to the respective date, if any, set forth in such Schedule IX for the removal and termination of any such Liens, plus renewals and extensions of such Liens to the extent set forth on Schedule IX, provided that (x) the aggregate principal amount of the Indebtedness, if any, secured by such Liens does not increase from that amount outstanding at the time of any such renewal or extension and (y) any such renewal or extension does not encumber any additional assets or properties of INTERCO or any of its Restricted Subsidiaries;
(v) Liens created pursuant to the Security Documents;
(vi) licenses, leases or subleases granted to other Persons in the ordinary course of business not materially interfering with the conduct of the business of INTERCO and its Restricted Subsidiaries taken as a whole;
(vii) Liens upon assets subject to Capitalized Lease Obligations of the Borrowers and their Restricted Sub- sidiaries to the extent permitted by Section 9.04(vii), provided that (x) such Liens only serve to secure the payment of Indebtedness arising under such Capitalized Lease Obligation and (y) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Borrowers or any Restricted Subsidi-
(viii) Liens placed upon assets used in the ordinary course of business of the Borrowers or any of their Restricted Subsidiaries at the time of acquisition or new construction thereof by the Borrowers or any such Restricted Subsidiary or within 180 days thereafter to secure Indebted- ness incurred to pay all or a portion of the purchase price and/or construction costs thereof, or Liens securing Permitted Acquired Debt, provided that (x) the aggregate outstanding principal amount of all Indebtedness secured by Liens permitted by this clause (viii) shall not at any time exceed the amount permitted by Section 9.04(vii) and (y) in all events, the Lien encumbering the assets so acquired or newly constructed does not encumber any other asset of the Borrowers or such Restricted Subsidiary;
(ix) easements, rights-of-way, restrictions (including zoning restrictions), encroachments, protrusions and other similar charges or encumbrances, and minor title deficiencies, in each case whether now or hereafter in existence, not securing Indebtedness and not materially interfering with the conduct of the business of the Borrowers or any of their respective Restricted Sub-
(x) Liens arising from precautionary UCC financing statement filings regarding operating leases entered into by the Borrowers or any of their Restricted Subsidiaries in the
(xi) Liens arising out of the existence of judgments or awards not constituting an Event of Default under Section 10.09, provided that no cash or property is deposited or delivered to secure the respective judgment or award (or any appeal bond in respect thereof, except as permitted by
(xii) Liens, and the filing of financing statements in connection therewith, created by, and as set forth in, the
(xiii) statutory and contractual landlords' liens under leases to which the Borrowers or any of their Restricted
(xiv) Liens (other than any Lien imposed by ERISA) (x) incurred or deposits made in the ordinary course of business of the Borrowers and their respective Restricted Subsidiaries in connection with workers' compensation, unemployment insurance and other types of social security, (y) to secure the performance by the Borrowers and their respective Restricted Subsidiaries of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) or (z) to secure the performance by the Borrowers and their respective Restricted Subsidiaries of leases of Real Property, to the extent incurred or made in the ordinary course of business consistent with past practices, provided that the aggregate amount of deposits at any time pursuant to sub-clause (y) and sub-clause (z) shall not exceed $5,000,000 in the
(xv) any interest or title of a lessor, sublessor, licensee or licensor under any lease or license agreement
(xvi) Liens (x) in favor of customs and revenue authori- ties arising as a matter of law to secure the payment of customs duties in connection with the importation of goods and deposits made to secure statutory obligations in the form of excise taxes or (y) in respect of property or assets of Thomasville or any of its Subsidiaries imposed by law or governmental action which arise out of actual or potential claims under any Environmental Law disclosed in the environmental report furnished to the Administrative Agent prior to the Restatement Effective Date, in each case so long as the Liens described in this clause (y) are being contested in good faith (or INTERCO or its respective Subsidiaries are in good faith pursuing indemnities in respect thereof pursuant to the Stock Purchase Agreement) pursuant to appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject to any such Lien and so long as adequate reserves (if necessary) have been established in accordance with generally accepted accounting principles with respect to the liability or liabilities secured by such Liens;
(xvii) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Borrowers or any of their Restricted Subsidiaries in the ordinary course of business in accordance with the past practices of the Borrowers and their Restricted Subsidiaries prior to the Effective Date;
(xviii) Liens not otherwise permitted by the foregoing clauses (i) through (xvii) to the extent attaching to properties and assets with an aggregate fair value not in excess of, and securing liabilities not in excess of, $10,000,000 in the aggregate at any time outstanding.
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc. The Borrowers will not, and will not permit any of their respective Restricted Subsidiaries to, wind up, liquidate or dissolve its affairs (other than with respect to Interfashions Industries, S.A. and its Subsidiaries) or enter into any trans- action of merger or consolidation, or convey, sell, lease or otherwise dispose of (or agree to do any of the foregoing at any future time) all or any part of its property or assets (other than the liquidation of Cash Equivalents in the ordinary course of business), or enter into any sale-leaseback transactions, or purchase or otherwise acquire (in one or a series of related transactions) any part of the property or assets (other than pur- chases or other acquisitions of inventory, materials, equipment, furniture, fixtures, and intangible assets in the ordinary course of business) of any Person, except that:
(i) Capital Expenditures by the Borrowers and their Restricted Subsidiaries shall be permitted to the extent not in violation of Section 9.07;
(ii) each of the Borrowers and their Restricted Subsidiaries may (x) in the ordinary course of business, sell, lease or otherwise dispose of any assets which, in the reasonable judgment of such Person, are obsolete, worn out or otherwise no longer useful in the conduct of such Person's business, (y) sell, lease or otherwise dispose of any other assets, provided that each such sale, lease or disposition shall be for fair market value (other than with respect to sales, leases or dispositions in an aggregate amount not to exceed $100,000 per calendar year) and at least 75% of the consideration therefor shall be in the form of cash, and provided further, that (A) except as provided in following clause (B), the aggregate Net Sale Proceeds of all assets subject to sales or other dispositions pursuant to clauses (x) and (y) shall not exceed $15,000,000 in the aggregate in any Fiscal Year and (B) in addition to sales effected pursuant to preceding clause (A), additional assets may be sold pursuant to this Section 9.02(ii) so long as at least 90% of the aggregate consideration for any such asset sale shall be in the form of cash and so long as the aggregate Net Sale Proceeds of all assets sold pursuant to this clause (B) after the Restatement Effective Date do not exceed $75,000,000, and (z) enter into transactions
(iii) Investments may be made to the extent permitted by
(iv) each of the Borrowers and their Restricted Subsidi- aries may lease (as lessee) real or personal property (so long as any such lease does not create a Capitalized Lease Obligation except to the extent permitted by Section 9.04);
(v) each of the Borrowers and their Restricted Subsidiaries may make sales or transfers of inventory (x) in the ordinary course of business or (y) to any other Borrower or any Domestic Wholly-Owned Subsidiary of INTERCO which is
(vi) sales and contributions of accounts receivable to the Receivables Subsidiary and sales of accounts receivable by the Receivables Subsidiary to the Receivables Purchasers, and purchases and acquisitions of accounts receivable by the Receivables Subsidiary, in each case pursuant to the Receivables Facility shall be permitted;
(vii) the Borrowers and their respective Restricted Subsidiaries shall be permitted to make Permitted Acquisitions so long as (A) such Permitted Acquisitions are effected in accordance with the requirements of Section 8.14, (B) after giving effect to any Permitted Acquisition, the aggregate amount paid (including for the purpose of this clause (vii) all cash consideration paid, the amount of all Indebtedness and/or Disqualified Preferred Stock directly issued as consideration, the face amount of all Permitted Acquired Debt incurred or assumed and the fair market value of any merger consideration, but excluding the fair market value of all INTERCO Common Stock and/or Qualified Preferred Stock issued as consideration therefor, in each case in con- nection with such Permitted Acquisition) by the Borrowers and their Restricted Subsidiaries in connection with such Permitted Acquisition shall not exceed the Available Permitted Acquisition Amount at such time (after giving effect to all prior and contemporaneous adjustments thereto, except as a result of such Permitted Acquisition); provided that in no event shall such aggregate amount paid in connection with Permitted Acquisitions effected after the Restatement Effective Date (calculated in accordance with the first parenthetical contained in preceding clause (B)), when added to the amount of Investments made after the Restatement Effective Date pursuant to Section 9.05(vii), exceed $75,000,000 plus the Returned Investment Amount as calculated on the date any determination is being made pursuant to this proviso, and (C) with respect to each Permitted Acquisition, no Default or Event of Default is in existence at the time of the consummation of such Permitted Acquisition or would exist after giving effect thereto;
(viii) INTERCO may sell or otherwise dispose of any shares of capital stock of any Unrestricted Subsidiaries owned by
(ix) so long as no Default or Event of Default then exists or would result therefrom, the Borrowers or any Domestic Wholly-Owned Subsidiary which is a Restricted Subsidiary (other than the Receivables Subsidiary) of INTERCO may be merged into or consolidated with any Borrower (so long as such Borrower is the surviving corporation of such merger) or any other Domestic Wholly-Owned Subsidiary which is a Restricted Subsidiary (other than the Receivables
(x) the Borrowers and their respective Restricted Subsidiaries (other than the Receivables Subsidiary) shall be permitted to merge with another Person (so long as such Borrower or Restricted Subsidiary is the surviving corpora- tion), so long as such merger is used to effect a Permitted Acquisition in compliance with Section 9.02(vii); and
(xi) the Borrowers may sell or otherwise dispose of Excluded Assets.
To the extent the Required Banks waive the provisions of this Section 9.02 with respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section 9.02, such Collateral (unless sold to INTERCO or a Subsidiary of INTERCO) shall be sold free and clear of the Liens created by the Security Documents, and the Administrative Agent and Collateral Agent shall be authorized to take any actions deemed appropriate in order to effect the foregoing.
9.03 Dividends. INTERCO shall not, and shall not permit any of its Restricted Subsidiaries to, authorize, declare or pay any Dividends with respect to INTERCO or any of its Restricted Subsidiaries, except that:
(i) any Restricted Subsidiary of any Borrower may pay Dividends to such Borrower or any Wholly-Owned Subsidiary which is a Restricted Subsidiary of the Borrowers;
(ii) so long as no Default or Event of Default exists or would result therefrom, INTERCO shall be permitted to pay Dividends (including, without limitation, Dividends on Qualified Preferred Stock) in an amount not to exceed (A) the Available $10 Million Dividend Basket Amount on such date (after giving effect to all prior and contemporaneous reductions thereto, except as a result of such Dividend), plus (B) the Available Net Income Amount on such date (after giving effect to all prior and contemporaneous adjustments thereto, except as a result of such Dividend) plus (C) $0 or, if the Dividend Threshold Date has theretofore occurred, the then Available Dividend Unrestricted Proceeds Amount (after giving effect to all prior and contemporaneous adjustments thereto, except as a result of such Dividend), minus (D) all Guaranty Payments made by INTERCO pursuant to Section 9.11(b)(ii)(y)(A) and (B); and
(iii) so long as no Default or Event of Default exists or would result therefrom, INTERCO may pay regularly accruing cash Dividends on Disqualified Preferred Stock in accordance with the terms of the certificate of designation therefor.
9.04 Indebtedness. INTERCO will not, and will not permit any of its Restricted Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the other Credit Documents;
(ii) Permitted Subordinated Indebtedness not to exceed (x) in aggregate principal amount $150,000,000, minus the aggregate liquidation preference or amount of all Disqualified Preferred Stock issued on or prior to the date of the incurrence of such Permitted Subordinated Indebtedness pursuant to Section 9.13(b)(i), provided that to the extent Permitted Subordinated Indebtedness is incurred under this clause (ii)(x) and (1) any portion of such Permitted Subordinated Indebtedness is being issued as consideration in connection with a Permitted Acquisition or (2) 100% of the Net Cash Proceeds thereof are not immediately used to repay Term Loans pursuant to Section 4.02(g), such incurrence shall only be permitted if the Administrative Agent has received a certificate from, and signed by an Authorized Representative of, INTERCO showing that immediately after the incurrence of such Permitted Subordinated Indebtedness, the Senior Debt Leverage Ratio, calculated on a Pro Forma Basis after giving effect to the incurrence of such Indebtedness, shall not exceed 3.5:1.0, plus (y) an amount of Permitted Subordinated Indebtedness incurred and simultaneously used to repay, refinance or otherwise replace the Receivables Facility in accordance with the terms hereof, in each case shall be permitted on terms and conditions set forth in the definition of Permitted Subordinated Indebtedness and on other terms and conditions reasonably satisfactory to the Administrative Agent and the Required Banks (provided that such other terms and conditions shall be deemed satisfactory to the Required Banks unless objected to by the Required Banks in writing on or prior to the date which is twenty Business Days after the documentation therefor is delivered to the Banks);
(iii) Permitted Unsecured Indebtedness not to exceed in aggregate principal amount $25,000,000 minus the aggregate liquidation preference or amount of all Disqualified Preferred Stock issued on or prior to the date of the incurrence of such Permitted Unsecured Indebtedness pursuant to Section 9.13(b)(ii), shall be permitted on terms and conditions set forth in the definition of Permitted Unsecured Indebtedness and on other terms and conditions reasonably satisfactory to the Administrative Agent; provided that to the extent Permitted Unsecured Indebtedness is incurred under this clause (iii) and (1) any portion of such Permitted Unsecured Indebtedness is being issued as consideration in connection with a Permitted Acquisition or (2) 100% of the Net Cash Proceeds thereof are not immediately used to repay Term Loans pursuant to Section 4.02(g), such incurrence shall only be permitted if the Administrative Agent has received a certificate from, and signed by an Authorized Representative of, INTERCO showing that immediately after the incurrence of such Permitted Unsecured Indebtedness, the Senior Debt Leverage Ratio, cal- culated on a Pro Forma Basis after giving effect to the incurrence of such Indebtedness, shall not exceed 3.5:1.0.
(iv) Existing Indebtedness shall be permitted to the extent the same is listed on Schedule VII, but no refinanc- ings or renewals thereof, except as expressly permitted on
(v) accrued expenses and current trade accounts pay- able incurred in the ordinary course of business;
(vi) Indebtedness under Interest Rate Protection Agreements entered into in compliance with Section 8.12;
(vii) Indebtedness of the Borrowers and their Restricted Subsidiaries evidenced by Capitalized Lease Obligations to the extent permitted pursuant to Section 9.01(vii), and Indebtedness secured by Liens permitted under Section 9.01(viii) and Permitted Acquired Debt; provided that in no event shall the aggregate principal amount of Capitalized Lease Obligations and Indebtedness permitted by this clause
(viii) Indebtedness under Currency Hedging Agreements entered into in compliance with Section 9.05(ix);
(ix) Contingent Obligations (a) of the Borrowers or any Restricted Subsidiary as a guarantor of the lessee under any lease pursuant to which the Borrowers or a Restricted Subsidiary is the lessee so long as such lease is otherwise permitted hereunder, (b) of INTERCO constituting guarantees by INTERCO of trade payables owing in the ordinary course of business by its Restricted Subsidiaries and (c) of INTERCO and/or Thomasville consisting of guarantees (with the maximum amount guaranteed at any time pursuant to this clause (c) not to exceed $7,500,000 in the aggregate) of actual or potential claims under Environmental Laws as
(x) Contingent Obligations of INTERCO pursuant to (x) the Surviving Guaranties; provided that the making of any payments thereunder, and any renewals or extensions of such Surviving Guaranties, shall be subject to restrictions set forth in Section 9.11(b) and (y) the Tax Sharing Agreements;
(xi) Indebtedness (a) consisting of Attributed Receivables Facility Indebtedness of the Receivables Subsidiary so long as the Net Cash Proceeds of Attributed Receivables Facility Indebtedness in excess of $240,000,000 shall be applied to repay Term Loans in accordance with Section 4.02(g) and (b) consisting of the Contingent Obligations of INTERCO in respect of certain of its Restricted Subsidiaries (other than the Receivables Subsidiary) with respect to certain limited obligations under the Receivables Facility as set forth in the
(xii) Indebtedness among the Borrowers and their Restricted Subsidiaries to the extent permitted pursuant to
(xiii) unless and until replaced by a Letter of Credit issued hereunder, the Existing Fluvanna Letter of Credit may remain outstanding.
In furtherance of the foregoing and in no way in limitation thereof, INTERCO shall not permit any Unrestricted Subsidiary to incur any Indebtedness having any element of recourse to INTERCO or its Restricted Subsidiaries or to any of their assets or property.
9.05 Investments; etc. The Borrowers will not, and will not permit any of their respective Restricted Subsidiaries to, directly or indirectly, lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any other Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract, or hold any cash or Cash Equivalents (any of the foregoing, an "Investment"), except that the following shall be permitted:
(i) the Borrowers and their Restricted Subsidiaries may acquire and hold accounts receivables owing to any of them, if created or acquired in the ordinary course of bus- iness and payable or dischargeable in accordance with cus-
(ii) the Borrowers and their Restricted Subsidiaries may acquire and hold cash and Cash Equivalents (including cash and Cash Equivalents held by INTERCO on behalf of its Restricted Subsidiaries pursuant to the Cash Management System); provided that during any time that Revolving Loans of Non-Defaulting Banks or Swingline Loans are outstanding, the aggregate amount of cash and Cash Equivalents permitted to be held by the Borrowers and their Restricted Subsidiaries (including cash and Cash Equivalents held by INTERCO on behalf of its Restricted Subsidiaries pursuant to the Cash Management System) shall not exceed $20,000,000 for any period of five consecutive days;
(iii) INTERCO and its Restricted Subsidiaries may make loans and advances in the ordinary course of business to their respective employees so long as the aggregate principal amount thereof at any time outstanding (determined without regard to any write-downs or write-offs of such loans and advances) shall not exceed $1,000,000;
(iv) the Borrowers may enter into Interest Rate Protec- tion Agreements to the extent permitted in Section 9.04(vi);
(v) any Credit Party or the Receivables Subsidiary may make intercompany loans and advances to any other Credit
(vi) the Borrowers may (x) establish Subsidiaries in compliance with Section 9.12 and (y) make Investments therein as otherwise provided in this Section 9.05;
(vii) so long as no Default or Event of Default exists, or would result therefrom, the Borrowers and their Restricted Subsidiaries may make Investments at any time in an amount not to exceed the sum of (A) the Available $10 Million Acquisition/Investment Basket Amount at such time (after giving effect to all prior and contemporaneous reductions thereto, except as a result of such Investment), plus (B) the then Available Unrestricted Proceeds Amount at such time (after giving effect to all prior and contemporaneous adjustments thereto, except as a result of such Investment), plus (C) the Available Net Income Amount (after giving effect to all prior and contemporaneous adjustments thereto, except as a result of such Investment), plus (D) the Available Returned Investment Amount (after giving effect to all prior and contemporaneous adjustments thereto, except as a result of such Investment); provided that in no event shall the aggregate amount of Investments made pursuant to this clause (vii) after the Restatement Effective Date, when added to the aggregate amount paid in connection with Permitted Acquisitions effected after the Restatement Effective Date (calculated in accordance with the first parenthetical contained in Section 9.02(vii)(B)), exceed $75,000,000 plus the Returned Investment Amount as calculated on the date any determination is being made pursuant to this clause (vii);
(viii) the Borrowers and their Restricted Subsidiaries may retain cash consideration plus purchase money notes derived from asset sales permitted pursuant to Section
(ix) the Borrowers may enter into and perform their obligations under Currency Hedging Agreements entered into in the ordinary course of business and consistent with past practices so long as (i) any such Currency Hedging Agreement is related to income derived from foreign operations of the Borrowers or any Restricted Subsidiary (or any Foreign Sales Corporation which is a Restricted Subsidiary) or otherwise related to purchases permitted hereunder from foreign suppliers and (ii) such Currency Hedging Agreements do not exceed a notional amount equal to $15,000,000 in the aggregate at any one time;
(x) the Borrowers and their Restricted Subsidiaries may acquire and own investments (including notes or other debt obligations or securities) received in connection with the bankruptcy or reorganization of their suppliers and customers and in settlement of delinquent obligations of, or disputes with, their customers or suppliers in the ordinary
(xi) existing Investments by the Borrowers and their Restricted Subsidiaries shall be permitted to the extent
(xii) the Restricted Subsidiaries of INTERCO may contribute accounts receivable to the Receivables Subsidiary in accordance with the provisions of the Receivables
(xiii) INTERCO shall be permitted to make capital contributions to Foreign Sales Corporations in an amount not to exceed $100,000 in the aggregate; and
(xiv) Permitted Acquisitions shall be permitted in compliance with Sections 8.14 and 9.02(vii).
9.06 Transactions with Affiliates and Unrestricted Subsidiaries. The Borrowers will not, and will not permit any of their respective Restricted Subsidiaries to, enter into any transaction or series of related transactions with any Affiliate of INTERCO or any of its Subsidiaries or any of its Unrestricted Subsidiaries, other than in the ordinary course of business and on terms and conditions substantially as favorable to the Borrowers or such Restricted Subsidiary as would reasonably be obtained by the Borrowers or such Restricted Subsidiary at that time in a comparable arm's-length transaction with a Person other than an Affiliate, except that:
(i) Dividends may be paid to the extent provided in
(ii) Investments may be made to the extent permitted by
(iii) the transactions entered into between the Borrowers and their Subsidiaries shall be permitted to the extent expressly permitted by Section 9.02;
(iv) customary fees may be paid to non-officer directors of the Borrowers and their Restricted Subsi-
(v) INTERCO and its Restricted Subsidiaries may enter into employment arrangements with respect to the procurement of services with their respective officers and employees in the ordinary course of business;
(vi) the Borrowers and their respective Restricted Subsidiaries may make (x) capital contributions to any of their respective Restricted Subsidiaries which is a Credit Party or (y) capital contributions of accounts receivable to the Receivables Subsidiary in accordance with the
(vii) so long as no Default or Event of Default exists, or would result therefrom, INTERCO shall be permitted to pay management fees to Apollo Advisors, L.P. pursuant to the Apollo Management Agreement, provided, that, such fees shall not exceed $650,000 in any Fiscal Year and no amendment adverse to the interests of the Banks shall be made to the Apollo Management Agreement without the consent of the
(viii) existing transactions between INTERCO and its Subsidiaries and their Affiliates shall be permitted to the extent listed on Schedule XI;
(ix) INTERCO may sell or issue INTERCO Common Stock and Qualified Preferred Stock to its Affiliates (other than its
(x) INTERCO may modify the Tax Sharing Agreement as provided in Section 9.11(c).
Except as specifically provided above, no management or similar fees shall be paid or payable by INTERCO or any of its Restricted Subsidiaries to any Affiliate (other than INTERCO).
Notwithstanding anything contained in the foregoing to the contrary, any transactions between and among INTERCO and/or Restricted Subsidiaries on the one hand and any of their respective Affiliates (excluding INTERCO and its Restricted Subsidiaries) on the other hand, shall be arm's length transactions and on terms and conditions at least as favorable to INTERCO and/or such Restricted Subsidiaries as the terms and conditions which would apply to a similar transaction on an arm's length basis with a Person that is not an Affiliate; provided, that, any transaction (other than as described in clauses (i), (ii), (iii) and (vi) above) between and among the aforementioned parties with a value in excess of $1,000,000 shall only be permitted if a majority of the disinterested directors of INTERCO approve the transaction.
9.07 Capital Expenditures. (a) The Borrowers will not, and will not permit any of their respective Restricted Subsidiaries to, make any Capital Expenditures, except that during any Fiscal Year set forth below (taken as one accounting period) the Borrowers and their Restricted Subsidiaries may make Capital Expenditures so long as the aggregate amount of such Capital Expenditures made pursuant to this clause (a) does not exceed $50,000,000 in any Fiscal Year (beginning with the Fiscal Year ended in 1996).
(b) Notwithstanding anything to the contrary contained above, to the extent that $50,000,000 exceeds the aggregate amount of Capital Expenditures made by the Borrowers, and their Restricted Subsidiaries pursuant to Section 9.07(a) during any Fiscal Year (beginning with the Fiscal Year ended in 1996), such excess may be carried forward and used by the Borrowers and their respective Restricted Subsidiaries to make additional Capital Expenditures during subsequent Fiscal Years; provided that the maximum amount carried forward pursuant to this clause (b) into (x) Fiscal Year 1997 shall be $10 million and (y) any Fiscal Year thereafter shall be $20 million, with any amounts otherwise permitted to be carried forward to lapse and terminate at such time, if any, as they are not permitted to be carried forward into a subsequent Fiscal Year by virtue of this proviso.
(c) In addition to the Capital Expenditures permitted pursuant to preceding clauses (a) and (b), the Borrowers and their respective Restricted Subsidiaries shall be permitted to make additional Capital Expenditures to the extent consisting of the reinvestment of proceeds of Recovery Events not required to be applied to prepay Loans pursuant to the provisions of Section 4.02(j).
9.08 Consolidated Net Interest Coverage Ratio. The Borrowers will not permit the Consolidated Net Interest Coverage Ratio for any period of four consecutive fiscal quarters (or, if shorter, the period beginning on January 1, 1996 and ended on the last day of a fiscal quarter ended after the Restatement Effective Date), in each case taken as one accounting period, ended on the last day of a fiscal quarter set forth below to be less than the amount set forth opposite such period below:
and the last day of thereafter 4.00:1.0.
9.09 Consolidated EBITDA; Cumulative Consolidated EBITDA. (a) The Borrowers will not permit Consolidated EBITDA for any period of four consecutive fiscal quarters (or, if shorter, the period beginning on January 1, 1996 and ended on the last day of a fiscal quarter ended after the Restatement Effective Date), in each case taken as one accounting period, ended on the last day of a fiscal quarter set forth below to be less than the amount set forth opposite such period below:
March 31, 1996 $ 25,000,000
(b) In addition to the covenant contained in preceding clause (a), the Borrowers will not permit Consolidated EBITDA for any period beginning on January 1, 1996 and ended on the last day of a Fiscal Year (beginning with Fiscal Year 1997) ended thereafter, in each case taken as one accounting period (with Consolidated EBITDA for any such period being herein called "Cumulative Consolidated EBITDA") to be less than the amount set forth opposite such Fiscal Year below:
provided that, from and after the first date upon which the Borrowers shall have used more than $50,000,000 of Net Cash Proceeds from sales or issuances of equity of INTERCO (including pursuant to any exercise of the INTERCO Warrants, any exercise of any stock options and the issuance of any Preferred Stock) to repay Term Loans after the Restatement Effective Date pursuant to Sections 4.01, 4.02(e) and/or 4.02(f), and shall have furnished a certificate to the Administrative Agent showing in reasonable detail the amount of such applications pursuant to the respective such Sections, then each of the amounts set forth in the table appearing in this Section 9.09(b) shall be reduced (i) by $15,000,000 if the principal amount of Term Loans so repaid with such Net Cash Proceeds from equity issuances is greater than $50,000,000 but less than or equal to $75,000,000 or (ii) by $20,000,000 if the aggregate principal amount of Term Loans so repaid with such Net Cash Proceeds from equity issuances is greater than $75,000,000.
9.10 Maximum Leverage Ratio. The Borrowers will not permit the Leverage Ratio at any time on or after December 31, 1996 to be greater than the ratio set forth opposite the fiscal quarter most recently ended as set forth below:
and the last day of thereafter 3.00:1.0.
9.11 Limitation on Modifications of and Payments on Indebtedness and Qualified Preferred Stock; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; Surviving Guaranty Payments, etc. (a) The Borrowers will not, and will not permit any of their respective Restricted Subsidiaries to, (i) make (or give any notice in respect of) any voluntary or optional payment or prepayment on or redemption, repurchase or acquisition for value of any of the Existing Indebtedness, or after the incurrence thereof, any Permitted Unsecured Indebtedness, Permitted Subordinated Indebtedness or Disqualified Preferred Stock (any such payment, prepayment, redemption or acquisition, a "Restricted Junior Payment"), if at such time (x) a Default or Event of Default then exists or arises therefrom and (y) such Restricted Junior Payment shall exceed an amount equal to the sum of (A) the then Available Unrestricted Proceeds Amount (after giving effect to all prior or contemporaneous adjustments thereto, except as a result of such Restricted Junior Payment) and (B) the then Available Net Income Amount (after giving effect to all prior and contemporaneous adjustments thereto, except as a result of such Restricted Junior Payment), (ii) amend or modify, or permit the amendment or modification of, any provision of the Existing Indebtedness or the Receivables Documents or, after the incurrence or issuance thereof, any Permitted Unsecured Indebtedness, Permitted Subordinated Indebtedness, Qualified Preferred Stock or Dis- qualified Preferred Stock or of any agreement (including, without limitation, any purchase agreement, indenture, loan agreement, security agreement or certificate of designation) relating thereto, other than any amendments or modifications to the Existing Indebtedness, the Receivables Documents, any Permitted Unsecured Indebtedness, any Permitted Subordinated Indebtedness, any Qualified Preferred Stock and any Disqualified Preferred Stock which (A) do not make any term or condition thereof more restrictive than the previously existing terms and conditions with respect thereto, (B) do not in any way materially adversely affect the interests of the Banks and (C) do not increase the interest or dividend rates applicable thereunder, reduce the maturity date thereunder or change any pay-in-kind mechanics or requirements or any subordination provision thereof or (iii) amend or modify its Certificate of Incorporation (including, without limitation, by the filing or modification of any certifi- cate of designation, other than any certificate of designation relating to Qualified Preferred Stock or Disqualified Preferred Stock) or By-Laws, or any agreement entered into by it, with respect to its capital stock (including any Shareholders' Agreement), or enter into any new agreement with respect to its capital stock if the foregoing would in any way materially and adversely affect the Banks, provided that (x) INTERCO may amend its Certificate of Incorporation to reflect a change in corporate name if INTERCO shall have complied with the requirements of Section 8.04 hereof and (y) INTERCO or any of the other Borrowers may amend its respective Certificate of Incorporation to reflect an increase in the number of authorized shares of capital stock.
(b) INTERCO will not (i) amend, extend, renew or modify, or permit the amendment, extension, renewal or modification of, any provision of the Surviving Guaranties (or any lease obligation guarantied thereby) or any agreement relating thereto, other than any renewal or extension of a lease obligation guarantied by any Surviving Guaranty pursuant to the renewal and/or extension provisions contained therein as in effect on the Effective Date which (a) creates a continuing guaranty obligation with respect to such existing lease (without any amendments thereto which would increase the lessee's obligations thereunder), (b) is exercised (x) not more than 30 days prior to the last day on which such extension or renewal may be exercised in accordance with the terms of the lease relating thereto and (y) at a time when no Default or Event of Default then exists or arises therefrom and (c) creates future fixed payment obligations with respect thereto which, when combined with all future fixed payment obligations under renewals and/or extensions made in compliance with this Section 9.11(b)(i), would not exceed $10,000,000 or (ii) make any payment whatsoever, whether voluntary, mandatory or otherwise, in respect of the Surviving Guaranties (any such payment, a "Guaranty Payment") if at such time (x) a Default or Event of Default then exists or arises therefrom or (y) such payment shall exceed an amount equal to the sum of (A) $5,000,000 less the amount of all Guaranty Payments theretofore made after the Restatement Effective Date pursuant to this clause (A), plus (B) at any time, the aggregate amount of Dividends which could be made pursuant to (1) Section 9.03(ii)(A), (2) Section 9.03(ii)(B) and (3) Section 9.03(ii)(C), in each case at such time (without including the amount of such Guaranty Payment contemplated to be included in the calculation pursuant to Section 9.03(ii)(D) at such time), plus (C) the amount of any such Guaranty Payment made with the cash proceeds of issuances of equity by INTERCO permitted to be so used for such purposes pursuant to clause (iv) of the first parenthetical of Section 4.02(e).
(c) The Borrowers will not, and will not permit any of their respective Restricted Subsidiaries to, amend, modify or change any provision of any Tax Sharing Agreement other than any amendment, modification or change deemed immaterial by the Administrative Agent or as otherwise consented to by the Required Banks, except only that without such consent INTERCO may amend the provisions of Section 3(a) of the Tax Sharing Agreement dated as of November 17, 1994 among INTERCO, Converse and Converse's domestic Subsidiaries that are signatories thereto with respect to the allocation of the benefit described in such Section 3(a) as INTERCO's Board of Directors may deem appropriate.
9.12 Limitation on Creation or Acquisition of Sub- sidiaries and Restricted Subsidiaries. The Borrowers will not, and will not permit any of their respective Restricted Subsidiaries to, establish, create or acquire after the Effective Date any Subsidiary, unless (x) if such Subsidiary is an Unrestricted Subsidiary (other than a Foreign Sales Corporation), (i) it is established, created or acquired by INTERCO or another Unrestricted Subsidiary, (ii) if owned by INTERCO, 100% of the capital stock of such new Unrestricted Subsidiary owned by INTERCO shall be pledged pursuant to the Pledge Agreement and the certificates representing such stock, together with stock powers duly executed in blank, shall be delivered to the Collateral Agent and (iii) such Unrestricted Subsidiary shall, at the request of the Administrative Agent, become a party to a Tax Sharing Agreement, (y) if such Subsidiary is a Restricted Subsi- diary (other than a Foreign Sales Corporation), (i) at least 10 Business Days' prior written notice thereof is given to the Administrative Agent and the Banks, (ii) 100% of the capital stock of such new Subsidiary is pledged pursuant to the Pledge Agreement and the certificates representing such stock, together with stock powers duly executed in blank, are delivered to the Collateral Agent and (iii) such new Restricted Subsidiary exe- cutes a counterpart of the Subsidiary Guaranty, the Security Agreement and the Pledge Agreement or (z) if such Subsidiary is a Foreign Sales Corporation, any Investment therein is made in accordance with Section 9.05(xiii). In addition, each new Restricted Subsidiary shall execute and deliver, or cause to be executed and delivered, all other relevant documentation of the type described in Section 5 as such new Restricted Subsidiary would have had to deliver if such new Restricted Subsidiary were a Restricted Subsidiary and/or a Subsidiary Guarantor on the Restatement Effective Date.
9.13 Limitation on Issuance of Capital Stock. (a) INTERCO shall not issue (i) any Preferred Stock (other than Qualified Preferred Stock and Disqualified Preferred Stock issued pursuant to clause (b) below, the proceeds of which are applied as required pursuant to Section 4.02(e)) or (ii) any redeemable common stock unless, in either case, all terms thereof are satisfactory to the Required Banks in their sole discretion.
(b) INTERCO may issue Disqualified Preferred Stock not to exceed in aggregate liquidation preference or amount (i) $150,000,000 minus the aggregate principal amount of all Permitted Subordinated Indebtedness issued pursuant to Section 9.04(ii)(x), plus (ii) $25,000,000 minus the aggregate principal amount of all Permitted Unsecured Indebtedness issued pursuant to Section 9.04(iii), plus (iii) any amount of Disqualified Preferred Stock the proceeds of which are used to repay, refinance or otherwise replace the Receivables Facility in accordance with the terms hereof, on terms and conditions set forth in the definition of Disqualified Preferred Stock and on other terms and conditions reasonably satisfactory to the Administrative Agent; provided that to the extent Disqualified Preferred Stock is issued pursuant to preceding clauses (i) and/or (ii) and (1) any portion of such Disqualified Preferred Stock is being issued as consideration in connection with a Permitted Acquisition or (2) 100% of the Net Cash Proceeds therefrom are not immediately used to repay Term Loans pursuant to Section 4.02(e), such issuance shall only be permitted if the Administrative Agent has received a certificate from, and signed by an Authorized Representative of, INTERCO showing that immediately after the issuance of such Disqualified Preferred Stock, the Senior Debt Leverage Ratio, calculated on a Pro Forma Basis after giving effect to such issuance, shall not exceed 3.5:1.0. Notwithstanding anything to the contrary contained above, all Disqualified Preferred Stock issued pursuant to Section 9.13(b) shall be issued only where 100% of the consideration received for the issuance of such Disqualified Preferred Stock is cash, except that Disqualified Preferred Stock may be issued in accordance with Section 9.13(b)(i) and (ii) directly as consideration in connection with Permitted Acquisitions; provided that to the extent Disqualified Preferred Stock is issued pursuant to Section 9.13(b)(i) directly as consideration in connection with a Permitted Acquisition, the aggregate liquidation preference or amount of all Disqualified Preferred Stock issued after the Restatement Effective Date pursuant to said Section 9.13(b)(i) as consideration in connection with Permitted Acquisitions, when added to the sum of (x) the aggregate principal amount of all Permitted Subordinated Indebtedness so issued after the Restatement Effective Date as consideration in connection with Permitted Acquisitions pursuant to Section 9.04(ii), (y) the aggregate principal amount of all Permitted Subordinated Indebtedness issued or incurred after the Restatement Effective Date but not issued as consideration in connection with Permitted Acquisitions to the extent the Net Cash Proceeds therefrom have not been required to be used to repay Term Loans as a result of clause (w)(ii) of the parenthetical of Section 4.02(g), and (z) the aggregate liquidation preference or amount of all Disqualified Preferred Stock issued after the Restatement Effective Date pursuant to Section 9.13(b)(i) but not issued in consideration with Permitted Acquisitions, to the extent the Net Cash Proceeds therefrom have not been required to be used to repay Term Loans as a result of clause (v)(y) of the first parenthetical of Section 4.02(e), shall not exceed $50,000,000.
(c) No Restricted Subsidiary of INTERCO shall issue, or permit any of their Restricted Subsidiaries to issue, any capital stock (including by way of sales of treasury stock) or any options or warrants to purchase, or securities convertible into, capital stock, except (i) for transfers and replacements of then outstanding shares of capital stock, (ii) for stock splits, stock dividends and additional issuances which do not decrease the percentage ownership of INTERCO or any of its Restricted Subsidiaries in any class of the capital stock of such Restricted Subsidiaries, (iii) to qualify directors to the extent required by applicable law, and (iv) Restricted Subsidiaries formed after the Effective Date pursuant to Section 9.12 may issue capital stock to the Borrowers or the respective Restricted Subsidiary of the Borrowers which is to own such stock in accordance with the requirements of Section 9.12. All capital stock issued in accordance with this Section 9.13(c) shall, to the extent required by the Pledge Agreement, be delivered to the Collateral Agent for pledge pursuant to the Pledge Agreement.
9.14 Business. The Borrowers will not, and will not permit any of their Restricted Subsidiaries to, engage (directly or indirectly) in any business other than substantially the same lines of business in which they are engaged on the Restatement Effective Date and reasonable extensions thereof. No Restricted Subsidiary of INTERCO will, or will permit any of their Restricted Subsidiaries to, create or own any Unrestricted Subsidiaries. The Foreign Sales Corporation will not engage in any business other than the sale of goods and/or services outside of the United States and any business reasonably incidental to the foregoing.
9.15 Limitation on Certain Restrictions on Sub- sidiaries. (a) The Borrowers will not, and will not permit any of their respective Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective, except as set forth on Schedule XIII, any encumbrance or restriction on the ability of any such Restricted Subsidiary to (x) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by INTERCO or any Restricted Subsidiary of INTERCO, or pay any Indebtedness owed to INTERCO or a Restricted Subsidiary of INTERCO, (y) make loans or advances to INTERCO or any of INTERCO's Restricted Subsidiaries or (z) transfer any of its properties or assets to INTERCO, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) this Agreement and the other Credit Documents, (iii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrowers or a Re- stricted Subsidiary of the Borrowers, (iv) customary provisions restricting assignment of any licensing agreement entered into by the Borrowers or any Restricted Subsidiary of the Borrowers in the ordinary course of business and (v) restrictions on the Receivables Subsidiary set forth in the Receivables Documents.
(b) INTERCO will not permit any of its Unrestricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any restriction whatsoever on the operations of INTERCO and/or its Restricted Subsidiaries.
9.16 Limitation on Receivables and Receivables Facility. (a) The Receivables Subsidiary shall engage in no business activities other than the purchase, acquisition, sale and pledge of receivables (or interests therein) pursuant to the Receivables Facility and borrowings thereunder and any business activities reasonably incidental thereto, all in accordance with the Receivables Facility, and shall have no assets or liabili- ties, other than receivables purchased from each of the Borrowers and their Restricted Subsidiaries, cash collections therefrom, any investments of such cash collections and other assets and liabilities reasonably incidental to the foregoing activities, and shall in no event purchase any receivables from an Unrestricted Subsidiary.
(b) INTERCO and its Restricted Subsidiaries shall not cause, permit, or suffer to exist (including as a result of actions taken by the Receivables Purchasers) (i) unless the Receivables Facility has been terminated, refinanced or replaced as otherwise permitted under the provisions of this Agreement, the Receivables Subsidiary to cease selling receivables pursuant to the Receivables Facility for a period in excess of five consecutive Business Days (excluding any Business Day on which (x) none of Broyhill, Lane, Thomasville or Action generate any receivables or (y) no Swingline Loans and no Revolving Loans of Non-Defaulting Banks are outstanding), (ii) the Receivables Facility to be terminated on any date prior to the date which is five years after the Restatement Effective Date except, in the event the Receivables Facility is repaid, refinanced or otherwise replaced in accordance with the terms hereof by Permitted Subordinated Indebtedness and/or Disqualified Preferred Stock and/or a replacement facility, (iii) an Event of Termination (as defined in either Receivables Purchase Agreement) to have occurred and be continuing and which shall not have been cured or waived for a period in excess of five consecutive Business Days or (iv) the sum of the Yield Reserve, the Loss Reserve, the Service Fee Reserve and the Dilution Reserve (each as defined in the Receivables Documents) to exceed 30% at any time.
SECTION 10. Events of Default. Upon the occurrence of any of the following specified events (each an "Event of Default"):
10.01 Payments. The Borrowers shall (i) default in the payment when due of any principal of any Loan or any Note or (ii) default, and such default shall continue unremedied for three or more Business Days, in the payment when due of any Unpaid Drawings or interest on any Loan or Note, or any Fees or any other amounts owing hereunder or thereunder; or
10.02 Representations, etc. Any representation, warranty or statement made by any Credit Party herein or in any other Credit Document or in any certificate (including, without limitation, the certificates delivered pursuant to Section 5.21 of the Original Credit Agreement) delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or
10.03 Covenants. The Borrowers shall (i) default in the due performance or observance by it of any term, covenant or agreement contained in Section 8.01(g)(i), 8.08, 8.11, 8.15, 8.16 or Section 9 or (ii) default in the due performance or observance by it of any other term, covenant or agreement contained in this Agreement and such default shall continue unremedied for a period of 30 days after written notice to the Borrowers by the Administrative Agent or any Bank; or
10.04 Default Under Other Agreements. The Borrowers or any of their respective Restricted Subsidiaries shall (i) default in any payment of any Indebtedness (other than the Obligations) beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created or (ii) default in the observance or performance of any agreement or condition relating to any Indebtedness (other than the Obligations) or contained in any instrument or agreement evidenc- ing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice is required), any such Indebtedness to become due prior to its stated maturity, or (iii) any Indebtedness (other than the Obligations) of the Borrowers or any of their respective Restricted Subsidiaries shall be declared to be due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof, provided that (x) it shall not be a Default or Event of Default under this Section 10.04 unless the aggregate principal amount of all Indebtedness as described in preceding clauses (i) through (iii), inclusive, is at least $5,000,000; or
10.05 Bankruptcy, etc. The Borrowers or any of their respective Subsidiaries shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the Borrowers or any of their respective Subsidiaries and the petition is not controverted within 30 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrowers or any of their respective Subsidi- aries, or the Borrowers or any of their respective Subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrowers or any of their respective Subsidiaries, or there is commenced against the Borrowers or any of their respective Subsidiaries any such proceeding which remains undismissed for a period of 60 days, or the Borrowers or any of their respective Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrowers or any of their respective Subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or the Borrowers or any of their respective Subsidiaries makes a general assignment for the benefit of creditors; or any corporate action is taken by the Borrowers or any of their respective Subsidiaries for the purpose of effecting any of the foregoing; or
10.06 ERISA. (a) Any Plan, Multiemployer Plan, and/or Spunoff Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code, any Plan, Multiemployer Plan and/or Spunoff Plan shall have had or is likely to have a trustee appointed to administer such Plan, Multiemployer Plan and/or Spunoff Plan pursuant to Section 4042 of ERISA, any Plan, Multiemployer Plan and/or Spunoff Plan shall have been or is reasonably expected to be terminated or to be the subject of termination proceedings under Section 4042 of ERISA, any Plan, Multiemployer Plan and/or Spunoff Plan shall have an Unfunded Current Liability, a contribution required to be made to a Plan, Multiemployer Plan, Spunoff Plan and/or Foreign Pension Plan has not been timely made, the Borrowers or any their respective Restricted Subsidiaries or any ERISA Affiliate has incurred or is reasonably expected to incur a liability to or on account of a Plan, Multiemployer Plan and/or Spunoff Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, 4975 or 4980 of the Code, the Borrowers or any of their respective Restricted Subsidiaries has incurred or is reasonably expected to incur liabilities pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) which provide benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or employee pension benefit plans (as defined in Section 3(2) of ERISA) or Foreign Pension Plans, (b) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; (c) and in each case in clauses (a) and (b) above, such lien, security interest or liability, individually, and/or in the aggregate, in the opinion of the Required Banks, will have a Material Adverse Effect; or
10.07 Security Documents. At any time after the execution and delivery thereof, any of the Security Documents shall cease to be in full force and effect, or shall cease in any material respect to give the Collateral Agent for the benefit of the Secured Creditors the Liens, rights, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and Lien on, all of the Collat- eral), in favor of the Collateral Agent, superior to and prior to the rights of all third Persons (except as permitted by Section 9.01), and subject to no other Liens (except as permitted by Section 9.01), or any Credit Party shall default in the due per- formance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any of the Security Documents and such default shall continue beyond any grace period specifically applicable thereto pursuant to the terms of such
10.08 Subsidiary Guaranty. The Subsidiary Guaranty or any provision thereof shall cease to be in full force or effect as to any Subsidiary Guarantor, or any Subsidiary Guarantor or Person acting by or on behalf of such Subsidiary Guarantor shall deny or disaffirm such Subsidiary Guarantor's obligations under the Subsidiary Guaranty, or any Subsidiary Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to the Subsidiary Guaranty; or
10.09 Judgments. One or more judgments or decrees shall be entered against the Borrowers or any of their respective Restricted Subsidiaries involving in the aggregate for the Bor- rowers and their respective Restricted Subsidiaries a liability (not paid or fully covered by a reputable and solvent insurance company) and such judgments and decrees either shall be final and non-appealable or shall not be vacated, discharged or stayed or bonded pending appeal for any period of 60 consecutive days, and the aggregate amount of all such judgments exceeds $5,000,000; or
10.10 Change of Control. A Change of Control shall
10.11 Tax Sharing Agreement. One or more parties to a Tax Sharing Agreement (other than Borrowers or any of their respective Restricted Subsidiaries) shall have defaulted in its or their payment obligations (other than reimbursement obligations in respect of payments made under the Surviving Guaranties) in an aggregate amount equal to or greater than $2,500,000 thereunder and such default or defaults shall remain unremedied for a period in excess of ten consecutive Business
10.12 Receivables Repurchases. The Borrowers and/or their respective Restricted Subsidiaries shall have repurchased accounts receivables (pursuant to indemnity provisions or otherwise) from the Receivables Subsidiary and/or the Receivables Purchasers in an aggregate amount exceeding $20,000,000 in any
then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent, upon the written request of the Required Banks, shall by written notice to the Borrowers, take any or all of the following actions, without prejudice to the rights of any Agent, any Bank or the holder of any Note to enforce its claims against any Credit Party (provided that, if an Event of Default specified in Section 10.05 shall occur with respect to the Borrowers, the result of which would occur upon the giving of written notice by the Administrative Agent to the Borrowers as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the Total Commitment termin- ated, whereupon all Commitments of each Bank shall forthwith terminate immediately and any Commitment Commission and other Fees shall forthwith become due and payable without any other notice of any kind; (ii) declare the principal of and any accrued interest in respect of all Loans and the Notes and all Obligations owing hereunder and thereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Credit Party; (iii) terminate any Letter of Credit which may be terminated in accordance with its terms; (iv) direct the Borrowers to pay (and the Borrowers agree that upon receipt of such notice, or upon the occurrence of an Event of Default specified in Section 10.05 with respect to the Borrowers, they will pay) to the Collateral Agent at the Payment Office such additional amount of cash, to be held as security by the Collat- eral Agent, as is equal to the aggregate Stated Amount of all Letters of Credit issued for the account of the Borrowers and all Acceptances then outstanding; (v) enforce, as Collateral Agent, all of the Liens and security interests created pursuant to the Security Documents; and (vi) apply any cash collateral held for the benefit of the Banks pursuant to Section 4.02 to repay outstanding Obligations.
SECTION 11. Definitions and Accounting Terms.
11.01 Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
"A Percentage" of any Bank at any time shall mean a fraction (expressed as a percentage) the numerator of which is the A Term Loan Commitment of such Bank at such time and the denominator of which is the Total A Term Loan Commitment at such time.
"A Term Loan" shall have the meaning provided in Section 1.01(a).
"A Term Loan Commitment" shall mean, for each Bank, the amount set forth opposite such Bank's name in Schedule I directly below the column entitled "A Term Loan Commitment", as same may be (x) reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Sections 1.13 and/or 13.04(b).
"A Term Loan Maturity Date" shall mean December 29, 2001.
"A Term Loan Scheduled Repayment" shall have the meaning provided in Section 4.02(b).
"A Term Note" shall have the meaning provided in Sec- tion 1.05(a).
"Acceptance" shall have the meaning provided in Section 2.01(a).
"Acceptance Facing Fee" shall having the meaning provided in Section 3.01(c)(y).
"Acceptance Fee" shall have the meaning provided in Section 3.01(b).
"Acquisition" shall have the meaning provided in Section 5.16.
"Acquisition Documents" shall have the meaning provided in Section 5.16.
"Action" shall mean Action Industries, Inc., a Virginia corporation.
"Additional Collateral" shall mean all property (whether real or personal) in which security interests are granted (or have been purported to be granted) (and continue to be in effect at the time of determination) pursuant to Section 8.11.
"Additional Mortgage" shall have the meaning provided in Section 8.11(a).
"Additional Mortgaged Property" shall have the meaning provided in Section 8.11(a).
"Additional Security Documents" shall mean all mortgages, pledge agreements, security agreements and other security documents entered into pursuant to Section 8.11 with respect to Additional Collateral.
"Adjusted Certificate of Deposit Rate" shall mean, on any day, the sum (rounded to the nearest 1/100 of 1%) of (1) the rate obtained by dividing (x) the most recent weekly average dealer offering rate for negotiable certificates of deposit with a three-month maturity in the secondary market as published in the most recent Federal Reserve System publication entitled "Select Interest Rates," published weekly on Form H.15 as of the date hereof, or if such publication or a substitute containing the foregoing rate information shall not be published by the Federal Reserve System for any week, the weekly average offering rate determined by the Administrative Agent on the basis of quotations for such certificates received by it from three certificate of deposit dealers in New York of recognized standing or, if such quotations are unavailable, then on the basis of other sources reasonably selected by the Administrative Agent, by (y) a percentage equal to 100% minus the stated maximum rate of all reserve requirements as specified in Regulation D applicable on such day to a three-month certificate of deposit of a member bank of the Federal Reserve System in excess of $100,000 (in- cluding, without limitation, any marginal, emergency, sup- plemental, special or other reserves), plus (2) the then daily net annual assessment rate as estimated by the Administrative Agent for determining the current annual assessment payable by the Administrative Agent to the Federal Deposit Insurance Corporation for insuring three-month certificates of deposit.
"Adjusted Consolidated Working Capital" at any time shall mean Consolidated Current Assets (but excluding therefrom all cash and Cash Equivalents) less Consolidated Current Liabilities.
"Adjusted Percentage" shall mean (x) at a time when no Bank Default exists, for each Bank, such Bank's Percentage and (y) at a time when a Bank Default exists (i) for each Bank that is a Defaulting Bank, zero and (ii) for each Bank that is a Non- Defaulting Bank, the percentage determined by dividing such Bank's Revolving Loan Commitment at such time by the Adjusted Total Revolving Loan Commitment at such time, it being understood that all references herein to Revolving Loan Commitments and the Adjusted Total Revolving Loan Commitment at a time when the Total Revolving Loan Commitment or Adjusted Total Revolving Loan Commitment, as the case may be, has been terminated shall be references to the Revolving Loan Commitments or Adjusted Total Revolving Loan Commitment, as the case may be, in effect immediately prior to such termination, provided that (A) no Bank's Adjusted Percentage shall change upon the occurrence of a Bank Default from that in effect immediately prior to such Bank Default, to the extent such change after giving effect to such Bank Default, and any repayment of Revolving Loans and Swingline Loans at such time pursuant to Section 4.02(a) or otherwise, would cause the sum of (i) the aggregate outstanding principal amount of Revolving Loans of all Non-Defaulting Banks plus (ii) the aggregate outstanding principal amount of Swingline Loans plus (iii) the Letter of Credit Outstandings, to exceed the Adjusted Total Revolving Loan Commitment; (B) any changes to the Adjusted Percentage that would have become effective upon the occurrence of a Bank Default but that did not become effective as a result of the preceding clause (A) shall become effective on the first date after the occurrence of the relevant Bank Default on which the sum of (i) the aggregate outstanding principal amount of the Revolving Loans of all Non-Defaulting Banks plus (ii) the aggregate outstanding principal amount of Swingline Loans plus (iii) the Letter of Credit Outstandings is equal to or less than the Adjusted Total Revolving Loan Commitment; and (C) if (i) a Non-Defaulting Bank's Adjusted Percentage is changed pursuant to the preceding clause (B) and (ii) any repayment of such Bank's Revolving Loans, or of Unpaid Drawings with respect to Letters of Credit or of Swingline Loans, that were made during the period commencing after the date of the relevant Bank Default and ending on the date of such change to its Adjusted Percentage must be returned to the Borrowers as a preferential or similar payment in any bankruptcy or similar proceeding of the Borrowers, then the change to such Non-Defaulting Bank's Adjusted Percentage effected pursuant to said clause (B) shall be reduced to that positive change, if any, as would have been made to its Adjusted Percentage if (x) such repayments had not been made and (y) the maximum change to its Adjusted Percentage would have resulted in the sum of the outstanding principal of Revolving Loans made by such Bank plus such Bank's new Adjusted Percentage of the outstanding principal amount of Swingline Loans and of Letter of Credit Outstandings equalling such Bank's Revolving Loan Commitment at such time.
"Adjusted Total Revolving Loan Commitment" shall mean at any time the Total Revolving Loan Commitment less the aggregate Revolving Loan Commitments of all Defaulting Banks.
"Administrative Agent" shall mean Bankers Trust Company, in its capacity as Administrative Agent for the Banks hereunder, and shall include any successor to the Administrative Agent appointed pursuant to Section 12.09.
"Affiliate" shall mean, with respect to any Person, any other Person (including, for purposes of Section 9.06 only, all directors, officers and partners of such Person) directly or in- directly controlling, controlled by, or under direct or indirect common control with, such Person; provided, however, that for purposes of Section 9.06, an Affiliate of INTERCO shall include any Person that directly or indirectly owns more than 5% of any class of the capital stock of INTERCO and any officer or director of INTERCO or any such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.
"Agents" shall mean any of the Administrative Agent, the Collateral Agent, the Documentation Agent and the Syndication Agent.
"Agreement" shall mean this Credit Agreement, as modified, supplemented, amended, restated, extended, renewed or replaced from time to time.
"Alternate Receivables Purchase Agreement" shall mean that Receivables Purchase Agreement, dated as of November 15, 1994, among the Receivables Subsidiary, as Seller, and Credit Lyonnais, as Purchaser and Agent, as amended and restated as of December 29, 1995, as same may be further amended, modified or supplemented from time to time in compliance with Section 9.11, or as replaced in compliance with the definition of Receivables Facility.
"Apollo Group" shall mean Apollo Advisors, L.P., Lion Advisors, L.P., Apollo Investment Fund, L.P. and Apollo Advisors II, L.P., all Delaware limited partnerships.
"Apollo Management Agreement" shall mean the consulting agreement, dated September 23, 1992, between Apollo Advisors, L.P. and INTERCO.
"Applicable Margin" shall mean a percentage per annum equal to (x) in the case of A Term Loans and Revolving Loans which are maintained as (i) Base Rate Loans, 1.125% and (ii) Eurodollar Loans, 2.125%, in each case of this clause (x) reduced (but not below zero) by the then applicable Reduction Percentage, if any, (y) in the case of B Term Loans which are maintained as (i) Base Rate Loans, 1.625% and (ii) Eurodollar Loans, 2.625%, (z) in the case of C Term Loans which are maintained as (i) Base Rate Loans, 2.125% and (ii) Eurodollar Loans, 3.125%; provided that, in the case of clause (x) above, after giving effect to any reductions to the Applicable Margin due to the Reduction Percentage, if a public offering of INTERCO Common Stock is consummated within nine months after the Restatement Effective Date and so long as prepayments of Term Loans have been made with Net Cash Proceeds from sales or issuances of equity of INTERCO (including, pursuant to any exercise of the INTERCO Warrants, any exercise of stock options and the issuance of any INTERCO Common Stock or Qualified Preferred Stock of INTERCO, but excluding Net Cash Proceeds from any issuance of Disqualified Preferred Stock) within nine months after the Restatement Effective Date pursuant to Sections 4.01(a), 4.02(e) and/or 4.02(f) (but in each case, only to the extent made with Net Cash Proceeds of equity issuances as described above) in an aggregate amount of at least $71 million, and so long as no Default or Event of Default exists, the highest Applicable Margin for A Term Loans and Revolving Loans shall thereafter be (i) in the case of Base Rate Loans, 1.00% and (ii) in the case of Eurodollar Loans, 2.00% (it being understood that the Reduction Percentage shall be deducted, when appropriate, from the respective amounts contained in clause (x) above and not the amounts contained in clauses (i) and (ii) of this proviso).
"Assignment and Assumption Agreement" shall mean the Assignment and Assumption Agreement substantially in the form of Exhibit K (appropriately completed).
"Atlantic" shall mean Atlantic Asset Securitization Corp., a Delaware corporation.
"Atlantic Receivables Purchase Agreement" shall mean the Receivables Purchase Agreement, dated as of November 15, 1994, among the Receivables Subsidiary, Atlantic, as Purchaser, and Credit Lyonnais, as Agent, as amended and restated as of December 29, 1995 as same may be further amended, modified or supplemented from time to time in compliance with Section 9.11, or as replaced in compliance with the definition of Receivables Facility.
"Attributed Receivables Facility Indebtedness" at any time shall mean the sum of (i) the aggregate Invested Amount of Receivables Interests (as defined in the Receivables Documents) under the Receivables Purchase Agreements (it being the intent of the parties that the amount of Attributed Receivables Facility Indebtedness at any time outstanding approximate as closely as possible the principal amount of indebtedness which would be outstanding at such time under the Receivables Facility if same were structured as a secured lending agreement rather than a purchase agreement) plus (ii) the outstanding principal amount of Indebtedness under the Subordinated Loan Agreement.
"Authorized Representative" shall mean, with respect to (i) delivering Notices of Borrowing, Notices of Conversion, Letter of Credit Requests and similar notices, any person or persons that has or have been authorized by the respective boards of the Borrowers to deliver such notices pursuant to this Agree- ment and that has or have appropriate signature cards on file with the Administrative Agent, BTCo and each Issuing Bank; (ii) delivering financial information and officer's certificates pursuant to this Agreement, any financial officer of INTERCO and (iii) any other matter in connection with this Agreement or any other Credit Document, any officer (or a person or persons so designated by any two officers) of INTERCO.
"Available Debt Proceeds Amount" shall mean, on any date of determination, an amount equal to zero, plus (i) all Net Cash Proceeds received by the Borrowers after the Restatement Effective Date from the issuance of Permitted Subordinated Indebtedness pursuant to Section 9.04(ii)(x) and/or Permitted Unsecured Indebtedness pursuant to Section 9.04(iii) retained by any of the Borrowers on or prior to such date and not required to be used to repay Term Loans on or prior to such date pursuant to Section 4.02(g), minus (ii) any amounts used to effect Permitted Acquisitions pursuant to clause (C) of the definition of Available Permitted Acquisition Amount on or prior to such date; provided that, at the time of the consummation of any Permitted Acquisition, the Available Debt Proceeds Amount shall be increased by the face amount of Permitted Acquired Debt (not being issued in return for Net Cash Proceeds) being incurred pursuant thereto and by the aggregate principal amount of Permitted Subordinated Indebtedness and/or Permitted Unsecured Indebtedness being directly issued as consideration in respect of such Permitted Acquisition (so long as no Net Cash Proceeds are received in connection therewith) (with the resultant increase in the Available Permitted Acquisition Amount, as provided in clause (C) of the definition thereof, for purposes of the consummation of the respective Permitted Acquisition), which increase in the Available Debt Proceeds Amount (and resultant increase in the Available Permitted Acquisition Amount) shall be reduced to zero immediately upon the consummation of the respective Permitted Acquisition.
"Available Dividend Unrestricted Proceeds Amount" shall mean, on any date of determination, the amount which would be calculated as the Available Unrestricted Proceeds Amount in accordance with the definition thereof contained in this Agreement if the phrase "after the Restatement Effective Date" in each place it appears in such definition were deleted and the phrase "on or after the Dividend Threshold Date" were inserted in lieu thereof; provided that, notwithstanding anything to the contrary contained above or in the definition of Available Unrestricted Proceeds Amount, if the Dividend Threshold Date occurs on or before the Leverage Reduction Threshold Date, the Net Cash Proceeds received by INTERCO on or after the Dividend Threshold Date from issuances of equity by INTERCO (including pursuant to any exercise of the INTERCO Warrants, any exercise of stock options and the issuance of any INTERCO Common Stock or Qualified Preferred Stock) which caused the Dividend Threshold Date to occur shall be included in the Available Dividend Unrestricted Proceeds Amount to the extent otherwise provided in clause (i) of the definition of Available Unrestricted Proceeds Amount as modified pursuant to this definition, except that any portion of such Net Cash Proceeds which was required to be applied on a pro forma basis to the reduction of Indebtedness to establish the occurrence of the Dividend Threshold Date as provided in the definition thereof contained herein shall not be included for purposes of determining the Available Dividend Unrestricted Proceeds Amount.
"Available Net Income Amount" shall mean on any date of determination an amount equal to zero, plus or minus (i) an amount equal to the Consolidated Cumulative Net Income Amount on such date, minus (ii) any Dividend payments made by INTERCO pursuant to Section 9.03(ii)(B) on or prior to such date, minus (iii) any Investments made by the Borrowers or their Restricted Subsidiaries pursuant to Section 9.05(vii)(C), minus (iv) any Restricted Junior Payments made by INTERCO or its Restricted Subsidiaries pursuant to Section 9.11(a)(i)(y)(B), minus (v) any amount paid in connection with a Permitted Acquisition pursuant to clause (D) of the definition of Available Permitted Acquisition Amount, minus (vi) any Guaranty Payment made by INTERCO pursuant to Section 9.11(b)(ii)(y)(B)(2) on or prior to such date; provided that in any event, the amount of the Available Net Income Amount shall never exceed the then Available Retained Excess Cash Flow Amount (after giving effect to all prior and contemporaneous reductions thereto).
"Available Permitted Acquisition Amount" shall mean, at the time of determination thereof, an amount equal to the sum of (A) the Available $10 Million Acquisition/Investment Basket Amount on such date (after giving effect to all prior and contemporaneous reductions thereto), plus (B) the Available Unre- stricted Proceeds Amount on such date (after giving effect to all prior and contemporaneous reductions thereto), plus (C) the Available Debt Proceeds Amount on such date (after giving effect to all prior and contemporaneous reductions thereto), plus (D) the Available Net Income Amount on such date (after giving effect to all prior and contemporaneous reductions thereto).
"Available Retained Excess Cash Flow Amount" shall be on any date of determination an amount equal to zero, (i) plus or minus an amount equal to the amount of Excess Cash Flow permitted to be retained by the Borrowers after the Restatement Effective Date and on or prior to such date with respect to any prior Excess Cash Flow Payment Period (which shall be determined on a cumulative basis, but including at the time of any determination of the Available Retained Excess Cash Flow Amount, only those Excess Cash Flow Payment Periods for which the respective Excess Cash Flow Payment Date has occurred and any required repayment pursuant to Section 4.02(i) has been made; provided, that, if Excess Cash Flow is negative for any Excess Cash Flow Payment Period, 100% of such negative amount shall be included in determining the Borrowers' cumulative retained share of all Excess Cash Flow and not required to be utilized to repay Term Loans pursuant to Section 4.02(i)), minus (ii) all deductions to the Available Net Income Amount made pursuant to clauses (ii), (iii), (iv), (v) and (vi) of, and the first proviso to, the definition thereof.
