-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HpCTzntJCqDCofY+2URsY+pWddVzxF43ZMtFt05fTmKOcwfvAYkLZnphw0nr8C8Y rZXhPVxh5Dk3wUdMt+XESQ== 0000006383-98-000020.txt : 19980601 0000006383-98-000020.hdr.sgml : 19980601 ACCESSION NUMBER: 0000006383-98-000020 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980529 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANDERSEN GROUP INC CENTRAL INDEX KEY: 0000006383 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 060659863 STATE OF INCORPORATION: CT FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-01460 FILM NUMBER: 98634639 BUSINESS ADDRESS: STREET 1: 1280 BLUE HILLS AVE CITY: BLOOMFIELD STATE: CT ZIP: 06002-1374 BUSINESS PHONE: 2032420761 MAIL ADDRESS: STREET 1: NEY INDUSTRIAL PARK CITY: BLOOMFIELD STATE: CT ZIP: 06002 FORMER COMPANY: FORMER CONFORMED NAME: ANDERSEN LABORATORIES INC DATE OF NAME CHANGE: 19790828 10-K 1 ANDERSEN GROUP, INC. FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 28, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 0-1460 ANDERSEN GROUP, INC. (Exact name of Registrant as specified in its charter) Connecticut 06-0659863 (State or other jurisdiction of incorporation (I.R.S. Employer Identification or organization) No.) 515 Madison Avenue, New York, New York 10022 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 826-8942 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Name of each exchange Title of each class on which registered ------------------------------------------------------------------------- Common Stock, No Par Value The NASDAQ Stock Market 10 1/2% Convertible Subordinated Debentures Due 2007 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements. Incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the Common Stock, no par value, held by non-affiliates of the Registrant based upon the average bid and asked prices on May 8, 1998, as reported on the NASDAQ Stock Market, was approximately $8,646,000. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of May 8, 1998, there were 1,930,478 shares of Common Stock, no par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the definitive Proxy Statement dated May 19, 1998, filed with the Commission pursuant to Regulation 14A, are incorporated into Part III. The exhibit index is located on page E-1 PART I ITEM 1. BUSINESS. General. Andersen Group, Inc., referred to herein as the "Company" or the "Registrant", was incorporated under the laws of the State of Connecticut in 1951. The Company has historically made investments in companies that operated in several highly diverse segments, and which required extensive management participation in operation and restructure. These segments have included dental distribution and manufacture, electronics manufacturing and supply businesses, ultrasonic cleaning equipment, communications electronics, medical products and services and video products. More recently, however, the Company has increased its level of investments that do not require extensive management participation. These passive investments include investments in certain U.S.-based financial institutions and in the securities of Russian and Eastern European companies. The Company intends to continue to make minority, non-controlling investments in the future. Since 1991, however, the Registrant's primary investment, comprising approximately 33% of the Company's total assets, has been The J.M. Ney Company (JM Ney) which historically operated in two industry segments: Electronics, consisting of JM Ney's electronics and ultrasonics divisions, and Dental. In November 1995, JM Ney sold the assets and certain liabilities of the Dental segment. In 1997, Ney Ultrasonics Inc., a subsidiary of JM Ney, was classified as a separate industry segment (Ultrasonic Cleaning Equipment) and, effective February 28, 1998, substantially all of the assets of the Ultrasonics Cleaning Equipment segment were sold. In December 1997, JM Ney borrowed $7.5 million on a 10.26% bullet subordinated note, due 2004 with warrants, entitling the lender to purchase 40,000 shares of JM Ney capital stock at a fixed price, in order to have funds available for a strategic acquisition designed to grow JM Ney's business. If JM Ney makes an acquisition, the Company's ownership of JM Ney may become diluted through the issuance of JM Ney capital stock as part of the consideration paid. While criteria for a strategic acquisition have been identified, no agreements have been reached concerning any possible targets. In addition to the investment in JM Ney, since April 1993, the Registrant has held an investment in Digital GraphiX, Incorporated (DGI), a video graphics company. DGI sold substantially all of its assets in April 1997 and has substantially completed the winding up of its affairs (see "Other Investments"). Effective June 1, 1997, as part of a strategic reorganization of the Company, Oliver R. Grace, Jr., the Company's former Chairman, became President and Chief Executive Officer, and Francis E. Baker, the Company's President and Chief Executive Officer from 1959 to 1997, became Chairman and Secretary. In addition, in May 1998 the Company's principal executive offices were relocated to New York, New York. Industry Segment Information. Financial information regarding the Company's industry segments is contained in Note 18 to the Registrant's Consolidated Financial Statements for the fiscal year ended February 28, 1998 contained in Item 8 herein. Narrative Description of Business. During the fiscal year ended February 28, 1998, the Company held investments in companies that operated in two business segments, Electronics and Ultrasonic Cleaning Equipment. As noted below, the Ultrasonic Cleaning Equipment segment was sold effective February 28, 1998 and has been treated as a discontinued operation in the Company's Consolidated Financial Statements. In addition, the Company held interests in a company with plans to develop data transmission networks throughout the Commonwealth of Independent States, and in a Russian titanium producing company. The Company also holds a portfolio of marketable securities comprised primarily of the common stock of certain financial institutions and of companies based in, or mutual funds which invest in, companies based in Russia or other Eastern European countries. Electronics Segment The Electronics segment, which consists of the operations of JM Ney, is a full-service, precious metal and parts supplier to automotive, medical, industrial electronics, military and semi-conductor manufacturers. JM Ney's fully integrated approach includes fabrication and manufacture of its precious metal alloys, as well as design, engineering and metallurgical support. The fabrication capabilities include stamping, wire drawing, rolling from ingot to foil, precision turning, injection and insert molding, and refining. JM Ney specializes in the engineering and manufacturing of precious metal alloy contacts and contact assemblies aimed at low amperage applications. Electrical contacts made of precious metals, including gold, platinum, palladium and silver, are considered extremely dependable as the materials are inert and highly resistant to corrosion and wear. In developing a finished contact or assembly, JM Ney's technical staff works closely with customers, typically on an engineer-to-engineer level, in order to design a product that meets all of the metallurgical, electronic, dynamic and other performance specifications required for the customer's applications. JM Ney designs and builds the necessary molds and tools as well as designs and manufactures the end product. By controlling the total process JM Ney believes it has a competitive advantage over other companies in technology, cost and response time. JM Ney has attained ISO 9001 certification and QS9000 certification for the manufacture of its products as well as approval by the Japanese Industrial Standards (JIS) and the United States Food and Drug Administration. In connection with the sale of the assets and liabilities of the Company's Dental segment in November, 1995, JM Ney (and the Company, solely for purposes of a non-competition covenant) entered into a three year manufacturing agreement to alloy and fabricate precious metals for Ney Dental International, Inc. (NDI), the purchaser of JM Ney's dental business. As part of this agreement, JM Ney and the Company agreed, for a ten-year period, not to sell alloys, equipment or merchandise into the dental market that NDI serves. JM Ney is, however, permitted to continue producing, selling and marketing precious metal copings and other machined and molded parts and material for use in the dental implant industry. JM Ney's business has limited direct competition with regard to the manufacture of low amperage precious metal contacts and contact assemblies due to the inherent risks, which accompany the engineering and manufacture of precious metals (i.e., high start-up and inventory costs, theft, etc.). While some competitors offer similar products, the Company believes that these operations lack the vertical integration to compete across the entire spectrum of products. JM Ney faces indirect competition from companies such as Engelhard Corporation and Johnson Matthey, Inc., which have significantly greater resources and which are involved in higher volume production of more standard precious metal alloys. JM Ney sells to more than 800 customers, with approximately 85% of its sales being made to customers in the United States. JM Ney's sales are made domestically through both field sales and manufacturers' representatives located in key geographic markets. Internationally, JM Ney sells through manufacturers' representatives, independent distributors and original equipment manufacturers. Two customers in the Electronics segment (Implant Innovations, Inc., a purchaser of precision machined precious metal components and precious metal materials, and First Inertia, Inc., a purchaser of electronic components for the automotive market) each accounted for more than 10% of the Registrant's consolidated sales in fiscal 1998. Ultrasonic Cleaning Equipment Segment Effective February 28, 1998, the Company sold the net assets of Ney Ultrasonics Inc. (Ney Ultrasonics) which until that date comprised the Company's Ultrasonic Cleaning Equipment segment for approximately $3.5 million in cash. In addition to consideration received at closing, and anticipated to be received upon the agreement of closing date financial information, the Company expects to receive consideration during the next several years based on growth of sales of certain products by the purchasers of Ney Ultrasonics net assets. See Note 5 to the Company's Consolidated Financial Statements for the year ended February 28, 1998 contained in Item 8 herein. Other Investments Trading Portfolio At February 28, 1998, the Company had a portfolio of short-term investments with a reported value of $9,001,000. The reported amount is reflected net of a $617,000 valuation reserve to provide for volatility and liquidity concerns relating to marketable investments in Russia and other eastern European countries. The larger components of these investments include $5.6 million of common stocks of savings banks and $2.4 million of the CA IB Emerging Russia Fund. In addition, these investments include investment in Ukrainian and Polish companies, common stock of Centennial Cellular, Inc. and municipal bonds. See Note 3 to the Company's Consolidated Financial Statements for the year ended February 28, 1998 contained in Item 8 herein. Digital GraphiX During fiscal 1998 the Company received payments of its investments in notes, preferred stock and common stock of DGI, pursuant to DGI's liquidation as a result of the sale of substantially all of its net assets in April 1997. For further information on the Registrant's investment in DGI, see Note 7 to the Company's Consolidated Financial Statements for the fiscal year ended February 28, 1998 contained in Item 8 herein, and Certain Relationships and Related Transactions in Item 13. Institute for Automated Systems The Company also holds an investment in Treglos Investments, LTD, a joint venture that is investing in the Institute for Automated Systems, a Russian telecommunications company that has agreements to develop a data transmission network throughout the Commonwealth of Independent States. The joint venture owns approximately 6% of the Institute for Automated Systems. Among the joint venture partners are the Company's Chairman and another Director. See Note 7 to the Company's Consolidated Financial Statements for the fiscal year ended February 28, 1998 contained in Item 8 herein, and Certain Relationships and Related Transactions in Item 13. AVISMA The Company also owns 9,734 shares of AVISMA, a Russian based titanium producer. These shares were purchased during fiscal 1998 for an aggregate cost of approximately $1,225,000. They are being valued for financial reporting purposes net of a valuation reserve of $245,000. AVISMA will be merged into VSMPO, a Russian titanium processing company, under the terms of a transaction in which VSMPO will be the surviving entity. There is currently a limited trading market for AVISMA. The Company anticipates improved liquidity following the merger with VSMPO. See Note 7 to the Company's Consolidated Financial Statements for the fiscal year ended February 28, 1998 contained in Item 8 herein, and Certain Relationships and Related Transactions in Item 13. Research and Development During fiscal years 1998, 1997, and 1996, research and development expenditures from continuing operations totaled approximately $1,444,000, $1,228,000 and $1,374,000, respectively. Sources and Availability of Raw Materials and Components JM Ney purchases its raw materials, including precious metals, and the components used in the manufacture of its products from a number of domestic suppliers, and generally is not dependent upon any single supplier. Although JM Ney utilizes Russian palladium in the manufacture of many of its products, and despite recent publicized events regarding lack of palladium shipments from Russia to the world market, the Company believes that its sources of supply are adequate for its continuing needs. Compliance with Environmental Protection Laws Management of the Company believes that the Company and its operating subsidiaries are in material compliance with applicable federal, state and local environmental regulations. Compliance with these regulations has not in the past had any material effect on the Company's capital expenditures, consolidated statements of operations or competitive position, nor does the Company anticipate that compliance with existing regulations will have any such effect in the near future. Employees As of April 30, 1998, the Company, including all subsidiaries, had 191 full-time employees and one part-time employee. None of these employees are represented by a labor union, and the Company is not aware of any organizing activities. Neither the Company nor any of its subsidiaries has experienced any significant work stoppage due to any labor problems. The Company considers its employee relations to be satisfactory. Forward Looking Statements This report contains forward-looking statements, which are subject to a number of risks, and uncertainties that may cause actual results to differ materially from expectations. Executive Officers of the Company The Executive Officers of the Company and certain significant employees of its subsidiaries are as follows:
- ------------------------------- -------- ----------------------------------------------------------- ----------------- Officer Name Age Position Since - ------------------------------- -------- ----------------------------------------------------------- ----------------- Francis E. Baker 68 Chairman and Secretary 1959 Oliver R. Grace, Jr. 44 President and Chief Executive Officer 1997 Bernard F. Travers, III 40 Assistant Secretary 1993 Ronald N. Cerny 46 President, The J.M. Ney Company 1993 Andrew M. O'Shea 39 Treasurer of the Company; Chief Financial Officer and Secretary, The J.M. Ney Company 1995 Eugene Phaneuf 51 Vice President - Operations, The J.M. Ney Company 1996 - ------------------------------- -------- ----------------------------------------------------------- -----------------
Except as set forth below, all of the officers and significant employees of its subsidiaries have been associated with the Company in their present positions for more than the past five years. Mr. Grace, Jr. has been a Director of the Company since 1986 and President and Chief Executive Officer since June 1, 1997. Mr. Grace, Jr. was Chairman of the Company from March 1990 to May 1997. Mr. Grace, Jr. has also been President of AG Investors, Inc., one of the Company's subsidiaries, since 1992. Mr. Grace, Jr. is a General Partner of The Anglo American Security Fund L.P. Mr. Grace, Jr., the Company's Chairman, is the brother of John S. Grace, a member of the Company's Board of Directors. Mr. Baker became Chairman on June 1, 1997. He has been a Director of the Company since 1959 and was President and Chief Executive Officer from 1959 until June 1, 1997. Mr. Baker is also the Secretary of the Company, a position he has held since May 1997. Mr. Travers, III joined the Company in 1983. He was promoted to Assistant Secretary in June 1993. From 1990 through the present he has also served as the Company's Director of Law and Taxation. Mr. Travers is an attorney and a Certified Public Accountant. Mr. Cerny has served as President of JM Ney since November 1995. From April 1993 to November 1995, Mr. Cerny was the General Manager of JM Ney's Electronics Division. From 1988 until joining JM Ney, Mr. Cerny served as Director of Operations (1990-1993) and Director of Sales & Marketing (1988 to 1990) for the Materials Technology Division of Johnson Matthey, Inc., a precious metals fabricator. Mr. O'Shea became Treasurer of the Company in June 1997. He joined the Company in December 1995 as Treasurer and Chief Financial Officer of JM Ney. In November 1997 he was also appointed JM Ney's Secretary. From 1994 until joining the Company, Mr. O'Shea was Vice-President of Finance and Administration for the WorldCrisa Corporation. From 1990 to 1994, Mr. O'Shea worked for Buxton Co. in various financial management capacities, including Senior Vice-President, Finance and Administration. Mr. O'Shea is a Certified Public Accountant. Mr. Phaneuf joined JM Ney in 1990. He was promoted to Vice President-Operations of JM Ney in March 1996. From April 1994 to February 1996, Mr. Phaneuf was JM Ney's Director of Operations. He was also Acting General Manager of Ney Ultrasonics from April 1995 through December 1996. From 1990 to 1994, Mr. Phaneuf was JM Ney's Manager of Engineering and Manufacturing. ITEM 2. PROPERTIES. The Company's principal executive offices were relocated to New York, New York in May 1998. The Company subleases office space from an entity owned by Oliver R. Grace, Jr. the Company's President and Chief Executive Officer, at lease rates that approximate market. The Company's subsidiary, Andersen Realty, Inc., owns a 108,000 square foot building located in Bloomfield, Connecticut. Portions of this facility are leased to the present owners of its former Dental and Ultrasonic Cleaning Equipment segments, as well as to third parties. JM Ney owns a 100,000 square foot facility within a 16.5 acre industrial park in Bloomfield, Connecticut. This site contains JM Ney's principal operations and general administrative offices. The Registrant believes that its plants and properties, and the production capacities thereof, are suitable and adequate for its business needs of the present and immediately foreseeable future. ITEM 3. LEGAL PROCEEDINGS. Morton International, Inc. v. A.E. Staley Mfg. Co. et al. and Velsicol Chemical Corp. v. A.E. Staley Mfg. Co. et al. As previously reported in the Company's Form 10-K for the year ended February 28, 1997, in July 1996, two companion lawsuits were filed in the United States District Court for the District of New Jersey, by various owners and operators of the Ventron-Velsicol Superfund Site (Site). The lawsuits, which were subsequently consolidated, were filed under the Comprehensive Environmental Resource Compensation and Liability Act (CERCLA), the Resource Conservation and Recovery Act, the New Jersey Spill Act and New Jersey common law, alleging that the defendants (over 100 companies, including JM Ney) were generators of certain wastes allegedly processed at the site. The lawsuits seek recovery of costs incurred and a declaration of future liability for costs to be incurred by the owners and operators in studying and remediating the Site. Based on preliminary disclosure of information relating to the claims made by plaintiffs and defendants, JM Ney, which produced and refined precious metals used in dental amalgams, is one of the smaller parties to have had any transactions with one of the plaintiff's predecessors in interest. However, under both CERCLA and the New Jersey Spill Act, a party is jointly and severally liable, unless there is a basis for divisibility. At this time, there is insufficient information to determine the appropriate allocation of costs as between or among the defendant group, if liability to the generator defendants is ultimately proven. Moreover, because of the incomplete status of discovery, the Company is unable to predict the probable outcome of the lawsuit, whether favorable or unfavorable, and has no basis to ascertain a range of loss, should any occur, with respect to an outcome that might be characterized as unfavorable. The Company continues to investigate whether any liability, which may accrue at some future date, may be subject to reimbursement in whole or in part from insurance proceeds. The Company intends to continue to vigorously defend the lawsuit. James S. Cathers and Sylvia Jean Cathers, his wife v. Kerr Corporation, Whip-Mix Corporation, The J.M. Ney Company and Dentsply Corporation, Inc. As previously reported in the Company's Form 10-Q for the Quarter ended August 31, 1997, in August 1997, JM Ney was included as a defendant in an asbestos related civil action for negligence and product liability filed in the Court of Common Pleas of Allegheny County, Pennsylvania, in which the Plaintiffs claim damages in excess of $30,000 (the jurisdictional limit) from being exposed to asbestos and asbestos products alleged to have been manufactured and supplied by the defendants, including Ney's former Dental Division, while one of the Plaintiffs worked in a dental lab from 1960 to 1986 at an unspecified location in Pittsburgh, Pennsylvania. The Plaintiffs allege that this exposure to asbestos and asbestos products caused the wrongful death of one of the Plaintiffs from cancer (mesothelioma). The Plaintiffs have not provided any specific allegations of facts as to which defendants may have manufactured or supplied asbestos and asbestos products which are alleged to have caused the injury. The Company has determined that it has insurance that potentially covers this claim and has called upon the insurance carriers to provide reimbursement of defense costs and liability, should any arise. As of this date, the Company has no basis to conclude that the litigation may be material to the Company's financial condition or business. The Company intends to vigorously defend the lawsuit. Anthony Nicholas Georgiou, et al. v. Mobil Exploration and Producing Services, Inc., Metromedia International Telecommunications, Inc., et al. On January 14, 1998, Anthony Nicholas Georgiou, et al. v. Mobil Exploration and Producing Services, Inc., Metromedia International Telecommunications, Inc., et al., was filed in the United States District Court for the Southern District of Texas. Plaintiffs claim that the defendants, including the Registrant and Oliver R. Grace, Jr. the Registrant's President and Chief Executive Officer, interfered with plaintiffs' business relationships with several companies involving certain oil exploration and production contracts in Siberia and telecommunications contracts in the Russian Federation. The specific counts are civil conspiracy, tortious interference with contractual relationships and tortious interference with prospective contractual relationships. Plaintiffs have alleged actual damages in excess of $500,000,000 and have sought punitive damages of three times alleged actual damages. The Company filed its answer denying each of the substantive allegations of wrongdoing contained in the complaint. In addition, the Company has moved to dismiss this case in Texas against it for lack of personal jurisdiction. The Company believes that this action against it will be dismissed for lack of personal jurisdiction. If the action were not dismissed, the Company believes that it has meritorious defenses and will continue to vigorously defend the action. The Company is investigating whether any liability, which may accrue at some future date, may be subject to reimbursement in whole or in part from insurance proceeds. As of this date, the Company has no basis to conclude the litigation may be material to the Company's financial condition or business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On February 25, 1998, the Company held a special meeting of its stockholders to amend and restate the Company's Amended and Restated Certificate of Incorporation to eliminate certain restrictions on the payment of dividends on the Company's Common Stock and the Company's Series A Cumulative Convertible Preferred Stock, change the dividend payment rate on the Preferred Stock and eliminate the requirement that the Company redeem the Preferred Stock. The number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes of each class of capital stock entitled to vote is set forth below:
Class of Stock For Against Withheld Abstentions Common 1,140,084 37,782 744,234 13,378 Preferred 236,258 5,832 5,614 8,744
Based upon these results, the changes to the Company's Amended and Restated Certificate of Incorporation was amended to reflect the changes referred to above. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Registrant's Common Stock is traded on The NASDAQ Stock Market under the symbol (ANDR) with quotes supplied by the National Market System of the National Association of Securities Dealers, Inc. (NASDAQ). The approximate number of record and beneficial holders of the Registrant's Common Stock on May 8, 1998 was 625 and 1,100, respectively. The Company's high, low and closing sales prices for the common equity, for each full quarterly period within the two most recent fiscal years, are included below. The stock prices shown, which were obtained from NASDAQ, represent prices between dealers and do not include retail markups, markdowns or commissions and may not necessarily represent actual transactions.
- --------------------------------------------- ---------------------- ------------------------ ---------------------- Year ended February 28, 1998 High Low Close - --------------------------------------------- ---------------------- ------------------------ ---------------------- First Quarter 5 1/2 4 1/2 5 1/8 Second Quarter 6 3/4 5 6 1/2 Third Quarter 10 1/4 6 1/4 7 5/8 Fourth Quarter 7 1/2 4 7/8 5 7/8 - --------------------------------------------- ---------------------- ------------------------ ----------------------
- --------------------------------------------- ---------------------- ------------------------ ---------------------- Year ended February 28, 1997 High Low Close - --------------------------------------------- ---------------------- ------------------------ ---------------------- First Quarter 6 1/2 3 3/4 6 Second Quarter 7 5 1/4 6 1/2 Third Quarter 7 3 1/4 5 1/4 Fourth Quarter 6 1/2 5 5 1/2 - --------------------------------------------- ---------------------- ------------------------ ----------------------
ITEM 6. SELECTED FINANCIAL DATA. The following table summarizes certain financial data with respect to the Company and is qualified in its entirety by the Consolidated Financial Statements of the Company for the fiscal year ended February 28, 1998 contained in Item 8 herein, (amounts in thousands, except per share data).
- ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- Years ended February 1998 1997 1996 1995 1994 - ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- Revenues (1) $28,868 $20,501 $19,437 $24,520 $17,024 - ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- Income (loss) from continuing operations 1,770 334 (1,921) (397) (923) - ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- Net income (loss) 2,212 299 1,933 (388) (868) - ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- Income (loss) applicable to common shares 1,772 22 2,389 (975) (1,468) - ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- Income (loss) from continuing operations per common share, diluted .68 .03 (.76) (.90) (1.22) - ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- Income (loss) per common share, diluted .91 .01 1.23 (.50) (0.80) - ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- Depreciation, amortization and accretion 1,480 1,419 1,887 2,329 3,368 - ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- Total assets 44,771 37,677 38,798 43,679 48,590 - ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- Total debt 14,537 10,119 8,485 12,328 16,371 - ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- Redeemable preferred stock - 4,891 5,280 10,593 10,494 - ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- - ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- Common and other stockholders' equity (2) 20,196 13,647 13,625 9,913 10,837 - ------------------------------------ ---------------- ----------------- --------------- --------------- ---------------- Book value per common share 7.97 7.05 7.04 5.13 5.62 - ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
(1) The results of Digital GraphiX are included in 1994, 1995 and two months of 1996. Net sales and revenues, and income (loss) from continuing operations, exclude the results of operations of the Company's Ultrasonic Cleaning Equipment and Dental segments as a result of their sales in February 1998 and November 1995, respectively. (2) 1998 amount includes preferred stock as a result of the elimination of its mandatory redemption provisions. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS 1998 vs. 1997 REVENUES - -------- Total revenues from continuing operations of $28,868,000 for the fiscal year ended February 28, 1998 (FY98) were 40.8% more than the $20,501,000 of revenues recorded for the year ended February 28, 1997 (FY97). This increase represents the combination of a 23.0% increase in sales generated by The J.M. Ney Company (JM Ney), and an increase of $3,613,000 of investment and other income over the net losses of $142,000 recorded in FY97. JM Ney's increase in sales to $25,397,000 reflects growth in sales of contacts for sensors used in the automotive industry, and increased sales of precious metal materials, particularly materials for use in the manufacture of dental implant components. Such sales growth during FY98 is reflected net of a 2% decline in sales to the Company's former Dental segment. Investment and other income totaled $3,471,000 for FY98, versus a loss of $142,000 in FY97, as follows (000s omitted):
FY98 FY97 Net gains from domestic investment portfolio $1,759 $1,032 Net gains from Russian and Eastern European portfolio 665 - Interest and dividends 228 366 Rental income 376 342 Gain from Digital GraphiX 196 - Loss from investments in Phoenix Shannon - (2,175) Other, net 247 293 ------- ------- $3,471 ($142)
Gains from the Company's domestic investment portfolio increased due to a rebound in the market value of the Company's investment in Centennial Cellular, which had experienced a decline in value in FY97, and to continued growth in value from the Company's portfolio of financial institutions. All gains from this portion of the investment portfolio in each of the two most recent years represented increases in net unrealized appreciation of the underlying investments. Also, during FY98, the Company significantly expanded its investment activities in Russia and Eastern Europe. This resulted in the recording of net realized and unrealized gains of $665,000, net of valuation allowances of $617,000 established for the foreign trading portfolio, and $245,000 established for a Russian security held for longer term investment. Such reserves were established to address volatility and liquidity concerns within these markets. During FY98, Digital GraphiX, Incorporated, an investment whose results had been consolidated with those of the Company through April 1995, sold its net assets and used the proceeds to repay notes, redeem its preferred stock, and issue liquidating dividends on its common stock. As a result, the Company received $196,000 in excess of the net carrying value of its investment. During FY97, the Company wrote off $2,175,000 in the value of its investment in the common stock of, and a note receivable from, Phoenix Shannon, p.l.c. which had been received as part of the consideration for the sale of the net assets of the Company's former Dental segment in FY96. COST OF SALES - ------------- Cost of sales totaled $17,040,000, or 67.1% of net sales in FY98, versus cost of sales of $13,259,000, or 64.2% of net sales in FY97. The decline in the gross margins from 35.8% to 32.9% was caused primarily by significant increases and volatility in the price of palladium which is used in the majority of JM Ney's products, and by increases in materials sales as a percentage of overall sales. However, gross margins of $8,357,000 in FY98 represented a 13.2% increase over FY97 levels. During most of FY97, the price of palladium remained relatively stable between $141 per troy ounce and $115 per troy ounce, with an increase at fiscal year end to above $155 per ounce. Such a market condition enabled JM Ney to easily replace the metal it had sold with metal of approximately equal value for LIFO accounting purposes. However, during FY98, the price of palladium fluctuated widely. Prices ranged from a low of $142 per troy ounce to a high of $240 per ounce. During much of this period, the market viewed these price increases as temporary, as reflected in the lower cost for palladium in future months. Accordingly, for certain segments of its business, this price increase could not be immediately passed on to JM Ney's customers. Although JM Ney had certain hedging programs in place, such strategies did not cover all sales programs involving significant quantities of palladium. During the first quarter of FY99, the price of palladium has increased further. JM Ney has utilized expanded metals hedging, financing and purchasing programs to reduce the adverse exposure that this development may have on its results of operations. In addition, the Company's FY98 gross margin benefited from lower gold prices, which served to slightly offset the impact of the effects of the palladium price increases and volatility. Also, during FY98, sales of precious metal materials, in the form of wire, strip, and rod represented approximately 31.8% of sales, versus material sales of 24.4% in FY97. Material products generally have lower average gross margins, due to the commodity nature of the product, versus highly engineered parts and components, which involve an increased amount of value-added processing, and higher gross margins. Such sales mix contributed further to the lower average gross margins during FY98. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - -------------------------------------------- Selling, general and administrative expenses from continuing operations totaled $6,260,000, or 8.5% more than the costs incurred during FY97. Costs of approximately $128,000 incurred in the process of upgrading JM Ney's manufacturing system to be Year 2000 compliant, an increase of $167,000 of recruiting costs, including personnel fees and advertising, and legal costs incurred in connection with the exchange of the Company's 10 1/2% Debentures and change of the terms of its Preferred Stock all contributed to the growth in these expenses. RESEARCH AND DEVELOPMENT EXPENSES - --------------------------------- Research and development expenses increased from $1,228,000, or 5.9% of sales in FY97 to $1,444,000, or 5.7% of sales in FY98. While increased material sales served to lower the relative comparison, the absolute increase of 17.6% reflects the cost of efforts to develop new proprietary alloys that have similar physical attributes to existing alloys with lower palladium content to reduce exposure to market fluctuations, and to work on new manufacturing processes which enable JM Ney to offer product alternatives. INTEREST EXPENSE - ---------------- Interest expense increased from $790,000 in FY97 to $1,163,000 in FY98. Increased borrowings under JM Ney's revolving line of credit to support both its working capital requirements and those of Ney Ultrasonics served to increase interest. In addition, significant increases in the leasing rates of palladium and platinum also served to increase financing costs under its line of credit. JM Ney was not exposed to these volatile interest rates to the extent that many other companies using palladium were, thus this impact was contained. Also, during the year, JM Ney closed on a $7.5 million seven-year subordinated note that bears interest at the annual rate of 10.26%. Interest and amortization of deferred financing costs for two months added to the interest expense total. INCOME TAXES - ------------ Income tax expense from continuing operations totaled $1,191,000 for FY98, versus a tax benefit from continuing operations of $882,000 for FY97. The current year expense included a net increase of $1,016,000 in deferred income taxes payable. The effective tax rate for FY97 was favorably impacted by the settlement of audits of prior state income tax returns. DISCONTINUED OPERATIONS - ----------------------- Effective February 28, 1998, the Company sold the net assets of Ney Ultrasonics for approximately $3.5 million and additional contingent consideration. Net of expenses incurred in the transaction, the Company recognized a gain of $97,000, net of tax. For the year then ended, Ney Ultrasonics generated approximately $345,000 of net income on sales of $5,713,000. During FY98 these operations generated an increase in sales of 47.5% over FY97, which produced the first operating profit in its history. The Company is optimistic that continuation of the market penetration of the ultrasonic cleaning technology will result in increased future profits in the form of contingent consideration from the sale. PREFERRED DIVIDENDS - ------------------- Preferred dividends, including the amortization of issuance costs, totaled $477,000 during FY98, which is a 16.1% increase over the dividends of $411,000 accrued for FY97. The dividends per preferred share, which include a participating dividend based on the operating income of JM Ney, including earnings relating to Ney Ultrasonics and the former Dental segment, increased from approximately $1.24 per share in FY97 to approximately $1.69 in FY98. However, due to purchases of shares of preferred stock during both years, the aggregate preferred dividends increased by a lower amount. Reversals of previously accrued but unpaid dividends added $37,000 and $134,000 to income applicable to common shareholders in FY98 and FY97, respectively. As a result of the shareholder approval of the change in the terms of the Preferred Stock, dividends that had been accrued from May 1993 through November 1997 were paid in February 1998. NET INCOME - ---------- As a result of the income of $1,770,000 generated from continuing operations, income of $345,000 from discontinued operations, and the gain of $97,000 on the sale of Ney Ultrasonics, total net income for FY98 was $2,212,000, versus net income of $299,000 in FY97. After net preferred dividends, income applicable to common shareholders for FY98 was $1,772,000, or $.92 per share basic, $.91 diluted, versus income applicable to common shareholders of $22,000, or $0.01 per basic and diluted share in FY97. 1997 VS. 1996 REVENUES - -------- For the year ended February 28, 1997 (FY97), revenues from continuing operations totaled $20,501,000, which were 5.5% more than revenues during the fiscal year ended February 29, 1996 (FY96). This increase primarily reflects a 24.8% increase in sales for The J.M. Ney Company (JM Ney), losses sustained from investments in Phoenix Shannon, p.l.c., and the absence of sales from the Company's former Video Products segment. Sales from JM Ney were $20,643,000 during FY97, versus FY96 sales of $16,544,000. Sales growth was generated in automotive, medical and other industrial markets, which resulted from expansion of manufacturing capabilities and effective marketing efforts. Additional sales growth was generated from dental alloy fabrication services to the Company's former Dental segment, which during FY96 was included for only three months after the sale of that division to Phoenix Shannon. Sales from Digital GraphiX, Incorporated (DGI), the Company's formerly consolidated Video Products segment, totaled $2,080,000 during the first two months of FY96. Due to an offering of DGI's common stock, the Company's ownership was diluted and DGI's results beyond that date were not consolidated with those of the Company. Accordingly, during FY97, this segment did not generate any reported sales for the Company. Investment and other income produced a net loss of $142,000 during FY97, versus income of $813,000 in the prior fiscal year. A significant decline in the market value of Phoenix Shannon common stock resulted in the complete write-off of $2,175,000 of the Company's investment in Phoenix Shannon, including a $1 million note receivable. During FY96, the Company absorbed a $525,000 loss relating to a decline in the market value of Phoenix Shannon's common stock. Gains from common stocks, which primarily comprised investments in certain financial institutions, produced net investment gains of $1,032,000 during FY97, while these investment activities yielded $585,000 of net gains during FY96. In addition, rental income increased from $281,000 in FY96 to $342,000 in FY97, due primarily to a full year of revenue from the former Dental segment, which has leased space in the Company's 100,000 square foot office and manufacturing facility. Interest income of $342,000 in FY97 was 27.1% lower than the $469,000 recorded in FY96, due primarily to reduced interest related to the Company's note receivable from DGI, which was partially offset by increased interest on excess cash balances. The DGI note was partially converted to DGI's preferred stock during FY97, and no accruals of dividend income were recorded. In addition, fee income of $200,000 in FY97 added to the total of investment and other income. COST OF SALES - ------------- Cost of sales of $13,259,000 in FY97 represented 64.2% of sales, while such costs amounted to $12,016,000, or 64.5% of sales during FY96. The increased gross margins, 35.8% versus 35.5%, represents the net of a 1.5% increase in margins for JM Ney, and the absence of higher margin sales from the Video Products segment, for which only modest sales were reported for FY96. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - -------------------------------------------- Selling, general and administrative expenses of $5,772,000 during FY97 were 24.9% lower than the $7,683,000 of such expenses reported for FY96. A write-down in FY96 of $1 million of the Company's investment in DGI, and approximately $950,000 of legal and settlement costs relating to a suit filed against a former subsidiary of the Company accounted for most of the higher costs in FY96. Selling, general and administrative expenses totaled 28.2% of revenues in FY97 versus 39.5% in FY96. RESEARCH AND DEVELOPMENT EXPENSES - --------------------------------- Research and development expenses decreased from $1,374,000 in FY96 to $1,228,000 in FY97 due to the absence in FY97 of such expenses from DGI. Such expenses, excluding DGI, were $1,041,000, or 6.3% of sales in FY96, versus 5.9% of sales for FY97. The relative increase reflects efforts at JM Ney to develop new precious metal alloys, and product processes. INTEREST EXPENSE - ---------------- Interest expense of $790,000 during FY97 represents a 36.1% decrease from interest expense of $1,237,000 incurred during FY96. Principal payments in both years on long-term obligations, including prepayments made during FY97 to implement a Capital Stock Purchase Program, along with lower average outstanding amounts under revolving credit agreements, resulted in the lower interest expense in FY97. INCOME TAX BENEFIT - ------------------ An income tax benefit of $882,000 relating to continuing operations was recorded in FY97 due to the $548,000 pre-tax loss and to the favorable settlement of a state income tax audit relating to prior years which was the primary factor that enabled the Company to reverse approximately $546,000 of accrued income taxes. A tax benefit of $952,000 relating to $2,873,000 of losses from continuing operations was recorded in FY96. DISCONTINUED OPERATIONS - ----------------------- During FY97, Ney Ultrasonics' operations produced a net loss of $35,000, versus a net loss of $349,000 from this former segment in FY96. Market acceptance of newly-introduced ultrasonic cleaning technology improved its sales and operating results. In addition, during FY96, nine months of activities from the Company's former Dental segment produced net income of $413,000, or $0.21 per share. A net gain of $3,790,000, or $1.96 per share, was recorded in FY96 from the sale of the net assets of this segment to Phoenix Shannon. This gain included $519,000 of a curtailment gain relating to JM Ney's defined benefit pension plan. Part of the proceeds received from the sale of the Dental segment included 200,000 shares of Phoenix Shannon's stock, which were valued at $1,700,000 and a $1 million note receivable. As noted, during FY96 and FY97, the entire value of this portion of the consideration was completely written off. Phoenix Shannon was subsequently placed into bankruptcy and its assets, including the former Dental segment, were sold. However, such proceeds were insufficient to enable the Company to realize any value from either the note or the stock. PREFERRED DIVIDENDS - ------------------- The preferred dividend requirement, including the amortization of the issuance discount, totaled $411,000 in FY97 versus $559,000 in FY96. The decrease reflects the combination of fewer outstanding preferred shares in FY97 versus FY96 due to share purchases in the fourth quarters of both FY96 and FY97, and increased per-share dividends. Due to increased consolidated operating income of The J.M. Ney Company, including the results of Ney Ultrasonics, and the gain on the sale of the Dental segment, per-share dividends increased from $0.78 in FY96 to $1.24 in FY97. NET INCOME - ---------- For FY97, the Company reported net income of $299,000. After preferred dividends, and reversal of preferred dividends due to the repurchase of shares, income applicable to common shareholders was $22,000 or $0.01 per share. This compares to net income of $1,933,000, including the gain on sale of the Dental segment and the results of both discontinued operations. After preferred dividends and the reversal of $1,015,000 of dividends from share purchases, FY96 income applicable to common shareholders was $2,389,000, or $1.23 per share. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At February 28, 1998, consolidated cash and short-term investments and marketable securities totaled approximately $11,517,000, which was an increase of $2,953,000 from the February 28, 1997 total of $8,564,000. At February 28, 1998, the marketable securities included approximately $5,611,000 of the common stock of certain financial institutions, $493,000 of non-investment grade municipal bonds, and $430,000 of the common stock of Centennial Cellular, which had purchased certain cellular partnership interests from the Company in FY95. This portfolio also included approximately $2,467,000 reported value of marketable investments in an emerging Russian mutual fund, and a portfolio of securities of companies located in the Ukraine and Poland. The reported value of this portfolio is reflected net of a valuation reserve of $617,000, which was established to address liquidity and market volatility concerns inherent in those particular emerging markets. During FY98, the Company made substantial investments in Russian and Eastern European markets, including an investment with a recorded value of $980,000 in AVISMA/VSMPO, a Russian titanium producer whose stock does not currently have a reported market value due to the relative sparseness in the stock's trading volume. This security is recorded at its cost less a valuation reserve of $245,000. Including this investment, the Company's investment of $835,000 in the Institute for Automated Systems and the above-reported marketable securities, total Russian and Eastern European investments was $4,282,000, net of aforementioned valuation reserves. This represents approximately 9.6% of assets and 21.2% of total stockholders' equity. During FY98, pursuant to shareholder approval, the Company exchanged $4,311,000 of its 10 1/2% Convertible Subordinated Debentures for an equal amount of new notes which bear the same interest rate and conversion terms, but do not contain restrictive covenants contained in the original issue. The new notes have a longer average maturity, with the final maturity date being in 2007. Pursuant to this exchange, the Company paid the remaining $456,000 of an Industrial Revenue Bond and $1,387,000 principal value of the 10 1/2% Debentures that were not tendered in the exchange. The exchange and redemption of the original notes resulted in the elimination of a restriction concerning the payment of dividends. Accordingly, in February 1998, approximately $1,222,000 of previously accrued but unpaid dividends on preferred stock were paid. The Company also received the consent of its shareholders to change the terms of its Series A Cumulative Convertible Preferred Stock ("Preferred Stock"), including elimination of the required redemption terms and an amendment of the dividend rate to a fixed annual amount of $1.50 per share, paid quarterly. Prior to the change, the Preferred Stock called for dividends based upon the earnings of JM Ney (including the former Dental and Ultrasonics Cleaning segments). Accordingly, such dividends could range from a minimum of $0.75 per share, to a maximum of $1.75 per share. For FY98, such dividends totaled $1.69 per preferred share. During FY98, JM Ney entered into a seven-year $7,500,000 subordinated note with a commercial bank that bears interest at 10.26% per annum. JM Ney used the proceeds to make distributions to the Company, pay down existing obligations and fund certain capital expenditures. The remaining funds and the increased availability under its line of credit will be used for the acquisition of another business, although no specific transaction has been identified. In connection with issuing this note, JM Ney also granted the lender warrants to acquire 34,000 and 6,000 shares of its common stock at $1.00 and $10.00 per share, respectively. Concurrent with this note agreement, JM Ney also amended the terms of its $6 million revolving credit agreement which expanded its precious metals financing options, reduced JM Ney's interest rates for certain borrowings under the line, and amended covenants to accommodate the new financing. During FY98, the prices of the precious metals that JM Ney utilizes in the alloying and manufacturing of its products experienced significant volatility. Primarily as a net result of an increase of approximately $100 per ounce of the palladium content of its inventory, and a $60 per ounce decline in the gold component of its inventory, JM Ney's LIFO reserve increased by $1,176,000 to maintain the net recorded value of these inventories at their historical values. As a result of covenants contained in its borrowing agreements, JM Ney is restricted from paying dividends or otherwise transferring funds to the Company outside the normal course of business, except as defined in certain agreements. At February 28, 1998, JM Ney's working capital and net worth, net of liabilities to the Company, totaled approximately $9.4 million and $6.8 million, respectively. The Company believes income generated from its investments, or funds generated from liquidation of existing investments and allowed payments from JM Ney will be sufficient to meet its anticipated working capital and debt service requirements for the foreseeable future. FORWARD LOOKING STATEMENTS - -------------------------- This report contains forward-looking statements, which are subject to a number of risks, and uncertainties that may cause actual results to differ materially from expectations. Those uncertainties include, but are not limited to the following: The Company has expanded its investment and business development activities in Russia and Eastern Europe. Economic and political developments in these countries could significantly impact both the return on and the return of capital employed in these regions. Anticipated contingent consideration from the sale of Ney Ultrasonics is dependent upon the successful marketing of technology developed while the Company owned Ney Ultrasonics. Changes in technology, or shortfalls in the success of the buyer's marketing of this technology, could affect the ultimate consideration to be received. The price and volatility of precious metals, particularly palladium and gold, could impact the market for many of JM Ney's products as users substitute less expensive materials. YEAR 2000 - --------- The Year 2000 compliance issues concern the inability of certain computerized information systems to properly recognize date-sensitive information as the Year 2000 approaches. Systems that do not recognize such information could generate erroneous data or cause systems to fail. The Company has upgraded its hardware and is in the process of installing a new version of its software, which among other benefits, will result in the Company being Year 2000 compliant. This conversion is expected to be completed prior to the end of FY99. The Company has also taken measures to ensure that other systems within its operations, as well as the interface with its customers, suppliers and other vendors, are conducted in a Year 2000 compliant environment. Approximately $128,000 of costs was incurred during FY98 for this project. The Company estimates that the costs anticipated to be incurred during the next fiscal year to complete this conversion process will not exceed $300,000. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statement schedules are filed as part of Part IV, Item 14, of this Annual Report on Form 10-K. The Registrant's Consolidated Financial Statements for the fiscal year ended February 28, 1998 are set forth below. The following table summarizes certain financial data with respect to the Company and is qualified in its entirety by the Company's Consolidated Financial Statements for the fiscal year ended February 28, 1998 contained in this Item (amounts in thousands, except per share data). Selected Quarterly Financial Data
1998 Quarterly Financial Data May 31 August 31 November 30 February 28 - --------------------------------------------------- ----------- ------------- --------------- --------------- Net sales and revenues $6,338 $9,346 $6,396 6,788 Gross profit 2,073 1,938 2,226 2,120 Income (loss) from continuing operations 217 2,088 (283) (252) Net income (loss) 267 2,111 (183) 17 Income (loss) applicable to common shares 141 2,040 (305) (104) - --------------------------------------------------- ------------ ------------- ---------------- --------------- Earnings (Loss) Per Diluted Common Share (1): Continuing operations .05 .78 (.21) (.19) Net income (loss) .07 .79 (.16) (.05) - --------------------------------------------------- ------------ ------------- --------------- ----------------
1997 Quarterly Financial Data May 31 August 31 November 30 February 28 - --------------------------------------------------- ----------- ------------- --------------- ----------------- Net sales and revenues $6,694 $4,775 $3,942 $5,090 Gross profit 2,200 1,657 1,774 1,753 Income (loss) from continuing operations 574 (376) (855) 991 Net income (loss) 619 (374) (941) 995 Income (loss) applicable to common shares 477 (474) (1,027) 1,046 - --------------------------------------------------- ------------ ------------- ---------------- ----------------- Earnings (Loss) Per Common Share: Continuing Operations .22 (.25) (.49) 0.43 Net income (loss) .25 (.25) (.53) 0.43 - --------------------------------------------------- ------------- -------------- ----------------- -----------------
(1) The sum of earnings per share for the four quarters may not equal earnings per share for the total year due to certain items in the diluted earnings per share calculation for an individual quarter that were anti-dilutive for the total year. ANDERSEN GROUP, INC. Consolidated Balance Sheets February 28, 1998 and 1997 (in thousands, except share data)
1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $2,516 $3,219 Marketable securities 9,001 5,345 Receivable from sale of subsidiary 3,521 - Accounts and other receivables, less allowance for doubtful accounts of $130 in 1998 and $190 in 1997 3,870 2,773 Inventories 8,076 9,040 Prepaid expenses and other assets 142 516 - ---------------------------------------------------------------------------------------------------------------------------- Total current assets 27,126 20,893 - -------------------------------------------------------------------------------------------------- ------------------------- Property, plant and equipment, net 9,443 9,336 Prepaid pension expense 4,665 4,274 Investments 1,815 2,181 Other assets 1,722 993 - ---------------------------------------------------------------------------------------------------------------------------- $44,771 $37,677 - ---------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities: Current maturities of long-term debt $ 595 $ 773 Short-term borrowings 2,183 2,305 Accounts payable 951 1,398 Accrued liabilities 3,352 3,670 Deferred income taxes 1,286 564 - ---------------------------------------------------------------------------------------------------------------------------- Total current liabilities 8,367 8,710 - ---------------------------------------------------------------------------------------------------------------------------- Long-term debt, less current maturities 4,459 7,041 Subordinated note payable, net of unamortized discount 7,300 - Other long-term obligations 1,888 1,121 Deferred income taxes 2,561 2,267 Commitments and contingencies (Notes 17 and 20) Redeemable cumulative convertible preferred stock, no par value; authorized 800,000 shares; issued 789,628 shares; outstanding shares 265,192 in 1997; unamortized discount of $81 in 1997; liquidation 4,891 preference $18.75 per share - - ---------------------------------------------------------------------------------------------------------------------------- Stockholders' equity: Cumulative convertible preferred stock, no par value; authorized 800,000 shares, outstanding 256,416 shares 4,769 - Common stock, no par value; authorized 6,000,000 shares, issued 1,958,478 shares in 1998 and 1997 2,103 2,103 Treasury stock, at cost, 21,800 shares in 1998 and 24,000 shares in 1997 (82) (90) Additional paid-in capital 3,248 3,248 Retained earnings 10,158 8,386 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 20,196 13,647 - ---------------------------------------------------------------------------------------------------------------------------- $44,771 $37,677 - ---------------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
ANDERSEN GROUP, INC. Consolidated Statements of Operations Years ended February 28, 1998, 1997 and February 29, 1996 (in thousands, except per share data)
1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------- Revenues: Net sales $25,397 $ 20,643 $18,624 Investment and other income (loss) 3,471 (142) 813 - ------------------------------------------------------------------------------------------------------------------------- 28,868 20,501 19,437 - -------------------------------------------------------------------------------------------------------------------------- Costs and expenses: Cost of sales 17,040 13,259 12,016 Selling, general and administrative 6,260 5,772 7,683 Research and development 1,444 1,228 1,374 Interest expense 1,163 790 1,237 - -------------------------------------------------------------------------------------------------------------------------- 25,907 21,049 22,310 - -------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 2,961 (548) (2,873) Income tax expense (benefit) 1,191 (882) (952) - -------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 1,770 334 (1,921) Income (loss) from discontinued Ultrasonics segment, net of income taxes (benefit) of $221, ($22) and ($214), respectively 345 (35) (349) Gain on sale of discontinued Ultrasonics segment, net of income taxes of $84 97 - - Income from discontinued Dental segment, net of income taxes of $170 - - 413 Gain on sale of discontinued Dental segment, net of income taxes of $2,041 - - 3,790 - -------------------------------------------------------------------------------------------------------------------------- Net income 2,212 299 1,933 Preferred dividend requirement (477) (411) (559) Reversal of preferred dividends 37 134 1,015 - -------------------------------------------------------------------------------------------------------------------------- Income applicable to common shareholders $ 1,772 $ 22 $ 2,389 - -------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per common share: BASIC Continuing operations $.69 $.03 $ (.76) Discontinued operations .18 (.02) .03 Gain on sales of discontinued segments .05 - 1.96 - -------------------------------------------------------------------------------------------------------------------------- Income per common share $.92 $.01 $ 1.23 - -------------------------------------------------------------------------------------------------------------------------- DILUTED Continuing operations $.68 $.03 $ (.76) Discontinued operations .18 (.02) .03 Gains on sales of discontinued segments .05 - 1.96 - -------------------------------------------------------------------------------------------------------------------------- Income per common share, diluted $.91 $.01 $1.23 - -------------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
ANDERSEN GROUP, INC. Consolidated Statements of Stockholders' Equity Years ended February 28, 1998, 1997 and February 29, 1996 (in thousands, except share data)
1998 1997 1996 - -------------------------------------------- ------------------ ------------------ ----------------- Preferred Stock Beginning balance - - - Reclassification due to removal of redemption provisions of preferred stock $4,769 - - - -------------------------------------------- ------------------ ------------------ ----------------- $4,769 - - - -------------------------------------------- ------------------ ------------------ ----------------- Common Stock, Outstanding Shares Beginning balance 1,958,478 1,958,205 1,958,205 Shares issued from prior conversion of preferred stock - 273 - - -------------------------------------------- ------------------ ------------------ ----------------- 1,958,478 1,958,478 1,958,205 - -------------------------------------------- ------------------ ------------------ ----------------- Common Stock Beginning balance $2,103 $2,103 $2,103 Shares issued from prior conversion of preferred stock - - - - -------------------------------------------- ------------------ ------------------ ----------------- $2,103 $2,103 $2,103 - -------------------------------------------- ------------------ ------------------ ----------------- Additional Paid-In Capital Beginning balance $3,248 $3,248 $1,924 Gain from redemption of preferred stock - - 1,324 - -------------------------------------------- ------------------ ------------------ ----------------- $3,248 $3,248 $3,248 - -------------------------------------------- ------------------ ------------------ ----------------- Retained Earnings Beginning balance $8,386 $8,364 $5,975 Net income 2,212 299 1,933 Preferred stock dividend and accretion (477) (411) (559) Reversal of preferred dividends and accretion 37 134 1,015 - -------------------------------------------- ------------------ ------------------ ----------------- $10,158 $8,386 $8,364 - -------------------------------------------- ------------------ ------------------ ----------------- Treasury Stock Beginning balance $(90) $(90) $(90) Shares issued, at identified cost 8 - - -------------------------------------------- ------------------ ------------------ ----------------- $(82) $(90) $(90) - -------------------------------------------- ------------------ ------------------ ----------------- - -------------------------------------------- ------------------ ------------------ ----------------- Total stockholders' equity $20,196 $13,647 $13,625 - -------------------------------------------- ------------------ ------------------ ----------------- See accompanying notes to consolidated financial statements.
ANDERSEN GROUP, INC. Consolidated Statements of Cash Flows Years ended February 28, 1998, 1997 and February 29, 1996 (in thousands)
1998 1997 1996 - ----------------------------------------------------------- ------------- ------------- -------------- Cash flows from operating activities: Net income $2,212 $ 299 $1,933 Adjustments to reconcile net income to net cash used in operating activities: Depreciation, amortization and accretion 1,480 1,419 1,887 Deferred income taxes 1,016 67 (479) Gain on sale of Dental segment - - (3,790) Gain on sale of Ney Ultrasonics (97) - - Losses (gains) from securities (2,619) 1,149 (46) Purchases of securities (2,218) (1,625) (3,576) Proceeds from sales of securities 1,230 526 1,893 Pension (income) expense (391) (247) 8 Loss on disposal of property, plant and equipment - 58 1 Investment in Digital GraphiX - (87) 543 Changes in operating assets and liabilities, net of changes from sale of Ney Ultrasonics in 1998 and sale of Dental segment in 1996: Accounts and notes receivable (2,048) 1,564 (1,205) Inventories (386) (428) (2,941) Prepaid expenses and other assets (97) (339) (806) Accounts payable 507 (1,799) 2,006 Accrued liabilities and other long-term obligations (1,257) (930) (2,022) - ----------------------------------------------------------- ------------- ------------- -------------- Net cash used in operating activities (2,516) (373) (6,594) - ----------------------------------------------------------- ------------- ------------- -------------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment - 4 256 Purchase of property, plant and equipment (1,740) (1,191) (1,503) Proceeds from sale of Dental segment, net of cash sold - - 16,848 Purchase of investments (1,225) - - Proceeds from collection of investments 1,542 - - - ----------------------------------------------------------- ------------- ------------- -------------- Net cash (used in) provided by investing activities (1,423) (1,187) 15,601 - ----------------------------------------------------------- ------------- ------------- -------------- Cash flows from financing activities: Principal payments on long-term debt (2,760) (1,250) (642) Proceeds from issuance of subordinated debt 7,500 - - Redemptions of preferred stock (160) (392) (3,758) Proceeds (payment) of short-term borrowing, net (122) 2,305 (3,200) Dividends paid (1,222) - - - ----------------------------------------------------------- ------------- ------------- -------------- Net cash provided by (used in) financing activities 3,236 663 (7,600) - ----------------------------------------------------------- ------------- ------------- -------------- Net (decrease) increase in cash and cash equivalents (703) (897) 1,407 Cash and cash equivalents, beginning of year 3,219 4,116 2,709 - ----------------------------------------------------------- ------------- ------------- -------------- Cash and cash equivalents, end of year $2,516 $3,219 $4,116 - ------------------------------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements Years ended February 28, 1998, 1997 and February 29, 1996 (1) Nature of Business Andersen Group, Inc. (the Company) is a diversified holding company, which invests in both marketable and illiquid securities of domestic and foreign-based companies. It also owns a consolidated subsidiary, which manufactures electronic connectors, components and precious metal materials for sale to the automotive, defense, semiconductor and medical and dental markets. (2) Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation The Company's financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Cash and Cash Equivalents Cash and cash equivalents include funds held in investments with an original maturity of three months or less. Marketable Securities The Company's marketable securities are carried as trading securities at market value in accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115). The Company has established a valuation allowance of $617,000 at February 28, 1998 to provide for volatility and liquidity concerns relating to its marketable investments in Russia and other eastern European countries. Any changes in the valuation of the portfolio are reflected in the accompanying Consolidated Statements of Operations. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for precious metals and at standard costs which approximate the first-in, first-out (FIFO) and average cost methods for the balance of the inventories. Property, Plant and Equipment Property, plant and equipment, including capital leases, are stated at cost and depreciated using the straight-line method over the estimated useful life of the respective assets, as follows: Buildings and improvements 10-50 years Machinery and equipment 5-10 years Furniture and fixtures 3-10 years Unamortized Discounts Unamortized discounts on redeemable convertible cumulative preferred stock and subordinated notes payable are accreted using the effective interest method. Income Taxes Income taxes are determined using the asset and liability approach. This method gives consideration to the future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities at currently enacted tax rates. Earnings per share In accordance with Statement of Financial Accounting Standards No. 128 - "Earnings Per Share" (SFAS 128), basic earnings per share is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed based upon the weighted average number of common shares plus the assumed issuance of common shares for all potentially diluted securities. See Note 13 for additional information and a reconciliation of the basic and diluted earnings per share computations. Inventory Hedging The Company has entered into precious metal forward contracts as a hedge against precious metal fluctuations for firm price deliveries. These contracts limit the Company's exposure to both favorable and unfavorable precious metals price fluctuations. Gains or losses on these contracts are recognized when the product deliveries being hedged have been made. The Company also utilizes precious metals leasing and deferred payment purchases of precious metals to manage the price exposure of certain components of its inventory. Financial Statement Presentation Certain reclassifications, and the restatement of the Consolidated Statements of Operations to reflect Ney Ultrasonics Inc. as a discontinued operation due to the sale of the net assets effective February 28, 1998, have been made to the FY97 and FY96 financial statements in order to conform with the FY98 presentation. (3) Marketable Securities Marketable securities consist of the following (in thousands):
February 28, 1998 February 28, 1997 ----------------- ----------------- Common stock of savings banks $5,611 $3,508 Common stock of Centennial Cellular 430 263 CA Emerging Russia Fund 2,422 - Portfolio of Ukraine stocks 314 - Common stock of Bank Handlowey 348 - Portfolio of Russian stocks - 500 Valuation reserve - foreign investments (617) - Municipal bonds 493 488 Escrowed investments - sale of Dental segment - 586 ------ ------ $9,001 $5,345 ------ ------
(4) Inventories Inventories consist of the following (in thousands):
February 28, 1998 February 28, 1997 ------------------------------------------------------------------------------- Raw material $2,989 $3,111 Work in process 6,509 3,877 Finished goods 657 2,955 ------------------------------------------------------------------------------- 10,155 9,943 LIFO Reserve 2,079 903 ------------------------------------------------------------------------------- $8,076 $9,040 -------------------------------------------------------------------------------
At February 28, 1998 and February 28, 1997, inventories valued at LIFO cost comprised 79% and 64% of total inventories, respectively. At February 28, 1998, inventories valued at LIFO consisted of 9,620 troy ounces of gold, 16,714 troy ounces of silver, 3,448 troy ounces of platinum and 16,713 troy ounces of palladium. Such quantities of precious metals are net of 5,000 ounces of silver, 558 ounces of platinum and 2,000 ounces of palladium, which represents physical quantities held but not owned by the Company's primary operating subsidiary, The J.M. Ney Company (JM Ney), subject to leasing arrangements with the precious metals division of JM Ney's primary bank. In addition, as a hedge for certain portions of its inventory, JM Ney at February 28, 1998 had short-term borrowings of 732 troy ounces of gold, 2,000 ounces of silver and 2,000 ounces of palladium. (5) Discontinued Operations Ney Ultrasonics Inc. Effective February 28, 1998, the Company sold the net assets of Ney Ultrasonics Inc. for approximately $3,521,000. As a result, the Company has recorded a gain of $97,000, net of expenses relating to the transaction and income taxes of $84,000. The Company expects to receive additional consideration, which is contingent on the growth of the sales of products and technology transferred as part of the sale. The assets and liabilities sold are presented below (in thousands): Accounts receivable, net $ 951 Inventories 1,350 Other current assets 63 Property and equipment 246 Other assets 153 ------ 2,763 Accounts payable and accrued liabilities 242 ------ Net assets sold $2,521 Ney Ultrasonics' results of operations have been presented as discontinued operations. Revenue from the segment totaled approximately $5,713,000, $3,874,000 and $4,611,000 in FY98, FY97 and FY96, respectively. Dental Segment On November 28, 1995, the Company sold the assets and certain liabilities of its Dental segment to Phoenix Shannon p.l.c. of Shannon, County Clare, Ireland and recorded a gain of $3,790,000, net of expenses, and income taxes of $2,041,000. The Company received $18.5 million in cash, part of which, under the terms of the sale, was used to purchase 200,000 Phoenix Shannon Ordinary Shares and a two-year, interest-bearing note for $1 million. Included in the gain on sale is an increase of $519,000 in prepaid pension expense from a curtailment gain which arose as a result of the transfer of the employees of the Dental segment to the new employer. During FY97, the $1 million note and the remaining value of the Phoenix Shannon ordinary shares were written off, resulting in charges to investment income totaling $2,175,000. The results of operations of the Dental segment have been presented as discontinued operations. Revenue from this segment totaled approximately $29.6 million during FY96. (6) Property, Plant and Equipment Property, plant and equipment consist of the following (in thousands):
February 28, 1998 February 28, 1997 - ------------------------------------------------------ ------------------------------ ------------------------------ Land and improvements $1,056 $ 1,054 Buildings and improvements 9,392 8,783 Machinery and equipment 10,539 10,188 Furniture and fixtures 867 921 - ------------------------------------------------------ ------------------------------ ------------------------------- 21,854 20,946 Less accumulated depreciation and amortization 12,411 11,610 - ------------------------------------------------------ ------------------------------ ------------------------------- $9,443 $ 9,336 - ------------------------------------------------------ ------------------------------ -------------------------------
Depreciation and amortization expense was $1,405,000, $1,393,000 and $1,797,000 in FY98, FY97 and FY96, respectively. At both February 28, 1998 and February 28, 1997, property, plant and equipment includes $1,146,000 of machinery and equipment acquired under capital leases, which expire through FY02, with related allowances for depreciation of $728,000 and $493,000, respectively. (7) Investments Investments consist of the following (in thousands):
February 28, 1998 February 28, 1997 - --------------------------------------------------------- --------------------------- ------------------------------ Investment in Institute for Automated Systems $ 835 $ 835 Investment in AVISMA 980 - Investment in Digital GraphiX, Incorporated - 1,346 - --------------------------------------------------------- --------------------------- ------------------------------- $ 1,815 $ 2,181 - --------------------------------------------------------- --------------------------- -------------------------------
Digital GraphiX Incorporated Prior to a May 1995 offering of its common stock, DGI was a wholly owned subsidiary of the Company. After the transaction, the Company's ownership was diluted to 19%, after which time the investment in DGI stock and debt was recorded using lower of cost or market accounting. During FY97, the Company reduced its investment in DGI through the formal discharge of DGI's obligation to repay $2.2 million of a note payable, and recorded a corresponding income tax benefit. During FY97, as part of a plan to position DGI for ultimate sale, the Company invested an additional $250,000 to purchase DGI common shares which increased the recorded value of its investment to $1,346,000. In FY98, the net assets of DGI were sold. Through payments of debts and preferred stock and liquidating distributions on its common stock, the Company was able to realize its carrying value and recognize a gain of $196,000. Institute for Automated Systems At both February 28, 1998 and February 28, 1997, the Company had an investment of $835,000 in a joint venture, which has an equity interest in the Institute for Automated Systems, a Russian telecommunications company that has plans to develop a data transmission network throughout Russia. Costs expended in FY98 to develop this investment were expensed in the Consolidated Statement of Operations. The Company's President and another Director are among a group of investors in this joint venture. AVISMA During FY98, the Company invested approximately $1,225,000 in the common stock of AVISMA, a Russian titanium producer. This investment is being recorded at its cost, net of a valuation allowance of $245,000. Excluded from the recorded balance are shares with a cost basis of approximately $775,000 purchased by three of the Company's directors and an investment fund controlled by one of these directors. Such shares are being held by the Company for administrative convenience pending the issuance of new shares to be issued in connection with a merger of AVISMA into VSMPO, a Russian titanium processing company. (8) Short-term Borrowings J.M. Ney has a $6.0 million demand revolving credit and deferred payment sales agreement with two commercial banks. At February 28, 1998, $696,000 was outstanding. The facility is secured by substantially all of JM Ney's assets. At JM Ney's discretion, interest is charged at the bank's prime rate, which was 8.5% and 8.25% at February 28, 1998 and February 28, 1997, respectively, or at LIBOR plus 1.75% if the borrowing is fixed for a period of time, or at 1.75% over the bank's precious metals leasing rate if the borrowing is represented by deferred payment purchases of precious metals. A fee of 0.25% is charged on the unused balance of the facility. This agreement includes restrictive covenants that limit the amount of dividends and distributions from JM Ney to the Company and which require JM Ney to maintain a specified amount of stockholders' equity. At February 28, 1998 the amount of net assets which JM Ney was restricted from distributing to the Company totaled approximately $10,808,000. In addition, at February 28, 1998, the Company had a $1,487,000 demand loan, which was secured by a portion of the Company's portfolio of marketable securities. Interest on this borrowing was charged at 7.75%. (9) Accrued Liabilities Accrued liabilities consist of the following (in thousands):
February 28, 1998 February 28, 1997 - --------------------------------------- ------------------------------------ ---------------------------------------- Employee compensation $ 449 $ 628 Accrued dividends 112 934 Income taxes 201 51 Accrued interest 314 265 Deferred hedging gains 346 42 Other 1,930 1,750 - --------------------------------------- ------------------------------------ ---------------------------------------- $3,352 $3,670 - --------------------------------------- ------------------------------------ ----------------------------------------
(10) Long-term Debt and Subordinated Notes Payable Long-term debt and subordinated notes payable consist of the following (in thousands):
February 28, 1998 February 28, 1997 - -------------------------------------------------------------------- ---------------------- --- ---------------------- Mortgage note payable, interest at 5.4%, paid February 1998 $ - $ 575 Convertible subordinated debentures, due October 2002; redeemed or exchanged in February 1998 - 6,287 Convertible subordinated debentures, due October 2007; interest at 10.5%, payable semi-annually; annual principal payments in varying amounts through maturity; unsecured 4,311 - Subordinated note payable of JM Ney due December 2004; unsecured; quarterly interest payments at 10.26% 7,500 - Other 743 952 - -------------------------------------------------------------------- ---------------------- ---------------------- 12,554 7,814 Less unamortized discount on subordinated note payable 200 - - -------------------------------------------------------------------- ---------------------- ---------------------- 12,354 7,814 Less current maturities 595 773 - -------------------------------------------------------------------- ---------------------- ---------------------- $11,759 $7,041 - -------------------------------------------------------------------- ---------------------- ----------------------
The terms of the 2007 convertible subordinated debentures call for the annual redemption of approximately $431,000 of principal. The debentures are convertible into common stock of the Company at any time prior to maturity, unless previously redeemed, at $16.17 per share, subject to adjustment under certain conditions. At February 28, 1998, 266,604 shares of common stock were reserved for conversion. In connection with the issuance of the subordinated note payable, JM Ney issued warrants to the lender to acquire 34,000 shares of its common stock at an exercise price of $1.00 per share, and 6,000 warrants with an exercise price of $10.00 per share. The lender has an option to put the warrant back to J.M. Ney at the earlier of December 2002 or the date of an initial public offering of J.M. Ney's Common Stock on terms as defined in the agreement. Maturities of long-term debt for each of the next five fiscal years and thereafter are as follows (in thousands): 1999 $ 595 2000 569 2001 542 2002 548 2003 443 Thereafter 9,857 ------- $12,554 (11) Income Taxes For FY98, FY97 and FY96, income tax expense (benefit) consists of the following (in thousands):
Fiscal Years 1998 1997 1996 - ------------ -------------------- --------------------- ------------------ Current Federal $ 350 $(410) $ 360 Current State 130 (561) 296 Deferred Federal 940 62 360 Deferred State 76 5 29 -------------------- --------------------- ------------------ $1,496 $(904) $1,045 -------------------- --------------------- ------------------
The difference between the actual income tax expense (benefit) and the income tax expense (benefit) computed by applying the statutory Federal income tax rate of 34% to income (loss) before taxes is attributable to the following (in thousands):
1998 1997 1996 -------------------- --------------------- ------------------ Income tax expense (benefit) $1,261 $(206) $1,012 State income taxes, net of Federal benefit 206 107 196 Change in enacted tax rates - (264) - Change in valuation allowance - - (483) Adjustment of accrual for prior years' taxes - 546 319 Other 29 5 1 - ------------------------------------------------------- -------------------- --------------------- ------------------ $1,496 $(904) $1,045 - ------------------------------------------------------- -------------------- --------------------- ------------------
During FY97, the Company settled a State income tax audit covering FY89 through FY96. This settlement is the primary reason for the $546,000 benefit adjustment of accrual for prior years' taxes reported in the above reconciliation. The principal components of the net deferred tax asset (liability) as of February 28, 1998 and February 28, 1997 are as follows (in thousands):