"Available Returned Investment Amount" shall mean on any date of determination an amount equal to (i) the Returned Investment Amount as calculated on such date, minus (ii) any amounts used to make Investments pursuant to Section 9.05(vii)(D) after the Restatement Effective Date and on or prior to such date.
"Available $10 Million Acquisition/Investment Basket Amount" shall mean on any date of determination an amount equal to (i) $10,000,000, minus (ii) any amounts used to make Investments pursuant to Section 9.05(vii)(A) after the Restatement Effective Date and on or prior to such date, minus (iii) any amounts used to make Permitted Acquisitions pursuant to clause (A) of the definition of Available Permitted Acquisition Amount after the Restatement Effective Date and on or prior to such date.
"Available $10 Million Dividend Basket Amount" shall mean on any date of determination an amount equal to (i) $10,000,000, minus (ii) any amounts used to pay Dividends pursuant to Section 9.03(ii)(A) after the Restatement Effective Date and on or prior to such date.
"Available Unrestricted Proceeds Amount" shall mean, on any date of determination, an amount equal to zero, plus (i) all Net Cash Proceeds received by INTERCO from issuances of equity by INTERCO (including pursuant to any exercise of the INTERCO Warrants, any exercise of stock options and the issuance of any Qualified Preferred Stock or Disqualified Preferred Stock of INTERCO) after the Restatement Effective Date and on or prior to such date, and not (x) used to repay Term Loans pursuant to the second proviso to clause (iv) of Section 4.01(a) (or otherwise pursuant to Section 4.01 if such repayment is included in any certification delivered pursuant to the proviso to Section 9.09(b)) or pursuant to Section 4.02(e) and/or Section 4.02(f), or (y) excluded from the requirements of Section 4.02(e) by virtue of clauses (iv) and/or (v)(x) of the first parenthetical to Section 4.02(e)) minus (ii) any amounts used to effect Permitted Acquisitions pursuant to clause (B) of the definition of Available Permitted Acquisition Amount after the Restatement Effective Date and on or prior to such date, minus (iii) any Dividend payments made by INTERCO pursuant to Section 9.03(ii)(C) after the Restatement Effective Date and on or prior to such date, minus (iv) any Investments by the Borrowers or their Restricted Subsidiaries pursuant to Section 9.05(vii)(B) after the Restatement Effective Date and on or prior to such date, minus (v) any Restricted Junior Payments made by INTERCO or its Restricted Subsidiaries after the Restatement Effective Date and on or prior to such date pursuant to Section 9.11(a)(i)(y)(A), minus (vii) Guaranty Payments made by the Borrowers or their Restricted Subsidiaries after the Restatement Effective Date and on or prior to such date pursuant to Section 9.11(b)(ii)(y)(B)(3); provided that, at the time of the consummation of any Permitted Acquisition, the Available Unrestricted Proceeds Amount shall be increased by the aggregate liquidation preference or amount of Disqualified Preferred Stock being directly issued as consideration in connection with such Permitted Acquisition (where no Net Cash Proceeds are received in connection therewith) (with the resultant increase in the Available Permitted Acquisition Amount, as provided in clause (B) of the definition thereof, for purposes of a consummation of the respective Permitted Acquisition), which increase in the Available Unrestricted Proceeds Amount (and resultant increase in the Available Permitted Acquisition Amount) shall be reduced to zero immediately upon the consummation of the respective Permitted Acquisition.
"B Term Loan" shall have the meaning provided in Section 1.01(b).
"B Term Loan Commitment" shall mean, for each Bank, the amount set forth opposite such Bank's name in Schedule I directly below the column entitled "B Term Loan Commitment," as same may be (x) reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Sections 1.13 and/or 13.04(b).
"B Term Loan Maturity Date" shall mean March 29, 2003.
"B Term Loan Scheduled Repayment" shall have the meaning provided in Section 4.02(c).
"B Term Note" shall have the meaning provided in Section 1.05(a).
"Bank" shall mean each financial institution listed on Schedule I, as well as any Person which becomes a "Bank" hereunder pursuant to 13.04(b).
"Bank Default" shall mean (i) the refusal (which has not been retracted) of a Bank, in violation of this Agreement, to make available its portion of any Borrowing (including any Mandatory Borrowing) or to fund its portion of any unreimbursed payment under Section 2.03(c) or (ii) a Bank having notified in writing the Borrowers and/or the Administrative Agent that it does not intend to comply with its obligations under Section 1.01(f) or Section 2 in the case of either clause (i) or (ii), as a result of any takeover of such bank by any regulatory authority or agency.
"Bankruptcy Code" shall have the meaning provided in Section 10.05.
"Base Case Consolidated Cumulative Net Income Amount" shall mean, at any date, the amount shown on Schedule XVI corresponding to the fiscal quarter most recently ended or, if the Leverage Reduction Threshold Date has theretofore occurred, corresponding to the Leverage Reduction Fiscal Quarter.
"Base Rate" at any time shall mean the higher of (i) 1/2 of 1% in excess of the Adjusted Certificate of Deposit Rate and (ii) the Prime Lending Rate.
"Base Rate Loan" shall mean (i) each Swingline Loan and (ii) each Loan designated or deemed designated as such by the Borrowers at the time of the incurrence thereof or conversion thereto.
"Borrowers" shall have the meaning provided in the first paragraph of this Agreement.
"Borrowing" shall mean the borrowing of one Type of Loan of a single Tranche from all the Banks having Commitments of the respective Tranche (or from BTCo in the case of Swingline Loans) on a given date (or resulting from a conversion or conversions on such date) having in the case of Eurodollar Loans the same Interest Period, provided that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of the re- lated Borrowing of Eurodollar Loans.
"Broyhill" shall have the meaning provided in the first paragraph of this Agreement.
"BTCo" shall mean Bankers Trust Company in its individual capacity.
"Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day except Saturday, Sunday and any day which shall be in New York City a legal holiday or a day on which banking institutions are authorized or required by law or other government action to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) above and which is also a day for trading by and between banks in the New York interbank Eurodollar market.
"C Term Loan" shall have the meaning provided in Section 1.01(c).
"C Term Loan Commitment" shall mean, for each Bank, the amount set forth opposite such Bank's name in Schedule I directly below the column entitled "C Term Loan Commitment," as same may be (x) reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Sections 1.13 and/or 13.04(b).
"C Term Loan Maturity Date" shall mean March 29, 2004.
"C Term Loan Scheduled Repayment" shall have the meaning provided in Section 4.02(d).
"C Term Note" shall have the meaning provided in Section 1.05(a).
"Capital Expenditures" shall mean, with respect to any Person, all expenditures by such Person which should be capitalized in accordance with generally accepted accounting principles, including all such expenditures with respect to fixed or capital assets (including, without limitation, expenditures for maintenance and repairs which should be capitalized in accordance with generally accepted accounting principles) and the amount of Capitalized Lease Obligations incurred by such Person.
"Capitalized Lease Obligations" of any Person shall mean all rental obligations which, under generally accepted accounting principles, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles.
"Cash Equivalents" shall mean, as to any Person, (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition, (ii) time deposits and certificates of deposit of any commercial bank having, or which is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any State thereof, the District of Columbia or any foreign jurisdiction having capital, surplus and undivided profits aggregating in excess of $200,000,000, with maturities of not more than one year from the date of acquisition by such Person, (iii) repurchase obligations with a term of not more than 90 days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by any Person incorporated in the United States rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing not more than one year after the date of acquisition by such Person, (v) investments in money market funds substantially all of whose assets are comprised of securities of the types described in clauses (i) through (iv) above and (vi) demand deposit accounts maintained in the ordinary course of business not in excess of $100,000 in the aggregate.
"Cash Management System" shall mean the "Cash Management System" as defined in the Original Credit Agreement.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as the same may be amended from time to time, 42 U.S.C. Section 9601 et seq.
"Change of Control" shall mean (i) INTERCO shall at any time cease to own 100% of the capital stock of any of Broyhill, Lane or Thomasville, (ii) the board of directors of INTERCO shall cease to consist of a majority of Continuing Directors and (iii) any Person, entity or "group" (as such term is defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) (other than the Apollo Group or a Controlled Account) is or becomes the beneficial owner of an amount of outstanding Voting Stock of INTERCO in excess of 25%, and the Apollo Group and/or one or more Controlled Accounts own less than such Person, entity or group (as defined above), of the total amount of fully diluted shares of outstanding Voting Stock of INTERCO.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement, and to any subsequent provision of the Code, amendatory thereof, supplemental thereto or substituted therefor.
"Collateral" shall mean all property (whether real or personal) with respect to which any security interests have been granted (or purported to be granted) pursuant to any Security Document, including, without limitation, all Pledge Agreement Collateral (which shall include all capital stock of, and promissory notes issued by, the Receivables Subsidiary, to the extent held by any Credit Party), all Security Agreement Collat- eral (which shall exclude all assets of the Receivables Subsidiary), all Mortgaged Properties, all cash and Cash Equiva- lents delivered as collateral pursuant to Section 4.02 or 10 hereof and all Additional Collateral, if any.
"Collateral Agent" shall mean the Administrative Agent acting as collateral agent for the Secured Creditors pursuant to the Security Documents.
"Collective Bargaining Agreements" shall have the meaning provided in Section 5.05.
"Commitment" shall mean any of the commitments of any Bank, i.e., whether the A Term Loan Commitment, B Term Loan Commitment, C Term Loan Commitment or Revolving Loan Commitment.
"Commitment Commission" shall have the meaning provided in Section 3.01(a).
"Concentration Account" shall have the meaning provided in the Security Agreement.
"Consolidated Cumulative Excess Net Income Amount" shall mean, on any date, an amount determined on a cumulative basis equal to (i) the sum of 100% of Consolidated Net Income for all Consolidated Cumulative Net Income Periods ended prior to such date of determination or, if the Leverage Reduction Threshold Date has theretofore occurred, for all Consolidated Cumulative Excess Net Income Periods ending on or prior to the last day of the Leverage Reduction Fiscal Quarter, minus (ii) 100% of the Base Case Consolidated Cumulative Net Income Amount as same is listed on Schedule XVI for the last fiscal quarter included in the determination pursuant to preceding clause (i).
"Consolidated Cumulative Net Income Amount" shall mean, at any date (A) if the Leverage Reduction Threshold Date has not theretofore occurred, the Consolidated Cumulative Excess Net Income Amount as determined on such date or (B) if the Leverage Reduction Threshold Date has theretofore occurred, the sum of (x) the Consolidated Cumulative Excess Net Income Amount as determined on the Leverage Reduction Threshold Date plus (y) the Consolidated Cumulative 25% Net Income Amount as determined on the date on which the Consolidated Cumulative Net Income Amount is being determined.
"Consolidated Cumulative Net Income Period" shall mean each period consisting of a fiscal quarter of INTERCO ending after January 1, 1996 and for which the related financial statements required to be delivered pursuant to Section 8.01(b) or (c), as the case may be, have theretofore been delivered.
"Consolidated Cumulative 25% Net Income Amount" shall mean, at any date an amount determined on a cumulative basis equal to (i) the sum of 25% of Consolidated Net Income for all Consolidated Cumulative Net Income Periods ending after the last day of the Leverage Reduction Fiscal Quarter and prior to such date of determination for which Consolidated Net Income was a positive number, minus (ii) 100% of Consolidated Net Income for all Consolidated Cumulative Net Income Periods ending after the last day of the Leverage Reduction Fiscal Quarter and prior to such date of determination for which Consolidated Net Income was a negative number.
"Consolidated Current Assets" shall mean, at any time, the current assets of INTERCO and its Restricted Subsidiaries determined on a consolidated basis.
"Consolidated Current Liabilities" shall mean, at any time, the current liabilities of INTERCO and its Restricted Sub- sidiaries determined on a consolidated basis at such time, but excluding (i) the current portion of any Indebtedness under this Agreement, any Attributed Receivables Facility Indebtedness of the Receivables Subsidiary and any other long-term Indebtedness which would otherwise be included therein, (ii) accrued but unpaid interest with respect to the Indebtedness described in clause (i) and with respect to Capitalized Lease Obligations, (iii) the current portion of Indebtedness constituting Capital- ized Lease Obligations and (iv) any current portion of tax liabilities of such Persons.
"Consolidated Debt" shall mean all Indebtedness of INTERCO and its Restricted Subsidiaries (including, without limitation, the amount of Attributed Receivables Facility Indebtedness) determined on a combined basis with respect to borrowed money or other obligations of such Persons which would appear on the balance sheet of such Persons as indebtedness (including unreimbursed drawings under Letters of Credit and unreimbursed payments under Acceptances, but excluding Consolidated Current Liabilities and deferred tax and pension liabilities) provided that for any date of determination, the amount of Revolving Loans and Swingline Loans included in the foregoing calculation shall be the daily average utilization of Revolving Loans and Swingline Loans for the period of (A) three months, if such calculation is made within the first three months following the Restatement Effective Date, (B) six months, if such calculation is made within the first six months following the Restatement Effective Date, (C) nine months, if such calculation is made within the first nine months following the Restatement Effective Date and (D) twelve months thereafter, in each case, prior to such calculation, plus (i) all Contingent Obligations of such Persons incurred after the Restatement Effective Date (excluding obligations resulting from extensions or renewals of the leases guaranteed by the Surviving Guarantees made in compliance with this Agreement), plus (ii) all Contingent Obliga- tions with respect to any Surviving Guaranty on and after the date on which INTERCO made any payment in respect of such Surviv- ing Guaranty, plus (iii) an amount equal to the greater of the liquidation preference and the maximum fixed repurchase price (excluding accrued Dividends) of any outstanding Disqualified Preferred Stock, minus (iv) (x) if on the date of determination of Consolidated Debt any amount of Revolving Loans or Swingline Loans is then outstanding, the cash in excess of $10,000,000 as shown on the consolidated balance sheet of INTERCO and its Restricted Subsidiaries as of the date of determination, provided that not more than $10,000,000 shall be deducted pursuant to this subclause (x) on any date of determination of Consolidated Debt or (y) if on the date of determination no Revolving Loans or Swingline Loans are then outstanding, the amount of cash as shown on the consolidated balance sheet of INTERCO and its Restricted Subsidiaries as of the date of determination of Consolidated Debt.
"Consolidated EBIT" shall mean, for any period, the Consolidated Net Income of INTERCO and its Restricted Subsidi- aries, determined on a consolidated basis, before Consolidated Net Interest Expense (to the extent deducted in arriving at Consolidated Net Income) and provision for taxes or gains or losses from sales of assets other than inventory sold in the ordinary course of business, in each case that were included in arriving at Consolidated Net Income.
"Consolidated EBITDA" shall mean, for any period, Consolidated EBIT, adjusted by adding thereto the amount of all amortization of intangibles and depreciation, in each case that were deducted in arriving at Consolidated EBIT for such period.
"Consolidated Net Income" shall mean, for any period, the net after tax income of INTERCO and its Restricted Subsidiaries determined on a consolidated basis, minus cash Dividends paid in respect of Disqualified Preferred Stock, without giving effect to any extraordinary gains or losses.
"Consolidated Net Interest Coverage Ratio" for any period shall mean the ratio of Consolidated EBITDA to Consoli- dated Net Interest Expense for such period.
"Consolidated Net Interest Expense" shall mean, for any period, the total consolidated interest expense of INTERCO and its Restricted Subsidiaries for such period (calculated without regard to any limitations on the payment thereof) plus, without duplication, that portion of Capitalized Lease Obligations of INTERCO and its Restricted Subsidiaries representing the interest factor for such period, and capitalized interest expense, plus, (i) all cash fees, service charges and other costs, as well as all collections or other amounts retained by the Receivables Purchasers which are in excess of amounts paid to INTERCO and its Restricted Subsidiaries under the Receivables Facility by it for the purchase of receivables pursuant to the Receivables Facility and (ii) the product of (x) the amount of all cash Dividend requirements (whether or not declared or paid) on Disqualified Preferred Stock paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated Federal, state, local and foreign tax rate (expressed as a decimal number between one and zero) of INTERCO as reflected in the audited consolidated financial statements of INTERCO for its most recently completed Fiscal Year, which amounts described in the preceding clauses (i) and (ii) shall be treated as interest expense of INTERCO and its Restricted Subsidiaries for purposes of this definition regardless of the treatment of such amounts under generally accepted accounting principles, in each case net of the total consolidated cash interest income of INTERCO and its Restricted Subsidiaries for such period, but excluding the amortization of any deferred financing costs and all amounts in respect of the Interest Rate Protection Agreements, all determined on a consolidated basis.
"Consolidated Senior Debt" at any time shall mean Consolidated Debt on such date, adjusted by excluding therefrom the amount of Permitted Subordinated Indebtedness and Disqualified Preferred Stock reflected in Consolidated Debt on such date.
"Contingent Obligation" shall mean, as to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obli- gation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith.
"Continuing Bank" shall mean each Original Bank with a Commitment under this Agreement (immediately upon giving effect to the Restatement Effective Date).
"Continuing Directors" shall mean the Directors of INTERCO on the Restatement Effective Date and each other Director if such Director's nomination for election to the Board of Directors of INTERCO is recommended by a majority of the then Continuing Directors.
"Controlled Account" shall mean any account managed by the Apollo Group for so long as the Apollo Group exercises sole power of disposition and voting with respect thereto.
"Converse" shall mean Converse Inc., a Delaware corporation.
"Converse Disposition" shall mean the "Converse Disposition" as such term is defined in the Original Credit Agreement.
"Credit Documents" shall mean this Agreement and, after the execution and delivery thereof pursuant to the terms of this Agreement, each Note, each Security Document and the Subsidiary Guaranty and, after the execution and delivery thereof, each additional guaranty or security document executed pursuant to Section 8.11.
"Credit Event" shall mean the making of any Loan or the issuance of any Letter of Credit.
"Credit Lyonnais" shall have the meaning provided in the preamble hereto.
"Credit Party" shall mean the Borrowers and each Subsidiary Guarantor.
"Cumulative Consolidated EBITDA" shall have the meaning provided in Section 9.09(b).
"Currency Hedging Agreements" shall mean any foreign exchange contracts, currency swap agreements or other similar agreements or arrangements designed to protect against the fluctuations in currency values.
"Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank Default is in effect.
"Disqualified Preferred Stock" means any Preferred Stock of INTERCO which would be Qualified Preferred Stock except that regular accruing dividends thereon are required to be paid in cash, and so long as, (i) based on calculations made by INTERCO on a Pro Forma Basis after giving effect to the issuance of such Disqualified Preferred Stock, no Default or Event of Default will exist under, or would have existed under the periods covered by, the financial covenants contained in Sections 9.08 through 9.10, inclusive, of this Agreement, (ii) based on good faith projections prepared by INTERCO for the period from the date of the issuance of such Disqualified Preferred Stock to the date which is one year thereafter, the level of financial per- formance measured by the covenants set forth in Sections 9.08 through 9.10 inclusive shall be better than or equal to such level as would be required to provide that no Default or Event of Default would exist under the financial covenants contained in Sections 9.08 through 9.10, inclusive, of this Agreement as com- pliance with such covenants would be required through the date which is one year from the date of the issuance of such Disqualified Preferred Stock, (iii) INTERCO shall furnish to the Administrative Agent for distribution to each of the Banks an officer's certificate by the chief financial officer or treasurer of INTERCO certifying to the best of his knowledge as to compli- ance with the requirements of the preceding clauses (i) and (ii) and containing the pro forma calculations and projections required by the preceding clauses (i) and (ii), and (iv) such Disqualified Preferred Stock shall not contain any provision in the documents governing or evidencing the same which, in the opi- nion of the Administrative Agent, are more restrictive than the provisions in the Credit Documents.
"Dividend" with respect to any Person shall mean that such Person has declared or paid a dividend or returned any equity capital to its stockholders or authorized or made any other distribution, payment or delivery of property (other than common stock of such Person or Qualified Preferred Stock of INTERCO paid as a pay-in-kind Dividend on any Qualified Preferred Stock of INTERCO) or cash to its stockholders as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for a consideration any shares of any class of its capital stock outstanding on or after the Effective Date (or any options or warrants issued by such Person with respect to its capital stock), or set aside any funds for any of the foregoing purposes, or shall have permitted any of its Subsidiaries to purchase or otherwise acquire for a consideration any shares of any class of the capital stock of such Person outstanding on or after the Effective Date (or any options or warrants issued by such Person with respect to its capital stock). Without limiting the foregoing, "Dividends" with respect to any Person shall also include all payments made or required to be made during any period by such Person with respect to any stock appreciation rights, plans, equity incentive or achievement plans or any similar plans or setting aside of any funds for the foregoing purposes, except to the extent such payments have reduced Consolidated EBITDA during the respective period.
"Dividend Threshold Date" shall mean the Leverage Reduction Threshold Date; provided that if INTERCO establishes to the reasonable satisfaction of the Administrative Agent, by delivering a certificate of an Authorized Officer showing in reasonable detail the necessary calculations to substantiate same, that an issuance of equity by INTERCO (including pursuant to any exercise of the INTERCO Warrants, any exercise of stock options and the issuance of any INTERCO Common Stock or Qualified Preferred Stock) and the concurrent application of the proceeds thereof to any outstanding Indebtedness would cause a reduction to Consolidated Debt in such amount so that the Leverage Ratio as determined on the last day of the fiscal quarter last ended on or prior to the date of the respective equity issuance, after giving effect to the pro forma application of the proceeds of such equity issuance to the repayment of Indebtedness, would have been less than or equal to 3.5:1.0 if such application to outstanding Indebtedness had been made as of the last day of such fiscal quarter, then the Dividend Threshold Date shall instead occur on the date of such equity issuance and concurrent application of the proceeds to repay such Indebtedness.
"Documentation Agent" shall mean Credit Lyonnais, in its capacity as Documentation Agent for the Banks hereunder.
"Documents" shall mean the Credit Documents, the Receivables Documents and the Acquisition Documents.
"Dollars" and the sign "$" shall each mean freely transferable lawful money of the United States.
"Domestic Subsidiary" with respect to any Person shall mean a Subsidiary thereof other than a Foreign Subsidiary thereof.
"Domestic Wholly-Owned Subsidiary" of any Person shall mean each Wholly-Owned Subsidiary of such Person which is also a Domestic Subsidiary.
"Drawing" shall have the meaning provided in Section 2.05(b).
"Effective Date" shall mean the Effective Date of, and is defined in, the Original Credit Agreement.
"Eligible Transferee" shall mean and include a com- mercial bank, mutual fund, financial institution or other "accredited investor" (as defined in Regulation D of the Securities Act).
"Employee Stock Option Plan" shall mean the INTERCO Incorporated 1992 Stock Option Plan.
"Environmental Claims" means any and all adminis- trative, regulatory or judicial actions, suits, demands, demand letters, directives, claims, liens, notices of noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law or any permit issued, or any approval given, under any such Environmental Law (hereafter, "Claims"), including, without limitation, (a) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief in connection with alleged injury or threat of injury to health, safety or the environment due to the presence of Hazardous Materials.
"Environmental Law" means any applicable Federal, state, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy and rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, to the extent binding on the Borrowers or any of their respective Subsidiaries, relating to the environment, employee health and safety or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 3803 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq., the Hazardous Material Transportation Act, 49 U.S.C. Section 1801 et seq. and the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq. (to the extent it regulates occupational exposure to Hazardous Materials); and any state and local or foreign counterparts or equivalents, in each case as amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) which together with the Borrowers or any Subsidiary of the Borrowers would be deemed to be a "single employer" (i) within the meaning of Section 414(b), (c), (m) or (o) of the Code or (ii) as a result of the Borrowers or any Subsidiary of the Borrowers being or having been a general partner of such person.
"Eurodollar Loan" shall mean each Loan (excluding Swingline Loans) designated as such by the Borrowers at the time of the incurrence thereof or conversion thereto.
"Eurodollar Rate" shall mean (a) the offered quotation to first-class banks in the New York interbank Eurodollar market by BTCo for Dollar deposits of amounts in immediately available funds comparable to the outstanding principal amount of the Eurodollar Loan of BTCo with maturities comparable to the Interest Period applicable to such Eurodollar Loan commencing two Business Days thereafter as of 10:00 A.M. (New York time) on the date which is two Business Days prior to the commencement of such Interest Period, divided (and rounded off to the nearest 1/16 of 1%) by (b) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves required by applicable law) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D).
"Event of Default" shall have the meaning provided in Section 10.
"Excess Cash Flow" shall mean, for any period, the remainder of (a) the sum of (i) Consolidated Net Income for such period plus, without duplication, the sum of the amount of all net non-cash charges (including, without limitation, depreciation, amortization, deferred tax expense and non-cash interest expense, but excluding any net non-cash charges reflected in Adjusted Consolidated Working Capital) and net non- cash losses which were included in arriving at Consolidated Net Income for such period less the sum of the amount of all net non- cash income or gains (exclusive of items reflected in Adjusted Consolidated Working Capital) included in arriving at Consolidated Net Income for such period, (ii) the decrease, if any, in Adjusted Consolidated Working Capital from the first day to the last day of such period and (iii) any net increases (or minus any net decreases) in items classified as "Other Liabili- ties" (excluding long term Indebtedness) during such period as shown on the consolidated balance sheet of INTERCO and its Restricted Subsidiaries covering such period, minus (b) the sum of (i) the amount of Capital Expenditures made by the Borrowers and its Restricted Subsidiaries on a consolidated basis during such period pursuant to and in accordance with Section 9.07(a) and (b) except to the extent financed with the proceeds of Indebtedness or pursuant to Capitalized Lease Obligations, (ii) the aggregate amount of permanent principal payments of Indebt- edness for borrowed money of the Borrowers and their Restricted Subsidiaries and the permanent repayment of the principal com- ponent of Capitalized Lease Obligations of the Borrowers and its Subsidiaries (excluding (1) payments with proceeds of asset sales, (2) payments pursuant to the Refinancing or with the proceeds of other Indebtedness or equity and (3) payments of Loans or other Obligations, provided that repayments of Loans shall be deducted in determining Excess Cash Flow if such repay- ments were (x) required as a result of a Scheduled Repayment of A Term Loans, B Term Loans or C Term Loans under Section 4.02(b), (c) or (d), respectively or (y) made as a voluntary prepayment pursuant to Section 4.01 with internally generated funds (but in the case of a voluntary prepayment of Revolving Loans, only to the extent accompanied by a voluntary reduction to the Total Revolving Loan Commitment)) during such period, (iii) the increase, if any, in Adjusted Consolidated Working Capital from the first day to the last day of such period and (iv) any net increases (or minus any net decreases) in items classified as "Other Assets" (excluding (i) any goodwill created in connection with a Permitted Acquisition and (ii) debt issuance costs created in connection with any incurrence of Indebtedness permitted hereunder to the extent paid with the proceeds thereof) during such period as shown on the consolidated balance sheet of INTERCO and its Restricted Subsidiaries covering such period.
"Excess Cash Flow Payment Date" shall mean (i) with respect to any Excess Cash Flow Payment Period less than a full Fiscal Year selected by INTERCO pursuant to the proviso to the definition thereof, the date occurring 45 days (or such shorter number of days as may be elected by INTERCO) after the last day of such Excess Cash Flow Payment Period, and otherwise (ii) the date occurring 95 days (or such shorter period as may be elected by INTERCO) after the last day of each Fiscal Year (beginning with the Fiscal Year ended closest to December 31, 1996).
"Excess Cash Flow Payment Period" shall mean (i) with respect to the repayment required on the first Excess Cash Flow Payment Date, the period beginning on January 1, 1996 and ending on December 31, 1996 and (ii) on each Excess Cash Flow Payment Date thereafter, the immediately preceding Fiscal Year; provided that INTERCO may, at its option, elect from time to time to have Excess Cash Flow Payment Periods which end on the last day of any fiscal quarter of INTERCO, in which event such period shall consist of a period beginning on the later of (x) the Restatement Effective Date and (y) the end of any prior Excess Cash Flow Payment Period, and ending on such last day of such fiscal quarter.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Assets" shall mean each of the assets listed on Schedule XIV.
"Existing Fluvanna Letter of Credit" shall mean the letter of credit issued by Union Bank of Switzerland in support of the Existing IRBs.
"Existing Indebtedness" shall have the meaning provided in Section 7.22.
"Existing IRBs" shall mean $8,000,000 Industrial Development Authority of Fluvanna County, Virginia Floating Rate Demand Industrial Development Revenue Bonds (Thomasville Furniture Industries, Inc. Project) Series 1986.
"Existing Letters of Credit" shall mean the letters of credit listed on Schedule XII and previously issued under the Original Credit Agreement.
"Existing Mortgage Policies" shall mean each mortgage insurance policy issued with respect to an Existing Mortgage under the Original Credit Agreement.
"Existing Mortgages" shall mean all Mortgages granted by the Borrowers pursuant to the Original Credit Agreement and which have not been released by the lenders thereunder prior to the Restatement Effective Date.
"Facing Fee" shall have the meaning provided in Section 3.01(c).
"Federal Funds Rate" shall mean for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to or referred to in Section 3.01.
"FIRREA" shall mean Financial Institution Reform, Recovery and Enforcement Act of 1989.
"Fiscal Year" shall mean each fiscal year of INTERCO ending on December 31 of each calendar year.
"Florsheim" shall mean The Florsheim Shoe Company, a Delaware corporation.
"Florsheim Disposition" shall mean the "Florsheim Disposition" as such term is defined in the Original Credit Agreement.
"Foreign Pension Plan" means any plan, fund (including, without limitation, any superannuation fund) or other similar program established or maintained outside the United States of America by any Borrower or any one or more of their respective Subsidiaries primarily for the benefit of employees of such Borrower or such Subsidiary residing outside the United States of America, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code.
"Foreign Sales Corporation" shall mean a Wholly-Owned Foreign Subsidiary of INTERCO and/or its Restricted Subsidiaries created for the purpose of effecting sales of goods and/or services in foreign countries.
"Foreign Subsidiary" with respect to any Person shall mean each Subsidiary thereof that is incorporated under the laws of any jurisdiction other than the United States of America, any State thereof, the United States Virgin Islands or Puerto Rico.
"Guaranty Payments" shall have the meaning provided in Section 9.11(b)(ii).
"Hazardous Materials" means (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing any level of polychlorinated biphenyls, and radon gas; (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous waste," "hazardous materials," "extremely hazardous substances," "restricted hazardous waste," "toxic substances," "toxic pollutants," "contaminants," or "pollutants," or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority under Environmental Laws.
"Indebtedness" shall mean, as to any Person, without duplication, (i) all indebtedness (including principal, interest, fees and charges) of such Person for borrowed money or for the deferred purchase price of property or services, (ii) the maximum amount available to be drawn under all letters of credit issued for the account of such Person and all unpaid drawings in respect of such letters of credit, (iii) all Indebtedness of the types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition secured by any Lien on any property owned by such Person, whether or not such Indebtedness has been assumed by such Person (to the extent of the value of the respective property), (iv) the aggregate amount required to be capitalized under leases under which such Person is the lessee, (v) all obligations of such person to pay a specified purchase price for goods or services, whether or not delivered or accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent Obligations of such Person and (vii) all obligations under any Interest Rate Protection Agreement or under any similar type of agreement. In addition to the foregoing, all Attributed Receivables Facility Indebtedness shall constitute Indebtedness.
"INTERCO" shall have the meaning provided in the first paragraph of this Agreement.
"INTERCO Common Stock" shall mean the common stock of INTERCO.
"INTERCO Warrants" shall mean warrants to purchase shares of INTERCO Common Stock pursuant to the Warrant Agreement, dated August 3, 1992, between INTERCO and Society National Bank, as Warrant Agent.
"Interest Determination Date" shall mean, with respect to any Eurodollar Loan, the second Business Day prior to the commencement of any Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section 1.09.
"Interest Rate Protection Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest collar agreement, interest rate hedging agreement, interest rate floor agreement or other similar agreement or arrangement.
"Investments" shall have the meaning provided in Section 9.05.
"Issuing Bank" shall mean BTCo and any Bank which at the request of the Borrowers and with the consent of the Administrative Agent (which shall not be unreasonably withheld or delayed) agrees, in such Bank's sole discretion, to become an Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section 2. On the Restatement Effective Date the sole Issuing Banks are (x) BTCo and (y) if the New Fluvanna Letter of Credit has been issued, NationsBank with respect thereto.
"Lane" shall have the meaning provided in the first paragraph of this Agreement.
"L/C Supportable Obligations" shall mean obligations of INTERCO or its Restricted Subsidiaries incurred in the ordinary course of business with respect to insurance obligations and workers' compensation, surety bonds and other similar statutory obligations, and all obligations customarily supported by Standby Letters of Credit and satisfactory to the Administrative Agent.
"Leaseholds" of any Person means all the right, title and interest of such Person as lessee or licensee in, to and under leases or licenses of land, improvements and/or fixtures.
"Letter of Credit" shall have the meaning provided in Section 2.01(a) and shall include Trade Letters of Credit and Standby Letters of Credit.
"Letter of Credit Facing Fee" shall have the meaning provided in Section 3.01(c)(x).
"Letter of Credit Fee" shall have the meaning provided in Section 3.01(b).
"Letter of Credit Outstandings" shall mean, at any time, the sum of (i) the aggregate Stated Amount of all out- standing Letters of Credit which have not terminated and Acceptances which have not matured or been prepaid and (ii) the amount of all Unpaid Drawings.
"Letter of Credit Request" shall mean any request for the issuance of a Letter of Credit made by the Borrowers pursuant to Section 2.03(a), including Trade Letter of Credit Requests and Standby Letter of Credit Requests.
"Letter of Credit Service Agreement" shall have the meaning provided in Section 2.03(a).
"Leverage Ratio" shall mean on any date the ratio of (i) Consolidated Debt on such date to (ii) Consolidated EBITDA for the period of four consecutive fiscal quarters most recently ended on or prior to such date (or, if shorter, the period beginning on January 1, 1996 and ended on the last day of a fiscal quarter ended after the Restatement Effective Date, provided that for purposes of calculating the Leverage Ratio for (i) the period ending on March 31, 1996, Consolidated EBITDA shall be multiplied by 4, (ii) for the period ending on June 30, 1996, Consolidated EBITDA shall be multiplied by 2 and (iii) for the period ending September 30, 1996, consolidated EBITDA shall be multiplied by 4/3), in each case taken as one accounting period.
"Leverage Reduction Fiscal Quarter" shall have the meaning assigned that term in the definition of "Leverage Reduction Threshold Date".
"Leverage Reduction Threshold Date" shall mean the first date following the end of a fiscal quarter ended after January 1, 1996 upon which (x) no Default or Event of Default is in existence and (y) the financial statements required by Section 8.01(b) or (c), as the case may be, with respect to such fiscal quarter (or Fiscal Year in the case of the last fiscal quarter in any Fiscal Year) have been delivered, together with the officer's certificate required by Section 8.01(f), establishing that the Leverage Ratio as determined on the last day of such fiscal quarter (the "Leverage Reduction Fiscal Quarter") is less than or equal to 3.5:1.0.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the UCC or any other similar recording or notice statute, and any lease having substantially the same effect as any of the foregoing).
"Loan" shall mean each Term Loan, each Revolving Loan and each Swingline Loan.
"Majority B and C Banks" shall mean those Non- Defaulting Banks which would constitute the Required Banks under, and as defined in, this Agreement if all outstanding Obligations, other than the B Term Loans and C Term Loans, were repaid in full and the Total Revolving Loan Commitment were terminated.
"Majority Banks" of any Tranche shall mean those Non- Defaulting Banks which would constitute the Required Banks under, and as defined in, this Agreement if all outstanding Obligations of the other Tranches under this Agreement were repaid in full and all Commitments with respect thereto were terminated.
"Mandatory Borrowing" shall have the meaning provided in Section 1.01(f).
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrowers taken as a whole or the Borrowers and their Restricted Subsidiaries taken as a whole, it being understood that any determination of whether a Material Adverse Effect has occurred shall take into account, inter alia, (x) any available indemnities and (y) the timing and likelihood of payments thereunder.
"Maximum Swingline Amount" shall mean $15,000,000.
"Mortgage" shall mean and include each Existing Mortgage, as amended pursuant to the respective Mortgage Amendment, each New Mortgage and, after the execution and delivery thereof, each Additional Mortgage, in each case as same may be amended, modified or supplemented from time to time.
"Mortgage Amendments" shall have the meaning provided in Section 5.11.
"Mortgage Policies" shall have the meaning provided in Section 5.11.
"Mortgaged Property" shall have the meaning provided in Section 5.11 and, after the execution and delivery of any Additional Mortgage, shall include the respective Additional Mortgaged Property.
"Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of) the Borrowers or a Subsidiary of the Borrowers or an ERISA Affiliate and, except for a Spunoff Plan, each such plan for the five year period immediately following the latest date on which the Borrowers, any Subsidiaries of the Borrowers or any ERISA Affiliates maintained, contributed to or had an obligation to contribute to such plan.
"NationsBank" shall have the meaning provided in the preamble hereto.
"Net Cash Proceeds" shall mean for any event requiring a repayment pursuant to Section 4.02, the gross cash proceeds (including any cash received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received) received from such event, net of reasonable transaction costs (including, as applicable, any underwriting, brokerage or other customary commissions and reasonable legal, advisory and other fees and expenses associated therewith) received from any such event.
"Net Sale Proceeds" shall mean for any sale of assets, the gross cash proceeds (including any cash received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received) received from any sale of assets, net of reasonable transaction costs (including, without limitation, any underwriting, brokerage or other customary selling commissions and reasonable legal, advisory and other fees and expenses, including title and recording expenses, associated therewith) and payments of unassumed liabilities relating to the assets sold at the time of, or within 30 days after, the date of such sale, the amount of such gross cash pro- ceeds required to be used to repay any Indebtedness (other than Indebtedness of the Banks pursuant to this Agreement) which is secured by the respective assets which were sold, and the estimated marginal increase in income taxes which will be payable by INTERCO's consolidated group with respect to the fiscal year in which the sale occurs as a result of such sale; but excluding any portion of any such gross cash proceeds which INTERCO deter- mines in good faith should be reserved for post-closing adjust- ments (to the extent INTERCO delivers to the Banks a certificate signed by its chief financial officer, controller or chief accounting officer as to such determination), it being understood and agreed that on the day that all such post-closing adjustments have been determined, (which shall not be later than six months following the date of the respective asset sale), the amount (if any) by which the reserved amount in respect of such sale or disposition exceeds the actual post-closing adjustments payable by INTERCO or any of its Restricted Subsidiaries shall constitute Net Sale Proceeds on such date received by INTERCO and/or any of its Restricted Subsidiaries from such sale, lease, transfer or other disposition.
"New Banks" shall mean each of the Persons listed on Schedule I which is not a Continuing Bank.
"New Fluvanna Letter of Credit" shall mean a letter of credit issued by NationsBank pursuant to this Agreement on or after the Restatement Effective Date in support of (x) the Existing IRBs or (y) the Existing Fluvanna Letter of Credit.
"New Mortgage Policies" shall mean the mortgage title insurance policies issued in respect of each New Mortgaged Property.
"New Mortgaged Property" shall have the meaning provided in Section 5.11(iii).
"New Mortgages" shall mean those Mortgages that have been granted with respect to the New Mortgaged Properties.
"Non-Continuing Bank" shall have the meaning provided in Section 13.18.
"Non-Defaulting Bank" shall mean and include each Bank other than a Defaulting Bank.
"Note" shall mean each Term Note, each Revolving Note and the Swingline Note.
"Notice of Borrowing" shall have the meaning provided in Section 1.03.
"Notice of Conversion" shall have the meaning provided in Section 1.06.
"Notice Office" shall mean the office of the Administrative Agent located at 130 Liberty Street, New York, New York 10006, Attention: Mary Kay Coyle or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto.
"Obligations" shall mean all amounts owing to the Administrative Agent, the Collateral Agent, any Issuing Bank or any Bank pursuant to the terms of this Agreement or any other Credit Document.
"Original Banks" shall mean each Person which was a Bank under, and as defined in, the Original Credit Agreement.
"Original Credit Agreement" shall have the meaning provided in the recitals to this Agreement.
"Original Receivables Facility" shall mean the Receivables Facility as defined in the Original Credit Agreement.
"Original Revolving Loans" shall mean the "Revolving Loans" under, and as defined in, the Original Credit Agreement.
"Original Swingline Loans" shall mean the "Swingline Loans" under, and as defined in, the Original Credit Agreement.
"Original Term Loans" shall mean the "Term Loans" under, and as defined in, the Original Credit Agreement.
"Participant" shall have the meaning provided in Section 2.04(a).
"Pay-In-Kind Preferred Stock" means any Preferred Stock where all dividends with respect thereto may, at the option of the issuer thereof, be paid through the issuance of additional shares of preferred stock of the same series.
"Payment Office" shall mean the office of the Administrative Agent located at One Bankers Trust Plaza, New York, New York 10006, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto.
"Percentage" of any Bank at any time shall mean a fraction (expressed as a percentage) the numerator of which is the Revolving Loan Commitment of such Bank at such time and the denominator of which is the Total Revolving Loan Commitment at such time, provided that if the Percentage of any Bank is to be determined after the Total Revolving Loan Commitment has been terminated, then the Percentages of the Banks shall be determined immediately prior (and without giving effect) to such termination.
"Permitted Acquired Debt" shall mean Indebtedness (other than Permitted Subordinated Indebtedness and Permitted Unsecured Indebtedness incurred pursuant to Sections 9.04(ii) and (iii)) assumed or acquired in connection with a Permitted Acquisition as permitted under this Agreement.
"Permitted Acquisition" shall mean the acquisition by the Borrowers or any of their Restricted Subsidiaries of assets constituting part of or an entire business or division of any Person not already a Subsidiary of the Borrowers or of 100% of the capital stock of any such Person which Person shall, as a result of such acquisition, become a Restricted Subsidiary, provided that (A) the consideration paid by the Borrowers and/or their Restricted Subsidiaries consists solely of cash or common stock or Qualified Preferred Stock or Disqualified Preferred Stock permitted pursuant to Section 9.13(b) of INTERCO, the issuance of Indebtedness otherwise permitted in Section 9.04 and the assumption/acquisition of any Permitted Acquired Debt (calculated at face value) relating to such business, division or Person, (B) the assets acquired, or the business of the Person whose stock is acquired, shall be in the same line of business in which the Borrowers and their Restricted Subsidiaries are already engaged, and (C) in the case of the acquisition of 100% of the capital stock of any Person, such Person shall own no capital stock of any other Person unless either (x) such Person owns 100% of the capital stock of such other Person or (y) (1) such Person and/or its Wholly-Owned Subsidiaries own 80% of the consolidated assets or capital stock of such Person and its Subsidiaries and (2) any non-Wholly Owned Subsidiary of such Person was non-Wholly Owned prior to the date of such Permitted Acquisition of such Person (it being understood and agreed that investments by Subsidiaries shall be permitted in accordance with the provisions of Section 9.05). Notwithstanding anything to the contrary con- tained in the immediately preceding sentence, any acquisition shall be a Permitted Acquisition only if all requirements of Sections 8.14 and 9.02(vii) applicable to Permitted Acquisitions are met with respect thereto.
"Permitted Debt Agreements" shall have the meaning provided in Section 5.05.
"Permitted Encumbrance" shall mean, with respect to any Mortgaged Property, such exceptions to title as are set forth in the title insurance policy or title commitment delivered with respect thereto, all of which exceptions must be acceptable to the Administrative Agent in its reasonable discretion.
"Permitted Liens" shall have the meaning provided in Section 9.01.
"Permitted Subordinated Indebtedness" shall mean any Indebtedness (including, without limitation, any Permitted Subordinated Indebtedness incurred in connection with the creation of a replacement Receivables Facility) which is subordinated on terms reasonably satisfactory to the Administrative Agent and the Required Banks to all Obligations hereunder and any other obligations secured pursuant to the Security Documents and incurred by the Borrowers, so long as (i) based on calculations made by the Borrowers on a Pro Forma Basis after giving effect to the incurrence of such Indebtedness, no Default or Event of Default will exist under, or would have existed under the periods covered by, the financial covenants contained in Sections 9.08 through 9.10, inclusive, of this Agreement, (ii) based on good faith projections prepared by the Borrowers for the period from the date of the incurrence of such Indebtedness to the date which is one year thereafter, the level of financial performance measured by the covenants set forth in Sections 9.08 through 9.10 inclusive shall be better than or equal to such level as would be required to provide that no Default or Event of Default would exist under the financial covenants contained in Sections 9.08 through 9.10, inclusive, of this Agreement as compliance with such covenants would be required through the date which is one year from the date of the incurrence of such Indebtedness, (iii) INTERCO shall furnish to the Administrative Agent for distribution to each of the Banks an officer's certificate by the chief financial officer or treasurer of INTERCO certifying to the best of his knowledge as to compliance with the requirements of the preceding clauses (i) and (ii) and containing the pro forma calculations and projections required by the preceding clauses (i) and (ii), (iv) such Indebtedness shall require no amortization, sinking fund payment or any other scheduled maturity of the principal amount thereof on any date which is earlier than the date occurring one year after the C Term Loan Maturity Date and (v) all other provisions of such Indebtedness (including, without limitation, covenants, defaults and remedies) in the documents governing or evidencing the same are reasonably satisfactory to the Administrative Agent and the Required Banks. To the extent the preceding sentence requires terms of Permitted Subordinated Indebtedness to be satisfactory to the Required Banks, such terms shall be deemed satisfactory to the Required Banks unless objected to by the Required Banks in writing on or prior to the date which is 20 Business Days after the documentation therefor is delivered to the Banks. Notwithstanding anything to the contrary contained above in the definition of "Permitted Subordinated Indebtedness", all Permitted Subordinated Indebtedness shall be required to constitute Indebtedness for borrowed money (where 100% of the consideration received for the issuance of such Indebtedness is cash), except that Permitted Subordinated Indebtedness may be issued directly as consideration in connection with a Permitted Acquisition so long as (i) the proviso to Section 9.04(ii)(x) has been complied with and (ii) the aggregate principal amount of all Permitted Subordinated Indebtedness issued after the Restatement Effective Date as consideration in connection with Permitted Acquisitions, when added to the sum of (x) the aggregate liquidation preference or amount of all Disqualified Preferred Stock so issued after the Restatement Effective Date as consideration in connection with Permitted Acquisitions pursuant to Section 9.13(b)(i), (y) the aggregate principal amount of all Permitted Subordinated Indebtedness issued or incurred after the Restatement Effective Date but not issued as consideration in connection with Permitted Acquisitions to the extent the Net Cash Proceeds therefrom have not been required to be used to repay Term Loans as a result of clause (w)(ii) of the first parenthetical of Section 4.02(g), and (z) the aggregate liquidation preference or amount of all Disqualified Preferred Stock issued after the Restatement Effective Date pursuant to Section 9.13(b)(i) but not issued as consideration in connection with Permitted Acquisitions, to the extent the Net Cash Proceeds therefrom have not been required to be used to repay Term Loans as a result of clause (v)(y) of the first parenthetical of Section 4.02(e), does not exceed $50,000,000.
"Permitted Unsecured Indebtedness" shall mean any general unsecured Indebtedness incurred by the Borrowers, so long as (i) based on calculations made by the Borrowers on a Pro Forma Basis after giving effect to the incurrence of such Indebtedness, no Default or Event of Default will exist under, or would have existed under the periods covered by, the financial covenants contained in Sections 9.08 through 9.10, inclusive, of this Agreement, (ii) based on good faith projections prepared by the Borrowers for the period from the date of the incurrence of such Indebtedness to the date which is one year thereafter, the level of financial performance measured by the covenants set forth in Sections 9.08 through 9.10 inclusive shall be better than or equal to such level as would be required to provide that no Default or Event of Default would exist under the financial covenants contained in Sections 9.08 through 9.10, inclusive, of this Agreement as compliance with such covenants would be required through the date which is one year from the date of the incurrence of such Indebtedness, (iii) INTERCO shall furnish to the Administrative Agent for distribution to each of the Banks an officer's certificate by the chief financial officer or treasurer of INTERCO certifying to the best of his knowledge as to compliance with the requirements of the preceding clauses (i) and (ii) and containing the pro forma calculations required by the preceding clauses (i) and (ii), (iv) the average life of such Indebtedness at the time of the incurrence thereof shall be at least one year beyond the average life of the Term Loans then outstanding and the Total Revolving Commitments (assuming maximum utilization thereof) and (v) such Indebtedness shall not contain any provision (including, without limitation, covenants, defaults and remedies) in the documents governing or evidencing the same which, in the opinion of the Administrative Agent, are more restrictive than the provisions in the Credit Documents. Notwithstanding anything to the contrary contained above in the definition of "Permitted Unsecured Indebtedness", all Permitted Unsecured Indebtedness shall be required to constitute indebtedness for borrowed money where 100% of the consideration received for the issuance for such Indebtedness is cash, except that Permitted Unsecured Indebtedness may be issued directly as consideration in connection with Permitted Acquisitions so long as the proviso to Section 9.04(iii) has been complied with.
"Person" shall mean any individual, partnership, joint venture, firm, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any single-employer plan, as defined in Section 4001 of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of), the Borrowers or a Subsidiary of the Borrowers or an ERISA Affiliate, and except for a Spunoff Plan, each such plan for the five year period immediately following the latest date on which the Borrowers, a Subsidiary of the Borrowers or an ERISA Affiliate maintained, contributed or had an obligation to contribute to such plan.
"Pledge Agreement" shall have the meaning provided in Section 5.09.
"Pledge Agreement Collateral" shall mean all "Collateral" as defined in the Pledge Agreement.
"Pledged Securities" shall mean "Pledged Securities" as defined in the Pledge Agreement.
"Preferred Stock," as applied to the capital stock of any Person, means capital stock of such Person (other than common stock of such Person) of any class or classes (however designed) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of capital stock of any other class of such Person, and shall include any Qualified Preferred Stock and Disqualified Preferred Stock.
"Prime Lending Rate" shall mean the rate which BTCo announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. BTCo may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate.
"Pro Forma Basis" shall mean, as to any Person, for any of the following events which occur subsequent to the commencement of a period for which the financial effect of such event is being calculated, and giving effect to the event for which such calculation is being made, such calculation as will give pro forma effect to such event as if same had occurred at the beginning of such period of calculation, and
(i) for purposes of the foregoing calculation, the transaction giving rise to the need to calculate the pro forma effect to any of the following events shall be assumed to have occurred on the first day of the four fiscal quarter period last ended before the occurrence of the respective event for which such pro forma effect is being determined
(ii) in making any determination with respect to the incurrence or assumption of any Indebtedness or issuance of any Disqualified Preferred Stock during the Reference Period or subsequent to the Reference Period and on or prior to the date of the transaction referenced in clause (i) above (the "Transaction Date"), (w) all Indebtedness or Disqualified Preferred Stock (including the Indebtedness or Disqualified Preferred Stock incurred or assumed and for which the financial effect is being calculated) incurred or permanently repaid during the Reference Period shall be deemed to have been incurred or repaid at the beginning of such period, (x) Consolidated Net Interest Expense of such Person attributable to interest or dividends on any Indebtedness or Disqualified Preferred Stock, as the case may be, bearing floating interest rates should be computed on a pro forma basis as if the rate in effect on the Transaction Date had been the applicable rate for the entire period, (y) Consolidated Net Interest Expense of such Person attributable to interest on any Indebtedness under any revolving credit facility which was in effect during the respective Reference Period shall be computed on a pro forma basis based upon the average daily balance of such Indebtedness outstanding during the applicable period (or, if shorter, the portion of the period during which the revolving credit facility was in effect) and (z) Consolidated Net Interest Expense will be increased or reduced by the net cost (including amortization of discount) or benefit (after giving effect to amortization of discount) associated with the Interest Rate Protection Agreements, which will remain in effect for the twelve-month period after the Transaction Date and which shall have the effect of fixing the interest rate on the date of computation, and
(iii) in making any determination of Consolidated EBITDA, pro forma effect shall be given to any Permitted Acquisition or Significant Divestiture which occurred during the Reference Period or subsequent to the Reference Period and prior to the Transaction Date, Consolidated EBITDA shall be determined as if such Permitted Acquisition or Significant Divestiture occurred on the first day of the Reference Period, taking into account cost savings and expenses which would otherwise be accounted for as an adjustment pursuant to Article 11 of Regulation S-X under the Securities Act, as if such cost savings or expenses were realized on the first day of the Reference Period.
"Projections" shall have the meaning provided in Section 5.15(b).
"Purchase and Contribution Agreement" shall mean the Purchase and Contribution Agreement, dated as of November 15, 1994 as amended and restated as of December 29, 1995, among Broyhill, Lane, Action and Thomasville and the Receivables Subsidiary, as same may be further amended, modified or supplemented from time to time in compliance with Section 9.11, or as replaced in compliance with the definition of Receivables Facility.
"Qualified Preferred Stock" means any Pay-In-Kind Preferred Stock of INTERCO, or any other Preferred Stock of INTERCO, the express terms of which shall provide that Dividends thereon shall not be required to be paid in cash at any time that such cash payment would be prohibited by the terms of this Agreement (and any refinancings, replacements or extensions hereof) and in either case which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (including an event which would constitute a Change of Control), cannot mature (excluding any maturity as the result of an optional redemption by the issuer thereof) and is not mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, and is not redeemable, or required to be repurchased, at the sole option of the holder thereof (including, without limitation, upon the occurrence of an event which would constitute a Change of Control), in whole or in part, on or prior to the first anniversary of the C Term Loan Maturity Date.
"Quarterly Payment Date" shall mean the last Business Day of each June, September, December and March, occurring after the Restatement Effective Date.
"RCRA" shall mean the Resource Conservation and Recovery Act, as the same may be amended from time to time, 42 U.S.C. Section 6901 et seq.
"Real Property" of any Person shall mean all the right, title and interest of such Person in and to land, improvements and fixtures, including Leaseholds.
"Receivables Documents" shall mean the Receivables Purchase Agreements, the Purchase and Contribution Agreement and any related documentation entered into by the Borrowers and their Restricted Subsidiaries, the Receivables Subsidiary and/or the Receivables Purchasers in connection with the Receivables Facility.
"Receivables Facility" shall mean the arrangement pursuant to which (x) each of Broyhill, Lane, Action and Thomasville and its respective Subsidiaries will from time to time sell accounts receivable to the Receivables Subsidiary and (y) the Receivables Subsidiary shall sell interests in the receivables to the Receivables Purchasers, or obtain subordinated loans secured by the receivables from the Receivables Purchasers, as more fully set forth in the Receivables Documents; provided, that the Receivables Facility may be replaced after the date hereof so long as the Administrative Agent is reasonably satisfied that the terms and conditions of any replacement facility are as favorable or more favorable to INTERCO and its Restricted Subsidiaries and to the Banks (and in any event contains no greater degree of recourse to INTERCO and its Restricted Subsidiaries (other than the Receivables Subsidiary)) than the terms and conditions of the current Receivables Facility (in which event such replacement facility shall be deemed to be the Receivables Facility hereunder).
"Receivables Purchase Agreements" shall mean and include the Atlantic Receivables Purchase Agreement, the Alternate Receivables Purchase Agreement and the Subordinated Loan Agreement.
"Receivables Purchaser" shall mean and include (i) with respect to the Alternate Receivables Purchase Agreement, Credit Lyonnais and (ii) with respect to the Atlantic Receivables Purchase Agreement, Atlantic and Credit Lyonnais and (iii) with respect to the Subordinated Loan Agreement, Credit Lyonnais and their respective successors and assigns (in the event that the Receivables Facility is replaced, any replacement receivables purchasers shall be deemed to be the Receivables Purchasers hereunder).
"Receivables Subsidiary" shall mean INTERCO Receivables Corp., the special purpose subsidiary formed by Broyhill, Lane and Action and owned by Broyhill, Lane, Action and Thomasville to purchase and receive contributions of receivables from each of Broyhill, Lane, Action and Thomasville and their respective other Restricted Subsidiaries pursuant to the Receivables Facility.
"Recovery Event" shall mean the receipt by INTERCO or any of its Restricted Subsidiaries of any cash insurance proceeds or condemnation award payable (i) by reason of theft, loss, physical destruction or damage or any other similar event with respect to any property or assets of the Borrowers or any of its Subsidiaries and (ii) under any policy of insurance required to be maintained under Section 8.03.
"Reduction Percentage" shall mean (i) initially zero and (ii) from and after each day of delivery of any certificate delivered in accordance with the following sentence indicating an entitlement to a Reduction Percentage other than zero (each, a "Start Date") to and including the applicable End Date described below, the percentage set forth below opposite the Leverage Ratio indicated to have been achieved in any certificate delivered in accordance with the following sentence:
The Leverage Ratio shall be determined based on the delivery of a certificate of the Borrowers by an Authorized Representative of the Borrowers to the Administrative Agent (with a copy to be sent by the Borrowers to each Bank), within 30 days of the last day of any fiscal quarter of INTERCO (beginning after the first such fiscal quarter ended in 1996), which certificate shall set forth the calculation of the Leverage Ratio for the fiscal quarter ended immediately prior to the relevant Start Date and the Reduction Percentage which shall be thereafter applicable (until same is changed or ceases to apply in accordance with the following sentences). The Reduction Percentage so determined shall apply, except as set forth in the succeeding sentence, from the Start Date to the earlier of (x) the date on which the next certificate is delivered to the Administrative Agent and (y) the date which is 30 days following the last day of the fiscal quarter in which the previous Start Date occurred (the "End Date"), at which time, if no certificate has been delivered to the Administrative Agent indicating an entitlement to a Reduction Percentage other than zero (and thus commencing a new Start Date), the Reduction Percentage shall be reduced to zero. Not- withstanding anything to the contrary contained above in this definition, the Reduction Percentage shall be reduced to zero at all times during which there shall exist a Default or an Event of Default.
"Refinancing" shall mean all repayments and refinancings of Indebtedness in connection with the Transaction.
"Register" shall have the meaning provided in Section 13.17.
"Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements.
"Regulation G" shall mean Regulation G of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof.
"Regulation T" shall mean Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof.
"Release" means any spilling, leaking, pumping, pour- ing, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing or migration into the environment.
"Replaced Bank" shall have the meaning provided in Section 1.13.
"Replacement Bank" shall have the meaning provided in Section 1.13.
"Reportable Event" shall mean an event described in Section 4043(c) of ERISA with respect to a Plan other than those events as to which the 30-day notice period is waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Regulation Section 2615.
"Required Appraisal" shall have the meaning provided in Section 8.11(g).
"Required Banks" shall mean Non-Defaulting Banks, the sum of whose outstanding Term Loans (or, if prior to the Restatement Effective Date, Term Loan Commitments) and Revolving Loan Commitments (or after the termination thereof, outstanding Revolving Loans and Adjusted Percentage of Swingline Loans and Letter of Credit Outstandings) represent greater than 50% of the sum of all outstanding Term Loans (or, if prior to the Restatement Effective Date, Term Loan Commitments) of Non- Defaulting Banks and the Adjusted Total Revolving Loan Commitment (or after the termination thereof, the sum of the then total outstanding Revolving Loans of Non-Defaulting Banks and the aggregate Adjusted Percentages of all Non-Defaulting Banks of the total outstanding Swingline Loans and Letter of Credit Outstandings at such time).
"Required Supermajority Banks" at any time shall mean those Banks which would constitute the Required Banks under, and as defined in, this Agreement if the term "50%" contained therein were changed to "66-2/3%."
"Restatement Effective Date" shall have the meaning provided in Section 13.10.
"Restricted Junior Payment" shall have the meaning provided in Section 9.11(a)(i).
"Restricted Subsidiaries" shall mean, (x) all of the Subsidiaries of the Borrowers and their respective Subsidiaries in existence on the Restatement Effective Date and (y) any Subsidiary (other than an Unrestricted Subsidiary) that is created, established or acquired after the Restatement Effective Date.
"Returned Investment Amount" shall mean, with respect to all Investments made pursuant to Section 9.05(vii) after the Restatement Effective Date in Persons which are Unrestricted Subsidiaries or are not Restricted Subsidiaries, the aggregate amount of cash received by INTERCO and its Restricted Subsidiaries which are Wholly-Owned Subsidiaries of INTERCO representing a return of capital of such Investment, in each case to the extent the amount of capital so returned is not, and will not be, included in Consolidated Net Income.
"Returns" shall have the meaning provided in Section 7.09.
"Revolving Loan" shall have the meaning provided in Section 1.01(d).
"Revolving Loan Commitment" shall mean, for each Bank, the amount set forth opposite such Bank's name in Schedule I hereto directly below the column entitled "Revolving Loan Commitment," as same may be (x) reduced from time to time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Section 1.13 or 13.04(b).
"Revolving Loan Maturity Date" shall mean December 29, 2001.
"Revolving Note" shall have the meaning provided in Section 1.05(a).
"Scheduled Repayment Date" shall mean each date upon which any Scheduled Repayment is due and payable.
"Scheduled Repayments" shall mean the A Term Loan Scheduled Repayments, the B Term Loan Scheduled Repayments and the C Term Loan Scheduled Repayments.
"SEC" shall have the meaning provided in Section 8.01(h).
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in Section 4.04(b)(ii).
"Secured Creditors" shall have the meaning assigned that term in the Security Documents.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Security Agreement" shall have the meaning provided in Section 5.10.
"Security Agreement Collateral" shall mean all "Collateral" as defined in the Security Agreement (which shall exclude all assets of the Receivables Subsidiary).
"Security Document" shall mean the Pledge Agreement, the Security Agreement, each Mortgage and, after the execution and delivery thereof, each Additional Mortgage and each Additional Security Document.
"Senior Debt Leverage Ratio" shall mean on any date a ratio calculated as provided in the definition of Leverage Ratio contained herein; provided that the term "Consolidated Senior Debt" shall be deemed inserted in lieu of the term "Consolidated Debt" in clause (i) of the definition of Leverage Ratio.
"Shareholders' Agreements" shall have the meaning provided in Section 5.05.
"Significant Divestiture" shall mean any sale or other disposition of assets by INTERCO and/or its Restricted Subsidiaries, the fair market value of which exceeds $500,000 for any transaction (or series of related transactions).
"Solvent Entity" shall have the meaning provided in Section 7.05(d).
"Spunoff Plan" shall mean any employee benefit plan as defined in Section 3(3) of ERISA which INTERCO ceased to maintain or contribute to pursuant to the Distribution and Services Agreement dated as of November 17, 1994.
"Standby Letter of Credit" shall mean any Standby Letter of Credit or similar instrument issued or deemed issued for the account of any Borrower pursuant to Section 2.01 for the purpose of supporting L/C Supportable Obligations.
"Standby Letter of Credit Request" shall have the meaning provided in Section 2.03(a).
"Start Date" shall have the meaning provided in the
"Stated Amount" of (x) each Letter of Credit shall, at any time, mean the maximum amount available to be drawn there- under (in each case determined without regard to whether any con- ditions to drawing could then be met) and (y) each Acceptance shall mean the amount of each such Acceptance.
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement, dated as of November 18, 1995, by and among Armstrong World Industries, Inc., Armstrong Enterprises, Inc. and INTERCO.
"Subordinated Loan Agreement" shall mean the Subordinated Loan Agreement in the form annexed to the Atlantic Receivables Purchase Agreement on the Restatement Effective Date.
"Subsidiary" shall mean, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. As used in this Agreement, the term "Subsidiary" shall include or apply to any Restricted Subsidiary and any Unrestricted Subsidiary.
"Subsidiary Guarantor" shall mean Broyhill Transport, Inc., a North Carolina corporation, Lane Advertising, Inc., a Virginia corporation, Action Industries, Inc., a Virginia corporation, Action Transport, Inc., a Delaware corporation, Thomasville Enterprises, Inc., a Vermont corporation, Fayette Enterprises, Inc., a Mississippi corporation, Gordon's, Inc., a Delaware corporation, Thomasville Chair Company, a North Carolina corporation, Thomasville Home Furnishings, Inc., a Delaware corporation, and Thomasville Upholstery, Inc., a Delaware corporation and any Restricted Subsidiary of any Borrower which executes a guarantee after the Restatement Effective Date pursuant to Section 8.11, but shall in any event exclude the Receivables Subsidiary, Thomasville Furniture Latin America, S.A. and Interfashions Industries, S.A. and its Subsidiaries.
"Subsidiary Guaranty" shall have the meaning provided in Section 5.08.
"Supermajority Banks" of any Tranche shall mean those Non-Defaulting Banks which would constitute the Required Banks under, and as defined in, this Agreement if (x) all outstanding Obligations of the other Tranches under this Agreement were
repaid in full and all Commitments with respect thereto were terminated and (y) the term "50%" contained therein were changed to "66-2/3%."
"Surviving Guaranties" shall mean the guarantee obligations of INTERCO with respect to the leases described in Schedule XV hereto.
"Swingline Expiry Date" shall mean the date which is two Business Days prior to the Revolving Loan Maturity Date.
"Swingline Loan" shall have the meaning provided in Section 1.01(e).
"Swingline Note" shall have the meaning provided in Section 1.05(a).
"Syndication Agent" shall mean NationsBank, in its capacity as Syndication Agent for the Banks hereunder.
"Tax Sharing Agreement" shall mean any tax sharing, disaffiliation or tax allocation agreement entered into among the Borrowers, Converse and Florsheim.
"Taxes" shall have the meaning provided in Section 4.04(a).
"Term Loan Commitments" shall mean the A Term Loan Commitments, B Term Loan Commitments and C Term Loan Commitments.
"Term Loans" shall mean each of the A Term Loans, B Term Loans and C Term Loans.
"Term Notes" shall mean the A Term Notes, B Term Notes and C Term Notes.
"Thomasville" shall have the meaning provided in the first paragraph of this Agreement.
"Total A Term Loan Commitment" shall mean, at any time, the sum of the A Term Loan Commitments of each of the Banks.
"Total B Term Loan Commitment" shall mean, at any time, the sum of the B Term Loan Commitments of each of the Banks.
"Total C Term Loan Commitment" shall mean, at any time, the sum of the C Term Loan Commitments of each of the Banks.
"Total Commitment" shall mean, at any time, the sum of the Commitments of each of the Banks.
"Total Revolving Loan Commitment" shall mean, at any time, the sum of the Revolving Loan Commitments of each of the Banks.
"Total Term Loan Commitment" shall mean, at any time, the sum of the A Term Loan Commitments, the B Term Loan Commitments and the C Term Loan Commitments of each of the Banks.
"Total Unutilized Revolving Loan Commitment" shall mean, at any time, an amount equal to the remainder of (x) the then Total Revolving Loan Commitment, less (y) the sum of the aggregate principal amount of Revolving Loans and Swingline Loans outstanding plus the then aggregate amount of Letter of Credit Outstandings.
"Trade Letter of Credit" shall mean any Letter of Credit or similar instrument issued for the account of any Borrower pursuant to Section 2.01 for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by the Borrowers or their Restricted Subsidiaries in the ordinary course of business of the Borrowers or their Restricted Subsidiaries.
"Trade Letter of Credit Request" shall have the meaning provided in Section 2.03(a).
"Tranche" shall mean the respective facility and commitment utilized in making Loans, with there being five separate Tranches, i.e., A Term Loans, B Term Loans, C Term Loans, Revolving Loans and Swingline Loans.
"Transaction" shall mean (i) the consummation of the Acquisition, (ii) the amendment and restatement of the Original Credit Agreement in the form of this Agreement as provided herein, (iii) the incurrence of the Loans hereunder on the Restatement Effective Date and (iv) the consummation of the Refinancing.
"Transaction Documents" shall mean all Documents (other than the Credit Documents) and agreements and instruments entered into in connection with the Transaction.
"Type" shall mean the type of Loan determined with regard to the interest option applicable thereto, i.e., whether a Base Rate Loan or a Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan means the amount, if any, by which the actuarial present value of the accumulated benefits under the Plan as of the close of its most recent plan year each exceeds the fair market value of the assets allocable thereto, each determined in accordance with Statement of Financial Accounting Standards No. 87, based upon the actuarial assumptions used by the Plan's actuary in the most recent annual valuation of the Plan.
"United States" and "U.S." shall each mean the United States of America.
"Unpaid Drawing" shall have the meaning provided for in Section 2.05(a).
"Unrestricted Subsidiary" shall mean any Wholly-Owned Subsidiary of INTERCO that is acquired or created after the Restatement Effective Date and designated by INTERCO as an Unrestricted Subsidiary hereunder by written notice to the Administrative Agent; provided that INTERCO shall only be permitted to so designate a new Unrestricted Subsidiary after the Restatement Effective Date and so long as (i) no Default or Event of Default exists or would result therefrom and (ii) 100% of the capital stock of such newly-designated Unrestricted Subsidiary is owned by INTERCO or another Unrestricted Subsidiary and all of the provisions of Section 9.12 shall have been complied with in respect of such newly-designated Unrestricted Subsidiary and such Unrestricted Subsidiary is capitalized (to the extent capitalized by INTERCO or any of its Restricted Subsidiaries) through Investments as permitted by, and in compliance with, Section 9.05(vii), with any assets owned by such Unrestricted Subsidiary at the time of the initial designation thereof to be treated as Investments made pursuant to Section 9.05(vii), provided that at the time of the initial Investments by INTERCO in such Subsidiary (x) INTERCO shall designate such entity as an Unrestricted Subsidiary in a written notice to the Administrative Agent and (y) such entity and the Borrowers shall have entered into tax sharing and management services agreements on a basis reasonably satisfactory to the Administrative Agent. Additionally, INTERCO may not designate any Credit Party, the Receivables Subsidiary or any Subsidiary created or acquired pursuant to a Permitted Acquisition as an Unrestricted Subsidiary.
"Unutilized Revolving Loan Commitment" with respect to any Bank, at any time, shall mean such Bank's Revolving Loan Commitment at such time less the sum of (i) the aggregate outstanding principal amount of Revolving Loans made by such Bank and (ii) such Bank's Adjusted Percentage of the Letter of Credit Outstandings at such time.
"Voting Stock" shall mean, as to any Person, any class or classes of capital stock of such Person pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the Board of Directors of such Person.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any corporation 100% of whose capital stock (other than director's qualifying shares) is at the time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such time.
12.01 Appointment. The Banks hereby designate BTCo as Administrative Agent (for purposes of this Section 12, the term "Administrative Agent" shall include BTCo in its capacity as Collateral Agent pursuant to the Security Documents), Credit Lyonnais as Documentation Agent and NationsBank as Syndication Agent, in each case to act as specified herein and in the other Credit Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, the Administrative Agent, the Documentation Agent and the Syndication Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Administrative Agent, the Documentation Agent or the Syndication Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. Each of the Administrative Agent, the Documentation Agent and the Syndication Agent may perform any of its duties hereunder by or through its respective officers, directors, agents, employees or affiliates.
12.02 Nature of Duties. The Administrative Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement and the Security Documents. The Documentation Agent and the Syndication Agent, as such, shall not have any duties or responsibilities under this Agreement or any Security Document or any other document or matter related thereto. None of the Administrative Agent, the Documentation Agent or the Syndication Agent nor any of its respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by it or them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Administrative Agent, the Documentation Agent and the Syndication Agent shall be mechanical and administrative in nature; the Administrative Agent, the Documentation Agent and the Syndication Agent shall not have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Bank or the holder of any Note; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon the Administrative Agent, the Documentation Agent and the Syndication Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein.
12.03 Lack of Reliance on the Administrative Agent, the Documentation Agent and the Syndication Agent. Independently and without reliance upon the Administrative Agent, the Documentation Agent and the Syndication Agent, each Bank and the holder of each Note, to the extent it deems appropriate, has made
and shall continue to make (i) its own independent investigation of the financial condition and affairs of INTERCO and its Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in con- nection herewith and (ii) its own appraisal of the credit- worthiness of INTERCO and its Subsidiaries and, except as ex- pressly provided in this Agreement, the Administrative Agent, the Documentation Agent and the Syndication Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Bank or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. None of the Administrative Agent, the Documentation Agent or the Syndication Agent or any of their respective affiliates nor any of their respective officers, directors, agents, or employees shall be responsible to any Bank or the holder of any Note for any recitals, statements, informa- tion, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforce- ability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of INTERCO and its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of INTERCO and its Subsidiaries or the existence or possible existence of any Default or Event of Default.
12.04 Certain Rights of the Administrative Agent, the Documentation Agent and the Syndication Agent. If the Administrative Agent, the Documentation Agent or the Syndication Agent shall request instructions from the Required Banks with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, such Administrative Agent, Documentation Agent or Syndication Agent shall be entitled to refrain from such act or taking such action unless and until the Administrative Agent shall have received instructions from the Required Banks; and such Administrative Agent, Documentation Agent or Syndication Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Bank or holder of any Note shall have any right of action whatsoever against the Administrative Agent, the Documentation Agent or the Syndication Agent as a result of the Administrative Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Banks.
12.05 Reliance. The Administrative Agent, the Documentation Agent and the Syndication Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that such Administrative Agent, Documentation Agent or Syndication Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by such Administrative Agent, Documentation Agent or Syndication Agent (which may be counsel for the Credit Parties).
12.06 Indemnification. To the extent each of the Administrative Agent, the Documentation Agent or the Syndication Agent is not reimbursed and indemnified by the Borrowers, the Banks will reimburse and indemnify such Administrative Agent, Documentation Agent or Syndication Agent, in proportion to their respective "percentages" as used in determining the Required Banks (determined as if there were no Defaulting Banks), for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or dis- bursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by such Administrative Agent, Documentation Agent or Syndication Agent in performing its respective duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other Credit Document; provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Administrative Agent's, Documentation Agent's or Syndication Agent's gross negligence or willful misconduct.
12.07 The Administrative Agent, the Documentation Agent and the Syndication Agent in its Individual Capacity. With respect to its obligation to make Loans and participate in Letters of Credit under this Agreement, each of the Administrative Agent, the Documentation Agent and the Syndication Agent shall have the rights and powers specified herein for a "Bank" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Banks," "Required Banks," "holders of Notes" or any similar terms shall, unless the context clearly otherwise indicates, in- clude the Administrative Agent, the Documentation Agent and the Syndication Agent in their individual capacity. Each of the Administrative Agent, the Documentation Agent and the Syndication Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Credit Party or any Affiliate of any Credit Party as if they were not performing the duties specified herein, and may accept fees and other consideration from the Borrowers or any other Credit Party for services in connection with this Agreement and otherwise without having to account for the same to the Banks.
12.08 Holders. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Administrative Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor.
12.09 Resignation by the Agents. (a) The Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 15 Business Days' prior written notice to the Borrowers and the Banks. Such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Required Banks shall appoint a successor Administrative Agent hereunder or thereunder who shall be a commercial bank or trust company rea- sonably acceptable to the Borrowers.
(c) If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the Administrative Agent, with the consent of the Borrowers, shall then appoint a commercial bank or trust company with capital and surplus of not less than $500 million as successor Administrative Agent who shall serve as Administrative Agent hereunder or there- under until such time, if any, as the Required Banks appoint a successor Administrative Agent as provided above.
(d) If no successor Administrative Agent has been appointed pursuant to clause (b) or (c) above by the 20th Business Day after the date such notice of resignation was given by the Administrative Agent, the Administrative Agent's resignation shall become effective and the Banks shall thereafter perform all the duties of the Administrative Agent hereunder and/or under any other Credit Document until such time, if any, as the Required Banks appoint a successor Administrative Agent as provided above.
(e) The Documentation Agent, as such, may resign at any time by giving 5 Business Days' prior written notice to the Banks. Such resignation shall take effect at the end of such five Business Day period.
(f) The Syndication Agent, as such, may resign at any time by giving 5 Business Days' prior written notice to the Banks. Such resignation shall take effect at the end of such five Business Day period.
13.01 Payment of Expenses, etc. The Borrowers jointly and severally shall: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of the Administrative Agent (including, without limitation, the reasonable fees and disbursements of White & Case and local counsel) in connection with the preparation, execution and delivery of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein and any amendment, waiver or consent relat- ing hereto or thereto, of the Agents in connection with their respective syndication efforts with respect to this Agreement and of the Administrative Agent and, following and during the continuation of an Event of Default, each of the Banks in connection with the enforcement of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein (including, without limitation, the reasonable fees and disbursements of counsel for the Administrative Agent and, following and during the continuation of an Event of Default, for each of the Banks); (ii) pay and hold each of the Banks harmless from and against any and all present and future stamp, excise and other similar taxes with respect to the foregoing matters and hold each of the Banks harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Bank) to pay such taxes; and (iii) indemnify the Agents and each Bank (including in its capacity as an Issuing Bank), and each of their respective officers, directors, employees, representatives, affiliates and agents from and hold each of them harmless against any and all liabilities, obligations (including removal or remedial actions), losses, damages, penalties, claims, actions, judgments, suits, costs, expenses and disbursements (including reasonable attorneys' and consultants' fees and disbursements) incurred by, imposed on or assessed against any of them as a result of, or arising out of, or in any way related to, or by reason of, (a) any investigation, litigation or other pro- ceeding (whether or not any Agent or any Bank is a party thereto) related to the entering into and/or performance of this Agreement or any other Credit Document or the use of any Letter of Credit or the proceeds of any Loans hereunder or the consummation of any transactions contemplated herein (including, without limitation, the Transaction) or in any other Credit Document or the exercise of any of their rights or remedies provided herein or in the other Credit Documents, or (b) the actual or alleged presence of Hazardous Materials in the air, surface water or groundwater or on the surface or subsurface of any Real Property owned or at any time operated by INTERCO or any of its Subsidiaries, the genera- tion, storage, transportation, handling or disposal of Hazardous Materials at any location, whether or not owned or operated by INTERCO or any of its Subsidiaries, the non-compliance of any Real Property with foreign, federal, state and local laws, regulations, and ordinances (including applicable permits thereunder) applicable to any Real Property, or any Environmental Claim asserted against INTERCO, any of its Subsidiaries, or any Real Property owned or at any time operated by INTERCO or any of its Subsidiaries, including, in each case, without limitation, the reasonable fees and disbursements of counsel and other consultants incurred in connection with any such investigation, litigation or other proceeding (but excluding any losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). To the extent that the undertaking to indemnify, pay or hold harmless any Agent or any Bank set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrowers shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law.
13.02 Right of Setoff. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Bank is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrowers or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Bank (including, without limitation, by branches and agencies of such Bank wherever located) to or for the credit or the account of any Credit Party against and on account of the Obligations and liabilities of all Credit Parties to such Bank under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations purchased by such Bank pursuant to Section 13.06(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Bank shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured.
13.03 Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered: if to the Borrowers, at the Borrowers' address specified opposite its signature below; if to any other Credit Party, at such Credit Party's address set forth in any Credit Document; if to any Bank, at its address specified opposite its name on Schedule II below; and if to the Administrative Agent, at its Notice Office; or, as to any Credit Party or the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties hereto and, as to each Bank, at such other address as shall be designated by such Bank in a written notice to the Borrowers and the Administrative Agent. All such notices and communications shall, when mailed, telegraphed, telexed, tele- copied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier, except that notices and communications to the Administrative Agent and the Borrowers shall not be effective until received by the Administrative Agent or the Borrowers, as the case may be.
13.04 Benefit of Agreement. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, no Borrower may assign or transfer any of its rights, obligations or interest hereunder or under any other Credit Document without the prior written consent of all of the Banks and, provided further, that although any Bank may transfer, assign or grant participations in its rights hereunder, such Bank shall remain a "Bank" for all purposes hereunder (and may not transfer or assign all or any portion of its Commitments hereunder except as provided in Section 13.04(b)) and the transferee, assignee or participant, as the case may be, shall not constitute a "Bank" hereunder and, provided further, that no Bank shall transfer or grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of any Loan or Note or extend the expiry date of any Letter of Credit in which such participant is partici- pating beyond the Final Maturity Date, or reduce the rate or extend the time of payment of interest or Fees thereon (except in connection with a waiver of applicability of any post-default in- crease in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in any Commitments shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof), (ii) consent to the assignment or transfer by the Borrowers of any of their rights and obligations under this Agreement or (iii) release all or substantially all of the Collateral under all of the Security Documents (except as expressly provided in the Credit Documents) supporting the Loans and/or Letters of Credit hereunder in which such participant is participating. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Bank in respect of such participation to be those set forth in the agreement executed by such Bank in favor of the participant relating thereto) and all amounts payable by the Borrowers hereunder shall be determined as if such Bank had not sold such participation.
(b) Notwithstanding the foregoing, any Bank (or any Bank together with one or more other Banks) may (x) assign all or a portion of its Revolving Loan Commitment (and related out- standing Obligations hereunder) and/or its outstanding Term Loans (or, if prior to the Restatement Effective Date, Term Loan Commitments) to its parent company and/or any affiliate of such Bank which is at least 50% owned by such Bank or its parent company or to one or more Banks or (y) after providing at least two Business Days prior notice to (but without requiring the consent of) INTERCO, assign all, or if less than all, a portion equal to at least $10,000,000 in the aggregate for the assigning Bank or assigning Banks, of such Revolving Loan Commitments and outstanding principal amount of Term Loans (or, if prior to the Restatement Effective Date, Term Loan Commitments) hereunder to one or more Eligible Transferees, each of which assignees shall become a party to this Agreement as a Bank by execution of an Assignment and Assumption Agreement, provided that, (i) at such time Schedule I shall be deemed modified to reflect the Commitments (and/or outstanding Term Loans, as the case may be) of such new Bank and of the existing Banks, (ii) upon surrender of the old Notes, new Notes will be issued, at the Borrowers' expense, to such new Bank and to the assigning Bank, such new Notes to be in conformity with the requirements of Section 1.05 (with appropriate modifications) to the extent needed to reflect the revised Commitments (and/or outstanding Term Loans, as the case may be), (iii) the consent of the Administrative Agent and any Issuing Bank shall be required in connection with any such assignment of a Bank's Revolving Loan Commitment (which consent shall not be unreasonably withheld or delayed) and (iv) the Administrative Agent shall receive at the time of each such assignment (other than in connection with an assignment by a Bank to an affiliate of such Bank), from the assigning or assignee Bank, the payment of a non-refundable fee of $1,500 or in the case of an assignment to an assignee which is not a Bank, the payment of a non-refundable assignment fee of $3,500 and, pro- vided further, that such transfer or assignment will not be effective until recorded by the Administrative Agent on the Register pursuant to Section 13.17 hereof. To the extent of any assignment pursuant to this Section 13.04(b), the assigning Bank shall be relieved of its obligations hereunder with respect to its assigned Commitments. At the time of each assignment pursu- ant to this Section 13.04(b) to a Person which is not already a Bank hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Bank shall provide to the Borrowers and the Administrative Agent the appropriate Internal Revenue Service Forms (and, if applicable a Section 4.04(b)(ii) Certificate) described in Section 4.04(b). To the extent that an assignment of all or any portion of a Bank's Commitments and related outstanding Obligations pursuant to Section 1.13 or this Section 13.04(b) would, at the time of such assignment, result in increased costs under Section 1.10 or 1.11 greater than those being charged by the respective assigning Bank prior to such assignment, then the Borrowers shall not be obligated to pay such greater increased costs (although the Borrowers shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective assignment).
(c) Nothing in this Agreement shall prevent or prohibit any Bank from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank.
13.05 No Waiver; Remedies Cumulative. No failure or delay on the part of the Administrative Agent or any Bank or any holder of any Note in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Borrowers or any other Credit Party and the Administrative Agent or any Bank or the holder of any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights, powers and remedies herein or in any other Credit Document expressly provided are cumulative and not exclusive of any rights, powers or remedies which the Administrative Agent or any Bank or the holder of any Note would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or any Bank or the holder of any Note to any other or further action in any circumstances without notice or demand.
13.06 Payments Pro Rata. (a) Except as otherwise provided in this Agreement, the Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of the Borrowers in respect of any Obligations hereunder, it shall distribute such payment to the Banks (other than any Bank that has consented in writing to waive its pro rata share of any such payment) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise), which is applicable to the payment of the principal of, or interest on, the Loans, Unpaid Drawings, Commitment Com- mission or other Fees, of a sum which with respect to the related sum or sums received by other Banks is in a greater proportion than the total of such Obligation then owed and due to such Bank bears to the total of such Obligation then owed and due to all of the Banks immediately prior to such receipt, then such Bank receiving such excess payment shall purchase for cash without recourse or warranty from the other Banks an interest in the Obligations of the respective Credit Party to such Banks in such amount as shall result in a proportional participation by all the Banks in such amount; provided that if all or any portion of such excess amount is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 13.06(a) and (b) shall be subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non- Defaulting Banks as opposed to Defaulting Banks.
13.07 Calculations; Computations. (a) The financial statements to be furnished to the Banks pursuant hereto shall be made and prepared in accordance with generally accepted accounting principles in the United States (or the equivalent thereof in any country in which a Foreign Sales Corporation is doing business, as applicable) consistently applied throughout the periods involved, provided that, (i) except as otherwise specifically provided herein, all computations of Excess Cash Flow, Available $10 Million Dividend Basket Amount, Available $10 Million Acquisition/Investment Basket Amount, Available Retained Excess Cash Flow Amount, Available Debt Proceeds Amount, Available Unrestricted Proceeds Amount, Available Dividend Unrestricted Proceeds Amount, Available Net Income Amount, Consolidated Cumulative Net Income Amount, Consolidated Cumulative Excess Net Income Amount, Consolidated Cumulative 25% Net Income Amount, Returned Investment Amount and Available Returned Investment Amount and all computations determining com- pliance with Sections 9.02 through 9.10, inclusive, shall utilize accounting principles and policies in conformity with those used to prepare the historical financial statements delivered to the Banks pursuant to Sections 7.05(a), (ii) for all purposes of this Agreement, all Attributed Receivables Facility Indebtedness of the Receivables Subsidiary shall be included in the consolidated financial statements of INTERCO and its Restricted Subsidiaries, and shall be considered Indebtedness of a Restricted Subsidiary of INTERCO hereunder, regardless of any differing treatment pursuant to generally acceptable accounting principles and (iii) for purposes of calculating financial terms, all covenants and related definitions, all such calculations based on the operations of INTERCO and its Restricted Subsidiaries on a consolidated basis shall be made without giving effect to the operations of any Unrestricted Subsidiaries.
(b) All computations of interest, Commitment Com- mission and other Fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, Commitment Commission or other Fees are payable.
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, EXCEPT AS OTHERWISE PROVIDED IN CERTAIN OF THE MORTGAGES, BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWERS HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE BORROWERS HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM, WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019 AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE AND ACCEPT FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH CREDIT PARTY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE ADMINISTRATIVE AGENT UNDER THIS AGREEMENT. EACH OF THE BORROWERS FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ANY CREDIT PARTY AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT UNDER THIS AGREEMENT, ANY BANK OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER JURISDICTION.
(b) EACH OF THE BORROWERS HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
13.09 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrowers and the Administrative Agent.
13.10 Effectiveness. (a) This Agreement shall become effective on the date (the "Restatement Effective Date") on which (i) each Borrower, each of the Banks (including each Continuing Bank and each New Bank), the Required Banks (determined immediately before the occurrence of the Restatement Effective Date) and each Agent shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile device) the same to the Administrative Agent at its Notice Office and (ii) the conditions contained in Sections 5, 6 and 13.10(b) are met to the satisfaction of the Administrative Agent and the Required Banks (determined immediately after the occurrence of the Restatement Effective Date). Unless the Administrative Agent has received actual notice from any Bank that the conditions contained in Sections 5 and 6 have not been met to its satisfaction, upon the satisfaction of the condition described in clause (i) of the immediately preceding sentence and upon the Administrative Agent's good faith determination that the conditions described in clause (ii) of the immediately preceding sentence have been met, then the Restatement Effective Date shall have been deemed to have occurred, regardless of any subsequent determination that one or more of the conditions thereto had not been met (although the occurrence of the Restatement Effective Date shall not release the Borrowers from any liability for failure to satisfy one or more of the applicable conditions contained in Section 5 or 6). The Administrative Agent will give the Borrowers and each Bank prompt written notice of the occurrence of the Restatement Effective Date.
(b) On the Restatement Effective Date, each New Bank and Continuing Bank shall have delivered to the Administrative Agent for the account of the Borrowers an amount equal to (i) in the case of each New Bank, the Term Loans and Revolving Loans to be made by such New Bank on the Restatement Effective Date and (ii) in the case of each Continuing Bank, the amount by which the principal amount of Loans to be made and/or converted by such Continuing Bank on the Restatement Effective Date exceed the amount of the Original Loans of such Continuing Bank outstanding on the Restatement Effective Date. Notwithstanding anything to the contrary contained in this Section 13.10(b), in satisfying the foregoing condition, unless the Administrative Agent shall have been notified by any Bank prior to the occurrence of the Restatement Effective Date that such Bank does not intend to make available to the Administrative Agent such Bank's Term Loans and Revolving Loans required to be made by it on such date, then the Administrative Agent may, in reliance on such assumption, make available to the Borrower the corresponding amounts in accordance with the provisions of Section 1.04 of this Agreement, and the making available by the Administrative Agent of such amounts shall satisfy the condition contained in this Section 13.10(b).
13.11 Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.
13.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the respective Credit Parties party thereto and the Re- quired Banks, provided that no such change, waiver, discharge or termination shall, without the consent of each Bank (other than a Defaulting Bank) (with Obligations being directly affected thereby in the case of following clause (i)), (i) extend the final scheduled maturity of any Loan or Note, or extend the stated maturity of any Letter of Credit beyond the Revolving Loan Maturity Date, or reduce the rate or extend the time of payment of interest or Fees thereon, or reduce the principal amount thereof (except to the extent repaid in cash), (ii) release all or substantially all of the Collateral under all the Security Documents (except as expressly provided in the Credit Documents), (iii) amend, modify or waive any provision of this Section 13.12, (iv) reduce the percentage specified in the definition of Required Banks (it being understood that, with the consent of the Required Banks, additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Banks on substantially the same basis as the extensions of Term Loans and Revolving Loan Commitments are included on the Restatement Effective Date) or (v) consent to the assignment or transfer by the Borrowers of any of their rights and obligations under this Agreement; provided further, that no such change, waiver, discharge or termination shall (r) increase the Commitments of any Bank over the amount thereof then in effect without the consent of such Bank (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in any Commitments shall not constitute an increase of the Commitment of any Bank, and that an increase in the available portion of any Commitment of any Bank shall not constitute an increase in the Commitment of such Bank), (s) without the consent of the respective Issuing Bank or Issuing Banks, amend, modify or waive any provision of Section 2 with respect to Letters of Credit issued by it or alter its rights or obligations with respect to Letters of Credit or Acceptances, (t) without the consent of BTCo, amend, modify or waive any provision of Sections 1.01(e) and (f) or alter its rights and obligations with respect to Swingline Loans, (u) without the consent of each Agent affected thereby, amend, modify or waive any provision of Section 12 as same applies to such Agent or any other provision as same relates to the rights or obligations of such Agent, (v) without the consent of the Collateral Agent, amend, modify or waive any provision relating to the rights or obligations of the Collateral Agent, (w) without the consent of the Majority Banks of each Tranche which is being allocated a lesser prepayment, repayment or commitment reduction as a result of the actions described below (or without the consent of the Majority Banks of each Tranche in the case of an amendment to the definition of Majority Banks), amend the definition of Majority Banks or alter the re- quired application of any prepayments or repayments (or commit- ment reductions), as between the various Tranches, pursuant to Section 4.01 or 4.02 (excluding Sections 4.02(b), (c) and (d)) (although the Required Banks may, with the consent of the Majority B and C Banks as provided in the following clause (x), waive, in whole or in part, any such prepayment, repayment or commitment reduction, so long as the application, as amongst the various Tranches, of any such prepayment, repayment or commitment reduction which is still required to be made is not altered), (x) without the consent of the Majority B and C Banks, amend, modify or waive any provision of Section 4.02 (excluding Sections 4.02(a), (b), (c) and (d)) or the definition of Majority B and C Banks, or waive any repayment or prepayment required pursuant to Section 4.02 (excluding pursuant to Sections 4.02(a), (b), (c) and (d)), (y) without the consent of the Supermajority Banks of the respective Tranche (1) amend, modify or waive any Scheduled Repayment with respect to such Tranche or (2) reduce the percentage specified in the definition of Supermajority Banks with respect to such Tranche, and (z) without the consent of the Required Supermajority Banks, (1) release any significant portion of the Collateral under the Security Documents (except as expressly provided in the Credit Documents) or release any significant Subsidiary Guarantor from its obligations under the Subsidiary Guaranty (other than in connection with a transaction permitted pursuant to Section 9.02); provided that no Collateral shall constitute a significant portion of the Collateral and no Subsidiary Guarantor shall constitute a significant Subsidiary Guarantor if the fair market value of the Collateral to be released plus the fair market value of the assets owned or held by such Subsidiary Guarantor is $20 million or less in the aggregate (based on a certificate of the chief financial officer of INTERCO taking into account all prior releases) or (2) reduce the percentage specified in the definition of Required Supermajority Banks.
(b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement as contemplated by clauses (i) through (v), inclusive, of the first proviso to Section 13.12(a), the consent of the Required Banks is obtained but the consent of one or more of such other Banks whose consent is required is not obtained, then the Borrowers shall have the right, so long as all non-consenting Banks whose individual consent is required are treated as described in either clauses (A) or (B) below, to either (A) replace each such non-consenting Bank or Banks (or, at the option of the Borrowers if the respective Bank's consent is required with respect to less than all Tranches of Loans (or related Commitments), to replace only the respective Tranche or Tranches of Commitments and/or Loans of the respective non-consenting Bank which gave rise to the need to obtain such Bank's individual consent) with one or more Replacement Banks pursuant to Section 1.13 so long as at the time of such replacement, each such Replacement Bank consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Bank's Revolving Loan Commitment (if such Bank's consent is required as a result of its Revolving Loan Commitment) and/or repay outstanding Term Loans of such Bank which gave rise to the need to obtain such Bank's consent, in accordance with Sections 3.02(b) and/or 4.01(b), provided that, unless the Commitments are terminated, and Loans repaid, pursuant to the preceding clause (B) are immediately replaced in full at such time through the addition of new Banks or the increase of the Commitments and/or outstanding Loans of existing Banks (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B) the Required Banks (determined before giving effect to the proposed action) shall specifically consent thereto, provided further, that in any event the Bor- rowers shall not have the right to replace a Bank, terminate its Revolving Loan Commitment or repay its Loans solely as a result of the exercise of such Bank's rights (and the withholding of any required consent by such Bank) pursuant to the second proviso to Section 13.12(a).
13.13 Survival. All indemnities set forth herein including, without limitation, in Sections 1.10, 1.11, 2.06, 4.04, 13.01 and 13.06 shall, subject to Section 13.15 (to the extent applicable), survive the execution, delivery and termination of this Agreement and the Notes and the making and repayment of the Loans.
13.14 Domicile of Loans. Each Bank may transfer and carry its Loans at, to or for the account of any office, Subsidiary or Affiliate of such Bank. Notwithstanding anything to the contrary contained herein, to the extent that a transfer of Loans pursuant to this Section 13.14 would, at the time of such transfer, result in increased costs under Section 1.10, 1.11, 2.06 or 4.04 from those being charged by the respective Bank prior to such transfer, then the Borrowers shall not be obligated to pay such increased costs (although the Borrowers shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective transfer).
13.15 Limitation on Additional Amounts, etc. Not- withstanding anything to the contrary contained in Sections 1.10, 1.11, 2.06 or 4.04 of this Agreement, unless a Bank gives notice to the Borrowers that it is obligated to pay an amount under any such Section within one year after the later of (x) the date the Bank incurs the respective increased costs, Taxes, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital or (y) the date such Bank has actual knowledge of its incurrence of the respective increased costs, Taxes, loss, expense or liability, reductions in amounts received or receivable or reduction in return on capital, then such Bank shall only be entitled to be compensated for such amount jointly and severally by the Borrowers pursuant to said Section 1.10, 1.11, 2.06 or 4.04, as the case may be, to the extent the costs, Taxes, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital are incurred or suffered on or after the date which occurs one year prior to such Bank giving notice to the Borrowers that it is obligated to pay the respective amounts pursuant to said Section 1.10, 1.11, 2.06 or 4.04, as the case may be. This Section 13.15 shall have no applicability to any Section of this Agreement other than said Sections 1.10, 1.11, 2.06 and 4.04.
13.16 Confidentiality. (a) Subject to the provisions of clause (b) of this Section 13.16, each Bank agrees that it will use its best efforts not to disclose without the prior consent of the Borrowers (other than to its employees, auditors, advisors or counsel or to another Bank if the Bank or such Bank's holding or parent company in its sole discretion determines that any such party should have access to such information, provided such Persons shall be subject to the provisions of this Section 13.16 to the same extent as such Bank) any information with respect to INTERCO or any of its Subsidiaries which is now or in the future furnished pursuant to this Agreement or any other Credit Document and which is designated by INTERCO to the Banks in writing as confidential, provided that any Bank may disclose any such information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Bank or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in respect to any summons or subpoena or in connection with any litigation, (d) in order to comply with any law, order, regulation or ruling applicable to such Bank, (e) to any Agent or the Collateral Agent and (f) to any prospective or actual transferee or participant in connection with any contemplated transfer or participation of any of the Notes or Commitments or any interest therein by such Bank, provided, that such prospective transferee agrees to maintain the confidentiality contained in this Section.
(b) Each of the Borrowers hereby acknowledges and agrees that each Bank may share with any of its affiliates any information related to INTERCO or any of its Subsidiaries (in- cluding, without limitation, any nonpublic customer information regarding the creditworthiness of INTERCO and its Subsidiaries), provided such Persons shall be subject to the provisions of this Section 13.16 to the same extent as such Bank.
13.17 Register. The Borrowers hereby designate the Administrative Agent to serve as the Borrowers' agent, solely for purposes of this Section 13.17, to maintain a register (the "Register") on which it will record the Commitments from time to time of each of the Banks, the Loans made by each of the Banks and each repayment in respect of the principal amount of the Loans of each Bank. Failure to make any such recordation, or any error in such recordation shall not affect the Borrowers' obligations in respect of such Loans. With respect to any Bank, the transfer of the Commitments of such Bank and the rights to the principal of, and interest on, any Loan made pursuant to such Commitments shall not be effective until such transfer is recorded on the Register maintained by the Administrative Agent with respect to ownership of such Commitments and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement pursuant to Section 13.04(b). Coincident with the delivery of such an Assignment and Assumption Agreement to the Administrative Agent for acceptance and regis- tration of assignment or transfer of all or part of a Loan, or as soon thereafter as practicable, the assigning or transferor Bank shall surrender the Note evidencing such Loan, and thereupon one or more new Notes in the same aggregate principal amount shall be issued to the assigning or transferor Bank and/or the new Bank. The Borrowers jointly and severally agree to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 13.17, provided that the Borrowers shall have no obligation to indemnify the Administrative Agent for any loss, claim, damage, liability or expense which resulted primarily from the gross negligence or wilful misconduct of the Administrative Agent.
13.18 Addition of New Banks; Conversion of Original Loans of Continuing Banks; Termination of Commitments of Non- Continuing Banks.
(a) On and as of the occurrence of the Restatement Effective Date in accordance with Section 13.10, each New Bank shall become a "Bank" under, and for all purposes of, this Agreement and the other Credit Documents.
(b) The parties hereto acknowledge that each Original Bank has been offered the opportunity to participate in this Agreement, after the occurrence of the Restatement Effective Date, as a Continuing Bank hereunder, but that no Original Bank is obligated to be a Continuing Bank. By their execution and delivery hereof, the Borrower and the Required Banks (determined immediately before the occurrence of the Restatement Effective Date) consent to the voluntary repayment by the Borrower of all outstanding Original Loans and other Obligations owing to each Original Bank which has not elected to become a Continuing Bank (each such Bank, a "Non-Continuing Bank") and to the voluntary termination by the Borrower of the Revolving Loan Commitment (under, and as defined in, the Original Credit Agreement) of each Non-Continuing Bank, in each case to be effective on, and contem- poraneously with the occurrence of, the Restatement Effective Date, in each case in accordance with the provisions of Section 13.18(c).
(c) Notwithstanding anything to the contrary contained in the Original Credit Agreement or any Credit Document, the Borrower and each of the Banks hereby agrees that on the Restatement Effective Date, (i) each Bank with a Commitment as set forth on Schedule I (after giving effect to the Restatement Effective Date) shall make or maintain (including by way of conversion) that principal amount of Term Loans and/or Revolving Loans to the Borrower as is required by Section 1.01, provided that if the Original Loans of any Continuing Bank outstanding on the Restatement Effective Date (immediately before giving effect thereto) exceed the aggregate principal amount of Loans required to be made available by such Bank on such date (after giving effect to the Restatement Effective Date), then Original Loans of such Continuing Bank in an amount equal to such excess shall be repaid on the Restatement Effective Date to such Continuing Bank and (ii) in the case of each Non-Continuing Bank, all of such Non-Continuing Bank's Original Loans outstanding on the Restatement Effective Date shall be repaid in full on such date, together with interest thereon and all accrued Fees (and any other amounts) owing to such Non-Continuing Bank, and the Term Loan Commitment and/or Revolving Loan Commitment (under, and as defined in, the Original Credit Agreement) of such Non-Continuing Bank, if any, shall be terminated, effective upon the occurrence of the Restatement Effective Date. Notwithstanding anything to the contrary contained in the Original Credit Agreement, this Agreement or any other Credit Document, the parties hereto hereby consent to the repayments and reductions required above, and agree that in the event that any Original Bank shall fail to exe- cute a counterpart of this Agreement prior to the occurrence of the Restatement Effective Date, such Original Bank shall be deemed to be a Non-Continuing Bank and, concurrently with the occurrence of the Restatement Effective Date, the Revolving Loan Commitment (under, and as defined in, the Original Credit Agreement) of such Original Bank, if any, shall be terminated, all Original Loans of such Original Bank outstanding on the Restatement Effective Date shall be repaid in full, together with interest thereon and all accrued Fees (and any other amounts) owing to such Original Bank, and concurrently with the occurrence of the Restatement Effective Date, such Original Bank shall no longer constitute a "Bank" under this Agreement and the other Credit Documents, provided that all indemnities of the Credit Parties under the Original Credit Agreement and the other Credit Documents (as in effect prior to the Restatement Effective Date) for the benefit of such Original Bank shall survive in accordance with the terms thereof.
13.19 Post Closing Actions. Notwithstanding anything to the contrary contained in this Agreement or the other Credit Documents, the parties hereto acknowledge and agree that:
(a) Revised Mortgage Policies. The Borrowers will take any further action, including, without limitation amending any UCC-1 Financing Statements or the relevant Mortgage or deleting the title commitment exceptions to the Davidson County, N.C. title commitment consisting of liens or any adverse encumbrances as same may be revised or amended, to assure that the mortgage policy with respect to the Real Property located in Davidson County, N.C. is issued within sixty (60) Business Days after the Restatement Effective Date, in form and substance satisfactory to the Administrative Agent.
(b) Stock Certificate. Thomasville will deliver, or cause to be delivered, within sixty (60) Business Days after the Restatement Effective Date to the Collateral Agent a stock certificate evidencing the ownership by Thomasville of the three shares of capital stock of Lee Publications, Inc. (currently titled in the name of Caldwell Furniture Company, provided the current certificate for such shares which is pledged to the Collateral Agent shall be exchanged for such new stock certificate), together with executed and undated stock powers, in each case as required by the Pledge Agreement.
All conditions precedent and representations contained in this Agreement and the other Credit Documents shall be deemed modified to the extent necessary to effect the foregoing (and to permit the taking of the actions described above within the time periods required above, rather than as elsewhere provided in the Credit Documents); provided, that (x) to the extent any representation and warranty would not be true because the foregoing actions were not taken on the Restatement Effective Date, the respective representation and warranty shall be required to be true and correct in all material respects at the time the respective action is taken (or was required to be taken) in accordance with the foregoing provisions of Section 13.19 and (y) all representations and warranties relating to the Security Documents shall be required to be true immediately after the actions required to be taken by Section 13.19 have been taken (or were required to be taken). The acceptance of the benefits of each Credit Event shall constitute a representation, warranty and covenant by the Borrowers to each of the Banks that the actions required pursuant to this Section 13.19 will be taken within the relevant time periods referred to in this Section 13.19 and that, at such time, all representations and warranties contained in this Agreement and the other Credit Documents shall then be true and correct without any modification pursuant to this Section 13.19.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written.
101 South Hanley Road INTERCO INCORPORATED Attention: David P. Howard By David P. Howard
c/o INTERCO INCORPORATED BROYHILL FURNITURE 101 South Hanley Road INDUSTRIES, INC. Attention: David P. Howard By David P. Howard
c/o INTERCO INCORPORATED THE LANE COMPANY, 101 South Hanley Road INCORPORATED Attention: David P. Howard By David P. Howard
c/o INTERCO INCORPORATED THOMASVILLE FURNITURE 101 South Hanley Road INDUSTRIES, INC. Attention: David P. Howard By David P. Howard
One Bankers Trust Plaza BANKERS TRUST COMPANY, 130 Liberty Street Individually and as Administrative New York, NY 10006 Agent Attention: Dana F. Klein By Gina S. Thompson
CREDIT LYONNAIS NEW YORK BRANCH,
THE BANK OF NEW YORK
THE BANK OF NOVA SCOTIA
THE DAI-ICHI KANGYO BANK, LTD.,
Chicago Branch and Grand Cayman
THE INDUSTRIAL BANK OF JAPAN,
THE LONG TERM CREDIT BANK OF
MERCANTILE BANK OF ST. LOUIS
MIDLAND BANK PLC, NEW YORK
THE MITSUBISHI TRUST AND BANKING
THE NIPPON CREDIT BANK, LTD
UNITED STATES NATIONAL BANK OF
Title: Sr. Vice Pres. -
THE YASUDA TRUST AND BANKING
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8-K
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EX-99
| 1996-01-12T00:00:00
| 1996-01-12T16:18:53
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0000903423-96-000003
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0000903423-96-000003_0000.txt
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CERTIFICATION AND NOTICE OF TERMINATION OF REGISTRATION UNDER SECTION 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR SUSPENSION OF DUTY TO FILE REPORTS UNDER SECTIONS 13 AND 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Exact name of registrant as specified in its charter)
47 Merchants Row, Rutland, Vermont 05702, (802) 775-0025 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Common Stock, no par value (Title of each class of securities covered by this Form)
(Titles of all other classes of securities for which a duty to file reports under section 13(a) or 15(d) remains)
Please place an X in the box(es) to designate the appropriate rule provisions(s) relied upon to terminate or suspend the duty to file reports:
Rule 12g-4(a)(1)(i) /x/ Rule 12h-3(b)(1)(i) / / Rule 12g-4(a)(1)(ii) / / Rule 12h-3(b)(1)(ii) / / Rule 12g-4(a)(2)(i) / / Rule 12h-3(b)(2)(i) / / Rule 12g-4(a)(2)(ii) / / Rule 12h-3(b)(2)(ii) / /
Approximate number of holders of record as of the certification or
Pursuant to the requirements of the Securities Exchange Act of 1934 Marble Financial Corporation has caused this certification/notice to be signed on its behalf by the undersigned duly authorized person.
Date: January 12, 1996 By: /s/ Herbert G. Chorbajian
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15-12G
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15-12G
| 1996-01-12T00:00:00
| 1996-01-12T15:09:40
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0000950156-96-000042
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0000950156-96-000042_0000.txt
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[In black and white, stills of fencers super and dissolve while voice reads:] The number one ranked balanced fund over the past 15 years is CGM Mutual Fund. [Title slide reading: CGM MUTUAL FUND supers and dissolves. Voice reads:] Returning more than 716% over the past fifteen years. [Title slide reading #1 IN TOTAL RETURN FOR 15 YEARS supers and dissolves. A bar chart (in color) comes up on the screen showing CGM Mutual Fund with 717%, the Lipper Balanced Fund Index with 560% and the Lipper Growth Fund Index with 512%. Chart is titled TOTAL RETURN. A Footnote appears beneath the chart in smaller type than chart labels and reads: 24.31%, 15.36%, 13.94% and 15.03% are the average annual total returns for CGM Mutual Fund for 1-, 5-, 10- and 15-year periods ended 12/31/95. The numbers are larger than the text to be equally prominent as the total return numbers in the bar chart. Voice reads:] Though the Fund invests in both stocks and bonds, CGM Mutual Fund also outperformed the Lipper Balanced Fund Index and the Lipper Growth Fund Index for that period. [Bar chart dissolves. Title slide reading : Managed continuously since 1981 by The fund has been managed continuously since 1981 by Ken Heebner. [Title slide dissolves and new title slide supers and is held that reads: 1-800-CGM INFO in large type and: Performance ranking is for the 15-year period ended 12/31/95, according to Lipper Analytical Services, Inc., an independent mutual fund rating agency which ranks 24 balanced funds for 15-year performance. For one, five and ten-year performance, Lipper ranks CGM Mutual Fund #138 out of 220 balanced funds, #5 out of 61 balanced funds, and #2 out of 31 balanced funds, respectively. Lipper ranks the 15-year performance of 108 growth funds. This information is no guarantee of future results. For a prospectus containing more complete information, including management fees and expenses, call toll free. Read it carefully before you invest. Fund yield, share price, and investment return fluctuate. [The previous slide dissolves and the final slide supers reading: FOR 15-YEAR PERFORMANCE. [Voice reads: CGM Mutual Fund. America's #1 Mutual Fund for 15-year performance.
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497
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497
| 1996-01-12T00:00:00
| 1996-01-12T10:20:52
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0000950130-96-000104
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0000950130-96-000104_0001.txt
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<DESCRIPTION>AMENDMENT NO. 2 TO AMENDED & RESTATED CREDIT AGRMT
AMENDED AND RESTATED LOAN AGREEMENT
SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT dated as of November 29, 1995, by and among NU HORIZONS ELECTRONICS CORP., a Delaware corporation, NIC COMPONENTS CORP., NU HORIZONS INTERNATIONAL CORP., each a New York corporation, NU VISIONS MANUFACTURING, INC., a Massachusetts corporation, and NU HORIZONS/MERIT ELECTRONICS CORP., a Delaware corporation, having their respective principal offices at 6000 New Horizons Boulevard, North Amityville, New York (collectively, the "Borrowers") and NATWEST BANK, N.A., formerly known as National Westminster Bank USA, a national banking association, having offices at 190 Vanderbilt Motor Parkway, Hauppauge, New York (the "Bank").
The Borrowers and the Bank entered into an Amended and Restated Loan Agreement dated as of April 29, 1994 as amended by a First Amendment dated as of August 24, 1994 (collectively, the "Loan Agreement"), under which certain financial accommodations were made available by the Bank to the Borrowers. Unless otherwise expressly provided herein, all capitalized terms used in this Second Amendment to Amended and Restated Loan Agreement shall have the respective meanings ascribed to such terms in the Loan Agreement.
The Borrowers have requested that the Bank increase the amount of the Commitment to $20,000,000 and the Bank is willing to comply with such request but only upon and subject to the following terms and conditions.
NOW THEREFORE, in consideration of the premises and the mutual covenants and promises exchanged herein, the parties hereto mutually agree as follows:
1. The Amended and Restated Loan Agreement is hereby amended by the Borrowers and the Bank as follows:
(a) Section 1.1 is hereby amended to add a new definition entitled "New Headquarters Premises" to read as follows:
"'New Headquarters Premises' shall have the meaning ascribed thereto in Section 2.16 hereof."
(b) Section 2.1(a) is hereby deleted and the following is substituted therefor:
"Subject to the terms and conditions hereof, the Bank agrees to make Revolving Credit Loans to each of the Borrowers and to issue Letters of Credit and to provide steamship guarantees and airway releases and to create Bankers Acceptances for the account of each of the Borrowers from time to time during the Commitment Period of which the aggregate principal amount of Revolving Credit Loans, Letters of Credit, Bankers Acceptances, steamship guarantees and airway releases at any one time outstanding as to the Borrowers collectively shall not exceed $20,000,000 as such amount may be reduced as provided in Section 2.12 hereof (the "Commitment"). During the Commitment Period each of the Borrowers may use the Commitment (i) for obtaining Revolving Credit Loans by borrowing, paying, prepaying in whole or in part and reborrowing on a revolving basis, all in accordance with the terms and conditions hereof and (ii) for obtaining the issuance of Letters of Credit, the creation of Bankers Acceptances and the providing of steamship guarantees and airway releases in accordance with the provisions of Section 2.2 hereof."
(c) Section 2.16 is hereby deleted and the following is substituted therefor:
2.16 Use of Proceeds. The Borrowers may utilize up to $6,000,000 of the proceeds of the initial Revolving Credit Loans to fund the Acquisition. Any remaining proceeds of the initial borrowing and of any subsequent Revolving Credit Loans may be used by the Borrower for general corporate purposes. The Borrower may utilize up to an aggregate amount of $2,000,000 of any subsequent Re-
volving Credit Loans to purchase land located in Suffolk County, New York (the "New Headquarters Premises") on which the Borrowers intend to construct a new corporate headquarters building. No portion of the proceeds of any Revolving Credit Loan shall be used by any Borrower in any manner which might cause the borrowing or the application of such proceeds to violate Regulation G, Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System."
(d) Sections 6.1 and 6.2 are hereby amended to add the following at the end of each of such Sections:
"For purposes of calculating compliance with this Section, amounts outstanding under Revolving Credit Loans which are utilized to purchase the New Headquarters Premises in an aggregate amount not exceeding $2,000,000 shall be excluded from consolidated current liabilities."
(e) Section 7.7 is hereby deleted and the following is substituted therefor:
"7.7 Capital Expenditures. Expend in any fiscal year in the aggregate for the Borrower and all Subsidiaries an amount in excess of the greater of $1,500,000 or 25% of the aggregate of the prior fiscal year's net income plus depreciation for the acquisition of fixed assets (inclusive of rental payments under capitalized leases); provided, however, for the fiscal year ending 2/28/96, such amount may be increased by up to $2,000,000 of the expenditures related to the purchase of the New Headquarters Premises. The foregoing expenditures made within the limitations of this Section 7.7 shall be inclusive of payments made on account of any deferred purchase price or on account of any purchase money indebtedness incurred to finance any such purchase price."
(f) Exhibit A is hereby amended to conform to the amendment hereinabove set forth in paragraph 1(a) and, as amended, is set forth in its entirety in an attachment annexed hereto and make a part hereof.
2. It is expressly understood and agreed that all collateral security for the Revolving Credit Loans and other extensions of credit set forth in the Amended and Restated Loan Agreement prior to the amendment provided for herein is and shall continue to be collateral security for the Revolving Credit Loans and other extensions of credit provided in the Amended and Restated Loan Agreement as herein amended. Without limiting the generality of the foregoing, the Borrowers hereby absolutely and unconditionally confirm that (i) each document and instrument executed by the Borrowers pursuant to the Amended and Restated Loan Agreement continues in full force and effect, is ratified and confirmed and is and shall continue to be applicable to the Amended and Restated Loan Agreement (as herein amended), and (ii) the Amended and Restated Note is hereby ratified and confirmed and shall remain in full force and effect in accordance with its terms. The terms "Revolving Credit Note" and "Note" shall include any Amended and Restated Revolving Credit Note.
3. In order to induce the Bank to enter into this Second Amendment to Amended and Restated Loan Agreement, the Borrowers represent and warrant to the Bank that each of their representations and warranties made in the Amended and Restated Loan Agreement is true and correct as of the date hereof except as otherwise set forth in writing(s) to which the Bank is a party.
4. No modification or waiver of any provisions of the Amended and Restated Loan Agreement or any other agreement or instrument made or issued pursuant thereto or contemplated thereby, nor consent to any departure by the Borrowers therefrom shall, in any event, be effective unless made in writing and signed by the Bank and the Borrowers, and then any such modification or waiver shall be effective only in the specific instance and for the purpose for which given unless otherwise specified therein. No notice to, or demand on, the Borrowers in any case shall, of itself, entitle them to any further notice or demand in similar or other circumstances.
5. The Borrowers agree to pay on demand, and the Bank may charge any deposit or loan accounts(s) of the Borrowers, for all expenses incurred by the Bank in connection with the negotiation, preparation and administration (including any future waiver or modification and legal counsel as to the rights and duties of the Bank) of this Second Amendment to Amended and Restated Loan Agreement.
6. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to or waiver of any other term or condition of the Amended and Restated Loan Agreement or of any of the documents referred to therein or (b) prejudice any right or rights which the Bank may now have or may have in the future under or in connection with the Amended and Restated Loan Agreement or any of the documents referred to therein.
7. This Second Amendment to Amended and Restated Loan Agreement is dated for convenience as of November 29, 1995 and shall be effective on the delivery of an executed counterpart hereof to the Borrowers. This Second Amendment to Amended and Restated Loan Agreement may be executed in counterparts, each of which shall constitute an original, and each of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to Amended and Restated Loan Agreement to be duly executed and delivered by their duly authorized officers, all as of the day and year first above written.
NU HORIZONS ELECTRONICS CORP. NIC COMPONENTS CORP.
NU HORIZONS INTERNATIONAL CORP. NU VISIONS MANUFACTURING, INC.
NU HORIZONS/ NATWEST BANK N.A. MERIT ELECTRONICS CORP. formerly known as
Paul Durando Jeffrey B. Carstens
On the 29th day of November, 1995, before me personally came PAUL DURANDO, to me known, who, being by me duly sworn, did depose and say that he resides at c/o 6000 New Horizons Boulevard, North Amityville, New York; that he is the Vice President-Finance of NU HORIZONS ELECTRONICS CORP., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of said corporation.
On the 29th day of November, 1995, before me personally came PAUL DURANDO, to me known, who, being by me duly sworn, did depose and say that he resides at c/o 6000 New Horizons Boulevard, North Amityville, New York; that he is the Vice President-Finance of NIC COMPONENTS CORP., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of said corporation.
On the 29th day of November, 1995, before me personally came PAUL DURANDO, to me known, who, being by me duly sworn, did depose and say that he resides at c/o 6000 New Horizons Boulevard, North Amityville, New York; that he is the Vice President-Finance of NU HORIZONS INTERNATIONAL CORP., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of said corporation.
On the 29th day of November, 1995, before me personally came PAUL DURANDO, to me known, who, being by me duly sworn, did depose and say that he resides at c/o 6000 New Horizons Boulevard, North Amityville, New York; that he is the Vice President-Finance of NU VISIONS MANUFACTURING, INC., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of said corporation.
On the 29th day of November, 1995, before me personally came PAUL DURANDO, to me known, who, being by me duly sworn, did depose and say that he resides at c/o 6000 New Horizons Boulevard, North Amityville, New York; that he is the Vice President-Finance of NU HORIZONS/MERIT ELECTRONICS CORP., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of said corporation.
On the 29th day of November, 1995, before me personally came JEFFREY B. CARSTENS, to me known, who, being by me duly sworn, did depose and say that he resides at c/o 190 Vanderbilt Motor Parkway, Hauppauge, New York; that he is a Vice President of NATWEST BANK N.A., the banking institution described in and which executed the foregoing instrument; and that he signed his name thereto by authority of such banking institution.
TENTH AMENDMENT TO REVOLVING CREDIT
TENTH AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT dated as of November 29, 1995, by and between NU HORIZONS ELECTRONICS CORP., a Delaware corporation having its executive offices at 6000 New Horizons Boulevard, North Amityville, New York (the "Company") and NATWEST BANK, N.A. formerly known as National Westminster Bank USA, a national banking association, having offices at 190 Vanderbilt Motor Parkway, Hauppauge, New York (the "Bank").
The Company and the Bank entered into a Revolving Credit and Term Loan Agreement dated as of May 26, 1988 (as amended by the First Amendment dated as of March 19, 1990, the Second Amendment dated as of February 28, 1991, the Third Amendment dated as of April 1, 1992, the Fourth Amendment dated as of April 8, 1992, a Fifth Amendment dated as of August 1, 1992, a Sixth Amendment dated as of October 1, 1992, a Seventh Amendment dated as of May 20, 1993, an Eighth Amendment dated as of January 14, 1994, a Ninth Amendment dated as of April 29, 1994 and as may be further amended, the "Loan Agreement"), pursuant to which certain financial accommodations were made available by the Bank to the Company. Unless otherwise expressly provided herein, all capitalized terms used in this Tenth Amendment shall have the respective meanings ascribed to such terms in the Loan Agreement.
The Company has requested that the Bank modify certain of the terms set forth in the Loan Agreement and the Bank is willing to comply with such request but only upon and subject to the following terms and conditions.
NOW THEREFORE, in consideration of the premises and mutual covenants and promises exchanged herein, the parties hereto mutually agree as follows:
1. The Loan Agreement is hereby amended by the Company and the Bank as follows:
(a) Section 1.1 is hereby amended to add a new definition entitled "New Headquarters Premises" to read as follows:
"'New Headquarters Premises' shall mean certain land located on Wireless Boulevard, Hauppauge, New York on which the Company intends to construct a new corporate headquarters building."
(b) Section 5.10 subsections (c) and (f) are hereby amended to add the following at the end of each of such subsections:
"For purposes of calculating compliance with this subsection, amounts outstanding under the Amended and Restated Revolving Credit Note made by the Company and certain related corporations payable to the order of the Bank dated as of November 29, 1995 which are utilized to purchase the New Headquarters Premises in an aggregate amount not exceeding $2,000,000 shall be excluded from current liabilities."
(c) Section 6.16 is hereby deleted and the following is substituted therefor:
"Capital Expenditures. Expend in any fiscal year in the aggregate for the Company and its Subsidiaries an amount in excess of the greater of $1,500,000 or 25% of the aggregate of the prior fiscal year's net income plus depreciation for the acquisition of fixed assets (inclusive of rental payments under capitalized leases); provided, however, for the fiscal year ending 2/28/96, such amount may be increased by up to $2,000,000 of the expenditures related to the purchase of the New Headquarters Premises. The foregoing expenditures made within the limitations of this Section shall be inclusive of payments made on account of any deferred purchase price or on account of any purchase money indebtedness incurred to finance any such purchase price."
2. It is expressly understood and agreed that all collateral security for the Loans and other extensions of credit set forth in the Loan Agreement prior to the amendments provided for herein is and shall continue to be collateral security for the Loans and other extensions of credit provided in the Loan Agreement as herein amended. Without limiting the generality of the foregoing, the Company hereby absolutely and unconditionally confirms that (i) each document and instrument executed by the Company pursuant to the Loan Agreement continues in full force and effect, is ratified and confirmed and is and shall continue to be applicable to the Loan Agreement (as herein amended) and (ii) the Notes are hereby ratified and confirmed and shall remain in full force and effect in accordance with their respective terms. Nonetheless, at the request of the Bank, the Company shall promptly execute and deliver replacement notes to evidence all indebtedness outstanding under the Loan Agreement as hereby amended. The term "Notes" shall include any such replacement notes.
3. In order to induce the Bank to enter into this Tenth Amendment to Loan Agreement, the Company represents and warrants to the Bank that each of its representations and warranties made in the Loan Agreement is true and correct as of the date hereof except as otherwise set forth in writing(s) to which the Bank is a party. Notwithstanding the foregoing, to the extent that the representations and warranties contained in the Loan Agreement and in that certain amended and restated loan agreement dated as of April 29, 1994 among the Company, certain related corporations and the Bank (as previously amended and as may be amended from time to time, the "Restated Loan Agreement") differ, the representations and warranties contained in the Restated Loan Agreement shall control.
4. No modifications or waiver or any provisions of the Loan Agreement or any other agreement or instrument made or issued pursuant thereto or contemplated thereby, nor consent to any departure by the Company therefore shall, in any event, be effective unless made in writing and signed by the Bank and the Company, and then any such modification or waiver shall be effective only in the specific instance and for the purpose for which given unless otherwise specified therein. No notice to, or demand on, the Company in any case shall, of itself, entitle it to any further notice or demand in similar or other circumstances.
5. The Company agrees to pay on demand, and the Bank may charge any deposit or loan account(s) of the Company, for all expenses incurred by the Bank in connection with the negotiation, preparation and administration (including any future waiver or modification and legal counsel as to the rights and duties of the Bank) of this Tenth Amendment to Loan Agreement.
6. This amendment is limited precisely as written and shall not be deemed to (a) be a consent or waiver of any other term or condition of the Loan Agreement or of any of the documents referred to therein or (b) prejudice any right or rights which the Bank may now have or may have in the future under or in connection with the Loan Agreement or any of the documents referred to therein.
7. This Tenth Amendment to Loan Agreement is dated for convenience of as November 29, 1995 and shall be effective on the delivery of an executed counterpart to the Company. This Tenth Amendment to Loan Agreement may be executed in counterparts, each of which shall constitute an original, and each of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to Loan Agreement to be duly executed and delivered by their duly authorized officers, all as of the day and year first above written.
STATE OF NEW YORK ) :ss.:
On the 29th day of November, 1995, before me personally came ARTHUR NADATA, to me known, who, being by me duly sworn, did depose and say that he resides at c/o 6000 New Horizons Boulevard, North Amityville, New York; that he is the President of NU HORIZONS ELECTRONICS CORP., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of said corporation.
STATE OF NEW YORK ) :ss.:
On this 29th day of November, 1995, before me personally came JEFFREY B. CARSTENS, to me known, who, being by me duly sworn, did depose and say that he resides at c/o 190 Vanderbilt Motor Parkway, Hauppauge, New York ; that he is a Vice President of NATWEST BANK N.A., the banking institution described in and which executed the foregoing instrument; that he signed his name thereto by authority of such banking institution.
AMENDED AND RESTATED REVOLVING CREDIT NOTE
As of November 29, 1995
FOR VALUE RECEIVED, NU HORIZONS ELECTRONICS CORP., NIC COMPONENTS CORP., NU HORIZONS INTERNATIONAL CORP., NU VISIONS MANUFACTURING, INC. and NU HORIZONS/MERIT ELECTRONICS CORP. (collectively, the "Borrowers") jointly and severally promise to pay to the order of NATWEST BANK N.A. (the "Bank") on the Termination Date, at the office of the Bank specified in Section 10.12 of the Amended and Restated Loan Agreement, dated as of April 29, 1994 between the Borrowers and the Bank (as amended from time to time, the "Agreement"; terms defined in the Agreement shall have their defined meanings when used in the Note), in lawful money of the United States of America and in immediately available funds the principal amount of TWENTY MILLION ($20,000,000) DOLLARS or, if less than such principal amount, the aggregate unpaid principal amount of all Loans made by the Bank to the Borrowers pursuant to Section 2.1 of the Agreement. The Borrowers further promise to pay interest in like money on the unpaid principal balance of this Note from time to time outstanding at such rates, and payable at such times, as are specified in the Agreement. All Loans made by the Bank pursuant to subsection 2.1 of the Agreement and all payments of principal thereon shall be endorsed by the holder of this Note on the schedule annexed hereto, which holder may add additional pages to such schedule. The aggregate net unpaid amount of Loans set forth in such schedule shall be presumed to be the principal balance hereof. After the stated or any accelerated maturity hereof, this Note shall bear interest at such rates as are specified in the Agreement, payable on demand, but in no event in excess of the maximum rate of interest permitted under applicable law.
This Note is the Note referred to in the Agreement, and is entitled to the benefits thereof and may be prepaid in whole or in part as provided therein.
Upon the occurrence of any one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note may be declared to be immediately due and payable as provided in the Agreement.
This Note replaces and substitutes for (but is not a repayment of) a certain Amended and Restated Revolving Credit Note dated as of August 24, 1994 (the "Prior Note") in the aggregate principal amount of $20,000,000.00, of which $14,400,000.00 was outstanding as of November 29, 1995. Such outstanding amount or such other sum as shall be outstanding under the Prior Note on the date this Note is executed shall constitute the first Loan hereunder and shall be subject to all the terms and conditions hereof and of the Amended and Restated Loan Agreement.
This Note shall be construed in accordance with and governed by the laws of the State of New York.
NU HORIZONS ELECTRONICS CORP. NIC COMPONENTS CORP.
NU HORIZONS INTERNATIONAL CORP. NU VISIONS MANUFACTURING, INC.
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO AMENDED AND RESTATED REVOLVING CREDIT NOTE DATED AS OF AUGUST 24, 1994
and Type Interest Principal Remaining Notation Date Borrower of Loan Period Paid Unpaid Made By ---- -------- -------- -------- ---- ------ ---------
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10-Q
|
EX-10.14
| 1996-01-12T00:00:00
| 1996-01-12T16:15:33
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0000950123-96-000103
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0000950123-96-000103_0000.txt
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OF THE SECURITIES EXCHANGE ACT OF 1934 UNDER THE SECURITIES EXCHANGE ACT OF 1934
COMMON STOCK, $.10 PAR VALUE (TITLE OF CLASS OF SECURITIES)
(CUSIP NUMBER OF CLASS OF SECURITIES)
METRO CENTER AT ONE STATION PLACE (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS)
NEW YORK, NEW YORK 10022
Page 1 of 10 pages An Exhibit Index appears on page 9.