1998 1997 ----------------------- -------------------------- Deferred tax liabilities: Fixed asset basis differences $(1,229) $(1,288) Inventory (1,486) (1,443) Pension (1,726) (1,581) Unrealized gains on marketable securities, net (470) - Installment sale (30) (207) - ------------------------------------------------------------------ ----------------------- -------------------------- Total deferred tax liabilities (4,941) (4,519) - ------------------------------------------------------------------ ----------------------- -------------------------- Deferred tax assets: Post-retirement benefits other than pensions 395 415 Unrealized losses on marketable securities, net - 177 Allowance for uncollectible receivables 48 440 Federal credit carry-forwards 337 302 Other 314 354 - ------------------------------------------------------------------ ----------------------- -------------------------- Total deferred tax assets 1,094 1,688 - ------------------------------------------------------------------ ----------------------- -------------------------- Net deferred tax liabilities $(3,847) $(2,831) - ------------------------------------------------------------------ ----------------------- --------------------------
At February 28, 1998 and 1997 the Company recorded no valuation allowance. The Company believes that it is more likely than not that the sale of certain assets, investment securities and certain real property, will generate sufficient income to fully utilize its deferred tax assets. At February 28, 1998 the Company had $337,000 of Federal credit carry-forwards, $156,000 of which were attributable to the alternative minimum tax and have no expiration date. The remaining credits, totaling $181,000, expire from 1999 through 2002. (12) Series A Cumulative Convertible Preferred Stock During February 1998 the Company amended its Certificate of Incorporation to modify the terms of the Company's Series A Preferred Stock (Preferred Stock) to provide for a fixed dividend rate of $1.50 per preferred share and to eliminate the mandatory redemption feature of the Preferred Stock. During FY98, FY97 and FY96, the Company purchased 8,776, 24,283 and 299,561 shares, respectively, of its Preferred Stock at $18.25 per share in FY98, $16.15 per share in FY97, and at $12.25 per share in FY96. The FY98 and FY97 purchases were part of a repurchase program, while in FY96 purchases were made under terms of a voluntary tender offer. As a result of the purchases, the Company reversed accrued dividends and accreted discounts of $37,000, $134,000 and $1,015,000 in FY98, FY97 and FY96, respectively. In addition, in FY96, $1,324,000 of additional paid-in capital was recorded to reflect the discount of the total purchase cost, including expenses, from the original issue cost of the shares purchased. Quarterly dividend payments, ranging from $.1875 to $.4375 per share, were accrued based upon the operating income of JM Ney, as defined. Approximately $1.69, $1.24, and $.78 per preferred share of dividends were accrued during FY98, FY97, and FY96, respectively. The preferred shares increase in carrying value at a rate of approximately $.26 per share per year and, as such, approximately $40,000, $58,000, and $137,500 of accretion were recorded as part of the preferred dividend requirement for FY98, FY97 and FY96, respectively. The preferred shares are convertible into the Company's common stock at any time at a rate of 1.935 shares of common stock for each preferred share. At February 28, 1998, 496,165 shares of common stock have been reserved for conversion. (13) Earnings Per Share The computation of base and diluted earnings per share is as follows (in thousands, except per share amounts):
1998 1997 1996 - --------------------------------------------------------------- ------------------ ---------------- ----------------- Numerator for basic and diluted earnings per share Income applicable to common shareholders $1,772 $ 22 $2,389 - --------------------------------------------------------------- ------------------ ---------------- ----------------- Denominator for basic earnings per share - weighted average shares 1,935 1,934 1,934 Effect of dilutive securities - stock options 18 - - - --------------------------------------------------------------- ------------------ ---------------- ----------------- Denominator for diluted earnings per share 1,953 1,934 1,934 - --------------------------------------------------------------- ------------------ ---------------- ----------------- Basic earnings per share $.92 $.01 $1.23 Diluted earnings per share $.91 $.01 $1.23 - --------------------------------------------------------------- ------------------ ---------------- -----------------
For each of FY98, FY97 and FY96 the effects of the conversion of Preferred Stock or the 10 1/2% Debentures have been excluded because the impacts of such conversions would have been antidilutive. (14) Stock Option Plans The Company's incentive stock option plan provides for option grants to directors and key employees at prices equal to at least 100% of the stock's fair market value at date of grant. In addition, during FY97, a stock option plan was put into effect under which options to acquire shares of JM Ney were granted in both FY98 and FY97. The per share weighted average fair value of stock options granted in 1998 under the JM Ney Plan was $6.22. The per share weighted average fair value of stock options granted in 1997 under the Company and JM Ney plans were $2.08 and $4.95, respectively on the dates of grant using the Black Scholes option pricing model with the following weighted average assumptions: expected dividend yield of 0%; risk-free interest rate of 6.5%; expected life of seven years; and expected volatility of 33.3%. The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation". Accordingly, no compensation expense has been recognized for the stock option plans. Had compensation cost for the Company's stock option plans, including the JM Ney plan, been determined based on the fair value on the grant date for awards during FY98 and FY97 consistent with the provisions of SFAS No. 123, the Company's net earnings applicable to common shares, and earnings per share would have been reduced to the proforma amounts indicated below (amounts in thousands, except per share data):
1998 1997 ----------------------- -------------------- Net income (loss) applicable to common shareholders: As reported $1,772 $ 22 Pro forma $1,581 $ (68) Earnings (loss) per share - diluted: As reported $.91 $.01 Pro forma $.81 $(.03)
The assumption regarding the stock options issued during FY98 and FY97 was that such options vest over periods ranging from one to three years. Proforma net income reflects only options granted in FY98 and FY97. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the proforma amounts because the compensation cost for options granted prior to FY97 is not considered. The Company reserved 149,700 shares of common stock for the exercise of stock options. At February 28, 1998, the Company had 70,500 options available for issuance under the plan. JM Ney has reserved 150,000 shares of its common stock for the exercise of stock options, of which 3,700 were available for issuance at February 28, 1998. Activity under the Company's plans, including an expired plan, but excluding J.M. Ney's plan, was as follows:
Number Weighted Average Range of Outstanding Options of Shares Exercise Price Exercise Prices - ---------------------------------------- ------------------------- ------------------------ ------------------------- Balance at February 28, 1995 77,300 $8.40 $6.50 - $9.50 Canceled (37,600) $9.06 $7.00 - $9.00 - ---------------------------------------- ------------------------- ------------------------ ------------------------- Balance at February 29, 1996 39,700 $7.77 $6.50 - $9.38 Granted 75,000 $4.29 $3.81 - $6.13 Canceled (13,000) $7.50 $3.81 - $9.38 - ---------------------------------------- ------------------------- ------------------------ ------------------------- Balance at February 28, 1997 101,700 $5.02 $3.81 - $8.38 Exercised (2,200) $3.81 $3.81 Canceled (20,300) $5.43 $3.81 - $7.00 - ---------------------------------------- ------------------------- ------------------------ ------------------------- - ---------------------------------------- ------------------------- ------------------------ ------------------------- Balance at February 28, 1998 79,200 $4.95 $3.81 - $8.38 - ---------------------------------------- ------------------------- ------------------------ -------------------------
At February 28, 1998, the range of exercise prices and the weighted average remaining contractual life of the options was as follows:
- -------------------------------------------------------------------------------------------------------------------- Options Outstanding Options Exercisable - -------------------------------------------------------------------------------------------------------------------- Weighted Weighted Average Weighted Range of Average Remaining Average Exercise Number Exercise Contractual Number Exercise Prices Outstanding Price Life Exercisable Price - --------------------- ------------------ ------------------ --------------------- ----------------- ---------------- $8.38 - $7.75 8,000 $8.22 3.0 years 8,000 $8.22 $7.00 - $5.38 22,900 $6.22 5.8 years 22,900 $6.22 $3.81 48,300 $3.81 8.1 years 45,800 $3.81 - --------------------- ------------------ ------------------ --------------------- ----------------- ---------------- 79,200 $4.95 6.9 years 76,700 $4.99 - --------------------- ------------------ ------------------ --------------------- ----------------- ----------------
Also, during FY98 and FY97, options to purchase 16,800 and 130,000 shares of JM Ney, at exercise prices of $10.86 and $10.00 per share respectively, were issued. During FY98, options to acquire 500 shares of JM Ney at $10.00 per share were forfeited. At February 28, 1998, 38,841 of the 146,300 total outstanding JM Ney options were exercisable. At February 28, 1998, the Company owned all 850,000 outstanding shares of JM Ney. There presently is no public market for JM Ney's common stock. (15) Retirement Plans The Company maintains both noncontributory defined benefit and defined contribution plans, which collectively cover substantially all full-time employees. The defined contribution plans are funded annually through contributions in amounts that can be deducted for Federal income tax purposes. Benefits payable under all plans are based upon years of service and compensation levels. The plan assets, which are managed by third-party trustees, include equity securities, government and corporate debt securities and other fixed income obligations. The following table sets forth the actuarially determined funded status of the Company's defined benefit plan and amounts recognized in the Company's Consolidated Balance Sheets (in thousands):
February 28, 1998 February 28, 1997 - --------------------------------------------------------------- -------------------------- -------------------------- Actuarial present value of benefit obligations: Vested $ 9,145 $8,970 Non-vested 72 68 - --------------------------------------------------------------- -------------------------- -------------------------- Accumulated benefit obligation 9,217 9,038 Effect of projected compensation increases 995 983 - --------------------------------------------------------------- -------------------------- -------------------------- Projected benefit obligation 10,212 10,021 Plan assets at fair value 18,087 16,815 - --------------------------------------------------------------- -------------------------- -------------------------- Plan assets in excess of projected benefit obligation 7,875 6,794 Unrecognized prior service cost (131) (141) Unrecognized net gain on plan assets (3,079) (2,379) - --------------------------------------------------------------- -------------------------- -------------------------- Prepaid pension expense $ 4,665 $4,274 - --------------------------------------------------------------- -------------------------- --------------------------
For FY98, FY97 and FY96, the projected benefit obligations and pension income were determined using the following assumptions:
Fiscal Years 1998 1997 1996 - ------------ -------------------- ------------------- -------------------- Discount rate 7.5% 7.5% 7.5% Future compensation growth rate 5.5% 5.5% 5.5% Long-term rate of return on plan assets 9.0% 8.0% 8.0%
Net pension expense (income) for the Company's funded defined benefit plan for FY98, FY97 and FY96 includes the following components:
Fiscal Years 1998 1997 1996 - ------------ ------------------- ------------------- -------------------- Service cost of benefits accrued $ 234 $ 253 $ 341 Interest cost on projected benefit obligations 736 723 806 Return on plan assets (2,294) (2,190) (2,130) Unrecognized net gain 933 967 991 - ------------------------------------------------------- ------------------- ------------------- -------------------- Pension (income) expense $ (391) $ (247) $ 8 - ------------------------------------------------------- ------------------- ------------------- --------------------
In addition, as discussed in Note 4, during 1996 prepaid pension expense increased by $519,000 as a result of the curtailment gain recorded in connection with the sale of the net assets of the Dental segment. The Company also has a supplemental defined benefit plan, which covers a former senior executive of JM Ney. There are no assets held by the plan. At February 28, 1998 and February 28, 1997, the actuarially determined status of the plan and the amount recognized in the balance sheet was a vested accumulated and projected benefit obligation of approximately $284,000 and $314,400, respectively. For FY98, FY97, and FY96, a discount rate of 7.5% was used for determining the projected benefit obligation. Pension expense for all defined contribution plans totaled $122,000, $121,000, and $143,000 in FY98, FY97 and FY96, respectively. (16) Post-retirement Benefit Obligations During FY93, the Company amended its retiree health care plan to include only those retirees currently in the plan and discontinued the benefit for current employees. The Company's cost of its unfunded retiree health care plan for FY98, FY97 and FY96 was approximately $56,000, $53,000, and $55,000, respectively, including interest. At February 28, 1998 and February 28, 1997, the accumulated benefit obligation for post-retirement benefits was approximately $803,000 and $823,000, respectively. At February 28, 1998, 32 retirees were receiving benefits under this plan. The accumulated benefit obligation was determined using the unit credit method and assumed discount rates of 7.25% at both February 28, 1998 and February 28, 1997, respectively. At February 28, 1998 and February 28, 1997, the accumulated benefit obligation was compiled using assumed health care cost trend rates of 9% and 10%, respectively gradually declining to 5% in the year 2001 and thereafter over the projected payout period of the benefits. The estimated effect on the present value of the accumulated benefit obligation at March 1, 1998 of a 1% increase each year in the health care cost trend rate used would result in an estimated increase of approximately $61,000 in the obligation. (17) Leases During FY97, the Company incurred capital lease obligations totaling $579,000 in connection with lease agreements to acquire equipment. This non-cash financing activity has been excluded from the FY97 Consolidated Statement of Cash Flows. The Company leases various manufacturing and office facilities and equipment under operating lease agreements expiring through December 2004. In addition, the Company earns rental income from office space leased to tenants under operating leases expiring through November 2000. Lease expense was $264,000, $209,000, and $240,000 for FY98, FY97, and FY96, respectively, while rental income totaled $376,000, $342,000, and $281,000 for FY98, FY97, and FY96, respectively. Future minimum lease payments and rental income under the terms of the leases for each of the years ending February 28, are as follows (in thousands): Lease Payments Rental Income 1999 $284 $412 2000 179 215 2001 125 102 2002 117 - 2003 88 - Thereafter 106 - ----------------------------------------------------------------------- (18) Business Segments and Export Sales During FY98, the Company operated in two continuing segments, Electronics, which comprises the operations of JM Ney, and Corporate, which includes the Company's investment, real estate and corporate administrative activities. Operating income consists of net sales, less cost of sales and selling, general and administrative expenses directly allocated to the industry segments. Corporate revenues consist of investment and other income not attributable to a specific segment. Corporate identifiable assets include marketable securities and short-term investments, and assets not directly attributable to JM Ney, or a specific segment. Summarized financial information for business segment is as follows (in thousands):
FY98 FY97 FY96 ---- ---- ---- Net sales and revenues: Electronics $25,397 $20,643 $16,544 Video Products ---- ---- 2,080 Corporate 3,471 (142) 813 ------------- ------------ ------------ $28,868 $20,501 $19,437 ------------- ------------ ------------ Operating income (loss): Electronics $2,860 $2,589 $ 1,612 Video Products ---- ---- (177) Corporate 1,264 (2,356) (3,071) ------------- ------------ ------------ $4,124 $ 242 $(1,636) ------------- ------------ ------------ Interest expense: Electronics $ 468 $ 13 379 Corporate 695 777 858 ------------- ------------ ------------ $1,163 $ 790 $ 1,237 ------------- ------------ ------------ Identifiable assets: Electronics $25,337 $22,467 $20,886 Ultrasonics ---- 1,798 1,911 Corporate 19,434 13,412 16,001 ------------- ----------- ------------ $44,771 $37,677 $38,798 ------------- ----------- ------------ Depreciation and amortization: Electronics $1,126 $ 1,142 $1,363 Ultrasonics 139 95 76 Corporate 215 240 230 ------------- ------------ ------------ $1,480 $1,477 $1,669 ------------- ------------ ------------ Capital expenditures: Electronics $1,597 $1,512 $1,239 Ultrasonics 109 234 66 Corporate 34 24 123 ------------- ------------ ------------ $1,740 $1,770 $1,428 ------------------------------------------------------------- ------------- ------------ ------------
Export sales for FY98, FY97 and FY96 were $4,370,000, $3,417,000, and $2,560,000, respectively. Such sales were made primarily to customers in Europe and the Pacific Rim. During FY98 sales to two customers accounted for 14.9% and 12.6% of net sales. Sales to a third customer during FY97 accounted for 10.3% of net sales during that year. No single customer accounted for more than 10% of sales during FY96. (19) Estimated Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities are reasonable estimates of their fair value based upon their current maturities. The carrying value of marketable securities approximates fair value as determined by quoted market prices. At February 28, 1998, JM Ney owned futures contracts to purchase 5,500 ounces of palladium through June 1998 at an average price of $217.87, which had a fair market value of $61,000. The value of these contracts has not been recorded at February 28, 1998, as these contracts have been purchased to hedge firm price orders. In addition, gains totaling $346,000 from expired or sold futures contracts have been deferred from income recognition until the underlying orders have been shipped. The carrying value of short-term borrowing equals fair value as it reflects the market value of the corresponding precious metals in which the liability is denominated, or is at current market rates. The carrying values of long-term debt issued by banks and capital lease obligations approximate fair value based on interest rate and repayment terms, and the extent to which the individual debts are secured. The fair value of the Company's 10.5% convertible debentures approximates carrying value based upon market interest rates, its subordinated status, and the market value of the Company's common stock in relation to the conversion feature of the debt. (20) Litigation The Company is involved in various legal proceedings generally incidental to its business. While the results of any litigation or regulatory issues contain an element of uncertainty, management believes that the outcome of any known, pending or threatened legal proceeding, or all of them combined, will not have a material adverse effect on the Company's financial position or results of operations. (21) New Accounting Standards Reporting Comprehensive Income Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130") was issued in June 1997 and is effective for financial statements beginning after December 15, 1997. The statement establishes new standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. The impact of SFAS 130 on future financial statement presentations will be to show comprehensive income. Segment Reporting Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131") was issued in June 1997 and is effective for financial statements beginning after December 15, 1997. This Statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Management has not yet determined the impact of SFAS 131 on future financial statement presentations. (22) Supplemental Disclosure of Cash Flow Information The information below supplements the cash flow data presented in the Company's Consolidated Statements of Cash Flows (in thousands): 1998 1997 1996 ---- ---- ---- Cash paid for Interest $1,129 $863 $1,203 Income taxes, net $ 360 $ 85 $1,410 During FY98, the company exchanged $4,311,000 of its convertible subordinated debentures due October 2002 for an equal amount of convertible subordinated debentures due 2007. In addition to the extended average maturity of the notes, the new notes do not contain the restrictive covenants that were present in the original issue. Interest and conversion terms of the old notes remain the same in the new notes. As discussed in Note 5, effective February 28, 1998, the Company sold the net assets of Ney Ultrasonics Inc. No consideration had been paid as of February 28, 1998, and accordingly the effects of this transaction have not been included in the Consolidated Statements of Cash Flow. During March 1998, $2,400,000 of the consideration was received and an additional $500,000 was placed in escrow. The remaining portion of the purchase price is expected to be received during the second quarter of FY99. Independent Auditors' Report Deloitte and Touche LLP Letterhead The Stockholders and Board of Directors Andersen Group, Inc.: We have audited the accompanying consolidated balance sheet of Andersen Group, Inc. and subsidiaries as of February 28, 1998 and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. 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. 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. In our opinion, such consolidated financial statements referred to above present fairly, in all material respects, the financial position of Andersen Group, Inc. and subsidiaries at February 28, 1998, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Hartford, Connecticut April 16, 1998 Independent Auditors' Report KPMG Peat Marwick LLP Letterhead The Board of Directors and Stockholders Andersen Group, Inc.: We have audited the accompanying consolidated balance sheet of Andersen Group, Inc. and subsidiaries as of February 28, 1997 and the related consolidated statements of operations, common and other stockholders' equity, and cash flows for the years ended February 28, 1997 and February 29, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements 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 referred to above present fairly, in all material respects, the financial position of Andersen Group, Inc. and subsidiaries at February 28, 1997, and the results of their operations and their cash flows for the years ended in conformity with generally accepted accounting principles. /s/KPMG Peat Marwick LLP Hartford, Connecticut April 8, 1997 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The information required by this Item is not applicable because it has been previously reported in the Registrant's definitive Proxy Statement, dated May 19, 1998. PART III Certain information required by Part III is omitted from this Report in that the Registrant has filed a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Report and certain information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item is incorporated by reference to the Registrant's definitive Proxy Statement, dated May, 19, 1998, and is incorporated by reference to the Section in Part I hereof entitled, Executive Officers of the Registrant. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated by reference to the Registrant's definitive Proxy Statement, dated May 19, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item is incorporated by reference to the Registrant's definitive Proxy Statement, dated May 19, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item is incorporated by reference to the Registrant's definitive Proxy Statement, dated May 19, 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)1. Consolidated Financial Statements applicable to the Registrant contained in Item 8: Pages Consolidated Balance Sheets as of February 28, 1998 and 1997 20 Consolidated Statements of Operations for the years ended February 28, 1998, 1997 and February 29, 1996 21 Consolidated Statements of Stockholders' Equity for the years ended February 28, 1998, 1997 and February 29, 1996 22 Consolidated Statements of Cash Flows for the years ended February 28, 1998, 1997 and February 29, 1996 23 Notes to Consolidated Financial Statements 24-40 Independent Auditors' Reports 41-42 (a)2. Consolidated Financial Statement Schedules: Schedule I Condensed Financial Information F-1 to F-5 II Valuation and Qualifying Accounts F-6 Note: Schedules other than those listed above, are omitted as not applicable, not required, or the information is included in the Consolidated Financial Statements or notes thereto. (a)3. Exhibits required by Item 601 of Regulation S-K: Exhibit No. Description - ------- ----------- 3.1 Second Amended and Restated Certificate of Incorporation of the Registrant.* 3.2 Amended and Restated By-Laws of the Registrant as of April 18, 1997, incorporated herein by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended February 28, 1997 (Commission File No. 0-1460). 4.1 Indenture, dated as of February 26, 1998, between the Registrant and The Chase Manhattan Bank, as Trustee, in respect of $4,311,000, aggregate principal amount, 10 1/2% Convertible Subordinated Debentures Due 2007.* 10.1 Andersen Group, Inc. Incentive Stock Option Plan incorporated herein by reference to Appendix A to the Registrant's Post-Effective Amendment No.1 to Form S-8 (File No. 333-17659) filed February 27, 1997. 10.2 Andersen Group, Inc. Incentive and Non-Qualified Stock Option Plan incorporated herein by reference to Appendix B to the Registrant's Post-Effective Amendment No. 1 to Form S-8 (File No. 333-17659) filed February 27, 1997. 10.3 Deferred Compensation Agreement, entered into as of September 30, 1992, by and between the Registrant and Francis E. Baker, incorporated herein by reference to Exhibit 10.26 of the Registrant's Annual Report on Form 10-K for the year ended February 28, 1995 (Commission File No. 0-1460). 10.4 Letter Agreement, dated March 7, 1993, between the Registrant and Ronald N. Cerny, incorporated herein by reference to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for the year ended February 28, 1995 (Commission File No. 0-1460). 10.5 Letter Agreements, dated February 23, 1995 and March 20, 1995, between the Registrant and Ronald N. Cerny. 10.6 Asset Purchase Agreement among Phoenix Shannon p.l.c., Andersen Group, Inc., The J.M. Ney Company and Ney Dental International, Inc. dated as of August 10, 1995, incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ending August 31, 1995 (Commission file No. 0-1460). 10.7 Amendment No. 1 to Asset Purchase Agreement by and among Phoenix Shannon p.l.c., The J.M. Ney Company, Andersen Group, Inc. and Ney Dental International, Inc. made as of October 30, 1995, incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K dated December 13, 1995 (Commission file No. 0-1460). 10.8 Amendment No. 2 to Asset Purchase Agreement by and among Phoenix Shannon p.l.c., The J. M. Ney Company, Andersen Group, Inc., and Ney Metals, Inc. (f/k/a Ney Dental International, Inc.) made as of October 30, 1995, incorporated herein by reference to Exhibit 10.2 to the Registrant's current report on Form 8-K dated December 13, 1995 (Commission file No.0-1460). 10.9 Revolving Credit and Deferred Payment Sales Agreement by and among The J.M. Ney Company, Bank of Boston Connecticut and Rhode Island Hospital Trust National Bank made as of the 8th day of October 1996, incorporated herein by reference to exhibit 10.13 of the Registrant's Annual Report on Form 10-K for the year ended February 28, 1997. 10.10 Securities Purchase Agreement dated as of December 29, 1997 by and between The J.M. Ney Company and BankBoston, N.A.* 10.11 Asset Purchase Agreement made effective as of February 28, 1998 among CAE U.S., Inc., Ney Ultrasonics Inc. and Andersen Group, Inc.* 10.12 Amendment Agreement dated as of December 29, 1997 by and among The J.M. Ney Company ("Borrower"), BankBoston, N.A. (Successor by merger to Bank of Boston Connecticut)("BankBoston") and Rhode Island Hospital Trust National Bank ("RIHT" and, collectively, with BankBoston, the "Banks") with respect to a Certain Revolving Credit and Deferred Payment Sales Agreement dated as of October 8, 1996 by and among the Borrower and the Banks.* 21. Subsidiaries of the Registrant.* 23. Consent of Deloitte & Touche LLP.* 27.1 Financial Data Schedule.* 27.2 Restated Financial Data Schedule.* 27.3 Restated Financial Data Schedule.* (b) Reports on Form 8-K. A Form 8-K was filed on December 29, 1998 reporting, under Item 4 "Changes in Registrant's Certifying Accountant", a change in the Company's independent certified public accountants. An amendment to Form 8-K was filed on January 9, 1998 filing a copy of the letter received from KPMG Peat Marwick. *Filed herein SIGNATURES 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. ANDERSEN GROUP, INC. ANDERSEN GROUP, INC. Registrant Registrant /s/ Oliver R. Grace, Jr. /s/ Andrew M. O'Shea - ------------------------- --------------------- Oliver R. Grace, Jr., Principal Andrew M. O'Shea, Principal Executive Officer Financial and Accounting Officer May 28, 1998 May 29, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. NAME TITLE DATE /s/ Francis E. Baker Chairman, Secretary May 26, 1998 - -------------------- and Francis E. Baker Director /s/ Oliver R. Grace, Jr. President, Chief May 28, 1998 - ------------------------ Executive Officer Oliver R. Grace, Jr. and Director /s/ Peter N. Bennett Director May 24, 1998 - -------------------- Peter N. Bennett /s/ John S. Grace Director May 27, 1998 - ----------------- John S. Grace /s/ Louis A. Lubrano Director May 29, 1998 - -------------------- Louis A. Lubrano /s/ James J. Pinto Director May 27, 1998 - ------------------ James J. Pinto Deloitte and Touche LLP Letterhead INDEPENDENT AUDITORS' REPORT The Stockholders and Board of Directors Andersen Group, Inc.: We have audited the consolidated financial statements of Andersen Group, Inc. and subsidiaries as of February 28, 1998 and for the year then ended, and have issued our report thereon dated April 16, 1998; such report is included elsewhere in this Form 10-K. Our audit also included the financial statement schedules of Andersen Group, Inc. and subsidiaries, listed in Item 14 as of and for the year ended February 28, 1998. These 1998 financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such 1998 financial statement schedules, when considered in relation to the basic 1998 consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ Deloitte and Touche LLP Hartford, Connecticut April 16, 1998 KPMG Peat Marwick LLP Letterhead The Board of Directors and Stockholders Andersen Group, Inc. Under date of April 8, 1997, we reported on the consolidated balance sheet of Andersen Group, Inc. and subsidiaries as of February 28, 1997 and the related consolidated statements of operations, common and other stockholders' equity, and cash flows for the years ended February 28, 1997 and February 29, 1996, as contained in the 1998 annual report to stockholders. These consolidated financial statements and our report thereon are included in the Annual Report on Form 10-K for 1998. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedules as listed in the accompanying index as of February 28, 1997 and for the years ended February 28, 1997 and February 29, 1996. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such 1997 and 1996 financial statement schedules, when considered in relation to the basic 1997 and 1996 consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/KPMG Peat Marwick LLP ------------------------ Hartford, Connecticut April 8, 1997 F-1 ANDERSEN GROUP, INC. Schedule I - Condensed Financial Information of the Registrant Condensed Balance Sheets February 28, 1998 and 1997 (amounts in thousands)
1998 1997 - ------------------------------------------------------------------------- ---------------------------- -------------------------- Assets Current assets: Cash and cash equivalents $ 1,441 $ 2,304 Marketable securities 9,001 5,345 Receivable from sale of subsidiary 3,521 - Accounts and other receivables, less allowance for doubtful accounts 125 53 Prepaid expenses and other assets 5 390 - ------------------------------------------------------------------------- ---------------------------- -------------------------- Total current assets 14,093 8,092 - ------------------------------------------------------------------------- ---------------------------- -------------------------- Investment in The J. M. Ney Company 6,604 15,107 Subordinated note receivable from The J.M. Ney Company 4,000 - Investment in Digital GraphiX, Incorporated - 1,346 Property, plant and equipment, net 2,629 2,748 Other assets 2,711 1,225 - ------------------------------------------------------------------------- ---------------------------- -------------------------- $30,037 $28,518 - ------------------------------------------------------------------------- ---------------------------- -------------------------- Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings $ 1,487 $ - Current maturities of long-term debt 441 586 Accounts payable 297 101 Due to The J. M. Ney Company 656 316 Accrued liabilities 1,728 1,765 Deferred income taxes 161 564 - ------------------------------------------------------------------------- ---------------------------- -------------------------- Total current liabilities 4,770 3,332 - ------------------------------------------------------------------------- ---------------------------- -------------------------- Long-term debt, less current maturities 4,124 6,540 Other long-term liabilities 596 - Deferred income taxes 351 108 Commitments and contingencies (Note 7) Redeemable cumulative convertible preferred stock, no par value; authorized 800,000 shares; issued 789,628 shares; outstanding 265,192 shares; liquidation preference $18.75 per share - 4,891 - ------------------------------------------------------------------------- ---------------------------- -------------------------- Stockholders' equity: Cumulative convertible preferred stock, no par value; authorized 800,000 shares; issued 789,628 shares; outstanding 256,416 shares; liquidation preference $18.75 per share 4,769 - Common stock, no par value; authorized 6,000,000 shares, issued 1,958,478 shares 2,103 2,103 Additional paid-in capital 3,248 3,248 Retained earnings 10,158 8,386 - ------------------------------------------------------------------------- ---------------------------- -------------------------- 20,278 13,737 Treasury stock, at cost, 21,800 shares in 1998 and 24,000 in 1997 (82) (90) - ------------------------------------------------------------------------- ---------------------------- -------------------------- Total stockholders' equity 20,196 13,647 - ------------------------------------------------------------------------- ---------------------------- -------------------------- $30,037 $28,518 - ------------------------------------------------------------------------- ---------------------------- -------------------------- See accompanying notes to condensed financial information.
F-2 ANDERSEN GROUP, INC. Schedule I Condensed Financial Information Of the Registrant Condensed Statements of Operations Years ended February 28, 1998 and 1997 (amounts in thousands, except per share data)
1998 1997 - ------------------------------------------------------- ----------------------------------- ------------------------------------ Revenues: Investment and other income $3,691 $ 267 - ------------------------------------------------------- ----------------------------------- ------------------------------------ Costs and expenses: General and administrative 2,223 2,280 Interest expense 694 777 - ------------------------------------------------------- ----------------------------------- ------------------------------------ 2,917 3,057 - ------------------------------------------------------- ----------------------------------- ------------------------------------ Income (loss) from continuing operations before income taxes and equity in earnings of The J.M. Ney Company 774 (2,790) Income tax expense (benefit) 361 (1,778) - ------------------------------------------------------- ----------------------------------- ------------------------------------ Income (loss) from continuing operations before equity in earnings of The J.M. Ney Company 413 (1,012) Equity in earnings of The J.M. Ney Company 1,357 1,346 - ------------------------------------------------------- ----------------------------------- ------------------------------------ Income from continuing operations 1,770 334 Income from discontinued operations net of income taxes 345 (35) Gain on sale of discontinued segment net of income taxes 97 - - ------------------------------------------------------- ----------------------------------- ------------------------------------ Net income 2,212 299 Preferred dividend requirement (477) (411) Reversal of preferred dividend 37 134 - ------------------------------------------------------- ----------------------------------- ------------------------------------ Income applicable to common shares $1,772 $ 22 - ------------------------------------------------------- ----------------------------------- ------------------------------------ Earnings (loss) per common share: BASIC Continuing operations $ 0.69 $ 0.03 Discontinued operations 0.18 (0.02) Gain on sale of discontinued segment 0.05 0.00 - ------------------------------------------------------- ----------------------------------- ------------------------------------ Net income $ 0.92 $ 0.01 - ------------------------------------------------------- ----------------------------------- ------------------------------------ DILUTED Continuing operations $ 0.68 $ 0.03 Discontinued operation 0.18 (0.02) Gain on sale of discontinued segment 0.05 0.00 - ------------------------------------------------------- ----------------------------------- ------------------------------------ Net income $ 0.91 $ 0.01 - ------------------------------------------------------- ----------------------------------- ------------------------------------ See accompanying notes to condensed financial information.
F-3 ANDERSEN GROUP, INC. Schedule I - Condensed Financial Information of the Registrant Condensed Statements of Cash Flows Years ended February 28, 1998 and 1997 (amounts in thousands)
1998 1997 - ----------------------------------------------------------- ------------------------------- -------------------------------- Cash flows from operating activities: Net income $2,212 $ 299 Adjustments to reconcile net income to net cash used in operating activities: Equity in earnings of The J. M. Ney Company (1,357) (1,346) Equity in earnings of Ney Ultrasonics (345) 35 Depreciation, amortization and accretion 216 167 Deferred income taxes 880 105 Gain on sale of Ney Ultrasonics (97) - Net (gains) losses from securities (2,619) 1,149 Purchases of securities (2,218) (1,625) Proceeds from sales of securities 1,230 526 Investment in Digital GraphiX - (87) Changes in operating assets and liabilities Accounts and notes receivable (72) 652 Prepaid expenses and other assets 372 (184) Accounts payable, accrued liabilities and other long-term obligations (409) (654) - ----------------------------------------------------------- ------------------------------- -------------------------------- Net cash used in operating activities (2,207) (963) - ----------------------------------------------------------- ------------------------------- -------------------------------- Cash flows from investing activities: Purchase of property, plant and equipment (34) (7) Proceeds from collection of investments 1,542 - Investment in other assets (1,225) - - ----------------------------------------------------------- ------------------------------- -------------------------------- Net cash provided by (used in) investing activities 283 (7) - ----------------------------------------------------------- ------------------------------- -------------------------------- Cash flows from financing activities: Principal payments on long-term debt (2,561) (1,178) Proceeds from short-term debt 1,486 - Redemption of preferred stock (160) (392) Dividends paid (1,222) - Dividends received from The J. M. Ney Company 3,518 1,150 - ----------------------------------------------------------- ------------------------------- -------------------------------- Net cash provided by (used in) financing activities 1,061 (420) - ----------------------------------------------------------- ------------------------------- -------------------------------- Net decrease in cash and cash equivalents (863) (1,390) Cash and cash equivalents, beginning of year 2,304 3,964 - ----------------------------------------------------------- ------------------------------- -------------------------------- Cash and cash equivalents, end of year $1,441 $2,304 - ----------------------------------------------------------- ------------------------------- -------------------------------- Supplemental disclosure of cash flow information Cash paid for: Interest $ 766 $ 803 Income taxes, net $ 360 $ 85 - ----------------------------------------------------------- ------------------------------- -------------------------------- See accompanying notes to condensed financial information.