CUSIP No. 784030 10 8
CUSIP No. 784030 10 8
CUSIP No. 784030 10 8
This Amendment No. 2 to the Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") and Amendment No. 2 to Schedule 13D relates to the offer by SCS Subsidiary, Inc., a Delaware corporation ("Purchaser") and a direct wholly owned subsidiary of Thomson U.S. Holdings Inc., a Delaware corporation ("Parent") and an indirect wholly owned subsidiary of The Thomson Corporation, a corporation organized under the laws of Ontario, Canada ("TTC"), to purchase all outstanding shares of Common Stock, par value $.10 per share (the "Shares"), of SCS/Compute, Inc., a Delaware corporation (the "Company"), at a price of $6.75 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in Purchaser's Offer to Purchase dated December 27, 1995 (the "Offer to Purchase") and in the related Letter of Transmittal, copies of which were attached to the Schedule 14D-1 as Exhibits (a)(1) and (a)(2) thereto, respectively. The Schedule 14D-1 was initially filed with the Securities and Exchange Commission on December 27, 1995.
Capitalized terms used but not defined herein have the meanings ascribed to such terms in the Offer to Purchase and the Schedule 14D-1.
Item 10(b) is hereby amended and supplemented by adding to the end thereof the following:
On January 12, 1996, the Company filed a Form 8-K (the "8-K") with the Commission. The 8-K contained certain unaudited financial information of the Company as of January 8, 1996. A copy of such financial information contained in the 8-K and relating to the foregoing is filed as Exhibit (a)(11) to the Schedule 14D-1 and is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
Item 11 is hereby amended and supplemented by adding the following Exhibit:
(a)(11) Financial information released by the Company on January 12, 1996.
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
By /s/ NIGEL R. HARRISON
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
By /s/ NIGEL R. HARRISON
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
By /s/ NIGEL R. HARRISON
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SC 14D1/A
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SC 14D1/A
| 1996-01-12T00:00:00
| 1996-01-12T17:26:52
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0000950135-96-000107
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0000950135-96-000107_0000.txt
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Information Statement Pursuant to Section 14(c) of the Securities
/ / Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
(Name of Registrant as Specified in Charter)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
As you may be aware, on August 2, 1995, upon the unanimous recommendation of the Board of Directors of Outlet Communications, Inc. (the "Company"), and in accordance with Delaware law, holders of a majority of the outstanding shares of Class A Common Stock, par value $.01 per share, of the Company executed written consents approving and adopting a Merger Agreement providing for the merger (the "Merger") of the Company with a subsidiary of National Broadcasting Company, Inc. The closing of the Merger is expected to occur during the first half of February 1996, pending satisfaction of certain closing conditions. Under the Merger Agreement, each outstanding share of Class A Common Stock of the Company will be converted into the right to receive $47.25 in cash, without interest thereon. You will be receiving additional information on how to receive payment for your shares of Class A Common Stock in connection with the closing.
The attached Information Statement is being provided to you pursuant to Rule 14c-2 under the Securities Exchange Act of 1934, as amended. The Information Statement contains a more detailed description of the Merger. I encourage you to read the Information Statement thoroughly.
The following is a summary of certain information contained elsewhere in this Information Statement. Certain capitalized terms used in this Summary are defined elsewhere in this Information Statement. Reference is made to, and this Summary is qualified in its entirety by, the more detailed information contained in this Information Statement and in the Annexes hereto. Stockholders are urged to carefully read this Information Statement, including the Annexes hereto, in its entirety.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Outlet Communications, Inc. Outlet Communications, Inc. (the "Company") owns and operates three television stations, consisting of two NBC network-affiliated VHF television stations and one NBC network-affiliated UHF television station. In addition, the Company operates a UHF television station affiliated with The WB Network under a local marketing agreement ("LMA"). Of the two owned VHF television stations, one is located in Columbus, Ohio and one serves the Providence, Rhode Island/New Bedford, Massachusetts market. The owned UHF television station broadcasts in Raleigh, North Carolina, and the LMA is based in Chillicothe, Ohio. The Company's stations all broadcast in the nation's major (top 50) markets. The principal executive offices of the Company are located at 23 Kenney Drive, Cranston, Rhode Island 02920 (telephone (401) 455-9200).
National Broadcasting Company, Inc. National Broadcasting Company, Inc., a Delaware corporation ("NBC"), and its subsidiaries are principally engaged in furnishing, within the United States, network television services to affiliated television stations, the production of live and recorded television programs, the operation, under licenses from the Federal Communications Commission (the "FCC"), of six VHF television broadcasting stations, the operation of cable/satellite networks around the world, and investment and programming activities in multimedia and cable television. The NBC Television Network is one of the major U.S. commercial broadcast television networks and serves more than 200 affiliated stations within the United States.
The sole stockholder of NBC is National Broadcasting Holding Company, Inc. ("NBC Holding"). NBC Holding is a holding company whose principal asset is the stock of NBC. The principal offices of NBC and NBC Holding are located at 30 Rockefeller Plaza, New York, New York 10112.
The sole stockholder of NBC Holding is General Electric Company, a New York corporation ("GE"). GE is a diversified technology, manufacturing and services company engaged directly and through its subsidiaries in a variety of businesses around the world, including aircraft engines, appliances, broadcasting, electrical distribution and control, financial services, information services, lighting, medical systems, motors and industrial systems, plastics and other materials, power generation and transportation systems. GE's principal executive offices are located at 3135 Easton Turnpike, Fairfield, Connecticut 06431.
CO Acquisition Corporation. CO Acquisition Corporation (the "Purchaser") is a newly incorporated Delaware corporation organized in connection with the Merger and has not carried on any activities other than incident to its formation and in connection with the Merger. The Purchaser is a direct wholly owned subsidiary of NBC. The principal executive offices of the Purchaser are located at 30 Rockefeller Plaza, New York, New York 10112.
CONSENT TO THE MERGER AGREEMENT BY A MAJORITY OF THE OUTSTANDING SHARES
As of August 2, 1995, the Board of Directors of the Company (the "Board") approved, and the holders of a majority of the outstanding shares of the Company's Class A Common Stock, par value $.01 per share ("Company Common Stock"), executed written consents approving and adopting, the Merger Agreement dated as of August 2, 1995, among NBC, the Purchaser and the Company (the "Merger Agreement"). A copy of the Merger Agreement is attached to this Information Statement as Annex A. Prior to executing such consents, such stockholders entered into Consent and Voting/Conditional Option Agreements (the "Option Agreements") with NBC pursuant to which each such stockholder agreed to deliver a written consent approving and adopting the Merger Agreement. See "DESCRIPTION OF THE OPTION AGREEMENTS". The form of Option Agreement is attached to this Information Statement as Annex B. No additional approval of the Merger Agreement by the Company's stockholders is required.
General. Pursuant to and subject to the terms and conditions of the Merger Agreement, the Company will merge (the "Merger") with the Purchaser, with the Company continuing as the surviving corporation (the "Surviving Corporation"), and each outstanding share of Company Common Stock (excluding shares held (a) in the treasury of the Company or owned by any direct or indirect subsidiary of the Company (which will be cancelled and retired without any conversion thereof and without any payment with respect thereto) or (b) by holders who shall have effectively exercised their appraisal rights with respect to such shares in accordance with Section 262 of the Delaware General Corporation Law (the "DGCL")) will be cancelled and converted into the right to receive $47.25 per share in cash, without interest thereon (the "Share Consideration"). Each share of Company Common Stock held by NBC or the Purchaser will be converted into and exchanged for one duly and validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. The effective time of the Merger is the date and time of the filing of a Certificate of Merger with the Secretary of State of Delaware (the "Effective Time"), which is scheduled to occur within five business days following satisfaction of certain closing conditions, including receipt of FCC approval, and will occur no earlier than 20 days from the date of this Information Statement. As a result of the Merger, the Surviving Corporation will be a wholly owned subsidiary of NBC, and NBC will hold all the outstanding voting securities of the Surviving Corporation. The Surviving Corporation will continue to own all the voting securities of the Company's operating subsidiary, Outlet Broadcasting, Inc., a Rhode Island corporation ("Outlet Broadcasting"), and all the voting securities of the Company's inactive subsidiary, Atlin Communications, Inc., a Delaware corporation. A copy of the Merger Agreement is attached to this Information Statement as Annex A. See "DESCRIPTION OF THE MERGER AGREEMENT".
Payment for Shares; No Further Ownership of Company Common Stock. As of the Effective Time, NBC will deposit, or will cause to be deposited, with The Chase Manhattan Bank, N.A. (the "Paying Agent"), for the benefit of the holders of shares of Company Common Stock, for payment in accordance with the Merger Agreement, through the Paying Agent, cash in an amount equal to the Share Consideration multiplied by the number of shares of Company Common Stock outstanding immediately prior to the Effective Time (such cash being hereinafter referred to as the "Payment Fund"). The Paying Agent will mail to each record holder, as of the Effective Time, of a certificate that immediately prior to the Effective Time evidenced outstanding shares of Company Common Stock (the "Certificates") a form letter of transmittal and instructions for use in effecting the surrender of the Certificates for payment therefor. Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal duly executed, and any other required documents, the holder of such Certificate will be entitled to receive in exchange therefor the Share Consideration, and such Certificate will forthwith be cancelled. Until surrendered to the Paying Agent in accordance with the provisions of the Merger Agreement, each Certificate will represent for all purposes only the right to receive the Share Consideration.
Payment for Options; No Rights to Receive Company Common Stock. NBC and the Company will take all action necessary to (a) terminate the Company's 1992 Stock Incentive Plan, as amended to the date of the Merger Agreement (the "1992 Stock Plan"), effective as of the close of business on the day after the Effective Time, (b) provide that each outstanding employee stock option or "Restricted Share" award to purchase shares of Company Common Stock granted under the 1992 Stock Plan (an "Option") will become fully vested, whether or not previously vested, immediately prior to the Effective Time and (c) provide that, with respect to any such Option that is outstanding immediately prior to the Effective Time, such Option will be cancelled as of the close of business on the day after the Effective Time and the holder will be entitled to receive from the Surviving Corporation, immediately after the Effective Time, an amount in cash in cancellation of such Option equal to the excess, if any, of the Share Consideration over the per share exercise price of such Option, multiplied by the number of shares of Company Common Stock to which the Option remains unexercised. Any such payment will be subject to all applicable Federal, state and local tax withholding requirements.
Conditions to the Merger Agreement. The obligations of the Company and NBC to consummate the Merger are subject to certain conditions, including approval by the FCC of the transfer of control of the Company's broadcast licensee subsidiary pursuant to a final order that is not subject to judicial appeal or administrative review. Such order became a final order on January 8, 1996. On August 29, 1995, the Company and NBC, respectively, received early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Recommendation of the Board of Directors. The Board has unanimously approved the Merger Agreement, and believes that the Merger is fair to, and in the best interests of, the Company and its stockholders. For a description of certain factors considered by the Board in evaluating the Merger, see "BACKGROUND OF THE TRANSACTION" and "APPROVAL BY THE BOARD OF DIRECTORS".
Fairness Opinion. The Company retained the investment banking firm of Goldman, Sachs & Co. ("Goldman Sachs") as its financial advisor in connection with the Merger. Goldman Sachs provided the Board with an oral fairness opinion, which opinion was subsequently confirmed in writing, relating to the fairness of the consideration to be received by stockholders in connection with the Merger. See "OPINION OF FINANCIAL ADVISOR". A copy of Goldman Sachs' opinion is attached to this Information Statement as Annex C.
Interests of Management in the Merger Agreement. The directors and executive officers of the Company who own Company Common Stock will receive $47.25 per share of Company Common Stock owned, and the executive officers who hold Options to purchase Company Common Stock will receive a cash payment equal to the difference between $47.25 and the applicable Option exercise price. The table set forth under the heading "DESCRIPTION OF INTERESTS OF MANAGEMENT AND AFFILIATES IN THE MERGER AGREEMENT" identifies such directors and officers, the number of shares owned, the number of Options owned and the cash payments to be received by each in respect of such ownership.
In addition to payments listed in the table referenced above for his ownership of Company Common Stock, and the assumption of liabilities under (or present value payout on) his employment agreement in the amount of approximately $1,110,230, James G. Babb, Chairman, President and Chief Executive Officer of the Company, is entitled to receive at the Effective Time a total of approximately $7,514,868 (based on the number of shares of Company Common Stock outstanding at the Effective Time), pursuant to a provision in his employment agreement that triggers such payments by the Company or its successor in the event of a merger or sale of assets valued in excess of $9 per share of Company Common Stock. On December 14, 1995, the Board, with the approval of NBC, authorized the unconditional acceleration of all of Mr. Babb's Options, and the unconditional payment to him, prior to the Effective Time, of $5.5 million of the amount due him at the Effective Time pursuant to his employment agreement, which amount was paid prior to December 31, 1995.
Felix W. Oziemblewski, the Chief Financial Officer of the Company, in addition to payments listed in the table referenced above for his ownership of Company Common Stock and Options and the assumption of liabilities under his employment agreement, will be entitled to receive at the Effective Time a total of approximately $204,013 for benefits accrued as of January 31, 1996, under the Company's Supplemental Retirement Plan.
Other executive officers have clauses in their employment agreements that require the Company or its successor-in-interest to assume all liabilities under such agreements.
The Merger Agreement also provides for up to a total of $200,000 to be paid to certain officers and employees of the Company or its subsidiaries as bonuses to encourage such persons to remain in the employment of the Company pending consummation of the Merger. See "DESCRIPTION OF THE MERGER AGREEMENT".
SELECTED FINANCIAL INFORMATION OF THE COMPANY
The following table presents selected consolidated financial data of the Company as of and for the years ended December 31, 1994, 1993, 1992, 1991 and 1990. The comparability of the data in the following table is affected by dispositions of broadcast stations, including two radio stations and two UHF television stations that were sold in 1990. Also, net income in 1993 includes the cumulative effect of a change in method of accounting for income taxes in the amount of $4,434,000 and an extraordinary loss for debt extinguishment of $1,826,000. The Company has not paid cash dividends on its capital stock during any of the periods presented below.
This Information Statement is being furnished to the holders of Class A Common Stock, par value $.01 per share ("Company Common Stock"), of Outlet Communications, Inc., a Delaware corporation (the "Company"), in connection with the approval and adoption by written consents dated as of August 2, 1995 (collectively, the "Stockholder Consents"), from the holders of a majority of the outstanding shares of Company Common Stock of the Merger Agreement dated as of August 2, 1995, among National Broadcasting Company, Inc., a Delaware corporation ("NBC"), CO Acquisition Corporation, a Delaware corporation and a subsidiary of NBC (the "Purchaser"), and the Company (the "Merger Agreement"). A copy of the Merger Agreement is attached to this Information Statement as Annex A. The effective time of the merger of the Purchaser with and into the Company (the "Merger") will be the date and time of the filing of a Certificate of Merger with the Secretary of State of Delaware (the "Effective Time"), which is scheduled to occur within five business days following satisfaction of certain closing conditions, including receipt of the approval by the Federal Communications Commission (the "FCC") of the transfer of control of the Company's broadcast licensee subsidiary pursuant to a final order that is not subject to judicial appeal or administrative review. Such order became a final order on January 8, 1996. This Information Statement is being mailed on or about January 12, 1996, to holders of record of Company Common Stock on January 4, 1996. There were approximately 300 holders of record of Company Common Stock on such date.
Stockholder Vote Required and Obtained. In accordance with the Delaware General Corporation Law (the "DGCL"), the Merger Agreement required approval and adoption by the affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock. As of August 2, 1995, there were 6,579,631 shares of Company Common Stock issued and outstanding, each share of which was entitled to one vote on the proposal to approve and adopt the Merger Agreement. Stockholder Consents representing 3,433,091 shares of Company Common Stock, constituting 52.2% of the outstanding shares of Company Common Stock, were executed in favor of approval and adoption of the Merger Agreement as of such date. The stockholders executing such Stockholder Consents were stockholders who had also entered into Consent and Voting/Conditional Option Agreements ("Option Agreements") with NBC in connection with the Merger. See "DESCRIPTION OF THE OPTION AGREEMENTS". No additional approval of the Merger Agreement by the Company's stockholders is required.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
The Merger Agreement has been approved by the Board of Directors of the Company (the "Board") and has been approved and adopted by the holders of a majority of the outstanding shares of Company Common Stock. If the other conditions to consummating the Merger are satisfied, the Company will be acquired by NBC for approximately $322.5 million as described below. The purchase of the Company by NBC will be effected through an all-cash merger of the Purchaser into the Company. Consummation of the Merger was contingent upon, among other things, approval by the FCC of the transfer of control of the Company's broadcast licensee subsidiary to NBC. By action of November 9, 1995, the FCC approved the transfer of control of the Company's broadcast licensee subsidiary to NBC. That action became final for purposes of the Merger Agreement on January 8, 1996. See "REGULATORY APPROVALS".
The purchase price of approximately $322.5 million represents a price of $47.25 per share of Company Common Stock (the "Share Consideration"), based upon 6,724,714 shares and Options to purchase 120,969 shares issued and outstanding on January 5, 1996. After consummation of the Merger, the current stockholders of the Company will cease to be stockholders of the Company.
The Company's address is Outlet Communications, Inc., 23 Kenney Drive, Cranston, Rhode Island 02920. Its telephone number is (401) 455-9200. As described below, the Purchaser was formed for the sole purpose of acquiring the Company. The address of both NBC and the Purchaser is National Broadcasting Company, Inc., 30 Rockefeller Plaza, New York, New York 10112; telephone number: (212) 664-4555.
THE BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT. THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF COMPANY COMMON STOCK HAVE EXECUTED WRITTEN CONSENTS APPROVING AND ADOPTING THE MERGER AGREEMENT. NO ADDITIONAL APPROVAL OF THE MERGER AGREEMENT BY THE COMPANY'S STOCKHOLDERS IS REQUIRED.
During the last quarter of 1994 and the first quarter of 1995, the Company was approached by several parties interested in discussing an acquisition of the Company. The Company entered into confidentiality agreements and had informal discussions with several of these parties.
On December 16, 1994, the Board authorized management to retain an investment banker to assist the Company in exploring various strategic alternatives to enhance stockholder value. On February 7, 1995, the Company engaged Goldman, Sachs & Co. ("Goldman Sachs") as its financial advisor to assist the Board in connection therewith. The Company also retained Shearman & Sterling, as special legal counsel, to work with Hinckley, Allen & Snyder, the Company's regular counsel, in connection therewith.
On March 15, the Company received a written proposal from a broadcasting company that was one of the parties that had previously approached the Company, offering to acquire the Company by means of a merger in which each Company stockholder would receive a combination of cash and stock in the merged entity with an aggregate value of approximately $26.50 per share, based on the then current market value of the other party's stock. On March 16, the Company received a second proposal from such broadcasting company, proposing a merger in which each Company stockholder would receive a combination of cash and stock in the merged entity with an aggregate value of approximately $34.00 per share, based on the then current market value of the other party's stock.
On March 21, the Company issued a press release announcing that it had retained Goldman Sachs as its financial advisor to help the Company explore strategic alternatives, including a possible business combination, the sale of all or a portion of the Company, potential acquisitions or other similar transactions.
Also on March 21, the Company received a letter from the broadcasting company referred to above proposing that the Company and such broadcasting company enter into merger negotiations and that the Company grant such broadcasting company a 60-day exclusivity period to negotiate a definitive merger agreement. Such broadcasting company indicated that it would withdraw its offer if the Company solicited other offers to acquire the Company by causing Goldman Sachs to distribute an offering memorandum. The Company declined to pursue separate negotiations with such broadcasting company.
Thereafter, with the assistance of its financial and legal advisors, the Board evaluated a variety of strategic alternatives for the Company. The Board determined that, as a part of such evaluation, offers for the acquisition of the Company should be solicited pursuant to a controlled auction process. The Board authorized Goldman Sachs to begin contacting potential acquirors for the Company. During March, April and May, approximately 80 interested parties contacted, or were contacted by, the Company or Goldman Sachs, or both. In April and May, 45 interested parties entered into confidentiality agreements with the Company in order to receive confidential information regarding the Company to assist each such party in making a preliminary proposal for the Company or portions thereof.
In response to a request from Goldman Sachs for preliminary proposals, on or prior to May 17, 12 such proposals were received, 10 for the entire equity interest in the Company (ranging in value from approximately $32.00 per share to $38.00 per share) and two for less than all the assets of the Company. Of these 12 bidders, eight were invited to conduct due diligence with respect to the Company and attend management presentations during May and June in anticipation of submitting final proposals on June 28. In addition, NBC also requested access to the Company's confidential information and, after signing a confidentiality agreement, was permitted to perform due diligence.
On June 28, five of the nine bidders who performed due diligence on the Company submitted definitive proposals to acquire the Company, ranging in value from approximately $246 million ($36.25 per share) to $289 million ($42.25 per share). In this round of bidding, NBC submitted an offer of $38.00 per share in the form of common stock of General Electric Company, a New York corporation ("GE"), the parent of NBC. NBC's offer also provided that NBC would be prepared to acquire the Company for equivalent consideration in an all-cash transaction. Renaissance Communications Corp., a Delaware corporation ("Renaissance"), submitted an offer of $42.25 per share in cash.
On June 29 and 30, the Company and its financial and legal advisors negotiated the terms of a merger agreement with Renaissance (the "Renaissance Merger Agreement") providing for the acquisition of the Company by Renaissance for $42.25 per share in cash (the "Renaissance Merger").
On June 30, the Board met to consider the Renaissance offer. Representatives of Goldman Sachs reviewed the terms of the proposed Renaissance Merger Agreement, discussed their financial analysis with respect thereto, and orally advised the Board that, as of such date, in their opinion, the consideration to be received by the holders of shares of Company Common Stock pursuant to the Renaissance Merger Agreement was fair to such holders. Based upon the Board's review and consideration of the terms of the Renaissance Merger Agreement and, among other things, the oral opinion of Goldman Sachs referenced above, the Board members who were present unanimously determined that the Renaissance Merger was fair to, and in the best interests of, the Company and the holders of Company Common Stock, approved the Renaissance Merger Agreement and recommended that the holders of outstanding shares of Company Common Stock approve and adopt the Renaissance Merger Agreement. In connection with the foregoing, the Board considered the fact that the Renaissance Merger Agreement (a) permitted the Board to enter into negotiations with a third party that made an unsolicited bona fide proposal to acquire the Company if the Board determined in good faith that such action was required for the Board to comply with its fiduciary duties to stockholders imposed by the DGCL, (b) permitted the Company to unilaterally terminate it if the Board recommended any other business combination involving the Company, (c) required the Company to pay Renaissance a termination fee of $6.5 million in the event that the Renaissance Merger Agreement was so terminated and a competing transaction was consummated within 12 months thereafter, and (d) contained no other provision that would materially impede the Board from considering and pursuing a better unsolicited offer to acquire the Company that might be made by a third party. The Board also noted that MBL Life Assurance Corp. ("MBL") and the Company's other principal stockholders were not entering into an agreement to vote in favor of the Renaissance Merger Agreement or entering into any other form of "lockup" agreement with Renaissance.
The Renaissance Merger Agreement was executed later the same day and a joint press release was issued announcing the Renaissance Merger Agreement.
At a Board meeting on July 26, James G. Babb, Chairman, President and Chief Executive Officer of the Company, reported to the Board concerning reports that officials of NBC had contacted representatives of MBL and of certain other stockholders of the Company about the possibility of NBC making another proposal to acquire the Company. At the Board's direction, Mr. Babb telephoned Renaissance to inform Renaissance of such reported contacts.
On July 28, the Board received a written offer from NBC to acquire the Company for $47.25 per share in cash. On that date, a committee of the Board met to review NBC's offer. NBC's proposal contemplated that at the time a merger agreement between the Company and NBC was entered into, holders of a majority of the outstanding shares of Company Common Stock would execute written consents approving the transaction pursuant to the DGCL and enter into the Option Agreements. NBC's proposal provided that it would terminate unless accepted in accordance with its terms prior to 5:00 p.m. on August 2.
On July 30, the Board met to review NBC's offer and consider the various courses of action open to the Board with respect to the Renaissance Merger Agreement and the NBC proposal. The Board determined to commence negotiations with NBC with respect to its proposal.
On July 31, the Company issued a press release announcing that it had received the NBC proposal and would consider it. The Company also informed Renaissance that it (a) was entering into negotiations with NBC with respect to its proposal, (b) had waived compliance by Renaissance with the "standstill" agreement contained in the confidentiality agreement dated April 7, 1995, between the Company and Renaissance, and (c) intended to terminate the Renaissance Merger Agreement if the Board recommended the proposed transaction with NBC to the Company's stockholders, but that the Board had not, as of that date, withdrawn, modified or changed its recommendation of the Renaissance Merger Agreement to the Company's stockholders in a manner adverse to Renaissance.
On July 31, Renaissance filed suit in the Chancery Court of the State of Delaware (the "Chancery Court") against NBC, the Company and the Company's directors alleging, among other things, that the Company had breached the Renaissance Merger Agreement and that NBC had tortiously interfered with Renaissance's rights under the Renaissance Merger Agreement. On August 1, a hearing was held in the Chancery Court regarding a motion by Renaissance for a temporary restraining order against the Company prohibiting it from terminating the Renaissance Merger Agreement and against the Company and NBC prohibiting them from entering into a merger agreement. The Chancery Court denied Renaissance's motion in a ruling issued that day.
On July 31 and August 1, the Company and its financial and legal advisors negotiated the terms of the Merger Agreement with NBC providing for the acquisition of the Company by NBC for $47.25 per share in cash pursuant to the Merger. Also, NBC negotiated the terms of the Option Agreements with MBL and certain other stockholders of the Company.
On August 2, the Board met at the offices of Shearman & Sterling in New York to consider and act upon NBC's proposal and on any revised proposal that might be received from Renaissance. During the meeting, the Board was informed by NBC that NBC and Renaissance had reached an agreement providing for, among other things, a settlement of the litigation referred to above. The Board was also informed that NBC was reconfirming its existing proposal and that Renaissance would not be submitting a new proposal. Thereafter, Goldman Sachs reviewed the terms of the proposed Merger Agreement, discussed their financial analysis with respect thereto, and provided its oral opinion to the Board that, as of the date of such opinion, the Share Consideration to be received by the holders of shares of Company Common Stock pursuant to the Merger Agreement is fair to such holders. Based upon the Board's review and consideration of the terms of the Merger Agreement and, among other things, the oral opinion of Goldman Sachs, the Board members who were present unanimously determined that the Merger is fair to, and in the best interests of, the Company and the holders of Company Common Stock, approved the Merger Agreement and recommended that the holders of outstanding shares of Company Common Stock approve and adopt the Merger Agreement. The Board also simultaneously terminated the Renaissance Merger Agreement. Later that day, MBL and certain other principal stockholders of the Company (owning in the aggregate 52.2% of the outstanding shares of Company Common Stock) executed written consents approving and adopting the Merger Agreement pursuant to the DGCL and entered into the Option Agreements with NBC. Thereafter, the Board members not present at the meeting ratified the actions taken by the Board on August 2.
APPROVAL BY THE BOARD OF DIRECTORS
At special meetings of the Board held on June 30 and August 2, 1995, the Company's management and representatives of Goldman Sachs made presentations concerning the business and prospects of the Company. At the special meeting of the Board held on August 2, the Company's management and representatives of Goldman Sachs and the Company's legal advisors also made a presentation concerning the proposed acquisition of the Company by NBC, including a review of the terms of the Merger Agreement and the Option Agreements. At such meeting, the Board (with two members absent) unanimously determined that the Merger is fair to, and in the best interests of, the Company and the holders of outstanding shares of Company Common Stock, approved the Merger Agreement and recommended that the holders of the outstanding shares of Company Common Stock approve and adopt the Merger Agreement.
In reaching its determination, the Board consulted with the Company's management, as well as its financial and legal advisors, and considered a number of factors, including, without limitation, the following:
(a) NBC's proposal was the result of a five-month public auction process conducted with the assistance of Goldman Sachs in which approximately 80 potential acquirors had contacted, or were contacted by, the Company or Goldman Sachs, or both, 12 of such parties submitted preliminary acquisition proposals and five of such parties submitted
(b) NBC's proposal reflected the highest level of consideration per share of Company Common Stock received from any potential acquiror;
(c) the Board's belief that NBC's proposal was superior to the terms of the Renaissance Merger Agreement, and the fact that, at the August 2 Board meeting, Renaissance informed the Board that it would not be submitting a revised proposal to acquire the Company;
(d) no third party had contacted the Company after the public announcement of the Renaissance Merger Agreement on June 30 indicating an interest in making an offer to acquire the Company that was superior to either the Renaissance Merger Agreement or NBC's final proposal;
(e) the Company's business, assets, liabilities, management, strategic objectives, competitive position and prospects, as well as its financial condition, results of operations and cash flows, both on a historical and prospective basis; see "OPINION OF FINANCIAL ADVISOR";
(f) recent market prices for the Company Common Stock as well as market prices during the past several years and the relationship thereto of the price per share of Company Common Stock payable in the Merger; see "PRINCIPAL STOCKHOLDERS AND SHARE OWNERSHIP OF MANAGEMENT -- Market for
(g) the presentation of Goldman Sachs made to the Board on August 2, including Goldman Sachs' oral opinion to the effect that, as of the date of such opinion, the Share Consideration to be received by the holders of shares of Company Common Stock pursuant to the Merger Agreement is fair to such holders; see "OPINION OF FINANCIAL ADVISOR";
(h) the analysis and recommendation of the Merger by the Company's
(i) the review of other strategic alternatives, including the sale of certain of the Company's assets, potential acquisitions and continuing as an independent company; based upon their review of other strategic alternatives, as well as the terms of the Merger, the Board did not believe that pursuing another strategic alternative could reasonably be expected to provide the Company's stockholders with a higher level of stockholder value than that reflected in NBC's proposal;
(j) that NBC had available all necessary financing for the Merger and the lack of any condition in the Merger Agreement to NBC's obligation to close the Merger based upon financing not being available;
(k) the Board's belief that a transfer of control of the Company's broadcast licensee subsidiary to NBC would not present any material issues under Federal communications laws and was likely to be approved by the FCC
(l) the Board was informed at its August 2 meeting that MBL and certain other principal stockholders of the Company (owning in the aggregate 52.2% of the outstanding shares of Company Common Stock) were prepared to execute on that date written consents approving and adopting the Merger Agreement pursuant to the DGCL and enter into the Option
(m) the terms and conditions of the Merger Agreement, including the parties' representations, warranties and agreements, and the conditions to their respective obligations to close the Merger set forth in the Merger Agreement; the Board, based on presentations by its legal and financial advisors, deemed the terms of the Merger Agreement, including, in particular, the limited conditions to NBC's obligation to close the Merger, to be generally favorable to the Company when compared with other transactions of a similar nature; and
(n) the terms of the Merger Agreement that restrict the ability of the Board, after the Company's stockholders approve and adopt the Merger Agreement pursuant to the DGCL, to enter into negotiations with another third party that makes an unsolicited proposal to acquire the Company or to unilaterally terminate the Merger Agreement if the Board recommended any other business combination involving the Company to its stockholders.
The foregoing discussion of information and factors considered and given weight by the Board is not intended to be exhaustive. In view of the wide variety of factors considered in connection with its evaluation of the terms of the Merger, the Board did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weight to the specific factors considered in reaching its determinations. In addition, individual members of the Board may have given different weight to different factors.
On August 2, 1995, Goldman Sachs delivered its oral opinion to the Board that, as of the date of such opinion, the Share Consideration to be received by the holders of shares of Company Common Stock pursuant to the Merger Agreement is fair to such holders. Such oral opinion was subsequently confirmed in writing.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED AUGUST 2, 1995, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS ANNEX C AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF THE COMPANY ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In connection with rendering its opinion, Goldman Sachs reviewed, among other things, (a) the Merger Agreement; (b) the Annual Report to Stockholders and Annual Reports on Form 10-K of the Company for the five years ended December 31, 1994; (c) certain interim reports to stockholders and the Quarterly Report on Form 10-Q of the Company for the three months ended March 31, 1995; (d) certain other communications from the Company to its stockholders; and (e) certain internal financial analyses and forecasts for the Company prepared by its management. Goldman Sachs also held discussions with members of the senior management of the Company regarding its past and current business operations, financial condition and future prospects. In addition, Goldman Sachs reviewed the reported prices and trading activity for Company Common Stock, compared certain financial and stock market information for the Company with similar information for certain other companies, the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the television broadcasting industry specifically and in other industries generally, and performed such other studies and analyses as it considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and completeness of all the financial and other information reviewed by it for purposes of its opinion. In addition, Goldman Sachs has not made an independent evaluation or appraisal of the assets or liabilities of the Company or any of its subsidiaries and Goldman Sachs has not been furnished with any such evaluation or appraisal.
The following is a summary of certain of the financial analyses used by Goldman Sachs in connection with providing its oral opinion to the Board on August 2, 1995, which oral opinion was subsequently confirmed in writing.
Historical Stock Trading Analysis. Goldman Sachs reviewed the historical trading prices and volumes for Company Common Stock and the relationship between movements of such stock and movements in a composite index of stocks of selected companies in the television broadcasting industry (the "Television Composite Index"). The Television Composite Index is composed of the following companies: Citicasters, Inc., Clear Channel Communications, Inc., Granite Broadcasting Corp., LIN Television Corp., Renaissance, United Television, Inc., and Young Broadcasting, Inc. Between July 31, 1994 and mid-February 1995, the time at which the Company retained Goldman Sachs to advise it, the trading price of Company Common Stock performed substantially in line with the Television Composite Index. Since mid-February 1995, Company Common Stock has outperformed the Television Composite Index.
Analysis of Purchase Price. Goldman Sachs prepared a financial analysis of the Merger and calculated the aggregate consideration and various financial multiples based upon the cash consideration of $47.25 per share of Company Common Stock. The multiples were as follows, in each case for 1994, for the 12 months ended May 31, 1995 (the "LTM"), for 1995, (based on management estimates), and for 1996 (also based on management estimates), respectively: (a) aggregate consideration as a multiple of net revenue -- 6.6x, 6.2x, 6.0x and 4.8x; (b) aggregate consideration as a multiple of earnings before interest, taxes, depreciation and amortization (and before corporate expenses) ("EBITDA") -- 13.9x, 13.0x, 13.4x and 9.8x; and (c) equity consideration (aggregate consideration less net estimated debt at time of closing) as a multiple of net income -- 30.4x, 34.7x, 47.4x and 21.5x. Such analysis also indicated that such cash consideration of $47.25 per share of Company Common Stock represented a 130.5% premium over the closing price of $20.50 per share of Company Common Stock on February 7, 1995, the date upon which the Company retained Goldman Sachs to advise it. Aggregate consideration as a multiple of "Broadcast Cash Flow" (defined as operating income before corporate expenses plus amortization of intangibles and film amortization and depreciation less cash film payments) for 1994 and (based on management estimates) 1995 and 1996 was as follows: 14.1x, 13.7x and 9.6x.
Valuation Summary of Selected Publicly Traded Companies. Goldman Sachs reviewed and compared certain financial information relating to the Company with the corresponding financial information for Clear Channel Communications, Inc., Granite Broadcasting Corp., LIN Television Corp., Renaissance, Sinclair Broadcasting Group, United Television, Inc. and Young Broadcasting, Inc. (the "Selected Companies") and for Belo (A.H.) Corp., Capital Cities/ABC, Inc., CBS, Inc., Heritage Media Corp. (the "Mixed Media Companies"). The Selected Companies were chosen because they were publicly traded companies with operations that for purposes of analysis were considered by Goldman Sachs to be similar to the Company. Goldman Sachs calculated and compared various financial multiples and ratios for the Company and each of the Selected Companies and the Mixed Media Companies. Such multiples for the Company were calculated using a price of $46.00 per share of Company Common Stock, which was the closing price of Company Common Stock on NASDAQ on August 1, 1995. The multiples and ratios for the Company were based on information provided by the Company's management and the multiples for each of the Selected Companies and the Mixed Media Companies were based on the most recent publicly available information.
Using trading prices as of August 1, 1995: (a) the levered multiple of estimated 1995 Broadcast Cash Flow (the multiple of Broadcast Cash Flow to the total value of the Company) was 13.2x for the Company, compared with a range of 8.5x to 13.9x (and a mean of 11.3x and a median of 11.2x) for the Selected Companies; and (b) the levered multiple of estimated 1996 Broadcast Cash Flow was 9.2x for the Company, compared with a range of 9.2x to 12.1x (and a mean of 10.8x and a median of 11.0x) for the Selected Companies.
The levered multiple of LTM revenues for the Company (the multiple of revenues to the total value of the Company) was 6.1x compared with a range of 3.5x to 7.4x (and a mean of 5.6x and a median of 5.1x) for the Selected Companies and a range of 1.6x to 2.7x (and a mean of 2.4x and a median of 2.6x) for the Mixed Media Companies. The levered multiple of LTM EBITDA for the Company was 13.2x compared with a range of 9.4x to 19.0x (and a mean of 13.4x and median of 13.4x) for the Selected Companies and a range of 9.4x to 13.6x (and a mean of 10.6x and a median of 9.7x) for the Mixed Media Companies. The LTM EBITDA margin for the Company was 37.0% compared with a range of 36.0% to 48.6% for the Selected Companies and a range of 14.7% to 28.2% for the Mixed Media Companies. The compound annual growth rate for revenue for 1992 to 1994 was 14.7% for the Company, compared with a range of 14.5% to 81.0% for the Selected Companies and a range of 2.9% to 12.5% for the Mixed Media Companies. The compound annual growth rate for EBITDA for the Company was 29.3%, compared with a range of 22.1% to 61.9% for the Selected Companies and a range of 22.8% to 42.6% for the Mixed Media Companies.
Selected Transactions Analysis: Goldman Sachs analyzed certain information relating to selected transactions in the television broadcasting industry since 1994 (the "Selected Transactions"). Such analysis indicated that the aggregate consideration paid as a multiple of estimated cash flow in the Selected Transactions ranged from a low of 6.3x to a high of 14.5x. This compared with a multiple of 13.7x for the Merger.
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs' opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all such analyses. No company or transaction used in the above analyses as a comparison is identical to the Company or NBC or the contemplated transaction. The analyses were prepared solely for purposes of Goldman Sachs providing its opinion to the Board as to the fairness of the Share Consideration to be received by the holders of Company Common Stock pursuant to the Merger Agreement and do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold. As described above, certain of the analyses performed by Goldman Sachs relied on estimates of future financial performance provided by the Company. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by such analyses. Because such analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, NBC, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast. As described above, Goldman Sachs' opinion and presentation to the Board were among the many factors taken into consideration by the Board in making its determination to approve the Merger Agreement and the Merger. The foregoing summary does not purport to be a complete description of the analysis performed by Goldman Sachs and is qualified by reference to the written opinion of Goldman Sachs attached hereto as Annex C, which stockholders are urged to read in its entirety.
Goldman Sachs, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes.
Prior to retaining Goldman Sachs as the Company's financial advisor, the Board considered several leading investment banking firms to assist it in exploring various strategic alternatives to enhance stockholder value. In making its decision, the Board considered, among other things, the reputation and experience of each firm (in particular, the experience of each firm in the communications industry), each firm's familiarity with the Company, the manner in which each firm proposed to assist the Company in exploring its strategic alternatives, and the competitiveness of the fee structure proposed by each firm. Ultimately, the Board retained Goldman Sachs based on, among other things, its reputation and experience.
Pursuant to a letter agreement dated February 7, 1995 (the "Engagement Letter"), the Company engaged Goldman Sachs to act as its financial advisor in connection with the Company's analysis and consideration of various financial alternatives available to it. Pursuant to the Engagement Letter, the Company has agreed to pay Goldman Sachs upon consummation of the Merger a transaction fee in an amount equal to 0.875% of the aggregate consideration paid in the Merger (including the principal amount of all indebtedness of the Company) up to $325 million plus an amount equal to 3.50% of the aggregate consideration paid in the Merger exceeding $325 million. The Company has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including attorney's fees, and to indemnify Goldman Sachs against certain liabilities, including certain liabilities under the federal securities laws. If the Merger is consummated, Goldman Sachs will receive a fee of approximately $5,383,000 for its services.
Goldman Sachs has provided certain investment banking services to NBC and GE from time to time, and may provide investment banking services to NBC and GE in the future.
DESCRIPTION OF INTERESTS OF MANAGEMENT AND AFFILIATES
The directors and officers of the Company owned of record an aggregate of 447,816 shares (6.7% of the outstanding shares) of Company Common Stock as of January 5, 1996, and Options to acquire an aggregate of 108,802 shares (89.9% of the outstanding Options) of Company Common Stock as of such date.
The directors and officers of the Company who own Company Common Stock will receive $47.25 per share of Company Common Stock owned, and the executive officers who hold Options to purchase Company Common Stock will receive a cash payment of the difference between $47.25 and the applicable Option exercise price. The table below identifies such directors and officers, the number of shares owned, the number of Options owned and the cash payments to be received by each in respect of such ownership:
(1) Includes awards of "restricted shares".
(2) Mr. Babb will also receive additional compensation as described in this section.
(3) Mr. Oziemblewski will also receive additional compensation as described in this section.
(4) Includes 11,000 shares held by The Frederick R. Griffiths Charitable Trust -- 1995, of which Mr. Griffiths serves as a Trustee.
(5) Mr. Palmieri resigned as a director of the Company effective July 31, 1995.
(6) Mr. Richardson's shares as listed above include 2,500 shares owned by his minor children, as to which shares he disclaims beneficial ownership.
(7) Certain of Mr. Walsh's children are the beneficiaries of The OCI Trust, a 5% holder of Company Common Stock (the "Trust"), but Mr. Walsh has no beneficial interest in the Trust and is not a Trustee of the Trust.
In addition to the payment listed in the preceding table for his ownership of Company Common Stock, and the assumption of liabilities under (or present value payout on) his employment agreement in the amount of approximately $1,110,230, Mr. Babb is entitled to receive at the Effective Time a total of approximately $7,514,868 (based on the total number of shares of Company Common Stock outstanding at the Effective Time), pursuant to a provision in his employment agreement that is triggered by the Merger. Such provision specifies that Mr. Babb is to receive an amount in cash equal to 2% of the aggregate amount by which the per share cash price paid in the Merger exceeds $9.00 per share, up to $12.00 per share, and 3% of the aggregate amount by which the per share cash price paid in the Merger exceeds $12.00 per share. On December 14, 1995, the Board, with the approval of NBC, authorized the unconditional acceleration of all of Mr. Babb's Options and the unconditional payment to him, prior to the Effective Time, of $5.5 million of the amount due to him at the Effective Time, pursuant to his employment agreement, which amount was paid prior to December 31, 1995.
Mr. Oziemblewski, in addition to payments listed in the preceding table for his ownership of Company Common Stock and Options and the assumption of liabilities under his employment agreement, will be entitled to receive at the Effective Time a total of approximately $204,013 for benefits accrued as of January 31, 1996, under the Company's Supplemental Retirement Plan. Such Plan contains a provision that makes benefits accrued thereunder fully vested and payable upon the date of a change-in-control of the Company.
Other executive officers, including Ms. Sullivan and Messrs. Gealy, Polacek and Soldinger, have clauses in their employment agreements that require the Company or its successor-in-interest to assume all liabilities under such agreements.
The Merger Agreement also provides for up to a total of $200,000 to be paid to certain officers and employees of the Company or its subsidiaries as bonuses to encourage such persons to remain in the employment of the Company pending consummation of the Merger.
Messrs. Koppelman, Richardson and Walsh, directors of the Company, are also directors of Harding Service Corporation, a company that provides management consulting services to the Company pursuant to an agreement entered into in July 1986. The Company pays Harding Service Corporation consulting fees equal to .333% of annual gross revenues of the Company, which fees totaled $236,630 in 1994. However, as a condition of closing of the Merger, the agreement with Harding Service Corporation will be cancelled.
PAYMENT FOR SHARES OF COMPANY COMMON STOCK
Payment for Shares; No Further Ownership of Company Common Stock. As a result of the Merger, holders of certificates formerly evidencing shares of Company Common Stock will cease to have any equity interest in the Company. After consummation of the Merger, all certificates formerly evidencing shares of Company Common Stock, (excluding shares held (a) in the treasury of the Company or owned by any direct or indirect subsidiary of the Company (which will be cancelled and retired without any conversion thereof and without any payment with respect thereto) or (b) by holders who shall have effectively exercised their appraisal rights with respect to such shares in accordance with Section 262 of the DGCL) will be cancelled and converted into the right only to receive a cash payment of $47.25 per share, without interest thereon. No interest will be paid or accrued on the cash payable upon the surrender of such certificates. As of the Effective Time, NBC will deposit, or will cause to be deposited, with The Chase Manhattan Bank, N.A. (the "Paying Agent"), for the benefit of the holders of shares of Company Common Stock, for payment in accordance with the Merger Agreement, through the Paying Agent, cash in an amount equal to the Share Consideration multiplied by the number of shares of Company Common Stock outstanding immediately prior to the Effective Time, (such cash being hereinafter referred to as the "Payment Fund"). The Paying Agent will, pursuant to irrevocable instructions, deliver the cash contemplated to be paid pursuant to the Merger Agreement out of the Payment Fund. The Payment Fund will not be used for any other purpose. Promptly after the Effective Time, the Paying Agent will mail to each record holder, as of the Effective Time, of a certificate that immediately prior to the Effective Time evidenced outstanding shares of Company Common Stock (a "Certificate") a form letter of transmittal and instructions for use in effecting the surrender of the Certificates for payment therefor. Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal duly executed, and any other required documents, the holder of such Certificate will be entitled to receive in exchange therefor the Share Consideration, and such Certificate will forthwith be cancelled. Until surrendered to the Paying Agent in accordance with the provisions of the Merger Agreement, each Certificate will represent for all purposes only the right to receive the consideration set forth in the Merger Agreement, without any interest thereon. All cash paid upon conversion of the shares of Company
Common Stock in accordance with the terms of the Merger Agreement shall be deemed to have been paid in full satisfaction of all rights pertaining to such shares of Company Common Stock.
DETAILED INSTRUCTIONS ABOUT THE SURRENDER OF CERTIFICATES, TOGETHER WITH A LETTER OF TRANSMITTAL, WILL BE FORWARDED TO FORMER HOLDERS OF SHARES OF COMPANY COMMON STOCK BY THE PAYING AGENT PROMPTLY FOLLOWING THE EFFECTIVE TIME OF THE MERGER. HOLDERS OF SHARES OF COMPANY COMMON STOCK SHOULD NOT SUBMIT THEIR CERTIFICATES TO THE PAYING AGENT UNTIL THEY HAVE RECEIVED SUCH MATERIALS. PAYMENT FOR SHARES OF COMPANY COMMON STOCK WILL BE MADE TO FORMER HOLDERS OF SHARES AS PROMPTLY AS PRACTICABLE FOLLOWING RECEIPT BY THE PAYING AGENT OF THEIR CERTIFICATES AND OTHER REQUIRED DOCUMENTS.
Payment for Options; No Rights to Receive Company Common Stock. NBC and the Company will take all action necessary to (a) terminate the Company's 1992 Stock Incentive Plan, as amended to the date of this Agreement (the "1992 Stock Plan"), effective as of the close of business on the day after the Effective Time, (b) provide that each outstanding employee stock option or "Restricted Share" award to purchase shares of Company Common Stock granted under the 1992 Stock Plan (an "Option") will become fully vested, whether or not previously vested, immediately prior to the Effective Time, and (c) provide that, with respect to any such Option that is outstanding immediately prior to the Effective Time, such Option will be cancelled as of the close of business on the day after the Effective Time and the holder shall be entitled to receive from the Surviving Corporation, immediately after the Effective Time, an amount in cash in cancellation of such Option equal to the excess, if any, of the Share Consideration over the per share exercise price of such Option, multiplied by the number of shares of Company Common Stock to which the Option remains unexercised. Any such payment will be subject to all applicable Federal, state and local tax withholding requirements.
MANAGEMENT OF THE COMPANY'S BUSINESS AFTER THE MERGER
Under the Merger Agreement, the Company will merge with the Purchaser at the Effective Time. Although the Company will continue as the surviving corporation, it will be a wholly owned subsidiary of NBC as of the Effective Time. The directors of the Purchaser immediately prior to the Effective Time will be the initial directors of the Company after the Merger, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Company, and the officers of the Purchaser immediately prior to the Effective Time will be the initial officers of the Company after the Merger, in each case until their respective successors are duly elected or appointed and qualified.
The Merger will be accounted for as a "purchase" for accounting and financial reporting purposes. Accordingly, a determination of the fair value of the Company's assets and liabilities will be made in order to allocate the purchase price to the assets acquired and the liabilities assumed.
FCC. The Merger may not be consummated without the prior approval of the FCC. On August 16, 1995, an application requesting such approval was filed with the FCC (the "FCC Application"). The time period within which parties in interest would have been permitted to file petitions to deny the FCC Application under the rules of the FCC expired on September 27, 1995, and, to the best of the Company's knowledge, no such petitions were filed. On November 9, 1995, the FCC granted its approval to the transfer of control of the Company's broadcast licensee subsidiary contemplated by the Merger, and the FCC issued a Public Notice of grant of the FCC Application on November 27, 1995.
The FCC's rules and policies permit consummation of the Merger following issuance of an FCC Public Notice of grant of the FCC Application. Under the Merger Agreement, however, either party may, as a condition of closing, require that the FCC grant have become a "Final Order". The FCC staff grant became a Final Order on January 8, 1996 because as of such date if (a) no party had filed a petition requesting that the FCC staff reconsider its action granting the FCC Application, (b) no party had filed an "Application for Review" asking the full FCC to reverse its staff's action granting the FCC Application, and (c) the FCC had not decided on its own motion to review its staff's action granting the FCC Application.
Antitrust. The transactions contemplated by the Merger Agreement are subject to review by the Federal Trade Commission and the Antitrust Division of the Department of Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the applicable waiting period thereunder. On August 29, 1995, the Company and NBC, respectively, received early termination of the applicable waiting period under the HSR Act.
DESCRIPTION OF THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement, a conformed copy of which is attached to this Information Statement as Annex A. Such summary is qualified in its entirety by reference to the Merger Agreement.
General. Pursuant to and subject to the terms and conditions of the Merger Agreement, at the Effective Time, the Company will merge with the Purchaser, with the Company continuing as the surviving corporation (the "Surviving Corporation"). The Effective Time is scheduled to occur within five business days following satisfaction of certain closing conditions, including receipt of the approval by the FCC and satisfaction of certain other conditions described below. As a result of the Merger, the Surviving Corporation will be a wholly owned subsidiary of NBC and NBC will hold all the outstanding voting securities of the Surviving Corporation. The Surviving Corporation will continue to own all the voting securities of its operating subsidiary, Outlet Broadcasting, Inc., a Rhode Island corporation ("Outlet Broadcasting"), and all the voting securities of its inactive subsidiary, Atlin Communications, Inc., a Delaware corporation.
The Merger. The Merger Agreement provides that, upon the terms and subject to the conditions thereof, and in accordance with the DGCL, at the Effective Time, the Purchaser will be merged with and into the Company. As a result of the Merger, the separate corporate existence of the Purchaser will cease and the Company will continue as the Surviving Corporation and will become a direct, wholly owned subsidiary of NBC. Upon consummation of the Merger, each issued and then outstanding share of Company Common Stock (other than any shares held in the treasury of the Company, or owned by any direct or indirect subsidiary of the Company and any shares that are held by stockholders who have not voted in favor of the Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such shares in accordance with Section 262 of the DGCL) will be cancelled and converted into the right to receive the Share Consideration.
Pursuant to the Merger Agreement, each share of common stock, par value $.01 per share, of the Purchaser issued and outstanding immediately prior to the Effective Time will be converted into and exchanged for one share of common stock, par value $.01 per share, of the Surviving Corporation.
The Merger Agreement provides that the directors of the Purchaser immediately prior to the Effective Time will be the initial directors of the Surviving Corporation and that the officers of the Purchaser immediately prior to the Effective Time will be the initial officers of the Surviving Corporation. The Merger Agreement provides that, at the Effective Time, the Certificate of Incorporation and By-Laws of the Company, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation and By-Laws of the Surviving Corporation.
Treatment of Stock Options. See "PAYMENT FOR SHARES OF COMPANY COMMON STOCK -- Payment for Options; No Rights to Receive Company Common Stock".
Indemnification and Insurance. The Merger Agreement further provides that the Certificate of Incorporation and By-Laws of the Surviving Corporation and each of its subsidiaries will contain the provisions with respect to indemnification of officers and directors set forth in the Certificate of Incorporation and By-Laws of the Company on the date of the Merger Agreement, which provisions will not be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that would adversely affect the rights thereunder of persons who at any time prior to the Effective Time were identified as prospective indemnitees under the Certificate of Incorporation or By-laws of the Company in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by the Merger Agreement or the Renaissance Merger Agreement), unless such modification is required by law.
The Merger Agreement also provides that, from and after the Effective Time, the Surviving Corporation will indemnify, defend and hold harmless the present and former officers, directors and employees of the Company (collectively, the "Indemnified Parties") against all losses, expenses, claims, damages, liabilities or amounts that are paid in settlement of, with the approval of NBC and the Surviving Corporation (which approval will not be unreasonably withheld), or otherwise in connection with, any claim, action, suit, proceeding or investigation (a "Claim"), based in whole or in part on the fact that such person is or was such a director, officer or employee and arising out of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by the Merger Agreement or the Renaissance Merger Agreement), in each case to the fullest extent permitted under the DGCL (and will pay expenses in advance of the final disposition of any such action or proceeding to each Indemnified Party to the fullest extent permitted under the DGCL, upon receipt from the Indemnified Party to whom expenses are advanced of the undertaking to repay such advances contemplated by Section 145(e) of the DGCL). Pursuant to the Merger Agreement, NBC has guaranteed the Surviving Corporation's obligations to provide the indemnification herein described.
In the event any Claim is brought against any Indemnified Party (whether arising before or after the Effective Time) after the Effective Time, the Merger Agreement provides that (a) the Indemnified Parties may retain the Company's regularly engaged independent legal counsel as of the date of the Merger Agreement, or other independent legal counsel satisfactory to them provided that such other counsel shall be reasonably acceptable to NBC and the Surviving Corporation, (b) the Surviving Corporation will pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received and (c) the Surviving Corporation will use its reasonable efforts to assist in the vigorous defense of any such matter, provided that the Surviving Corporation will not be liable for any settlement of any Claim effected without its written consent, which consent will not be unreasonably withheld. Any Indemnified Party wishing to claim indemnification under the Merger Agreement, upon learning of any such Claim, will notify the Surviving Corporation (although the failure so to notify the Surviving Corporation will not relieve the Surviving Corporation from any liability that the Surviving Corporation may have under the Merger Agreement, except to the extent such failure prejudices the Surviving Corporation), and will deliver to the Surviving Corporation the undertaking contemplated by Section 145(e) of the DGCL. The Indemnified Parties as a group may retain one law firm (in addition to local counsel) to represent them with respect to each such matter unless there is, under applicable standards of professional conduct (as determined by counsel to such Indemnified Parties), a conflict on any significant issue between the positions of any two or more of such Indemnified Parties, in which event, an additional counsel as may be required may be retained by such Indemnified Parties.
The Merger Agreement also provides that NBC will cause to be maintained in effect for not less than five years after the Effective Time (except to the extent not generally available in the market) the current policies of directors' and officers' liability insurance and fiduciary liability insurance maintained by the Company with respect to matters occurring prior to the Effective Time; provided, however, that (a) NBC may substitute therefor policies of substantially the same coverage containing terms and conditions that are substantially the same for the Indemnified Parties to the extent reasonably available and (b) NBC will not be required to pay an annual premium for such insurance in excess of 300% of the last annual premium paid prior to the date of the Merger Agreement, but in such case shall purchase as much coverage as possible for such amount.
Representations and Warranties. The Merger Agreement contains representations and warranties of the Company, NBC and the Purchaser relating to, among other things (a) due organization and qualification and authority to enter into and perform the respective obligations of the parties under the Merger Agreement, (b) capital structure, (c) authorization of the Merger Agreement and no violation of certain instruments or of any law resulting from the execution and performance of the Merger Agreement, (d) accuracy of information supplied, and (e) matters relating to brokers, fees and other expenses. In addition, the Company has made certain representations and warranties concerning the following matters: (a) documents filed with the Securities and Exchange Commission (the "SEC"), financial statements, and undisclosed liabilities, (b) material contracts, (c) FCC licenses and station operations, (d) permits, (e) intellectual property, (f) taxes, (g) compliance with laws, (h) absence of material adverse changes prior to January 1, 1995, (i) litigation, (j) employee benefits plans, (k) insurance, (l) environmental matters, and (m) the Renaissance Merger Agreement.
FCC Application; Other Further Action. The Merger Agreement provides that as promptly as practicable after the execution of the Merger Agreement, NBC and the Company will prepare and file the FCC Application, and such other documents as may be required, with respect to the transfer of control of the Company's broadcast licensee subsidiary to NBC. On August 16, 1995, the Company filed the FCC Application. The Merger Agreement provides that NBC and the Company will prosecute the FCC Application in good faith and with due diligence in order to obtain such FCC approval as expeditiously as practicable. The Merger Agreement provides further that if the Effective Time will not have occurred for any reason within the initial effective period of the granting of approval by the FCC of the FCC Application, and neither NBC nor the Company will have terminated the Merger Agreement, NBC and the Company will jointly request one or more extensions of the effective period of such grant. The Merger Agreement provides that neither NBC nor the Company will knowingly take, or fail to take, any action the intent or reasonably anticipated consequence of which action or failure to act would be to cause the FCC not to grant approval of the FCC Application. Pursuant to the Merger Agreement, prior to FCC approval of the FCC Application, NBC and the Company have agreed that NBC, its employees and agents, will not directly or indirectly control, supervise or direct or attempt to control, supervise or direct the operation of any of the Company's broadcast stations, and such operations shall be the sole responsibility of and in the complete discretion of the Company.
The Merger Agreement provides further that the Company and NBC will each use their reasonable efforts to (a) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable under applicable law or otherwise to consummate and make effective the transactions contemplated by the Merger Agreement, (b) obtain any consents or approvals with respect to the Merger the absence of which would result in a material adverse effect on the Company, (c) make all necessary filings, and thereafter make any other required submissions, with respect to the Merger Agreement and the Merger required under (i) the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder, and any other applicable Federal or state securities laws, (ii) the HSR Act, and (iii) any other applicable law; provided that NBC and the Company shall cooperate with each other in connection with the making of all such filings. Pursuant to the Merger Agreement, the Company and NBC have agreed to furnish all information required for any application or other filing to be made pursuant to the rules and regulations of any applicable law (including all information required to be included in this Information Statement) in connection with the transactions contemplated thereby. Each of the Company and NBC have agreed to cooperate and use their reasonable efforts to contest and resist any action, including legislative, administrative or judicial action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) (an "Order") that is in effect and that restricts, prevents or prohibits the consummation of the Merger or any other transactions contemplated by the Merger Agreement, including, without limitation, by pursuing any necessary administrative or judicial appeal or legislative action.
Conditions to the Merger. Under the Merger Agreement, the respective obligations of each party to effect the Merger are subject to the satisfaction, at or prior to the Effective Time, of the following conditions: (a) the FCC shall have issued a Final Order (as defined in Section 9.03 of the Merger the FCC Application, and such Final Order shall include the granting of such waivers, if any, of the FCC Rules and Regulations as may be necessary to permit the consummation of the transactions contemplated thereby; and all the terms and conditions contained in the Final Order required to be satisfied on or prior to the Effective Time shall have been satisfied and performed; (b) the applicable waiting period under the HSR Act shall have expired or been terminated; (c) no governmental entity or Federal or state court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) that then remains in effect and that has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger; and (d) the holders of a majority of the outstanding shares of Company Common Stock shall have approved and adopted the Merger Agreement in accordance with the DGCL and the rules and regulations of NASDAQ.
The obligation of NBC to effect the Merger is also subject to the following conditions: (a) each of the representations and warranties of the Company contained in the Merger Agreement (i) in the case of any thereof that are expressly qualified by any materiality qualification, shall be true and correct, subject to such materiality qualification, and (ii) in the case of all other representations and warranties, shall be true and correct in all material respects, in each case as of the Effective Time as though made on and as of the Effective Time, and except that those representations and warranties that address matters only as of a particular date shall remain true and correct, subject to such materiality qualifications or in all material respects, as the case may be, as of such date and NBC shall have received a certificate of the Chief Executive Officer of the Company to such effect; (b) the Company shall have performed or complied with all agreements and covenants required by the Merger Agreement to be performed or complied with by it on or prior to the Effective Time, except where the failure to so comply would not have a material adverse effect upon the Company and NBC shall have received a certificate of the Chief Executive Officer of the Company to that effect; and (c) all required consents, approvals and authorizations that are described in the Merger Agreement shall have been obtained.
The obligation of the Company to effect the Merger is also subject to the following conditions: (a) each of the representations and warranties of NBC and the Purchaser contained in the Merger Agreement (i) in the case of any thereof that are expressly qualified by any materiality qualification, shall be true and correct, subject to such materiality qualification, and (ii) in the case of all other representations and warranties, shall be true and correct in all material respects, in each case as of the Effective Time as though made on and as of the Effective Time, and except that those representations and warranties that address matters only as of a particular date shall remain true and correct, subject to such materiality qualifications or in all material respects, as the case may be, as of such date, and the Company shall have received a certificate of the Chief Financial Officer of NBC to such effect; and (b) NBC shall have performed or complied with all agreements and covenants required by the Merger Agreement to be performed or complied with by it on or prior to the Effective Time, except where the failure to comply would not have a material adverse effect upon NBC, and the Company shall have received a certificate of the Chief Financial Officer of NBC to that effect.
Certain Obligations. The Merger Agreement provides that NBC will cause the Surviving Corporation to pay to Mr. Babb the bonus of approximately $7.5 million which is provided for in Section 5 of Mr. Babb's employment agreement with the Company. Mr. Babb received $5.5 million of such payment from the Company prior to December 31, 1995, pursuant to action by the Company's Board with the approval of NBC.
Conduct of Business Prior to the Merger. Pursuant to the Merger Agreement, the Company has agreed that, prior to the Effective Time, unless otherwise expressly contemplated by the Merger Agreement or consented to in writing by NBC, the Company will and will cause its subsidiaries to (a) operate its business in the usual and ordinary course consistent with past practices; (b) use its reasonable efforts to preserve substantially intact its business organization, maintain its rights and franchises, retain the services of its respective principal officers and key employees and maintain its relationships with its respective principal customers and suppliers; (c) use its reasonable efforts to maintain and keep its properties and assets in as good repair and condition as at present, ordinary wear and tear excepted; and (d) use its reasonable efforts to keep in full force and effect insurance comparable in amount and scope of coverage to that currently maintained. The Merger Agreement provides, however, that in the event the Company deems it necessary to take actions that would otherwise be prohibited as described above, the Company will consult with NBC, which shall consider in good faith the Company's request to take such action and not unreasonably withhold or delay its consent for such action.
The Merger Agreement provides that, except as consented to in writing by NBC, prior to the Effective Time, the Company will not take any extraordinary corporate action, and in particular will not: initiate, solicit or encourage (including by way of furnishing information or assistance), or take any other action to facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Competing Transaction (as defined in Section 5.02 of the Merger Agreement), or negotiate with any person or entity in furtherance of such inquiries or to obtain a Competing Transaction, or agree to or endorse any Competing Transaction, or authorize or permit any of the officers, directors or employees of the Company or any of its subsidiaries or any representative retained by the Company or any of the Company's subsidiaries to take any such action, and the Company shall promptly notify NBC of all relevant terms of any such inquiries and proposals received by the Company or any of its subsidiaries, or by any such officer, director or representative, relating to any of such matters and if such inquiry or proposal is in writing, the Company shall deliver or cause to be delivered to NBC a copy of such inquiry or proposal; provided, however, that prior to the time the stockholders of the Company approved and adopted the Merger Agreement in accordance with the DGCL, nothing contained in the relevant section of the Merger Agreement would have prohibited the Board from (a) furnishing information to, or entering into discussions or negotiations with, any person or entity that made an unsolicited bona fide proposal to acquire the Company pursuant to a merger, consolidation, share exchange, business combination or other similar transaction, if, and only to the extent that, (i) the Board, after consultation with independent legal counsel, determined in good faith that such action was required for the Board to comply with its fiduciary duties to stockholders imposed by the DGCL, (ii) prior to furnishing such information to, or entering into discussions or negotiations with, such person or entity, the Company had provided written notice to NBC to the effect that it was furnishing information to, or entering into discussions or negotiations with, such person or entity, (iii) prior to furnishing such information to such person or entity, the Company had received from such person or entity an executed confidentiality agreement with terms no less favorable to the Company than those contained in the confidentiality agreement between the Company and NBC, and (iv) the Company had informed NBC, on a current basis, of the status of any such discussions or negotiations; or (b) complying with Rule 14e-2 promulgated under the Exchange Act with regard to a Competing Transaction.
Access and Information. The Merger Agreement further provides that, subject to confidentiality agreements to which the Company or any of its subsidiaries is a party, the Company will, and will cause its subsidiaries to (a) afford to NBC and its officers, directors, employees, accountants, consultants, legal counsel, agents, lenders (including representatives of any lenders) and other representatives (collectively, the "NBC Representatives") reasonable access at reasonable times upon reasonable prior notice to the officers, employees, agents, properties, offices and other facilities of the Company and its subsidiaries and to the books and records thereof and (b) furnish promptly to NBC and the NBC Representatives such information concerning the business, properties, contracts, records and personnel of the Company and its subsidiaries (including, without limitation, financial, operating and other data and information) as may be reasonably requested, from time to time, by NBC.
Termination; Fees and Expenses. The Merger Agreement provides that it may be terminated at any time prior to the Effective Time: (a) by mutual consent of NBC and the Company; (b) by NBC, upon a material breach of any representation, warranty, covenant or agreement on the part of the Company set forth in the Merger Agreement, or if any representation or warranty of the Company shall have become untrue in any material respect, in either case such that the conditions to the Merger Agreement described above would not be satisfied (a "Terminating Company Breach"), provided that, if such Terminating Company Breach is curable by the Company through the exercise of its reasonable efforts and for so long as the Company continues to exercise such reasonable efforts, NBC may not terminate the Merger Agreement; (c) by the Company, upon a material breach of any representation, warranty, covenant or agreement on the part of NBC set forth in the Merger Agreement, or if any representation or warranty of NBC shall have become untrue in any material respect, in either case such that the conditions to the Merger Agreement described above would not be satisfied (a "Terminating NBC Breach"), provided that, if such Terminating NBC Breach is curable by NBC through the exercise of its reasonable efforts and for so long as NBC continues to exercise such reasonable efforts, the Company may not terminate the Merger Agreement; (d) by either NBC or the Company, if there shall be any Order that is final and nonappealable preventing the consummation of the Merger, except if the party relying on such Order has not complied with its obligations under the Merger Agreement to take all action to secure the required governmental approvals and resist all Orders that interfere with the consummation of the Merger Agreement; (e) by NBC or the Company, if the Merger shall not have been consummated before August 2, 1996, except if the party seeking to terminate the Merger Agreement shall be in breach hereof; (f) by NBC or the Company, if the approval and adoption of the Merger Agreement by the stockholders of the Company had not been obtained by written consent as provided therein or by the requisite vote by the stockholders of the Company at a meeting of the stockholders of the Company called for the purpose of approving the Merger Agreement; (g) by NBC, if (i) the Board withdraws, modifies or changes its recommendation of the Merger Agreement or the Merger in a manner adverse to NBC or the Purchaser or shall have resolved to do any of the foregoing, or (ii) the Board shall have recommended to the stockholders of the Company any Competing Transaction or resolved to do so; and (h) by the Company, if prior to the time the stockholders of the Company approved and adopted the Merger Agreement in accordance with the DGCL, the Board had recommended to the stockholders of the Company any Competing Transaction or resolved to do so; provided that any termination of the Merger Agreement by the Company pursuant to the relevant section of the Merger Agreement would not have been effective until the close of business on the second full business day after notice thereof to NBC.
The Merger Agreement provides that all expenses incurred by the parties thereto shall be borne solely by the party that has incurred such expenses; provided, however, that if the Merger Agreement had been terminated by the Company pursuant to its right to do so in the event the Board recommended a Competing Transaction, the Company would have been obligated to pay NBC a fee of $6.5 million in cash.
DESCRIPTION OF THE OPTION AGREEMENTS
Following the execution and delivery by the Company, NBC and the Purchaser of the Merger Agreement, certain stockholders of the Company (the "Consenting Stockholders") entered into the Option Agreements with NBC, pursuant to which each such Consenting Stockholder agreed to deliver a written stockholder consent in lieu of a meeting of stockholders of the Company approving and adopting the Merger Agreement (each, a "Stockholder Consent") in respect of each share of Company Common Stock owned of record by such Consenting Stockholder. Following execution of the Option Agreements, the parties to the Option Agreements delivered the Stockholder Consents to the Company, which Stockholder Consents covered an aggregate of 3,433,091 shares of Company Common Stock (approximately 52.2% of the shares of Company Common Stock outstanding on such date), representing the aggregate number of shares of Company Common Stock owned of record by the Consenting Stockholders. The form of Option Agreement is attached to this Information Statement as Annex B.
Pursuant to the Option Agreements, each Consenting Stockholder also agreed that, until the Expiration Date (defined in the Option Agreements as the earlier of the Effective Time and the date which is 360 days following the date of the Option Agreements or such shorter period as may be dictated by applicable law or FCC policy or regulation (unless extended by the mutual written consent of NBC and the Consenting Stockholder)), at any meeting of the stockholders of the Company, however called, or in connection with any written consent of the stockholders of the Company, and to the extent permitted by applicable law, the Consenting Stockholder will vote (or cause to be voted) or act by written consent with respect to the shares of Company Common Stock held by the Consenting Stockholder (as to each Consenting Stockholder, the "Shares") (a) in favor of approval and adoption of the Merger Agreement and the Merger and the approval of the terms thereof and each of the other actions contemplated by the Merger Agreement and the Option Agreement; (b) against any action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company contained in the Merger Agreement or of the Consenting Stockholder contained in the Option Agreement; and (c) against any Competing Transaction (as defined in the Option Agreements) or any other action, agreement or transaction (other than the Merger
Agreement or the transactions contemplated thereby) that is intended, or could reasonably be expected, to impede, interfere or be inconsistent with, or delay, postpone, discourage or materially adversely affect the Merger or the Option Agreement, including, but not limited to: (i) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company or its subsidiaries; (ii) a sale, lease or transfer of a material amount of assets of the Company and its subsidiaries or a reorganization, recapitalization or liquidation of the Company or its subsidiaries; (iii) a material change in the policies or management of the Company, except as otherwise agreed to in writing by NBC; (iv) an election of new members to the Board, except where the vote is cast in favor of the nominees of a majority of the existing directors; (v) any material change in the present capitalization or dividend policy of the Company or any amendment to the Company's Certificate of Incorporation; or (vi) any other material change in the Company's corporate structure or business (collectively, the "Merger-Related Matters"). Each Consenting Stockholder also agreed in its Option Agreement not to enter into any agreement or understanding with any person or entity prior to the Expiration Date to vote or give instructions in any manner inconsistent with clauses (a), (b) or (c) of the next preceding sentence. Under the Option Agreements, each Consenting Stockholder has granted an irrevocable proxy to a trustee designated by NBC to vote or act by written consent, to the fullest extent permitted by applicable law, with respect to the Consenting Stockholder's shares in accordance with the foregoing provisions of this paragraph.
The Option Agreements also provide that the Consenting Stockholder party thereto shall not (a) sell, transfer, pledge, assign or otherwise dispose of, enforce or permit the execution of the provisions of any redemption agreement with the Company or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer, pledge, encumbrance, assignment or other disposition of, any of the existing shares of Company Common Stock, or any shares acquired after August 2, 1995, or any interest in any of the foregoing, except to NBC, (b) grant any proxies or powers of attorney, deposit any of such shares into a voting trust or enter into a voting agreement with respect to any such shares or any cash or other property received as a dividend or distribution on the Shares by the Consenting Stockholder, or any interest in any of the foregoing, except to NBC, (c) consent or otherwise agree to any amendment, waiver or other modification of the Stockholders Agreement dated as of December 10, 1986, as amended, among the Company, Outlet Broadcasting and certain stockholders (the "Stockholders Agreement") or the Certificate of Incorporation or By-Laws of the Company or its subsidiaries without the prior written consent of NBC, or (d) take any action that would make any representation or warranty of such Consenting Stockholder contained in its Option Agreement untrue or incorrect or have the effect of preventing or disabling such Consenting Stockholder from performing his or its obligations under the Option Agreement, or that would otherwise hinder or delay NBC from acquiring a majority of the outstanding shares of Company Common Stock, determined on a fully diluted basis.
In addition, each of the Consenting Stockholders agreed, except with respect to NBC and its affiliates, not to initiate, solicit or encourage, directly or indirectly, any inquiries or the making of any proposal with respect to any matter described in the next preceding paragraph or any Competing Transaction, participate in any negotiations concerning, or provide to any other person any information or data relating to the Company or its subsidiaries for the purpose of, or have any substantive discussions with, any person relating to, or otherwise cooperate with or assist or participate in, or facilitate, any inquiries or the making of any proposal which constitutes, or would reasonably be expected to lead to, any effort or attempt by any other person to seek to effect any matter described in the next preceding paragraph or any Competing Transaction, or agree to or endorse any Competing Transaction. Each of the Consenting Stockholders has also agreed, pursuant to their respective Option Agreements, immediately to cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted theretofore with respect to any possible Competing Transactions or any matter described in the next preceding paragraph.
In addition, pursuant to the Option Agreements, and subject to certain conditions, the Consenting Stockholders have granted NBC options to purchase all, but not part, of the shares of Company Common Stock at any time on or after the earlier of (a) the termination of the Merger Agreement and (b) such time as a permanent injunction or other order, decree or ruling preventing the consummation of the Merger shall have been issued, provided that under no circumstances may the option be exercised more than 60 days after any termination of the Merger Agreement. In the event that NBC exercises its purchase option under any Option Agreement, the obligation of NBC to effect the purchase of shares of Company Common Stock thereunder would be subject to certain conditions set forth in the Option Agreements. If NBC exercises such option (the "Option Purchase"), NBC must propose to the Company a merger on terms substantially the same as those provided for in the Merger Agreement. In addition, NBC must extend an offer to acquire shares of Company Common Stock to the other stockholders of the Company.
The Option Agreements provide that in the event that, within one year from the date of the Option Agreements, NBC or another subsidiary of GE consummates a transaction pursuant to which it acquires more than 50% of the outstanding Company Common Stock or effects a merger or similar business combination with the Company pursuant to which it acquires all the Company Common Stock (any such transaction, an "Alternate Transaction") and, in respect of any Alternate Transaction, the per share consideration paid to the largest number of stockholders of the Company pursuant to the Alternate Transaction exceeds the Share Consideration (the amount of such excess per share, the "Excess Consideration"), then NBC shall pay to each of the Consenting Stockholders promptly following the consummation of the Alternate Transaction an amount in cash equal to the amount of the Excess Consideration times the number of such Consenting Stockholder's shares purchased pursuant to the Option Agreement.
If, solely as a result of an acquisition of shares of Company Common Stock by NBC or any other subsidiary of GE, the Company is required to make a Change of Control Offer (as defined in the Indenture referred to below) pursuant to Section 1010 of the Indenture pursuant to which on the date hereof the Company has issued and outstanding $60 million aggregate principal amount of Senior Subordinated Notes due July 15, 2003 (the "Notes"), as now in effect (the "Indenture"), then, so long as such Change of Control Offer is made in accordance with the terms of the Indenture, NBC shall be obligated, within five business days of the commencement of the Change of Control Offer, to offer to purchase or to cause another person to offer to purchase from the Company on the Change of Control Payment Date (as defined in the Indenture) indebtedness of the Company (a) in an aggregate principal amount equal to the aggregate Repurchase Price of the Notes (as defined in the Indenture) repurchased by the Company on such Change of Control Payment Date pursuant to Section 1010 of the Indenture and (b) with terms, conditions, covenants and other provisions substantially the same as the Notes.
Also, each Consenting Stockholder has agreed in its Option Agreement that if, between the date of the Option Agreement and the closing date under any Option Purchase, the Company declares, pays or makes any dividend or other distribution of any kind of cash or property on the Company Common Stock, the Consenting Stockholder will receive and hold such cash or property for the benefit of NBC and will deliver such cash or property, with appropriate instruments of transfer, if necessary, to NBC on such closing date (or, in the event of a payment date occurring after the closing date, on the date such payment is received).
DESCRIPTION OF FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash for shares of Company Common Stock in the Merger or pursuant to the exercise of dissenters' appraisal rights will be a taxable transaction for Federal income tax purposes and may also be a taxable transaction under applicable state, local, foreign or other tax laws. Generally, a stockholder will recognize gain or loss for such purposes equal to the difference between the cash received in connection with the Merger and such stockholder's tax basis for the shares of Company Common Stock such stockholder owned immediately prior to the Effective Time. For Federal income tax purposes, such gain or loss will be a capital gain or loss if the shares of Company Common Stock are a capital asset in the hands of the stockholder, and a long-term capital gain or loss if the stockholder's holding period is more than one year as of the Effective Time. There are limitations on the deductibility of capital losses.
The summary of tax consequences set forth above is for general information only. The tax treatment of each stockholder will depend in part upon his or her particular situation. Actual tax consequences not described herein may be applicable to particular classes of taxpayers, such as financial institutions, broker-dealers, persons who are not citizens or residents of the United States, stockholders who acquired the shares of
Company Common Stock through the exercise of an employee stock option or otherwise as compensation, and persons who received payments in respect of options to acquire shares of Company Common Stock. ALL STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND FOREIGN LAWS.
APPRAISAL RIGHTS FOR DISSENTING STOCKHOLDERS
Under Section 262 of the DGCL ("Section 262"), holders of Company Common Stock who do not wish to accept the Share Consideration to be paid pursuant to the Merger have the right to dissent from the Merger and elect to have the "fair value" of their Company Common Stock judicially determined and paid to them in cash, provided that they comply with the requirements of Section 262.
The following discussion is not a complete statement of the law relating to appraisal rights under Section 262 and is qualified in its entirety by reference to the full text of Section 262, which is attached in its entirety as Annex D hereto. THIS DISCUSSION AND ANNEX D SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO, SINCE FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH HEREIN AND THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
The stockholders of the Company who desire to exercise their appraisal rights must: (a) hold Company Common Stock on the date of making a demand for appraisal; (b) continuously hold such shares through the Effective Time, (c) not vote in favor of the approval and adoption of the Merger Agreement; and (d) otherwise satisfy all the conditions set forth below.
WITHHOLD VOTE IN FAVOR OF MERGER
Company stockholders electing to exercise their appraisal rights under Section 262 ("Appraisal Rights") must not have voted in favor of approval and adoption of the Merger Agreement nor consented thereto in writing pursuant to Section 228. Those stockholders who executed the Stockholder Consents are not entitled to Appraisal Rights. All other stockholders are entitled to Appraisal Rights, provided that they comply with the steps described below.
Not later than 10 days after the Effective Time, the Company will notify each stockholder who has not voted for the approval and adoption of the Merger Agreement of the date the Merger became effective and that Appraisal Rights are available for such stockholder's shares of Company Common Stock. Such notice does not create any rights in the stockholder receiving the same to demand payment for such stockholder's shares. The notice shall be sent by certified or registered mail, return receipt requested, addressed to the stockholder at his address as it appears on the records of the Company.
To exercise Appraisal Rights, a stockholder must deliver a written demand for appraisal of shares to the Company, Attention: Secretary, within 20 days of the mailing of the notice described above.
A demand for appraisal must be signed by or for the stockholder of record, fully and correctly, as such stockholder's name appears on the certificate or certificates evidencing shares of Company Common Stock. Such stockholder of record must hold his shares of Company Common Stock continuously through the Effective Time and as of the date of making the demand for appraisal. A person who is a beneficial owner, but not a record owner, of Company Common Stock and who desires to exercise Appraisal Rights cannot do so in his or her own name, but must cause the record owner of such Company Common Stock to take all required action. If the Company Common Stock is owned of record in a fiduciary capacity, such as by a trustee, guardian, or custodian, such demand must be signed by the fiduciary. Any person signing a demand for appraisal on behalf of a partnership or a corporation or in any other representative or fiduciary capacity must indicate his title, and, if the Company requests, must furnish written proof of his capacity and his authority to sign the demand. If the Company Common Stock is owned of record by more than one person, as in a joint tenancy or tenancy in common, such demand must be executed by all joint owners. An authorized agent, including an agent for two or more joint owners, may sign the demand for appraisal for a stockholder of record; however, the agent must identify the owner and expressly disclose the fact that, in exercising the demand, he is acting as agent for the record owner.
A stockholder who elects to exercise appraisal rights should mail or deliver a written or telegraphic demand to: Secretary, Outlet Communications, Inc., 23 Kenney Drive, Cranston, Rhode Island 02920. The written demand for appraisal should specify the stockholder's name and mailing address, the number of shares of Company Common Stock owned and that the stockholder is thereby demanding appraisal of his or her shares.
RIGHT TO STATEMENT FROM SURVIVING CORPORATION
Within 120 days after the Effective Time, any stockholder who has complied with the requirements for exercise of Appraisal Rights will be entitled, upon written request, to receive from the Company a statement setting forth the aggregate number of shares of Company Common Stock with respect to which demands for appraisal have been received and the aggregate number of holders of such shares of Company Common Stock. Such statement must be mailed within 10 days after a written request therefor has been received by the Company or within 10 days after expiration of the period for delivery of demands for appraisal, whichever is later.
Within 120 days after the Effective Time, either the Company or any stockholder entitled to appraisal rights under Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the value of the shares of all stockholders entitled to appraisal, provided that during the first 60 days after the Effective Time any stockholder has the right to withdraw his demand for appraisal and accept the terms offered upon the Merger as provided for in the Merger Agreement.
Within 20 days after the service upon the Company of a copy of a petition filed in the Delaware Court of Chancery demanding an appraisal, the Company is obligated to file in the office of the Register in Chancery a verified list of all stockholders who have demanded appraisal and with whom agreements as to the value of their shares have not been reached by the Company. After notice to such stockholders, the Delaware Court of Chancery is empowered to conduct a hearing upon the petition of any such stockholder. The court shall then determine those stockholders entitled to appraisal and appraise the fair value of the shares held by them, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with a fair rate of interest to be paid, if any, upon the amount determined to be the fair value. In determining fair value, the Delaware Court of Chancery is to take in account all relevant factors. In Weinberger v. UOP, Inc. et al, decided February 1, 1983, the Delaware Supreme Court discussed the considerations that could be considered in determining fair value in an appraisal proceeding, stating that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered and that "fair price obviously requires consideration of all relevant factors involving the value of a company". The Delaware Supreme Court stated that in making this determination of fair value the court must consider market value, asset value, dividends, earnings, prospects, the nature of the enterprise and any other facts which could be ascertained as of the date of the Merger. Section 262 provides that fair value is to be "exclusive of any element of value arising from the accomplishment or expectation of the merger". In Weinberger, the Delaware Supreme Court construed Section 262 to mean that "elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered."
Stockholders of the Company considering appraisal should bear in mind that the fair value of their shares determined under Section 262 could be more than, the same as, or less than the value of the Share Consideration. Costs of the appraisal proceeding may be taxed upon the parties thereto by the court as the court deems equitable in the circumstances. Upon application of a dissenting stockholder, the Delaware Court of Chancery may order that all or a portion of the expenses incurred by any dissenting stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys' fees and the fees and expenses of experts, be charged pro rata against the value of all shares entitled to appraisal. In the absence of such a determination or assessment, each party bears his or her own expenses.
If no petition for an appraisal shall be filed within 120 days after the Effective Time of the Merger, or if such stockholder shall deliver to the Company a written withdrawal of his demand for an appraisal and an acceptance of the Merger, either within 60 days after the Effective Time or thereafter with the written approval of the Company, then the right of such stockholder to an appraisal shall cease, and all such stockholders shall be entitled to receive the consideration offered per share of Company Common Stock as provided for in the Merger Agreement by following the procedures described in section 2.02 of the Merger Agreement. Such stockholders shall receive such consideration promptly after such procedures are completed. Notwithstanding the foregoing, no appraisal proceeding in the Delaware Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just.
DESCRIPTION OF FINANCING OF THE MERGER
Approximately $322.5 million will be required to purchase the shares of Company Common Stock pursuant to the Merger. The Purchaser will receive the necessary funds to purchase the shares of Company Common Stock from NBC and GE. NBC and GE will obtain the required amount from their general corporate funds.
INFORMATION CONCERNING NBC AND THE PURCHASER
NBC and its subsidiaries are principally engaged in furnishing, within the United States, network television services to affiliated television stations, the production of live and recorded television programs, the operation, under licenses from the FCC, of six VHF television broadcasting stations, the operation of cable/satellite networks in the United States, Europe and Asia, and investment and programming activities in multimedia and cable television. The NBC Television Network is one of the major U.S. commercial broadcast television networks and serves more than 200 affiliated stations within the United States. NBC's operations include investment and programming activities in cable television, principally through its ownership of CNBC and America's Talking and equity investments in Arts and Entertainment, Court TV, American Movie Classics, Bravo, Prime Network and regional Sports Channels across the United States. NBC's principal executive offices are located at 30 Rockefeller Plaza, New York, New York 10112.
The sole stockholder of NBC is National Broadcasting Holding Company, Inc. ("NBC Holding"). NBC Holding is a holding company whose principal asset is the stock of NBC. NBC Holding's principal office is located at 30 Rockefeller Plaza, New York, New York 10112.
The sole stockholder of NBC Holding is GE. From its founding, GE has engaged in developing, manufacturing and marketing a wide variety of products for the generation, transmission, distribution, control and utilization of electricity. Over the years, development and application of related and new technologies have broadened considerably the scope of GE's activities. GE's products include, but are not limited to, lamps and other lighting products; major appliances for the home; industrial automation products and components; motors; electrical distribution and control equipment; locomotives; power generation and delivery products; nuclear reactors, nuclear powers support services and fuel assemblies; commercial and military aircraft jet engines; materials, including engineered plastics, silicones and cutting materials; and a wide variety of high technology products, including products used in medical diagnostic applications.
In addition to the services offered by NBC, GE also offers a broad variety of other services including product support services; electrical product supply houses; electrical apparatus installation, engineering, repair and rebuilding services; and computer-related information services. Through a wholly owned subsidiary, General Electric Capital Services, Inc. and its two principal subsidiaries, GE engages in a broad spectrum of financial services, including consumer financing, commercial and industrial financing, real estate financing, asset management and leasing, annuity and mutual fund sales, specialty insurance, and reinsurance. Other services offered include U.S. satellite communications furnished by GE Americom. GE also licenses patents and provides technical know-how related to products it develops, but such activities are not material to GE. GE's principal executive offices are located at 3135 Easton Turnpike, Fairfield, Connecticut 06431.
PRINCIPAL STOCKHOLDERS AND SHARE OWNERSHIP OF MANAGEMENT
Set forth below is certain information with respect to those persons known to the Company to be the beneficial owners of more than 5% of the shares of Company Common Stock outstanding as of August 2, 1995. For information concerning share ownership of directors and executive officers of the Company, none of whom beneficially owns more than 5% of the Company Common Stock, see "DESCRIPTION OF INTERESTS OF MANAGEMENT AND AFFILIATES IN THE MERGER AGREEMENT".
(a) As the grantor of such revocable trust, Raymond G. Chambers may, for purposes of the Exchange Act, be deemed to be the beneficial owner of the shares of Company Common Stock held by such trust. Additionally, as co-trustees of such trust, Kurt T. Borowsky and David J. Roy may, for purposes of the Exchange Act, be deemed to be the beneficial owners of the shares of Company Common Stock held by the such trust.
On August 2, 1995, MBL Life Assurance Corp., The Hartington Trust and The OCI Trust, along with certain other stockholders of the Company, entered into the Option Agreements with NBC granting NBC the right, subject to certain conditions, to purchase their shares of Company Common Stock and granting NBC an irrevocable proxy to vote their shares of Company Common Stock. Such options are not currently exercisable. For additional information concerning the Option Agreements, see "DESCRIPTION OF THE OPTION AGREEMENTS".
MARKET FOR COMMON STOCK AND DIVIDENDS
The following table sets forth, for the fiscal quarters indicated, the range of high and low sale prices for Company Common Stock as reported on NASDAQ.
On June 29, 1995, the last full day of trading prior to the announcement of the Renaissance Merger Agreement, the closing sale price as reported by NASDAQ was $38 per share of Company Common Stock. On July 28, 1995, the last full day of trading prior to the announcement of NBC's offer to acquire the Company, the closing sale price as reported by NASDAQ was $41 7/8 per share of Company Common Stock. On August 1, 1995, the last full day of trading prior to execution of the Merger Agreement, the closing sale price as reported by NASDAQ was $46 per share of Company Common Stock. On January 8, 1996, the closing sale price reported by NASDAQ was $46 5/8 per share of Company Common Stock. No dividends have been paid on the Company Common Stock.
SELECTED FINANCIAL INFORMATION OF THE COMPANY
The following table presents selected consolidated financial data of the Company as of and for the years ended December 31, 1994, 1993, 1992, 1991 and 1990. The comparability of the data in the following table is affected by dispositions of broadcast stations including two radio stations and two UHF television stations that were sold in 1990. Also, net income in 1993 includes the cumulative effect of a change in method of accounting for income taxes in the amount of $4,434,000 and an extraordinary loss for debt extinguishment of $1,826,000. The Company has not paid cash dividends on its capital stock during any of the periods presented below.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company under the Exchange Act with the SEC are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(2) The Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1995.
(3) The Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995.
(4) The Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995.
(5) The Company's Current Report on Form 8-K dated July 11, 1995.
(6) The Company's Current Report on Form 8-K dated August 16, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Information Statement shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Information Statement to the extent that a statement contained herein or in any other subsequently filed documents that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Information Statement. The Company will provide, without charge, to each person to whom a copy of this Information Statement has been delivered, on the written or oral request of such person, a copy of any or all of the documents referred to above that have been or may be incorporated by reference herein other than exhibits to such documents (unless such exhibits are specifically incorporated by reference herein). Requests for such copies should be directed to: Joanne Schenck, Secretary, Outlet Communications, Inc., 23 Kenney Drive, Cranston, Rhode Island 02920; (401) 455-9200.
The accounting firm of Ernst & Young LLP provides various services to the Company and its subsidiaries in addition to audit services.
By Order of the Board of Directors,
MERGER AGREEMENT dated as of August 2, 1995 (the "Agreement"), among NATIONAL BROADCASTING COMPANY, INC., a Delaware corporation ("Parent"), CO ACQUISITION CORPORATION, a Delaware corporation ("Parent Sub"), and a wholly owned subsidiary of Parent, and OUTLET COMMUNICATIONS, INC., a Delaware corporation (the "Company").
WHEREAS, Parent Sub, upon the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of Delaware ("Delaware Law"), will merge with and into the Company (the "Merger");
WHEREAS, the Board of Directors of the Company has (i) determined that the Merger is fair to, and in the best interests of, the holders of Common Stock (as hereinafter defined) and (ii) approved this Agreement and the transactions contemplated hereby and recommended approval and adoption of this Agreement by the stockholders of the Company;
WHEREAS, the Board of Directors of Parent has determined that the Merger is in the best interests of Parent and its stockholders and has approved this Agreement and the transactions contemplated hereby;
WHEREAS, Parent has informed the Company that immediately following the execution and delivery of this Agreement by the parties hereto, Parent contemplates that stockholders of the Company holding a majority of the outstanding shares of its voting common stock will enter into Consent and Voting/Conditional Option Agreements (collectively, the "Voting Agreements") with Parent, pursuant to which such stockholders will agree to vote for and/or consent to the adoption and approval of this Agreement and the Merger, grant to Parent an option to purchase the shares of the Common Stock owned by such stockholder and take and refrain from taking certain other actions as set forth
NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement, the parties hereto agree as follows:
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with Delaware Law, at the Effective Time (as hereinafter defined), Parent Sub shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Parent Sub shall cease and the Company shall continue as the surviving corporation of the Merger (the "Surviving Corporation"). The name of the Surviving Corporation shall be Outlet Communications, Inc.
SECTION 1.02. Effective Time. As promptly as practicable after the satisfaction or, if permissible, waiver of the conditions set forth in Article VII, the parties hereto shall cause the Merger to be consummated by filing a certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, Delaware Law (the date and time of the filing of the Certificate of Merger or the time specified therein being the "Effective Time").
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, except as otherwise provided herein, all the property, rights, privileges, powers and franchises of Parent Sub and the Company shall vest in the Surviving Corporation, and all debts, liabilities and duties of Parent Sub and the Company shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; By-Laws. At the Effective Time, the Certificate of Incorporation and By-Laws of the Company, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation and By-Laws, respectively, of the Surviving Corporation.
SECTION 1.05. Directors and Officers. The directors of Parent Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation, and the officers of Parent Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified.
SECTION 1.06. Closing. (a) The closing (the "Closing") of the Merger will take place at the offices of Simpson Thacher & Bartlett, New York, New York at 10:00 a.m., local time, on a date to be mutually agreed upon by Parent and the Company, which date shall be no later than the fifth business day following the date upon which the last to occur of the conditions set forth in Article VII is fulfilled or duly waived.
(b) Subject to the satisfaction or waiver of each of the conditions set forth in Article VII, at the Closing, (i) the closing certificates and other documents required by Article VII shall be delivered, and (ii) the appropriate officers of the Company shall execute and acknowledge the Certificate of Merger.
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Parent Sub, the Company or the holders of any of the following securities:
(a) Subject to the other provisions of this Section 2.01, each share of Class A Common Stock, par value $.01 per share ("Common Stock"), issued and outstanding immediately prior to the Effective Time (excluding any shares described in Section 2.01(b) and any Dissenting Shares (as hereinafter defined)) shall be converted into the right to receive $47.25 in cash, without interest (the "Per Share Amount"). All such shares of Common Stock shall cease to be outstanding and shall automatically be canceled and retired and shall cease to exist, and each certificate previously evidencing any such shares shall thereafter represent only the right to receive the Per Share Amount as described below. The holders of certificates previously evidencing such shares of Common Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares of Common Stock, except as otherwise provided herein or by law. Each such certificate previously evidencing shares of Common Stock shall be exchanged for the Per Share Amount multiplied by the number of shares previously evidenced by the canceled certificate upon the surrender of such certificate in accordance with the provisions of Section
(b) Each share of Common Stock held in the treasury of the Company and each share of Common Stock owned by any direct or indirect subsidiary of the Company immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof and no payment shall be made
(c) Each share of Common Stock, par value $.01 per share, of Parent Sub ("Parent Sub Common Stock") issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one duly and validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation.
SECTION 2.02. Payment. (a) Paying Agent. As of the Effective Time, Parent shall deposit, or shall cause to be deposited, with a bank theretofore designated by the Company and Parent (the "Paying Agent"), for the benefit of the holders of shares of Common Stock, for payment in accordance with this Article II, through the Paying Agent, cash in an amount equal to the Per Share Amount multiplied by the number of shares of Common Stock outstanding immediately prior to the Effective Time, (such cash being hereinafter referred to as the "Payment Fund"). The Paying Agent shall, pursuant to irrevocable instructions, deliver the cash contemplated to be paid pursuant to Section 2.01(a) out of the Payment Fund. The Payment Fund shall not be used for any other purpose.
(b) Payment Procedures. Promptly after the Effective Time, the Paying Agent shall mail to each record holder, as of the Effective Time, of an outstanding certificate that immediately prior to the Effective
Time evidenced outstanding shares of Common Stock (the "Certificates") a form letter of transmittal and instructions for use in effecting the surrender of the Certificates for payment therefor. Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal duly executed, and any other required documents, the holder of such Certificate shall be entitled to receive in exchange therefor the consideration set forth in Section 2.01(a) (the "Merger Consideration"), and such Certificate shall forthwith be cancelled. No interest will be paid or accrued on the cash payable upon the surrender of the Certificates. Until surrendered in accordance with the provisions of this Section 2.02, each Certificate shall represent for all purposes only the right to receive the consideration set forth in Section 2.01(a), without any interest thereon.
(c) No Further Rights in Common Stock. All cash paid upon conversion of the shares of Common Stock in accordance with the terms of this Article II, and all cash paid pursuant to Section 2.05, shall be deemed to have been paid in full satisfaction of all rights pertaining to such shares of Common Stock.
(d) Termination of Payment Fund. Any portion of the Payment Fund that remains undistributed to the holders of Common Stock for 180 days after the Effective Time shall be delivered to Parent, upon demand, and any holders of Common Stock that have not theretofore complied with this Article II shall thereafter look only to Parent for the Merger Consideration to which they are entitled.
(e) No Liability. Neither Parent nor the Surviving Corporation shall be liable to any holder of shares of Common Stock for any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.
SECTION 2.03. Options. Parent and the Company shall take all action necessary to (i) terminate the Company's 1992 Stock Incentive Plan, as amended to the date of this Agreement (the "1992 Stock Plan"), effective as of the close of business on the day after the Effective Time, (ii) provide that each outstanding employee stock option or "Restricted Share" award to purchase shares of Common Stock granted under the 1992 Stock Plan (an "Option") shall become fully vested, whether or not previously vested, immediately prior to the Effective Time and (iii) provide that, with respect to any such Option that is outstanding immediately prior to the Effective Time, such Option shall be cancelled as of the close of business on the day after the Effective Time and the holder shall be entitled to receive from the Surviving Corporation, immediately after the Effective Time, an amount in cash in cancellation of such Option equal to the excess, if any, of the Per Share Amount over the per share exercise price of such Option, multiplied by the number of shares of Common Stock to which the Option remains unexercised. Any such payment shall be subject to all applicable Federal, state and local tax withholding requirements.
SECTION 2.04. Stock Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers of shares of Common Stock thereafter on the records of the Company. On or after the Effective Time, any certificates for shares of Common Stock presented to the Paying Agent, the Surviving Corporation or Parent for any reason shall be converted into the Merger Consideration.
SECTION 2.05. Dissenting Shares. Notwithstanding any other provisions of this Agreement to the contrary, shares of Common Stock that are outstanding immediately prior to the Effective Time and that are held by stockholders who shall not have voted in favor of the Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such shares in accordance with Section 262 of Delaware Law (collectively, the "Dissenting Shares") shall not be converted into or represent the right to receive the Merger Consideration. Such stockholders shall be entitled to receive payment of the appraised value of such shares of Common Stock held by them in accordance with the provisions of such Section 262, except that all Dissenting Shares held by stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such shares of Common Stock under such Section 262 shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Effective Time, for the right to receive, without any interest thereon, the Merger Consideration, upon surrender, in the manner provided in Section 2.02, of the certificate or certificates that formerly evidenced such shares of Common Stock.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the Company to Parent concurrent with the execution of this Agreement (the "Company Disclosure Schedule"), the Company hereby represents and warrants to Parent and Parent Sub that:
SECTION 3.01. Organization and Qualification; Subsidiaries. (a) The Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of the business conducted by it or the ownership or leasing of its properties makes such qualification necessary, other than where the failure to be so duly organized, validly existing and in good standing, or to have such power and authority, or to be duly qualified and in good standing, as the case may be, would not have a Company Material Adverse Effect (as hereinafter defined). The term "Company Material Adverse Effect" as used in this Agreement means any change or effect (other than a change or effect relating to the industry of the Company, the financial markets or the economy generally) that, individually or when taken together with all other such changes or effects, would be materially adverse to the financial condition, business, operations, earnings or prospects of the Company and its subsidiaries, taken as a whole.
(b) Section 3.01 of the Company Disclosure Schedule sets forth a complete and correct list of all the Company's directly or indirectly owned subsidiaries, together with (i) the jurisdiction of incorporation of each subsidiary and the percentage of each subsidiary's outstanding capital stock owned by each holder of such stock, and (ii) indication of whether each such subsidiary is a "Significant Subsidiary" (as hereinafter defined).
SECTION 3.02. Certificates of Incorporation and By-Laws. The Company has heretofore furnished to Parent complete and accurate copies of the Certificates of Incorporation and the By-Laws, in each case as amended or restated to the date of this Agreement, of the Company and each of its subsidiaries.
SECTION 3.03. Capitalization. (a) The authorized capital stock of the Company, as of immediately prior to the Effective Time, will consist of (i) 10,000,000 shares of Common Stock; (ii) 1,879,375 shares of Class B Common Stock, par value $.01 per share, and (iii) 1,000,000 shares of Preferred Stock, no par value. As of the date of this Agreement, (i) 6,579,631 shares of Common Stock (none of which is subject to preemptive rights created by statute, the Company's Certificate of Incorporation or By-Laws or any agreement to which the Company is a party or is bound), no shares of Class B Common Stock, and no shares of Preferred Stock are issued and outstanding, (ii) no shares of Common Stock are held in the treasury of the Company; (iii) 272,469 shares of Common Stock are reserved for issuance pursuant to outstanding Options granted pursuant to the 1992 Stock Plan, (iv) no shares of Common Stock are issued and outstanding as "Restricted Shares" under the 1992 Stock Plan, and (v) no "Limited Rights" are issued and outstanding under the 1992 Stock Plan. Each of the outstanding shares of capital stock of the Company and each of its subsidiaries is duly authorized and validly issued, fully paid and nonassessable, and such shares owned by the Company or another subsidiary of the Company are owned free and clear of all liens, claims, encumbrances, security interests or other charges ("Encumbrances"), except for such Encumbrances as would not have a Company Material Adverse Effect.
(b) Immediately prior to the Effective Time, there will be no options, warrants or other rights (including registration rights), agreements, arrangements or commitments of any character to which the Company or any of its subsidiaries is a party relating to the issued or unissued capital stock of the Company or any of its subsidiaries or obligating the Company or any of its subsidiaries to grant, issue or sell any shares of the capital stock of the Company or any of its subsidiaries, by sale or otherwise. There are no obligations, contingent or otherwise, of the Company or any of its subsidiaries to (i) repurchase, redeem or otherwise reacquire any shares of Common Stock or the capital stock of any subsidiary of the Company; or (ii) (other than advances to subsidiaries in the ordinary course of business) provide material funds to, or make any material investment in (in the form of a loan, capital contribution or otherwise), or provide any guarantee with respect to the obligations of, any subsidiary of the Company or any other person. As of the date of this Agreement, none of the Company or any of its subsidiaries directly or indirectly owns, or has agreed to purchase or otherwise acquire, the capital stock of, or any interest convertible into or exchangeable or exercisable for, the capital stock of any corporation, partnership, joint venture or other business association or entity. Except for any agreements, arrangements or commitments between the Company and any of its subsidiaries or between such subsidiaries, there are no material agreements, arrangements or commitments of any character (contingent or otherwise) pursuant to which any person is or may be entitled to receive any payment based on the revenues or earnings, or calculated in accordance therewith, of the Company or any of its subsidiaries. There are no voting trusts, proxies or other material agreements or understandings to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound with respect to the voting of any shares of capital stock of the Company or any of its subsidiaries.
(c) The Company has made available to Parent complete and accurate copies of the 1992 Stock Plan and the forms of agreements related to Options and Restricted Shares awarded pursuant to the 1992 Stock Plan, including all amendments thereto.
SECTION 3.04. Authority. The Company has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby to be consummated by the Company. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Parent and Parent Sub, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by the availability of equitable remedies. Prior to the execution of this Agreement, the Company has taken all necessary corporate action to permit this Agreement and the Merger to be approved immediately following execution of this Agreement by the written consent of the holders of a majority of the outstanding Common Stock.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement by the Company do not, and the performance of this Agreement by the Company will not, (i) conflict with or violate the Certificate of Incorporation or By-Laws of the Company or any of its subsidiaries, (ii) conflict with or violate any Federal, state, local or foreign law, statute, ordinance, rule, regulation, permit, order, judgment or decree (collectively, "Laws") applicable to the Company or any of its subsidiaries or by which any of their respective properties is bound, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or require payment under, or result in the creation of any Encumbrance on any of the properties or assets of the Company or any of its subsidiaries pursuant to, or trigger any right of first refusal under, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective properties is bound, except for any thereof that would not have a Company Material Adverse Effect. The Board of Directors of the Company has taken all actions necessary under Delaware Law, including approving the transactions contemplated by this Agreement and by each Voting Agreement, to ensure that Section 203 of Delaware Law does not, or will not, apply to the transactions contemplated by this Agreement or by the Voting Agreements.
(b) The execution and delivery of this Agreement by the Company do not, and the performance of this Agreement by the Company will not, require the Company to obtain any consent, approval, authorization or permit of, or to make any filing with or notification to, any governmental or regulatory authority, domestic or foreign ("Governmental Entity"), based on the Laws of any Governmental Entity, except (i) the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Communications Act of 1934, as amended (the "Communications Act"), and the Hart-Scott-Rodino Antitrust Improvements Act of
(the "HSR Act"); (ii) the filing and recordation of the Certificate of Merger as required by Delaware Law; and (iii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent the Company from performing its obligations under this Agreement and would not have a Company Material Adverse Effect.
SECTION 3.06. Reports; Financial Statements. (a) Since June 30, 1992, (i) the Company and Outlet Broadcasting, Inc., a Rhode Island corporation ("Broadcasting") have filed all forms, reports, statements, schedules and other documents required to be filed with (A) the Securities and Exchange Commission (the "SEC"), including, without limitation, (I) all Annual Reports on Form 10-K, (II) all Quarterly Reports on Form 10-Q, (III) all Current Reports on Form 8-K, (IV) all other forms, reports, statements, schedules and other documents required to be filed, and (V) all amendments and supplements to all such forms, reports, statements, schedules and other documents (collectively, the "Company SEC Reports"); (B) any other applicable state securities authorities, and (C) the Federal Communications Commission (the "FCC") and (ii) the Company and Broadcasting and their respective subsidiaries have filed all forms, reports, statements, schedules and other documents required to be filed with any other applicable Federal or state regulatory authorities, except where the failure to file any such forms, reports, statements, schedules or other documents would not have a Company Material Adverse Effect (all such forms, reports, statements, schedules and other documents in clauses (i) and (ii) of this Section 3.06(a) being referred to herein, collectively, as the "Company Reports"). The Company Reports, including all Company Reports filed after the date hereof and prior to the Effective Time, (i) were or will be prepared in all material respects in accordance with the requirements of applicable Law (including, with respect to the Company SEC Reports, the Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act, and the rules and regulations of the SEC thereunder applicable to such Company SEC Reports), and (ii) did not at the time they were filed, or will not at the time they are filed, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that, to the extent that the foregoing relates to facts or omissions regarding persons other than the Company and its affiliates, such representation and warranty is being made to the Company's knowledge.
(b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Company SEC Reports filed prior to the Effective Time (i) have been or will be prepared in accordance with the published rules and regulations of the SEC and generally accepted accounting principles applied on a consistent basis throughout the periods involved (except (A) to the extent required by changes in generally accepted accounting principles and (B) with respect to Company SEC Reports filed prior to the date hereof, as may be indicated in the notes thereto) and (ii) fairly present or will fairly present the consolidated financial position of the Company and its subsidiaries, as the case may be, as of the respective dates thereof and the consolidated results of operations and cash flows for the periods indicated, except that (x) any unaudited interim financial statements were or will be subject to normal and recurring year-end adjustments and (y) any pro forma financial information contained in such consolidated financial statements is not necessarily indicative of the consolidated financial position of the Company and its subsidiaries, as the case may be, as of the respective dates thereof and the consolidated results of operations and cash flows for the periods indicated.
SECTION 3.07. Undisclosed Liabilities. As of the date of this Agreement, none of the Company or any of its subsidiaries has, to the knowledge of the Company, any material liability (whether accrued, absolute, contingent or otherwise) that is required to be reflected on the financial statements (or the notes thereto) of the Company in accordance with generally accepted accounting principles, other than liabilities (a) reflected or reserved against in the consolidated balance sheets included in the Company's Form 10-Q for the quarter ended March 31, 1995, and Form 10-K for the year ended December 31, 1994 (the "Balance Sheets") (or in the notes thereto), (b) with respect to matters disclosed in the Company Disclosure Schedule or excluded from the coverage of any of the representations, warranties or covenants herein, (c) that are covered by enforceable insurance, indemnification, contribution or comparable arrangements, (d) under the Laws of any jurisdiction, except for violation of any such Laws that would have a Company Material Adverse Effect, (e) under any contract or instrument, other than liabilities arising out of breaches of such that would have a Company Material Adverse Effect, (f) under this Agreement, the Renaissance Merger Agreement (as hereinafter defined) or any agreement entered into in connection herewith, (g) with respect to matters addressed in Sections 3.13, 3.16 and 3.19 (which shall be governed solely by the terms of such Sections), and (h) incurred or arising in the ordinary course of business of the Company or such subsidiary since March 31, 1995.
SECTION 3.08. Material Contracts. Section 3.08 of the Company Disclosure Schedule sets forth a list, as of the date of this Agreement, of all (a) written employment, severance, termination, consulting (to the extent any thereof involve annual payments of at least $25,000 or are not terminable on less than 366 days' notice without material penalty) and retirement agreements to which the Company or any of its subsidiaries is a party, (b) written collective bargaining agreements to which the Company or any of its subsidiaries is a party, (c) written agreements that require aggregate future payments by or to the Company or any of its subsidiaries of more than $500,000 that are not terminable by the Company or any of its subsidiaries on less than 366 days' notice without material penalty (other than purchase orders and advertising sales contracts entered into in the ordinary course of business), (d) written agreements containing covenants limiting the freedom of the Company or any of its subsidiaries to compete with any person in any line of business or in any area or territory, (e) license agreements involving annual payments in excess of $500,000, (f) indentures, mortgages and notes or other debt instruments evidencing indebtedness (other than purchase money indebtedness) in excess of $1,000,000, (g) material agreements of the Company or any of its subsidiaries with any shareholder or director of the Company, (h) agreements of the Company involving payments in excess of $500,000 containing any provisions with respect to a "change in control" of the Company, and (i) agreements under which the Company or any of its subsidiaries has advanced or loaned any amount in excess of $50,000 to any of its directors, officers or employees (collectively, the "Material Contracts"). Except as would not have a Company Material Adverse Effect, (a) the Company and its subsidiaries are not in default under any of the Material Contracts, and (b) to the Company's knowledge, the other parties thereto are not in default and the Material Contracts are valid and binding obligations of the other parties thereto, in accordance with their terms.
SECTION 3.09. FCC Licenses; Station Operation. Except for such matters as would not have a Company Material Adverse Effect, (a) to the Company's knowledge, it is operating the Licensed Stations (as hereinafter defined) in accordance with generally accepted industry practice, in compliance with the terms of the FCC Licenses (as hereinafter defined), and in compliance with the Communications Act and all applicable rules, regulations and policies of the FCC (collectively, the "FCC Rules and Regulations"); (b) the Company has filed or made all applications, reports and other disclosures required by the FCC to be filed or made with respect to the Licensed Stations and has timely paid all FCC regulatory fees with respect thereto; (c) all FCC Licenses used or useful in connection with the ownership and operation of the Licensed Stations as commercial broadcast television stations are valid and in full force and effect; (d) no application, action or proceeding is pending for the renewal or modification of any of the FCC Licenses and, to the Company's knowledge, there is not now before the FCC any investigation or complaint against the Company relating to the Licensed Stations; (e) there is no proceeding pending before the FCC (other than proceedings affecting the broadcast industry generally), and there is no outstanding notice of violation from the FCC, relating to the Licensed Stations; (f) to the Company's knowledge, there is no reasonable basis for the initiation or issuance by the FCC of any investigation, proceeding or notice of violation with respect to the Licensed Stations and there is no reasonable basis on which any third party could file such a complaint, which could reasonably be expected to prevent FCC approval of the FCC Application (as defined in Section 6.03); (g) to the Company's knowledge, no event has occurred which, individually or in the aggregate, and with or without the giving of notice or the lapse of time or both, would constitute grounds for revocation or termination of any FCC License or the imposition of any restriction or limitation on the operation of the Licensed Stations; and (h) no judgment, decree, order or notice of violation has been issued by any Governmental Entity which permits, or would permit, revocation, modification or termination of any FCC License or which results, or could result, in any impairment of any rights thereunder.
SECTION 3.10. Permits. (a) Each of the Company and its subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders (collectively, the "Company Permits"), that are necessary to own, lease and operate the properties of the Company and its subsidiaries and to carry on their business as they or it are or is owned, leased, operated or carried on, except, in each case, where the failure to possess such Company Permits would not have a Company Material Adverse Effect. The Company Permits are in full force and effect and there is no action, proceeding or investigation pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits, except, in each case, where the failure to possess, or the suspension or cancellation of, such Company Permits would not have a Company Material Adverse Effect.
SECTION 3.11. Properties. Each of the Company and its subsidiaries has good, valid and, in the case of real property, marketable fee simple, title to all the material assets and properties that it owns and that are reflected on the Balance Sheets (except for assets and properties sold, consumed or otherwise disposed of by them since the dates thereof), and such assets and properties are owned free and clear of all Encumbrances, except for (a) liens for taxes and assessments not yet due and payable or for taxes the validity of which is being contested in good faith, (b) Encumbrances to secure indebtedness reflected on the Balance Sheets or indebtedness (including purchase money indebtedness) incurred in the ordinary course of business and consistent with past practice after the date thereof, (c) mechanic's, materialmen's and other Encumbrances that have arisen in the ordinary course of business and (d) imperfections of title and Encumbrances the existence of which do not have a Company Material Adverse Effect. All the material buildings, structures, equipment and other tangible assets of the Company and its subsidiaries (whether owned or leased) are in normal operating condition (normal wear and tear excepted) and are fit for use in the ordinary course of business of the Company.
SECTION 3.12. Intellectual Property. Section 3.12 of the Company Disclosure Schedule sets forth a complete and accurate list and a brief description of all patents, patent applications, trademarks, trade names, service marks and other intellectual property (the "Intellectual Property") owned, used or licensed by or to the Company and pertaining to the business of the Company, which is all the Intellectual Property necessary to conduct the business of the Company, except for Intellectual Property, the lack of which would not have a Company Material Adverse Effect. Except as would not have a Company Material Adverse Effect, to the Company's knowledge, the rights of the Company in or to such Intellectual Property do not conflict with or infringe on the rights of any other person, and the Company has not received any claim or notice from any person to such effect.
SECTION 3.13. Taxes. Except for such matters as would not have a Company Material Adverse Effect, (a) the Company and its subsidiaries have filed or will timely file all returns and reports required to be filed prior to the Effective Time by them with any taxing authority with respect to Taxes (as hereinafter defined) for any period ending on or before the Effective Time, (b) all Taxes shown to be payable on such returns or reports that are due prior to the Effective Time have been paid or will be paid, (c) no deficiency for any material amount of Tax has been asserted or assessed by a taxing authority against the Company or its subsidiaries, and (d) no consent under Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"), has been filed with respect to the Company or any of its subsidiaries. As of the date of this Agreement, there are no examinations of Federal income tax returns of the Company currently being conducted by the Internal Revenue Service.
SECTION 3.14. Compliance. To the Company's knowledge, none of the Company or any of its subsidiaries is in default or violation of (a) any Law applicable to the Company or any of its subsidiaries or by which any of their respective properties is bound or (b) any of the Company Permits, except for any such defaults or violations that would not have a Company Material Adverse Effect. None of the Company or any of its subsidiaries has received from any Governmental Entity any written notification with respect to possible defaults or violations of Laws by the Company or any of its subsidiaries, except, in each case, for written notices relating to possible defaults or violations that would not have a Company Material Adverse Effect or have been resolved.
SECTION 3.15. Certain Changes or Events. Except as disclosed in the Company SEC Reports filed prior to the date of this Agreement or as contemplated by this Agreement, during the period commencing
January 1, 1995, and ending on the date of this Agreement, the Company and its subsidiaries have conducted their respective businesses only in the ordinary course and in a manner consistent with past practice and there has not been: (a) any material damage, destruction or loss (not covered by insurance) with respect to any material assets of the Company or any of its subsidiaries that has resulted in a Company Material Adverse Effect; (b) any material change by the Company or its subsidiaries in their accounting methods, principles or practices; (c) except for dividends by a subsidiary of the Company to the Company or another subsidiary of the Company or repurchases of shares of Common Stock from terminated employees pursuant to the 1992 Stock Plan, any declaration, setting aside or payment of any dividends or distributions in respect of shares of Common Stock or the shares of stock of, any subsidiary of the Company or any redemption, repurchase or other reacquisition of any of the Company's equity securities or any of the equity securities of any subsidiary of the Company; (d) any material increase in the benefits under, or the establishment or amendment of, any material bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option (including, without limitation, the granting of stock options, stock appreciation rights, performance awards, or restricted stock awards), stock purchase or other employee benefit plan, or any material increase in the compensation payable or to become payable to directors, officers or employees of the Company or its subsidiaries, except for increases in salaries or wages payable or to become payable in the ordinary course of business and consistent with past practice; or (e) a Company Material Adverse Effect.
SECTION 3.16. Litigation. As of the date of this Agreement, there is no claim, action, suit, litigation, proceeding, arbitration or, to the knowledge of the Company, investigation of any kind, at law or in equity (including actions or proceedings seeking injunctive relief), pending or, to the knowledge of the Company, threatened in writing against the Company or any of its subsidiaries or any properties or rights of the Company or any of its subsidiaries (except for claims, actions, suits, litigations, proceedings, arbitrations or investigations that would not have a Company Material Adverse Effect), and neither the Company nor any of its subsidiaries is subject to any continuing order of, consent decree, settlement agreement or other similar written agreement with, or, to the knowledge of the Company, continuing investigation by, any Governmental Entity, or any judgment, order, writ, injunction, decree or award of any Governmental Entity or arbitrator, including, without limitation, cease-and-desist or other orders, except as disclosed in the Company SEC Reports filed prior to the date of this Agreement and except for matters that would not have a Company Material Adverse Effect.
SECTION 3.17. Employee Benefit Plans; Labor Matters. (a) Section 3.17(a) of the Company Disclosure Schedule sets forth a complete and accurate list of each employee benefit plan, program, arrangement and contract (including, without limitation, any "employee benefit plan", as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), employment agreements, personnel policies or fringe benefit plans, policies, programs and arrangements, stock bonus, deferred compensation, pension, severance, bonus, vacation, travel, incentive, and health, disability and other welfare plans), maintained or contributed to by the Company or any of its subsidiaries, or with respect to which the Company or any of its subsidiaries could incur liability under Section 4069, 4212(c) or 4204 of ERISA (the "Company Benefit Plans").
(b) None of the Company or any of its subsidiaries contributes to, has any material obligation to contribute to or otherwise has any material liability or potential material liability with respect to (i) any "multiemployer plan" (as such term is defined in Section 3(37) of ERISA), (ii) any plan of the type described in Section 4063 and 4064 of ERISA or (iii) any plan that provides health, life insurance, accident or other "welfare-type" benefits to current or future retirees or current or future former employees, their spouses or dependents, other than in accordance with Section 4980B of the Code, or applicable state benefit continuation law. None of the Company or any of its subsidiaries has any liability or, to the knowledge of the Company, potential liability with respect to any employee benefit plan subject to Title IV of ERISA or Section 412 of the Code that is currently or was formerly maintained by any other current or former member of the controlled group of corporations, trades or businesses (within the meaning of Sections 414(b), (c), (m) and (o) of the Code) of which the Company or any of its subsidiaries is or was a member that would have a Company Material Adverse Effect.
(c) Each Company Benefit Plan has been maintained, funded and administered in compliance in all material respects with applicable Law, including, without limitation, ERISA and the Code. None of the
Company or any of its subsidiaries has engaged in any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Company Benefit Plan that has resulted or could reasonably be expected to result in any material liability to the Company or any of its subsidiaries. No Company Benefit Plan that is subject to the funding requirements of Section 412 of the Code or Section 302 of ERISA has incurred any "accumulated funding deficiency" as such term is defined in such sections of ERISA and the Code, whether or not waived. No material liability to the Pension Benefit Guaranty Corporation ("PBGC") (except for payment of premiums in the ordinary course) has been or is reasonably expected to be incurred with respect to any Company Benefit Plan that is subject to Title IV of ERISA; no reportable event (as such term is defined in Section 4043 of ERISA) has occurred with respect to any such Company Benefit Plan; and the PBGC has not commenced or threatened the termination of any such Company Benefit Plan. None of the assets of the Company or any of its subsidiaries is the subject of any lien arising under Section 302(f) of ERISA or Section 412(n) of the Code; and none of the Company or any of its subsidiaries has been required to post any security pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code.
(d) Each Company Benefit Plan that is intended to be qualified under Section 401(a) of the Code, and each trust (if any) forming a part thereof, has received a favorable determination letter from the Internal Revenue Service as to the qualification under the Code of such Company Benefit Plan and the tax-exempt status of such related trust.
(e) With respect to each Company Benefit Plan that is subject to the funding requirements of Section 412 of the Code and Section 302 of ERISA, all material required contributions for all periods ending prior to or as of the Effective Time (including periods from the first day of the then-current plan year to the Effective Time) have been or will be made or properly accrued.
(f) With respect to each Company Benefit Plan, the Company has made available to Parent, complete and accurate copies, to the extent applicable, of (i) all documents embodying or governing such Company Benefit Plan and any funding medium for the Company Benefit Plan, (ii) the 1993 annual report (Form 5500 series) filed with the Internal Revenue Service (with attachments), (iii) the most recent actuarial report, (iv) the two most recent financial statements and (v) the most recent IRS determination or approval letter with respect to such Company Benefit Plan under Section 401 or 501(a)(9) of the Code (and pending requests or applications for determinations or approvals).
(g) The Company and each of its subsidiaries are in compliance with all applicable Laws relating to the employment of personnel and labor, except where a failure to be in compliance would not have a Company Material Adverse Effect.
(h) Except for such exceptions as do not have a Material Adverse Effect, as of the date of this Agreement, (i) there are no controversies pending or, to the knowledge of the Company, threatened between the Company or any of its subsidiaries and any of their respective employees; (ii) none of the Company or any of its subsidiaries is a party to any collective bargaining agreement or other labor union contract applicable to persons employed by the Company or any of its subsidiaries, nor, to the knowledge of the Company, are there any activities or proceedings of any labor union to organize any such employees; (iii) there are no grievances outstanding against the Company or any of its subsidiaries under any such agreement or contract; (iv) there are no unfair labor practice complaints pending against the Company or any of its subsidiaries before the National Labor Relations Board or any current union representation questions involving employees of the Company or any of its subsidiaries; and (v) there is no strike, slowdown, work stoppage or lockout, or, to the knowledge of the Company, threat thereof, by or with respect to any employees of the Company or any of its subsidiaries.
SECTION 3.18. Insurance. All material insurance policies (the "Insurance Policies") with respect to the property, assets, operations and business of the Company and its subsidiaries are in full force and effect in all material respects. The coverage amounts set forth in such Insurance Policies (subject to applicable deductibles) are not less than the replacement cost of the assets insured by such Insurance Policies. There are no pending material claims against the Insurance Policies by the Company or any of its subsidiaries as to which the insurers have denied material liability.
SECTION 3.19. Environmental Matters. (a) Except as would not have a Company Material Adverse Effect, (i) the Company is in compliance with all applicable Federal, state, local and foreign laws and regulations relating to pollution and the discharge of materials into the environment ("Environmental Laws"), (ii) the Company holds all the permits, licenses and approvals of governmental authorities and agencies necessary for the current use, occupancy or operation of its assets and business under Environmental Laws ("Environmental Permits"), and (iii) the Company is in compliance with all its Environmental Permits.
(b) The Company has not received any written request for information, or been notified that it is a potentially responsible party, under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), or any similar state, local or foreign law with respect to any real property owned or leased by it.
(c) The Company has not entered into or agreed to any consent decree or order and is not subject to any judgment, decree or judicial order relating to compliance with or the cleanup of regulated substances under any applicable Environmental Law.
(d) None of the real property owned or leased by the Company is listed or, to the knowledge of the Company, proposed for listing on the "National Priorities List" under CERCLA, or on the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the United States Environmental Protection Agency, as updated through the date of this Agreement, or any similar state list of sites requiring investigation or cleanup.
SECTION 3.20. Brokers. Other than Goldman, Sachs & Co., no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company.
SECTION 3.21. Renaissance Merger Agreement. The Board of Directors of the Company has recommended to the stockholders of the Company that the stockholders of the Company approve and adopt this Agreement. The Company has notified Renaissance Communications Corp., a Delaware corporation ("Renaissance"), that it has terminated the Merger Agreement dated as of June 30, 1995 (as such agreement is in effect on the date hereof, the "Renaissance Merger Agreement"), among the Company, Renaissance and Renaissance Communications Acquisition Corp., a Delaware corporation, pursuant to Section 8.01(h) thereof, and such termination became effective prior to the execution of this Agreement.
SECTION 3.22. Absence of Certain Other Actions. Between June 30, 1995, and the date of this Agreement (inclusive), neither the Company nor any of its subsidiaries has taken, or agreed to take, any action that would constitute a breach of Section 5.02 (other than Section 5.02(l)) if taken after the date of this Agreement.
SECTION 3.23. Renaissance Documentation. As of the date of this Agreement, there are no written agreements between Outlet and Renaissance other than the Renaissance Merger Agreement and the Confidentiality Agreement referred to therein.
REPRESENTATIONS AND WARRANTIES OF PARENT AND PARENT SUB
Except as set forth in the disclosure schedule delivered by Parent and Parent Sub to the Company concurrent with the execution of this Agreement (the "Parent Disclosure Schedule"), Parent and Parent Sub hereby jointly and severally represent and warrant to the Company that:
SECTION 4.01. Organization and Qualification; Subsidiaries. Each of Parent and Parent Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. The term "Parent Material Adverse Effect" as used in this Agreement means any change or effect (other than a change or effect relating to the industry of Parent, the financial markets or the economy generally) that, individually or when taken together with all such other changes or effects, would be materially adverse to the financial condition, business, operations, earnings or prospects of Parent and its subsidiaries, taken as a whole.
SECTION 4.02. Certificate of Incorporation and By-Laws. Parent has heretofore furnished to the Company a complete and accurate copy of the Certificate of Incorporation and the By-Laws, as amended or restated to the date of this Agreement, of each of Parent and Parent Sub.
SECTION 4.03. Authority. (a) Parent has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby to be consummated by Parent. The execution and delivery of this Agreement and the consummation by Parent of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no other corporate proceedings on the part of Parent are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been validly executed and delivered by Parent and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of Parent, enforceable against Parent in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by the availability of equitable remedies.
(b) Parent Sub has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby to be consummated by Parent Sub. The execution and delivery of this Agreement by Parent Sub and the consummation by Parent Sub of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no other corporate proceedings on the part of Parent Sub are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been validly executed and delivered by Parent Sub and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of Parent Sub, enforceable against Parent Sub in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by the availability of equitable remedies. Parent, as the sole stockholder of Parent Sub, has duly approved and adopted this Agreement in accordance with Delaware Law.
SECTION 4.04. No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement by Parent and Parent Sub do not, and the performance of this Agreement by Parent and Parent Sub will not, (i) conflict with or violate the Certificate of Incorporation or By-Laws of Parent, Parent Sub or any of Parent's subsidiaries, (ii) conflict with or violate any Laws applicable to Parent, Parent Sub or any of Parent's subsidiaries or by which any of their respective properties is bound, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or require payment under, or result in the creation of any Encumbrance on any of the properties or assets of Parent, Parent Sub or any of Parent's subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent, Parent Sub or any of Parent's subsidiaries is a party or by which Parent, Parent Sub or any of Parent's subsidiaries or any of their respective properties is bound, except for any thereof that would not have a Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and Parent Sub do not, and the performance of this Agreement by Parent and Parent Sub will not, require Parent or Parent Sub to obtain any consent, approval, authorization or permit of, or to make any filing with or notification to, any Governmental Entity based on the Laws of any Governmental Entity, except (i) for applicable requirements, if any, of the Exchange Act, the Communications Act and the HSR Act and the filing and recordation of the Certificate of Merger as required by Delaware Law and (ii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent Parent or Parent Sub from performing its obligations under this Agreement and would not have a Parent Material Adverse Effect.
SECTION 4.05. Ownership of Parent Sub; No Prior Activities. Parent Sub was formed solely for the purpose of engaging in the transactions contemplated by this Agreement. As of the date of this Agreement and the Effective Time, except for obligations or liabilities incurred in connection with its incorporation or organization and the transactions contemplated by this Agreement and the financing thereof and except for this Agreement and any other agreements or arrangements contemplated by this Agreement or related to the financing of the transactions contemplated hereby, Parent Sub has not and will not have incurred, directly or indirectly, through any subsidiary or affiliate, any obligations or liabilities or engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any person.
SECTION 4.06. Vote Required. No vote of the holders of any class or series of capital stock of Parent is necessary to approve any of the transactions contemplated hereby. The affirmative vote of the holders of a majority of the outstanding shares of common stock of Parent Sub is the only vote of the holders of any class or series of Parent Sub capital stock necessary to approve any of the transactions contemplated hereby.