F-4 ANDERSEN GROUP, INC Schedule I - Condensed Financial Information of the Registrant Notes to Condensed Financial Information February 28, 1998 and 1997 NOTE 1 - GENERAL The Condensed Financial Information presented herein is required because the Registrant's wholly owned subsidiary, The J. M. Ney Company (JM Ney), entered into a Revolving Credit and Deferred Payment Sales Agreement with two banks in October 1996 and was subsequently amended December 30, 1997, which contained covenants that limit the transfer of cash and other resources from JM Ney to the Registrant. The Condensed Financial Information of the registrant should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements which are included in Item 8 herein. The Condensed Financial Information of the Registrant include the accounts of several wholly owned subsidiaries which are immaterial to the Registrant's Condensed Financial Information. NOTE 2 - TRANSACTIONS WITH AFFILIATES The Registrant and its wholly owned subsidiaries share certain administrative services. The costs of these services are allocated to the entity, which receives the service. The following are among the types of services which have been provided to the Registrant by JM Ney: maintenance, accounting, human resources, management information systems and the rental of office space in JM Ney's facility. Services provided by the Registrant to JM Ney include the following: legal, tax, and business advisory services. In addition, during FY97 JM Ney paid the Registrant interest for the cost of capital used by JM Ney. Also during the last two months of FY98, JM Ney paid the Registrant interest on a junior subordinated note, and a management fee, which will extend into 1999. In connection with JM Ney entering into the Revolving Credit and Deferred Payment Sales Agreement referred to above, the Registrant and JM Ney entered into a Tax Sharing Agreement, effective as of March 1, 1996, which requires JM Ney to pay the Registrant an amount which may be equal to the maximum allowable amount of any Federal and State income taxes for which JM Ney or any of its subsidiaries would have been liable for in the particular year. During FY98, the Registrant and JM Ney refined their accounting for deferred income taxes, which resulted in a transfer of $1,041,000 of deferred tax obligations from the Registrant to JM Ney. The Registrant files a consolidated Federal income tax return with its subsidiaries. During FY98, JM Ney made a $4 million distribution to the Registrant in the form of an 8% junior subordinated note due January 31, 2005. Effective December, 1997, the Registrant and JM Ney also entered into a Financial, Investment Banking and Professional Services Agreement under which, subject to JM Ney's compliance with certain covenants, JM Ney will pay the Registrant fees for defined services. The retainer for the first 15 months of this agreement will be at the annual rate of $500,000. Thereafter, the retainer will increase by $100,000 per year. The agreement runs through November 30, 2002. NOTE 3 - SHORT TERM BORROWINGS At February 28, 1998, the Registrant had a $1,487,000 demand loan, which was secured by a portion of the Company's portfolio of marketable securities. Interest on this borrowing was charged at 7.75%. NOTE 4 - LONG TERM DEBT Long-term debt consists of the following (in thousands):
February 28, 1998 February 28, 1997 ----------------------------- ----------------------------- Mortgage note payable; Interest at 5.4%, paid February 1998 - $ 575 Convertible subordinated debentures, due October 2002; redeemed or exchanged in February 1998 - 6,287 Convertible subordinated debentures, due October 2007; interest at 10.5%, payable semi-annually; annual principal payments in varying amounts through $4,311 - maturity, unsecured Other 254 264 ----------------------------- ----------------------------- 4,565 7,126 Less current maturities 441 586 ----------------------------- ----------------------------- $4,124 $6,540 ----------------------------- -----------------------------
F-5 The terms of the 2007 convertible subordinated debentures call for the annual redemption of approximately $431,000 of principal. The debentures are convertible into common stock of the Company at any time prior to maturity, unless previously redeemed, at $16.17 per share, subject to adjustment under certain conditions. At February 28, 1998, 266,604 shares of common stock were reserved for conversion. Maturities of long-term debt for each of the next five fiscal years are as follows (in thousands): 1999 $ 441 2000 441 2001 442 2002 443 2003 443 Thereafter 2,355 --------- $ 4,565 --------- NOTE 5 - CUMULATIVE CONVERTIBLE PREFERRED STOCK See Note 12 to the Registrant's Consolidated Financial Statements for the fiscal year ended February 28, 1998 contained in Item 8 herein. NOTE 6 - CASH DIVIDENDS The amount of cash dividends paid to the Registrant by Consolidated Subsidiaries during fiscal years 1998 and 1997 was approximately $3,518,000 and $1,150,000, respectively. NOTE 7 - Litigation The Registrant is involved in various legal proceedings generally incidental to its business. While the results of any litigation or regulatory issues contain an element of uncertainty, management believes that the outcome of any known, pending or threatened legal proceeding, or all of them combined, will not have a material adverse effect on the Company's financial position or results of operations. F-6 Andersen Group, Inc. Schedule II - Valuation and Qualifying Accounts (Amounts in thousands)
-----Additions----------- Balance Charged to Charged Balance beginning costs and to other end Description of year expenses account Deductions of year - ------------------------------------------------------------------------------------------------------------------------------- February 28, 1998 Allowance for doubtful accounts $190 17 (36) (d) (41) (a) $ 130 Reserve for returns $ 95 $ 95 Warranty reserve $ 70 (40) (30) (d) $ 0 - ------------------------------------------------------------------------------------------------------------------------------ February 28, 1997 Allowance for doubtful accounts $124 76 (10) (a) $ 190 Reserve for returns $ 0 95 $ 95 Warranty reserve $100 (30) $ 70 - ------------------------------------------------------------------------------------------------------------------------------ February 29, 1996 Allowance for doubtful accounts $360 97 (287) (b) (46)(a) $124 Warranty reserve $ 65 35 $100 Discontinued operation $ 63 (63) (c) $ 0 Deferred income tax valuation allowance $483 (483) $ 0 - ------------------------------------------------------------------------------------------------------------------------------
(a) Write offs net of recoveries. (b) Transferred in connection with sale of certain assets of Dental Segment. (c) Eliminated in connection with reduction in stock ownership of Digital GraphiX in May 1995. (d) Transferred in connection with sale of certain assets of Ultrasonics segment. E-1 EXHIBIT INDEX Exhibit No. Description Page No. - ------- ----------- -------- 3.1 Second Amended and Restated Certificate of Incorporation. E-2 4.1 Indenture, dated as of February 26, 1998, between the Registrant and The Chase Manhattan Bank, as Trustee, in respect of $4,311,000, aggregate principal amount, 10-1/2% Convertible Subordinated Debentures Due 2007.* E-3 10.10 Securities Purchases Agreement dated as of December 29, 1997. by and between The J.M. Ney Company and BankBoston, N.A. E-4 10.11 Asset Purchase Agreement made effective as of February 28,1998 among CAE U.S., Inc., Ney Ultrasonics Inc. and Andersen Group, Inc. E-5 10.12 Amendment Agreement dated as of December 29, 1997 by and among The J.M. Ney Company ("Borrower"), BankBoston, N.A. (Successor by merger to Bank of Boston Connecticut)("BankBoston") and Rhode Island Hospital Trust National Bank ("RIHT" and, collectively, with BankBoston, the "Banks") with respect to a Certain Revolving Credit and Deferred Payment Sales Agreement dated as of October 8, 1996 by and among the Borrower and the Banks. E-6 21. Subsidiaries of the Registrant. E-7 23. Consent of Deloitte & Touche LLP. E-8 27.1 Financial Data Schedule. E-9 27.2 Restated Financial Data Schedule. E-10 27.3 Restated Financial Data Schedule. E-11 EX-3.(I) 2 ARTICLES OF INCORPORATION E-2 EXHIBIT 3.1 SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ANDERSEN GROUP, INC. We, the subscribers, certify that we do hereby associate ourselves as a body politic and corporate under the statute laws of the State of Connecticut; and we further certify that: FIRST: The name of the corporation is Andersen Group, Inc. SECOND: The nature of the business to be transacted and the purposes to be promoted and carried out by the corporation are as follows: To engage in any lawful act or activity for which a corporation may be organized under the provisions of the Connecticut Business Corporation Act. THIRD: The amount of the capital stock of said corporation hereby authorized is six million(6,000,000) shares of common stock, without par value, and eight hundred thousand (800,000) shares of preferred stock, without par value, the terms of which are set forth on Exhibit A attached hereto. The Board of Directors is authorized to issue, from time to time, all such shares, to fix and determine the terms, limitations and relative rights and preferences of the preferred stock into series, to fix and determine the variations among series to the extent permitted by law and to provide that shares of the preferred stock, or any thereof, may series be convertible into the same or a different number of shares of common stock. FOURTH: The amount of paid-in capital with which this corporation shall commence business is $2,000. FIFTH: The duration of the corporation is unlimited. SIXTH: No stockholder of said corporation shall have any preemptive or other right of subscription to any shares of any class of stock of said corporation, issued or to be issued or sold, whether now or hereafter authorized, or to any securities convertible into stock of said corporation of any class, or to receive any such shares or securities by way of dividend, other than right or rights, if any, as the Board of Directors may determine; but any shares of stock or convertible securities which the Board of Directors may determine to offer for subscription to stockholders may, at the discretion of the Board of Directors, be offered in such proportions and to the holders of any one or more or all classes of stock of the corporation then outstanding, and at such price or prices as the Board of Directors may determine. SEVENTH: A director of the corporation shall not be liable to the corporation or its shareholders for breach of duty as a director for monetary damages in an amount in excess of the compensation received by such director for serving the corporation during the year of such breach (or such lesser amount as may hereafter be permitted by the Connecticut Business Corporation Act), except to the extent such exemption from liability or limitation thereof is not permitted under the Connecticut Business Corporation Act as currently in effect or as the same may hereafter be amended. No amendment, modification or repeal of this provision shall adversely affect any right or protection of a director that exists at the time of such amendment, modification or repeal. EXHIBIT A STATEMENT FIXING AND DETERMINING THE TERMS OF SHARES OF SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK OF ANDERSEN GROUP, INC. The Series A Cumulative Convertible Preferred Stock of Andersen Group, Inc. shall be subject to the following terms, limitations, relative rights and preferences. 1. Designation. There shall be a series of Preferred Stock, the designation of which shall be the "Series A Cumulative Convertible Preferred Stock, without par value," hereinafter referred to as the Series A Stock and the number of authorized shares constituting the Series A Stock shall be 800,000. 2. Dividends. (a) The holders of the Series A Stock shall be entitled to receive, when and as declared by the Board of Directors but only out of funds legally available therefor, cumulative cash dividends at the rate specified in subparagraph (b) below, and no more, payable not later than 45 days after the end of each fiscal quarter of the Company, commencing with the end of the fiscal quarter during which the Series A Stock is initially issued. Such dividends shall be subject to proportional adjustment if dividends are payable for any part of a fiscal quarter. So long as any share of Series A Stock remains outstanding no dividend or other distribution shall be paid or declared on any shares of Common Stock, without par value (the "Common Stock"), of the Company, other than dividends payable in shares of Common Stock of the Company, unless all cumulative dividends on the Series A Stock shall have been paid or declared and set apart for payment. Subject to the foregoing and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors may be declared and paid on the Common Stock from time to time out of any funds legally available therefor, and the Series A Stock shall not be entitled to participate in any such dividends or distributions whether payable in cash, stock or otherwise. (b) Cumulative dividends shall be payable at a quarterly rate per share upon the Series A Stock in an amount equal to $0.375. 3. Optional Redemption. All or any part of the Series A Stock may be called for redemption by the Company at its option at any time or from time to time on or after the day after the second anniversary of February 28, 1991 (the "Effective Time"), by paying therefor in cash a redemption price equal to $17.75 per share in the case of any such redemption during the period commencing on the day after such second anniversary and ending on the third anniversary of the Effective Time, $18.00 per share in the case of any such redemption during the period commencing on the day after such third anniversary and ending on the fourth anniversary of the Effective Time, $18.25 per share in the case of any such redemption during the period commencing on the day after such fourth anniversary and ending on the fifth anniversary of the Effective Time, and $18.75 per share in the case of any such redemption thereafter, in each case plus accrued and unpaid dividends to the date fixed for redemption. At least twenty (20) days' notice prior to the redemption date, by prepaid certified mail, shall be given to the holders of record of the Series A Stock to be redeemed, addressed to the last post office address shown on the records of the Company. On the date fixed for redemption, and stated in such notice, such holder of such Series A Stock shall surrender such holder's certificate or certificates at the place designated in such notice and thereupon be entitled to receive payment of the redemption price. If notice of redemption is duly given and if funds for the redemption have been set aside prior to the redemption date, notwithstanding the fact that a shareholder may have failed to surrender the same, no dividend shall be payable on such shares after the date fixed for redemption, and all rights with respect to shares so called for redemption shall forthwith, after such date, terminate, except only the right of the holders to receive the redemption price thereof, without interest. If fewer than all the outstanding shares of Series A Stock are to be redeemed pursuant to this paragraph, the number of shares to be redeemed shall be determined by the Board of Directors of the Company, and such shares shall be redeemed pro rata from all record holders of the Series A Stock in proportion to the number of such shares held by such holders (rounding to the nearest whole share to avoid redemption of fractional shares). 4. Voting Rights. (a) General. The shares of Series A Stock shall not be entitled to vote upon any matters upon which shareholders are entitled to vote, except to the extent required by law, including the right to a class vote in the event of any amendment to the Company's certificate of incorporation which creates a new class of shares equal or senior to the Series A Stock or changes an existing class of shares into a class equal or senior to the Series A Stock, and except to the extent set forth in subparagraph (b) of this paragraph 4. (b) Certain Voting Rights. If and whenever six quarterly dividends or the equivalent (whether or not consecutive) payable on the Series A Stock shall be in arrears whether or not earned or declared, the number of Directors then constituting the Board of Directors of the Company shall be increased by one and the holders of the Series A Stock, voting together as a class, shall be entitled to elect the one additional Director at any annual meeting of shareholders or a special meeting held in place thereof, or at a special meeting of the holders of the Series A Stock called as hereinafter provided. Whenever all arrears in dividends on the Series A Stock then outstanding shall have been paid and dividends thereon for the current dividend period shall have been paid or declared and set apart for payment, then the right of the holders of the Series A Stock to elect such additional one Director shall cease (but subject always to the same provisions for the vesting of such voting rights in the case of any similar future arrearages in dividends), and the term of office of any person elected as Director by the holders of the Series A Stock shall forthwith terminate and the number of the Board of Directors shall be reduced accordingly. At any time after such voting power shall have been so vested in the Series A Stock, the Secretary of the Company may, and upon the written request of any holder of shares of the Series A Stock (addressed to the Secretary at the principal office of the Company) shall, call a special meeting of the holders of the Series A Stock for the election of the one Director to be elected by them as herein provided, such call to be made by notice similar to that provided in the by-laws for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within twenty (20) days after receipt of any such request, then any holder of shares of the Series A Stock may call such meeting, upon the notice above provided, and for that purpose shall have access to the stock books of the Company. The Director elected at any such special meeting shall hold office until the next annual meeting of the shareholders or special meeting held in place thereof if such office shall not have previously terminated as above provided. In case any vacancy shall occur with respect to the Director elected by the holders of the Series A Stock, a successor shall be elected by the Board of Directors to serve until the next annual meeting of the shareholders or special meeting held in place thereof upon the nomination by the holders of the Series A Stock. 5. Liquidation, Dissolution and Winding Up. In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the holders of the Series A Stock shall be entitled, before any assets of the Company shall be distributed among or paid over to the holders of the Common Stock, to be paid $18.75 per share together with any accrued and unpaid dividends thereon, and to no more. If, upon such liquidation, dissolution or winding up, the assets of the Company distributable as aforesaid among the holders of the Series A Stock shall be insufficient to permit payment to them of said amount, the entire assets shall be distributed ratably among the holders of the Series A Stock issued and outstanding and having such priority. 6. Conversion. (a) The holder of shares of Series A Stock shall have the right, at its option, to convert one or more of such shares into fully paid and nonassessable shares of Common Stock of the Company at any time and from time to time after the date of issuance, at the rate of 1.875 shares of Common Stock for each one share of Series A Stock or at the rate which results from the making of any adjustment specified in subparagraph (e) hereof (the number of shares of Common Stock issuable at any time, giving effect to the latest prior adjustment pursuant to subparagraph (e) hereof, if any, in exchange for one share of Series A Stock being hereinafter called the "Conversion Rate"). (b) The Series A Stock shall be convertible at the office of any transfer agent of the Company, and at such other office or offices, if any, that the Board of Directors may designate, into fully paid and nonassessable shares of Common Stock at the Conversion Rate. In case of the redemption for any shares of Series A Stock, such right of conversation shall cease and terminate, as to the shares to be redeemed, at the close of business on the date fixed for such redemption, unless default shall be made in the payment of the redemption price for the shares to be so redeemed. (c) In order to convert shares of Series A Stock into shares of Common Stock pursuant to the right of conversion set forth in subparagraph (a), the holder thereof shall surrender the certificate or certificates representing Series A Stock, duly endorsed to the Company or in blank, at any office herein above mentioned and shall give written notice to the Company at said office that such holder elects to convert the same, stating in such notice the name or names in which such holder wishes the certificate or certificates representing shares of Common Stock to be issued. The Company shall, within five business days, deliver at said office to such holder of Series A Stock, or to such holder's nominee or nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid, together with cash to which such holder shall be entitled in lieu of fractional shares in an amount equal to the same fraction of the Market Price (as hereinafter defined) of a whole share of Common Stock on the business day preceding the day of conversion. The Company shall make no payment or adjustment on account of any dividends accrued on the shares of the Series A Stock surrendered for conversion or any dividends upon shares of Common Stock issued upon conversion, except that the registered holder of shares of Series A Stock being converted shall be entitled to receive payment of any unpaid dividends which have accrued on such shares for dividend periods up to the dividend payment date immediately preceding such surrender for conversion at the time the Company makes payment to other holders of the Series A Stock of accrued unpaid dividends for such dividend periods; provided, that if the Company acquires at any time all outstanding shares of Series A Stock, the Company shall on the date of the acquisition of the last outstanding share, declare and pay such accrued and unpaid dividends out of funds legally available therefor. Shares of Series A Stock shall be deemed to have been converted as of the date of the surrender of such shares for conversion as provided above, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. Upon conversion of only a portion of the number of shares covered by a certificate representing shares of Series A Stock surrendered for conversion, the Company shall issue and deliver to, or upon the written order of, the holder of the certificate so surrendered for conversion, at the expense of the Company, a new certificate covering the number of shares of Series A Stock representing the unconverted portion of the certificate so surrendered, which new certificate shall entitle the holder thereof to the rights of the shares of Series A Stock represented thereby to the same extent as if the certificate theretofore covering such unconverted shares had not been surrendered for conversion. (d) The issuance of certificates for shares of Common Stock upon the conversion of shares of Series A Stock shall be made without charge to the converting stockholder for any original issue or transfer tax in respect of the issuance of such certificates and any such tax shall be paid by the Company. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common stock in a name other than that in which the shares of Series A Stock so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax or has established to the satisfaction of the Company that such tax has been paid. (e) The Conversion Rate shall be subject to the following adjustments: (i) If the Company shall declare and pay to the holders of Common Stock a dividend or other distribution payable in shares of Common Stock or Convertible Securities (as hereinafter defined), the Conversion Rate in effect immediately prior thereto shall be adjusted so that the holders of Series A Stock hereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock which such holder would have owned or been entitled to receive after the declaration and payment of such dividend or other distribution if such shares of Series A Stock had been converted immediately prior to the record date for the determination of stockholders entitled to receive such dividend or other distribution. (ii) If the Company shall subdivide the outstanding shares of Common Stock into a greater number of shares of Common Stock, or combine the outstanding shares of Common Stock into a lesser number of shares, or issue by reclassification of its shares of Common Stock any shares of the Company, the Conversion Rate in effect immediately prior thereto shall be adjusted so that the holders of Series Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock which such holder would have owned or been entitled to receive after the happening of any of the events described above if such shares of Series A Stock had been converted immediately prior to the happening of such event on the day upon which such subdivision, combination or reclassification, as the case may be, becomes effective. (iii) If the Company shall issue or sell any Additional Shares of Common Stock for a consideration per share less than the Conversion Amount, then the Conversion Rate shall be adjusted to the number determined by multiplying the Conversion Rate in effect immediately prior to such issuance or sale by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance or sale of such Additional Shares of Common Stock plus the number of such Additional Shares of Common Stock so issued or sold, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance or sale of such Additional Shares of Common Stock plus the number of shares of Common Stock which the aggregate consideration for such Additional Shares of Common Stock so issued or sold would purchase at a consideration per share equal to the Conversion Amount. For the purposes of this subparagraph (iii), the date as of which the Conversation Amount shall be computed shall be the earlier of (x) the date on which the Company shall enter into a firm contract for the issuance or sale of such Additional Shares of Common Stock or (y) the date of the actual issuance or sale of such shares. (iv) If the Company shall issue or sell any warrants or options or other rights entitling the holders thereof to subscribe for or purchase either any Additional Shares of Common Stock or evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock (such convertible or exchangeable evidences of indebtedness, shares of stock or other securities hereinafter being called "Convertible Securities"), and the consideration per share for which Additional Shares of Common Stock may at any time thereafter be issuable pursuant to such warrants or other rights or pursuant to the terms of such Convertible Securities (when added to the consideration per share of Common Stock, if any, received for such Convertible Securities, warrants or other rights), shall be less than the Conversion Amount, then the Conversion Rate shall be adjusted as provided in subparagraph (iii) on the basis that (x) the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and (y) the aggregate consideration (plus the consideration, if any, received for such Convertible Securities, warrants or other rights) for such maximum number of Additional Shares of Common Stock shall be deemed to be the consideration received and receivable by the Company for the issuance of such Additional Shares of Common Stock pursuant to such warrants or other rights or pursuant to the terms of such Convertible Securities. (v) If the Company shall issue or sell Convertible Securities and the consideration per share for which Additional Shares of Common Stock may at any time thereafter be issuable pursuant to the terms of such Convertible Securities shall be less than the Conversion Amount, then the Conversion Rate shall be adjusted as provided in subparagraph (iii) on the basis that (x) the maximum number of Additional Shares of Common Stock necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and (y) the aggregate consideration for such maximum number of Additional Shares of Common Stock shall be deemed to be the consideration received and receivable by the Company for the issuance of such Additional Shares of Common Stock pursuant to the terms of such Convertible Securities. No adjustment of the Conversion Rate shall be made under this subparagraph (v) upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants or other rights, if such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to subparagraph (iv). (vi) For the purposes of subparagraphs (iv) and (v), the date as of which the Conversion Amount shall be computed shall be the earliest of (x) the date of which the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any warrants or other rights referred to in subparagraph (iv) or to receive any Convertible Securities, (y) the date on which the Company shall enter into a firm contract for the issuance of such warrants or other rights or Convertible Securities or (z) the date of the actual issuance of such warrants or other rights or Convertible Securities. (vii) No adjustment of the Conversion Rate shall be made under subparagraph (iii) upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrants or other rights therefor), pursuant to subparagraphs (iv) or (v). (viii) If any warrants or other rights (or any portions thereof) which shall have given rise to any adjustment pursuant to subparagraph (iv) or conversion rights pursuant to Convertible Securities which shall have given rise to any adjustment pursuant to subparagraph (v) shall have expired or terminated without the exercise thereof and/or if by reason of the terms of such warrants or other rights or Convertible Securities there shall have been an increase or increases, with the passage of time or otherwise, in the price payable upon the exercise or conversion thereof, then the Conversion Rate hereunder shall be readjusted (but to no greater extent than originally adjusted) on the basis of (x) eliminating from the computation of any Additional Shares of Common Stock corresponding to such warrants or other rights or conversion rights as shall have expired or terminated, (y) treating the Additional Shares of Common Stock, if any, actually issued or issuable pursuant to the previous exercise of such warrants or other rights or of conversion rights pursuant to any Convertible Securities as having been issued for the consideration actually received and receivable therefor, and (z) treating any of such warrants or other rights or of conversion rights pursuant to any Convertible Securities which remain outstanding as being subject to exercise or conversion on the basis of such exercise or conversion price as shall be in effect at the time; provided, however, that any consideration which was actually received by the Company in connection with the issuance or sale of such warrants or other rights shall form part of the readjustment computation even though such warrants or other rights shall have expired without the exercise thereof. (ix) To the extent that any Additional Shares of Common Stock, any warrants or other rights to subscribe for or purchase any Additional Shares of Common Stock, or any Convertible Securities shall be issued for a cash consideration, the consideration received by the Company therefor shall be deemed to be the amount of the cash received by the Company therefor, or, if such Additional Shares of Common Stock, warrants or other rights or Convertible Securities are offered by the Company for subscription, the subscription price or, if such Additional Shares of Common Stock, warrants or other rights or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price, in any such case excluding any amounts paid or receivable for accrued interest or accrued dividends and without deduction of any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof. If and to the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined by the Board of Directors of the Company. If Additional Shares of Common Stock shall be issued as part of a unit with warrants or other rights, then the amount of consideration for the warrant or other right shall be deemed to be the amount determined at the time of issuance by the Board of Directors of the Company. If the Board of Directors of the Company shall not make any such determination, the consideration for the warrant or other right shall be deemed to be zero. (x) In case the Company shall effect a reorganization, shall merge with or consolidate into another corporation, or shall sell, transfer or otherwise dispose of all or substantially all of its property, assets or business and, pursuant to the terms of such reorganization, merger, consolidation or disposition of assets, shares of stock or other securities, property or assets of the Company, successor or transferee or an affiliate thereof or cash are to be received by or distributed to the holders of Common Stock, then each holder of Series A Stock shall be given a written notice from the Company informing each holder of the terms of such reorganization, merger, consolidation, or disposition of assets and of the record date, thereof for any distribution pursuant thereto, at least ten days in advance of such record date, and each holder of Series A Stock shall have the right thereafter to receive, upon conversion of such Series A Stock, the number of shares of stock or other securities, property or assets of the Company, successor or transferee or affiliate thereof or cash receivable upon or as a result of such reorganization, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock equal to the Conversion Rate immediately prior to such event, multiplied by the number of shares of Series A Stock as may be converted. The provisions of this subparagraph (x) shall similarly apply to successive reorganizations, mergers, consolidation or dispositions of assets. (xi) The Company may make such increases in the conversion rate, so as to increase the number of shares of Common Stock into which the Series A Stock may be converted, in addition to those required by subparagraphs (i) - (v) and (x) above, as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients. (xii) The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of such shares shall be considered an issue or sale of Common Stock for the purposes of this paragraph (e). (xiii) If a state of facts shall occur which, without being specifically controlled by the provisions of this paragraph (e), would not in the reasonable opinion of the Board of Directors fairly protect the conversion rights of the Series A Stock in accordance with the essential intent and principles of such provision, then the Board of Directors of the Company shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such conversion rights. (xiv) Anything herein to the contrary notwithstanding, no adjustment in the Conversion Rate shall be required unless such adjustment, either by itself orwith other adjustments not previously made, would require a change of at least1% in such rate; provided, however, that any adjustment which by reason of this subparagraph (xiv) is not required to be made shall be carried forward and taken into account in any subsequent adjustment. (xv) All calculations under this paragraph (e) shall be made to the nearest one-thousandth of a share. (xvi) Whenever the Conversion Rate shall be adjusted pursuant to this paragraph (e), the Company shall forthwith cause to be delivered to each holder of Series A Stock, a notice setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of the Company determined the fair value of any consideration other than cash pursuant to subparagraph (ix)) and specifying the new Conversion Rate, accompanied by a letter of a firm of independent certified public accountants (which may be the regular auditors of the Company) of recognized national standing selected by the Board of Directors of the Company, stating that such firm has reviewed the relevant provisions of this paragraph 6 and the Company's calculation of the new Conversion Rate. In the case referred to in subparagraph (x), such notice shall be issued describing the amount and kind of stock, securities, property or assets or cash which shall be receivable upon conversion of the Series A Stock after giving effect to the provision of such subparagraph (x). (xvii) The Company shall provide the holders of the Series A Stock prompt notice ofany tender or exchange offer made to holders of the Common Stock to the extent such offer is subject to the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. (f) The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued shares of Common Stock, solely for the purposes of effecting the conversion of Series A Stock, the full number of shares of Common Stock then deliverable upon the conversion of all shares of Series A Stock at the time outstanding. The Company shall take at all times such corporate action as shall be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the conversion of Series A Stock in accordance with the provision hereof, free from all taxes, liens, charges and security interests with respect to the issue thereof. The Company will, at its expense, use its best efforts to cause such shares of Common Stock to be listed (subject to issuance or notice of issuance on all stock exchanges, if any, on which the Company's Common Stock may become listed. (g) No fractional shares of Common Stock or scrip representing fractional shares of Common Stock shall be issued upon any conversion of Series A Stock, but, in lieu thereof, there shall be paid an amount in cash equal to the same fraction of the Market Price of a whole share of Common Stock on the business day preceding the day of conversion. 7. Definitions (a) "Additional Shares of Common Stock" shall mean all shares of Common Stock of the Company issued by the Company after the Effective Time, except (i) shares which may be issued pursuant to conversion of the Series A Stock, and (ii) shares issued upon conversion of convertible securities outstanding on the date of issuance of the Series A Stock, or upon the exercise of options granted or to be granted with respect to up to 100,000 shares pursuant to any stock option plan approved by the shareholders of the Company. (b) "Conversion Amount" shall mean at any applicable date, the amount equal to the quotient resulting from dividing $15.45 by the Conversion Rate in effect on such date for the Series A Stock. (c) "Market Price" of a share of Common Stock on any day shall mean the average closing price of a share of Common Stock for the 15 consecutive trading days preceding such day on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, the average closing price of a share of Common Stock for the 15 consecutive trading days preceding such day on the NASDAQ/National Market Systems, or if the shares of Common Stock are not publicly traded, the Market Price for such day shall be the Conversion Amount or the book value of a share of Common Stock of the Company as disclosed in the last balance sheet of the Company regularly prepared by the Company, whichever is higher. 8. Stated Value. The entire consideration received by the Company upon issuance of the Series A Stock shall be allocated to capital surplus. 9. Shares Surrendered. Any shares of Series A Stock redeemed, purchased or otherwise reacquired, or surrendered for conversion shall be canceled and restored to the status of authorized but unissued shares of Preferred Stock of the Company, but shall not thereafter be issued as shares of Series A Stock. 10. Reports to Holders. The Company shall transmit to the holders of the Series A Stock copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Securities and Exchange Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Securities and Exchange Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, including, without limitation, its Annual Reports to Shareholders, its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K. If the Company is not required to file such information the Company shall transmit to the holders of the Series A Stock, within 15 days after it would have been required to file such information with the Securities and Exchange Commission, financial statements, including any notes thereto, prepared in accordance with generally accepted accounting principles, reasonably comparable to that which the Company would have been required to include in such annual reports, information, documents or other reports if the Company were subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. EX-4.1 3 INDENTURE E-3 ANDERSEN GROUP, INC. AND THE CHASE MANHATTAN BANK TRUSTEE Indenture Dated as of February 26, 1998 Up to $4,311,000 10 1/2 Convertible Subordinated Debentures Due 2007 PART 1 Special Provisions TABLE OF CONTENTS* Part 1 Parties....................................................................... 1 RECITALS OF THE COMPANY....................................................... 5 ARTICLE I Definitions And Other Provisions Of General Application............. 5 ss. 1-1. Certain Definitions.................................................. 5 "Common Stock" ............................................................... 5 "Senior Indebtedness" ........................................................ 6 ss.ss. 1-2. through 1-12. Miscellaneous Provisions........................ 6 ss. 1-13. Governing Law.................................................. 6 ARTICLE II Debenture Forms.................................................... 6 ss. 2-1. Forms Generally.................................................. 6 ss. 2-2. Form of Debenture................................................ 7 ARTICLE III The Debentures....................................................11 ss. 3-1. Title and Terms.................................................11 ss. 3-2. Denominations....................................................12 ss.ss. 3-3. through 3-9. Debenture Register, Record Data, etc...........12 ss. 3-10. Authentication and Delivery of Original Issue...................12 ARTICLE IV Redemption Of Debentures And Sinking Fund..........................14 ss. 4-1. Right of Redemption..............................................14 ss.ss. 4-2. through 4-8. Redemption Procedure..........................15 ARTICLE V Covenants..........................................................15 ss.ss. 5-1. through 5-7. Covenants.....................................15 ss. 5-8. Waiver of Covenants..............................................15 ss. 5-9. Accountants' Certificate.........................................15 ARTICLE VI Debentureholders' Lists And Reports By Trustee And Company.........15 ss.ss. 6-1. through 6-4. Lists-and Reports.............................15 ARTICLE VII Remedies..........................................................16 ss.ss. 7-1. through 7-14. Events of Default and Remedies..............16 ARTICLE VIII The Trustee......................................................16 ss.ss. 8-1. through 8-13. Concerning the Trustee........................16 ARTICLE IX Supplemental Indentures............................................16 ss.ss. 9-1. through 9-7. Supplemental Indentures.......................16 ARTICLE X Consolidation, Merger, Conveyance Or Transfer.......................16 ss.ss. 10-1. and 10-2. Consolidation, Merger, Conveyance or Transfer..16 ARTICLE XI Satisfaction And Discharge.........................................16 ss.ss. 11-1. and 11-2. Satisfaction and Discharge; Application of Trust Money..................................16 ARTICLE XII Immunity Of Incorporators, Stockholders, Officers And Directors...18 ss. 12-1. Exemption from Individual Liability.............................18 ARTICLE XIII Subordination Of Debentures......................................18 ss. 13-1. Agreement of Subordination......................................18 ss. 13-2. Payments to Debentureholders....................................18 ss. 13-3. Subrogation of Debentures.......................................19 ss. 13-4. Authorization by Debentureholders...............................20 ss. 13-5. Notice to Trustee...............................................21 ss. 13-6. Trustee's Relation to Senior Indebtedness.......................22 ss. 13-7. No Impairment of Subordination..................................22 ARTICLE XIV Conversion Of Debentures..........................................22 ss. 14-1. Conversion Privilege............................................22 ss. 14-2. Exercise of Conversion Privilege................................23 ss. 14-3. No Conversion Adjustments.......................................24 ss. 14-4. Adjustment of Conversion Price..................................24 ss. 14-5. Fractions of Shares.............................................25 ss. 14-6. Effect of Mergers, etc., on Conversion Privilege................27 ss. 14-7. Notice of Adjustments...........................................27 ss. 14-8. Notice of Certain Events........................................28 ss. 14-9. Company to Reserve Common Stock; Listing; Registration..........29 ss. 14-10. Taxes on Conversions...........................................29 ss. 14-11. Responsibility of Trustee......................................30 THIS INDENTURE dated as of February 26, 1998 between ANDERSEN GROUP, INC., a Connecticut corporation (hereinafter called the "Company"), having its principal executive offices at 1280 Blue Hills Avenue, Bloomfield, Connecticut 06002 and THE CHASE MANHATTAN BANK, a New York banking corporation (hereinafter called the "Trustee"), having its Bond and Trustee Administration Office at 450 West 33rd Street, New York, New York, 10001 (hereinafter called the Principal Corporate Trust Office) sets forth certain of its provisions in full and incorporates other of its provisions by reference to the document (herein called the "General Provisions") annexed hereto as Part 2, and such provisions as are set forth in full and such provisions as are incorporated by reference constitute a single instrument. Whenever this instrument incorporates herein by reference, in whole or in part or as hereby amended, any provision of the General Provisions, such provision of the General Provisions shall be deemed to be a part of this instrument as fully to all intents and purposes as though said provision had been set forth in full in this instrument. RECITALS OF THE COMPANY The Company wishes to redeem up to $5,665,000 in aggregate principal amount of its 10 1/2% Convertible Subordinated Debentures due 2002 (the "2002 Debentures"), and to issue up to $5,665,000 in aggregate principal amount of 10 1/2% Convertible Subordinated Debentures due 2007 (the "Debentures") in exchange for such 2002 Debentures; and All things necessary to make the Debentures, when executed and duly issued by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. Now, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Debentures by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Debentures, as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION ss. 1-1. Certain Definitions. Section 1.01 of the General Provisions is herein incorporated as part of this ss. 1-1. "Common Stock" means the Common Stock of the Company of the class authorized at the date of this Indenture and stock of any other class into which such presently authorized Common Stock may be changed and any other shares of stock of the Company which do not have any priority in the payment of dividends or upon liquidation over any other class of stock. "Senior Indebtedness" means the principal of, and premium, if any, and accrued and unpaid interest on (a) indebtedness of the Company for money borrowed, whether outstanding on the date of execution of this Indenture or thereafter created, incurred or assumed, other than all obligations of any kind owed by the Company in respect of the 2002 Debentures, (b) guarantees by the Company of indebtedness for money borrowed by or performance obligations due from any other Person, whether outstanding on the date of execution of this Indenture or thereafter created, incurred or assumed, (c) purchase money indebtedness evidenced by notes, lease-purchase agreements or similar instruments for the payment of which the Company is responsible or liable, by guarantees or otherwise, whether outstanding on the date of execution of this Indenture or thereafter created, incurred or assumed, (d) obligations of the Company under any agreement to lease, or lease of, any real or personal property which are required to be capitalized in accordance with generally accepted accounting principles, or any other agreement to lease, or lease of, any real or personal property which, by the terms thereof, are expressly designated as Senior Indebtedness, whether outstanding on the date of execution of this Indenture or thereafter created, incurred or assumed, (e) performance, completion or similar bonds of the Company, and (f) modifications, renewals, extensions and refundings of any such indebtedness, guarantees, obligations or bonds; unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such indebtedness, guarantees, obligations or bonds, or such modification, renewal, extension or refunding thereof, are not superior in right of payment to the Debentures. ss.ss. 1-2. through 1-12. Miscellaneous Provisions. Sections 1.02 through 1.12 of the General Provisions are herein incorporated as ss.ss. 1-2 through 1-12 hereof, respectively. ss. 1-13. Governing Law. This Indenture and the Debentures shall be construed in accordance with and governed by the laws of the State of New York. ARTICLE II DEBENTURE FORMS ss. 2-1. Forms Generally. Section 2.01 of the General Provisions is herein incorporated as ss. 2-1. hereof. ss. 2-2. Form of Debenture. [FORM OF FACE OF DEBENTURE] No. $ ANDERSEN GROUP, INC. 10 1/2% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2007 ANDERSEN GROUP, INC., a corporation duly organized and existing under the laws of the State of Connecticut (herein called the "Company", 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 October 15, 2007, and to pay interest on said principal sum semiannually on April 15 and October 15 of each year, at the rate of 10 1/2% per annum, from the April 15 or October 15, as the case may be, next preceding the date of this Debenture to which interest has been paid, unless the date hereof is a date to which interest has been paid, in which case from the date of this Debenture, or unless no interest has been paid on the Debentures, in which case from October 15, 1997 until payment of said principal sum has been made or duly provided for and at such rate on any overdue principal and premium and (to the extent that the payment of such interest shall be legally enforceable) on any overdue installment of interest. Notwithstanding the foregoing, when there is no existing default in the payment of interest on the Debentures, if the date hereof is after a Regular Record Date (which shall be the close of business on the March 31 or September 30, as the case may be, next preceding an Interest Payment Date unless the Regular Record Date as so determined would not be a Business Day, in which event it shall be the Business Day next preceding) and before the next succeeding Interest Payment Date, this Debenture shall bear interest from such Interest Payment Date; provided, however, that if the Company shall default in the payment of interest due on such Interest Payment Date, then this Debenture shall bear interest from the next preceding Interest Payment Date to which interest has been paid, or, if no interest has been paid on the Debentures, from October 15, 1997. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in said Indenture, be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the Regular Record Date for such Interest Payment Date. The principal of, and premium, if any, and interest on this Debenture are payable 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 Company in the Borough of Manhattan, City and State of New York; provided, that interest may be paid, at the option of the Company, by check mailed to the Person entitled thereto at such Person's address last appearing on the Debenture Register. Any interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Reference is made to the further provisions of this Debenture 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 by manual signature, this Debenture shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. ANDERSEN GROUP, INC. By President Dated: [SEAL] Attest: Secretary [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Debentures referred to in the within-mentioned Indenture. THE CHASE MANHATTAN BANK as Trustee, By Authorized Officer [FORM OF REVERSE OF DEBENTURE] ANDERSEN GROUP, INC. 10 1/2% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2007 This Debenture is one of a duly authorized issue of Debentures of the Company designated as its 10 1/2% Convertible Subordinated Debentures Due 2007 (herein called the "Debentures"), limited in aggregate principal amount of up to $4,311,000, issued and to be issued under an Indenture dated as of February 26, 1998 (herein called the "Indenture"), between the Company and The Chase Manhattan Bank (herein called the "Trustee", which term includes any successor Trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights thereunder of the Company, the Trustee and the Holders of the Debentures, and the terms upon which the Debentures are, and are to be, authenticated and delivered. The Debentures are subject to redemption through the operation of the Mandatory Sinking Fund provided in the Indenture, on October 15, 1998, and on each October 15 thereafter, to and including October 15, 2006, on notice as set forth in the Indenture, at a Sinking Fund Redemption Price equal to 100% of the principal amount thereof, together with accrued interest to the Redemption Date. As provided in the Indenture, the transfer of this Debenture may be registered on the Debenture Register of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Company in the Borough of Manhattan, City and State of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Debenture Registrar duly executed by, the registered Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Debentures are issuable only as registered Debentures without coupons in the denominations of $1,000 and integral multiples thereof. As provided in the Indenture, and subject to certain limitations therein set forth, Debentures are exchangeable for a like aggregate principal amount of Debentures of different authorized denominations, as requested by the Holders surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Company 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 Debenture, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Debenture is registered as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. If any Event of Default shall occur and be continuing, the principal of all the Debentures may be declared due and payable, and such declarations may be in certain events rescinded, in the manner and with the effect provided in the Indenture. The indebtedness evidenced by the Debentures is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of Senior Indebtedness, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Debenture, by accepting the same, agrees to and shall be bound by such provisions and authorizes the Trustee in his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee his attorney-in-fact for such purpose. Subject to the provisions of the Indenture, the Person in whose name this Debenture is registered in the Debenture Register is entitled, at such Person's option, at any time on or before October 15, 2007 (or, if this Debenture or some portion hereof shall be called for redemption on a Redemption Date through operation of the Mandatory Sinking Fund which is prior to such date and the Company shall not thereafter default in making payment of the Sinking Fund Redemption Price, then, with respect to this Debenture or such portion hereof, on or before the close of business on the Redemption Date), to convert the principal amount of this Debenture or any portion of the principal amount hereof which is $1,000, or an integral multiple of $1,000, into shares of Common Stock (as defined in the Indenture) of the Company at a conversion price equal to $16.17 aggregate principal amount of Debentures for each share of Common Stock (or at the current adjusted conversion price if an adjustment has been made as provided in the Indenture), upon surrender of this Debenture to the Company at its office or agency in the Borough of Manhattan, City and State of New York, with written notice to the Company that the Holder of this Debenture elects to convert this Debenture or a specified portion (as above provided) hereof, and accompanied, if required by the Company or the Trustee, by a proper assignment hereof in blank. If this Debenture is surrendered during any period beginning subsequent to a Regular Record Date and ending at the opening of business on the Interest Payment Date next following such Regular Record Date (unless this Debenture or such portion hereof then being converted has been called for redemption on a Redemption Date occurring during such period), it shall also be accompanied by payment in New York Clearing House funds or other funds reasonably acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Debenture then being converted. As provided in the Indenture, the conversion price is subject to adjustment in certain events. Subject to the foregoing, no adjustment is to be made upon any conversion for dividends on securities issued on such conversion or for interest accrued hereon. As further provided in the Indenture, in the case of any capital reorganization, certain reclassifications of the Common Stock, the consolidation or merger of the Company with or into any other corporation or the disposition of the properties and assets of the Company, as, or substantially as, an entirety to any other corporation, this Debenture shall thereafter cease to be convertible into Common Stock and shall be convertible into shares of stock or other securities or property (including cash) to which the holders of Common Stock are entitled upon such capital reorganization, reclassification, consolidation, merger or disposition. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but an adjustment in cash will be made for any fractional interest as provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Debentures under the Indenture at any time by the Company with the consent of the Holders of a majority in aggregate principal amount of the Debentures at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Debentures at the time Outstanding, on behalf of the Holders of all the Debentures, to waive compliance by the Company 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 Debenture shall be conclusive and binding upon such Holder and upon all future Holders of this Debenture and of any Debenture 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 Debenture. Except with respect to the rights of the holders of Senior Indebtedness set forth in this Debenture and in the Indenture, no reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and premium, if any, and interest on, this Debenture 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 premium, if any, or the interest on, this Debenture, 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 Company or any 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 the issue hereof, expressly waived and released. All terms used in this Debenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture. ARTICLE III THE DEBENTURES ss. 3-1. Title and Terms. The aggregate principal amount of Debentures which may be authenticated and delivered under this Indenture is limited to up to $4,311,000, except for Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Debentures, as provided herein. The Debentures shall be known and designated as the "10 1/2% Convertible Subordinated Debentures Due 2007" of the Company. Their Stated Maturity shall be October 15, 2007, and they shall bear interest, as set forth below, at the rate per annum set forth in the preceding sentence, until the principal thereof becomes due and payable, and at such rate on any overdue principal and premium and (to the extent that the payment of such interest shall be legally enforceable) on any overdue installment of interest. Every Debenture shall be dated the date of its authentication and, except as otherwise provided in this ss. 3-1, shall bear interest, payable semiannually on April 15 and October 15 of each year, from the April 15 or October 15, as the case may be, next preceding the date of such Debenture to which interest on the Debentures has been paid, unless the date of such Debenture is an April 15 or October 15 to which interest has been paid, in which case from such date, or unless no interest has been paid on the Debentures, in which case from October 15, 1997. However, when there is no existing default in the payment of interest on the Debentures, each Debenture authenticated after the Regular Record Date for any Interest Payment Date but prior to such Interest Payment Date shall be dated the date of its authentication but shall bear interest from such Interest Payment Date; provided, however, that if and to the extent that the Company shall default in the payment of the interest due on any Interest Payment Date, then such Debenture shall bear interest from the April 15 or October 15, as the case may be, to which interest has been paid, next preceding such Interest Payment Date, unless no interest has been paid on the Debentures, in which case from October 15, 1997. The Regular Record Date referred to in ss. 3-7 for the payment of the interest payable, and punctually paid or duly provided for, on any Interest Payment Date shall be the close of business on the March 31 or September 30, as the case may be, next preceding such Interest Payment Date unless the Regular Record Date as so determined would not be a Business Day, in which event it shall be the Business Day next preceding. The Person in whose name any Debenture is registered at the Regular Record Date with respect to an Interest Payment Date shall be entitled to receive the interest payable on such Interest Payment Date (unless such Debenture has been called for redemption on a Redemption Date which is prior to such Interest Payment Date) notwithstanding the cancellation of such Debenture upon any registration of transfer or exchange or conversion thereof subsequent to such Regular Record Date and prior to such Interest Payment Date; provided, however, that if and to the extent the Company shall default in the payment of the interest due on any Interest Payment Date, such Defaulted Interest shall be paid as provided in ss. 3-7. The principal and the Sinking Fund Redemption Price of, and interest on, the Debentures shall be payable at the office or agency of the Company in the Borough of Manhattan, City and State of New York (herein called the "Place of Payment"); provided, that interest may be paid, at the option of the Company, by check mailed to the Person entitled thereto at such Person's address last appearing on the Debenture Register. The Debentures shall be redeemable and shall be entitled to the benefit of and be redeemable for the Mandatory Sinking Fund as provided in Article IV. The Debentures may not otherwise be redeemed at the option of the Company. The Debentures shall be subordinated in right of payment to certain other indebtedness of the Company as provided in Article XIII. The Debentures shall be convertible as provided in Article XIV. ss. 3-2. Denominations. The Debentures shall be issuable as registered Debentures without coupons in the denominations of $1,000 and integral multiples thereof. ss.ss. 3-3. Through 3-9. Debenture Register, Record Data, etc. Sections 3.03 through 3.09 of the General Provisions are herein incorporated as ss.ss. 3-3 through 3-9 hereof, respectively. ss. 3-10. Authentication and Delivery of Original Issue. Forthwith upon the execution and delivery of this Indenture, or from time to time thereafter, Debentures up to the aggregate principal amount of up to $4,311,000 may be executed by the Company and delivered to the Trustee for authentication upon original issue, and shall thereupon be authenticated and delivered by the Trustee upon Company Order, without any further action by the Company. ARTICLE IV REDEMPTION OF DEBENTURES AND SINKING FUND ss. 4-1. Right of Redemption. (a ) The Company covenants that, on or prior to October 15, 1998, and on or prior to each October 15 thereafter to and including October 15, 2006, it will pay to the Trustee, in trust, as and for a mandatory sinking fund (hereinafter called the "Mandatory Sinking Fund") to be held and applied by the Trustee to the redemption of Debentures, an amount in cash (herein called the "Mandatory Sinking Fund Payment") sufficient in each instance to redeem, at 100% of the principal amount thereof (said percentage of principal amount being hereinafter called the "Sinking Fund Redemption Price"), together with accrued interest to the Redemption Date, an amount equal to 10% of the aggregate principal amount of Debentures originally issued hereunder, as rounded off to the nearest integral of $1,000; provided, however, that the obligation of the Company to make any Mandatory Sinking Fund Payment in cash may, at the option of the Company, and as specified by it in a Company Request on or before the August 15 next preceding any such October 15 (or such later date as shall be satisfactory to the Trustee), be reduced and satisfied to the extent of the Sinking Fund Redemption Price, together with accrued interest to the Redemption Date, of any Debentures (a) acquired by the Company and delivered by the Company to the Trustee for cancellation, (b) redeemed otherwise than through the operation of the Mandatory Sinking Fund, or (c) converted pursuant to Article XIV hereof, and in each case under clauses (a), (b) and (c) delivered, redeemed or converted prior to any such August 15 (or such later date as shall be satisfactory to the Trustee for receipt of such Company Request), and not theretofore made the basis for the reduction of a Mandatory Sinking Fund Payment. (b ) As soon as practicable after August 15 in each year commencing with 1998, the Trustee shall take the action herein specified to call for redemption on the next succeeding October 15, at the Sinking Fund Redemption Price, together with accrued interest to the Redemption Date, a principal amount of Debentures sufficient to exhaust, as nearly as practicable, the sums then held by it in the Mandatory Sinking Fund and to be paid to it prior to such October 15 for the Mandatory Sinking Fund pursuant to ss.ss. 4-1(a), respectively; provided, however, that if such sums aggregate less than $50,000, such action shall not be taken except upon a Company Request. The Company hereby irrevocably authorizes the Trustee to give notice in the name of the Company of the redemption of such Debentures, in the manner and with the effect specified in this Article IV. (c ) The Company's obligation to make a Mandatory Sinking Fund Payment on any October 15 shall automatically be reduced by an amount equal to the Sinking Fund Redemption Price allocable, together with accrued interest to the Redemption Date, to any Debentures or portions thereof called for redemption pursuant to ss. 4-1(b) on such October 15 and surrendered for conversion pursuant to Article XIV hereof; provided, that if the Trustee is not the conversion agent for the Debentures, the Company or such conversion agent shall give the Trustee written notice prior to the Redemption Date of the Debentures or portions thereof so surrendered for conversion. ss.ss. 4-2. Through 4-8. Redemption Procedure. Sections 4.02 through 4.08 of the General Provisions are herein incorporated as ss.ss. 4-2 through 4-8 hereof, respectively. ARTICLE V COVENANTS ss.ss. 5-1. Through 5-7. Covenants. Sections 5.01 through 5.07 of the General Provisions are herein incorporated as ss.ss. 5-1 through 5-7 hereof, respectively. ss. 5-8. Waiver of Covenants. The Company may omit in any particular instance to comply with any covenant or condition set forth in ss.ss. 5-6 or 5-7, if before or after the time for such compliance the Holders of a majority in principal amount of the Debentures at the time Outstanding shall, by Act of such Debentureholders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect. ss. 5-9. Accountants' Certificate. At the time the statement required by ss. 5-4 is filed, the Company will also file with the Trustee a letter or statement of the Independent accountants who shall have certified the financial statements of the Company for its preceding fiscal year in connection with the annual report of the Company to its stockholders for such year to the effect that, in making the examination necessary for certification of such financial statements, they have obtained no knowledge of any default by the Company in the performance or fulfillment of any covenant, agreement or condition set forth in ss. 5-6 in this Indenture, which default remains uncured at the date of such letter or statement, or, if they shall have obtained knowledge of any such uncured default, specifying in such letter or statement such default or defaults and the nature thereof, it being understood that such accountants shall not be liable directly or indirectly for failure to obtain knowledge of any such default or defaults. ARTICLE VI DEBENTUREHOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY ss.ss. 6-1. through 6-4. Lists-and Reports. Sections 6.01 through 6.04 of the General Provisions are herein incorporated in ss.ss. 6-1 through 6-4 hereof, respectively. The "reporting date" referred to in ss. 6-3 shall be July 1, commencing July 1, 1999. ARTICLE VII REMEDIES ss.ss. 7-1. through 7-14. Events of Default and Remedies. Sections 7.01 through 7.14 of the General Provisions are herein incorporated as ss.ss. 7-1 through 7-14 hereof, respectively. ARTICLE VIII THE TRUSTEE ss.ss. 8-1. Through 8-13. Concerning the Trustee. Sections 8.01 through 8.13 of the General Provisions are herein incorporated as ss.ss. 8-1 through 8-13 hereof, respectively. ARTICLE IX SUPPLEMENTAL INDENTURES ss.ss. 9-1. 0Through 9-7. Supplemental Indentures. Sections 9.01 through 9.07 of the General Provisions are herein incorporated as ss.ss. 9-1 through 9-7 hereof, respectively. ARTICLE X CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER ss.ss. 10-1. And 10-2. Consolidation, Merger, Conveyance or Transfer. Sections 10.01 and 10.02 of the General Provisions are herein incorporated as ss.ss. 10-1 and 10-2 hereof, respectively. ARTICLE XI SATISFACTION AND DISCHARGE ss.ss. 11-1. and 11-2. Satisfaction and Discharge; Application of Trust Money. Sections 11.01 and 11.02 of the General Provisions are herein incorporated as ss.ss. 11-1 and 11-2 hereof respectively. ARTICLE XII IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS ss. 12-1. Exemption from Individual Liability. Section 12.01 of the General Provisions is herein incorporated as ss.12-1 hereof. ARTICLE XIII SUBORDINATION OF DEBENTURES ss. 13-1. Agreement of Subordination. The Company covenants and agrees, and each Holder of Debentures issued hereunder by his acceptance thereof likewise covenants and agrees, that all Debentures shall be issued subject to the provisions of this Article XIII; and each Person holding any Debenture, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. All Debentures issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness. ss. 13-2. Payments to Debentureholders. No payment on account of principal of, or premium, if any, or interest on, the Debentures (including any Mandatory Sinking Fund Payment) shall be made if any default or event of default with respect to any Senior Indebtedness which permits the holders thereof (or a trustee on their behalf) to accelerate the maturity thereof shall have occurred and be continuing; provided, however, that if such event or event of default with respect to any Senior Indebtedness shall be remedied or cured by the Company or be waived by the holders of such Senior Indebtedness, in each case pursuant to the terms thereof, so that the holders thereof (or a trustee on their behalf) are not able to accelerate the maturity thereof, then any such event or event of default shall be deemed to have been remedied, cured or waived, and to be of no further force and effect, for all purposes of this Article XIII without further action by the Trustee or any Holder of Debentures. Upon any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full, or payment thereof provided for, in money or money's worth, in accordance with its terms, before any payment is made on account of the principal, and premium, if any, or interest on the Debentures; and upon any such dissolution or winding-up or liquidation or reorganization any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Debentures or the Trustee would be entitled, except for the provisions of this Article XIII, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution directly to the holders of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the Holders of the Debentures or to the Trustee on behalf of such Holders of Debentures. In the event that notwithstanding the preceding paragraphs, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the preceding paragraphs shall be received by the Trustee or the Holders of the Debentures, such payment or distribution shall be paid over or delivered to the Holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in money or money's worth in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness. For purposes of this Article XIII, the words, "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article XIII with respect to the Debentures to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of the Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided in Article X hereof shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this ss. 13-2 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article X hereof. Nothing in this ss. 13-2 shall apply to claims of, or payments to, the Trustee under or pursuant to ss. 8-7. ss. 13-3. Subrogation of Debentures. Subject to the payment in full of all Senior Indebtedness, the rights of the Holders of the Debentures shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until the principal of, and premium, if any, and interest on the Debentures shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Debentures or the Trustee would be entitled except for the provisions of this Article XIII, and no payment over pursuant to the provisions of this Article XIII to the holders of Senior Indebtedness by Holders of the Debentures or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness, and the Holders of the Debentures, be deemed to be a payment by the Company to or on account of the Senior Indebtedness. It is understood that the provisions of this Article XIII are and are intended solely for the purpose of defining the relative rights of the Holders of the Debentures, on the one hand, and the holders of the Senior Indebtedness, on the other hand. Nothing contained in this Article XIII or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Indebtedness, and the Holders of the Debentures, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Debentures the principal of, and premium, if any, and interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Debentures and creditors of the Company other than the holders of Senior Indebtedness, nor shall anything herein prevent the Trustee or the Holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XIII of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article XIII, the Trustee and the Holders of the Debentures shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of the Debentures, for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XIII. The terms "paid in full" and "payment in full" as used in this Article XIII with respect to Senior Indebtedness mean the receipt, in cash or securities (taken at their market value at the time of the receipt thereof), of the principal amount of the Senior Indebtedness (and any premium due thereon) and full interest thereon to the date of such payment of principal and all other amounts due to holders of Senior Indebtedness pursuant to the provisions of the instruments providing therefor. ss. 13-4. Authorization by Debentureholders. Each Holder of a Debenture by his acceptance thereof authorizes and directs the Trustee in his behalf to take such action as may be necessary or appropriate to effectuate as between the Holders and the holders of Senior Indebtedness the subordination provided in this Article XIII and appoints the Trustee his attorney-in-fact for any and all such purposes. ss. 13-5. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment of moneys to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article XIII. Notwithstanding the provisions of this Article XIII or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any fact which would prohibit the making of any payment of moneys to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article XIII, unless and until the Trustee shall have received written notice thereof at its Principal Corporate Trust Office from the Company or a holder or holders of Senior Indebtedness or from any representative or representatives therefor, together with proof satisfactory to the Trustee of the holding of such Senior Indebtedness or of such capacity as representative or representatives therefor; and, prior to the receipt of any such written notice, the Trustee shall be entitled in all respects conclusively to assume that no such fact exists; provided, that if on or before the third Business Day prior to the date upon which by the terms hereof any such moneys may become payable for any purpose (including, without limitation, the payment of the principal of, and premium, if any, or interest on, any Debenture, and any amounts deemed to be immediately due and payable upon the execution of any instrument acknowledging satisfaction and discharge of this Indenture, as provided in Article XI hereof), the Trustee shall not have received with respect to such moneys the notice provided for in this ss. 13-5, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such moneys and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or any Representative or representatives therefor) to establish that such notice has been given by a holder of Senior Indebtedness or a representative or representatives on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article XIII, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article XIII, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment; nor shall the Trustee be charged with knowledge of the curing or waiver of any default of the character specified in ss. 13-2 or that any event or any condition preventing any payment in respect of the Debentures shall have ceased to exist unless and until the Trustee shall have received an Officers' Certificate to such effect. ss. 13-6. Trustee's Relation to Senior Indebtedness. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XIII in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in ss. 8-13 or elsewhere in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article XIII, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall not be liable to any holder of Senior Indebtedness if it shall pay over or deliver to Holders of Debentures, the Company or any other Person moneys or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article XIII or otherwise. ss. 13-7. No Impairment of Subordination. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. ARTICLE XIV CONVERSION OF DEBENTURES ss. 14-1. Conversion Privilege. The Holder of any Debenture shall have the right at his option, at any time (except that, with respect to any Debentures or portion thereof which shall be called for redemption, such right shall terminate at the close of business on the Redemption Date of such Debenture or portion thereof, unless the Company shall default in payment due upon redemption thereof), to convert, subject to the terms and provisions of this Article XIV, the principal of such Debenture or any portion of the principal amount thereof which is $1,000 or an integral multiple of $1,000 into shares of Common Stock of the Company at a conversion price equal to $16.17 aggregate principal amount of Debentures for each share of Common Stock or, in case an adjustment of such price has taken place pursuant to the provisions of this Article XIV, then at the price as last adjusted (referred to herein as the "conversion price"), upon surrender of such Debenture to the Company at its office or agency in the Borough of Manhattan, City and State of New York, together with written notice of election executed by the Holder of such Debenture (hereinafter referred to as the "conversion notice") to convert such Debenture or a specified portion (as above provided) thereof, specifying the name or names in which the shares of Common Stock deliverable upon such conversion shall be registered, with the addresses of the Person (and taxpayer identification numbers, if applicable) so named, and, if so required by the Company or the Trustee, duly endorsed or accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Debenture Registrar duly executed by the Holder or his attorney duly authorized in writing. Any Debentures so surrendered during any period beginning subsequent to a Regular Record Date and ending at the opening of business on the Interest Payment Date next following such Regular Record Date (excluding Debentures or portions thereof called for redemption on a Redemption Date occurring during such period) shall also be accompanied by payment in New York Clearing House funds or other funds reasonably acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of such Debentures then being converted. For convenience, the conversion of the principal of any Debenture into Common Stock is herein sometimes referred to as the "conversion" of such Debenture. ss. 14-2. Exercise of Conversion Privilege. As promptly as practicable after the surrender, as herein provided, of any Debenture for conversion and the receipt of the conversion notice, as herein provided, relating thereto, and, if applicable, the payment of the funds provided for in ss.ss. 14-1 and 14-10 hereof, the Company shall deliver or cause to be delivered at said office or agency, to or upon the written order of the Holder of the Debenture so surrendered, a certificate or certificates representing the number of fully-paid and non-assessable shares of Common Stock into which such Debenture (or portion thereof) may be converted in accordance with the provisions of this Article XIV, registered in such name or names as are specified in the conversion notice, together with any cash payable in respect of a fractional share. In case any Debenture of a denomination greater than $1,000 shall be surrendered for partial conversion, the Company shall execute and the Trustee shall authenticate and deliver to or upon the written order of the Holder of the Debenture so surrendered, without charge to such Holder (subject to the provisions of ss. 14-10 hereof), a new Debenture or Debentures in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Debenture. Subject to the following provisions of this paragraph, such conversion shall be deemed to have been effected at the close of business on the date when such Debenture shall have been surrendered for conversion together with the conversion notice and any funds required by ss.ss. 14-1 and 14-10 hereof, so that the rights of the Holder of such Debenture as such Holder shall cease at such time and the Person or Persons entitled to receive the shares of Common Stock upon conversion of such Debenture shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock at such time and such conversion shall be at the conversion price in effect at such time; provided, however that no such surrender on any date when the stock transfer books of the Company shall be closed shall be effective to constitute the Person or Persons entitled to receive the shares of Common Stock upon such conversion as the record holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the Person or Persons entitled to receive such shares of Common Stock as the record holder or holders thereof for all purposes at the opening of business on the next succeeding Business Day on which such stock transfer books are open but such conversion shall nevertheless be at the conversion price in effect at the close of business on the date when such Debenture shall have been so surrendered together with the conversion notice and any funds required by ss.ss. 14-1 and 14-10 hereof. If the last day for the exercise of the conversion right at the place of surrender shall not be a Business Day, then the last day for the exercise of such right at such place shall be the next succeeding Business Day. ss. 14-3. No Conversion Adjustments. Subject to ss. 14-1, no payment or adjustment shall be made upon any conversion in respect of any interest accrued on any Debenture surrendered for conversion on or prior to a Regular Record Date or any dividends on the Common Stock delivered upon conversion. ss. 14-4. Adjustment of Conversion Price. The conversion price shall be subject to adjustment as follows: (a) In case the Company shall (i) pay a dividend in shares of its capital stock, (ii) subdivide its outstanding shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares, or (iv) issue by reclassification of its shares of Common Stock any shares of the Company, the conversion price in effect immediately prior thereto shall be adjusted so that the Holder of any Debenture thereafter surrendered for conversion shall be entitled to receive the number of shares of the Company which he would have owned or have been entitled to receive after the happening of any of the events described above, had such Debenture been converted immediately prior to the happening of such event. Such adjustment shall be made whenever any of the events listed above shall occur. An adjustment made pursuant to this Subdivision (a) shall become effective retroactively immediately after the record date in the case of a dividend and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. (b) In case the Company shall issue rights or warrants to all holders of its Common Stock entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share of Common Stock (as defined in Subdivision (d) below) at the record date mentioned below, the price per share at which the Debentures may thereafter be converted into Common Stock shall be determined by dividing the price per share for which the Debentures were theretofore convertible into Common Stock by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such current market price. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. (c) In case the Company shall distribute to all holders of its Common Stock evidences of its indebtedness or assets (excluding cash dividends or other cash distributions treated as dividends under state law) or rights or warrants to subscribe (excluding those referred to in Subdivision (b) above), then in each such case the price per share at which the Debentures may thereafter be converted into Common Stock shall be determined by dividing the price per share for which the Debentures were theretofore convertible into Common Stock by a fraction of which the numerator shall be the current market price per share of Common Stock (as defined in Subdivision (d) below) on the date of such distribution, and of which the denominator shall be such current market price per share of Common Stock, less the then fair market value (as determined by the Board of Directors of the Company, whose determination shall be conclusive, and described in a statement, which will have the applicable resolutions of the Board of Directors attached thereto, filed with the Trustee) of the portion of the assets or evidences of indebtedness so distributed or of such subscription rights or warrants applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such distribution. (d) For the purpose of any computation under Subdivisions (b) and (c) above, the current market price per share of Common Stock at any date shall be deemed to be the average of the daily closing prices for the thirty consecutive business days commencing forty-five business days before the date in question. The closing price for each day shall be (i) if the Common Stock is listed or admitted to trading on a national securities exchange, the closing price on the NYSE-Consolidated Tape (or any successor composite tape reporting transactions on national securities exchanges) or, if such a composite tape shall not be in use or shall not report transactions in the Common Stock, the last reported sales price regular way on the principal national securities exchange on which the Common Stock is listed or admitted to trading (which shall be the national securities exchange on which the greatest number of shares of the Common Stock has been traded during such 30 consecutive business days), or, if there is no transaction on any such day in any such situation, the mean of .the bid and asked prices on such day or (ii) if the Common Stock is not listed or admitted to trading on any such exchange, the closing price, if reported, or, if the closing price is not reported, the average of the closing bid and asked prices as reported by the National Association of Securities Dealers Automated Quotation System (NASDAQ) or a similar source selected from time to time by the Company for the purpose. (e) No adjustment in the conversion price shall be required unless such adjustment would require an increase or decrease of at least 1% of such price; provided, however, that any adjustments which by reason of this Subdivision (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this ss. 14-4 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. ss. 14-5 . Fractions of Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of any Debenture or Debentures. If any fractional interest in a share of Common Stock would, except for the provisions of this ss. 14-5, be deliverable upon the conversion of any Debenture or Debentures, the Company shall, in lieu of delivering a fractional share therefor, adjust such fractional interest by paying the Holder of such surrendered Debenture or Debentures an amount in cash equal (computed to the nearest cent) to the closing price of such fractional interest (computed as provided in the second sentence of ss. 14-4(d) hereof) on the business day prior to the date of conversion. ss. 14-6. Effect of Mergers, etc., on Conversion Privilege. In case of any capital reorganization, of any reclassification of the Common Stock (other than a reclassification covered by ss. 14-4(a)(iv)) of the Company or in case of the consolidation or merger of the Company with or into any other corporation or of the sale, lease or other disposition of the properties and assets of the Company as, or substantially as, an entirety to any other corporation, there shall be no adjustment of the conversion price pursuant to ss. 14-4 hereof but each Debenture shall, after such capital reorganization, reclassification of Common Stock, consolidation, merger or sale, lease or other disposition, be convertible into the kind and amount of shares of stock or other securities or property (including cash) to which the holder of the number of shares of Common Stock deliverable (immediately prior to the time of such capital reorganization, reclassification of Common Stock, consolidation, merger, sale, lease or other disposition) upon conversion of such Debentures would have been entitled upon such capital. reorganization, reclassification of Common Stock, consolidation, merger, sale, lease or other disposition; and, in any such case, if necessary, appropriate adjustment shall be made in the application of the provisions set forth in this Article XIV with respect to the rights and interests thereafter of the Holders of the Debentures, to the end that the provisions set forth in this Article XIV shall thereafter correspondingly be made applicable, as nearly as may be reasonable, in relation to any shares of stock or other securities or property thereafter deliverable on the conversion of the Debentures. Any such adjustment shall be made and set forth in a supplemental indenture, which shall conform to the Trust Indenture Act as in effect at the date of execution of such supplemental indenture, executed by the Company and the Trustee and approved as being accurately determined in accordance with this ss. 14-6 by a certificate of a firm of Independent public accountants; and any adjustment so approved shall for all purposes hereof conclusively be deemed to be an appropriate adjustment. The above provisions of this ss. 14-6 shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, leases or other dispositions. Notice of the execution of such supplemental indenture shall be given by mail to the Holders of the Debentures within 30 days after the execution of such supplemental indenture. The Trustee shall not be under any responsibility to determine the correctness of any provisions contained in any such supplemental indenture relating either to the kind or amount of shares of stock or securities or property receivable by Holders upon the conversion of their Debentures after any such reorganization, reclassification, consolidation, merger, sale, lease or other disposition or to any adjustment to be made with respect thereto, but may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, a certificate of a firm of Independent public accountants with respect thereto furnished to it by the Company. ss. 14-7. Notice of Adjustments. Whenever the conversion price is adjusted as herein provided, the Company shall promptly file with the Trustee a certificate of a firm of Independent public accountants with respect thereto setting forth the conversion price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Subject to the provisions of ss. 8-1, the Trustee shall be under no duty or responsibility with respect to any such certificate except to exhibit the same from time to time to any Holder desiring an inspection thereof. The Company shall also forthwith cause to be mailed to each Holder a notice stating that the conversion price has been adjusted and setting forth the adjusted conversion price and shall deliver a copy thereof to each conversion agent other than the Trustee. ss. 14-8. Notice of Certain Events. In case: (a) the Company shall declare a dividend payable, or shall make any other distribution of its Common Stock payable, on or after February 26, 1998 (excluding cash dividends or other cash distributions treated as dividends under state law and stock splits in the form of stock dividends); or (b) the Company shall authorize the granting on or after February 26, 1998 to all the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or of any other rights or warrants; or (c) of any capital reorganization or reclassification on or after February 26, 1998, of the Common Stock of the Company (other than a subdivision or combination or change in the par value of its outstanding Common Stock), or of any consolidation or merger on or after said date to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale, lease or other disposition on or after said date of all or substantially all of the assets of the Company, in the event any such consolidation, merger or sale will result in a change in the shares held by the holders of Common Stock; or (d) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company on or after February 26, 1998, then the Company shall cause to be filed with the Trustee and at the office of each conversion agent and, except in the case of events referred to in subsection (a) above, shall cause to be mailed to the Holders of the Debentures, as promptly as possible but in any event at least 10 days prior to the applicable record date, entitlement date or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights (the "record date"), or, if a record is not to be taken, the date or anticipated date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or granting of rights are to be determined (the "entitlement date"), or (y) the date or anticipated date on which such capital reorganization, reclassification, consolidation, merger, sale, lease or other disposition, dissolution, liquidation or winding-up is expected to become effective (the "effective date"), and which notice, in the case of the notice specified in clause (y), shall also state the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such capital reorganization, reclassification, consolidation, merger, sale, lease or other disposition, dissolution, liquidation or winding-up. ss. 14-9. Company to Reserve Common Stock; Listing; Registration. The Company covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock or its issued Common Stock held in its treasury, or both, for the purpose of effecting conversions of Debentures, the full number of shares of Common Stock then deliverable upon the conversion of all Outstanding Debentures not theretofore converted; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all said Outstanding Debentures, the Company will take such corporate action as may in the opinion of its counsel be necessary to increase its authorized but unissued Common Stock to such number of shares as shall be sufficient for that purpose. Before taking any action which would cause an adjustment reducing the conversion price below the then par value (if any) of the shares of Common Stock issuable upon conversion of the Debentures, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully-paid and non-assessable shares of such Common Stock at such adjusted conversion price. The Company convenants that if any shares of Common Stock reserved for conversions of Debentures require listing upon any national securities exchange before such shares may be delivered upon conversion, the Company will in good faith, and as expeditiously as possible, endeavor to cause such shares to be duly listed. The Company will in good faith endeavor to effect any registration of the shares of Common Stock deliverable upon conversion of the Debentures that may be required under the Securities Act of 1933, as amended, or any successor Federal law in connection with the issuance of any such shares, and any amendments or supplements to such registration that may be so required, and in good faith and as promptly as possible endeavor to cause any other registration with, and to obtain any approval by, any governmental authority under any applicable laws that may be required before such shares may be so delivered; provided, however, that nothing in this ss. 14-9 shall be deemed to affect in any way the obligation of the Company to convert Debentures as provided in this Article XIV. The Company covenants that, subject to the effectiveness of any registration and the obtaining of any approval referred to herein, all Common Stock which may be delivered upon conversions of Debentures will upon delivery be duly and validly issued and fully-paid and nonassessable. ss. 14-10. Taxes on Conversions. The Company will pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversions of Debentures pursuant hereto; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any registration of transfer involved in the issue or delivery of Common Stock in a name other than that of the Holder of the Debentures to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid. ss. 14-11. Responsibility of Trustee. Neither the Trustee nor any conversion agent shall at any time be under any duty or responsibility to any Holder of Debentures to determine whether any fact exists which may require any adjustment of the conversion price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. Neither the Trustee nor any conversion agent shall be accountable with respect to the registration, validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Debenture; and neither the Trustee nor any conversion agent makes any representation with respect thereto. Neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue or transfer or deliver any Common Stock or stock certificates or other securities or property or to make any cash payment upon the surrender of any Debenture for the purpose of conversion or to comply with any of the covenants of the Company contained in this Article XIV. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. ANDERSEN GROUP, INC. By:/S/ Francis E. Baker -------------------- FRANCIS E. BAKER Chairman of the Board Attest: /s/ Bernard F. Travers, III --------------------------- BERNARD F. TRAVERS, III Assistant Secretary THE CHASE MANHATTAN BANK By: /s/ Frank Grippo ---------------- FRANK GRIPPO Vice President Attest: /s/ Gemmel Richards ------------------- GEMMEL RICHARDS Assistant Secretary STATE OF CONNECTICUT) ) ss.: Bloomfield COUNTY OF HARTFORD ) On this 3rd day of March, 1998, before me personally came FRANCIS E. BAKER, to me known, who, being by me duly sworn, did depose and say that he resides at 8356 Sego Lane, Vero Beach, FL; that he is Chairman of the Board of ANDERSEN GROUP, INC., one of the corporations described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. /s/ Connie Boyd --------------- My commission expires 11/30/01 (NOTARY SEAL] STATE OF NEW YORK ) ) ss.: New York COUNTY OF NEW YORK On this 27th day of February, 1998 before me personally came Frank Grippo, to me known, who, being by me duly sworn, did depose and say that he resides at Montgomery, NY; that he is a Vice-President of THE CHASE MANHATTAN BANK, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. [NOTARY SEAL] Emily Fayan ------------ My commission expires 12/31/99 PART 2 General Provisions TABLE OF CONTENTS* Part 2 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Page Section 1.01. Definitions 1A "this Indenture" and certain other items........................1A "Act" 1A "Affiliate".....................................................1A "Authorized Newspaper"..........................................2A "Bankruptcy Act"................................................2A "Board of Directors"............................................2A "Board Resolution"..............................................2A "Business Day"..................................................2A "Commission"....................................................2A "Company" 2A "Company Request" and "Company Order"...........................2A "Debentureholder" or "Holder"...................................2A "Debenture Register" and "Debenture Registrar"..................2A "Event of Default"..............................................2A "Independent"...................................................3A "Interest Payment Date".........................................3A "Maturity" 3A "Officers' Certificate".........................................3A "Opinion of Counsel"............................................3A "Outstanding....................................................3A "Paying Agent"..................................................4A "Person" 4A "Place of Payment"..............................................4A "Predecessor Debentures"........................................4A "Principal Corporate Trust Office"..............................4A "Redemption Date"...............................................4A "Redemption Price"..............................................4A "Regular Record Date"...........................................4A "Responsible Officer"...........................................5A "Special Record Date"...........................................5A "Stated Maturity"...............................................5A "Trustee" 5A "Trust Indenture Act" or "TIA"..................................5A "Vice President"................................................5A Section 1.02. Compliance Certificates and Opinions............................5A Section 1.03. Form of Documents Delivered to Trustee..........................6A Section 1.04. Acts of Debentureholders........................................6A Section 1.05. Notices, etc., to Trustee and Company...........................7A Section 1.06 Notices to Debentureholders; Waiver.............................7A Section 1.07. Conflict with Trust Indenture Act...............................8A Section 1.08. Effect of Headings and Table of Contents........................8A Section 1.09. Successors and Assigns..........................................8A Section 1.10. Separability Clause.............................................8A Section 1.11. Benefits of Indenture...........................................8A Section 1.12. Legal Holidays..................................................8A ARTICLE TWO DEBENTURE FORMS Section 2.01. Forms Generally.................................................9A Section 2.02. Form of Debenture...............................................9A ARTICLE THREE THE DEBENTURES Section 3.01. Title and Terms.................................................9A Section 3.02. Denominations...................................................9A Section 3.03. Execution, Authentication and Delivery.........................10A Section 3.04. Temporary Debentures...........................................10A Section 3.05. Registration, Registration of Transfer and Exchange............10A Section 3.06. Mutilated, Destroyed, Lost and Stolen Debentures...............11A Section 3.07. Payment of Interest............................................12A Section 3.08. Persons Deemed Owners..........................................13A Section 3.09. Cancellation...................................................13A ARTICLE FOUR REDEMPTION OF DEBENTURES Section 4.01. Right of Redemption............................................14A Section 4.02. Applicability of Article.......................................14A Section 4.03. Intentionally Omitted..........................................14A Section 4.04. Selection by Trustee of Debentures to be Redeemed..............14A Section 4.05. Notice of Redemption...........................................15A Section 4.06. Deposit of Redemption Price....................................16A Section 4.07. Debentures Payable on Redemption Date..........................16A Section 4.08. Debentures Redeemed in Part....................................16A ARTICLE FIVE COVENANTS Section 5.01. Payment of Principal, Premium and Interest.....................16A Section 5.02. Maintenance of Office or Agency................................17A Section 5.03. Money for Debenture Payments to Be Held in Trust...............17A Section 5.04. Statement as to Compliance.....................................18A Section 5.05 Corporate Existence............................................18A Section 5.06. Payment of Taxes and Other Claims..............................18A Section 5.07. Maintenance of Properties......................................19A ARTICLE SIX DEBENTUREHOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 6.01. Company to Furnish Trustees Names and Addresses of Debentureholders.........................................19A Section 6.02. Preservation of Information; Communications to Debentureholders............................................19A Section 6.03. Reports by Trustee.............................................20A Section 6.04. Reports by Company.............................................22A ARTICLE SEVEN REMEDIES Section 7.01. Events of Default..............................................22A Section 7.02. Acceleration of Maturity; Rescission and Annulment.............23A Section 7.03. Collection of Indebtedness and Suits for Enforceability by Trustee..................................................24A Section 7.04. Trustee May File Proofs of Claim...............................25A Section 7.05. Trustee May Enforce Claims Without Possession of Debentures....25A Section 7.06. Application of Money Collected.................................26A Section 7.07. Limitation on Suits............................................26A Section 7.08. Unconditional Right of Debentureholders to Receive Principal; Premium and Interest and to Convert.........................27A Section 7.09. Restoration of Rights and Remedies.............................27A Section 7.10. Rights and Remedies Cumulative.................................27A Section 7.11. Delay or Omission Not Waiver...................................27A Section 7.12. Control by Debentureholders....................................28A Section 7.13. Waiver of Past Defaults........................................28A Section 7.14. Undertaking for Costs..........................................28A Section 7.15. Waiver of Stay or Extension Laws...............................29A ARTICLE EIGHT THE TRUSTEE Section 8.01. Certain Duties and Responsibilities............................29A Section 8.02. Notice of Defaults.............................................30A Section 8.03. Certain Rights of Trustee......................................30A Section 8.04. Not Responsible for Recitals or Issuance of Debentures.........31A Section 8.05. May Hold Debentures............................................31A Section 8.06. Money Held in Trust............................................32A Section 8.07. Compensation and Reimbursement.................................32A Section 8.08. Disqualification; Conflicting Interests........................32A Section 8.09. Corporate Trustee Required; Eligibility........................32A Section 8.10. Resignation and Removal; Appointment of Successor..............33A Section 8.11. Acceptance of Appointment by Successor.........................34A Section 8.12. Merger, Conversion, Consolidation or Succession to Business of Trustee.........................................34A Section 8.13. Preferential Collection of Claims Against Company..............35A ARTICLE NINE SUPPLEMENTAL INDENTURES Section 9.01. Supplemental Indentures Without Consent of Debentureholders....38A Section 9.02. Supplemental Indentures With a Consent of Debentureholders.....39A Section 9.03. Execution of Supplemental Indentures...........................40A Section 9.04. Effect of Supplemental Indentures..............................40A Section 9.05. Conformity with Trust Indenture Act............................40A Section 9.06. Reference in Debentures to Supplemental Indentures.............40A Section 9.07. Modification of Subordination Provisions.......................40A ARTICLE TEN CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER Section 10.01. Company May Consolidate, etc., Only on Certain Terms..........41A Section 10.02. Successor Corporation Substituted.............................41A ARTICLE ELEVEN SATISFACTION AND DISCHARGE Section 11.01. Satisfaction and Discharge of Indenture.......................42A Section 11.02. Application of Trust Money....................................43A ARTICLE TWELVE IMMUNITY OF INCORPORATORS, STOCKHOLDERS OFFICERS AND DIRECTORS Section 12.01. Exemption from Individual Liability...........................43A TABLE SHOWING REFLECTION IN GENERAL PROVISIONS OF CERTAIN PROVISIONS OF TRUST INDENTURE ACT OF 1939 Reflected in General Provisions Section Page TIA ss. 303 (1)................................... 1.01(5) 1A (10)................................... 1.01 1A (12)................................... 8.13(c)(5) 35A (13)................................... 1.01 1A (13)................................... 1.01 1A ss. 310(a)(1).................................. 8.09 33A (a)(2)................................. 8.09 33A (a)(3)................................. Not Applicable (a)(4)................................. Not Applicable (b).................................... 8.08 33A ss. 311(a)..................................... 8.13(a) 35A (b).................................... 8.13(b) 37A (b)(2)................................. 6.03(a)(2) 21A 6.03(b) 21A ss. 312(a) .................................... 6.01 19A 6.02(a) 19A (b)..................................... 6.02(b) 20A (c)..................................... 6.02(c) 20A ss. 313(a)..................................... 6.03(a) 21A (b)..................................... 6.03(b) 21A (c)..................................... 6.03(a) 21A 6.03(b) 21A (d)..................................... 6.03(c) 22A ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the term "this Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof; (2) all references in this instrument to designated "Articles", "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this instrument as originally executed. The words "herein", "hereof", and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (3) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (4) the terms defined in Part 1 of this Indenture shall have, for purposes of the General Provisions, the meanings assigned to them in Part 1 of this Indenture; (5) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (6) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; and (7) any reference in the General Provisions to any particular Article or Section or other subdivision of the General Provisions which is incorporated in this Indenture shall be a reference to the Article or Section or other subdivision of this Indenture incorporating such particular Article, Section or other subdivision. Certain terms, used principally in Article Eight, are defined in that Article. "Act" when used with respect to any Debentureholder has the meaning specified in Section 1.04. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authorized Newspaper" means a newspaper of general circulation in the relevant area, printed in the English language and customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays. Whenever successive weekly publications in an Authorized Newspaper are authorized hereunder they may be made (unless otherwise expressly provided herein) on the same or different days of the week and in the same or different Authorized Newspapers. "Bankruptcy Act" means Title 11 of the United States Code and any other similar applicable Federal law. "Board of Directors" means either the Board of Directors of the Company or any duly authorized committee of that Board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each day which is neither a Saturday, Sunday nor other day on which banking institutions in the pertinent Place of Payment are authorized or obligated by law or executive order to close. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as amended, or if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Request" and "Company Order" mean, respectively, a written request or order signed in the name of the Company by its Chairman of the Board, President, or a Vice President, and by its Treasurer, an Assistant Treasurer, Controller, an Assistant Controller, Secretary, or an Assistant Secretary, and delivered to the Trustee. "Debentureholder" or "Holder" when used with respect to any Debenture means the Person in whose name such Debenture is registered in the Debenture Register. "Debenture Register" and "Debenture Registrar" have the respective meanings specified in Section 3.05. "Event of Default" has the meaning specified in Article Seven. "Independent" when used with respect to any specified Person means such a Person who (1) is in fact independent, (2) does not have any direct financial interest or any material indirect financial interest in the Company or in any other obligor upon the Debentures or in any Affiliate of the Company or of such other obligor, and (3) is not connected with the Company or such other obligor or any Affiliate of the Company or of such other obligor, as an officer, employee, promoter, underwriter, trustee, partner, director or Person performing similar functions. Whenever it is herein provided that any Independent Person's opinion or certificate shall be furnished to the Trustee, such Person shall be appointed by a Company Order and approved by the Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read this definition and that the signer is Independent within the meaning hereof. "Interest Payment Date" means the Stated Maturity of an instalment of interest on the Debentures. "Maturity" when used with respect to any Debenture means the date on which the principal of such Debenture becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. Wherever this Indenture requires that an Officers' Certificate be signed also by an engineer or an accountant or other expert, such engineer, accountant or other expert (except as otherwise expressly provided in this Indenture) may be in the employ of the Company, and shall be acceptable to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may (except as otherwise expressly provided in this Indenture) be counsel for the Company, and shall be acceptable to the Trustee. "Outstanding" when used with respect to Debentures means, as of the date of determination, all Debentures theretofore authenticated and delivered under this Indenture, except: (i) Debentures theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Debentures, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Debentures, provided that, if such Debentures are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and (iii) Debentures in exchange for or in lieu of which other Debentures have been authenticated and delivered pursuant to this Indenture unless proof satisfactory to the Trustee is presented that any such Debentures are held by Persons in whose hands such Debentures are valid, binding and legal obligations; provided, however, that Holders of Debentures which cease to be Outstanding by reason of a call for redemption prior to their Stated Maturity shall nevertheless be entitled to convert the same or any portion thereof up to and including the close of business on the Redemption Date in accordance with Article XIV hereof; and provided further, that in determining whether the Holders of the requisite principal amount of Debentures Outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Debentures owned by the Company or any other obligor upon the Debentures or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Debentures which the Trustee knows to be so owned shall be so disregarded. Debentures so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not the Company or any other obligor upon the Debentures or any Affiliate of the Company or such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Debentures on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment" means any city or any political subdivision thereof designated as such in ss. 3-1. "Predecessor Debentures" of any particular Debenture means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture, and for the purposes of this definition, any Debenture authenticated and delivered under Section 3.06 in lieu of a lost, destroyed or stolen Debenture shall be deemed to evidence the same debt as the lost, destroyed or stolen Debenture. "Principal Corporate Trust Office" means the Principal Corporate Trust Office of the Trustee, which at the date of this Indenture is at the location set forth in the first paragraph of this Indenture, or the principal corporate trust office of any successor Trustee hereunder. "Redemption Date" when used with respect to any Debenture to be redeemed means the date fixed for such redemption pursuant to this Indenture. "Redemption Price" when used with respect to any Debenture to be redeemed means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date means the date specified in ss. 3-1. "Responsible Officer" when used with respect to the Trustee means the chairman or vice-chairman of the board of directors, the chairman or vice-chairman of the executive committee of the board of directors, the president, any vice-president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any senior trust officer, any trust officer or 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 means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Special Record Date" for the payment of any Defaulted Interest (as defined in Section 3.07) means the date fixed by the Trustee pursuant to Section 3.07. "Stated Maturity" when used with respect to any Debenture or any instalment of interest thereon means the date specified in such Debenture as the fixed date on which the principal of such Debenture or such instalment of interest is due and payable. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this instrument was executed. "Vice President" when used with respect to the Company or the Trustee means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". SECTION 1.02. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.03. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04. Acts of Debentureholders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Debentureholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Debentureholders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee, and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Debentureholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 8.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The ownership of Debentures shall be proved by the Debenture Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Debenture shall bind such Holder and the Holder of every Debenture issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee, any Debenture Registrar, any Paying Agent or the Company in reliance thereon, whether or not notation of such action is made upon such Debenture. SECTION 1.05. Notices, etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Debentureholders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with (1) the Trustee by any Debentureholder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Principal Corporate Trust Office, or (2) the Company by the Trustee or by any Debentureholder shall be sufficient for every purpose hereunder (except as provided in Section 7.01(4)) if in writing and mailed, first-class, postage prepaid, to the Company addressed to it at the address of its principal executive offices specified in the first paragraph of this Indenture or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.06. Notices to Debentureholders; Waiver. Where this Indenture provides for notice to Debentureholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class, postage prepaid, to each Debentureholder affected by such event, at his address as it appears on the Debenture Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Debentureholders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Debentureholder shall affect the sufficiency of such notice, with respect to other Debentureholders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Debentureholders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case, by reason of the suspension of or irregularities in regular mail service or the suspension of publication of any Authorized Newspaper, or by reason of any other cause, it shall be impracticable to either mail notices or make publication of any notice in an Authorized Newspaper or Authorized Newspapers as required by this Indenture, then any manner of giving notice as shall be made with the approval of the Trustee shall constitute a sufficient giving or publication of such notice. SECTION 1.07. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision which is required to be included in this Indenture by any of the provisions of TIA, such required provision shall control. SECTION 1.08. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.09. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.10. Separability Clause. In case any provision in this Indenture or in the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or in the Debentures, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Indebtedness, to the extent provided in Article XIII, and the Debentureholders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12. Legal Holidays. In any case where the date of any Interest Payment Date or a Redemption Date, or the Stated Maturity of any Debenture, or the last date on which a Holder has the right to convert his Debenture (or the right to convert his Debenture at a particular conversion price or rate) shall not be a Business Day, then (notwithstanding any other provision of the Debentures or this Indenture) payment of the principal of (and premium, if any) or interest on, or conversion of, any Debentures need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the nominal date of any such Interest Payment Date or Redemption Date or Stated Maturity, or on such last date for conversion, and no interest shall accrue for the period from and after such nominal date. ARTICLE TWO DEBENTURE FORMS SECTION 2.01. Forms Generally. The Debentures and the certificates of authentication thereon shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon, as may be required to comply with the rules of any securities exchange, or as may, consistently herewith, be determined by the officers executing such Debentures, as evidenced by their execution of the Debentures. Any portion of the text of any Debenture may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Debenture. The definitive Debentures shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange, all as determined by the officers executing such Debentures, as evidenced by their execution of such Debentures. SECTION 2.02. Form of Debenture. The form of Debenture appears in ss. 2-2. ARTICLE THREE THE DEBENTURES SECTION 3.01. Title and Terms. Provisions in this regard appear in ss. 3-1. SECTION 3.02. Denominations. Provisions in this regard appear in ss. 3-2. SECTION 3.03. Execution, Authentication and Delivery. The Debentures shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents under its corporate seal reproduced thereon and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Debentures may be manual or facsimile. Debentures bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Debentures or did not hold such offices at the date of such Debentures. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debentures executed by the Company to the Trustee for authentication; and the Trustee shall authenticate and deliver such Debentures as in this Indenture provided and not otherwise. No Debenture shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Debenture a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Debenture shall be conclusive evidence, and the only evidence, that such Debenture has been duly authenticated and delivered hereunder. SECTION 3.04. Temporary Debentures. Pending the preparation of definitive Debentures, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Debentures which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any denominations, substantially of the tenor of the definitive Debentures in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Debentures may determine, as evidenced by their execution of such Debentures. If temporary Debentures are issued, the Company will cause definitive Debentures to be prepared without unreasonable delay. After the preparation of definitive Debentures, the temporary Debentures shall be exchangeable for definitive Debentures upon surrender of the temporary Debentures at the office or agency of the Company in the Place of Payment without charge to the Holder. Upon surrender for cancellation of any one or more temporary Debentures the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Debentures of authorized denominations. Until so exchanged the temporary Debentures shall in all respects be entitled to the same benefits under this Indenture as definitive Debentures. SECTION 3.05. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Principal Corporate Trust Office of the Trustee a register (herein sometimes referred to as the "Debenture Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Debentures and the registration of transfers of Debentures. The Trustee is hereby appointed "Debenture Registrar" for the purpose of registering Debentures and transfers of Debentures as herein provided. Upon surrender for registration of transfer of any Debenture at the office or agency in a Place of Payment, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Debentures of any authorized denominations, of a like aggregate principal amount. At the option of the Holder, Debentures may be exchanged for other Debentures of any authorized denominations, of a like aggregate principal amount, upon surrender of the Debentures to be exchanged at such office or agency. Whenever any Debentures are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Debentures which the Debentureholder making the exchange is entitled to receive. All Debentures issued upon any registration of transfer or exchange of Debentures shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Debentures surrendered upon such registration of transfer or exchange. Every Debenture presented or surrendered for registration of transfer or exchange or conversion shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Debenture Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Debentures, other than exchanges pursuant to Section 3.04 or 9.06 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Debentures during a period beginning at the opening of business 15 days before the day of the mailing of notice of redemption of Debentures selected for redemption under Section 4.04 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange of any Debenture so selected for redemption in whole or in part; provided, that nothing herein contained shall be deemed to restrict the right to convert any Debenture or portion thereof, at any time in accordance with Article XIV. SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Debentures. If (i) any mutilated Debenture is surrendered to the Trustee, or if the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Debenture, and (ii) there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Debenture has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Debenture, a new Debenture of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Debenture has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Debenture, pay such Debenture. Upon the issuance of any new Debenture under this Section, the Company 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. Every new Debenture issued pursuant to this Section in lieu of any destroyed, lost or stolen Debenture shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debenture shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures. SECTION 3.07. Payment of Interest. Interest on any Debenture which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Debenture (or one or more Predecessor Debentures) is registered on the Regular Record Date for such interest specified in Section 3.01. Any interest on any Debenture which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Registered Holder on the relevant Regular Record Date by virtue of having been such Holder; and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or Clause (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class, postage prepaid, to each Debentureholder at his address as it appears in the Debenture Register, not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in an Authorized Newspaper in each Place of Payment, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on such Special Record Date (irrespective of whether such Debentures or portions thereof are converted into Common Stock of the Company after such Special Record Date) and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed, and upon such notice as may be required by such exchange, if after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Debenture delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Debenture shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Debenture. SECTION 3.08. Persons Deemed Owners. Prior to due presentment for registration of transfer of any Debenture, the Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name any registered as the owner of such Debenture for the purpose of receiving payment of principal of (and premium, if any), and (subject to Section 3.07) interest on, such Debenture, for the purpose of conversion and for all other purposes whatsoever, whether or not such Debenture be overdue, and neither the Company, the Trustee, nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.09. Cancellation. All Debentures surrendered for payment, registration of transfer, exchange, redemption or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Debentures previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Debentures so delivered shall be promptly cancelled by the Trustee. No Debentures shall be authenticated in lieu of or in exchange for any Debentures cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Debentures held by the Trustee shall be disposed of as directed by a Company Order. ARTICLE FOUR REDEMPTION OF DEBENTURES SECTION 4.01. Right of Redemption. Provisions in this regard appear in ss. 4-1. SECTION 4.02. Applicability of Article. Redemption of Debentures required by any provision of this Indenture, shall be made in accordance with such provision and this Article. SECTION 4.03. Intentionally Omitted SECTION 4.04. Selection by Trustee of Debentures to be Redeemed. If less than all the Debentures are to be redeemed, the particular Debentures to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Debentures not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal of Debentures of a denomination larger than $1,000. The portions of the principal of Debentures so selected for partial redemption shall be equal to $1,000 or the smallest authorized denomination of the Debentures, whichever is greater, or an integral multiple thereof. If any Debenture selected for partial redemption is converted in part before the termination of the conversion right with respect to the portion of the Debenture so selected, the converted portion of such Debenture shall be deemed (so far as may be) to be the portion selected for redemption. The Trustee shall promptly notify the Company in writing of the Debentures selected for redemption and, in the case of any Debenture selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Debentures shall relate, in the case of any Debenture redeemed or to be redeemed only in part, to the portion of the principal of such Debenture which has been or is to be redeemed. Upon any redemption of less than all the Debentures, the Company and the Trustee may treat as Outstanding Debentures surrendered for conversion during the period of 15 days next preceding the mailing of a notice of redemption, and need not treat as Outstanding any Debenture authenticated and delivered during such period in exchange for the unconverted portion of any Debenture converted in part during such period. SECTION 4.05. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Debentures to be redeemed, at his address appearing in the Debenture Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all Outstanding Debentures are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Debentures to be redeemed from the Holder to whom the notice is given, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Debenture, and that interest thereon shall cease to accrue on said date, (5) the place where such Debentures are to be surrendered for payment of the Redemption Price, which shall be the office or agency of the Company in each Place of Payment, (6) that such Debentures are to be redeemed through operation of the Sinking Fund, (7) the current conversion price of the Debentures, the place or places where such Debentures may be surrendered for conversion, and shall specify the time at which the right to convert the Debentures or portions thereof to be redeemed will terminate in accordance with this Indenture, and (8) the period during which an amount equivalent to the semiannual interest is payable by the Holder to the Company upon conversion of any Debenture called for redemption and the amount so payable with respect to each $1,000 principal amount of Debentures. Notice of redemption of Debentures to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 4.06. Deposit of Redemption Price. On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 5.03) an amount of money sufficient to pay the Redemption Price of all the Debentures which are to be redeemed on that date. If any Debenture called for redemption is converted pursuant to Article XIV, any money so deposited with the Trustee or a Paying Agent for the redemption of such Debenture shall be paid to the Company upon Company Request, or if then so segregated and held in trust by the Company, shall be discharged from such trust. SECTION 4.07. Debentures Payable on Redemption Date Notice of redemption having been given as aforesaid, the Debentures so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and on such date (unless the Company shall default in the payment of the Redemption Price) such Debentures shall cease to bear interest. Upon surrender of such Debentures for redemption in accordance with said notice, such Debentures shall be paid by the Company at the Redemption Price. Installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Debentures registered as such on the relevant record dates according to their terms and the provisions of Section 3.07. If any Debenture called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Debenture. SECTION 4.08. Debentures Redeemed in Part. Any Debenture which is to be redeemed only in part shall be surrendered at the office or agency of the Company in a Place of Payment (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Debenture without service charge, a new Debenture or Debentures, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Debentures so surrendered. ARTICLE FIVE COVENANTS SECTION 5.01. Payment of Principal, Premium and Interest. The Company will duly and punctually pay the principal of (and premium, if any) and interest on the Debentures in accordance with the terms of the Debentures and this Indenture. SECTION 5.02. Maintenance of Office or Agency. The Company will maintain one or more offices or agencies in each Place of Payment where Debentures may be presented or surrendered for payment, where Debentures may be surrendered for registration of transfer or exchange or for conversion and where notices and demands to or upon the Company in respect of the Debentures and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and of any change in the location, of any such office or agency. If at any time the Company shall fail to maintain any such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Principal Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee its agent to receive all such presentations, surrenders, notices and demands. SECTION 5.03. Money for Debenture Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Debentures, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, on or prior to each due date of the principal of (and premium, if any) or interest on any Debentures, deposit with (or make available to) a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (1) hold all sums held by it for the payment of principal of (and premium, if any) or interest on Debentures in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Debentures) in the making of any payment of principal (and premium, if any) or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Debenture and remaining unclaimed for three years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Debenture shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper in each Place of Payment, notice that such money remains unclaimed and that, after a date specified therein, which shall be not less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 5.04. Statement as to Compliance. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year, a written statement signed by the Chairman of the Board, the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Controller or an Assistant Controller of the Company, stating, as to each signer thereof, that (1) a review of the activities of the Company during such year and of performance under this Indenture has been made under his supervision, and (2) to the best of his knowledge, based on such review, the Company has fulfilled all its obligations under this Indenture throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to the signer and the nature and status thereof. SECTION 5.05. Corporate Existence. Subject to Article Ten, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any right or franchise if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Debentureholders. SECTION 5.06. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon its income, profits or property, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon its property; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 5.07. Maintenance of Properties. The Company will cause all its properties used or useful in the conduct of its business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation and maintenance of any of its properties if such discontinuance is, or if the discontinuance is a part of, or a step contemplated by, a transaction which is or was, in the judgment of the Company, desirable in the conduct of its business and not disadvantageous in any material respect to the Debentureholders. ARTICLE SIX DEBENTUREHOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 6.01. Company to Furnish Trustee Names and Addresses of Debentureholders The Company will furnish or cause to be furnished to the Trustee (a) semiannually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Debentures as of such Regular Record Date, and (b) at such other times as the Trustee may request in writing, within 30 days after receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that if and for so long as the Trustee is the Debenture Registrar, no such list shall be required to be furnished. SECTION 6.02. Preservation of Information; Communications to Debentureholders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders of Debentures contained in the most recent list furnished to the Trustee as provided in Section 6.01 and, if applicable, the names and addresses of Holders of Debentures received by the Trustee in its capacity as Debenture Registrar. The Trustee may destroy any list furnished to it as provided in Section 6.01 upon receipt of a new list so furnished. (b) If three or more Holders of Debentures (hereinafter referred to as "applicants") apply in writing to the Trustee and furnish to the Trustee reasonable proof that each such applicant has owned a Debenture for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Debentures with respect to their rights under this Indenture or under the Debentures and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 6.02(a), or (ii) inform. such applicants as to the approximate number of Holders of Debentures whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 6.02(a), and as to the approximate cost of mailing to such Debentureholders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants (a copy of which shall be promptly furnished by the Trustee to the Company), mail to each Debentureholder whose name and address appear in the information preserved at the time by the Trustee in accordance with Section 6.02(a), a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Commission together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the Holders of Debentures or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Debentureholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c) Every Holder of the Debentures, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Debentures in accordance with Section 6.02(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 6.02(b). SECTION 6.03. Reports by Trustee. (a) The term "reporting date", as used in this Section, means the date specified in Article VI. Within 60 days after the reporting date in each year, the Trustee shall transmit by mail to all Debentureholders, as their names and addresses appear in the Debenture Register, a brief report dated as of such reporting date with respect to: (1) its eligibility under Section 8.09 and its qualification under Section 8.08, or in lieu thereof, if to the best of its knowledge it has continued to be eligible and qualified under said Sections, a written statement to such effect; (2) the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of reporting, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Debentures, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to report such advances if such advances so remaining unpaid aggregate not more than 1/2 of 1% of the principal amount of the Debentures Outstanding on the date of such reporting; (3) the amount, interest rate and maturity date of all other indebtedness owing by the Company (or by any other obligor on the Debentures) to the Trustee in its individual capacity, on the reporting date, with a brief description of any property held as collateral security therefor, except an indebtedness based upon a creditor relationship arising in any manner described in Section 8.13 (b) (2), (3), (4) or (6); (4) the property and funds, if any, physically in the possession of the Trustee as such on the reporting date; (5) any additional issue of Debentures which the Trustee has not previously reported; and (6) any action taken by the Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Debentures, except action in respect of a default, notice of which has been or is to be withheld by the Trustee in accordance with Section 8.02. (b) The Trustee shall transmit by mail to all Debentureholders, as their names and addresses appear in the Debenture Register, a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) since the date of the last report transmitted pursuant to Subsection (a) of this Section (or if no such report has yet been so transmitted, since the date of execution of this instrument) for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Debentures, on property or funds held or collected by it as Trustee, and which it has not previously reported pursuant to this Subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of the Debentures Outstanding at such time, such report to be transmitted within 90 days after such time. (c) A copy of each such report shall, at the time of such transmission to Debentureholders, be filed by the Trustee with each stock exchange upon which the Debentures are listed, and also with the Commission. The Company will notify the Trustee when the Debentures are listed on any stock exchange. SECTION 6.04. Reports by Company. The Company will (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it will file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit by mail to all Debentureholders as their names and addresses appear in the Debenture Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. ARTICLE SEVEN REMEDIES SECTION 7.01. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article XIII hereof or be voluntary or involuntary or be effected by operation of law pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon any Debenture when the same becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in making any Mandatory Sinking Fund Payment, when the same becomes due and payable, and continuance of such default for a period of 30 days; or (3) default in the payment of the principal of (or premium, if any, on) any Debenture at its Maturity, except any Maturity occurring by reason of a call for redemption through the Mandatory Sinking Fund; or (4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a. default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Debentures, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (6) the Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action in furtherance of any of the foregoing. SECTION 7.02. Acceleration of Maturity; Rescission and Annulment. If an Event of Default occurs and is continuing, then and in every such case the Trustee or the Holders of not less than one-third (33.33%) in principal amount of the Debentures Outstanding may declare the principal of all the Debentures to be immediately due and payable, by a notice in writing to the Company (and to the Trustee if given by the Debentureholders), and upon any such declaration such principal shall become immediately due and payable. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of Debentures Outstanding, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue instalments of interest on all Debentures, (B) the principal of (and premium, if any, on) any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Debentures, (C) to the extent that payment of such interest is lawful, interest upon overdue instalments of interest at the rate borne by the Debentures, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the non-payment of the principal of Debentures which have become due solely by such acceleration, have been cured or waived as provided in Section 7.13. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 7.03. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any instalment of interest on any Debenture when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in any Mandatory Sinking Fund Payment, when the same becomes due and payable, and such default continues for a period of 30 days, or (3) default is made in the payment of the principal of (or premium, if any, on) any Debenture at the Maturity thereof, except any Maturity occurring by reason of a call for redemption through the Mandatory Sinking Fund, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Debentures, the whole amount then due and payable on such Debentures for principal (and premium, if any) and interest, with interest upon the overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon overdue instalments of interest, at the rate borne by the Debentures; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Debentures and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Debentures, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Debentureholders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 7.04. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Debentures or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Debentures shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Debentures and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Debentureholders allowed in such judicial proceeding, and (ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, trustee, liquidator or sequestrator (or other similar official in any such judicial proceeding is hereby authorized by each Debentureholder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Debentureholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 8.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Debentureholder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Debentureholder in any such proceeding. SECTION 7.05. Trustee May Enforce Claims Without Possession of Debentures. All rights of action and claims under this Indenture or the Debentures may be prosecuted and enforced by the Trustee without the possession of any of the Debentures or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Debentures in respect of which such judgment has been recovered. SECTION 7.06. Application of Money Collected Subject to the provisions of Article XIII hereof, any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Debentures, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 8.07; SECOND: To the payment of the amounts then due and unpaid upon the Debentures for principal (and premium, if any) and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Debentures, for principal (and premium, if any) and interest, respectively; and THIRD: The balance, if any, to the Company or other Person or Persons entitled thereto. SECTION 7.07. Limitation on Suits. No Holder of any Debenture shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Debentures shall have made written requests to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Debentures; it being understood and intended that no one or more Holders of Debentures shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Debentures or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders of Debentures. SECTION 7.08. Unconditional Right of Debentureholders to Receive Principal, Premium and Interest and to Convert. Subject to the provisions of Article XIII hereof, but notwithstanding any other provision in this Indenture, the Holder of any Debenture shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and (subject to Section 3.07) interest on such Debenture on the respective Stated Maturities expressed in such Debenture (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment and the right to convert such Debenture in accordance with Article XIV and to institute suit for its enforcement, and such rights shall not be impaired without the consent of such Holder. SECTION 7.09. Restoration of Rights and Remedies. If the Trustee or any Debentureholder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Debentureholder, then and in every such case the Company, the Trustee and the Debentureholders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Debentureholders shall continue as though no such proceeding had been instituted. SECTION 7.10. Rights and Remedies Cumulative. Except as provided in Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Debentureholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or- employment of any other appropriate right or remedy. SECTION 7.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Debenture to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Debentureholders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Debentureholders, as the case may be. SECTION 7.12. Control by Debentureholders. The Holders of a majority in principal amount of the Outstanding Debentures shall 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, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; provided, however, that the Trustee need not take any action which it determines will involve it in personal liability or be unjustly prejudicial to the Holders of Debentures not consenting. SECTION 7.13. Waiver of Past Defaults. The Holders of a majority in principal amount of the Outstanding Debentures may on behalf of the Holders of all the Debentures waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of (or premium, if any) or interest or any Debenture, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Debenture affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 7.14. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Debenture by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Debentureholder, or group of Debentureholders, holding in the aggregate more than 10% in principal amount of the Outstanding Debentures, or to any suit instituted by any Debentureholder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Debenture on or after the respective Stated Maturities expressed in such Debenture (or, in the case of redemption, on or after the Redemption Date) or for the enforcement of a right to the conversion of any Debenture. SECTION 7.15. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE EIGHT THE TRUSTEE SECTION 8.01. Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, 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. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own wilful misconduct, except that (1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the request or the direction of the Holders of a majority in principal amount of the Outstanding Debentures 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 Indenture; and (4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 8.02. Notice of Defaults. Within 90 days after the occurrence of any default hereunder, the Trustee shall transmit by mail to all Debentureholders, as their names and addresses appear in the Debenture Register, notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of, (or premium, if any) or interest on any Debenture or in the payment of any sinking or purchase fund instalment, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Debentureholders; and provided, further, that in the case of any default of the character specified in Section 7.01(4), no such notice to Debentureholders shall be given until at least 60 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 8.03. Certain Rights of Trustee. Except as otherwise provided in Section 8.01: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Debentureholders pursuant to this Indenture, unless such Debentureholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) 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, direction, consent, order, bond, debenture or other paper or document but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (g) 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 and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 8.04. Not Responsible for Recitals or Issuance of Debentures. The recitals contained herein and in the Debentures, except the certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. The Trustee shall not be accountable for the use or application by the Company of Debentures or the proceeds thereof. SECTION 8.05. May Hold Debentures. The Trustee, any Paying Agent, Debenture Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Debentures and, subject to Sections 8.08 and 8.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Debenture Registrar or such other agent. SECTION 8.06. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 8.07. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. As security for the performance of the obligations of the Company under this Section, the Trustee shall have a lien prior to the Debentures upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any or interest on Debentures. SECTION 8.08. Disqualification; Conflicting Interests. The Trustee shall comply with Section 310 of the TIA. The provisions of Section 310 of the TIA shall also apply to the Company, as obligor of the Debentures. SECTION 8.09. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $5,000,000, subject to supervision or examination by Federal or State authority and having its Principal Corporate Trust Office in the place specified in the first paragraph of this Indenture or, if such place is not the City of New York, New York, in the City of New York, New York, if there be a corporation in any such city willing to act upon reasonable and customary terms and conditions. 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. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 8.10. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 8.11. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 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. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Debentures, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 8.08 after written request therefor by the Company or by any Debentureholder who has been a bona fide Holder of a Debenture for at least six months, or (2) the Trustee shall cease to be eligible under Section 8.09 and shall fail to resign after written request therefor by the Company or by any such Debentureholder, or (3) the Trustee shall become incapable of acting or shall be adjudged a 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, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 7.14, any Debentureholder who has been a bona fide Holder of a Debenture for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Debentures delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Debentureholders and accepted appointment in the manner hereinafter provided, any Debentureholder who has been a bona fide Holder of a Debenture for at least six months may, on behalf of such Holder and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor. Trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Debentures as their names and addresses appear in the Debenture Register. Each notice shall include the name of the successor Trustee and the address of its Principal Corporate Trust Office. (g) Any Trustee ceasing to act shall, nevertheless, retain its prior claim upon all property or funds collected by such Trustee to secure any amounts then due it pursuant to Section 8.07. SECTION 8.11. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its lien, if any, provided for in Section 8.07. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 8.12. Merger, Conversion, Consolidation or Succession to Business 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 all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Debentures shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Debentures. SECTION 8.13. Preferential Collection of Claims Against Company. (a) Subject to Subsection (b) of this Section, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within four months prior to a default, as defined in Subsection (c) of this Section, or subsequent to such a default, then, unless and until such default shall be cured, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually, the Holders of the Debentures and the holders of other indenture securities (as defined in Subsection (c) of this Section): (1) an amount equal to any and all reductions in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such four months' period and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this Subsection, or from the exercise of any right of set-off which the Trustee could have exercised if a petition in bankruptcy had been filed by or against the Company upon the date of such default; and (2) all property received by the Trustee in respect of any claim as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such four months period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds. Nothing herein contained, however, shall affect the right of the Trustee (A) to retain for its own account (i) payments made on account of any such claim by any Person (other than the Company) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by the Trustee to a third person and (iii) distributions made in cash, securities or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Act or applicable State law; (B) to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such four months' period; (C) to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such 4 months period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default as defined in Subsection (c) of this Section would occur within four months; or (D) to receive payment on any claim referred to in paragraph (B) or (C), against the release of any property held as security for such claim as provided in paragraph (B) or (C), as the case may be, to the extent of the fair value of such property. For the purposes of paragraphs, (B), (C,) and (D), property substituted after the beginning of such four months' period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any preexisting claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim. If the Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned between the Trustee, the Debentureholders and the holders of other indenture securities in such manner that the Trustee, the Debentureholders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against, the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Act, or applicable State law, the same percentage of their respective claims figured before crediting to the claim of the Trustee anything on account of the receipt by it from the Company of the funds and property in such special account and before crediting to the respective claims of the Trustee and the Debentureholders and the holders of other indenture securities dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Act or applicable State law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account. As used in this paragraph, with respect to any claim, the term "dividends" shall include any distribution with respect to such claim, in bankruptcy or receivership or proceedings for reorganization pursuant to the Bankruptcy Act or applicable State law, whether such distribution is made in cash, securities, or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership or proceedings for reorganization is pending shall have jurisdiction (i) to apportion between the Trustee and the Debentureholders and the holders of other indenture securities, in accordance with the provisions of this paragraph, the funds and property held in such special account and proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the Trustee and the Debentureholders and the holders of other indenture securities with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula. Any Trustee which has resigned or been removed after the beginning of such four months period shall be subject to the provisions of this Subsection as though such resignation or removal had not occurred. If any Trustee has resigned or been removed prior to the beginning of such four months period, it shall be subject to the provisions of this Subsection if and only if the following conditions exist: (i) the receipt of property or reduction of claim, which would have given rise to the obligation to account, if such Trustee had continued as Trustee, occurred after the beginning of such four months period; and (ii) such receipt of property or reduction of claim occurred within four months after such resignation or removal. (b) There shall be excluded from the operation of Subsection (a) of this Section a creditor relationship arising from: (1) the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee; (2) advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by this Indenture, for the purpose of preserving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advances and of the circumstances surrounding the making thereof is given to the Debentureholders at the time and in the manner provided in this Indenture; (3) disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depositary, or other similar capacity; (4) an indebtedness created as a result of services rendered or premises rented, or an indebtedness created as a result of goods or securities sold in a cash transaction as defined in Subsection (c) of this Section; (5) the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; or (6) the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper as defined in Subsection (c) of this Section. (c) For the purposes of this Section only: (1) The term "default" means any failure to make payment in full of the principal of or interest on any of the Debentures or upon the other indenture securities when and as such principal or interest becomes due and payable. (2) The term "other indenture securities" means securities upon which the Company is an obligor outstanding under any other indenture (i) under which the Trustee is also trustee, (ii) which contain provisions substantially similar to the provisions of this Section, and (iii) under which a default exists at the time of the apportionment of the funds and property held in such special account. (3) The term "cash transaction" means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand. (4) The term "self-liquidating paper" means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale or the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation. (5) The term "Company" means any obligor upon the Debentures. ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 9.01. Supplemental Indentures. Without Consent of Debentureholders. Without the consent of the Holders of any Debentures, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another corporation to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Debentures contained; or (2) to add to the covenants of the Company, for the benefit of the Holders of the Debentures, or to surrender any right or power herein conferred upon the Company; or (3) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not adversely affect the interests of the Holders of the Debentures; or (4) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under TIA, or under any similar Federal statute hereafter enacted, and to add to this Indenture such other provisions as may be expressly permitted by TIA, excluding, however, the provisions referred to in Section 316(a)(2) of TIA as in effect at the date as of which this instrument was executed or any corresponding provisions in any similar Federal statute hereafter enacted; or (5) to make provision with respect to the conversion rights of Holders of Debentures pursuant to the requirements of Article XIV hereof. SECTION 9.02. Supplemental Indentures With Consent of Debentureholders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Debentures, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of the Debentures under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Debenture affected thereby: (1) change the Stated Maturity of the principal of, or any installment of interest on, any Debenture, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change any Place of Payment where, or the coin or currency in which, any Debenture or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); or (2) reduce the percentage in principal amount of the Outstanding Debentures, the consent of whose Holders is required for any such supplemental indenture or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture; or (3) modify any of the provisions of this Section or Section 7.13, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Debenture affected thereby. (4) adversely affect the right to convert the Debentures as provided in Article XIV hereof. It shall not be necessary for any Act of Debentureholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.03. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 8.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not (except to the extent required in the case of a supplemental indenture entered into under Section 9.01(4)) be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.04. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Debentures theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.05. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of TIA as then in effect if this Indenture shall then be qualified under TIA. SECTION 9.06. Reference in Debentures to Supplemental Indentures. Debentures authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Debentures. SECTION 9.07. Modification of Subordination Provisions. No supplemental indenture shall directly or indirectly modify any provision of this Indenture so as to affect adversely the rights of any holder of Senior Indebtedness at the time outstanding without the written consent of such holder. ARTICLE TEN CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER SECTION 10.01. Company May Consolidate, etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person, unless (1) the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer the properties and assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America or any State or the District of Columbia, and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Debentures and the performance of every covenant of this Indenture on the part of the Company to be performed or observed and all applicable provisions of Article XIV shall be compiled with by such corporation or Person, as the case may be; (2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 10.02. Successor Corporation Substituted. Upon any consolidation or merger, or any conveyance, or transfer of the properties and assets of the Company substantially as an entirety in accordance with Section 10.01, the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein; and the Company (which term shall for this purpose mean the Person named as the "Company" in the first paragraph of this instrument or any successor corporation which shall have theretofore become such in the manner prescribed in Section 10.01) shall be discharged from all liability under this Indenture and in respect of the Debentures and may be dissolved and liquidated; provided, however, that in the case of a transfer or lease, the predecessor Company shall not be released from the obligation to pay the principal of, Redemption Price, if applicable, and premium, if any, and interest on the Debentures. ARTICLE ELEVEN SATISFACTION AND DISCHARGE SECTION 11.01. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect .(except as to any surviving rights of registration of transfer or exchange or conversion of Debentures herein expressly provided for and rights to receive payments of interest thereon), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Debentures theretofore authenticated and delivered (other than (i) Debentures which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06, and (ii) Debentures for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 5.03) have been delivered to the Trustee for cancellation; or (B) all such Debentures not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within 1 year, or (iii) are to be called for redemption within 1 year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee, as trust funds in trust for the purpose, an amount (said amount to be deemed to be and to be immediately due and payable to the Holders of Debentures) sufficient to pay and discharge the entire indebtedness on such Debentures not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Debentures which have become due and payable), or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 8.07 shall survive. The Trustee shall give notice to the Holders of Debentures Outstanding of the immediate availability of the amount referred to in clause (1) of this Section 11.01. SECTION 11.02. Application of Trust Money. All money deposited with the Trustee pursuant to Section 11.01 shall be held in trust and applied by it, in accordance with the provisions of the Debentures and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent), as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. ARTICLE TWELVE IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 12.01. Exemption from Individual Liability. No recourse under or upon any obligation, covenant or agreement of this Indenture, or of any Debenture, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations of the Company, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers or directors, as such, of the Company or of any successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom; and that any and all such personal liability, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, stockholder, officer or director, as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of such Debentures. - -------- * The Table of Contents is not part of the Indenture. EX-10.10 4 MATERIAL CONTRACTS E-4 Exhibit 10.10 SECURITIES PURCHASE AGREEMENT THE J.M. NEY COMPANY Ney Industrial Park Bloomfield, Connecticut 06002 As of December 29, 1997 BankBoston, N.A. 100 Pearl Street Hartford, Connecticut 06103 Ladies and Gentlemen: The undersigned, The J.M. Ney Company, a Delaware corporation (the "Company"), hereby agrees with BankBoston as follows: 1. DEFINITIONS. For all purposes of this Agreement the following terms shall have the meanings set forth herein or elsewhere in the provisions hereof: Affiliate. Affiliate shall mean any Person that would be considered to be an affiliate of the Company or BankBoston under Rule 144(a) of the Rules and Regulations of the Securities and Exchange Commission, as in effect on the date hereof, if the Company or BankBoston were issuing securities; provided, however, that BankBoston shall not be an Affiliate of the Company or any of its Subsidiaries for the purposes of this Agreement. Applicable Prepayment Charge. Applicable Prepayment Charge shall mean: (a) with respect to a prepayment of the Note made concurrently with the completion of an IPO, an amount equal to the difference obtained by: (x) the product of (i) the principal amount of the Note so prepaid multiplied by (ii) the percentage set forth in the table below opposite the period in which such prepayment is made: Period Percentage From the Closing Date through December 28, 2001 6% From December 29, 2001 through December 28, 2002 4% From December 29, 2002 through December 28, 2003 2% From and after December 29, 2003 0% minus (y) the amount of net proceeds, if any, actually received by BankBoston in connection with the repurchase or exercise of the Warrants. (b) with respect to a prepayment of the Note other than concurrently with the completion of an IPO, an amount equal to the product of (i) the principal amount of the Note so prepaid multiplied by (ii) the percentage set forth in the table below opposite the period in which such prepayment is made: Period Percentage From the Closing Date through December 28, 2001 3% From December 29, 2001 through December 28, 2002 2% From December 29, 2002 through December 28, 2003 1% From and after December 29, 2003 0% Balance Sheet Date. August 31, 1997. Bank Affiliate. See Section 15.1. BankBoston. BankBoston, N.A., a national banking association, and its successors and assigns. BankBoston Appraisal. See Section 11.4(b). BankBoston Appraiser. See Section 11.4(b). BankBoston's Special Counsel. Bingham Dana LLP. Bank Holding Company Act. See Section 15.1. Broker. A broker who trades for the Company's account in commodities futures, forwards or other contracts or instruments related to commodities and who is reasonably acceptable to the Senior Lenders. Broker Accounts. The accounts maintained by the Company or any of the Subsidiaries with any Broker for trading in commodities futures, forwards or other contracts or instruments related to commodities. Business Day. Any day on which banking institutions in Hartford, Connecticut are open for the transaction of banking business. Capital Assets. Fixed assets, both tangible (such as land, buildings, fixtures, machinery and equipment) and intangible (such as patents, copyrights, trademarks, franchises and good will). Capital Expenditures. Amounts paid or indebtedness incurred by the Company or any of its Subsidiaries in connection with the purchase or lease by such Person of Capital Assets that would be required to be capitalized and shown on the balance sheet of such Person in conformity with generally accepted accounting principles. Capital Lease. Leases under which the Company or any of its Subsidiaries is the lessee or obligor, the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of the lessee or obligor in conformity with generally accepted accounting principles. CERCLA. See definition of "Environmental Laws.". Charter. Charter shall include the articles or certificate of incorporation, statute, constitution, joint venture or partnership agreement or articles or other organizational document of any Person other than an individual, each as from time to time amended or modified. Closing. See Section 2.3. Closing Date. See Section 2.3. Code. Code shall mean the Internal Revenue Code of 1986, any successor statute of similar import, and the rules and regulations thereunder, collectively and as from time to time amended and in effect. Collateral. See Section 3.7. Commission. Commission shall mean the Securities and Exchange Commission. Common Shares. Common Shares shall mean (a) the Common Stock issued or issuable to BankBoston upon exercise of the Warrant, (b) any capital stock or other securities into which or for which such Common Stock shall have been converted or exchanged pursuant to any recapitalization, reorganization or merger of the Company and (c) any shares of capital stock issued with respect to the foregoing pursuant to a stock split or stock dividend; provided that no Common Shares which have been sold pursuant to a Public Sale shall be considered to be outstanding Common Shares or Securities hereunder. Common Stock. Common Stock shall mean the voting common stock of the Company, $.01 par value per share, and in addition, any capital stock or other securities into which or for which Common Stock shall have been converted or exchanged pursuant to any recapitalization, reorganization or merger of the Company. Company. See preamble. Company Appraisal. See Section 11.4(b). Company Appraiser. See Section 11.4(b). Company Security Agreement. The Security Agreement of even date herewith between the Company and BankBoston. Consolidated or consolidated. Consolidated or consolidated shall mean, with reference to any term defined herein, that term as applied to the accounts of the Company and all of its Subsidiaries, consolidated in accordance with generally accepted accounting principles. Consolidated Financial Obligations. With respect to any period, an amount equal to the sum of all payments on Indebtedness that become due and payable or that are to become due and payable during such period pursuant to any agreement or instrument to which the Company or any of its Subsidiaries is a party relating to the borrowing of money or the obtaining of credit or in respect of Capital Leases (including, without limitation, Deferred Payment Sale Interest, as such term is defined in the Credit Agreement); provided, that for the purpose of calculating the Company's compliance with the terms of the financial covenants set forth in ss.7.24 hereof, Consolidated Financial Obligations shall not include interest accrued on the outstanding principal amount of subordinated Permitted Indebtedness due and owing to Andersen Group, Inc. Demand obligations shall be deemed to be due and payable during any fiscal year during which such obligations are outstanding. Consolidated Net Income (or Net Loss). The consolidated net income (or net loss) of the Company and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges, determined in conformity with generally accepted accounting principles. Consolidated Total Liabilities. All liabilities of the Company and its Subsidiaries determined on a consolidated basis in conformity with generally accepted accounting principles (including, without limitation, Deferred Payment Sale Interest, as such term is defined in the Credit Agreement) and all Indebtedness of the Company and its Subsidiaries, to the extent not so classified. Credit Agreement. Credit Agreement shall mean the Credit Agreement dated as of October 8, 1996, among the Company and the Senior Lenders, as such Credit Agreement may be amended, extended or renewed from time to time in accordance with the provisions of Sections 6.11 and 7.29. Default. Default shall mean an event or condition which with the passage of time or giving of notice, or both, would become an Event of Default. Disposal (or Disposed). Disposal (or Disposed) shall have the meaning specified in RCRA and regulations promulgated thereunder; provided, that in the event RCRA is amended so as to broaden the meaning of such term defined thereby, such broader meaning shall apply as of the effective date of such amendment and provided further, to the extent that the laws of a state wherein the Property lies establishes a meaning for "Disposal" (or "Disposed") which is broader than specified in RCRA, such broader meaning shall apply. Distribution. Distribution shall mean (a) the declaration or payment of any dividend on or in respect of any shares of any class of capital stock of the Company or other specified Person; (b) the purchase, redemption or other retirement of any shares of any class of capital stock of the Company or other specified Person, directly or indirectly or otherwise; or (c) any other distribution on or in respect of any shares of any class of capital stock of the Company or other specified Person. EBIT. The sum of (a) Consolidated Net Income (or Net Loss) for any period, plus (b) any income taxes (as calculated in accordance with the Tax Sharing Agreement) or interest expense of the Company and its Subsidiaries for such period, all as determined in conformity with generally accepted accounting principles. EBITDA. The sum of (a) Consolidated Net Income (or Net Loss) for any period, plus (b) any income taxes (as calculated in accordance with the Tax Sharing Agreement) or interest expense of the Company and its Subsidiaries for such period, plus (c) depreciation and amortization of the Company and its Subsidiaries for such period, plus (d) to the extent deducted in determining EBITDA, accrued and unpaid subordinated management fees payable for such period by the Company to Andersen Group, Inc. and permitted pursuant to Sections 7.14(l) and 7.27, all as determined in conformity with generally accepted accounting principles. Environmental Laws. Any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state or local statute, regulation, ordinance, order or decree relating to health, safety or the environment. EPA. The United States Environmental Protection Agency. Equity Securities. The Warrants and any Common Shares which have been issued upon the exercise of the Warrants. ERISA. ERISA shall mean the federal Employee Retirement Income Security Act of 1974, any successor statute of similar import, and the rules and regulations thereunder, collectively and as from time to time amended and in effect. ERISA Affiliate. Any Person which is treated as a single employer with the Company under ss.414 of the Code. ERISA Reportable Event. A reportable event with respect to a Guaranteed Pension Plan within the meaning of ss.4043 of ERISA and the regulations promulgated thereunder as to which the requirement of notice has not been waived. Events of Default. See Section 10.1. Fair Market Value. See Section 11.4(b). Financing Agreements. Financing Agreements shall include this Agreement, the Securities, the Registration Rights Agreement, the Tax Sharing Agreement, the Security Documents, the Subordination Agreement and any and every other present or future instrument or agreement from time to time entered into between the Company or any of its Subsidiaries and BankBoston or any other holder of the Securities which relates to this Agreement or is stated to be a Financing Agreement, as from time to time amended or modified, and all certificates delivered by or on behalf of the Company to BankBoston or any other holder of the Securities in connection herewith or therewith. Fixed Rate. The fixed interest rate per annum equal to ten and twenty-six - -one-hundredths of one percent (10.26%). Formula Value. See Section 11.4(c). generally accepted accounting principles. Accounting principles which are (a) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors and/or the American Institute of Certified Public Accountants, as in effect from time to time, (b) applied on a basis consistent with prior periods, and (c) such that a certified public accountant would, insofar as the use of accounting principles is pertinent, be in a position to deliver an unqualified opinion as to financial statements in which such principles have been properly applied; provided, that for purposes of compliance with Section 7.24 hereof, generally accepted accounting principles shall mean such principles as in effect for the fiscal year of the Company ended February 28, 1997. Notwithstanding anything to the contrary in the foregoing, the Company shall base its accounting and financial calculations (including without limitation those pursuant to ss.7.24) on the "first-in, first-out" or "FIFO" method. Financial statements may be prepared using the "last-in, first-out" or "LIFO" method, but shall for purposes of BankBoston be adjusted to the "first-in, first-out" or "FIFO" method. Guaranteed Pension Plan. Any employee pension benefit plan within the meaning of ss.3(2) of ERISA maintained or contributed to by the Company or any ERISA Affiliate the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan. Hedging Policy. See Section 7.14. Indebtedness. Indebtedness shall mean all obligations, contingent and otherwise, that in conformity with generally accepted accounting principles should be classified upon the obligor's balance sheet as liabilities, or to which reference should be made by footnotes thereto, including in any event to the extent not so classified: (a) all debt and similar monetary obligations, whether direct or indirect; (b) all liabilities secured by any mortgage, pledge, security interest, lien, charge or other encumbrance existing on property owned or acquired subject thereto by the obligor, whether or not the liability secured thereby shall have been assumed; (c) indebtedness arising under or in connection with any judgment; and (d) all guarantees, endorsements and other contingent obligations whether direct or indirect in respect of indebtedness of others, including any obligation to supply funds to or in any manner to invest in, directly or indirectly, the debtor, to purchase indebtedness, or to assure the owner of indebtedness against loss, through an agreement to purchase goods, supplies, or services for the purpose of enabling the debtor to make payment of the indebtedness held by such owner or otherwise, and the obligations to reimburse the issuer in respect of any letters of credit. Investments. Investments shall mean all expenditures made and all liabilities incurred (contingently or otherwise) for the acquisition of stock or Indebtedness of, or for loans, advances, capital contributions or transfers of property to, or in respect of any guaranties (or other commitments as described under Indebtedness), or obligations of, any Person. In determining the aggregate amount of Investments outstanding at any particular time: (a) the amount of any Investment represented by a guaranty shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (b) there shall be included as an Investment all interest accrued with respect to Indebtedness constituting an Investment unless and until such interest is paid; (c) there shall be deducted in respect of each such Investment any amount received as a return of capital (but only by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution); (d) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, interest or otherwise, except that accrued interest included as provided in the foregoing clause (b) may be deducted when paid; and (e) there shall not be deducted from the aggregate amount of Investments any decrease in the value thereof. IPO. IPO shall mean the initial public offering pursuant to an effective registration statement under the Securities Act of shares of Common Stock. Lien. Lien shall mean any encumbrance, mortgage, pledge, lien, charge or other security interest of any kind upon any property or assets of any character, or upon the income or profits therefrom. Major Holder. Major Holder shall mean the holder or holders at the relevant time (excluding the Company) of at least 10% of the total number of then outstanding Common Shares (with each holder of then issued and outstanding Warrants being treated for purposes of the determination of Major Holders as if such holder was the holder of that number of Common Shares into which such Warrants would be converted at the time of determination pursuant to the Company's Charter and such Warrants). Majority Holders. Majority Holders shall mean the holder or holders at the relevant time (excluding the Company) of at least 51% of the total number of then outstanding Common Shares (with each holder of then issued and outstanding Warrants being treated for purposes of the determination of Majority Holders as if such holder was the holder of that number of Common Shares into which such Warrants would be converted at the time of determination pursuant to the Company's Charter and such Warrants). Management Agreement. That certain Financial, Investment Banking and Professional Services Agreement dated as of December 1, 1997 between the Company and Andersen Group, Inc. Maximum Rate. See Section 3.5(c). Mortgage. The Mortgage Deed, Security Agreement and Fixture Filing of even date herewith executed and delivered by the Company to BankBoston. Multiemployer Plan. Any multiemployer plan within the meaning of ss.3(37) of ERISA maintained or contributed to by the Company or any ERISA Affiliate. Negotiation Period. See Section 11.4(b). Note. Note shall mean the $7,500,000 Senior Subordinated Note of the Company issued pursuant to Section 2.1 hereof and any other Note or Notes transferred to any other holders pursuant to Section 16 hereof. Obligations. All indebtedness, obligations and liabilities of every kind and nature of the Company or any of its Subsidiaries to BankBoston, existing on the date of this Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, including, without limitation, those obligations arising or incurred under this Agreement or any of the other Financing Documents and the Company's obligations to pay the Repurchase Price as provided herein or other instruments at any time evidencing any thereof, but excluding obligations and liabilities related exclusively to the Equity Securities (other than obligations to pay the Repurchase Price). Patent Assignment. The Patent Collateral Assignment and Security Agreement of even date herewith between the Company and BankBoston. PBGC. PBGC shall mean the Pension Benefit Guaranty Corporation created by ss.4002 of ERISA and any successor entity or entities having similar responsibilities. Permitted Indebtedness. Any Indebtedness that is permitted pursuant to Section 7.14. Permitted Liens. Any Liens that are permitted pursuant to Section 7.15. Person. Person shall mean an individual, partnership, corporation, association, trust, joint venture, unincorporated organization, and any government, governmental department or agency or political subdivision thereof. Precious Metals. Gold measured in troy ounces having a fineness of not less than .995; silver measured in troy ounces having a fineness of not less than .999; and platinum and palladium measured in troy ounces having a fineness of not less than .9995, in each case without regard to whether such metal is in bullion form or is contained in or processed into other materials which contain elements other than such Precious Metal; provided that, for the purposes hereof, the term "Precious Metals" refers only to the number of ounces of the applicable metal, and not to any other contents of such materials. Property. Property means the properties owned, leased or operated by the Company and its Subsidiaries. Public Sale. Public Sale shall mean any sale of Common Stock to the public pursuant to a public offering registered under the Securities Act or to the public through a broker pursuant to the provisions of Rule 144 (or any successor rule) adopted under the Securities Act. Purchase Price. See Section 2.2. Purchased Securities. See Section 2.2. Put Closing Date. See Section 11.2. Put Date. The earliest to occur of the following events: (i) repayment in full of the Note, (ii) the maturity of the Note (whether by stated maturity, acceleration or otherwise), (iii) the fifth anniversary of the Closing Date, (iv) any issuance by the Company of any capital stock (other than the Warrant Shares and shares of Common Stock issued pursuant to the options and warrants listed on Schedule 4.3(b)) for less than fair market value as determined by an appraiser satisfactory to BankBoston, or (v) the consummation of an IPO by the Company. For purposes of clause (iv) above, the "fair market value" of the shares of Common Stock to be issued pursuant to options and warrants shall be determined as of the date of grant of such option or warrant, and the consideration paid for such shares shall equal the sum of (x) the cash price (if any) paid by the grantee for such option or warrant, plus (y) the exercise price specified in such option or warrant. Put Notice. See Section 11.1. RCRA. See definition of "Environmental Laws." Real Estate. All real property at any time owned or leased (as lessee or sublessee) by the Company or any of its Subsidiaries. Registration Rights Agreement. Registration Rights Agreement shall mean the Registration and Preemptive Rights Agreement, dated as of the date hereof among the Company, BankBoston and Andersen Group, Inc., in the form of Exhibit E hereto. Related Agreements. Related Agreements shall mean, collectively, the Securities, the Registration Rights Agreement, the Charter of the Company, the Credit Agreement, the Senior Loan Documents, the Security Documents and the Subordination Agreement. Release. Release shall have the meaning specified in CERCLA and regulations promulgated thereunder; provided, that in the event CERCLA is amended so as to broaden the meaning of such term defined thereby, such broader meaning shall apply as of the effective date of such amendment and provided further, to the extent that the laws of a state wherein the Property lies establishes a meaning for "Release" which is broader than specified in CERCLA, such broader meaning shall apply. Repurchase Price. See Section 11.4(a). Rescission Notice. See Section 11.3. Securities. Securities shall mean the Note, the Warrants and the Common Shares. Securities Act. Securities Act shall mean the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Security Documents. See Section 3.7. Senior Indebtedness. Senior Indebtedness shall mean the Indebtedness of the Company to the Senior Lenders arising under the Senior Loan Documents. Senior Lenders. Senior Lenders shall mean BankBoston, N.A. and Rhode Island Hospital Trust National Bank, as the lenders party to the Credit Agreement (and shall not include any of their respective successors or assigns). Senior Loan Documents. Senior Loan Documents shall mean the "Loan Documents" as such term is defined in the Credit Agreement, as the same may be amended, restated, modified or supplemented from time to time in accordance with the provisions of Sections 6.11 and 7.29 hereof. Subordinated Payments. See Section 7.27. Subordination Agreement. See Section 7.27. Subsidiary. Subsidiary shall mean any corporation, association, trust, or other business entity of which the designated parent shall at any time own, directly or indirectly through a Subsidiary or Subsidiaries, at least a majority (by number of votes) of the outstanding Voting Stock or equity interests. Tax Sharing Agreement. The Tax Sharing Agreement effective as of March 1, 1996 between Andersen Group, Inc. and the Company. Test Period. See Section 11.4(c). Third Appraiser. See Section 11.4(b). Transfer Notice. See Section 16.2. Unfunded Accrued Benefits. With respect to any "employee pension benefit plan" (as defined in Section 3(2) of ERISA) at any time, the amount (if any) by which (a) the present value of all vested liabilities under such employee pension benefit plan exceeds (b) the fair market value of plan assets, all determined as of the most recent valuation date for such employee pension benefit plan. Unrepurchased Securities. See Section 11.3. Warrants. Warrants shall mean the Warrants of the Company issued to BankBoston pursuant to Section 2.1 hereof and any other Warrants transferred to any other holders pursuant to Section 16 hereof; provided that no Warrants which have been sold pursuant to a Public Sale shall be considered to be outstanding Warrants or Securities hereunder. Warrant Stock. Common Stock issued to BankBoston upon exercise of the Warrant. ss.1.1. Rules of Interpretation. (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Agreement. (b) The singular includes the plural and the plural includes the singular. (c) A reference to any law includes any amendment or modification to such law. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) Accounting terms not otherwise defined herein have the meanings assigned to them by generally accepted accounting principles applied on a consistent basis by the accounting entity to which they refer. (f) The words "include", "includes" and "including" are not limiting. (g) All terms not specifically defined herein or by generally accepted accounting principles, which terms are defined in the Uniform Commercial Code as in effect in the State of Connecticut, have the meanings assigned to them therein. (h) Reference to a particular "ss." refers to that section of this Agreement unless otherwise indicated. (i) The words "herein", "hereof", "hereunder" and words of like import shall refer to this Agreement as a whole and not to any particular section or subdivision of this Agreement. 2. SALE AND PURCHASE OF PURCHASED SECURITIES. 2.1. Sale and Purchase of Purchased Securities. The Company agrees to issue and sell to BankBoston and, subject to all of the terms and conditions hereof and in reliance on the representations and warranties set forth or referred to herein, BankBoston agrees to purchase (i) the Senior Subordinated Note of the Company, in the principal amount of $7,500,000, in the form of Exhibit A hereto; and (ii) Warrant Nos. W-1 and W-2 for the purchase of up to an aggregate of 40,000 shares of Common Stock, each in the form of Exhibit B hereto. 2.2. Purchase Price. The aggregate purchase price for the Securities purchased pursuant to Section 2.1 (the "Purchased Securities") is $7,500,000 (the "Purchase Price"). BankBoston and the Company agree that the purchase price for the Note is $7,499,999 and the purchase price for the Warrants is $1, and shall be treated as such for federal, state and local income tax purposes. 2.3. Closing. The closing of the purchase and sale of the Purchased Securities (the "Closing") will take place at the offices of Bingham Dana LLP, 100 Pearl Street, Hartford, Connecticut 06103, at 10:00 a.m. on December 29, 1997, or at such other time, date and place as the parties hereto may agree upon (the "Closing Date"). At the Closing, the Company will deliver to BankBoston the Purchased Securities against payment by BankBoston of the Purchase Price in immediately available funds. Each of the Purchased Securities will be issued to BankBoston or any nominee specified by BankBoston on or before the Closing Date and registered in BankBoston's name or the name of such specified nominee in the records of the Company. 2.4. Use of Proceeds. The proceeds from the sale of the Purchased Securities hereunder will be used solely for working capital and general corporate purposes. Company further agrees that it will not use any part of the proceeds from the sale of the Purchased Securities to purchase or carry any "margin security" or "margin stock", as such terms are defined in any regulation, rule or interpretation of the Board of Governors of the Federal Reserve System. 3. PRINCIPAL AND INTEREST PAYMENTS ON NOTE; SUBORDINATION; SECURITY. 3.1. Mandatory Principal Repayments. The Company agrees to repay the principal amount of the Note in one installment on the earliest to occur of (i) December 29, 2004, or (ii) the date upon which the Senior Indebtedness is fully and finally repaid and the commitments to lend under the Senior Loan Documents are terminated, or (iii) the date upon which the Senior Indebtedness is refinanced with loans made by any lenders other than the Senior Lenders. 3.2. Prepayments. The Company, upon not less than 15 nor more than 30 days' prior written notice to the holder of the Note of the date and amount of optional prepayment, may prepay from time to time all or any portion (in integral multiples of $500,000) of the principal amount of the Note; provided that no prepayment of the Note may be made under this Agreement prior to the sixth anniversary of the Closing Date except upon payment to the holder thereof of the Applicable Prepayment Charge (including, without limitation, any prepayment resulting from the acceleration of the Note under Section 10.2 hereof); and provided further that no optional prepayment of the Note may be made under this Agreement prior to the third anniversary of the Closing Date unless such prepayment is made concurrently with the completion of an IPO; and provided further that any optional prepayments made concurrently with the completion of an IPO shall be full (and not partial) prepayments of all amounts due under the Note; and provided further that if (x) the Company prepays the Note on or after December 29, 2002, (y) such prepayment is made solely as a result of the unwillingness of the Senior Lenders to extend the maturity date of the Senior Indebtedness beyond December 29, 2002, and (z) the unwillingness of the Senior Lenders to extend the maturity of the Senior Indebtedness is not a direct or indirect result of any defaults or threatened defaults by the Company or its affiliates hereunder or under the Senior Loan Documents, then in such case the Company shall not be required to pay the Applicable Prepayment Charge in connection with such prepayment of the Note. The principal amount of any Note designated for prepayment in any notice of optional prepayment permitted by this Section 3.2 shall become due and payable on the date fixed for prepayment in such notice, together with all accrued and unpaid interest thereon. No prepayment of the Note will reduce the amount of the Warrants issued to BankBoston. 3.3. Presentation or Surrender of Note. The Company may, as a condition to making any prepayment of the Note, require the holder thereof to present such Note at the place specified in the Note for payment of the principal thereof, for notation thereon of the amount and date of such prepayment, or, if the Note is prepaid in full, to surrender the same to the Company. 3.4. No Reborrowing or Other Prepayments. Except as expressly permitted by Section 3.2, the principal of the Note may not be prepaid. No amount repaid or prepaid pursuant to Section 3.1 or 3.2 may be reborrowed under the Note. 3.5. Interest Payments. (a) Subject to Section 3.5(b) hereof, the unpaid principal amount of the Note outstanding from time to time shall bear interest from the Closing Date until the maturity of the Note at a rate equal to the Fixed Rate. Interest on the Note shall be calculated on the basis of twelve 30-day months and a 360 day year, and shall be payable quarterly in arrears on the first day of each calendar quarter, commencing on the first such date to occur after the Closing Date, and at the maturity of the Note. (b) Overdue principal and (to the extent permitted by applicable law) overdue interest on the Note shall bear interest at a rate equal to 2% per annum in excess of the Fixed Rate, payable on demand and compounded monthly, until such amount shall be paid in full. (c) It is not intended by the holder of the Note, and nothing contained in this Agreement or the Note shall be deemed, to establish or require the payment of a rate of interest in excess of the maximum rate permitted by applicable federal, state or other law (the "Maximum Rate") and, to prevent such an occurrence, any agreement which may now or hereafter be in effect between the Company and the holder of the Note regarding the payment of fees or interest to such holder is hereby limited by the provisions of this Section 3.5(c). If, in any month, the effective interest rate applicable to the principal outstanding under the Note, absent the Maximum Rate limitation contained herein, would have exceeded the Maximum Rate, then the effective interest rate applicable to the Note for that month shall be the Maximum Rate, and, if in any subsequent month, the effective interest rate would otherwise be less than the Maximum Rate, then the effective interest rate applicable to the Note for such month shall be increased to the Maximum Rate until such time as the amount of interest paid hereunder equals the amount of interest which would have been paid in respect of the Note if the same had not been limited by the Maximum Rate. In the event that, upon payment in full of the principal outstanding under the Note, the total amount of interest paid or accrued in respect of the Note under the terms of this Agreement is less than the total amount of interest which would have been paid or accrued in respect of the Note had the interest not been limited hereby to the Maximum Rate, then the Company shall, to the extent permitted by such applicable federal, state or other law, pay to the holder of the Note an amount equal to the excess, if any, of (i) the lesser of (A) the amount of interest which would have been charged in respect of the Note if the Maximum Rate had, at all times, been in effect with respect to the Note and (B) the amount of interest which would have accrued in respect of the Note had the effective interest rate applicable with respect to the Note at all times not been limited hereunder by the Maximum Rate over (ii) the amount of interest actually paid or accrued in respect of the Note held by such holder under this Agreement. In the event that the holder of the Note receives, collects or applies as interest any sum in excess of the Maximum Rate, such excess amount shall be applied to the reduction of principal outstanding under the Note and if no such principal is then outstanding, such excess or part thereof remaining, shall be paid to the Company. 3.6. Subordination. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, THE PAYMENT OF PRINCIPAL AND INTEREST ON THE NOTE AND OTHER INDEBTEDNESS OF THE COMPANY HEREUNDER IS AND SHALL BE JUNIOR AND SUBORDINATED IN RIGHT OF PAYMENT TO THE PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS IN ACCORDANCE WITH THE TERMS HEREOF. 3.7. Security. The payment and performance of the Company's obligations under this Agreement, the Note and any other Financing Agreements shall at all times will be secured by the following (collectively, the "Collateral"): second priority perfected liens on and security interests (subject only to the first priority Liens in favor if the Senior Lenders pursuant to the Senior Loan Documents) in (i) all property and assets of the Company and its Subsidiaries, including, without limitation, all inventory (including all Precious Metals), accounts, accounts receivable, chattel paper, instruments, documents of the Company and its Subsidiaries, and all general intangibles of the Company and books and records relating to the foregoing; (ii) all other assets in which the Company at any time grants a security interest to BankBoston for any other indebtedness (subject to any prior lien securing such other indebtedness); and (iii) all proceeds and products of the foregoing. The Company shall, and shall cause each of its Subsidiaries to, execute such security agreements, assignments, and other documents (including, without limitation, the Mortgage, the Patent Assignment, the Company Security Agreement and any guaranties and security documents required pursuant to Section 7.28) as may be requested from time to time by BankBoston in order to further evidence or perfect the rights of BankBoston and obligations of the Company and its Subsidiaries with respect to the Collateral (such security agreements, assignments, and other documents being collectively referred to herein as the "Security Documents"). Notwithstanding the foregoing, Ney Ultrasonics Inc. shall be required to enter into Security Documents only as required under Section 7.28. 