SECTION 4.07. Financing. (a) Parent and its affiliates have, and at the Effective Time Parent will have, funds in an amount sufficient to (i) consummate the Merger (and make all the payments contemplated by Article II), (ii) pay all related fees and expenses, including, without limitation, the fee of $6.5 million which the Company is required to pay Renaissance under the Renaissance Merger Agreement upon consummation of the Merger, (iii) permit Broadcasting to comply with paragraph 4 of the 1988 Agreement (as hereinafter defined), (iv) permit the Company to comply with Section 5 of the Babb Agreement (as hereinafter defined), and (v) provide adequate working capital for the operation of the Company as of the Effective Time.
(b) Parent and Parent Sub have no reason to believe that they are not financially qualified under applicable FCC requirements to acquire and exercise control over the Company as contemplated under this Agreement and are not aware of any matters or relationships involving the Parent or Parent Sub or any of their affiliates that could reasonably be expected to cause the FCC to disapprove the transfer of control of the Company contemplated hereunder or to designate the FCC Application (as defined in Section 6.03(a)) for evidentiary hearing.
SECTION 4.8. Brokers. Except for Allen & Company Incorporated, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Parent Sub.
SECTION 5.01. Affirmative Covenants of the Company. The Company hereby covenants and agrees that, prior to the Effective Time, unless otherwise expressly contemplated by this Agreement or consented to in writing by Parent, the Company will and will cause its subsidiaries to (a) operate its business in the usual and ordinary course consistent with past practices; (b) use its reasonable efforts to preserve substantially intact its business organization, maintain its rights and franchises, retain the services of its respective principal officers and key employees and maintain its relationships with its respective principal customers and suppliers; (c) use its reasonable efforts to maintain and keep its properties and assets in as good repair and condition as at present, ordinary wear and tear excepted; and (d) use its reasonable efforts to keep in full force and effect insurance comparable in amount and scope of coverage to that currently maintained; provided, however, that in the event the Company deems it necessary to take certain actions that would otherwise be proscribed by clauses (a) - (d) of this Section 5.01, the Company shall consult with Parent and Parent shall consider in good faith the Company's request to take such action and not unreasonably withhold or delay its consent for such action.
SECTION 5.02. Negative Covenants of the Company. Except as expressly contemplated by this Agreement and except as set forth in Section 5.02 of the Company Disclosure Schedule, or otherwise consented to in writing by Parent, from the date hereof until the Effective Time, the Company will not do, and will not permit any of its subsidiaries to do, any of the following:
(a) (i) increase the periodic compensation payable to or to become payable to any director or executive officer of the Company or any of its subsidiaries, except for increases in salary, wages or bonuses payable or to become payable in the ordinary course of business and consistent with past practice; (ii) grant any severance or termination pay (other than pursuant to existing severance arrangements or policies as in effect on the date of this Agreement and "stay" bonuses which do not exceed $200,000 in the aggregate) to, or enter into any employment or severance agreement with, any director, officer or employee of the Company or any of its subsidiaries involving an annual payment of more than $100,000 and not terminable on or before the Closing (other than employment, severance or similar agreements entered into with the consent of Parent, which consent shall not be unreasonably withheld or delayed); or (iii) adopt any employee benefit plan or arrangement, except as may be required by applicable Law or pursuant to any collective bargaining agreement between the Company or any of its subsidiaries and their respective employees;
(b) declare or pay any dividend on, or make any other distribution in respect of, outstanding shares of capital stock of the Company;
(c) (i) redeem, repurchase or otherwise reacquire any shares of its or any of its subsidiaries' capital stock or any securities or obligations convertible into or exchangeable for any shares of its or its subsidiaries' capital stock (other than any such acquisition directly from any wholly owned subsidiary of the Company in exchange for capital contributions or loans to such subsidiary, or any options, warrants or conversion or other rights to acquire any shares of its or its subsidiaries' capital stock or any such securities or obligations (except in connection with the exercise of outstanding Options referred to in Section 3.03 in accordance with their terms); (ii) effect any reorganization or recapitalization of the Company; or (iii) split, combine or reclassify any of the Company's capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of, or in substitution for, shares of its capital
(d) (i) issue, deliver, award, grant or sell, or authorize or propose the issuance, delivery, award, grant or sale (including the grant of any Encumbrances) of, any shares of any class of its or its subsidiaries' capital stock (including shares held in treasury), any securities convertible into or exercisable or exchangeable for any such shares, or any rights, warrants or options to acquire, any such shares (except for the issuance of shares upon the exercise of outstanding Options and except for the issuance of options to employees with the consent of Parent); or (ii) amend or otherwise modify the terms of any such rights, warrants or options the effect of which shall be to make such terms more favorable to the
(e) acquire or agree to acquire, by merging or consolidating with, by purchasing an equity interest in or a portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division (other than a wholly owned subsidiary) thereof, or otherwise acquire or agree to acquire any assets of any other person (other than the purchase of assets in the ordinary course of business and consistent with past practice) in the case of asset purchases which are material, individually or in the aggregate, to the Company and its subsidiaries, taken as a whole, or make or commit to make any capital expenditures other than capital expenditures in the ordinary course of business consistent with past practice and with the Company's
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of, any of its material assets or any material assets of any of its subsidiaries except for the grant of purchase money security interests and dispositions in the ordinary course of business and
(g) propose or adopt any amendments to its Certificate of Incorporation or, as to its By-Laws, any amendments that would have an adverse impact on the consummation of the transactions contemplated by this Agreement or would be adverse to Parent's interests;
(h) (A) change any of its methods of accounting in effect at March 31, 1995, or (B) make or rescind any express or deemed election relating to Taxes, settle or compromise any claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes (except where the amount of such settlements or controversies, individually or in the aggregate, does not exceed $250,000), or change any of its methods of reporting income or deductions for federal income tax purposes from those employed in the preparation of the federal income tax returns for the taxable year ending December 31, 1993, except, in the case of clause (A) or clause (B), as may be required by Law or generally
(i) incur any obligation for borrowed money other than purchase money indebtedness, whether or not evidenced by a note, bond, debenture or similar instrument, except in the ordinary course of business under existing loan agreements or capitalized leases, or prepay, before the scheduled maturity thereof, any of its long-term debt;
(k) agree in writing or otherwise to do any of the foregoing;
(l) initiate, solicit or encourage (including by way of furnishing information or assistance), or take any other action to facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Competing Transaction (as hereinafter defined), or negotiate with any person or entity in furtherance of such inquiries or to obtain a Competing Transaction, or agree to or endorse any Competing Transaction, or authorize or permit any of the officers, directors or employees of the Company or any of its subsidiaries or any representative retained by the Company or any of the Company's subsidiaries to take any such action, and the Company shall promptly notify Parent of all relevant terms of any such inquiries and proposals received by the Company or any of its subsidiaries, or by any such officer, director or representative, relating to any of such matters and if such inquiry or proposal is in writing, the Company shall deliver or cause to be delivered to Parent a copy of such inquiry or proposal; provided, however, that prior to such time as the stockholders of the Company shall have adopted and approved this Agreement in accordance with Delaware Law, nothing contained in this subsection (l) shall prohibit the Board of Directors of the Company from (i) furnishing information to, or entering into discussions or negotiations with, any person or entity that makes an unsolicited bona fide proposal to acquire the Company pursuant to a merger, consolidation, share exchange, business combination or other similar transaction, if, and only to the extent that, (A) the Board of Directors of the Company, after consultation with independent legal counsel, determines in good faith that such action is required for the Board of Directors of the Company to comply with its fiduciary duties to shareholders imposed by Delaware Law, (B) prior to furnishing such information to, or entering into discussions or negotiations with, such person or entity, the Company provides written notice to Parent to the effect that it is furnishing information to, or entering into discussions or negotiations with, such person or entity, (C) prior to furnishing such information to such person or entity, the Company receives from such person or entity an executed confidentiality agreement with terms no less favorable to the Company than those contained in the Confidentiality Agreement (as hereinafter defined), and (D) the Company keeps Parent informed, on a current basis, of the status of any such discussions or negotiations; or (ii) complying with Rule 14e-2 promulgated under the Exchange Act with regard to a Competing Transaction. For purposes of this Agreement, "Competing Transaction" shall mean any of the following involving the Company or any of its subsidiaries: (a) any merger, consolidation, share exchange, business combination, or other similar transaction (other than the transactions contemplated by this Agreement); (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 25% or more of the assets of the Company and its subsidiaries, taken as a whole, in a single transaction or series of transactions; (c) any tender offer or exchange offer for 25% or more of the outstanding shares of capital stock of the Company; (d) any person shall have acquired, after the date hereof, beneficial ownership or the right to acquire beneficial ownership of, or any "group" (as such term is defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) shall have been formed that beneficially owns or
right to acquire beneficial ownership of, 25% or more of the then outstanding shares of capital stock of the Company; or (e) any public announcement of a proposal, plan or intention to do any of the foregoing;
(m) except in the ordinary course of business and consistent with prior practice or with the consent of Parent (which shall not be unreasonably withheld or delayed), enter into, renew, renegotiate, modify, amend or terminate any time sales contracts involving an annual payment of
(n) except in the ordinary course of business and consistent with prior practice or with the consent of Parent (which shall not be unreasonably withheld or delayed), enter into, amend or modify any contract involving an annual payment of more than $100,000 under which the Company is authorized to broadcast programming; or
(o) settle or compromise, or permit any settlement or compromise of, any claim, action, proceeding or litigation relating to this Agreement, the Renaissance Merger Agreement or the transactions contemplated hereby or thereby brought against the Company or any of its subsidiaries, or against any of its or their respective officers or directors or any other person or entity indemnified by the Company or any of its subsidiaries, without the prior written consent of Parent (it being agreed that, in connection with any such claim, action, proceeding or litigation, the Company shall keep Parent informed on a current basis and consult with Parent with respect to the conduct of such litigation).
SECTION 5.03. Access and Information. Subject to confidentiality agreements to which the Company or any of its subsidiaries is a party, the Company shall, and shall cause its subsidiaries to (i) afford to Parent and its officers, directors, employees, accountants, consultants, legal counsel, agents, lenders (including representatives of any lenders) and other representatives (collectively, the "Parent Representatives") reasonable access at reasonable times upon reasonable prior notice to the officers, employees, agents, properties, offices and other facilities of the Company and its subsidiaries and to the books and records thereof and (ii) furnish promptly to Parent and the Parent Representatives such information concerning the business, properties, contracts, records and personnel of the Company and its subsidiaries (including, without limitation, financial, operating and other data and information) as may be reasonably requested, from time to time, by Parent.
SECTION 5.04. Confidentiality. The parties hereto will comply or will cause their respective affiliates to comply with all their respective obligations under the Confidentiality Agreement between the Company and Parent (the "Confidentiality Agreement"). The Company agrees to not use, and to keep confidential, any information provided to it by Parent or its subsidiaries (and cause its employees, lenders and advisors to do the same) to the same extent and under the same covenants as provided in the Confidentiality Agreement with respect to Parent's treatment of the Company's confidential information.
SECTION 5.05. Certain Obligations. (a) At the Effective Time, Parent will cause the Surviving Corporation to discharge its obligations under Section 5(d) of the Babb Agreement.
(b) The Company shall pay to Renaissance any and all amounts due to Renaissance pursuant to Section 8.05(b) of the Renaissance Merger Agreement.
SECTION 6.01. Stockholder Approval. Unless this Agreement shall be approved and adopted by the stockholders of the Company by written consent in lieu of a stockholders' meeting, the Company shall, promptly after the date of this Agreement, take all action necessary in accordance with Delaware Law and its Certificate of Incorporation and By-Laws to convene a meeting of the Company's stockholders (the "Company Stockholders' Meeting"), to approve and adopt this Agreement. Unless this Agreement shall be approved and adopted by the stockholders of the Company by written consent in lieu of a stockholders' meeting, the Company shall use its reasonable efforts to solicit from stockholders of the Company proxies in favor of the approval and adoption of this Agreement, unless otherwise required by applicable fiduciary duties of the directors of the Company, as determined by such directors in good faith after consultation with independent legal counsel.
SECTION 6.02. Information or Proxy Statement. (a)(i) If this Agreement shall be adopted and approved by the stockholders of the Company by written consent in lieu of a stockholders' meeting, as promptly as practicable thereafter, the Company shall prepare and file with the SEC an information statement (the "Company Information Statement") pursuant to Rule 14c-2 under the Exchange Act. The Company shall use its reasonable efforts to cause the Company Information Statement to be "cleared" by the SEC for mailing to the stockholders of the Company as promptly as practicable. In addition, as promptly as practicable after such approval by written consent, the Company shall prepare a notice pursuant to Section 228(d) of Delaware Law (the "Notice"). The Company shall mail the Company Information Statement and the Notice to its stockholders as promptly as practicable after the Company Information Statement is "cleared" by the SEC for mailing to the stockholders of the Company. Parent shall furnish all information concerning it and the holders of its capital stock as the Company may reasonably request in connection with such actions. Parent shall have the right to review the Company Information Statement before it is filed with the SEC.
(ii) Unless this Agreement shall be adopted and approved by the stockholders of the Company by written consent in lieu of a stockholders' meeting, as promptly as practicable after the execution of this Agreement, the Company shall prepare and file with the SEC a proxy statement in connection with the matters to be considered at the Company Stockholders' Meeting (the "Company Proxy Statement"). The Company shall use its reasonable efforts to cause the Company Proxy Statement to be "cleared" by the SEC for mailing to the stockholders of the Company as promptly as practicable and shall mail the Company Proxy Statement to its stockholders as promptly as practicable thereafter. Parent shall furnish all information concerning it and the holders of its capital stock as the Company may reasonably request in connection with such actions. The Company Proxy Statement shall include the recommendation of the Company's Board of Directors in favor of approval and adoption of this Agreement, unless otherwise required by applicable fiduciary duties of the directors of the Company, as determined by such directors in good faith after consultation with independent legal counsel. Parent shall have the right to review the Company Proxy Statement before it is filed with the SEC.
(b) The information supplied by Parent for inclusion in the Company Information Statement or the Company Proxy Statement shall not, at the date the Company Information Statement or the Company Proxy Statement (or any supplement thereto) is first mailed to stockholders, at the time of the Company Stockholders' Meeting, if any, or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event or circumstance relating to Parent or any of its affiliates, or its or their respective officers or directors, should be discovered by Parent that should be set forth in a supplement to the Company Information Statement or the Company Proxy Statement, Parent shall promptly inform the Company.
(c) All information contained in the Company Information Statement or the Company Proxy Statement (other than information provided by Parent for inclusion therein) shall not, at the date the Company Information Statement or the Company Proxy Statement (or any supplement thereto) is first mailed to stockholders, at the time of the Company Stockholders' Meeting, if any, or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event or circumstance relating to the Company or any of its affiliates, or to its or their respective officers or directors, should be discovered by the Company that should be set forth in a supplement to the Company Information Statement or the Company Proxy Statement, the Company shall promptly inform Parent. All documents that the Company is responsible for filing with the SEC in connection with the transactions contemplated herein will comply as to form and substance in all material respects with the applicable requirements of the Exchange Act and the rules and regulations thereunder.
SECTION 6.03. FCC Application. (a) As promptly as practicable after the execution of this Agreement, Parent and the Company shall prepare an appropriate application for FCC consent, and such other documents as may be required, with respect to the transfer of control of the Company to Parent (the "FCC Application"). Not later than the tenth business day following execution, Parent shall deliver to the Company its completed portion of the FCC Application. Not later than the twelfth business day following the execution, the Company shall file, or cause to be filed, the FCC Application. Parent and the Company shall prosecute the FCC Application in good faith and with due diligence in order to obtain such FCC consent as expeditiously as practicable. If the Closing shall not have occurred for any reason within the initial effective period of the granting of approval by the FCC of the FCC Application, and neither Parent nor the Company shall have terminated this Agreement pursuant to Section 8.01, Parent and the Company shall jointly request one or more extensions of the effective period of such grant. Neither Parent nor the Company shall knowingly take, or fail to take, any action the intent or reasonably anticipated consequence of which action or failure to act would be to cause the FCC not to grant approval of the FCC Application.
(b) Parent and the Company shall each pay one-half of any FCC fees that may be payable in connection with the filing or granting of approval of the FCC Application. Parent and the Company shall each oppose any request for reconsideration or judicial review of the granting of approval of the FCC Application. The Company shall pay any cost incurred in connection with complying with the FCC notice and advertisement requirements in connection with the transfer of control of the Company.
(c) Prior to FCC grant of the FCC Application, Parent, its employees and agents, shall not directly or indirectly control, supervise or direct or attempt to control, supervise or direct the operation of any of Company's broadcast stations, and such operations shall be the sole responsibility of and in the complete discretion of the Company.
SECTION 6.04. Other Appropriate Action; Consents; Filings. (a) The Company and Parent shall each use their reasonable efforts to (i) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable under applicable Law or otherwise to consummate and make effective the transactions contemplated by this Agreement, (ii) obtain any consents or approvals with respect to the Merger the absence of which would result in a Company Material Adverse Effect (it being understood that obtaining (i) any thereof that are referred to in Section 7.01(a) or listed on Exhibit 7.02(c) shall be a condition to Parent's obligation to consummate the Merger, and (ii) any thereof that are not referred to in Section 7.01(a) or are not listed on Exhibit 7.02(c) shall not be a condition to Parent's obligation to consummate the Merger), (iii) make all necessary filings, and thereafter make any other required submissions, with respect to this Agreement and the Merger required under (A) the Exchange Act and the rules and regulations thereunder, and any other applicable federal or state securities laws, (B) the HSR Act, and (C) any other applicable Law; provided that Parent and the Company shall cooperate with each other in connection with the making of all such filings, including providing copies of all such documents (except those filed in connection with the HSR Act) to the nonfiling party and its advisors prior to filing and, if requested, to accept all reasonable additions, deletions or changes suggested in connection therewith. The Company and Parent shall furnish all information required for any application or other filing to be made pursuant to the rules and regulations of any applicable Law (including all information required to be included in the Company Proxy Statement) in connection with the transactions contemplated by this Agreement.
(b) Each of the Company and Parent agree to cooperate and use their reasonable efforts to contest and resist any action, including legislative, administrative or judicial action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) (an "Order") that is in effect and that restricts, prevents or prohibits the consummation of the Merger or any other transactions contemplated by this Agreement, including, without limitation, by pursuing any necessary administrative or judicial appeal or legislative action.
SECTION 6.05. Public Announcements. Unless otherwise required by applicable Law or stock exchange or NASDAQ requirements, Parent and the Company shall consult with each other before issuing any press release or otherwise making any public statements with respect to the Merger and shall not issue any such press release or make any such public statement prior to such consultation.
SECTION 6.06. Indemnification. (a) The Certificate of Incorporation and By-Laws of the Surviving Corporation shall contain the provisions with respect to indemnification set forth in the Certificate of Incorporation and By-Laws of the Company on the date of this Agreement, which provisions shall not be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that would adversely affect the rights thereunder of persons who at any time prior to the Effective Time were identified as prospective indemnitees under the Certificate of Incorporation or By-laws of the Company in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement or the Renaissance Merger Agreement), unless such modification is required by Law.
Parent will not permit the provisions with respect to indemnification set forth in the Certificate of Incorporation and By-laws of any of the Company's subsidiaries on the date of this Agreement to be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that would adversely affect the rights thereunder of persons who at any time prior to the Effective Time were identified as prospective indemnitees under any such Certificate of Incorporation or By-laws in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement), unless such modification is required by Law.
(b) From and after the Effective Time, the Surviving Corporation shall indemnify, defend and hold harmless the present and former officers, directors and employees of the Company (collectively, the "Indemnified Parties") against all losses, expenses, claims, damages, liabilities or amounts that are paid in settlement of, with the approval of Parent and the Surviving Corporation (which approval shall not be unreasonably withheld), or otherwise in connection with, any claim, action, suit, proceeding or investigation (a "Claim"), based in whole or in part on the fact that such person is or was such a director, officer or employee and arising out of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement or the Renaissance Merger Agreement), in each case to the fullest extent permitted under Delaware Law (and shall pay expenses in advance of the final disposition of any such action or proceeding to each Indemnified Party to the fullest extent permitted under Delaware Law, upon receipt from the Indemnified Party to whom expenses are advanced of the undertaking to repay such advances contemplated by Section 145(e) of Delaware Law). Parent hereby guarantees the Surviving Corporation's obligations pursuant to this Section 6.06(b).
(c) Without limiting the foregoing, in the event any Claim is brought against any Indemnified Party (whether arising before or after the Effective Time) after the Effective Time (i) the Indemnified Parties may retain the Company's regularly engaged independent legal counsel as of the date of this Agreement, or other independent legal counsel satisfactory to them provided that such other counsel shall be reasonably acceptable to Parent and the Surviving Corporation, (ii) the Surviving Corporation shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received and (iii) the Surviving Corporation will use its reasonable efforts to assist in the vigorous defense of any such matter, provided that the Surviving Corporation shall not be liable for any settlement of any Claim effected without its written consent, which consent shall not be unreasonably withheld. Any Indemnified Party wishing to claim indemnification under this Section 6.06, upon learning of any such Claim, shall notify the Surviving Corporation (although the failure so to notify the Surviving Corporation shall not relieve the Surviving Corporation from any liability which the Surviving Corporation may have under this Section 6.06, except to the extent such failure prejudices the Surviving Corporation), and shall deliver to the Surviving Corporation the undertaking contemplated by Section 145(e) of Delaware Law. The Indemnified Parties as a group may retain one law firm (in addition to local counsel) to represent them with respect to each such matter unless there is, under applicable standards of professional conduct (as determined by counsel to such Indemnified Parties), a conflict on any significant issue between the positions of any two or more of such Indemnified Parties, in which event, an additional counsel as may be required may be retained by such Indemnified Parties.
(d) Parent shall cause to be maintained in effect for not less than five years after the Effective Time (except to the extent not generally available in the market) the current policies of directors' and officers' liability insurance and fiduciary liability insurance maintained by the Company with respect to matters occurring prior to the Effective Time; provided, however, that (i) Parent may substitute therefor policies of substantially the same coverage containing terms and conditions that are substantially the same for the Indemnified Parties to the extent reasonably available and (ii) Parent shall not be required to pay an annual premium for such insurance in excess of 300% of the last annual premium paid prior to the date of this Agreement, but in such case shall purchase as much coverage as possible for such amount.
(e) This Section 6.06 is intended to be for the benefit of, and shall be enforceable by, the Indemnified Parties referred to herein, their heirs and personal representatives and shall be binding on Parent and Parent Sub and the Surviving Corporation and their respective successors and assigns.
SECTION 6.07. Obligations of Parent Sub. Parent shall take all action necessary to cause Parent Sub to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement.
SECTION 6.08. Investigation. Parent acknowledges and agrees that it (a) has made its own inquiry and investigation into, and based thereon has formed an independent judgment concerning, the Company, (b) has been furnished with or given adequate access to such information about the Company as it has requested, and (c) it will not assert any claim against any of the Company's officers, directors, employees, agents, stockholders, affiliates, advisors or other representatives, or hold any of such persons liable, for any inaccuracies, misstatements or omissions with respect to information furnished by the Company or such persons concerning the Company. Parent acknowledges and agrees that none of the Company's stockholders, officers, directors, employees, agents, affiliates, advisors or other representatives have made, or are making, any representations or warranties with respect to the Company, this Agreement, or any of the transactions contemplated hereby.
SECTION 6.09. Certain Agreements. Parent agrees to comply with paragraph 10 of each Voting Agreement. Parent agrees not to amend, waive, change or otherwise modify any of the provisions of the Voting Agreements to the extent that any thereof would adversely affect the Company.
SECTION 6.10. FCC Approval. Parent has determined in good faith that this Agreement and the Voting Agreements can be entered into and implemented pursuant to their terms, without filing any application with the FCC seeking its consent or approval, except as set forth in Section 6.03 or as contemplated by Section 5(b)(iv)(E) of each Voting Agreement. Parent hereby agrees to indemnify the Company from and against any damages should the FCC impose any fine, forfeiture or other sanction against the Company in connection with the implementation of this Agreement and the Voting Agreements pursuant to their terms and conditions.
SECTION 7.01. Conditions to Obligations of Each Party Under This Agreement. The respective obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by applicable Law:
(a) FCC Approval. The FCC shall have issued a Final Order (as hereinafter defined) approving the FCC application, and such Final Order shall include the granting of such waivers, if any, of the FCC Rules and Regulations as may be necessary to permit the consummation of the transactions contemplated hereby. All the terms and conditions contained in the Final Order required to be satisfied on or prior to the Closing shall have been satisfied and performed.
(b) Antitrust. The applicable waiting period under the HSR Act shall have expired or been terminated.
(c) Litigation, etc. No Governmental Entity or Federal or state court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent)
effect and that has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger.
(d) Stockholder Approval. The holders of a majority of the outstanding shares of Common Stock shall have approved and adopted this Agreement in accordance with Delaware Law and the rules and regulations of NASDAQ.
SECTION 7.02. Additional Conditions to Obligation of Parent. The obligation of Parent to effect the Merger is also subject to the following conditions:
(a) Representations and Warranties. Each of the representations and warranties of the Company contained in this Agreement (i) in the case of any thereof that are expressly qualified by any materiality qualification, shall be true and correct, subject to such materiality qualification, and (ii) in the case of all other representations and warranties, shall be true and correct in all material respects, in each case as of the Effective Time as though made on and as of the Effective Time, and except that those representations and warranties that address matters only as of a particular date shall remain true and correct, subject to such materiality qualifications or in all material respects, as the case may be, as of such date. Parent shall have received a certificate of the Chief Executive Officer of the Company to such effect.
(b) Agreements and Covenants. The Company shall have performed or complied with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, except where the failure to so comply would not have a Company Material Adverse Effect. Parent shall have received a certificate of the Chief Executive Officer of the Company to that effect.
(c) Consents and Approvals. All consents, approvals and authorizations that are described on Exhibit 7.02(c) shall have been obtained.
SECTION 7.03. Additional Conditions to Obligation of the Company. The obligation of the Company to effect the Merger is also subject to the following conditions:
(a) Representations and Warranties. Each of the representations and warranties of Parent and Parent Sub contained in this Agreement (i) in the case of any thereof that are expressly qualified by any materiality qualification, shall be true and correct, subject to such materiality qualification, and (ii) in the case of all other representations and warranties, shall be true and correct in all material respects, in each case as of the Effective Time as though made on and as of the Effective Time, and except that those representations and warranties that address matters only as of a particular date shall remain true and correct, subject to such materiality qualifications or in all material respects, as the case may be, as of such date. The Company shall have received a certificate of the Chief Financial Officer of Parent to such effect.
(b) Agreements and Covenants. Parent shall have performed or complied with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, except where the failure to comply would not have a Parent Material Adverse Effect. The Company shall have received a certificate of the Chief Financial Officer of Parent to that effect.
SECTION 8.01. Termination. This Agreement may be terminated at any time prior to the Effective Time:
(a) by mutual consent of Parent and the Company;
(b) by Parent, upon a material breach of any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement, or if any representation or warranty of the Company shall have become untrue in any material respect, in either case such that the
Section 7.02(a) or Section 7.02(b) would not be satisfied (a "Terminating Company Breach"), provided that, if such Terminating Company Breach is curable by the Company through the exercise of its reasonable efforts and for so long as the Company continues to exercise such reasonable efforts, Parent may not terminate this Agreement under this Section 8.01(b);
(c) by the Company, upon a material breach of any representation, warranty, covenant or agreement on the part of Parent set forth in this Agreement, or if any representation or warranty of Parent shall have become untrue in any material respect, in either case such that the conditions set forth in Section 7.03(a) or Section 7.03(b) would not be satisfied (a "Terminating Parent Breach"), provided that, if such Terminating Parent Breach is curable by Parent through the exercise of its reasonable efforts and for so long as Parent continues to exercise such reasonable efforts, the Company may not terminate this Agreement under this Section 8.01(c);
(d) by either Parent or the Company, if there shall be any Order that is final and nonappealable preventing the consummation of the Merger, except if the party relying on such Order has not complied with its obligations under Section 6.03 or 6.04;
(e) by Parent or the Company, if the Merger shall not have been consummated before the date which is one year from the date hereof, except if the party seeking to terminate the Agreement shall be in breach hereof;
(f) by Parent or the Company, if the approval and adoption of this Agreement by the stockholders of the Company is not obtained by written consent as provided herein or by the requisite vote by the stockholders of the Company at the Company Stockholders' Meeting;
(g) by Parent, if (i) the Board of Directors of the Company withdraws, modifies or changes its recommendation of this Agreement or the Merger in a manner adverse to Parent or Parent Sub or shall have resolved to do any of the foregoing, or the Board of Directors of the Company shall have recommended to the stockholders of the Company any Competing Transaction or resolved to do so; and
(h) by the Company, if prior to such time as the stockholders of the Company shall have adopted and approved this Agreement in accordance with Delaware Law, the Board of Directors of the Company shall have recommended to the stockholders of the Company any Competing Transaction or resolved to do so; provided that any termination of this Agreement by the Company pursuant to this Section 8.01(h) shall not be effective until the close of business on the second full business day after notice thereof to Parent.
The right of any party hereto to terminate this Agreement pursuant to this Section 8.01 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any person controlling any such party or any of their respective officers or directors, whether prior to or after the execution of this Agreement.
SECTION 8.02. Effect of Termination. Except as provided in Section 8.05 or Section 9.01, in the event of the termination of this Agreement pursuant to Section 8.01, this Agreement shall forthwith become void, there shall be no liability on the part of Parent, Parent Sub or the Company or any of their respective officers or directors to the other and all rights and obligations of any party hereto shall cease, except that nothing herein shall relieve any party for any breach of this Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time. This Agreement may not be amended except by an instrument in writing signed by the parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other party hereto, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto and (c) waive compliance by the other party with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby.
SECTION 8.05. Expenses. (a) Except as otherwise expressly provided herein, all expenses incurred by the parties hereto shall be borne solely by the party that has incurred such expenses.
(b) In the event that this Agreement shall be terminated pursuant to Section 8.01(h) and within 12 months thereafter a Competing Transaction shall be consummated, the Company shall pay Parent a fee of $6.5 million in cash.
SECTION 9.01. Effectiveness of Representations, Warranties and Agreements. (a) Except as set forth in Section 9.01(b), the representations, warranties and agreements of each party hereto shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any other party hereto, any person controlling any such party or any of their officers or directors, whether prior to or after the execution of this Agreement.
(b) The representations, warranties and agreements in this Agreement (and in any certificate delivered in connection with the Closing) shall terminate at the Effective Time or upon the termination of this Agreement pursuant to Article VIII, except that the agreements set forth in Articles I and II and Sections 6.06, 6.07 and 6.08 shall survive the Effective Time and those set forth in Sections 5.04, 5.05, 6.08, 6.09, 6.10, 8.02, 8.05 and Article IX hereof shall survive termination.
SECTION 9.02. Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered, mailed or transmitted, and shall be effective upon receipt, if delivered personally, mailed by registered or certified mail (postage prepaid, return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like changes of address) or sent by electronic transmission to the telecopier number specified below:
(a) If to Parent or Parent Sub: National Broadcasting Company, Inc. New York, New York 10112 Attention: Senior Vice President and Chief Financial Officer
New York, New York 10112
(b) If to the Company:
SECTION 9.03. Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned person;
(b) "Babb Agreement" means the Employment Agreement dated January 1, 1993, as amended on December 17, 1993, between Outlet Communications, Inc. and James G. Babb, Jr.
(c) "business day" means any day other than a day on which banks in the City of New York are authorized or obligated to be closed;
(d) "control" (including the terms "controlled", "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or
(e) "FCC Licenses" means the licenses described in Section 3.09(a) of
(f) "Final Order" means an action by the FCC that has not been reversed, stayed, enjoined, set aside, annulled or suspended, with respect to which no timely request for stay, petition for reconsideration or appeal or sua sponte action of the FCC with comparable effect is pending and as to which the time for filing any such request, petition or appeal or for the taking of any such sua sponte action by the FCC has expired;
(g) "knowledge" or "known" means, with respect to any matter in question, if an executive officer of the Company or Parent, as the case may be, has actual knowledge of such matter;
(h) "Licensed Station" means each of (i) WJAR (TV), Providence, Rhode Island, (ii) WCMH (TV), Columbus, Ohio, and (iii) WNCN (TV) Goldsboro,
(i) "1988 Agreement" means the Agreement dated as of July 26, 1988, among Bruce G. Sundlun, David E. Henderson, the Company, Broadcasting and the persons and entities listed on the signature pages thereto;
(j) "person" means an individual, corporation, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d) of the Exchange Act);
(k) "Significant Subsidiary" or "Significant Subsidiaries" means any subsidiary of the Company that would constitute a Significant Subsidiary of such party within the meaning of Rule 1-02 of Regulation S-X of the SEC;
(l) "subsidiary" or "subsidiaries" of the Company, Parent, the Surviving Corporation or any other person, means any corporation, partnership, joint venture or other legal entity of which the Company, Parent, the Surviving Corporation or such other person, as the case may be (either alone or through or together with any other subsidiary), owns, directly or indirectly, 50% or more of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other
(m) "Tax" or "Taxes" shall mean any and all taxes, charges, fees, levies, payable to any federal, state, local or foreign taxing authority or agency, including, without limitation, (i) income, franchise, profits, gross receipts, minimum, alternative minimum, estimated, ad valorem, value added, sales, use, real or personal property, payroll, withholding, employment, social security, workers compensation, unemployment compensation, utility, severance, excise, stamp, and transfer and gains taxes, (ii) customs duties, imposts, charges, levies or other similar assessments of any kind, and (iii) interest, penalties and additions to tax imposed with respect thereto.
SECTION 9.04. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
SECTION 9.05. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.
SECTION 9.06. Entire Agreement. This Agreement (together with the Exhibits hereto), and the Confidentiality Agreement constitute the entire agreement of the parties and supersede all prior agreements and undertakings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof.
SECTION 9.07. Assignment. This Agreement shall not be assigned by operation of law or otherwise; provided, however, that Parent may assign its rights hereunder (but not its obligations) to any wholly owned subsidiary of General Electric Company, a New York corporation.
SECTION 9.08. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied (other than the provisions of Sections 6.06, 6.07 and 6.08), is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 9.09. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.
SECTION 9.10. Governing Law; Submission to Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law, and each party hereto hereby submits to the exclusive jurisdiction of the Delaware courts sitting in chancery for the resolution of all disputes under this Agreement.
SECTION 9.11. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Parent, Parent Sub and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
Title: Chairman, President & CEO
CONSENT AND VOTING/CONDITIONAL OPTION AGREEMENT, dated as of , 1995, between NATIONAL BROADCASTING COMPANY, INC., a Delaware corporation ("Parent"), and the stockholder of Outlet Communications, Inc., a Delaware corporation (the "Company"), whose name and signature is set forth on the signature page hereof (the "Stockholder").
The Company, Parent and CO Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent ("Parent Sub") are entering into an Agreement and Plan of Merger dated as of the date hereof (the "Merger Agreement"; capitalized terms used but not defined herein shall have the meanings set forth in the Merger Agreement), pursuant to which, subject to the terms and conditions of the Merger Agreement, Parent Sub will merge with and into the Company (the "Merger"), and each outstanding share of Company Common Stock, other than shares owned by the Company or Parent or certain of their respective affiliates, will be converted into the right to receive $47.25 in cash, all as more fully set forth in the Merger Agreement.
As of the date hereof, the Stockholder is the record and beneficial owner of the number of shares of Company Common Stock set forth on the signature page hereof (the "Existing Shares" and, together with any shares of Company Common Stock acquired after the date hereof, whether upon the exercise of warrants, options, conversion of convertible securities or otherwise, the "Shares").
In accordance with Section 228 of the Delaware Law, the Stockholder desires to grant the Stockholder's consent to the adoption and approval of the Merger Agreement and the Merger without a meeting of stockholders of the Company.
The Stockholder and Parent desire to set forth their agreement with respect to the voting of the Shares in connection with the Merger and the Stockholder desires to grant to Parent a conditional option, subject to FCC consent if necessary, to acquire the Shares, upon the terms and subject to the conditions set forth herein.
To implement the foregoing and in consideration of the mutual agreements contained herein, the parties agree as follows:
1. Delivery of Consent. Immediately following the execution and delivery of the Merger Agreement by the parties thereto, the Stockholder shall execute and deliver to the Secretary of the Company a written consent in the form of Exhibit A hereto.
2. Agreement to Vote. The Stockholder hereby agrees that, from and after the date hereof and until the Expiration Date (as defined in Section 4), at any meeting of the stockholders of the Company, however called, or in connection with any written consent of the stockholders of the Company, and to the extent permitted by applicable law, the Stockholder shall vote (or cause to be voted) or act by written consent with respect to the Shares (a) in favor of adoption and approval of the Merger Agreement and the Merger and the approval of the terms thereof and each of the other actions contemplated by the Merger Agreement and this Agreement; (b) against any action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company contained in the Merger Agreement or of the Stockholder contained in this Agreement; and (c) against any Competing Transaction or any other action, agreement or transaction (other than the Merger
Agreement or the transactions contemplated thereby) that is intended, or could reasonably be expected, to impede, interfere or be inconsistent with, delay, postpone, discourage or materially adversely affect the Merger or this Agreement, including, but not limited to: (i) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company or its subsidiaries; (ii) a sale, lease or transfer of a material amount of assets of the Company and its subsidiaries or a reorganization, recapitalization or liquidation of the Company or its subsidiaries; (iii) a material change in the policies or management of the Company, except as otherwise agreed to in writing by Parent; (iv) an election of new members to the board of directors of the Company, except where the vote is cast in favor of the nominees of a majority of the existing directors; (v) any material change in the present capitalization or dividend policy of the Company or any amendment of the Company's certificate of incorporation; or (vi) any other material change in the Company's corporate structure or business. The Stockholder shall not enter into any agreement or understanding with any person or entity prior to the Expiration Date to vote or give instructions in any manner inconsistent with clauses (a), (b) or (c) of the preceding sentence.
3. PROXY. THE STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS A TRUSTEE TO BE DESIGNATED BY PARENT, AND ANY SUCCESSOR TRUSTEE, THE STOCKHOLDER'S PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE OR ACT BY WRITTEN CONSENT, TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW, WITH RESPECT TO THE SHARES IN ACCORDANCE WITH SECTION 2 HEREOF. THIS PROXY IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE, AND THE STOCKHOLDER WILL TAKE SUCH FURTHER ACTION OR EXECUTE SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY HIM WITH RESPECT TO THE SHARES.
4. Expiration of Proxy. The proxy set forth in Section 3 hereof shall terminate on the Expiration Date. As used herein, the term "Expiration Date" means the earlier of the Effective Time and the date which is 360 days following the date hereof or such shorter period as may be dictated by applicable law or FCC policy or regulation (unless extended by the mutual written consent of Parent and the Stockholder).
5. Conditional Option. (a) The Stockholder hereby grants to Parent an irrevocable option to purchase the Shares, on the terms and subject to the conditions set forth herein, including, but not limited to the consent of the FCC, if required (the "Option").
(b) (i) The Option may be exercised by Parent, as a whole and not in part, at any time on or after the earlier to occur of (A) the termination, if any, of the Merger Agreement pursuant to the terms thereof or otherwise and (B) such time as a permanent injunction or other order, decree or ruling by any United States federal or state court of competent jurisdiction or by any United States federal or state governmental, regulatory or administrative agency or authority preventing the consummation of the Merger shall have been issued, provided that the Option may not be exercised on any date after the 60th day following the occurrence of the event specified in clause (A) above.
(ii) If Parent wishes to exercise the Option (the "Option Purchase"), Parent shall send a written notice to the Stockholder of its intention to exercise the Option, specifying the place, and, if then known, the time and the date (the "Closing Date") of the closing (the "Closing") of the purchase. The Closing Date shall not be less than 20 days (or such longer period as may be required by applicable law or regulation) from the date on which such notice is delivered or prior to such time as the condition specified in Section 5(b) (iv) (E) below shall have been satisfied.
(iii) Following delivery of the exercise notice referred to in Section 5(b) (ii) above, (x) the Stockholder shall promptly forward or cause to be forwarded a copy of the exercise notice and of the terms of the proposed Option Purchase to the Company and to the other Stockholders (as defined in the Stockholders Agreement) in accordance with Section 5 of the Stockholders Agreement, and (y) Parent shall extend an offer (which complies with Section 5 of the Stockholders Agreement) to acquire shares of Company Common Stock to such other Stockholders. The Stockholder further agrees that, if the Option
is exercised, the Stockholder shall cause Section 19 of the Stockholders Agreement to be complied with prior to the Closing.
(iv) The obligation of Parent or its designee to consummate the Closing after exercise of the Option shall be subject to the satisfaction or waiver by Parent of the following conditions:
(A) The provisions of Sections 5 and 19 of the Stockholders Agreement, as such agreement is in effect on the date hereof, and the other provisions of the Stockholders Agreement applicable to the consummation of the transactions contemplated hereby, shall have been complied with, and such agreement shall not have been amended, supplemented or otherwise modified since the date hereof without the consent of Parent.
(B) After giving effect to the Option Purchase and all other purchases of shares of Company Common Stock theretofore made or made concurrently therewith, Parent shall beneficially own a number of shares of Company Common Stock sufficient to approve (without the affirmative vote or consent of any stockholder of the Company other than Parent and/or its designee) or to consummate pursuant to Section 253 of the Delaware Law a merger between Parent or another wholly owned subsidiary of General Electric Company, a New York corporation ("GE"), and the Company pursuant to which the stockholders of the Company (other than the Company, any direct or indirect subsidiary of the Company, Parent or any other direct or indirect wholly owned subsidiary of GE) will receive as consideration an amount of cash consideration per share of Company Common Stock at least equal to $47.25.
(C) The acquisitions of shares of Company Common Stock pursuant to this Agreement and each other similar agreement between Parent and a stockholder of the Company shall have been approved by the Board of Directors of the Company for purposes of Section 203 of the Delaware Law.
(D) The waiting periods applicable to the consummation of the Option Purchase under the HSR Act shall have expired or been earlier terminated.
(E) The FCC shall have issued a Final Order approving the FCC Application, and such Final Order shall include the granting of such waivers, if any, of the rules and regulations under the Communications Act, as may be necessary to permit the purchase and sale contemplated hereby. All the terms and conditions contained in the Final Order required to be satisfied on or prior to the Closing shall have been satisfied.
(F) No preliminary or permanent injunction or other order, decree or ruling by any United States federal or state court of competent jurisdiction or by any United States federal or state governmental, regulatory or administrative agency or authority which prevents the Option Purchase shall have been issued and remain in effect.
(G) No statute, rule or regulation shall have been enacted by any United States federal or state governmental, regulatory or administrative agency or authority that makes the consummation of the Option Purchase illegal or would otherwise prevent the consummation of the Option Purchase.
(H) The representations and warranties of the Stockholder contained herein shall have been true and correct in all material respects as of the date hereof and shall be true and correct in all material respects at and as of the Closing Date as if made at and as of the Closing Date. The Stockholder shall have performed in all material respects all of its covenants and obligations required to be performed by it on or prior to the Closing Date hereunder.
(c) At the Closing, the Stockholder shall deliver to Parent (or its designee) all of the Shares by delivery of a certificate or certificates evidencing such Shares in the denominations designated by Parent in its exercise notice delivered pursuant to Section 5(b) (ii), duly endorsed to Parent or accompanied by stock powers duly executed in favor of Parent, with all necessary stock transfer stamps affixed.
(d) At the Closing, the Parent shall deliver to the Stockholder a check or checks payable in New York Clearing House (next-day) funds in an amount equal to the product of $47.25 and the number of Shares purchased hereunder.
6. Representation and Warranties of Parent. Parent represents and warrants to the Stockholder as follows:
(a) Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.
(b) Parent has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by Parent's Board of Directors and no other corporate proceedings on the part of Parent are necessary to authorize this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Parent and (assuming the valid authorization, execution and delivery of this Agreement by the Stockholder) is a valid and binding obligation of Parent, enforceable in accordance with its terms, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law).
(c) The execution and delivery of this Agreement by Parent do not, and the performance of this Agreement by Parent will not, (i) conflict with or violate the Certificate of Incorporation or By-Laws of Parent or any of its subsidiaries, (ii) conflict with or violate any federal, state, local or foreign law, statute, ordinance, rule, regulation, permit, order, judgment or decree (collectively, "Laws") applicable to Parent or any of its subsidiaries or by which any of their respective properties is bound, or (iii) conflict with, result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or require payment under, or result in the creation of any lien, claim, security interest or other charge or encumbrance (collectively, "Encumbrances") on any of the properties or assets of Parent or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or any of its subsidiaries is a party or by which Parent or any of its subsidiaries or any of their respective properties is bound, except for any thereof that could not reasonably be expected to materially impair the ability of Parent to perform its obligations hereunder or to consummate the transactions contemplated hereby.
(d) The execution and delivery of this Agreement by Parent do not, and the consummation of the purchase and sale of the Shares hereunder by Parent will not, require Parent to obtain any consent, approval, authorization or permit of, or to make any filing with or notification to, any governmental or regulatory authority, domestic or foreign ("Governmental Entity"), based on the Laws of any Governmental Entity, except (i) the Communications Act and the HSR Act; and (ii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, could not reasonably be expected to materially impair the ability of Parent to perform its obligations hereunder or to consummate the transactions contemplated hereby.
(e) There is no suit, action, investigation or proceeding pending or, to the knowledge of the executive officers of Parent, threatened against Parent or any of its subsidiaries at law or in equity before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, that could reasonably be expected to materially impair the ability of Parent to perform its obligations hereunder or to consummate the transactions contemplated hereby, and there is no judgment, decree, injunction, rule or order of any court, governmental department, commission, board, bureau, agency, instrumentality or arbitrator to which Parent or any of its subsidiaries is subject that could reasonably be expected to materially impair the ability of Parent to perform its obligations hereunder or to consummate the transactions contemplated hereby.
(f) Parent and its affiliates have, and on the Closing Date Parent will have, funds in an amount sufficient to consummate the purchase and sale of the Shares contemplated hereunder and the purchases and sales of Company Common Stock under each other similar agreement between Parent and a stockholder of the Company.
7. Representation and Warranties of the Stockholder. The Stockholder represents and warrants to Parent as follows:
(a) If the Stockholder is a corporation, partnership or trust, the Stockholder has been duly organized and is validly existing and in good standing under the laws of the jurisdiction of its organization.
(b) If the Stockholder is a corporation, partnership or trust, the Stockholder has all necessary corporate, partnership or trust power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. If the Stockholder is a corporation, partnership or trust, the execution, delivery and performance of this Agreement by the Stockholder and the consummation by the Stockholder of the transactions contemplated hereby have been duly authorized by all necessary corporate, partnership or trust action on the part of the Stockholder.
(c) This Agreement has been duly executed and delivered by the Stockholder and (assuming the valid authorization, execution and delivery of this Agreement by Parent) is a valid and binding obligation of the Stockholder, enforceable in accordance with its terms, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law).
(d) The execution and delivery of this Agreement by the Stockholder do not, and the performance of this Agreement by the Stockholder will not, (i) if the Stockholder is a corporation, partnership or trust, conflict with or violate the Certificate of Incorporation or By-Laws, or other organizational documents, of the Stockholder, (ii) conflict with or violate any Law applicable to the Stockholder or by which any of its properties is bound, or (iii) conflict with, result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or require payment under, or result in the creation of any Encumbrance on any of the properties or assets of the Stockholder pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Stockholder is a party or by which the Stockholder or any of its properties is bound, except for any thereof that could not reasonably be expected to materially impair the ability of the Stockholder to perform its obligations hereunder or to consummate the transactions contemplated hereby.
(e) The execution and delivery of this Agreement by the Stockholder do not, and the consummation of the purchase and sale of the Shares hereunder by the Stockholder will not, require the Stockholder to obtain any consent, approval, authorization or permit of, or to make any filing with or notification to, any Governmental Entity based on the Laws of any Governmental Entity, except (i) the Communications Act and the HSR Act; and (ii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, could not reasonably be expected to materially impair the ability of the Stockholder to perform its obligations hereunder or to consummate the transactions contemplated hereby.
(f) There is no suit, action, investigation or proceeding pending or, to the knowledge of the Stockholder, threatened against the Stockholder at law or in equity before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, that could reasonably be expected to materially impair the ability of the Stockholder to perform its obligations hereunder or to consummate the transactions contemplated hereby, and there is no
rule or order of any court, governmental department, commission, board, bureau, agency, instrumentality or arbitrator to which the Stockholder is subject that could reasonably be expected to materially impair the ability of the Stockholder to perform its obligations hereunder or to consummate the transactions contemplated hereby.
(g) The Existing Shares are, and the Shares on the Closing Date will be, owned beneficially and of record by the Stockholder. The Existing Shares constitute all of the shares of Company Common Stock owned of record or beneficially by the Stockholder. All of the Existing Shares are issued and outstanding and, except as indicated on the signature page hereto, the Stockholder does not own, of record or beneficially, any warrants, options or other rights to acquire any shares of Company Common Stock. If the Stockholder owns any such warrants, options or other rights to acquire shares of Company Common Stock, such Stockholder agrees, to the extent permitted by the terms thereof, to exercise such warrants, options or other rights prior to Closing. The Stockholder has sole voting power and sole power of disposition with respect to all of the Existing Shares and will have sole voting power and sole power of disposition with respect to all of the Shares on the Closing Date, with no restrictions, other than those contained in the Stockholders Agreement and subject to applicable federal securities laws, on the Stockholder's rights of disposition pertaining thereto. The Stockholder has good and valid title to the Existing Shares and on the Closing Date will have good and valid title to the Shares, free and clear of all Encumbrances, and, upon delivery thereof to Parent against delivery of the consideration thereof or pursuant to this Agreement, good and valid title thereto, free and clear of all Encumbrances (other than any arising as a result of actions taken or omitted by Parent), will pass to Parent.
(h) A true, correct and complete copy of the Stockholders Agreement has been delivered to the Parent.
8. Investment Representations of the Stockholder. The Stockholder represents and warrants to, and agrees with, Parent as follows:
(a) The Stockholder has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such documents, the Company and the business and prospects of the Company which the Stockholder deems necessary to evaluate the merits and risks related to the Stockholder's determination to enter into this Agreement and to consummate the transactions contemplated hereby.
(b) The Stockholder is an "accredited investor," as such term is defined in Rule 501 under the Securities Act. If the Stockholder is a natural person, (A) the Stockholder's individual net worth, or joint net worth with his or her spouse, at the time of the Closing, will exceed $1,000,000 or (B) the Stockholder had (x) individual income in excess of $200,000 in each of the two most recent years or (y) joint income with his or her spouse in excess of $300,000 in each of those years, and the Stockholder has a reasonable expectation of reaching the same income level in the current year.
9. Agreements of the Stockholder. (a) The Stockholder hereby agrees, while this Agreement is in effect, and except as contemplated hereby, not to (i) sell, transfer, pledge, encumber, assign or otherwise dispose of, enforce or permit the execution of the provisions of any redemption agreement with the Company or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer, pledge, encumbrance, assignment or other disposition of, any of the Existing Shares, or any Shares acquired after the date hereof, or any interest in any of the foregoing, except to the Parent, (ii) grant any proxies or powers of attorney, deposit any Shares into a voting trust or enter into a voting agreement with respect to any Shares or any cash or other property described in Section 11 hereof, or any interest in any of the foregoing, except to the Parent, (iii) consent or otherwise agree to any amendment, waiver or other modification of the Stockholders Agreement or the Certificate of Incorporation or By-laws of the Company or its subsidiaries without the prior written consent of Parent or (iv) take any action that would make any representation or warranty of the Stockholder contained herein untrue or incorrect or have the effect of preventing or disabling the Stockholder from performing
his obligations under this Agreement, or that would otherwise hinder or delay the Parent from acquiring a majority of the outstanding Company Common Stock, determined on a fully diluted basis.
(b) The Stockholder hereby agrees, while this Agreement is in effect, to notify promptly Parent of the number of any additional shares of Company Common Stock acquired by the Stockholder, if any, after the date hereof.
(c) The Stockholder hereby agrees, except with respect to Parent and its affiliates, on or after the date hereof, that the Stockholder shall not initiate, solicit or encourage, directly or indirectly, any inquiries or the making of any proposal with respect to any matter described in Section 9(a) hereof or any Competing Transaction, participate in any negotiations concerning, or provide to any other person any information or data relating to the Company or its subsidiaries for the purpose of, or have any substantive discussions with, any person relating to, or otherwise cooperate with or assist or participate in, or facilitate, any inquiries or the making of any proposal which constitutes, or would reasonably be expected to lead to, any effort or attempt by any other person to seek to effect any matter described in Section 9(a) hereof or any Competing Transaction, or agree to or endorse any Competing Transaction. The Stockholder agrees immediately to cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any possible Competing Transactions or any matter described in Section 9(a) hereof.
(d) Promptly following the execution hereof, the Stockholder shall tender or cause to be tendered a copy of this Agreement to the Company with a request that it be filed by the Company with the Secretary of the FCC in conformity with Section 73.3613 of the FCC's rules.
10. Certain Covenants. (a) Parent hereby agrees that, in the event that Parent purchases shares of Company Common Stock pursuant to the Option, it will propose to the Company a merger as promptly as reasonably practicable thereafter, on terms and subject to conditions substantially the same as those provided for in the Merger Agreement, between itself or another wholly owned subsidiary of GE and the Company pursuant to which the stockholders of the Company (other the Company, any direct or indirect subsidiary of the Company, Parent or any other direct or indirect subsidiary of the GE) will receive an amount of cash consideration per share of Company Common Stock at least equal to $47.25.
(b) In the event that Parent exercises the Option pursuant to Section 5, the Stockholder agrees that it will take all actions reasonably requested by Parent to seek to cause the Stockholders Agreement to be amended prior to the Closing, pursuant to a written instrument in form and substance reasonably satisfactory to Parent, so that the rights of a member of the Wesray Group (as defined in the Stockholders Agreement) under Sections 6 and 7 of the Stockholders Agreement shall inure to the benefit of any purchaser of the Company Common Stock owned by the Stockholder, including without limitation by executing the foregoing instrument providing for such amendment.
(c) In the event that, within one year from the date hereof, Parent or another subsidiary of GE consummates a transaction pursuant to which it acquires more than 50% of the outstanding Company Common Stock or effects a merger or similar business combination with the Company pursuant to which it acquires all of the Company Common Stock (any such transaction, an "Alternate Transaction") and, in respect of any Alternate Transaction, the per share consideration paid to the largest number of stockholders of the Company pursuant to the Alternate Transaction exceeds the purchase price per Share hereunder pursuant to the Option Purchase (the amount of such excess per share, the "Excess Consideration"), then Parent shall pay to the Stockholder promptly following the consummation of the Alternate Transaction an amount in cash equal to the amount of the Excess Consideration times the number of such Stockholder's Shares purchased hereunder pursuant to the Option Purchase.
(d) If, solely as a result of an acquisition of shares of Company Common Stock by Parent or any other subsidiary of GE, the Company is required to make a Change of Control Offer (as defined in the Indenture referred to below) pursuant to Section 1010 of the Indenture pursuant to which on the date hereof the Company has issued and outstanding $60 million aggregate principal amount of Senior Subordinated Notes due July 15, 2003 (the "Notes"), as in effect on the date hereof (the "Indenture"),
then, so long as such Change of Control Offer is made in accordance with the terms of the Indenture, Parent shall be obligated, within five business days of the commencement of the Change of Control Offer, to offer to purchase or to cause another Person to offer to purchase from the Company on the Change of Control Payment Date (as defined in the Indenture) indebtedness of the Company (i) in an aggregate principal amount equal to the aggregate Repurchase Price of the Notes repurchased by the Company on such Change of Control Payment Date pursuant to Section 1010 of the Indenture and (ii) with terms, conditions, covenants and other provisions substantially the same as the Notes.
11. Adjustment. If, between the date of this Agreement and the Closing, the Company Common Stock shall have been changed into a different number of shares or a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the purchase price for the Shares hereunder shall be correspondingly adjusted to reflect such event. If, between the date of this Agreement and the Closing Date, the Company declares, pays or makes any dividend or other distribution of any kind of cash or property on the Company Common Stock, the Stockholder shall receive and hold such cash or property for the benefit of the Parent and shall deliver such cash or property, with appropriate instruments of transfer, if necessary, to the Parent on the Closing Date (or, in the event of a payment date occurring after the Closing Date, on the date such payment is received).
12. Licensee Control. Notwithstanding anything to the contrary contained herein, without first obtaining the consent of the FCC through grant of the FCC Application, Parent, its employees and agents shall not directly or indirectly control, manage, supervise or direct, or attempt to control, manage, supervise or direct, the Company or any of its broadcast stations, and such control, management, supervision and direction shall be the sole responsibility of and in the complete discretion of the Company.
13. Further Assurances. From time to time, at the other party's request and without further consideration, each party hereto shall execute and deliver such additional documents and take all such further action as may be necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement.
14. Survival. The covenants of the parties hereto, and the representations and warranties of the parties hereto, shall survive until the earlier to occur of the Effective Time and the Closing.
15. Miscellaneous. (a) This Agreement (i) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and (ii) shall not be assigned by operation of law or otherwise, provided that Parent may assign its rights and obligations hereunder to any direct or indirect wholly owned subsidiary of GE, but no such assignment shall relieve Parent of its obligations hereunder. Subject to the foregoing, this Agreement will be binding upon, inure to the benefit of, and be enforceable by the parties hereto and their respective successors (including any successor in interest by merger, sale of all or substantially all of the assets or otherwise) and assigns.
(b) This Agreement may not be amended or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto. The Parent or the Stockholder may, from time to time, waive, on such terms and conditions as the Parent or the Stockholder, as the case may be, may specify in such instrument, any of the requirements of this Agreement. Any such amendment shall be binding upon the parties thereto and any such waiver shall be binding upon the Parent or the Stockholder, as the case may be, executing the same. No such waiver shall extend to any subsequent or other event or circumstance or impair any right consequent thereon.
(c) All notices and other communications hereunder shall be in writing and shall be deemed given (i) on the date delivered, if delivered personally, (ii) on the first Business Day following the deposit thereof with Federal Express, if sent by Federal Express, and (iii) on the fourth Business Day following the mailing thereof with postage prepaid, if mailed by registered or certified mail (return receipt
requested), in each case to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
(i) if to the Stockholder, to it at its address set forth on the
(ii) if to the Parent, to it at: National Broadcasting Company, Inc. New York, New York 10112 Attention: Senior Vice President and Chief
New York, New York 10112
New York, New York 10017 Attention: Charles I. Cogut, Esq.
(d) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.
(e) The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the State of New York or in the Chancery Courts of the State of Delaware (and any appellate courts therefrom), this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (a) consents to submit itself to the personal jurisdiction of (i) the United States District Court for the Southern District of New York in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement to the extent such court would have subject matter jurisdiction with respect to such dispute and (ii) the Chancery Courts of the State of Delaware otherwise, and (b) agrees that it will not attempt to deny or defeat such personal jurisdiction or venue by motion or other request for leave from any such court and (c) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than such courts.
(f) This Agreement may be executed in two counterparts, each of which shall be deemed to be an original, but both of which shall constitute one and the same Agreement.
(g) The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.
(h) If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are
(i) If the FCC should determine that this Agreement is inconsistent with Company's licensee obligations or is otherwise contrary to FCC policies, rules and regulations, the parties shall reform this Agreement in good faith and recast them in terms that are likely to cure the defects perceived by the FCC and return a balance of benefits to both parties comparable to the balance of benefits provided by this Agreement in its current terms. If, after such good faith negotiations, either party determines that recasting this Agreement to meet the defects perceived by the FCC is impracticable, either party may terminate this Agreement without further liability on 30 days' prior written notice. If termination shall occur pursuant to this paragraph, such termination shall extinguish and cancel this Agreement without further liability on the part of either party to the other.
IN WITNESS WHEREOF, Parent and the Stockholder have caused this Agreement to be duly executed as of the day and year first above written.
Number of Existing Shares: .........
Options, Warrants or other Rights:
ACTION TAKEN BY THE WRITTEN OUTLET COMMUNICATIONS, INC.
The undersigned stockholder of Outlet Communications, Inc. , a Delaware corporation (the "Corporation"), acting by written consent in lieu of a meeting pursuant to Section 228 of the General Corporation Law of the State of Delaware, hereby consents to the adoption of and adopts the following resolution with respect to each share of the capital stock of the Corporation owned of record by such stockholder on the date hereof:
RESOLVED, that the Merger Agreement, dated as of August , 1995 (the "Merger Agreement"), among the Corporation, National Broadcasting Company, Inc., a Delaware corporation ("NBC"), and CO Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of NBC, a copy of which has been furnished to the stockholder, be, and it hereby is adopted and approved by the stockholder, and that the Merger (as defined in the Merger Agreement) and the other transactions contemplated by the Merger Agreement be, and they hereby are, approved and ratified in all respects.
[GOLDMAN, SACHS & CO. LETTERHEAD]
You have requested our opinion as to the fairness to the holders of the outstanding shares of Class A Common Stock, par value $.01 per share (the "Shares"), of Outlet Communications, Inc. (the "Company") of the $47.25 per Share in cash (the "Consideration") to be received by such holders pursuant to the Merger Agreement dated as of August 2, 1995 between National Broadcasting Company, Inc. ("Buyer"), CO Acquisition Corporation, a wholly owned subsidiary of Buyer and the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. We are familiar with the Company having acted as its financial advisor in connection with, and having participated in certain of the negotiations leading to, the Agreement. We have also provided certain investment banking services to Buyer and to General Electric Company (Buyer's parent company) from time to time and may provide investment banking services to Buyer and General Electric Company in the future.
In connection with this opinion, we have reviewed, among other things, the Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the Company for the five years ended December 31, 1994; certain interim reports to stockholders and the quarterly Report on Form 10-Q for the three months ended March 31, 1995; certain other communications from the Company to its stockholders; and certain internal financial analyses and forecasts for the Company prepared by its management. We also have held discussions with members of the senior management of the Company regarding its past and current business operations, financial condition and future prospects. In addition, we have reviewed the reported price and trading activity for the Shares, compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the television broadcasting industry specifically and in other industries generally and performed such other studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and completeness of all of the financial and other information reviewed by us for purposes of this opinion. In addition, we have not made an independent evaluation or appraisal of the assets and liabilities of the Company or any of its subsidiaries and we have not been furnished with any such evaluation or appraisal.
Based upon the foregoing and such other matters as we consider relevant, it is our opinion that as of the date hereof the $47.25 per Share in cash to be received by the holders of Shares pursuant to the Agreement is fair to such holders.
/s/ GOLDMAN, SACHS & CO.
[GOLDMAN, SACHS & CO. LETTERHEAD]
(a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to sec.228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of his shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to sec.251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the holders of the surviving corporation as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000
c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this
d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under sec.253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsections (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of his shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of his shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of his shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become
(2) If the merger or consolidation was approved pursuant to sec.228 or 253 of this title, the surviving or resulting corporation, either before the effective date of the merger or consolidation or within 10 days thereafter, shall notify each of the stockholders entitled to appraisal rights of the effective date of the merger or consolidation and that appraisal rights are available for any or all of the shares of the constituent corporation, and shall include in such notice a copy of this section. The notice shall be sent by certified or registered mail, return receipt requested, addressed to the stockholder at his address as it appears on the records of the corporation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of the notice, demand in writing from the surviving or resulting corporation the appraisal of his shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw his demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after his written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted his certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no stockholder who has demanded his appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of his demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. (Last amended by Ch. 262, L. '94, eff. 7-1-94.)
|
DEF 14C
|
DEF 14C
| 1996-01-12T00:00:00
| 1996-01-12T16:31:10
|
0000950109-96-000200
|
0000950109-96-000200_0012.txt
|
RE: TRANSFER AGENCY SERVICES FEES
This letter constitutes our agreement with respect to compensation to be paid to PFPC Inc. ("PFPC") under the terms of a Transfer Agency Services Agreement dated ____________________, 1995 between The Bear Stearns Funds ("you" or the "Fund") and PFPC (the "Agreement"). Pursuant to Paragraph 11 of that Agreement, and in consideration of the services to be provided to each of the Fund's investment portfolios listed on Exhibit A of the Agreement, as such Exhibit A may be amended from time to time (each, a "Portfolio"), you will pay PFPC the following:
Annual, Semi-Annual Dividend: $10.00 per account per annum Quarterly Dividend: $12.00 per account per annum Monthly Dividend: $15.00 per account per annum Daily Accrual Dividend: $18.00 per account per annum
Inactive Account: $ .30 per account per month
For contingent deferred sales charge funds, our per account fees will increase by 12% per account.
Fees shall be calculated and paid monthly based on one-twelfth (1/12th) of the annual fee. An inactive account is defined as having a zero balance with no dividend payable. Inactive accounts are purged annually after year-end tax reporting.
Master/Omnibus Account: $1.25 per purchase/redemption
Wire order desk: $6.00 per broker call to place New Account Opening: $ .40 per account (electronic
Checkwriting: $1.85 per account per year .10 per check (not returned) Commission Cycle: $ .25 per account per 12b-1 Calculation: $ .25 per account per
Participant Fee: $50.00 per month CPU Access Fee: $40.00 per month Transaction Fee: $ .50 each
Base Facility Use Fee: $500.00 per month per fund family
Transaction Fees per month per transaction based on total transactions each month as follows:
$ .50 per transaction for .40 per transaction for over 4) NSCC Networking:
Membership Fee: $250.00 per month
Sub-Account Fee: $ .045 per month per sub-account-
$ .03 per month per sub-account-
Position File Fee: $100.00 per position file per CUSIP for more than 2 positions
/1/NSCC will deduct its monthly fee on the 15th of each month from PNC's cash settlement that day. PNC will include these charges on its next bill as out-of-pocket expenses.
/2/Plus: out-of-pocket expenses for settlements; wire charges; NSCC pickup charges; hardware, CRT's, modems; line (if required); etc.
Base Facility Use Fee: $325.00 per month per fund family
Sub-Account Fees: $ .05 per month per sub-account
Position File Fee: $100.00 per position file per CUSIP for more than 2 position files per CUSIP per month
a. Toll-free lines (if required) b. Forms, envelopes, checks, checkbooks d. Federal Express, delivery, courier services e. Hardware/phone lines for remote terminal(s) (if required) g. Wire fee for receipt or disbursement: $7.50 per wire h. ACH Transaction Charge: $.20 per item i. Mailing fee: Approximately $.08 per item for standard inserts; $.015 each additional insert j. Cost of proxy solicitation, mailing and tabulation: $ .30 per proxy issued (5,000 account $ .45 per proxy issued (less than $100.00 plus travel expenses for judge $ postage and Federal Express as k. Certificate issuance fee: $2.00 per certificate l. Audio response (if applicable) n. "B"/"C" notice mailing and IRS levies: $3.00 per item o. Locating lost shareholders in anticipation of escheating: p. Individual state tax filings q. Development/programming costs: negotiated time and r. Consolidated statements: one annual statement included in pricing; additional production $.25 per page, per s. Sales tracking system interfaces: negotiated time and
u. Creation of user tapes: $100 per occurrence v. Labels: $.06 each; $100 minimum w. Non-PFPC reruns: time and material cost x. Ad hoc reports: Standard $.01 per record processed - plus $100.00 set up fee; same day turnaround additional y. Retroactive record dates: $100.00 plus $.025 per account
6) Additional Expenses (Which May be Paid by Shareholders):
a. IRA/Keough Processing: $10.00 per account per annum 5.50 new account set-up fee
b. Exchange Fee: $ 5.00
c. Stop Payments: $ 9.50 each
d. Account Transcripts: $35.00 each
(if older than $50.00 each
$3,000 per Portfolio, plus per account charges; excluding transaction charges and out-of-pocket expenses.
The monthly base fee for each Portfolio with respect to such Portfolio's first year of operations, exclusive of out-of-pocket expenses, shall be waived for start-up portfolios in accordance with the following step-in schedule:
(from start of operations) Fee Waivers
If during the next three years, PFPC is removed from the Transfer Agency Services Agreement referenced above, the Fund shall pay any costs of time and material associated with the deconversion and PFPC will recoup 100% of the fees waived during the first two years.
The fee for the period from the date hereof until the end of the year shall be prorated according to the proportion which such period bears to the full annual period.
If the foregoing accurately sets forth our agreement and you intend to be legally bound thereby, please execute a copy of this letter and return it to us.
|
N-1/A
|
EX-99.6
| 1996-01-12T00:00:00
| 1996-01-11T17:32:37
|
0000108018-96-000003
|
0000108018-96-000003_0000.txt
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 1995
(Exact name of registrant as specified in its charter)
(State of incorporation) (IRS Employer Identification No.)
3809 Parry Avenue, Dallas, Texas 75226-1753 Address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES X . NO .
Common stock, par value $.033-1/3 per share: 1,056,191 shares outstanding as of
Operations and Retained Earnings for the three month and six-month periods ended November 30, 1995 and November 30, 1994 (Unaudited) 3
November 30, 1995 (Unaudited) and May 31, 1995 4
Consolidated Statements of Cash Flows for the six-month period ended November 30, 1995 and November 30, 1994 (Unaudited) 5
Notes to Consolidated financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 & 8
Item 9. Exhibits and Reports on Form 8-K 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The consolidated balance sheet as of November 30, 1995 the consolidated statements of operations and the consolidated statements of cash flows for the three-month and six-month periods ended November 30, 1995 and 1994 have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows at November 30, 1995 and 1994 have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's May 31, 1995 annual report to shareholders. The results of operations for the six-month period ended November 30, 1995 are not necessarily indicative of the operating results for the full year ending May 31, 1996.
November 30, 1995 May 31, 1995 Cash and cash equivalents consist of: Cash $ 242 $ 413 Money market funds 308 134 Matured funds at factor 916 829
Collection losses $ 108 $ 88
not used in operations is: $ 134 $ 347
Current tax expense $ 305 $ 480 Deferred tax benefit (11) (49)
Cash payments for interest $ 28 $ 32
federal income taxes $ 340 $ 460
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Working capital at November 30, 1995 was $6,120,169, an increase of $325,202 from May 31, 1995. Cash and cash equivalents increased $89,869 during the six-month period ended November 30, 1995. Cash was used to fund normal working capital requirements, including acquisition of property, plant and equipment additions, payment of dividends and payment of matured accounts payable and accrued liabilities. Accounts receivable decreased $147,841 primarily due to the timing of shipments during the quarter. Inventories increased $191,785 primarily to meet increased sales. Accounts payable and accrued liabilities decreased $28,467 primarily due to payment of normal maturities and accrued expenses during the six-month period.
The current ratio at November 30, 1995 is 4.5 to 1 (4 to 1 at May 31, 1995). Total liabilities to assets equals twenty percent (twenty-two percent at May 31, 1995).
The Company factors its accounts receivable with a commercial factor on a matured basis. (Funds are remitted by the factor upon maturity of the invoices, plus a set number of collection days). The factor establishes a credit line per customer on a non-recourse basis. Credit extended by the company in excess of the credit line is factored on a recourse basis (946,000 at November 30, 1995-$614,000 at May 31, 1995).
Capital acquisition and improvement expenditures totaled $229,071 during the six-month period ended November 30, 1995. It is estimated that approximately $50,000 additional capital expenditures will be made over the next two quarters, consisting primarily of equipment and improvements to existing facilities. Funding will come from cash flows generated through operating activities. No significant disposition of equipment occurred during the six- month period ended November 30, 1995, and none is planned during the next three-month period. In November 1995 a building, carried in the balance sheet as property, plant and equipment not used in operations was sold for $250,000 from which a gain of $95,154 after taxes was realized.
The Company does not offer a retirement plan nor offer post retirement or employment benefits. Accordingly, there will be no impact on the Company due to SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and SFAS 112, "Employers' Accounting for Post Employment Benefits".
Based on current operations and internally generated cash flows, management believes that adequate resources will be available to meet current and future liquidity requirements.
Net sales for the second quarter and six-month periods ended November 30, 1995 increased approximately five and six-tenths of one percent and five and one-half of one percent, respectively, in each period compared to the 1994 second quarter and six-month periods. Net sales for the second quarter ended November 30, 1995 increased approximately two and three-tenths of one percent over the preceding first quarter. The increases resulted primarily from a slightly stronger product demand and a broadened market base.
Cost of sales, as a percentage relationship to net sales for the second quarter ended November 30, 1995, decreased approximately one and six-tenths of one percent from the second quarter ended November 30, 1994 and approximately six percent from the preceding first quarter ended August 31, 1995. For the six-month period ended November 30, 1995, the cost of sales percentage relationship to net sales decreased approximately two-tenths of one percent compared to the 1994 six-month period. The percentage decreases resulted primarily from a change in product sales mix.
Selling, general and administrative expenses for the three-month and six- month periods ended November 30, 1995, as a percentage relationship to net sales, increased approximately eight-tenths of one percent and decreased four-tenths of one percent, respectively, compared to the 1994 three-month and six-month periods. Selling, general and administrative expenses, as a percentage relationship to net sales, were approximately five percent higher in the 1995 second quarter compared to the first quarter. The percentage increases resulted primarily from higher selling and marketing expenses. The provision for bad debt expense was $45,000, in the 1995 and 1994 six-month periods.
Other income in the 1995 three-month and six-month periods decreased approximately thirty percent and forty-three percent, respectively, in both periods over the 1994 comparable periods. Other income increased approximately forty-five percent in the 1995 second quarter compared to the first quarter. The increase and decreases all resulted primarily from rental income from property not used in operations.
Interest income in the three-month periods ended November 30, 1995 decreased approximately forty-four percent and sixty-one percent, respectively, compared to the same periods in 1994. Interest income increased approximately one hundred twenty-two percent in the 1995 second quarter compared to the first quarter. The changes are primarily due to changes in average cash balances.
Interest expense for the three-month and six-month periods ended November 30, 1995 increased approximately one hundred ninety-six percent and one hundred twenty-five percent, respectively, compared to the same periods in 1994. The increases resulted primarily from higher factor interest costs on recourse accounts receivable. Interest expense in the 1995 second quarter increased approximately thirty-six percent from the first quarter. The increases resulted primarily from higher factor interest costs on recourse accounts receivable.
The federal income tax provision effective tax rate of 35 percent differs from the statutory rate (34 percent) as a result of nondeductible life insurance premiums, nondeductible portion of meals, accelerated depreciation, capitalization of certain expenses in inventories and the difference between the doubtful account reserve and write-off.
Item 9. No reports on Form 8-K were filed during the three-month period ended November 30, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
10-Q
|
10-Q
| 1996-01-12T00:00:00
| 1996-01-11T20:50:18
|
0000092103-96-000001
|
0000092103-96-000001_0001.txt
|
<DESCRIPTION>CPUC SETS EDISON REVENUE REQUIREMENT
107 S. Broadway, Rm 5109,
CONTACT: Kyle DeVine January 10, 1996 CPUC - 503
CPUC SETS EDISON REVENUE REQUIREMENT; PROPOSES POLICY GUIDELINES FOR SONGS COST RECOVERY
The California Public Utilities Commission (CPUC) today set the Southern California Edison Company (Edison) base revenue requirement for the General Rate Case (GRC) at $3.839 billion, bringing its total base revenue requirement (total ALBRR) to $4.017 billion. Broadly speaking, this total revenue requirement covers the fixed costs which Edison faces. This decision determines allowed costs and subsequent proceedings will flow those cost changes through to rates.
This $4.017 billion represents a decrease from $4.115 billion as of January 1, 1995, primarily due to reductions in the cost of capital ($53.1 million), SONGS 1 ($11.7 million), nuclear refueling costs ($24.1 million) and other costs reviewed in the GRC itself ($9.1 million).
Edison, San Diego Gas and Electric (SDG&E) and the Division of Ratepayer Advocates (DRA) reached a Settlement on these issues, called Phase 1 issues. The Commission also received substantial testimony on these issues. Today's order does not accept this proposed Settlement on Phase l, but develops its order from the testimony. Today's order reduces operating revenue by $9.1 million from the proposed Settlement. However, almost none of this reduction affects the direct labor cost for Edison employees who work in maintenance and operation functions. The order does align Edison's employee health care costs with the recent costs of other California utilities.
Today's order also addresses the issues, called Phase 3 issues, of cost recovery for the San Onofre Nuclear Generating stations, Units Numbers 2 and 3 (SONGS 2&3). The order recognizes the joint proposal of Edison and SDG&E for recovery of SONGS 2&3 costs over the period from 1996 through 2003. This joint proposal developed a basic trade-off between accelerating the depreciation and lowering the allowed rate of return for the equity financed portion of the SONGS investment. This proposal also included a mechanism, called the ICIP (Incremental Cost Incentive Pricing), designed to have SONGS operating costs not exceed the alternative costs of power. Today's order proposes policy guidelines which differ in three important respects.
First, for the equity financed portion of the SONGS investment, the guidelines allow a rate equal to 90 percent of the utilities' embedded cost of debt, which is consistent with the policy guideline in the Commission's recent Electric Restructuring Decision (D.95-12-063). As in the utilities' joint proposal, the order allows both utilities to recover the entire undepreciated value of the plant from 1996 through 2003. Second, the guidelines allow ratepayers and shareholders to share equally in benefits from the operation of the units after 2003. Third, the order requires the utilities to submit a reasonableness review showing if either unit remains shut down for an extended period. Edison and SDG&E jointly own the SONGS facility and these policy guidelines affect both utilities. The order allows Edison and SDG&E 25 days to respond to these guidelines.
CPUC SETS EDISON REVENUE REQUIREMENT-2-2-2
Additional Phase 1 Revenue Requirement Issues
The commission did not approve the full amount of the customer charge increases, which Edison had requested. The Commission approved lower customer charges because depressed economic conditions in Southern California have increased unemployment and increases in service charges would disapportionately impact low income customers. The commission has approved the following:
o Service establishment charge for same day service will increase $7.50 from the current $10 to $17.50. Edison had requested a $15 increase to $25. Next day service will increase $5 from the current $5 to $10. Edison had requested a $10 increase to $15. Because the next day charge is fairly low, there will be no special low-income (LIRA) rate.
o Reconnection charge for next day service is increased $2.50 from the current $10 to $12.50; Edison had requested a $5 increase to $15. Same day service is increased $5 from the current $15 to $20; Edison had requested a $10 increase to $25. After business hours or on weekends, the rate will increase $5 from the current $20 to $25; Edison has requested a $10 increase.
o Field collection charge will be renamed field assignment charge and will include services provided at the home such as collecting money and disconnecting service. It will increase $5 from $5 to $10. Edison requested a $10 increase to $15.
o The return check charge will increase $4 from the current $5 to $9. Edison had requested it be increased to $10.
o The Commission will not allow a late payment charge to residential customers because Edison does not credit payments the day received.
Today's order sets Research, Development and Demonstration (RD&D) funding at $29.7 million, $2.0 million more than the Settlement requested. it is $26.5 million less than Edison originally requested because increased competition in the electric industry will impact utilities involvement with RD&D. Demand-side management (DSM) funding was set at $69.3 million, $18.3 million more than the Settlement requested, for energy conservation measures that encourage efficient use of electricity.
The Commission denied Edison's requested increases of $92.1 million for 1996 and $96.8 million for 1997 for anticipated increased investment costs, referred to as attrition increases. However, Edison may request the increases again if extraordinary economic conditions arise before performance-based ratemaking (PBR) is implemented for Edison. The Commission is considering PBR to replace the current complex and costly method of determining rates. PBR sets rates by using a formula that reflects inflation, utility efficiency in producing and providing electricity, and other utility costs.
In its review of the request, the Commission wanted to hear concerns from the utility, other parties, consumers and Edison employees. Therefore, the Commission held 2 months of evidentary hearings, public participation hearings in 11 Southern California communities and a public hearing that focused on Edison employee concerns. The Commission also held a full panel hearing where all five commissioners listened to presentations by Edison, unions, consumer groups and the public.
|
8-K
|
EX-20
| 1996-01-12T00:00:00
| 1996-01-12T14:19:58
|
0000916480-96-000001
|
0000916480-96-000001_0001.txt
|
This Supplemental Retirement Benefit Plan (the "Plan") is adopted effective as of this 16th day of January, 1992, by Wausau Paper Mills Company, a Wisconsin corporation, ("Wausau") for the purposes of providing deferred compensation in the form of supplemental retirement benefits for San W. Orr, Jr. ("Mr. Orr") in recognition of his service to Wausau as its Chairman of the Board of Directors and Chief Executive Officer.
1. Normal Supplemental Retirement Benefit. Beginning on the first day of the first month following the last to occur of (a) Mr. Orr's termination of employment with Wausau or (b) Mr. Orr's 60th birthday, and continuing on the first day of each succeeding month, Wausau shall pay to Mr. Orr, if he is then living, a monthly supplemental retirement benefit (Mr. Orr's "Normal Supplemental Retirement Benefit") in an amount equal to 50% of one-twelfth of Mr. Orr's highest final average compensation. For purposes of this Plan, "highest final average compensation" shall mean the annual average of the sum of (a) all compensation paid to Mr. Orr and reported on Form W-2 and (b) all amounts which would have been paid and reported on Form W-2 but were deferred at Mr. Orr's election for the five consecutive calendar year period which yields the highest aggregate compensation so paid and deferred. Mr. Orr's Normal Supplemental Retirement Benefit shall not be reduced or offset by the amount of any other payment then due him from Wausau or any other plan or program now or hereafter maintained by Wausau.
2. Surviving Spouse Benefit. From and after the first day of the first month following the later of (a) the month in which Mr. Orr's death occurs or (b) the month in which Mr. Orr would have attained his 60th birthday if Mr. Orr's death occurs before he has attained age 60, and continuing on the first day of each succeeding month, Wausau shall pay to Mr. Orr's spouse, if then living (Mr. Orr's "Surviving Spouse"), a monthly benefit (the "Supplemental Surviving Spouse Benefit") in an amount equal to 50% of the Normal Supplemental Retirement Benefit to which Mr. Orr would have then been entitled had he then been living.
3. Change of Control of Wausau.
(a) In the event a Change of Control of Wausau occurs prior to Mr. Orr's death, Wausau shall pay to Mr. Orr a lump sum amount equal to the present value of Mr. Orr's Normal Supplemental Retirement Benefit, as determined hereunder, as of the first day of the first month following such Change of Control of Wausau on which Mr. Orr is neither an employee nor a director of Wausau, whether or not such Change of Control occurred prior to the date on which Mr. Orr shall have ceased to be an employee or a director of Wausau. Upon payment of the lump sum amount provided for in this subparagraph (a), Wausau shall have no further obligation to pay any benefits under this Plan.
(b) In the event a Change of Control occurs after Mr. Orr's death and whether or not the Supplemental Surviving Spouse Benefit shall have then become payable, Wausau shall pay to Mr. Orr's Surviving Spouse, if then living, the present value of the unpaid Supplemental Surviving Spouse Benefit. Upon payment of the lump sum amount provided for in this subparagraph (b), Wausau shall have no further obligation to pay any benefits under this Plan.
(c) For purposes of this plan, a "Change of Control of Wausau" shall be deemed to have occurred when:
(i) any one of the following events occurs:
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than (A) Wausau or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of Wausau or any of its subsidiaries, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) a company owned, directly or indirectly, by the shareholders of Wausau in substantially the same proportions as their ownership of stock of Wausau, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Wausau (not including in the securities beneficially owned by such persons any securities acquired directly from the Company or its affiliates) representing more than 50% of the combined voting power of Wausau's then outstanding securities; provided, however, that for the purpose of determining whether any shareholder of Wausau on the date hereof becomes the beneficial owner of securities of Wausau representing more than 50% of the combined voting power of Wausau's then outstanding securities, the securities of Wausau held by such shareholder on the date hereof shall not be taken into account;
(B) the shareholders of Wausau approve a merger or consolidation of Wausau or a share exchange with any other company, other than a merger or consolidation or share exchange which would result in the voting securities of Wausau outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of Wausau, at least 50% of the combined voting power of the voting securities of Wausau or such surviving entity outstanding immediately after such merger or consolidation or share exchange, or a merger or consolidation or share exchange effected
to implement a recapitalization of Wausau (or similar transaction) in which no person acquires more than 50% of the combined voting power of Wausau's then outstanding securities; or
(C) the shareholders of Wausau approve a plan of complete liquidation of Wausau or an agreement for the sale or disposition by Wausau of all or substantially all of Wausau's assets and
(ii) a majority of the members of the Board of Directors who are unaffiliated with an Interested Shareholder (defined in subparagraph (d)) and who were members of the Board of Directors as of a date prior to the date on which the Interested Shareholder became an Interested Shareholder (a "Current Director") has not, by resolution prior to (A) the person described in subparagraph (i)(A) becoming the beneficial owner of 10% of the combined voting power of Wausau's then outstanding securities or (B) the approval of shareholders described in (i)(B) or (C) the approval of shareholders described in (i)(C), approved or recommended such event.
(d) For purposes of this Plan, the term "Interested Shareholder" shall mean any person (other than Wausau or any of its subsidiaries or any member of the Board of Directors as of the effective date of this Plan or any affiliate of such person) who first became the beneficial owner of 10% or more of the combined voting power of Wausau's then outstanding securities after the effective date of this Plan.
(e) For purposes of this Plan, the present value of Mr. Orr's Normal Supplemental Retirement Benefit or the Supplemental Surviving Spouse Benefit shall be determined by reference to the 1983 Individual Annuity Mortality Table with an assumed interest rate equal to the "immediate annuity rate" as then in effect as determined by the Pension Benefit Guaranty Corporation and promulgated in Appendix B to 29 C.F.R. Section 2619.65 or any successor regulation adopted for the same or substantially similar purpose.
4. Supplemental Retirement Benefits in Addition to other Rights and Benefits. The rights and benefits conferred upon Mr. Orr (and Mr. Orr's Surviving Spouse) pursuant to this Plan shall be in addition to all other rights and benefits conferred upon Mr. Orr by Wausau by reason of his employment.
5. Nature of Wausau's Obligations and Mr. Orr's Rights. Neither Mr. Orr nor his Surviving Spouse, if any, shall acquire any right, title or interest in the assets of Wausau by reason of this Plan. To the extent Mr. Orr or his Surviving Spouse shall acquire a right to receive payments from Wausau pursuant to this Plan, such right shall be no greater than the right of any unsecured general creditor of Wausau.
6. Assignment by Mr. Orr Prohibited. This Plan and Mr. Orr's rights and benefits hereunder (and the rights of his Surviving Spouse, if any) shall not be subject to voluntary or involuntary sale, pledge, hypothecation, transfer or assignment by Mr. Orr or such Surviving Spouse, their personal representatives or heirs or any other person or persons or organization or organizations succeeding to any of their rights and benefits hereunder.
7. Funding. All benefits paid or payable pursuant to the terms of this Plan shall be paid out of the general assets of Wausau.
8. Claims Procedure. The claims procedure set forth in the Wausau Paper Retirement Plan or any successor to such plan is incorporated herein by this reference as the claims procedure for this Plan.
9. Plan Administrator. The plan administrator and named fiduciary of the Plan shall be Wausau.
10. Binding Effect. This Plan shall be binding upon and inure to the benefit of (1) Mr. Orr and his Surviving Spouse and their personal representatives and heirs and any other person or persons or organization or organizations succeeding to any of Mr. Orr's rights or benefits hereunder, and (2) Wausau and its successors and assigns.
11. Severability. The invalidity or unenforceability of any provision of this Plan shall not invalidate or render unenforceable any other provision of this agreement.
12. Governing Law. This Plan shall be governed by the Employee Retirement Income Security Act of 1974, as amended, and to the extent not preempted by such Act, by the laws of the State of Wisconsin.
IN WITNESS WHEREOF, Wausau has caused this amended agreement to be executed by its President thereunto duly authorized as of this 16th day of November, 1995.
|
10-Q
|
EX-10
| 1996-01-12T00:00:00
| 1996-01-12T14:58:18
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0000893220-96-000029
|
0000893220-96-000029_0000.txt
|
<DESCRIPTION>FORM U-1, THE COLUMBIA GAS SYSTEM, INC.
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
THE COLUMBIA GAS SYSTEM, INC.
(Names of company or companies filing this statement and addresses of principal executive offices)
The Columbia Gas System, Inc.
(Name and address of agent for service)
Item 1. Description of Proposed Transaction
(a) Furnish a reasonably detailed and precise description of the proposed transaction, including a statement of the reasons why it is desired to consummate the transaction and the anticipated effect thereof. If the transaction is part of a general program, describe the program and its relation to the proposed transaction
The Columbia Gas System, Inc. ("Columbia"), a Delaware corporation, and a
holding company registered under the Public Utility Holding Company Act of
1935 (the "Act"), is the Applicant-Declarant.
Columbia requests authorization to establish one or more direct or
indirect subsidiaries ("Consumer Services Company") to engage in the business
of providing energy-related services ("Consumer Services"), of a nature
described herein, to customers of Columbia's local distribution companies
("LDCs")(1), and to others, primarily customers of nonaffiliated utilities.
In addition, Columbia requests authorization to expand previously granted
authorizations to market natural gas and natural gas services to include the
marketing of other energy-related products including propane, natural gas
liquids, petroleum and electricity through either an existing, direct
subsidiary or through the establishment of one or more direct or indirect
The Consumer Services represent a potential source of new income for
Columbia as well as a valuable source of new services for Columbia's existing
and potential customers. Additionally, these services are related to the
services being provided to Columbia customers
(1) These companies are Columbia Gas of Kentucky, Inc., Columbia Gas of Maryland, Inc., Columbia Gas of Ohio, Inc., Columbia Gas of Pennsylvania, Inc., and Commonwealth Gas Services, Inc.
which will lead to increased and more efficient utilization of existing
Columbia LDC facilities. These Consumer Services will add value to existing
natural gas service by offering to maintain natural gas equipment all the way
to the burner tip. It will thereby make available a valuable array of
currently unavailable services to Columbia's existing customers as well as to
The Consumer Services will be provided by one or more direct or indirect
subsidiaries of Columbia. Columbia is seeking authorization herein to create
such subsidiaries. If a new direct subsidiary is created, financing will be
provided by the sale of up to $5 million of Consumer Services Company common
stock to Columbia. In the case of an indirect subsidiary or an existing
subsidiary, financing will be provided out of funds on hand or pursuant to
existing funding authority by a Columbia subsidiary. In either case the
amount of funding will not exceed $5,000,000 during the first two years of
operations. None of the Consumer Services will require a large amount of
additional capital investment. It is anticipated that many, if not all,
services will be provided through the Consumer Services Company's own staff,
third-party vendors, contractors and/or trade allies. The Consumer Services
will be offered both within and outside of Columbia's market area.
Examples of customer and Columbia System benefits from the provision of
Consumer Services would be to: (1) maintain or increase System gas load; (2)
promote aspects of the gas business that are less weather sensitive; and (3)
utilize existing Columbia System facilities and experience to manage, support
and staff the new service entity. It is expected that the Consumer Services
will be profitable which will inure to the benefit of Columbia's investors.
The following is a more detailed description of the Consumer Services:
Residential and small commercial business customers may be offered an array of energy assessment and energy-related safety inspections such as carbon monoxide and radon testing, appliance efficiency ratings and wiring safety checks.
Customers may be offered loans to support the purchase and installation of energy-related appliances.
Customers may be offered an opportunity to ensure the payment of their utility bills in the event of death, disability or involuntary unemployment.
Customers may be offered an appliance repair service that would protect customers heating and air conditioning systems and other major appliance repair costs.
(5) Gas Line Repair Warranty Customers may be offered an opportunity to warrant against the cost of repair of faulty gas service lines located both within and external to the customer's location.
(6) Merchandising of Energy Related Goods Customers may be offered opportunity to purchase energy-related devices.
Operators of commercial equipment may be offered a repair warranty program that would respond to faulty equipment.
(8) Bill Risk Management Products A variety of programs may be made available to gas customers interested in hedging energy price or consumption fluctuations.
(9) Consulting and Fuel Management Services Commercial and industrial customers may be offered advisory and/or management services regarding energy consumption and its measurement.
Industrial and commercial customers may be offered a variety of enhanced measurement and billing services that will enable them to better monitor their energy consumption and expenditures.
In addition, Columbia specifically requests authorization for Consumer Service Company to engage in services, the need for which arises as a result of or evolves out of the services enumerated above.
The proposed Consumer Services are reasonably incidental and/or
economically necessary or appropriate to Columbia's core utility business of
distributing gas at retail and will primarily benefit the LDCs and their
customers.(2) The proposed gas line warranty program will facilitate and
enhance the ability of the LDCs to maintain their distribution lines in good
working order and effect repairs quickly when needed, thereby minimizing
service interruptions and lost sales due to leaks and line breaks and
enhancing the utility service provided to customers and the ability of the
LDCs to distribute gas reliably and efficiently. Similarly, proposed Consumer
Services such as appliance repairs, including routine furnace services, and
appliance financing will promote the safe and efficient distribution of gas by
facilitating the maintenance, repair, and replacement of gas utilizing
equipment that is broken or not working properly. In addition, the
inspection, warranty, and repair services will foster more effective and
efficient energy consumption and enhance customer safety. These services will
give the utility customers the ability to minimize financial exposure
resulting from potential repair costs. Also, these services are consistent
with the services previously approved by the Commission in Consolidated
Natural Gas Co., 1995 SEC LEXIS 2289, HCAR Nos. 35-26363 and 70-8577 (August
(2) The Applicant submits that each of the proposed Consumer Services falls within one or more of the categories of energy-related activities which would be permitted under proposed Rule 58. See Holding Company Act Release No. 16311 (June 28, 1995).
SERVICE ARRANGEMENTS WITH COLUMBIA LDCS
The LDCs will provide customer billing, accounting and other
energy-related services. All services between the LDCs and the Consumer
Services Company, or between the Consumer Services Company and any other
Columbia System company, required to conduct the new Consumer Services will be
billed at cost, in accordance with Section 13(b) of the Act and Commission
Rules 87, 90 and 91.
Columbia, to the extent required, requests authorization to provide
Consumer Services Company with up to $5 million in funding through December
31, 1997, through the purchase of shares of common stock of Consumer Services
Company, $25 par value per share, at a purchase price at or above par value.
Thereafter, Consumer Services Company will issue securities, and Columbia, or
a direct subsidiary of Columbia, will acquire securities, in transactions
which will be exempt pursuant to Rule 52.
Applicant will file quarterly certificates of notification within 45 days
after the end of each calendar quarterly period, which will include the
(i) A statement of all revenues derived from the Consumer Services
activities authorized both during the period covered and
(ii) Copies of all state commission orders approving or post-transaction
audit documents pertaining to affiliate service arrangements or
affiliate transactions between Consumer Services Company and
Columbia System LDCs obtained during the period covered.
(iii) A statement containing a company-by-company breakdown of all
services provided by Columbia LDCs (or any other Columbia
company) to Consumer Services Company and all payments for such
services made by Consumer Services Company during the period
Additionally, Columbia or its subsidiaries will file no later than
February 15th of each year a balance sheet for Consumer Services Company as of
December 31st of that year and an income statement for Consumer Services
Corporation for the year ending on December 31st.
The Commission previously authorized Columbia to establish Columbia
Energy Services Corporation [HCAR 35-25802; 70-8145] to market natural gas
products and services. In addition, the Commission also authorized the
creation of TriStar Ventures Corporation and its subsidiaries [HCAR 35-24199;
70-7276] to, among other things, invest in and operate electric cogeneration
Columbia requests authorization to expand the services offered by one or
both of these companies to include the marketing of other energy related
products including propane, natural gas liquids, petroleum and electricity.
Further, Columbia requests authorization to establish one or more direct or
indirect subsidiaries to market the above-described energy products.
Columbia, to the extent required, requests authorization to provide
Energy Products Company with up to $5 million in funding through December 31,
1997, through the purchase of shares of common stock of Energy Products
Company, $25 par value per share, at a purchase price at or above par value.
Thereafter, Energy Products Company will issue securities, and
Columbia, or a direct subsidiary of Columbia, will acquire securities, in
transactions which will be exempt pursuant to Rule 52.
Applicant will file quarterly certificates of notification within 45 days
after the end of each calendar quarter which will include an income statement
and balance sheet reflecting Energy Products Company's activities.
1. Columbia requests authorization to create and fund one or more
direct or indirect subsidiaries to offer Consumer Services as herein defined,
from time to time through December 31, 1997, through the purchase of up to
$5,000,000 of common stock of the newly created subsidiaries, $25 par value
per share, at a purchase price at or above par value.
2. Columbia requests authorization to create and fund one or more
direct or indirect subsidiaries to market energy products including propane,
natural gas liquids, petroleum and electricity, from time to time through
December 31, 1997 through the purchase of up to $5,000,000 of common stock of
the newly created subsidiaries, $25 par value per share, at a purchase price
at or above par value or, alternatively, to expand authorizations previously
granted to market such energy products in existing subsidiaries.
Item 2. Fees, Commissions and Expenses
(a) State (1) the fees, commissions and expenses paid or incurred, or to be paid or incurred, directly or indirectly, in connection with the proposed transaction by the applicant or declarant or any associate company thereof, and (2) if the proposed transaction involves the sale of securities at competitive bidding, the fees and expenses to be paid to counsel selected by applicant or declarant to act for the successful bidder.
The Columbia Gas System Service Corporation has provided certain
services in connection with the preparation of this filing as follows:
(b) If any person to whom fees or commissions have been or are to be paid in connection with the proposed transaction is an associate company or an affiliate of any applicant or declarant, or is an affiliate of an associate company, set forth the facts with respect thereto.
Columbia Gas System Service Corporation is a wholly owned subsidiary
of Columbia and has performed certain services at cost as set forth in Item
Item 3. Applicable Statutory Provisions.
(a) State the section of the Act and the rules thereunder believed to be applicable to the proposed transaction. If any section or rule would be applicable in absence of a specific exemption, state the basis of exemption.
The issuance of new securities by Consumer Services Company and Energy
Products Company is made pursuant to Sections 6(a) and 7 and Rule 43.
Sections 9(a), 10 and 12(f) is deemed applicable to (i) acquisitions of the
capital stock and notes of Consumer Services Company and Energy Products
Company, respectively and (ii) the provisions of Consumer Services by Consumer
Services Company and the marketing of energy-related products by Energy
Services Company. Indebtedness issued and credit extended by Columbia and by
one or more Columbia subsidiaries are made pursuant to Section 12(b) and Rule
45. Section 13(b) and Rules 87, 90 and 91 may be applicable to any services
provided by System subsidiaries to any new subsidiary company. Given the role
and relationship of natural gas to the proposed
Consumer Services and energy-related products, it is entirely possible that
these energy-related activities would be permitted under the Proposed Rule 58.
HCAR No. 16311 (June 28, 1995).
Columbia does not own, nor operate nor is it an equity participant in any
Exempt Wholesale Generator or any Foreign Utility Company and will not be a
company that owns, operates or has an equity participation in an Exempt
Wholesale Generator or Foreign Utility Company as a result of the approvals
requested herein. Columbia does not have any rights, nor will it have any
rights or obligations under a service, sales or construction contract with an
Exempt Wholesale Generator or Foreign Utility Company as a result of the
To the extent that the proposed transactions are considered by the
Commission to require authorization, approval or exemption under any section
of the Act or any provision of the rules and regulations other than those
specifically referred to herein, a request for such authorization, approval or
(b) If any applicant is not a registered holding company or a subsidiary thereof, state the name of each public utility company of which it is an affiliate, or of which it will become an affiliate as a result of the proposed transaction, and the reasons why it is or will become such an affiliate.
(a) State the nature and extent of the jurisdiction of any State commission or any Federal commission (other than the Securities and Exchange Commission) over the proposed transaction.
Because of the nature of certain products proposed herein, including but
not limited to billing insurance, the subsidiary(s) providing Consumer
Services will have to seek licensure as an insurer or an insurance agent in
the states in which the Consumer Services are being offered.
The Columbia LDC's in Kentucky, Ohio, Pennsylvania and Virginia may have
to seek approval from the state utility regulatory bodies in their respective
states to modify their billing statements to allow for billing of Consumer
Services. Additionally, affiliate agreements must be approved by the state
regulatory bodies in Pennsylvania and Virginia.
(b) Describe the action taken or proposed to be taken before any Commission named in answer to Paragraph (a) of this item in connection with the proposed transaction.
(a) State the date when Commission action is requested. If the date is less than 40 days from the date of the original filing, set forth the reasons for acceleration.
It is respectfully requested that the Commission issue its notice by
January 19, 1996, and its order on or by February 15, 1996.
(b) State (i) whether there should be a recommended decision by a hearing officer, (ii) whether there should be a recommended decision by any other responsible officer of the Commission, (iii) whether the Division of Investment Management may assist in the preparation of the Commission's decision, and (iv) whether there should be a 30-day waiting period between the issuance of the Commission's order and the date on which it is to become effective.
The Applicants hereby (i) waive a recommended decision by a hearing
officer, (ii) waive a recommended decision by any other responsible officer of
the Commission, (iii) specify that the Division of Investment Management may
assist in the preparation of the Commission's decision, and (iv) specifies
that there should not be a 30-day waiting period between the issuance of the
Commission's order and the date on which it is to become effective.
Item 6. Exhibits and financial Statements.
A Form of Subsidiary Common Stock Certificate (Exhibit A-2 to Joint-Application Declaration (File No. 70-7276) is hereby incorporated by reference.
F Opinion of Counsel (to be filed by amendment).
(1) The Columbia Gas System, Inc. and Subsidiaries
(a) Balance Sheets as of October 31, 1995 (actual and pro forma).
(b) Statements of Capitalization as of October 31, 1995 (actual and pro forma).
(c) Statements of Income for the Twelve Months ended October 31, 1995 (actual and pro forma).
(d) Statements of Common Stock Equity as of October 31, 1995 (actual and pro forma).
(2) The Columbia Gas System, Inc.
(a) Balance Sheets as of October 31, 1995 (actual and pro forma).
(b) Statements of Capitalization as of October 31, 1995 (actual and pro forma).
(c) Statements of Income for the Twelve Months ended October 31, 1995 (actual and pro forma).
(d) Statements of Common Stock Equity as of October 31, 1995 (actual and pro forma).
(a) Balance Sheets as of October 31, 1995 (actual and pro forma).
(b) Statements of Capitalization as of October 31, 1995 (actual and pro forma).
(c) Statements of Income for the Twelve Months ended October 31, 1995 (actual and pro forma).
(d) Statements of Common Stock Equity as of October 31, 1995 (actual and pro forma).
(a) Balance Sheets as of October 31, 1995 (actual and pro forma).
(b) Statements of Capitalization as of October 31, 1995 (actual and pro forma).
(c) Statements of Income for the Twelve Months ended October 31, 1995 (actual and pro forma).
(d) Statements of Common Stock Equity as of October 31, 1995 (actual and pro forma).
There have been no material changes, not in the ordinary course of
business, since the date of the financial statements filed herewith.
Item 7. Information as to Environmental Effects.
(a) Describe briefly the environmental effects of the proposed transaction in terms of the standards set forth in Section 102(2)(C) of the National Environmental Policy Act (42 U.S.C. 4232(2)(C)). If the response to this item is a negative statement as to the applicability of Section 102(2)(C) in connection with the proposed transaction, also briefly state the reasons for that response.
As more fully described in Item 1, the proposed transactions relate
only to establishment of a subsidiary company and corporate governance issues
and have no environmental impact in and of themselves.
(b) State whether any other federal agency has prepared or is preparing an environmental impact statement ("EIS") with respect to the proposed transaction. If any other federal agency has prepared or is preparing an EIS, state which agency or agencies and indicate the status of that EIS preparation.
No federal agency has prepared or is preparing an EIS with respect
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, each of the undersigned companies has duly caused this Declaration to be
signed on its behalf by the undersigned thereunto duly authorized.
The signatures of the Declarants and of the persons signing on their
behalf are restricted to the information contained in this Declaration which
is pertinent to the application of the respective companies.
THE COLUMBIA GAS SYSTEM, INC.
Date: January 12, 1996 By: /s/ L. J. Bainter
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED
As of October 31, 1995
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEET (2 of 2) As of October 31, 1995
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED
As of October 31, 1995
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED
Twelve Months Ended October 31, 1995
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY Twelve Months Ended October 31, 1995
THE COLUMBIA GAS SYSTEM, INC. UNAUDITED
As of October 31, 1995
THE COLUMBIA GAS SYSTEM, INC. UNAUDITED BALANCE SHEET (2 of 2) As of October 31, 1995
THE COLUMBIA GAS SYSTEM, INC. UNAUDITED
As of October 31, 1995
THE COLUMBIA GAS SYSTEM, INC. UNAUDITED
Twelve Months Ended October 31, 1995
THE COLUMBIA GAS SYSTEM, INC. UNAUDITED
STATEMENTS OF COMMON STOCK EQUITY Twelve Months Ended October 31, 1995
THE COLUMBIA GAS SYSTEM, INC. UNAUDITED
As of October 31, 1995
As of October 31, 1995
As of October 31, 1995
Twelve Months Ended October 31, 1995
STATEMENTS OF COMMON STOCK EQUITY Twelve Months Ended October 31, 1995
As of October 31, 1995
As of October 31, 1995
As of October 31, 1995
Twelve Months Ended October 31, 1995
STATEMENTS OF COMMON STOCK EQUITY Twelve Months Ended October 31, 1995
A Form of Subsidiary Common Stock Certificate (Exhibit A-2 to Joint-Application Declaration (File No. 70-7276) is hereby
F Opinion of Counsel (to be filed by amendment).
|
U-1
|
U-1
| 1996-01-12T00:00:00
| 1996-01-12T13:06:54
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0000950109-96-000208
|
0000950109-96-000208_0000.txt
|
UNITED STATES SECURITIES AND EXCHANGE COMMISSION _X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
For the quarterly period ended November 30, 1995
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
For the transition period from _______________ to ________________
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification Number
333 Elm Street Dedham, Massachusetts 02026 (Address of principal executive offices) (ZIP Code)
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____
APPLICABLE ONLY TO ISSUERS INVOLVED THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the lastest practicable date.
21,830,016 at January 10, 1996
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements and notes do not include all of the disclosures made in the Company's Annual Report to Stockholders, which should be read in conjunction with these statements. Certain fiscal 1995 amounts have been reclassified to conform with the fiscal 1996 presentation. In the opinion of the Company, the statements include all adjustments necessary for a fair presentation of the quarterly results and any and all such adjustments were of a normal recurring nature.
2. The results of operations for the three and nine months ended November 30, 1995 and 1994 are not necessarily indicative of the results to be expected for the full year.
3. Supplemental cash flow information: Cash paid for interest for the nine months ended November 30, 1995 and 1994 was $121,000 and $612,000, respectively. Cash paid for income taxes for the nine months ended November 30, 1995 and 1994 were $388,000 and $38,000, respectively. For the nine months ended November 30, 1995 and 1994 the Company incurred capital lease obligations totaling $659,000 and $1,281,000 respectively, under lease agreements for new vehicles and equipment.
Earnings per share has been computed by dividing net earnings, after reduction for preferred stock dividends (when applicable), by the weighted average number of common shares and equivalents outstanding. Common share equivalents included in the computation represent shares issuable upon assumed exercise of stock options and stock purchase warrants (when applicable), which would have a dilutive effect.
The number of common shares and equivalents for computing primary earnings per share for the three months ended November 30, 1995 and 1994 were 23,621,648 and 22,501,475, respectively. For the nine months ended November 30, 1995 and 1994, the number of common shares and equivalents used in computing primary earnings per share were 23,279,021 and 20,215,067, respectively. Fully diluted and primary earnings per share were the same for the three and nine months ended November 30, 1995 and 1994.
The Company has available a net operating loss carryforward of $19,200,000 at November 30, 1995. FASB 109 provides that a deferred tax asset should be recognized if it is "more likely then not" that the Company will realize the tax benefit of such carryforwards. The Company is presently evaluating its current tax provision in light of this criteria and, if appropriate, may reduce its provision in future quarters as the result of recording such a deferred asset.
Managements Discussion and Analysis of Results of Operations and Financial Condition
Revenues increased by $1,591,000 and $7,918,000, or 13% and 26%, to $13,600,000 and $38,924,000 for the three and nine months ended November 30, 1995, respectively, from $12,009,000 and $31,006,000 for the same periods a year earlier. This increase can be attributed primarily to increased revenues from the sales of LoJack Units and related products of $1,405,000 and $7,427,000 for the three and nine months ended November 30, 1995 from the Company's existing domestic markets as compared with the same periods a year earlier, as well as, to a lesser extent, revenues related to the expansion markets of Connecticut (March, 1995) and San Diego and Orange Counties in California (June, 1995) ("the expansion markets"). Revenues generated from international licensing agreements increased $186,000 and $491,000 for the three and nine months ended November 30, 1995 as compared to a year earlier. The increases in international revenues were generated from both product sales and licensing fees.
Cost of goods sold as a percentage of revenues decreased to 46% for the three and nine months ended November 30, 1995 from 48% and 51% of related revenues for the same periods a year earlier. Domestically, cost of goods sold decreased to 46% and 47% of related revenues for the three and nine months ended November 30, 1995, respectively from 48% and 51%, respectively, for the same periods a year earlier. This decrease is primarily the result of a decrease in the manufacturing cost of a LoJack Unit as well as increased operating efficiencies realized from economies of scale. Cost of goods sold related to revenues derived from international licensing agreements decreased to 41% for the three months ended November 30, 1995 from 46% a year earlier and decreased to 39% for the nine months ended November 30, 1995 from 49% for the same period a year earlier. These ratios fluctuate widely from quarter to quarter based upon the mix of revenues from international product sales and licensing fees.
Systems costs and research and development increased by $129,000 and $439,000 to $302,000 and $876,000 for the three and nine months ended November 30, 1995, respectively, from $174,000 and $437,000, respectively for the same periods a year earlier. These increases are the result of increased research and development efforts related to improvements to the LoJack Systems (including the next generation LoJack Unit and Stolen Vehicle Recovery System) as well as increased systems maintenance and operating costs related to the LoJack System in markets which were added during the prior fiscal year.
Sales and marketing expense increased by $356,000 and $1,571,000 to $2,857,000 and $8,616,000 for the three and nine months ended November 30, 1995 from $2,501,000 and $7,045,000 for the same periods a year earlier. These increases are primarily related to advertising and promotional expenses related to the expansion markets as well as increased support and payroll costs related to increased sales in existing domestic markets.
General and administrative expenses increased by $146,000 and $591,000 to $1,333,000 and $4,060,000 for the three and nine months ended November 30,1995, respectively, from $1,188,000 and $3,469,000 for the same periods a year earlier. These increases are primarily the result of increased payroll costs and support service expenses related to the increased level of business during these fiscal periods as compared with the prior year, as well as expenses relating to entering into international license agreements.
Depreciation and amortization decreased by $184,000 and $338,000 to $438,000 and $1,401,000 for the three and nine months ended November 30,1995, respectively, from $621,000 and $1,739,000 for the same periods a year earlier. These decreases are the result of a significant amount of property and equipment becoming fully depreciated during fiscal 1996, being offset partially by an increase in depreciation expense on property additions related to expansion markets in fiscal 1995 and 1996.
Interest and other income increased by $120,000 and $518,000 for the three and nine months ended November 30, 1995, respectively, as compared with the same periods a year earlier. This primarily is the result of an increase in cash available for investment as well as an increase in interest rates earned on investments during the periods.
Interest expense increased by $12,000 for the three months ended November 30, 1995 as compared with a year earlier as a result of interest expense on capital lease additions during the quarter. Interest expense for the nine months ended November 30, 1995, decreased by $160,000 as compared with a year earlier primarily as the result of the absence in the nine month period ending November 30, 1995 of interest expense related to a third party guarantee under a former line of credit.
Provision for income taxes increased by $46,000 and $328,000 for the three and nine months ended November 30, 1995 as compared with the same periods a year earlier as the result of the increase in the Company's taxable income during the fiscal periods.
As a result of the foregoing, net income increased by $749,000 and $3,715,000 to $2,560,000 and $6,426,000 for the three and nine months ended November 30, 1995, respectively, from $1,811,000 and $2,711,000 for the same periods a year earlier.
As of November 30, 1995, the Company had working capital of $30,810,000 and an unused line of credit of $4,500,000. The Company is currently finalizing a renewal of the line of credit and an increase in available borrowings to $7,500,000.
The Company is currently in negotiations with respect to expansion of the LoJack System to several other jurisdictions. The Company expects that it will complete negotiations and expand into certain new markets during fiscal 1997. Capital expenditures, including those related to market expansions, budgeted for the remainder of the fiscal year and for fiscal 1997 are estimated to be approximately $500,000, and $3,000,000 respectively.
For the nine months ended November 30, 1995 the Company realized cash provided by operations of $8,666,000, compared to $3,483,000 for the same period last year. This increase is the result of both increased revenues and improved gross margins on revenues primarily derived from the Company's domestic markets. The Company believes that its operations, both domestic as well as international licensing activities, will continue to provide strong cash flow in the future.
The Company continues to investigate possible investment opportunities utilizing current resources including, but not limited to, possible acquisitions, of or investments, in other companies in the security industry. To date, the Company has taken no formal action in this regard. In addition, in December of 1995 the Company's board of directors authorized a stock repurchase program under which the Company may repurchase up to 2,200,000 (or approximately 10%) of its currently outstanding shares of common stock. The Company plans to accomplish the repurchase program in open market transactions, from time to time, depending on the price of its stock. The Company plans to use its current working capital and cash flow from operations to fund this repurchase program. As of January 8, 1996, no shares had been repurchased under this program.
The increase in the Company's accounts receivable of $1,608,282 to $5,866,837 at November 30, 1995 from $4,258,555 at February 28, 1995 is consistent with the increase in revenues. The increase in accounts payable of $504,190 to $3,053,001 at November 30, 1995 from $2,548,811 at February 28, 1995 is related to the overall increase in business volume and increased media spending during the third quarter of fiscal 1996 as compared with the fourth quarter of fiscal 1995.
The Company has available a net operating loss carryforward of $19,200,000 at November 30, 1995. FASB 109 provides that a deferred tax asset should be recognized if it is "more likely then not" that the Company will realize the tax benefit of such carryforwards. The Company is presently evaluating its current tax provision in light of this criteria and, if appropriate, may reduce its provision in future quarters as the result of recording such a deferred asset.
The Company believes that its current working capital, cash flow from operations, and its available line of credit will provide sufficient funding for its stock repurchase program, capital expenditures and possible investment opportunities.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. a. 11. Statement Regarding Computation of Per Share Earnings. b. No reports on Form 8-K were filed during the quarter for which this report is filed.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
January 8, l996 /s/ C. Michael Daley
January 8, 1996 /s/ Joseph F. Abely Date Senior Vice President and
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0000898430-96-000104_0000.txt
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Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
[X] Preliminary Proxy Statement [_] Confidential, for Use of the Commission Only (as permitted by
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(2) Form, Schedule or Registration Statement No.:
3001 REDHILL AVENUE, BUILDING III
To the StockHolders of Irvine Sensors Corporation:
The Annual Meeting of Stockholders of Irvine Sensors Corporation will be held at The Center Club, 650 Town Center Drive, Costa Mesa, California, on Friday, February 23, 1996, at 2:00 p.m., California time.
The Annual Report for fiscal 1995 is enclosed herewith. At the stockholders' meeting, we will discuss in more detail the subjects covered in the Annual Report as well as other matters of interest to stockholders.
The enclosed proxy statement explains the items of business to come formally before the Annual Meeting. As a stockholder, it is in your best interest to express your views regarding these matters by signing and returning your proxy. This will ensure the voting of your shares if you do not attend the Annual Meeting.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF THE COMPANY'S STOCK YOU OWN, AND ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY IN THE RETURN ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE ANNUAL MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE ANNUAL MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
Notice of Annual Meeting of Stockholders - February 23, 1996
TO THE STOCKHOLDERS OF IRVINE SENSORS CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Irvine Sensors Corporation, a Delaware corporation (the "Company"), will be held on Friday, February 23, 1996 at 2:00 p.m., California time, at The Center Club, 650 Town Center Drive, Costa Mesa, California for the following purposes:
1. To elect directors to serve for the ensuing year.
2. To approve an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of Common Stock to 40,000,000.
3. To ratify the appointment of Price Waterhouse LLP as independent accountants of the Company for the fiscal year ending September 29, 1996.
4. To transact such other business as may properly come before the Meeting or any adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.
The Board of Directors has fixed the close of business on December 29, 1995, as the record date for the determination of stockholders entitled to notice of, and to vote at, the Annual Meeting and any adjournment or postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting in person. Whether or not you expect to attend the Annual Meeting in person, in order to ensure your representation at the Annual Meeting, you are urged to mark, sign, date and return the enclosed Proxy card as promptly as possible in the postage-prepaid envelope enclosed for that purpose. Any stockholder attending the Meeting may vote in person even if he or she returned a proxy.
By Order of The Board of Directors
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited by and on behalf of Irvine Sensors Corporation (the "Company") for use at the Annual Meeting of Stockholders to be held on Friday, February 23, 1996 at 2:00 p.m., California time, or at any postponements or adjournments thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at The Center Club, 650 Town Center Drive, Costa Mesa, California. All expenses incurred in connection with this solicitation, including postage, printing, handling and the actual expenses incurred by brokerage houses, custodians, nominees and fiduciaries in forwarding proxy material to beneficial owners, will be paid by the Company. In addition to solicitation by mail, certain officers, directors and regular employees of the Company, who will receive no additional compensation for their services, may solicit proxies by telephone, telegram or personal call. These proxy solicitation materials were mailed on or about January 22, 1996, together with the Company's 1995 Annual Report to Stockholders, to all stockholders entitled to vote at the Annual Meeting.
The Company's principal executive offices are located at 3001 Redhill Avenue, Building III, Costa Mesa, California 92626 and its telephone number is (714) 549-8211.
Irvine Sensors Corporation is a corporation existing and organized under the laws of the State of Delaware. The Company's Board of Directors has fixed the close of business on December 29, 1995 as the record date ( the "Record Date") for determining the stockholders of the Company entitled to notice of and to vote at the Annual Meeting and at any adjournments or postponements thereof. The Company has authorized two classes of voting securities: Common Stock (20,000,000 shares authorized) and Preferred Stock (500,000 shares authorized). As of the Record Date, there are 16,028,284 shares of Common Stock outstanding, 9,354 shares of Series B Preferred Stock outstanding and 5,659 shares of Series C Preferred Stock outstanding. The presence in person or by proxy of the holders of a majority of the outstanding shares of Common Stock and Preferred Stock entitled to vote at the Annual Meeting will constitute a quorum for the purpose of transacting business at the Annual Meeting.
On each matter that may come before the Annual Meeting, each stockholder is entitled to one vote for each share of Common Stock and that number of shares of Common Stock into which the Series B Preferred Stock and Series C Preferred Stock, as the case may be, are currently convertible. The Series B and Series C Preferred Stock presently convert into 50 shares of Common Stock for each share of Preferred Stock, and therefore, as a class, the Preferred Stock is entitled to 750,650 votes on each matter to come before the Annual Meeting; however, in all matters to come before the Annual Meeting, the Common Stock and Preferred Stock will vote together as a single class. Abstentions and broker-non-votes are counted for purposes of determining the presence or absence of a quorum for the transaction of business. Abstentions are counted in tabulations of the votes cast on proposals presented to stockholders and therefore will have the effect of a negative vote. Broker-non-votes are not counted for purposes of determining whether a proposal has been approved
Under the Company's Certificate of Incorporation, cumulative voting is permitted in the election of directors. Under cumulative voting rules, every stockholder voting in the election of directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the stockholder's shares are entitled, or distribute the stockholder's votes on the same principle among as many candidates as the stockholder thinks fit, provided that votes cannot be cast for more candidates than are provided for by the By-laws at the time of voting. However, no stockholder will be entitled to cumulate votes unless the name of the candidate or candidates for whom such votes would be cast has been placed in nomination prior to the voting and any stockholder has given notice, at the Annual Meeting and prior to the commencement of voting, of such stockholder's intention to cumulate his votes. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected.
All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions and broker "non-votes."
At the Annual Meeting, valid proxies will be voted as specified by the stockholder. Any stockholder giving a proxy in the accompanying form retains the power to revoke it at any time prior to the exercise of the powers conferred in the proxy and may do so by taking any of the following actions: (i) delivering written notice to the Secretary of the Company, (ii) delivering to the Secretary of the Company a duly executed proxy bearing a later date or (iii) personally attending the Annual Meeting and revoking the proxy. A stockholder's attendance at the Annual Meeting will not revoke the stockholder's proxy unless the stockholder affirmatively indicates at the Annual Meeting the intention to vote the stockholder's shares in person. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote in person at the Annual Meeting, you must obtain from the record holder a proxy issued in your name.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented by such stockholders at the Company's Annual Meeting to be held in 1997 must be received by the Company no later than September 24, 1996, in order for them to be considered for inclusion in the Company's Proxy Statement and form of Proxy relating to that meeting. It is recommended that stockholders submitting proposals direct them to the Secretary of the Company and utilize certified mail-return receipt requested in order to provide proof of timely receipt. No such proposals were received with respect to the Annual Meeting scheduled for February 23, 1996.
PROPOSAL NO. 1 - NOMINATION AND ELECTION OF DIRECTORS
Although the By-laws provide for a board of ten directors, the Company proposes that a board of seven directors be elected at the Annual Meeting. Each director to be elected will hold office until the next annual meeting of stockholders and until his or her successor is elected and has qualified, or until such director's earlier death, resignation or removal. The board has the power between meetings of stockholders to elect directors to fill vacancies thus created, but the board has no present plans to do so. Unless otherwise instructed, the Proxy holders will vote the Proxies received by them FOR the Company's seven nominees named below, all of whom are presently directors of the Company elected by the stockholders. Proxies cannot be voted for a greater number of persons than the number of nominees named. In the event that any nominee of the Company is unable or declines to serve as a director at the time of the Annual Meeting or any postponements or adjournments thereof, the Proxies will be voted for any substitute nominee who shall be designated by the Proxy holders or Board of Directors to fill the vacancy. In the event that additional persons are nominated for election as directors, the Proxy holders intend to vote all Proxies received by them in such a manner in accordance with cumulative voting as will assure the election of as many of the nominees listed below as possible, and, in such event, the specific nominees to be voted for will be determined by the Proxy holders. Accordingly, the Company seeks discretionary authority to cumulate votes. It is not expected that any nominee will be unable or will decline to serve as director.
Directors are elected by a plurality of the votes present and in person or represented by proxy and entitled to vote on the proposal. Votes withheld from the nominee will be counted for purposes of determining the presence or absence of a quorum but will not be counted as affirmative votes. A broker-non-vote will be counted for purposes of determining the presence or absence of a quorum but will not be treated as entitled to vote on this matter.
THE BOARD RECOMMENDS VOTING "FOR" THE SEVEN NOMINEES LISTED BELOW.
The names of the Company's nominees for director, their ages as of February 23, 1996 and certain information about them, are set forth below:
(1) Member of Compensation Committee. (2) Member of Audit Committee.
Mr. Alexiou is a co-founder of the Company and has served as Chairman of the Board and a director since its inception in 1974. He also served as the Company's President from 1974 until September 1992 and its Chief Executive Officer from 1974 until relinquishing this position in September 1994. Since 1968, he has been a director of, and since 1970, the President of, Carson Alexiou Corporation ("CAC"), the former parent and present subsidiary of the Company. Mr. Alexiou holds a B.S. in business management and an M.A. in economics from Boston University.
Dr. Lian joined the Company in September 1982 as its Director of Engineering and Manufacturing and became a Vice President of the Company in March 1983, Chief Operating Officer in February 1986, a Senior Vice President in September 1988, President in September 1992, a position he still holds, and Chief Executive Officer and a director in September 1994. Dr. Lian holds a B.E.E., M.E.E. and Ph.D. from the Polytechnic Institute of New York.
Mr. Carson is a co-founder of the Company and has served as a Senior Vice President since the Company's inception in 1974 and a director since April 1982. In 1968 he founded, and is presently Vice President and a director of CAC. Mr. Carson holds a B.S. in Physics from the Massachusetts Institute of Technology.
Mrs. Carson has been a director of the Company since its inception and became the Company's Secretary in December 1981. Since 1968 she has also been a director of CAC.
Mr. Dumont became a director of the Company in April 1994. Mr. Dumont has been an international consultant and investment banker for more than five years. From January 1981 to March 1995, Mr. Dumont was President of PSA International S.A., a PSA Peugeot Citroen Group company. Mr. Dumont is a graduate of the University of Louvain, Belgium with degrees in Electrical Engineering and Applied Economics and holds an MBA from the University of Chicago.
Mr. Lenagh became a director of the Company in December 1981. Mr. Lenagh has been an independent Financial Advisor for more than five years. Mr. Lenagh is also a director of Adams Express Company, CML, Inc., ICN Pharmaceutical, Inc., Clemente Global Growth Fund, Gintel Funds, U.S. Life Corporation, Styles on Video, V-Band Cap and Franklin Quest. Mr. Lenagh holds a B.A. from Williams College and a J.D. from Columbia University Law School.
General Ragano became a director of the Company in June 1985. Since December 1988, General Ragano has been Chairman and Chief Executive Officer of CMS, Inc., a manufacturer of defense munitions. General Ragano holds a B.S. degree from Duquesne University and an MBA from Syracuse University.
Directors and officers are elected on an annual basis. The term of each director expires at the Company's next annual meeting of stockholders or at such time as his or her successor is duly elected and qualified. Officers serve at the discretion of the Board of Directors.
There are no family relationships between any director, executive officer or other key personnel and any other director, executive officer or other key personnel of the Company, other than between John C. Carson and Joanne S. Carson, who are husband and wife.
The Board of Directors held a total of four meetings during the fiscal year ended October 1, 1995 and took four actions by unanimous written consent. No director attended fewer than 75% of the meetings of the Board of Directors or committees of which he or she was a member during the fiscal year ended October 1, 1995.
The Audit Committee of the Board of Directors, consisting of Messrs. Alexiou and Lenagh, met once during the fiscal year ended October 1, 1995. This Committee reviews the independence of the Company's independent certified public accountants, recommends the engagement and discharge of independent accountants and reviews accounting policies, internal accounting controls and results of audit engagements. During fiscal 1995, neither the Board of Directors nor the Company's independent certified public accountants raised any issues with respect to matters which required formal review.
The Compensation Committee of the Board of Directors, consisting of Messrs. Alexiou, Dumont and Ragano, met two times during the fiscal year ended October 1, 1995. This Committee makes recommendations to the Board of Directors as to the salaries of officers, administers the Company's executive bonus programs and recommends to the Board the award of stock options to key employees, officers and directors.
The Company does not have a nominating committee or any committee performing the functions of a nominating committee.
The names of the Company's executive officers who are not also directors of the Company and certain information about each of them are set forth below:
Mr. John J. Stuart Jr., age 56, joined the Company in January 1983 as its Manager of Special Projects and Communications, became the Company's Chief Financial Officer and Treasurer in July 1985, and an Executive Vice President in June 1995. He relinquished the Treasurer position in February 1995. Mr. Stuart holds a B.S. in Industrial Management from the Massachusetts Institute of Technology.
Mr. Norman Argast, age 54, joined the Company in April 1994 and became a Senior Vice President in June 1994. From January 1994 through March 1994, he was a consultant to the Company. Prior to joining the Company, Mr. Argast held executive positions with IBM from which he retired after 30 years of employment. After his retirement in July 1993 until December 1993, he was a consultant to IBM. From November 1991 until June 1993, he was a Business Development Executive and from September 1989 to November 1991, he was Director of Strategic Alliances. He holds a BSEE from Newark College of Engineering (NJIT) and an MSEE from Syracuse University.
Mr. Tony Johnson, age 42, joined the Company in March 1991 as Manager of Special Projects and was named a Vice President in June 1994. From January 1990 until joining the Company, Mr. Johnson was establishing a venture capital microelectronics company. Mr. Johnson holds a B.S. in mathematics and chemistry from Western Kentucky University and an MBA from the University of California, Irvine.
Mr. David Pinto, age 63, joined the Company in October 1984 as Controller and was named the Treasurer in February 1995. Mr. Pinto is a graduate of St. George's College in Jamaica.
PROPOSAL NO. 2 - AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF
The Board of Directors has recommended and declared advisable the adoption of a resolution to amend the Certificate of Incorporation of the Company to increase the number of shares of Common Stock, $0.01 par value, that the Company is authorized to issued from 20,000,000 shares to 40,000,000 shares, $0.01 par value, and other terms applicable to the existing Common Stock (the "Share Increase Amendment").
If adopted, the first paragraph of Article IV of the Certificate of Incorporation will be amended to read substantially in the form set forth in Appendix A hereto. If changes are required in the Share Increase Amendment by the Delaware Secretary of State, the officers of the Company shall be authorized, by the approval given by the stockholders for the Share Increase such necessary changes in the language of the Amendment as required by the Delaware Secretary of State.
Under the present Certificate of Incorporation, the total number of shares of all classes of capital stock that the Company has authority to issue is 20,500,000 shares, divided into 500,000 shares of Preferred Stock, $0.01 par value and 20,000,000 shares of Common Stock, $0.01 par value.
On the Record Date, there were 16,028,284 shares of Common Stock issued and outstanding and an aggregate of 1,549,435 shares were reserved for issuance upon conversion of convertible securities, and upon exercise of outstanding warrants, stock options and other employee benefit plans.
Therefore, on the Record Date 1,672,623 shares of Common Stock were unreserved. If the proposed Share Increase Amendment is approved, in the aggregate there will be 21,672,623 shares of Common Stock available for issuance. The number of authorized Preferred Stock will not be changed by the proposed Share Increase Amendment.
The Board of Directors believes that it is desirable to have a sufficient number of additional shares of Common Stock available, as the occasion may arise, for possible future financing and acquisition transactions, stock dividends or splits, stock issuances pursuant to employee benefit plans and other proper corporate purposes. Having such additional shares available for issuance in the future would give the Company greater flexibility and allow shares of Common Stock to be issued without the expense and delay of a special stockholders meeting. In addition, this proposal would give the Board greater flexibility in responding to unsolicited takeover attempts. If the Board were to oppose such a takeover attempt, it could (within the limits imposed by applicable law and any applicable rules of any stock exchange on which the Company's Common Stock may then be listed) issue shares of authorized and unissued Common Stock in one or more transactions or it could issue authorized and unissued shares of Preferred Stock with terms, provisions and rights that would make a takeover of the Company more difficult and, therefore, less likely. Any such issuance of additional stock could be used to dilute the stock ownership of persons seeking to obtain control of the company. The additional shares of Common Stock would be available for issuance without further action by the stockholders of the Company, unless such action is required by applicable law or under the rules of any stock exchange on which the Company's Common Stock may then be listed.
The holders of any of the additional shares of Common Stock issued in the future would have the same rights and privileges as the holders of the shares of Common Stock currently authorized and outstanding. The Company's stockholders do not have preemptive rights to purchase additional shares of Common or Preferred Stock when issued.
The effective date of the proposed Share Increase Amendment will be the date upon which the required filing is made in the Office of the Delaware Secretary of State. If the Share Increase Amendment is approved by the stockholders, such filing will be made as soon thereafter as practicable.
The approval of the Share Increase Amendment requires the affirmative vote of the holders of a majority of the outstanding shares entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSED SHARE INCREASE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK FROM 20,000,000 SHARES TO 40,000,000 SHARES. THE EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST THE APPROVAL OF THE SHARE INCREASE
AMENDMENT. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED WILL BE VOTED FOR APPROVAL OF THE SHARE INCREASE AMENDMENT.
PROPOSAL NO. 3 - RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected the accounting firm of Price Waterhouse LLP to continue to serve as the Company's independent accountants for the fiscal year ending September 29, 1996. A representative of Price Waterhouse LLP is expected to attend the Annual Meeting and will be available to respond to stockholders' questions or make a statement if he desires to do so.
Accounting services provided by Price Waterhouse in fiscal 1995 included the examination of the Company's consolidated financial statements for the fiscal year ended October 1, 1995 and the review of various filings with the Securities and Exchange Commission.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 29, 1995, the number and percentage of Common and Preferred Stock owned by (i) persons known by the Company to beneficially own more than 5% of an outstanding class of voting securities, (ii) each director and nominee for director, and (iii) all directors and executive officers as a group. The Company knows of no arrangements that will result in a change in control subsequent to the date hereof. Except as otherwise indicated, each person has sole investment and voting power with respect to the shares shown, subject to community property laws, where applicable.
(1) Such shares of Common and Series B and Series C Preferred Stock are held by the Company's Stock Bonus Plan; the named individual shares the power to vote and dispose of such shares. (2) Percentages have been calculated based upon the number of outstanding shares on December 29, 1995 plus Common Stock deemed outstanding at such date pursuant to Rule 13d-3(d)(1) under the Securities Exchange Act of 1934. (3) Includes 123,200 shares issuable to R & D Leasing Ltd. ("RDL") upon exercise of common stock warrants, all of which are currently exercisable, as to which the named individual, a general partner of RDL, may be deemed to be the beneficial owner. (4) Includes 75,000 shares issuable upon exercise of currently exercisable Common Stock options. (5) Includes 1,328,327 shares of Common Stock and 750,658 shares issuable upon conversion of Series B and Series C Preferred Stock, all of which are held by the Company's Stock Bonus Plan, by virtue of the named individual's shared power to vote and dispose of such shares. (6) The amounts and percentages for each of John C. Carson and Joanne S. Carson, who are husband and wife, exclude amounts held by the other spouse as separate property. (7) Includes 3,333 shares issuable upon exercise of currently exercisable common stock options. (8) Includes 25,000 shares issuable upon exercise of currently exercisable common stock options. (9) Includes 393,865 shares issuable upon exercise of currently exercisable common stock options and warrants. (10) Less than 1%.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") requires the Company's executive officers and directors and persons who own more than ten percent of a registered class of the Company's equity securities registered under the Exchange Act, to file with the Commission reports of ownership and changes in ownership of Common Stock and other equity securities of the Company. Executive officers, directors and greater than ten percent stockholders are required by Commission regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on review of this information, including written representations that no other reports were required, the Company believes that during the fiscal year ended October 1, 1995, each of the Company's executive officers, directors and holders of ten percent or more of the Company's Common Stock timely filed all reports required to be filed pursuant to Section 16(a) of the Exchange Act.
For fiscal years ended October 1, 1995, October 2, 1994 and October 3, 1993, the compensation awarded or paid to, or earned by the Chief Executive Officer and all other executive officers of the Company whose annual compensation exceeded $100,000 in fiscal 1995 (the "Named Executive Officers"), is shown in the following table:
(1) As permitted by the rules promulgated by the SEC, no amounts are shown for "perquisites," where such amounts for the Named Executive Officer do not exceed the less of 10% of the sum of such executive's bonus salary or $50,000. (2) Amounts in this column represent the value of shares contributed to the named individual's account in the Employee Stock Bonus Plan. See "Employee Stock Bonus Plan." (3) Mr. Argast joined the Company and was appointed an Executive Officer in April 1994. On an annualized basis his 1994 compensation would have been $124,176. (4) The Company has not granted, awarded or paid any long-term compensation (restricted stock awards, options/SARs or long-term incentive plan payouts) to the Named Executive Officers during the periods covered.
The Company had no employment agreements with any of its executive officers during the fiscal year ended October 1, 1995 and has not entered into any such agreements in the current fiscal year.
STOCK OPTION GRANTS, EXERCISES AND HOLDINGS
No executive officers were granted stock options in the fiscal year ended October 1, 1995. The following table contains information relating to the exercise of stock options granted under the 1981 and 1991 Stock Option Plans and the Common Stock Acquisition Rights Plan by the Named Executive Officers in fiscal 1995, as well as the number and value of their unexercised options as of October 1, 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
(1) Represents the fair market value of the Company's Common Stock on the date of exercise (based on the closing sales price reported on the Nasdaq SmallCap Market or the actual sales price if the shares were sold by the optionee), less the exercise price, and does not necessarily indicate that the shares were sold by the optionee. (2) Includes both in-the-money and out-of-the money options. (3) Fair market value of the Company's Common Stock on the last trading day of fiscal 1995 ($9.00 per share), less the applicable exercise prices, multiplied by the number of options. (4) Exercisable options. (5) Unexercisable options.
All of the Company's employees are eligible to participate in the Employee Stock Bonus Plan, which has been established by the Company in lieu of a retirement plan. Employees are enrolled in the plan as of the day following the date on which the employee completes at least one hour of work. In order to share in the Company's contribution to the Plan in any Plan year, an employee must have worked a minimum of 1,000 hours during the Plan year, and be employed by the Company at the end of the Plan year. To date, the Plan has been funded only with previously unissued shares of the Company's Common and Preferred stock; thus the Company has not incurred any cash expense in connection therewith. The Plan's assets are allocated annually to the participating employees' accounts in the respective ratios that each participating employee's compensation bears to the total compensation of participating employees. An employee's participation in the Plan terminates on his retirement, disability or death, at which time the employee will receive that portion of his account which has vested. Generally, an employee's account vests at a rate of 20% per year after completing three years of employment and is 100% vested after seven years of employment. All executive officers named in the Summary Compensation Table the Company's Employee Stock Bonus Plan. In fiscal years ended October 1, 1995, October 2, 1994 and October 3, 1993 the Company contributed 68,000, 43,200 and 32,900 shares, respectively, of Common Stock to the Plan valued at $472,300, $357,300 and $198,400, respectively, as of the date of contribution.
The value of contributions to the accounts of the Named Executive Officers for the fiscal year ended October 1, 1995 has been included in "All Other Compensation" in the table.
Directors who are employees of the Company are not separately compensated for their services as directors or as members of committees of the Board of Directors. During fiscal 1995, directors who were not employees of the Company received $1,600 for each board meeting attended and were reimbursed for reasonable travel and other expenses. No compensation is paid for attendance at meetings of the committees of the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended October 1, 1995, Messrs. Alexiou, Dumont and Ragano served as members of the Compensation Committee. Mr. Alexiou is Chairman of the Board and, until his resignation in September 1994, was the Company's Chief Executive Officer.
The Company's executive compensation philosophy is to attract and retain executive officers capable of leading the Company to fulfillment of its business objectives by offering competitive compensation opportunities that in large part reward individual contributions as well as including a component that recognizes overall corporate performance. In addition, long-term equity compensation is awarded to align the interests of management and stockholders. The Company provides executive officers (and key employees) of the Company with a substantial economic interest in the long-term appreciation of the Company's stock through the grant of stock options and participation in the Employee Stock Bonus Plan, subject to vesting restrictions.
To further these objectives, compensation program for executive officers generally consists of four components: (i) base cash salaries, (ii) annual cash bonus plans, (iii) stock options, and (iv) employee retirement plan. Total compensation paid by the Company to its executive officers is designed to be competitive with the compensation packages paid to the management of comparable companies in the electronic manufacturing industry. The Committee generally evaluates corporate and individual performance based on factors such as achieving profitability, increasing stockholders' value and continued growth. As a result, a significant component of the evaluation involves a subjective assessment of qualitative factors. Moreover, the Committee does not base its considerations on any single performance factor, nor does it specifically assign relative weight to factors, but rather considers a mix of factors and evaluates the Company and individual performance against that mix.
/1/ This Report is not "soliciting material," is not deemed "filed" with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
The Committee approves salary changes for executive officers in accordance with the salary administrative policy. Salary adjustments are generally made following the end of the fiscal year. The salary administrative policy is a long-standing one that is periodically reviewed by the Committee. The policy sets ranges for various positions, based on job evaluation and competitive salary data of other companies. Within the ranges, adjustments are recommended on the basis of position within the range, individual performance and an overall corporate merit salary percentage factor, which is established by the Committee.
Cash bonuses are awarded on a discretionary basis, usually following the Company's fiscal year-end, and are based on the achievement of corporate and individual goals set by the Committee, as well as the financial condition and prospects for the Company. Under the bonus plan applicable to executive officers, award levels range from zero to 50% of base salaries. Following the fiscal 1995 year, which ended October 1, 1995, the Committee awarded an annual bonus payment of $10,000 to the Chief Financial Officer primarily for his performance related to the Company's financing activities.
Long-term equity incentives are granted to executive officers and other selected employees from time to time on a discretionary basis. All options granted to date have been for three year terms, with an exercise price equal to the Common Stock's market value on the date of grant, and generally become incrementally exercisable after one year of continued employment following the grant date. Options are granted based upon recommendations of management as to the grantees, number of options that should be granted and other terms. Options are granted to key employees, including the executive officers, based on current performance, anticipated future contribution based on that performance and ability to impact corporate and/or business results. No stock options were granted to executive officers in fiscal 1995.
The Company maintains an employee retirement plan which provides for annual contributions to the Company's Stock Bonus Trust on behalf of the employees, including executives. At the discretion of the Compensation Committee, contributions not to exceed 15% of total payroll are made in the Company's Common Stock at market value. Individual employees gain a vested interest over a seven year period of service.
The Company's policy is to compensate its officers, including the Chief Executive Officer, with salary commensurate with the base compensation paid by competitive employers, supplemented by compensation in recognition of performance. Dr. Lian was named Chief Executive Officer effective September 16, 1994 and The Committee set Dr. Lian's base salary for fiscal 1995 at $134,992, which reflected a decrease of approximately 10% from the base salary paid to Mr. Alexiou, who had served as the Company's Chief Executive Officer for the prior 20 years. Dr. Lian did not receive a bonus under the annual bonus plan and was awarded no stock options during the fiscal year ended October 1, 1995. The Committee based this compensation package on an assessment of various factors related to the Company and specifically to Dr. Lian. As in previous years, in making its compensation decisions the Committee also took into consideration executive compensation information from other companies in the industry, including industry surveys, publicly available information and reports from compensation consulting firms. The Committee has approved no change in base salary for Dr. Lian for fiscal 1996, but has awarded him 100,000 stock options in fiscal 1996.
Section 162(m) of the Internal Revenue Code (the "Code") limits the Company to a deduction for federal income tax purposes of no more than $1,000,000 of compensation paid to certain Named Executive Officers in a taxable year. Compensation above $1,000,000 may be deducted if it is "performance-based compensation" within the meaning of the Code. The statute containing this law and the applicable proposed Treasury regulations offer a number of transitional exceptions to this deduction limit for pre-existing compensation plans, arrangements and binding contracts. As a result, the Compensation Committee believes that at the present time it is quite unlikely that the compensation paid to any Named Executive Officer in a taxable year which is subject to the deduction limit will exceed $ 1,000,000. Therefore, the Compensation Committee has not yet established a policy for determining which forms of incentive compensation awarded to its Named Executive Officers shall be designed to qualify as "performance-based compensation." The Compensation Committee intends to continue to evaluate the effects of the statute and any final Treasury regulations and to comply with Code Section 162(m) in the future to the extent consistent with the best interests of the Company.
Compensation Committee of the Board of Directors
The following graph compares the cumulative stockholder returns on the Company's Common Stock, Nasdaq and the Electronic Equipment Manufacturers Group Index. The graph covers the five-year period from October 1, 1990 through October 1, 1995, the end of the Company's last completed fiscal year, and assumes a $100 investment was made on October 1, 1990. Each of the three measures of cumulative total return assumes reinvestment of dividends. The stock performance shown on the graph below is not necessarily indicative of future performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG IRVINE SENSORS CORP, NASDAQ & PEER GROUP(1)
/1/ The Peer Group Index is based on the Electronic Equipment Manufacturers Group.
Assumes $100 invested on October 1, 1990 in Irvine Sensors Corporation Common Stock, Nasdaq index and Electronic Equipment Manufacturers Group. Total return assumes reinvestment of dividends.
In April 1980, the Company entered into an agreement with R & D Leasing Ltd., ("RDL"), a limited partnership in which James Alexiou, the Company's Chairman of the Board and John C. Carson, a Senior Vice President, are general partners with beneficial interests, to design an electronic circuit, to develop certain fabrication processes and to build equipment for testing electronic integrated circuits. In connection with the development of the electronic test equipment under the RDL agreement, certain other proprietary fabrication processes were developed to which RDL retained ownership. Upon the occurrence of certain specified events, such as the use of patented fabrication processes in connection with contracts, the agreement with RDL provides that the Company will pay RDL a royalty fee of 3.5% of revenues from sales of the basic devices using the processes created during the development of this equipment.
In October 1989, the Board of Directors approved an amendment to the RDL agreement. Under the amendment the Company will pay RDL a royalty of 3.5% of all sales of the basic devices sold by the Company. In addition, RDL is entitled to receive an amount equal to 7% of all royalties earned by the Company from sales by the Company's sublicensees. The Company's exclusive rights to the technology extend to all uses, both government and commercial. RDL agreed to defer its royalty claims and subordinate them with respect to all other creditors in exchange for options to purchase up to 1,000,000 shares of the Company's Common Stock, which are exercisable by applying the deferred royalties to the purchase. The initial 500,000 options vested immediately at the time of the initial five year deferral period in October 1989. In October 1994, the remaining 500,000 options vested upon RDL's extended deferral. The 1,000,000 options are exercisable at $1.00 until October 1999. If RDL exercises its option in whole or in part, title to RDL's technology will transfer to the Company and all further royalty obligations will cease. If the option expires unexercised, the subordination provisions will terminate and the accrued royalties will be due and payable in the same manner as any other corporate obligation.
As of October 1, 1995, the Company had accrued $123,200 in deferred royalties. There were no royalties paid by the Company during fiscal year 1995. The Company believes that the terms of the foregoing transactions were no less favorable to the Company than would have been obtained from a nonaffiliated third party for similar services.
The Company currently knows of no other matters to be submitted at the Annual Meeting other than those described herein. If any other matters properly come before the Annual Meeting, it is the intention of the persons named in the enclosed Proxy card to vote the shares they represent in accordance with their respective best judgments.
By Order of The Board of Directors
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 1, 1995 IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO INVESTOR RELATIONS, IRVINE SENSORS CORPORATION, 3001 REDHILL AVENUE, BUILDING III, COSTA MESA, CALIFORNIA 92626.
The first paragraph of Article IV of the Certificate of Incorporation is amended to read as follows:
"The corporation is authorized to issue two classes of capital stock, designated Common Stock (hereinafter referred to as "Common Stock") and Preferred Stock (hereinafter referred to as "Preferred Stock"). The amount of capital stock of the corporation is 40,500,000, consisting of 500,000 shares of Preferred Stock, $0.01 par value, and 40,000,000 shares of Common Stock, $0.01 par value."
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ANNUAL MEETING OF STOCKHOLDERS - FEBRUARY 23, 1996
The undersigned stockholder of Irvine Sensors Corporation, a Delaware corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each dated January 22, 1996, and Annual Report to Stockholders for the fiscal year ended October 1, 1995, and hereby appoints James Alexiou and John C. Carson, and each of them, proxies and attorneys-in- fact with full power to each of substitution, on behalf and in the name of the undersigned, to represent the undersigned at the Annual Meeting of Stockholders of Irvine Sensors Corporation (the "Company") to be held on February 23, 1996 at 2:00 p.m., California time, at The Center Club, 650 Town Center Drive, Costa Mesa, California, and at any adjournment or adjournments thereof, and to vote all shares of Common and Preferred Stock to which the undersigned would be entitled, if then and there personally present, on the matters set forth below:
[_] FOR ALL nominees listed below [_] WITHHOLD AUTHORITY to vote (except as marked to the for ALL nominees listed
(INSTRUCTION: To Withhold the authority to vote for any individual nominee, mark the box next to the nominee's name below):
[_] James Alexiou [_] John C. Carson [_] Joanne S. Carson [_] Kenneth T. Lian [_] Thomas H. Lenagh [_] Frank P. Ragano
2. TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK TO 40,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. TO RATIFY THE APPOINTMENT OF PRICE WATERHOUSE AS THE COMPANY'S INDEPENDENT ACCOUNTANTS:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.
Any one of such attorneys-in-fact or substitutes as shall be present and shall act at said Meeting or any adjournment(s) thereof shall have and may exercise all powers of said attorneys-in-fact hereunder.
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR PROPOSALS 1, 2 AND 3. ADDITIONALLY, THE COMPANY IS GRANTED DISCRETIONARY AUTHORITY TO CUMULATE VOTES.
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as name appears hereon and returned promptly in the enclosed envelope. Persons signing in a fiduciary
DO NOT FOLD, STAPLE OR MUTILATE
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0000950115-96-000013_0005.txt
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(Including Amendments through November 6, 1995)
Section 1. The address of the registered office of the corporation in the State of Delaware is 901 Market Street in the City of Wilmington, County of New Castle. The registered office need not be identical with the principal office of the corporation and may be changed from time to time by the board of directors.
Section 2. The corporation may have its principal office and other offices at such other places within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation requires.
Section 1. All meetings of the stockholders for the election of directors shall be held at the registered office of the corporation in the State of Delaware, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held on such date and at such time as shall be designated from time to time by the board of directors and stated in the notice of the meeting. At such meetings, they shall elect a board of directors, which election shall be by written ballot and transact such other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting, stating the place, date and hour of the meeting, shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. Section 4. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the Chairman or President and shall be called by the President or Secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning not less than twenty percent (20%) in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting.
Section 5. Written notice of a special meeting, stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting, not less than ten (10) nor more than sixty (60) days before the date of the meeting.
Section 6. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
Section 7. Subject to the provisions of any series of Preferred Stock at the time outstanding, the holders of record of shares of any class entitled to vote representing a majority of the total number of votes authorized to be cast by shares of all classes then issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, whether or not a quorum is present, without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
Section 8. At each meeting of the stockholders, every holder of Common Stock entitled to vote thereat shall be entitled to one vote in person or by proxy for each share of common stock held by such stockholders and each holder of Preferred Stock having voting power shall be entitled to such vote as may be provided in the resolution of the board of directors providing for such shares. Except as may otherwise be provided for any series of Preferred Stock which may at the time be outstanding, neither fractional shares nor scrip fractional shares shall be entitled to any vote. When any share is held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such share, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such share. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. If the holder of any such share is a minor or a person of unsound mind, and subject to guardianship, or to the legal control of any other person as regards the charge or management of such share, he may vote by his guardian or such other person appointed or having such control, and such vote may be given in person or by proxy. No proxy shall be entitled to vote after three (3) years from its date, unless the proxy provides for a longer period. Every proxy shall have been executed in writing (which shall include telegraphing, cabling or telephotographic transmission), and shall be filed with the secretary of the corporation, or with such other officer or agent of the corporation as the secretary may direct, before or at the time of the meeting. When a quorum is present at any meeting, the vote of the holders of the majority of the shares having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation or these by-laws a different vote is required, in which case such express provision shall govern and control the decision of such question.
Section 9. The board of directors may appoint a judge or judges of election to serve at any election of directors and at voting on any other matter that may properly come before a meeting of stockholders. The judge or judges of election shall decide all questions regarding the qualifications of voters, the validity of proxies and the acceptance or rejection of votes. If no such appointment shall be made, or if any of the judges so appointed shall fail to attend, or refuse or be unable to serve, then such appointment may be made by the presiding officer of the meeting.
Section 10. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
Section 1. The number of directors which shall constitute the whole board shall be set at ten (10). Within the limits above specified, the number of directors shall be determined by resolution of the board of directors, or by the stockholders at the annual meeting. No reduction in the number of directors shall have the effect of removing any director from office prior to the expiration of his term. The directors shall be elected at the annual meeting of stockholders, except as provided in Section 2 of this Article, and each director shall hold office until the next annual meeting of stockholders and thereafter until his successor is duly elected and qualified, unless a prior vacancy shall occur by reason of his death, resignation or removal from office. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by the stockholders, and the directors so chosen shall hold office until the next annual meeting of stockholders and until his successor is duly elected and qualified, unless a prior vacancy shall occur by reason of his death, resignation or removal from office. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding giving the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office.
Section 3. The business and affairs of the corporation shall be managed by its board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board.
Section 7. Special meetings of the board may be called by the Chairman, the President, the Secretary or any two directors on two (2) days' notice to each director, either personally or by mail or by telegram. The attendance of a director at a meeting shall constitute waiver of notice of such meeting except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been lawfully called or convened.
Section 8. At all meetings of the board, a majority of the directors in office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the cer- tificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board of committee.
Section 10. Members of the board of directors, or any committee designated by such board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all such persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.
Section 11. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors, and may designate one or more directors as alternative members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at any meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution or the certificate of incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors.
Section 12. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.
Section 13. Unless otherwise restricted by the certificate of incorporation or by these by-laws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed similar compensation for attending committee meetings.
Section 14. At any special meeting of the stock- holders, duly called as provided in these by-laws, any director or directors may, by the affirmative vote of the holders of a majority of all the shares of stock outstanding and entitled to vote for the election of directors, be removed from office, either with or without cause. At such meeting, a successor or successors may be elected, or if any such vacancy is not so filled, it may be filled by the directors as provided in Section 2 above.
Section 1. Whenever, under the provisions of statute or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram or telephone.
Section 2. Whenever any notice is required to be given under the provisions of statute or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice.
Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a Chairman, a President, a Secretary and a Treasurer. The board of directors may also choose one or more Vice Presidents, a Controller and one or more assistant secretaries, assistant treasurers and assistant controllers. Any number of offices may be held by the same person unless otherwise provided by the certificate of incorporation or these by-laws.
Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall elect the appropriate officers of the corporation.
Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until their successors are elected and qualified. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors.
Section 6. The Chairman of the Board shall preside at all meetings of the stockholders and of the board of directors, shall act in an advisory capacity to the other principal officers and shall have such powers and perform such duties as the board may prescribe.
Section 7. The President shall be the chief executive officer of the corporation and shall perform such executive and administrative functions and duties as are delegated to him by the board of directors and shall, in the absence of or inability to act of the Chairman, temporarily act in his place, and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe.
Section 8. The President shall execute bonds, mort- gages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation.
Section 9. A Vice-President shall perform such executive and administrative functions and duties as are delegated to him by the board of directors or the President and shall perform such other duties and have such other powers as the board of directors or the President may from time to time prescribe.
Section 10. In the absence or inability to act of the President, the Vice-President (or in the event there be more than one Vice-President, the Vice-Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The Secretary shall attend all meetings of the board of directors and all meetings of the stockholders and shall record all the proceedings of the meetings of the stockholders and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties and have such other powers as may be prescribed from time to time by the board of directors or President, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he or an Assistant Secretary shall have authority to affix the same to any instrument requiring it. When so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature.
Section 12. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the board of directors or the President may from time to time prescribe.
THE TREASURER, CONTROLLER AND ASSISTANT TREASURERS
Section 13. The Treasurer shall be the chief financial and accounting officer of the corporation and shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit all monies and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. The Treasurer also have such other duties and have such other powers as the board of directors or the
Section 14. The Treasurer shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the President and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation.
Section 15. If required by the board of directors, the Treasurer and Controller shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of their offices and for the restoration to the corporation, in case of their death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in their possession or under their control belonging to the corporation.
Section 16. The Controller, if one be appointed by the board of directors, shall perform such of the duties of the Treasurer and exercise such of the powers of the Treasurer as shall be delegated to him by the Treasurer, and shall perform such other duties and exercise such other powers as the board of directors or the President may from time to time prescribe.
Section 17. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability to act, perform the duties and exercise the powers of the Treasurer to the extent not being performed and exercised by the Controller, and shall perform such other duties and have such other powers as the board of directors or the President may from time to time prescribe.
Section 18. A person may hold more than one office, except that no one may be President and Treasurer or President and Secretary or Treasurer and Secretary at the same time.
Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by the Chairman, the President or a Vice- President, and the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 2. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or, (2) by a registrar other than the corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. The President or any Vice President together with the Secretary or any Assistant Secretary may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books, subject only to the powers of the board of directors to prohibit certain transfers of stock set forth in the certificate of incorporation of the corporation.
Section 5. In order that the corporation may determine the stockholders entitled to (a) notice of or to vote at any meeting of stockholders or any adjournment thereof, (b) express consent to corporate action in writing without a meeting, (c) receive payment of any dividend or other distribution or allotment of any rights or (d) exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be less than ten (10) nor more than sixty (60) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting.
Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote such shares as the owner thereof, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and the corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice of such claim or interest, except as otherwise provided by the laws of Delaware.
CONTRACTS, LOANS, CHECKS, DEPOSITS AND PROXIES
Section 1. The board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.
Section 2. No loans shall be contracted on behalf of the corporation, and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances.
Section 3. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the board of directors.
Section 4. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the board of directors may select.
Section 5. Proxies to vote with respect to shares of stock of other corporations owned by or standing in the name of the corporation may be executed and delivered from time to time on behalf of the corporation by the Chairman, President or a Vice-President or by any other person or persons thereunto authorized by the board of directors.
Section 1. Third Party Actions. Any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the full extent authorized by the Delaware General Corporation Laws, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against expenses, liability and loss including attorneys' fees) judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal
action or proceedings, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceedings by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. The right to indemnification conferred in this Section shall be a contract right.
Section 2. Derivative Actions. Any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefits plans, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against expenses, liability and loss (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation; except, however, that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the county in which the registered office of the Corporation is located or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court of Chancery or such other court shall deem proper.
Section 3. Mandatory Indemnification. To the extent that a director, officer, employee or agent as above described has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraph 1 or 2 of this Article or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith.
Section 4. Procedure for Effecting Indemnification. Any indemnification under paragraphs 1 or 2 of this Article (unless ordered by a court) shall be made only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in such subsection. Such determination shall be made: (a) By the vote of the Board of Directors consisting of directors who were not parties to such action, suit (b) If such action is not obtainable, or even if obtainable the vote of the disinterested directors so directs, by independent legal counsel in a written opinion; or (c) By the stockholders.
Section 5. Advancement of Expenses. Expenses (including attorneys' fees) incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate.
Section 6. Supplementary Coverage. The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.
Section 7. Power to Purchase Insurance. The Corporation may, by action of the Board of Directors, purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article.
Section 8. Extension of Coverage. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of its capital stock, subject to the provisions of the certificate of incorporation. Such dividends, if any, shall be paid to the holders of Common Stock in proportion to their respective ownership of Common Stock and shall, subject to the provisions of such series, be paid to the holders of each series of Preferred Stock, if any, in proportion to their respective ownership of Preferred Stock of such series. The declaration and payment of such dividends or other distributions and the determination of earnings, profit, surplus (including paid-in capital) and capital available for dividends and other purposes shall, to the extent permitted by law, lie wholly in the discretion of the board of directors, and no stockholder shall be entitled to receive or be paid any dividends or to receive any distribution except as determined by the board in the exercise of said discretion. Subject to the provisions of any series of Preferred Stock which may at the time be outstanding, the board may also distribute to the holders of capital stock of each class (and series) in proportion to their respective ownership of such class (or series), additional shares of such class (and of any series) or of any other class in such manner and on such terms as they may deem proper.
Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.
Section 3. The board of directors shall present at such annual meeting, and at any special meeting of the stock- holders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation.
Section 4. The fiscal year of the corporation shall be fixed by resolution of the board of directors.
Section 5. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced otherwise.
Section 1. These Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the board of directors or by the stockholders at any regular meeting of the board of directors or of the stockholders, or at any special meeting of the board of directors or of the stockholders if notice of such alteration, amendment, repeal or adoption of now Bylaws is contained in the notice of such special meeting.
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10-K405
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EX-3.2
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0000950134-96-000093
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0000950134-96-000093_0000.txt
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As filed with the Securities and Exchange Commission on January 12, 1996. THE SECURITIES ACT OF 1933 (Exact name of Registrant as specified in its charter)
14142 DENVER WEST PARKWAY, SUITE 250 (Name, address, including zip code, and telephone number, including area code, of agent for service of process)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. (X) If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ( ) If this Form is a post-effective amendment filed pursuant to 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ( ) If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ( )
(1) Estimated solely for the purpose of calculating the registration fee and based upon the average high and low market prices of Canyon Common Stock on January 8, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 12, 1996
This Prospectus covers 61,539 shares (the "Shares") of the Common stock, $.01 par value ("Common Stock") of Canyon Resources Corporation ("Canyon" or the "Company") which are being offered by the Selling Shareholder through brokers' and dealers' transactions, not involving any underwriter. The Company will not receive any of the proceeds from the sale of the Shares by the Selling Shareholder. (See "Selling Shareholder".)
Brokers or dealers through whom the Shares are sold may receive compensation in the form of commissions from the Selling Shareholder and/or the purchasers of the Shares for whom they act as agent. (See "Plan of
The Company's Common Stock is traded in the over-the-counter market and is quoted on NASDAQ's National Market under the symbol "CYNR." On January 8, 1996, the closing price of the Common Stock on NASDAQ's National Market was $2.875.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES, SEE "PRINCIPAL RISK FACTORS."
The date of this Prospectus is _____________, 1996.
No dealer, salesman or other person has been authorized to give any information or to make any representations other than those contained or incorporated by reference in this Prospectus in connection with the offer contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company. Neither the delivery of this Prospectus nor any sale hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy any security other than the securities covered by this Prospectus, nor does it constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation.
The Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and accordingly files reports, proxy statements, and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements, and other information filed with the Commission are available for inspection and copying at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at certain of the Commission's regional offices located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60604; and 7 World Trade Center, New York, New York 10048, upon payment of the charges prescribed therefor by the Commission.
The Company has filed with the Commission a registration statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does not contain all of the information set forth in the Registration Statement. Copies of the Registration Statement are available from the Commission as set forth above.
The Common Stock of the Company is currently traded in the over-the-counter market and is quoted on NASDAQ, National Market. Reports, proxy statements and other information filed by the Company therewith can be inspected at the National Association of Securities Dealers, Inc., 1735 K Street N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (File No. 0-14329) with the Commission are incorporated herein by reference:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
2. Quarterly Reports on Form 10-Q for the periods ended March 31, 1995, June 30, 1995 and September 30, 1995; and
3. A description of the Company's Common Stock contained in the Registration Statement on Form 8-A as declared effective by the Securities and Exchange Commission on March 18, 1986.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Common Stock shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any beneficial owner, to whom a Prospectus is delivered, upon written or oral request of such person, a copy of any or all of the documents which are incorporated by reference herein, other than exhibits to such documents which are not specifically incorporated by reference herein. Requests should be directed to Canyon Resources Corporation, 14142 Denver West Parkway, Suite 250, Golden, CO 80401, Attention: George S. Young (telephone 303-278-8464).
Canyon Resources Corporation, a Delaware corporation (the "Company" or "Canyon"), is a Colorado-based company which was organized in 1979 to explore, acquire, develop, and produce mineral properties. The Company, in doing business, acts on its own behalf and through its subsidiaries. The "Company" or "Canyon" is also used to refer to all of the wholly owned and majority owned subsidiaries of Canyon Resources Corporation. The Company filed a Registration Statement and completed its initial public offering of securities in 1986. Since that time the Company has been a reporting company and its securities have been traded on NASDAQ.
The Company is involved in all phases of the mining business from early stage exploration, exploration drilling, development drilling, feasibility studies and permitting, through construction, operation and final closure of mining projects.
The Company has gold and industrial mineral production operations in the Western United States. The Company also conducts exploration activities in the search for valuable mineral properties in the western United States. In the past two years, the Company has commenced an exploration program in many areas of increasing interest throughout Latin America and Africa. The Company's exploration and development efforts emphasize precious metals (gold and silver) and industrial minerals.
Once acquired, mineral properties are evaluated by means of geologic mapping, rock sampling, and geochemical analyses. Properties having favorable geologic conditions and anomalous geochemical results usually warrant further exploration by the Company. In almost all cases, exploration or development drilling is required to further test the mineral potential of each property. If a property has been adequately evaluated and does not warrant additional work, the property is marketed to another company or abandoned.
Properties which have a demonstrated inventory of mineralized rock of a potentially economic nature are further evaluated by conducting various studies including calculation of tonnage and grade, metallurgical testing, development of a mine plan, environmental baseline studies and economic feasibility studies. If economics of a project are favorable, a plan of operations is developed and submitted to the required governmental agencies for review. Depending on the magnitude of the proposed project and its environmental impact, an environmental analysis report or environmental impact statement may be required prior to issuance of permits for the construction of a mining operation.
The Company conducts a portion of its mineral exploration and development through joint ventures with other companies. The Company has also independently financed the acquisition of mineral properties and conducted exploration and drilling programs and implemented mine development and production from mineral properties in the western United States and exploration programs in Latin American and Africa.
The Company is continually evaluating its properties and other properties which are available for acquisition, and will acquire, joint venture, market to other companies, or abandon properties in the ordinary course of business.
On December 21, 1995, the Company completed two financings totaling $44 million which the Company believes will provide for 100% of the capital requirements of mine construction and working capital, reclamation bonding, and leasing of new mining equipment for the Company's Briggs Gold Mine in the Panamint Valley of southeastern California. Of such amount, a $34 million gold loan facility was provided by a syndication of three banks, Banque Paribas, Bayerische Vereinsbank AG and N M Rothschild & Sons Ltd. Caterpillar Finance provided the remaining $10 million through a credit line to support leasing of new mining equipment for the project. Construction of the Briggs Mine commenced immediately upon the completion of the financing arrangements.
The Company's principal executive office is located at 14142 Denver West Parkway, Suite 250, Golden, Colorado 80401, telephone (303) 278-8464.
GENERAL RISKS RELATED TO THE MINING INDUSTRY
Nature of Mineral Exploration and Production. Exploration for minerals is highly speculative and involves greater risks than many other businesses. Many exploration programs do not result in the discovery of mineralization and any mineralization discovered may not be of sufficient quantity or quality to be profitably mined. Uncertainties as to the metallurgical amenability of any minerals discovered may not warrant the mining of these minerals on the basis of available technology. The Company's operations are subject to all of the operating hazards and risks normally incident to exploring for and developing mineral properties, such as encountering unusual or unexpected formations, environmental pollution, personal injury and flooding.
Competition and Scarcity of Mineral Lands. Many companies and individuals are engaged in the mining business, including large, established mining companies with substantial capabilities and long earnings records. There is a limited supply of desirable mineral lands available for claim staking, lease or other acquisition in the United States and other areas where the Company contemplates conducting exploration activities. The Company may be at a competitive disadvantage in acquiring mining properties since it must compete with these individuals and companies, many of which have greater financial resources and larger technical staffs than the Company.
Fluctuation in the Price of Minerals. The market price of minerals is extremely volatile and beyond the control of the Company. If the price of a mineral should drop dramatically, the value of the Company's properties which are being explored or developed for that mineral could also drop dramatically and the Company might not be able to recover its investment in those properties. The decision to put a mine into production, and the commitment of the funds necessary for that purpose, must be made long before the first revenues from production will be received. Price fluctuations between the time that such a decision is made and the commencement of production can change completely the economics of the mine. Although it is possible to protect against price fluctuations by hedging in certain circumstances, the volatility of mineral prices represents a substantial risk in the mining industry generally which no amount of planning or technical expertise can eliminate.
Environmental Controls. Compliance with environmental quality requirements and reclamation laws imposed by federal, state, and local governmental authorities may necessitate significant capital outlays, may materially affect the economics of a given property, or may cause material changes or delays in the Company's intended activities. New or different environmental standards imposed by any governmental authority in the future may adversely affect the Company's activities.
Uncertainty of Title. Most of the Company's mining properties are unpatented mining claims to which the Company has only possessory title. Because title to unpatented mining claims is subject to inherent uncertainties, it is difficult to determine conclusively ownership of such claims. In addition, in order to retain title to an unpatented mining claim, a claim holder must have met annual assessment work requirements ($100 per claim) through September 1, 1992 and must have complied with stringent state and federal regulations pertaining to the filing of assessment work affidavits. Moreover, after September 1, 1992, the right to locate or maintain a claim generally is conditional upon payment to the United States of a rental fee of $100 per claim per year for each assessment year instead of performing assessment work. State law may, in some instances, still require performance of assessment work. Since a substantial portion of all mineral exploration, development and mining in the United States now occurs on unpatented mining claims, this uncertainty is inherent in the mining industry.
The present status of the Company's properties as unpatented mining claims located on public lands of the U.S. allows the claimant the exclusive right to mine and remove valuable minerals, such as precious and base metals and industrial minerals, found therein, and also to use the surface of the land solely for purposes related to mining and processing the mineral-bearing ores. However, legal ownership of the land remains with the U.S. Accordingly, with an unpatented claim, the U.S. retains many of the incidents of ownership of land, the U.S. regulates use of the surface, and the Company remains at risk that the claims may be forfeited either to the U.S. or to rival private claimants due to failure to comply with statutory requirements as to location and maintenance of the claims. If there exists a valuable deposit of locatable minerals (which is the requirement for the unpatented claim to be valid in the first place), and provided certain levels of work and improvements have been performed on an unpatented mining claim, the Mining Law of 1872 authorizes claimants to then seek to purchase the full title to the claim, thereby causing the claim to become the private property of the claimant. Such full ownership expands the claimant's permissible uses of the property (to any use authorized for private property) and eliminates the need to comply with maintenance and reporting requirements necessary to protect rights in an unpatented claim.
Because the Company believes that it has established the existence of valuable mineral deposits in certain of its properties, and has maintained and improved the claims in the manner required by law, it has sought to enhance its rights in those properties by seeking issuance of mineral patents. In July of 1992, the Company caused four applications for mineral patent for the 20 lode mining claims comprising the then-known ore reserves at the Briggs property to be filed with the Bureau of Land Management ("BLM"). However, due to administrative backlogs in the California State Office of the BLM, processing of those applications has not proceeded. On December 30, 1993, the Company caused five applications for mineral patent for the 15 placer mining claims which encompass known ore reserves on public lands for the diatomite operations conducted by the Company's subsidiary, CR Minerals, to be filed with the Nevada State Office of the BLM. Those applications have been processed to the point where the purchase price for the claims has been accepted.
On October 1, 1994, while the patent applications were pending, Congress imposed a moratorium on accepting and processing mineral patent applications within the Department of the Interior. Under the terms of the continuing statutory moratorium (as interpreted by the Secretary of the Interior), and solely as a result of the actions or inactions of the respective state offices prior to the time the moratorium became effective, the Secretary considers the California applications not to be exempt from the moratorium, and therefore will not allow them to be processed while the moratorium remains in effect, but the Nevada applications are considered exempt and should be adjudicated. The Company instituted litigation in the U.S. District Court for the District of Nevada to attempt to force the Secretary to construe all of the applications as exempt from the moratorium and to diligently process all of them, either by granting patents or by contesting the claims. However, the Court has declined to compel the Secretary to expedite processing of the applications. The Court's decision does not determine the validity of the claims, nor does it directly affect the Company's basic ability to conduct mining operations on the claims.
The Company has no reason to believe that grounds exist for denial of any of the patents when and if they are ultimately adjudicated. However, there can be no assurance that such patents will be granted.
Proposed Legislation Affecting the Mining Industry. For the last several Congressional sessions, bills have been repeatedly introduced in the U.S. Congress which would supplant or radically alter the provisions of the Mining Law of 1872. As of December 31, 1995, no such bills have passed, although a number of differing and sometimes conflicting bills are now pending. If enacted, such legislation could substantially increase the cost of holding unpatented mining claims and could impair the ability of companies to develop mineral resources on unpatented mining claims. Under the terms of certain proposed legislation, the ability of companies to obtain a patent on unpatented mining claims would be nullified or substantially impaired. Moreover, certain forms of such proposed legislation contain provisions for the payment of royalties to the federal government in respect of production from unpatented mining claims, which could adversely affect the potential for development of such claims and the economics of operating existing mines on federal unpatented mining claims. The Company's financial performance could therefore be affected adversely by passage of such legislation. It is impossible to predict at this point what any legislated royalties might be, but a potential three to four percent gross royalty, assuming a gold price of $400 per ounce, would have an approximated $12 to $16 per ounce impact on the Company's costs of production from unpatented mining claims.
SPECIFIC RISKS RELATED TO THE COMPANY
Permitting Risks at the McDonald Facilities. Mining activity in the United States is subject to the granting of numerous permits under applicable Federal and State statutes, including, but not limited to, the National Environmental Policy Act, the Clean Water Act, the Clean Air Act, and the California Environmental Quality Act. It is not legal to engage in mining activity without securing the permits required by these and other statutes. Initiation of gold production at the McDonald project will thus require the granting of numerous permits, some of which are discretionary.
Construction and Start-up Risk at the Briggs Project. The Company has received all of its permits and approvals for the development and operation of the Briggs Project, and has obtained financing estimated to cover 100% of project development costs of $34 million for construction of project facilities and $10 million for mining equipment. Construction commenced in December 1995, with project start-up and commercial gold production scheduled to commence in the second half of 1996 at a production rate of approximately 75,000 ounces of gold per year. However, no assurance can be given that the project will be constructed and placed into production successfully or within either the time frame or capital costs described above.
Limited Remaining Life of the Kendall Mine. The Company's principal revenue and income producing asset is the Kendall Mine, located near Lewistown, Montana. The Kendall Mine has produced over 295,000 ounces of gold. Mining activity at the Kendall Mine ceased in January, 1995, and the Company estimates that gold produced by the Kendall Mine will no longer be sold profitably after 1996. Thus, the ability of the Company to generate increased revenues or earnings is dependent on its ability to bring into production additional facilities, such as the Briggs Mine.
Short Term Liquidity. As a consequence of the wind-down of the Kendall Mine and the gap between the expected commencement of production at the Briggs Mine, the Company's existing cash reserves will need to be supplemented by additional financing to fund operations in the interim. Although the Company believes it will be successful in raising such funds, there can be no assurances that sufficient funds will be raised. If the Company is unable to obtain such funding, it would need to significantly curtail its corporate activities and/or consider the sale of an asset or assets.
Market Effects of Stock. After this offering of Common Stock is consummated, additional shares of the Company's Common Stock will be available for trading in the public market. Any increase in the number of shares of the Company's Common Stock in the market and the possibility of sales of such stock may have a depressive effect on the price of the Company's Common Stock.
Uncertainty of Funding for Exploration. Prior to 1986, the Company funded its exploration and acquisition activities through joint venture arrangements, which minimized the cost of such activities to the Company and allowed it to explore and acquire a greater number of properties than it would otherwise have been able to explore or acquire on its own. Since 1986, the Company has funded a portion of its exploration activities without joint venture participation, resulting in increased costs to the Company. The Company has been successful in raising such funds for its exploration activities. Additional funding from existing partners or third parties, however, may be necessary to conduct detailed and thorough evaluations of, and to develop certain properties. The Company's ability to obtain this financing will depend upon, among other things, the price of gold and the industry's perception of its future price. Therefore, availability of funding is dependent largely upon factors outside of the Company's control, and cannot be accurately predicted. The Company does not know from what sources it will derive any required funding. If the Company is not able to raise additional funds (as to which there can be no assurance), it will not be able to fund certain exploration activities on its own.
Uncertainty of Funding for Production. The Company believes that its producing properties have been adequately financed for current and ongoing production. If the Company's continuing exploration and/or development activities indicate economically minable ore on other properties now owned or hereafter acquired by the Company, however, the Company will be required to expend potentially large sums to put such properties into production. The amount of such financing could be reduced if the Company sells assets or enters into joint ventures on one or more of its properties. The Company may need to seek additional funding for the Seven-Up Pete/McDonald project development capital requirements. There can be no assurance that such additional funding will be available to meet the Company's needs. If the Company is unable to obtain such funding, it may suffer dilution of its interest in certain properties.
Uncertainty of Development Property Economics. Decisions as to whether any of the mineral development properties which the Company now holds or which it may acquire in the future contain commercially minable deposits, and whether such properties should therefore be brought into production, depend upon the results of exploration programs and/or feasibility analyses and the recommendations of duly qualified engineers or geologists. Such decisions involve consideration and evaluation of several significant factors, including, but not limited to, the (a) costs of bringing a property into production, including exploration and development work, preparation of production feasibility studies and construction of production facilities, (b) availability and costs of financing, (c) ongoing costs of production, (d) market prices for the mineral to be produced, and (e) the amount of reserves or mineralized material. There can be no assurance that any of the development properties now held by the Company, or which may be acquired by the Company, contains a commercially minable mineral deposit, and therefore no assurance that the Company will ever generate a positive cash flow from production operations on such properties. The potential development properties on which minable reserves have been defined include the Seven-Up Pete/McDonald deposits in Montana. There can be no assurance that these development properties can attain profitable operations.
No Dividends. For the foreseeable future, it is anticipated that the Company will use any earnings to finance its growth and that dividends will not be paid to shareholders. Further, pursuant to the Company's Loan Agreement with Banque Paribas and others, the Company has agreed that unless permitted under the terms of the Loan Agreement, it will not declare or pay any dividends or make any other distributions to any of its shareholders.
Lack of Profitability. The Company's operating history has resulted in losses from operations in two of the last three fiscal years ending December 31, 1992, 1993 and 1994. The Company has also reported losses for the first three quarters of fiscal 1995 and anticipates reporting a loss for the fiscal year ended December 31, 1995. While certain of the Company's operations may be profitable during a given fiscal year, the Company's operations as a whole may be unprofitable due to exploration and development costs on properties from which no revenue is derived, to continuing corporate general and administrative costs and to interest expense associated with long term debt.
Change in Control Provisions. Effective June 15, 1989, the Company's shareholders adopted certain measures designed to make it more difficult and time-consuming to change majority control of the Company's Board of Directors and to reduce the vulnerability of the Company to an unsolicited offer to take over the Company, particularly an offer which does not contemplate the acquisition of all the Company's outstanding shares or which does contemplate the restructuring or sale of all or part of the Company. These measures included (i) classification of the Board of Directors into three classes, each class to serve for three years, (ii) a provision that the Company's directors may be removed only for cause and only with the approval of the holders of at least 66-2/3% of the voting power of the Company entitled to vote for the election of directors, (iii) a provision that any vacancy on the Board may be filled by the remaining directors then in office, though less than a quorum,
(iv) a provision requiring a 66-2/3% shareholder vote to amend or repeal, or to adopt any provision inconsistent with the foregoing measures. The foregoing measures may have certain negative consequences, including an affect on the ability of shareholders of the Company or other individuals to (i) change the composition of the incumbent board of directors; (ii) benefit from certain transactions which are opposed by the incumbent board of directors; (iii) make a tender offer or otherwise attempt to gain control of the Company, even if such attempt was beneficial to the Company and its shareholders. Since such measures may also discourage accumulations of large blocks of the Company's stock by purchasers whose objective is to have such stock repurchased by the Company at a premium, they could tend to reduce the temporary fluctuations in the market price of the Company's stock which are caused by such accumulations. Accordingly, shareholders may be deprived of certain opportunities to sell their stock at a temporarily higher market price. The provisions relating to the removal of directors and the filling of vacancies will reduce the power of shareholders, even those with a majority interest in the Company, to remove incumbent directors and to fill vacancies on the board of directors.
Volatility of Price for Common Stock. The market price for shares of the Company's Common Stock may be highly volatile depending on news announcements or changes in general market conditions. In recent years the stock market has experienced extreme price and volume fluctuations.
The Company will not receive any proceeds from the sale of the Shares offered hereby. See "Selling Shareholder."
All of the Shares offered hereby are being offered for the account of Independence Mining Company Inc. (the "Selling Shareholder").
In mid 1992, the Company and the Selling Shareholder entered into a joint venture for the exploration and development of mining claims located in northwestern Nevada. In September, 1994, the Company obtained an option to purchase the Selling Shareholder's interest in the joint venture, and on January 13, 1995, the Company exercised that option in exchange for the issuance of the Shares to the Selling Shareholder. The Selling Shareholder owns no other securities of the Company and intends to offer for sale all of the Shares registered hereunder.
The Selling Shareholder may, from time to time, offer the Shares through dealers or brokers, who may receive compensation in the form of commissions from the Selling Shareholder and/or the purchasers of the Shares for whom they may act as agents. As of the date hereof, the Selling
Shareholder has not advised the Company that it has entered into any agreement or understanding with any dealer or broker for the offer or sale of the Shares. The Selling Shareholder may enter into such agreements or understandings in the future. The Selling Shareholder may also offer some or all of the Shares through market transactions on the National Association of Securities Dealers Automated Quotation System's (NASDAQ) National Market, on which the Company's Common Stock is traded. Sales of the Shares through brokers may be made by any method of trading authorized by NASDAQ's National Market, including block trading in negotiated transactions. Without limiting the foregoing, such brokers may act as dealers by purchasing any or all of the Shares covered by the Prospectus. Sales of Shares are, in general, expected to be made at the market price prevailing at the time of each such sale; however, prices in negotiated transactions may differ considerably. The Selling Shareholder has not advised the Company that it anticipates paying any consideration, other than usual and customary broker's commissions, in connection with sales of the Shares. The Selling Shareholder is acting independently of the Company in making decisions with respect to the timing, manner and size of each sale.
Certain legal matters with respect to the legality of the securities offered hereby and the organization and existence of the Company have been passed upon for the Company by Parcel, Mauro, Hultin & Spaanstra, P.C., 1801 California Street, Suite 3600, Denver, Colorado 80202.
The consolidated financial statements which are incorporated by reference in this Prospectus, have been audited by Coopers & Lybrand L.L.P., independent public accountants, as indicated in their report dated March 8, 1995, with respect thereto, and are incorporated herein by reference in reliance upon the authority of said firm as experts in accounting and auditing.
The Engineering Report by Davy International referred to in the Company's Annual Report on Form 10-K, which is incorporated by reference in this Prospectus, has been included herein in reliance on their report, given on the authority of that firm as experts in mining engineering.
The "Fatal Flaw Review" and Executive Summary prepared by Roberts & Schaefer Company for the Company's Feasibility Study at Briggs, referred to in the Company's Annual Report on Form 10-K, which is incorporated by reference in this Prospectus, has been included herein in reliance on their report, given on the authority of that firm as experts in mining and processing engineering.
The "Fatal Flaw Review" of the ore reserves, mine plan, and mining capital and operating costs prepared by Mine Reserves Associates, Inc. for the Company's Feasibility Study at Briggs, referred to in the Company's Annual Report on Form 10-K, which is incorporated by reference in this Prospectus, has been included herein in reliance on their review, given on the authority of that firm as experts in geology and reserves.
The review of the environmental and permitting aspects of the Company's Feasibility Study at Briggs performed by Remy and Thomas, Attorneys at Law, referred to in the Company's Annual Report on Form 10-K, which is incorporated by reference in this Prospectus, has been included herein in reliance on their review, given on the authority of that firm as experts in California environmental law.
The additional opinion on the gold recovery at Briggs provided by Chamberlin & Associates, as referred to in the Company's Annual Report on Form 10-K, which is incorporated by reference in this Prospectus, has been included herein in reliance on their opinion, given on the authority of that firm as experts in metallurgical engineering.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses payable by the Registrant in connection with the sale and distribution of the securities being registered. All of the amounts shown are estimated except for the Securities and Exchange Commission registration fee.
SEC registration fee $ 100.00 Printing and mailing $ 1,000.00
Legal fees and $ 5,000.00
Accounting fees and $ 5,000.00
*All amounts are estimated other than the SEC registration fee.
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law provides as follows:
145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE. (a) A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, or suit by or in the right of the corporation to procure a judgment in its favor by reason of the act that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) of this section. Such determination shall be made (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorney's fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorney's fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested director or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to hear and determine all actions for advancement of expenses or indemnification brought under this section or under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. The Court of Chancery may summarily determine a corporation's obligation to advance expenses (including attorney's fees).
Article VI of the Registrant's Bylaws provides as follows:
The corporation, to the fullest extent permitted by the General Corporation Law of the State of Delaware and by the common law of the State of Delaware, shall indemnify each person who is or was an officer, director or employee of the corporation acting in his capacity as such and may indemnify each person who is or was an agent of the corporation acting in his capacity as such. The indemnification rights provided by this Article VI are deemed a contract between the corporation and its officers, directors, and employees, and any repeal or modification of those rights will not affect any right of such persons to be indemnified against claims relating to events occurring prior to such repeal or modification. To assure indemnification under this Article VI of all such persons who are or were "fiduciaries" of an employee benefit plan governed by the Act of Congress entitled "Employee Retirement Income Security Act of 1974," as amended from time to time, Section 145 of said statute shall, for the purposes hereof, be interpreted as follows: "other enterprise" shall be deemed to include an employee benefit plan; the corporation shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his duties to the corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to said Act of Congress shall be deemed "fines"; and action taken or omitted by a person with respect to an employee benefit plan in the performance of such person's duties for a purpose reasonably believed by such person to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the corporation.
Article TWELFTH of the Registrant's Certificate of Incorporation provides as follows:
No director of the corporation shall be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) for paying dividends or approving a stock purchase or redemption which is illegal or otherwise impermissible or prohibited under the Delaware General Corporate Law, or (iv) for any transaction from which the director derived an improper personal benefit.
The effect of the foregoing provisions is to permit, under certain circumstances, indemnification of the Company's officers and directors for civil and criminal liability, such as negligence, gross negligence, and breach of duty, so long as such person acted in good faith in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and which he reasonably believed to be lawful.
(1) Incorporated by reference from the Company's Registration Statement on Form 8-A as declared effective by the Securities and Exchange Commission on March 18, 1986.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(5) That, insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant hereby certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement and any amendment thereto to be signed on its behalf of the undersigned, thereunto duly authorized, in the City of Golden, State of Colorado on January 12, 1996.
Date: January 12, 1996 /s/ Richard H. De Voto
Date: January 12, 1996 /s/ Gary C. Huber
Pursuant to the requirements of the Securities Exchange Act of 1933, as amended, this Registration Statement and any amendment thereto has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated.
Date: January 12, 1996 /s/ Richard H De Voto Richard H. De Voto, Director
Date: January 12, 1996 /s/ Gary C. Huber
Date: January 12, 1996 /s/ William W. Walker
Date: January 12, 1996 /s/ Paul A. Bailly
Date: January 12, 1996 /s/ Leland O. Erdahl
Date: January 12, 1996 /s/ George W. Holbrook, Jr.
Date: January 12, 1996 /s/ Frank M. Monninger
Date: January 12, 1996 /s/ William C. Parks
Date: January 12, 1996 /s/ Christopher M. T. Thompson
(1) Incorporated by reference from the Company's Registration Statement on Form 8-A as declared effective by the Securities and Exchange Commission on March 18, 1986.
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0000912057-96-000445
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0000912057-96-000445_0000.txt
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[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended NOVEMBER 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
(Exact name of Registrant as specified in its charter)
(State of Incorporation) (IRS Employer Identification No.)
1400 PAGE MILL ROAD, PALO ALTO, CALIFORNIA 94304 (Address of principal executive offices) (Zip Code)
Registrant's telephone number - including area code (415) 852-2400 Former name, former address and former fiscal year, if changed since last report.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common shares outstanding as of November 30, 1995 - 4,851,951
This report, including all exhibits and attachments, contains 34 pages.
November 30, 1995 and May 31, 1995 3
Consolidated Condensed Statements of Earnings Three and Six months ended November 30,
Consolidated Condensed Statements of Cash Flows Six months ended November 30,
Supplemental Financial Data - Notes 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
TAB PRODUCTS CO. AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (000's ommitted except share data)
TAB PRODUCTS CO. AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) (000's ommitted except share data)
TAB PRODUCTS CO. AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
TAB PRODUCTS CO. AND SUBSIDIARY COMPANIES SUPPLEMENTAL FINANCIAL DATA - NOTES (UNAUDITED)
1. Inventories consisted of the following (000's omitted):
November 30, 1995 May 31, 1995 Finished goods $ 9,916 $ 8,914 Work in process 649 653
2. Earnings per share data are computed using the average number of common and dilutive common equivalent shares outstanding.
3. Dividends declared for the six month periods ended November 30, 1995 and 1994 were as follows:
Record Date Shares Outstanding Per Share Dividend November 22, 1995 4,851,951 $ 0.05 August 25, 1995 4,851,951 $ 0.05
November 25, 1994 4,851,951 $ 0.05 August 25, 1994 4,838,188 $ 0.05
4. The above financial information reflects all adjustments consisting of normal recurring items which are, in the opinion of management, necessary for a fair presentation of the results of the interim periods. These financial statements should be read in conjunction with the company's audited financial statements for the year ended May 31, 1995.
5. During the six months ended November 30, 1995 the company canceled stock options to purchase 798,500 shares of the company's common stock at prices ranging from $6.125 to $13.50 and exchanged them for options to purchase 598,500 shares of the company's common stock at current market value of $6.00 per share with new vesting periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
At November 30, 1995, the company had cash and short-term investments of $8.1 million, a decrease of $.3 million from the $8.4 million in cash and short-term investments at May 31, 1995. The company's working capital position at November 30, 1995, was $29.7 million as compared with $30.1 million at May 31, 1995. The current ratio of 2.2 at November 30, 1995, was down slightly from the 2.4 reported May 31, 1995. Accounts receivable at November 30, 1995, was $27.6 million an increase of $2.9 million from the accounts receivable of $24.7 million at May 31, 1995. The increased accounts receivable is attributable to higher revenues in the months preceding the November 30, 1995 quarter end as compared to May 31, 1995. The company continued to make progress on its collections with a further reduction in its days sales outstanding at November 30, 1995 as compared to May 31, 1995. Inventories at November 30, 1995 were higher as a result of increased demand on certain products and the build up of inventory for product transitions. Management believes that the company's cash and cash equivalents, available credit facilities and operational cash flows will adequately finance anticipated growth, capital expenditures and debt obligations for the foreseeable future.
Investments in property, plant and equipment to support operations were $1.6 million during the six months ended November 30, 1995. Capital expenditures to support operations for fiscal 1996 are expected to be in the range of $2.5 to $3.0 million.
For the six month period ended November 30, 1995, the company paid cash dividends of $485,000 as compared to $483,000 in the prior fiscal year.
The company has an unsecured revolving line of credit of $10 million with a bank that expires on October 31, 1996. There were no borrowings outstanding under the line of credit at November 30, 1995.
REVENUES for the second quarter of fiscal 1996 were $38.9 million, up $.5 million or 1.3% from revenues of $38.4 million for the second quarter of fiscal 1995. Revenues for the six months ended November 30, 1995, were $76.3 million, up $1.3 million or 1.7% from revenues of $75.0 million in the first six months of the prior fiscal year. The company increased list prices, in the United States, on major product lines in late fiscal 1995 and early fiscal 1996. During the second quarter of fiscal 1996 revenues from major product lines in the U.S. increased $.3 million over the second quarter of fiscal 1995 and increased $.2 million in other products. During the first six months of fiscal 1996 revenues from major product lines in the U.S. increased $1.7 million over the first six months of fiscal 1995 but were partially offset by a $.4 million decrease in other products. The increased revenues, for both the second quarter and six months ended November 30, 1995, were attributable to both the price increases and higher unit volume.
COST OF REVENUES, as a percentage of revenues, was 60.4% for the second quarter of fiscal 1996, down from the 60.9% reported for the second quarter of fiscal 1995. For the six months ended November 30, 1995, the cost of revenues was 60.7% as compared to 60.9% in the first six months of the prior fiscal year. The lower cost of revenues, as a percentage of sales, is attributable to lower product costs primarily as a result of increased selling prices.
SELLING EXPENSES were $10.5 million or 27.1% of total revenues for the second quarter of fiscal 1996 as compared to $10.5 million or 27.4% of total revenues for the second quarter of fiscal 1995. For the six months ended November 30, 1995, selling expenses were $20.8 million as compared to $20.4 million in the prior fiscal year. Total selling expenses for the first six months of fiscal 1996 increased $.4 million over the comparable period for fiscal 1995. The increased selling expenses were attributable to higher commission expense on a year to date basis.
GENERAL AND ADMINISTRATIVE EXPENSES, in the second quarter of fiscal 1996 were $2.9 million, $.4 million higher than the $2.5 million reported in the second quarter of fiscal 1995. For the six months ended November 30, 1995, general and administrative expenses were $5.7 million, $.4 million higher than the $5.3 million reported the prior fiscal year. The increased general and administrative expenses for the second quarter and the first six months of fiscal 1996 are primarily due to increased employee related costs.
OPERATING INCOME for the quarter ended November 30, 1995, was $1.9 million, an increase of $.1 million or 4.7% from the $1.8 million reported in the second quarter of last year. For the six months ended November 30, 1995, operating income was $3.3 million, $.2 million or 6.8% higher than the $3.1 million reported for the prior fiscal year.
INTEREST EXPENSE, net, was $389,000 in the second quarter of fiscal 1996 as compared to $493,000 in the second quarter of fiscal 1995. For the six months ended November 30, 1995, interest expense, net, was $807,000 as compared to $974,000 in the prior fiscal year. The decreases in interest expense, net, were primarily due to a lower level of debt during fiscal 1996 compared to the same periods of fiscal 1995 as a result of debt repayments.
EARNINGS PER SHARE for the three months ended November 30, 1995, were $.17 per share, an increase of 13% over the $.15 per share earned in the second quarter of the prior fiscal year. For the six months ended November 30, 1995, earnings per share were $.29 per share, an increase of 16% over the $.25 per share in the prior fiscal year.
ITEMS 1 - 5. Not applicable.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the under- signed thereunto duly authorized.
Date: January 12, 1996 /s/ John M. Palmer John M. Palmer, Vice President, Finance and Chief Financial Officer
Date: January 12, 1996 /s/ James L. Anderson
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10-Q
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10-Q
| 1996-01-12T00:00:00
| 1996-01-12T14:40:09
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