4. REPRESENTATIONS AND WARRANTIES. In order to induce BankBoston to enter into this Agreement and to purchase the Purchased Securities, the Company hereby represents and warrants that, both immediately before and immediately after giving effect to the Closing: 4.1. Corporate Authority. (a) Incorporation; Good Standing. Each of the Company and its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, (ii) has all requisite corporate power to own its property and conduct its business as now conducted and as presently contemplated, and (iii) is in good standing as a foreign corporation and is duly authorized to do business in each jurisdiction where such qualification is necessary except where a failure to be so qualified would not have a material adverse effect on the business, assets or financial condition of the Company or such Subsidiary. (b) Authorization. The execution, delivery and performance of this Agreement and the other Financing Agreements to which the Company or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby (i) are within the corporate authority of such Person, (ii) have been duly authorized by all necessary corporate proceedings, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Company or any of its Subsidiaries is subject or any judgment, order, writ, injunction, license or permit applicable to the Company or any of its Subsidiaries and (iv) do not conflict with or require approval under any provision of the corporate charter or bylaws of, or any agreement or other instrument binding upon, the Company or any of its Subsidiaries (other than those already obtained by the Company on or prior to the date hereof). (c) Enforceability. The execution and delivery of this Agreement and the other Financing Agreements to which the Company or any of its Subsidiaries is or is to become a party will result in valid and legally binding obligations of such Person enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief or any other equitable remedy is subject to the discretion of the court before which any proceeding therefor may be brought. 4.2. Governmental Approvals. The execution, delivery and performance by the Company and any of its Subsidiaries of this Agreement and the other Financing Agreements to which the Company or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby do not require the approval or consent of, or filing with, any governmental agency or authority other than those already obtained. 4.3. Capitalization. (a) Capital Stock. At Closing, the authorized capital stock of the Company consists solely of 1,100,000 shares of Common Stock. On the Closing Date, after giving effect to the transactions contemplated hereby and by the Related Agreements, the Company will have no outstanding capital stock other than 850,000 shares of Common Stock, all of which will be owned as set forth in Schedule 4.3(a) hereto and will be duly authorized, validly issued, fully paid and non-assessable. (b) Options, Etc. Except for the Warrants and other than as disclosed on Schedule 4.3(b) hereto, the Company does not have any outstanding rights (either pre-emptive or other) or options to subscribe for or purchase from the Company and no warrants or other agreements providing for or requiring the issuance by the Company of, any capital stock or any securities convertible into or exchangeable for its capital stock. (c) Reservation, Etc. Sufficient shares of authorized but unissued shares of Common Stock have been reserved by appropriate corporate action by the board of directors of the Company in connection with the prospective exercise of the Warrants. The issuance of the Warrants (i) will not require any further corporate action by the stockholders or directors of the Company (other than, in the event the number of shares of Common Stock to be purchased under the Warrants is adjusted as provided in the Warrants, the reservation by the Company of additional shares of Common Stock for issuance upon exercise of the adjusted Warrants), (ii) will not be subject to pre-emptive rights in any present or future stockholders of the Company and (iii) will not conflict with any provision of any agreement to which the Company is a party or by which it is bound. All Common Stock, when issued upon exercise of the Warrants in accordance with their terms, as provided in the Company's Charter, will be duly authorized, validly issued, fully paid and non-assessable. 4.4. Subsidiaries. Except as otherwise set forth on Schedule 4.4 hereto, the Company does not have any Subsidiaries and does not own or hold of record and/or beneficially any shares of any class of the capital stock of any corporations. The Company does not own any legal and/or beneficial interests in any partnerships, business trusts or joint ventures or in any other unincorporated trade or business enterprises. Except as set forth on Schedule 4.4, all outstanding capital stock of each such Subsidiary is owned as set forth on Schedule 4.4 hereto free and clear of any Lien other than Permitted Liens, is validly issued and outstanding, fully paid and non-assessable, and there are no commitments for the purchase or sale of, and no options, warrants or other rights to subscribe for or purchase, any securities of any such Subsidiary. 4.5. Title to Properties; Leases. Except as indicated on Schedule 4.5 hereto, the Company and its Subsidiaries own all of the assets reflected in the consolidated balance sheet of the Company and its Subsidiaries as at the Balance Sheet Date or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no rights of others, including any mortgages, leases, conditional sales agreements, title retention agreements, liens or other encumbrances except Permitted Liens. 4.6. Financial Statements. There has been furnished to BankBoston consolidated and consolidating balance sheets and consolidated and consolidating statements of income of Andersen Group, Inc. and its Subsidiaries (including the Company) for the fiscal year ended February 28, 1997, and as at the end of each of the first two fiscal quarters of the fiscal year ending February 28, 1998, and as at the Balance Sheet Date. Such balance sheets and statements of income have been prepared in conformity with generally accepted accounting principles and fairly present the financial condition of Andersen Group, Inc. and the Company as at the close of business on the dates thereof and the results of operations for the periods reported therein. There are no material contingent liabilities of the Company or any of its Subsidiaries as of either of such dates which were not disclosed in such balance sheets and the notes related thereto. 4.7. No Material Changes, Etc. Since the Balance Sheet Date there has occurred no materially adverse change in the financial condition or business of the Company and its Subsidiaries as shown on or reflected in the consolidated balance sheet of the Company and its Subsidiaries as at the Balance Sheet Date, or the consolidated statement of income for the six (6) fiscal month period then ended, other than changes in the ordinary course of business that have not had any materially adverse effect either individually or in the aggregate on the business or financial condition of the Company or any of its Subsidiaries. 4.8. Franchises, Patents, Copyrights, Etc. Each of the Company and its Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of its business substantially as now conducted without conflict with any rights of others. 4.9. Litigation. Except as set forth in Schedule 4.9 hereto, there are no actions, suits, proceedings or investigations of any kind pending or threatened against the Company or any of its Subsidiaries before any court, tribunal or administrative agency or board that, if adversely determined, might, either in any case or in the aggregate, materially adversely affect the properties, assets, financial condition or business of the Company and its Subsidiaries considered as a whole or materially impair the right of the Company and its Subsidiaries, considered as a whole, to carry on business substantially as now conducted by them, or result in any substantial liability not adequately covered by insurance, or for which adequate reserves are not maintained on the consolidated balance sheet of the Company and its Subsidiaries, or which question the validity of this Agreement or any of the other Financing Agreements, or any action taken or to be taken pursuant hereto or thereto. 4.10. No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or is expected in the future to have a materially adverse effect on the business, assets or financial condition of the Company and its Subsidiaries considered as a whole. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement that has or is expected to have any materially adverse effect on the business of the Company and its Subsidiaries considered as a whole. 4.11. Compliance with Other Instruments, Laws, Etc. Neither the Company nor any of its Subsidiaries is in violation of any provision of its Charter, bylaws, or any agreement or instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule, regulation or law (including, without limitation, Environmental Laws and ERISA), in any of the foregoing cases in a manner that could result in the imposition of substantial penalties or materially and adversely affect the financial condition, properties or business of the Company and its Subsidiaries taken as a whole. 4.12. Tax Status. The Company and its Subsidiaries (a) have made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which any of them is subject, (b) have paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings and (c) have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. 4.13. No Event of Default. No Default or Event of Default has occurred and is continuing. 4.14. Holding Company and Investment Company Acts. Neither the Company nor any of its Subsidiaries is (a) a "holding company", or a "subsidiary company" of a "holding company", or an affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; (b) an "investment company", or an "affiliated company" or a "principal underwriter" of an "investment company", as such terms are defined in the Investment Company Act of 1940; (c) a "commodity trading adviser," a "commodity pool operator" or a "futures commission merchant" within the meaning of the Commodity Futures Trading Commission Act of 1974, as amended. 4.15. Regulations U and X. The proceeds of the sale of the Purchased Securities hereunder shall be used for working capital and general corporate purposes of the Company. No portion of any such proceeds is to be used for the purpose of purchasing or carrying any "margin security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 4.16. Insurance. The Company and each of its Subsidiaries maintain with financially sound and reputable insurers insurance with respect to their properties and business against such casualties and contingencies as are in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in amounts, containing such terms, in such forms and for such periods as are reasonable and prudent. 4.17. Broker Accounts. Attached hereto as Schedule 4.17 is a true, correct and complete listing of all of the Broker Accounts of the Company. 4.18. Disclosure. The representations and warranties herein do not contain any untrue statement of a material fact and do not omit any facts necessary to make the statements contained in such representations and warranties not misleading. ss.4.19. Obligations as Senior Subordinated Debt. All Indebtedness of the Company to BankBoston in respect of this Agreement (including the principal of and interest due under the Note and all payments due in connection with the Warrants) will constitute "Senior Subordinated Debt" under the terms of the Subordination Agreement. 5. INVESTMENT REPRESENTATION. BankBoston represents and warrants to the Company that BankBoston is (i) an "accredited investor" as defined in Rule 501 promulgated under the Securities Act, and (ii) acquiring the Purchased Securities for investment and not with a view to selling or otherwise distributing the Purchased Securities; provided, however, that the disposition of BankBoston's property shall at all times be and remain in BankBoston's control, subject to the provisions of Section 16 hereof. 6. CONDITIONS TO PURCHASE. BankBoston's obligation to purchase the Purchased Securities pursuant to this Agreement is subject to compliance by the Company with its agreements herein contained, and to the satisfaction, on or prior to the Closing Date, of the following conditions: 6.1. Financing Agreements. Each of the Financing Agreements shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to BankBoston. BankBoston shall have received a fully executed copy of each such document. 6.2. Certified Copies of Charter Documents. BankBoston shall have received from the Company a copy, certified by a duly authorized officer of the Company to be true and complete on the Closing Date, of each of (a) its Charter as in effect on such date of certification, and (b) its by-laws as in effect on such date, and (c) a certificate, dated not more than ten (10) days prior to the Closing Date, of the Secretary of State of each state in which the Company is incorporated or qualified to do business as to the Company's corporate good standing or qualification to do business in such state, as the case may be. 6.3. Corporate Action. All corporate action necessary for the valid execution, delivery and performance by the Company of this Agreement and the other Financing Agreements to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to BankBoston shall have been provided to BankBoston. 6.4. Incumbency Certificate. BankBoston shall have received from the Company an incumbency certificate, dated as of the Closing Date, signed by a duly authorized officer of the Company, and giving the name and bearing a specimen signature of each individual who shall be authorized: (a) to sign, in the name and on behalf of the Company, each of the Financing Agreements to which the Company is or is to become a party; and (b) to give notices and to take other action on its behalf under the Financing Agreements. 6.5. Financial Condition. BankBoston shall be satisfied that the financial information previously delivered to it fairly presents the business and financial condition of the Company and its Subsidiaries as at the close of business on the Balance Sheet Date and the results of operations for the periods covered by such information, and that there has been no material adverse change in the business, assets, nature of assets, financial condition, operations or prospects of the Company and/or its Subsidiaries since such date. 6.6. Opinion of Counsel. BankBoston shall have received a favorable legal opinion addressed to BankBoston, dated as of the Closing Date, in form and substance satisfactory to BankBoston, including opinions with respect to the Company, the Financing Agreements, and the transactions contemplated by this Agreement. 6.7. Security Documents. The Company and its Subsidiaries shall have (a) executed and delivered to BankBoston the Security Documents and (b) taken all steps reasonably required to effect and perfect BankBoston's security interests in the Collateral. 6.8. Representations True; No Event of Default. Each of the representations and warranties of any of the Company and its Subsidiaries contained in this Agreement, the other Financing Agreements or in any document or instrument delivered pursuant to or in connection with this Agreement shall be true and no Default or Event of Default shall have occurred. BankBoston shall have received a certificate of the Company signed by an authorized officer of the Company to such effect. 6.9. Legality; Governmental Authorization. The purchase of the Purchased Securities shall not be prohibited by any applicable law or governmental order or regulation. All necessary consents, approvals, licenses, permits, orders and authorizations of, or registrations, declarations and filings with, any governmental or administrative agency or of or with any other Person (including without limitation, any consents required under any material contracts) required to be provided or obtained prior to the Closing Date and with respect to any of the transactions contemplated by this Agreement or any of the Related Agreements shall have been duly obtained or made and shall be in full force and effect. BankBoston shall have received copies of all necessary regulatory approvals and evidence of compliance with all state and federal laws, including but not limited to Regulation U and state and federal securities laws, applicable to any of the parties to the transactions. 6.10. [Intentionally Omitted] 6.11. Senior Debt Financing. The Senior Loan Documents shall be in full force and effect, no default shall have occurred thereunder, and the Credit Agreement shall have been amended pursuant to an amendment in form and content satisfactory to BankBoston, to permit the transactions contemplated by this Agreement. 6.12. No Material Change. There shall not have been, or threatened to be, any material damage to or loss or destruction of any properties owned or leased by the Company or any of its Subsidiaries (whether or not covered by insurance) or any material adverse change in the business, assets or financial condition of the Company and its Subsidiaries, taken as a whole, or imposition of any applicable and enforceable laws, rules or regulations which would have a material adverse effect on the business, assets or financial condition of the Company or any of its Subsidiaries. 6.13. No Litigation. No restraining order or injunction shall prevent the transactions contemplated by this Agreement and no action, suit or proceeding shall be pending or threatened before any court or administrative body in which it will be, or is, sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby. 6.14. Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Agreement, the other Financing Agreements and all other documents incident thereto shall be satisfactory in substance and in form to BankBoston and BankBoston's Special Counsel, and BankBoston and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as BankBoston may reasonably request. 7. COVENANTS APPLICABLE TO THE COMPANY WHILE NOTE IS OUTSTANDING. The Company covenants that, until all of the Indebtedness of the Company with respect to the Note has been paid in full, the Company will comply and will cause each of its Subsidiaries to comply with the following provisions unless otherwise consented to in writing by the holder of the Note. 7.1. Punctual Payment. The Company will duly and punctually pay or cause to be paid the principal and interest on the Note and all other amounts provided for in this Agreement and the other Financing Agreements to which the Company or any of its Subsidiaries is a party, all in accordance with the terms of this Agreement and such other Financing Agreements. 7.2. Maintenance of Office. The Company will maintain its chief executive office in Bloomfield, Connecticut, or at such other place in the United States of America as the Company shall designate upon written notice to BankBoston, where notices, presentations and demands to or upon the Company in respect of the Financing Agreements to which the Company is a party may be given or made. 7.3. Records and Accounts. The Company will (a) keep, and cause each of its Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in conformity with generally accepted accounting principles and (b) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties and the properties of its Subsidiaries, contingencies, and other reserves. The Company shall base its accounting and financial calculations (including without limitation those pursuant to ss.7.24) on the "first-in, first-out" or "FIFO" method. 7.4. Financial Statements, Certificates and Information. The Company will deliver to BankBoston at the Company's expense: (a) as soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Company, the consolidated and reviewed consolidating balance sheets of Andersen Group, Inc. and its Subsidiaries (including, without limitation, the Company and its Subsidiaries) as at the end of such year, and the related consolidated and reviewed consolidating statements of income and consolidated statement of cash flow for such year, each setting forth in comparative form the figures for the previous fiscal year and all such consolidated statements to be in reasonable detail, prepared in conformity with generally accepted accounting principles, and accompanied by a review thereof (or, if requested at any time by BankBoston, an unqualified (except for non-material qualifications acceptable to BankBoston) audit thereof) by independent certified public accountants satisfactory to BankBoston, which statements shall be accompanied by annual projections submitted by the management of the Company in form and detail acceptable to BankBoston; (b) as soon as practicable, but in any event not later than forty-five (45) days after the end of each calendar quarter, copies of the unaudited consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such quarter, and the related consolidated and consolidating statements of income and consolidated statements of cash flow for the portion of the Company's fiscal year then elapsed, and aging reports with respect to accounts receivable and accounts payable, all in reasonable detail and prepared in conformity with generally accepted accounting principles, together with a certification by the principal financial or accounting officer of the Company that the information contained in such financial statements fairly presents the financial position of the Company and its Subsidiaries on the date thereof (subject to customary year-end adjustments); (c) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above, a statement certified by the principal financial or accounting officer of the Company in form and substance reasonably satisfactory to BankBoston and setting forth in reasonable detail computations evidencing compliance with the covenants contained in Section 7.24 and (if applicable) reconciliations to reflect changes in generally accepted accounting principles since the Balance Sheet Date; (d) prior to the effectiveness of an IPO, promptly upon the mailing or filing thereof, copies of all financial statements, reports and proxy statements mailed to the public shareholders of Andersen Group, Inc. or any controlling stockholder of the Company, and copies of all registration statements and Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission (or any successor thereto) or any national securities exchange by Andersen Group, Inc. or any controlling stockholder of Andersen Group, Inc.; (e) after the effectiveness of an IPO, promptly upon the mailing or filing thereof, copies of all financial statements, reports and proxy statements mailed to the public shareholders of the Company, and copies of all registration statements and Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission (or any successor thereto) or any national securities exchange by the Company or any controlling stockholder of the Company; (f) contemporaneously with the same being provided to the Senior Lenders, such other financial data and other information as are provided to the Senior Lenders; and (g) from time to time such other financial data and information (including accountants' management letters) as BankBoston may reasonably request. 7.5. Notices. (a)Defaults. The Company will promptly notify BankBoston in writing of the occurrence of any Default or Event of Default. If any Person shall give any notice or take any other action in respect of a claimed default (constituting an Event of Default) under this Agreement or any other note, evidence of indebtedness, indenture or other obligation to which or with respect to which the Company or any of its Subsidiaries is a party or obligor (including the Credit Agreement), whether as principal, guarantor, surety or otherwise, the Company shall forthwith give written notice thereof to BankBoston, describing the notice or action and the nature of the claimed default. (b) Notice of Litigation and Judgments. The Company will, and will cause each of its Subsidiaries to, give notice to BankBoston in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting the Company or any of its Subsidiaries or to which the Company or any of its Subsidiaries is or becomes a party involving an uninsured claim against the Company or any of its Subsidiaries that could reasonably be expected to have a materially adverse effect on the Company and its Subsidiaries considered as a whole and stating the nature and status of such litigation or proceedings. The Company will, and will cause each of its Subsidiaries to, give notice to BankBoston, in writing, in form and detail satisfactory to BankBoston, within ten (10) days of any judgment not fully covered by insurance, final or otherwise, against the Company or any of its Subsidiaries in an amount in excess of $1,000,000. 7.6. Corporate Existence; Maintenance of Properties. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and those of its Subsidiaries. It (a) will cause all of its properties and those of its Subsidiaries used or useful in the conduct of its business or the business of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment, (b) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (c) will, and will cause each of its Subsidiaries to, continue to engage primarily in the businesses now conducted by them and in related businesses; provided that nothing in this Section 7.6 shall prevent the Company from discontinuing the operation and maintenance of any of its properties or any of those of its Subsidiaries if such discontinuance is, in the judgment of the Company, desirable in the conduct of its or their business and that do not in the aggregate materially adversely affect the business of the Company and its Subsidiaries on a consolidated basis. 7.7. Insurance. The Company will, and will cause each of its Subsidiaries to, maintain with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies as shall be in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in amounts, containing such terms, in such forms and for such periods as may be reasonable and prudent. 7.8. Taxes. The Company will, and will cause each of its Subsidiaries to, duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges imposed upon it and its real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of its property; provided that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Company or such Subsidiary shall have set aside on its books adequate reserves with respect thereto; and provided further that the Company and each Subsidiary of the Company will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. 7.9. Inspection of Properties and Books, Etc. The Company shall permit BankBoston and its representatives and consultants to (a) visit and inspect any of the properties of the Company or any of its Subsidiaries, (b) examine the books of account of the Company and its Subsidiaries (and to make copies thereof and extracts therefrom), (c) conduct examinations and verifications of the assets of the Company and all systems and procedures of the Company, including those systems and procedures relating to tracking and valuation of Precious Metals and to cash management, (d) if an Event of Default shall have occurred and be continuing or if BankBoston shall have notice or knowledge of any violation of Environmental Laws, to conduct environmental inspections of the properties and assets of the Company and its Subsidiaries and (e) discuss the affairs, finances and accounts of the Company and its Subsidiaries with, and to be advised as to the same by, its and their officers, all at such reasonable times and intervals as BankBoston may reasonably request. 7.10. Compliance with Laws, Contracts, Licenses, and Permits. The Company will, and will cause each of its Subsidiaries to, comply in all material respects with (a) the applicable laws and regulations wherever its business is conducted, including all Environmental Laws, ERISA, and occupational and safety laws; (b) the provisions of its Charter and by-laws, (c) all agreements and instruments by which it or any of its properties may be bound and (d) all applicable decrees, orders, and judgments. If any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Company or any of its Subsidiaries may fulfill any of its obligations hereunder or any of the other Financing Agreements to which the Company or such Subsidiary is a party, the Company will, or (as the case may be) will cause such Subsidiary to, immediately take or cause to be taken all reasonable steps within the power of the Company or such Subsidiary to obtain such authorization, consent, approval, permit or license and furnish BankBoston with evidence thereof. 7.11. Use of Proceeds. The Company will use the proceeds from the sale of the Purchased Securities hereunder solely for working capital and general corporate purposes. 7.12. Margin Calls in Respect of Futures Contracts. The Company shall, and shall cause each of the Subsidiaries to, meet all initial and variation margin calls and make all other payments required in respect of futures contracts acquired by the Company and the Subsidiaries, respectively, on any commodities exchange as promptly as may be necessary in order that such futures contracts shall remain in full force and effect. Furthermore, the Company shall not, nor shall it permit or suffer any of the Subsidiaries to, close out any of its futures contracts, except in the normal course of its business operations. 7.13. Further Assurances. The Company will, and will cause each of its Subsidiaries to, cooperate with BankBoston and execute such further instruments and documents as BankBoston shall reasonably request to carry out to their satisfaction the transactions contemplated by this Agreement and the other Financing Agreements, including without limitation maintaining the second priority security interest of BankBoston in the Collateral (subject only to the first priority security interest in favor of the Senior Lenders pursuant to the Senior Loan Documents). 7.14. Restrictions on Indebtedness. The Company will not, and will not permit any of its Subsidiaries to, create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than: (a) Indebtedness to BankBoston and its Affiliates arising under any of the Financing Agreements; (b) the Senior Indebtedness; (c) current liabilities incurred in the ordinary course of business not incurred through (i) the borrowing of money, or (ii) the obtaining of credit except for credit on an open account basis customarily extended and in fact extended in connection with normal purchases of goods and services; (d) Indebtedness in respect of taxes, assessments, governmental charges or levies and claims for labor, materials and supplies to the extent that payment therefor shall not at the time be required to be made in accordance with the provisions of Section 7.8; (e) Indebtedness in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the Company or such Subsidiary shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review; (f) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business; (g) Indebtedness owed to the Company by a Subsidiary of the Company; (h) Indebtedness under non-speculative hedge arrangements satisfactory to BankBoston designed to hedge against fluctuations in the price of Precious Metals, and interest rates covering the notional amount set forth in the trading and hedging policies of the Company with respect to Precious Metals, financial futures, foreign currencies, futures or options (the "Hedging Policy"), all of which shall be reasonably satisfactory to BankBoston; (i) Other Indebtedness to BankBoston and its Affiliates; (j) Indebtedness owed by the Company to a Subsidiary of the Company; (k) Indebtedness incurred in connection with Capital Leases with third party financial institutions other than BankBoston; provided, that the aggregate principal amount of all such Indebtedness shall not exceed the amount permitted by the Senior Loan Documents; (l) Subordinate Indebtedness to Andersen Group, Inc. that satisfies each of the following conditions: (a) the obligation to repay such Indebtedness is evidenced by a written agreement between the Company (or its Subsidiary, as applicable) and Andersen Group, Inc., and (b) the Company (or its Subsidiary, as applicable) and Andersen Group, Inc. shall have entered into a Subordination Agreement in form and substance satisfactory to BankBoston in respect of such Indebtedness; and (m) Any other Indebtedness that is permitted pursuant to Section 8.1 of the Credit Agreement. 7.15. Restrictions on Liens. The Company will not, and will not permit any of its Subsidiaries to, (a) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any of its property or assets of any character whether now owned or hereafter acquired; (b) transfer any of such property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; (c) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement; (d) suffer to exist for a period of more than thirty (30) days after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; (e) sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles, chattel paper or instruments, with or without recourse; or (f) enter into or permit to exist any arrangement or agreement which directly or indirectly prohibits the Company or such Subsidiary from creating or incurring any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind provided that the Company and any Subsidiary of the Company may create or incur or suffer to be created or incurred or to exist: (i) liens in favor of the Company on all or part of the assets of Subsidiaries of the Company securing Indebtedness owing by Subsidiaries of the Company to the Company; (ii) liens to secure taxes, assessments and other government charges in respect of obligations not overdue or liens on properties to secure claims for labor, material or supplies in respect of obligations not overdue; (iii) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations; (iv) liens on properties in respect of judgments or awards, the Indebtedness with respect to which is permitted by Section 7.14(e); (v) liens of carriers, warehousemen, mechanics and materialmen, and other like liens on properties, in existence less than 60 days from the date of creation thereof in respect of obligations not overdue; (vi) encumbrances on Real Estate consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's liens under leases to which the Company or a Subsidiary of the Company is a party, and other minor liens or encumbrances, none of which encumbrances, restrictions, defects, irregularities and liens interferes materially with the use of the property affected in the ordinary conduct of the business of the Company and its Subsidiaries, and all of which do not individually or in the aggregate materially affect the value or marketability of any Real Estate or have a materially adverse effect on the business of the Company individually or of the Company and its Subsidiaries on a consolidated basis; (vii) liens in favor of BankBoston and its Affiliates securing the payment of the Obligations and other Indebtedness due and owing to BankBoston and such Affiliates; (viii) liens in favor of the Senior Lenders pursuant to the Senior Loan Documents; (ix) security interests in personal property acquired by the Company or its Subsidiaries after the date hereof to secure Capital Lease Indebtedness of the type and amount permitted by Section 7.14(k) in connection with the acquisition of such property, which security interests cover only the personal property so acquired; and (x) any other liens and security interests that are permitted pursuant to Section 8.1 of the Credit Agreement. 7.16. Restrictions on Investments. The Company will not, and will not permit any of its Subsidiaries to, make or permit to exist or to remain outstanding any Investment, including without limitation any Investment in a partnership or joint venture, except Investments in: (a) marketable direct or guaranteed obligations of the United States of America and its agencies that mature within five (5) years from the date of purchase by the Company; (b) demand deposits, certificates of deposit, bankers acceptances and time deposits (x) of United States banks having total assets in excess of $1,000,000,000 or (y) which deposits, certificates and acceptances are fully insured by the Federal Deposit Insurance Corporation; (c) securities commonly known as "commercial paper" issued by a corporation organized and existing under the laws of the United States of America or any state thereof that at the time of purchase have been rated and the ratings for which are not less than "P 1" if rated by Moody's Investors Services, Inc., and not less than "A 1" if rated by Standard and Poor's; (d) Investments existing on September 30, 1997 and listed on Schedule 7.16 hereto; (e) Investments by the Company in Subsidiaries existing on the date hereof; (f) Investments consisting of loans and advances to employees for moving, entertainment, travel and other similar expenses in the ordinary course of business not to exceed $50,000 in the aggregate at any time outstanding; (g) Investments permitted by Section 7.17; and (h) Other Investments in an aggregate amount not in excess of $500,000 at any time consisting of the issued and outstanding capital stock of savings and loan associations having total assets of not less than $250,000,000. 7.17. Merger, Consolidation and Acquisition and Disposition of Assets. (a) The Company will not, and will not permit any of its Subsidiaries to, become a party to any merger or consolidation, or agree to or effect any asset acquisition or stock acquisition other than (i) the sale of inventory and leasing of equipment in the ordinary course of business; (ii) the merger or consolidation of one or more of the Subsidiaries of the Company with and into the Company, (iii) the merger or consolidation of two or more Subsidiaries of the Company, provided, that, if a merger or consolidation occurs between a Subsidiary that is partially owned by the Company and a Subsidiary that is wholly owned by the Company, the wholly owned Subsidiary shall be the surviving entity, and (iv) acquisitions permitted pursuant to Section 8.4(a) of the Credit Agreement. (b) The Company will not, and will not permit any of its Subsidiaries to, become a party to or agree to or effect any disposition of assets, other than the disposition of obsolete or worn-out assets in the ordinary course of business, consistent with past practices. Notwithstanding the foregoing, and subject to the following proviso, the Company may dividend and transfer to Andersen Group, Inc. (or, in the case of the assets described in the following clause (y), transfer to Ney Ultrasonics Inc.) each of the following: (x) the stock of Ney Ultrasonics Inc. and (y) after delivery to BankBoston of a pro forma asset statement approved by BankBoston, the personal property used primarily by Ney Ultrasonics Inc. in its Ultrasonics business with an aggregate value not to exceed the value shown on such asset statement and approved by BankBoston; provided, that (i) the aggregate unpaid principal and interest in respect of all loans made by the Company to Ney Ultrasonics Inc. does not exceed $750,000 as of the applicable date of such dividend, (ii) after giving effect to such dividend, the Company shall retain all rights to repayment of such loans theretofore made by the Company to Ney Ultrasonics Inc., and (iii) Andersen Group, Inc. shall agree in writing that the net proceeds of the sale of Ney Ultrasonics Inc. shall be applied first to pay off such loans made by the Company to Ney Ultrasonics Inc. prior to any other application of such net sale proceeds. 7.18. Sale and Leaseback. The Company will not, and will not permit any of its Subsidiaries to, enter into any arrangement, directly or indirectly, whereby the Company or any Subsidiary of the Company shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that the Company or any Subsidiary of the Company intends to use for substantially the same purpose as the property being sold or transferred. 7.19. No Restrictions on Pledge or Upstreaming. The Company will not, and will not permit any of its Subsidiaries to, agree with any third party to limit, prohibit or restrict in any way (a) the ability or right of the Company or any of its Subsidiaries to grant to BankBoston liens on or security interests in any of their respective properties and assets, or (b) the ability or right of any of the Subsidiaries of the Company to transfer money or other assets to the Company at any time. 7.20. ERISA Compliance. Neither the Company nor any of its subsidiaries will at any time permit any pension plan or other employee benefit plan maintained by it that is subject to ERISA to: (a) engage in any "prohibited transaction" as defined in the Code; (b) incur any "accumulated funding deficiency" as defined in Section 302 of ERISA; or (c) terminate under circumstances which result in the imposition of a lien on the property of the Company or any of its Subsidiaries. 7.21. Transactions with Affiliates. Neither the Company nor any of its Subsidiaries will enter into any transaction, including without limitation the purchase, sale or exchange of property or the rendering of any service, with any Affiliate except in the ordinary course of business and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than the Company or such Subsidiary would obtain in a comparable arm's length transaction with a person or entity which is not an Affiliate, provided that in no event shall any such transaction involve loans or extensions of credit to or other investments in any such Affiliate except such Indebtedness and other Investments that are expressly permitted by this Agreement. Notwithstanding anything to the contrary in this Section 7.21, the Company may (x) make payments to Andersen Group, Inc. pursuant to the Tax Sharing Agreement, as provided in Section 7.22 below, (y) enter into the Management Agreement with Andersen Group, Inc. as provided in Sections 7.14 and 7.27, and (z) issue a note in an aggregate principal amount of up to $4,000,000 to Andersen Group, Inc. as provided in Sections 7.14 and 7.27, provided that the Company shall in no event fail to comply with Sections 7.14, 7.22 and 7.27. 7.22. Dividends and Distributions. The Company shall not make any dividend or distribution to or for the benefit of its shareholders; provided, that as long as (a) no Default or Event of Default has occurred, and (b) after giving effect to such dividend or distribution, the Company will be in compliance with all of its covenants in Section 7.24 herein, the Company may make payments to Andersen Group, Inc., in any fiscal year of the Company ending on or after February 28, 1997 in an aggregate amount equal to the amount of any required payments under the Tax Sharing Agreement; and provided further that (i) the Company may repurchase the Equity Securities in accordance with Sections 10.2 and 11 hereof, (ii) the Company may pay dividends to the holders of Common Stock pro rata solely in shares of Common Stock, (iii) the Company may dividend the stock and assets of Ney Ultrasonics Inc. to Andersen Group, Inc. in accordance with ss.7.17, (iv) the Company may, upon the termination of an employee's employment with the Company, repurchase the Common Stock previously purchased by such employee pursuant to employee stock option agreements and (v) the Company may make dividends or distributions if permitted by ss.8.9 of the Credit Agreement. 7.23. Tax Sharing Agreement. The Company will not amend, modify or waive in any material respect any term or condition of the Tax Sharing Agreement effective as of March 1, 1996 between Andersen Group, Inc. and the Company (the "Tax Sharing Agreement") without the prior written consent of BankBoston. 7.24. Certain Financial Covenants. The Company and its Subsidiaries will comply with each of the covenants set forth on Schedule 7.24 hereto. 7.25. Charter Amendments. The Charter of the Company and its Subsidiaries shall not be amended or modified in any manner that might materially and adversely affect BankBoston's rights in respect of the Equity Securities. Provided that the parties (other than BankBoston) are in compliance with the provisions of the Financing Agreements and the Related Agreements, and that no default under the Financing Agreements or Related Agreements would be caused thereby, amending the Charter of the Company to increase the authorized number of shares of Common Stock shall not in and of itself be deemed to materially and adversely affect BankBoston's rights in respect of the Equity Securities. 7.26. Subsidiary Stock. The Company shall not (i) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity securities of any of its Subsidiaries except to qualify directors if required by applicable law and except in pledge to the Senior Lender or BankBoston or (ii) permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity securities of any of its Subsidiaries (including such Subsidiary), except to the Company, another wholly-owned Subsidiary of the Company or to qualify directors if required by applicable law. The Company will not permit any of its Subsidiaries to issue any shares of capital stock to any Person other than the Company or any of its other wholly-owned Subsidiaries. Nothing in this Section 7.26 shall prohibit the Company from dividending the stock of Ney Ultrasonics Inc. to Andersen Group, Inc. in accordance with this Agreement. ss.7.27. Payments to Andersen Group. The Company will not (and will not permit any of its Subsidiaries to) repay any Indebtedness held by, pay any management fees due to, or make any other payments (other than Distributions permitted hereunder) (the "Subordinated Payments") to Andersen Group, Inc.; provided, that the Company may (and shall) make Subordinated Payments in respect of such subordinated management fees and interest accrued on such subordinated Indebtedness as earned or accrued quarterly in arrears so long as: (a) the obligation to pay such Subordinated Payments shall be evidenced by a written agreement between the Company (or such Subsidiary, as applicable) and Andersen Group, Inc., (b) the Company or such Subsidiary and Andersen Group, Inc. shall have entered into a Subordination Agreement in form and substance satisfactory to BankBoston with respect to the payment of any Subordinated Payments (a "Subordination Agreement"), (c) both before and after giving effect to such payment, no Default or Event of Default shall have occurred and be continuing under the Financing Documents, (d) both before and after giving effect to such payment, the Company's Consolidated Net Income for the fiscal quarter ending immediately preceding such date of payment is not less than $1.00 (as evidenced by a certificate delivered by the Company to BankBoston prior to making such payment), and (e) both before and after giving effect to such payment, the difference between (x) the Company's Consolidated Net Income for the fiscal quarter ending immediately preceding such date of payment minus (y) the amount of such payment, is not less than $1.00 (as evidenced by a certificate delivered by the Company to BankBoston prior to making such payment). 7.28. Disposition of Ney Ultrasonics Inc. If the Company shall not have completed the distribution of the stock of Ney Ultrasonics Inc. to Andersen Group, Inc. in accordance with the last sentence of ss.7.17 on or prior to April 1, 1998, then on April 1, 1998, the Company shall cause Ney Ultrasonics Inc. to execute and deliver to BankBoston a guaranty, a security agreement, a lessor's agreement, UCC financing statements and such other guaranty and security documents as BankBoston shall reasonably require, each in form and substance acceptable to BankBoston, and otherwise take all actions and file or record all documents reasonably required by BankBoston in order to grant BankBoston a second priority (subject only to the first priority liens pursuant to the Senior Loan Documents), perfected lien on all of the assets and properties of Ney Ultrasonics Inc. as security for the Company's obligations under this Agreement, the Note and any other Financing Agreements. 7.29. Amendment of Senior Debt Documents, Etc. Neither the Company nor any of its Subsidiaries shall agree to any material amendment or modification of, or grant any waiver or fail to enforce any of its material rights pursuant to the Credit Agreement or any of the Senior Loan Documents, including without limitation, any terms of such documents relating to principal amount, maturity, amortization, interest or fees, without in each case BankBoston's prior written consent. 7.30. Intellectual Property Schedules. On or prior to January 22, 1998, the Company shall provide to BankBoston the following updated schedules to the following Security Documents, each in form and substance satisfactory to BankBoston: (i) Schedule 3 to that certain Security Agreement dated as of December 29, 1997 between the Company and BankBoston, (ii) Schedule A to that certain Trademark Collateral Security and Pledge Agreement dated as of December 29, 1997 between the Company and BankBoston, and (iii) Schedule A to that certain Patent Collateral Assignment and Security Agreement dated as of December 29, 1997 between the Company and BankBoston. 8. COVENANTS APPLICABLE WHILE THE EQUITY SECURITIES ARE OUTSTANDING. The Company covenants that, as long as at least 25% of the Equity Securities initially issued or issuable hereunder remain outstanding, the Company will comply with the following provisions: 8.1. General. The Company will comply with and will cause each of its Subsidiaries to comply with the provisions of Sections 7.21 and 7.25 hereof. 8.2. Rights to Attend Meetings. The Company will call and hold a meeting of its board of directors at least once each fiscal quarter. The Company will give one representative designated by the Majority Holders of the Equity Securities at least five days' prior written notice (or such shorter notice as is given to the Company's outside directors) of any proposed meeting (or action by written consent) of the board of directors of the Company (except written consents executed solely in connection with the establishment of bank accounts or other purely administrative matters), such notice in all cases to be in the form and manner such notice is given to the Company's directors. Such representative will be entitled to attend as an observer at any such meeting or, if a meeting is held by telephone conference, to participate therein for the purpose of listening thereto. 8.3. Other Information. From time to time upon the request of any representative designated by the Majority Holders of Equity Securities, the Company will furnish to such representative such information regarding the business, affairs, prospects and financial condition of the Company and its Subsidiaries as such representative may reasonably request. Such representative shall have the right during normal business hours to examine the books and records of the Company and its Subsidiaries to make copies, notes and abstracts therefrom, and to make an independent examination of the books and records of the Company and its Subsidiaries. 8.4. Confidentiality. BankBoston and each Major Holder will hold in confidence, and will not use (except to evaluate its investment in the Company), all confidential or proprietary information of the Company and its Subsidiaries provided or made available to BankBoston and such Major Holder pursuant to this Section 9 until such time as such information has become publicly available other than as a consequence of any breach by BankBoston or a Major Holder of its confidentiality obligations hereunder. 9. [INTENTIONALLY OMITTED] 10. DEFAULTS. 10.1. Events of Default. Holders of the Securities will be entitled to exercise the remedies provided by Section 10.2 hereof in accordance with the terms thereof if any one or more of the following events ("Events of Default") shall occur: (a) the Company shall fail to make any payment of interest within five (5) days after the same shall become due, or the Company shall fail to make any payment of principal on the Note as the same shall become due, whether at maturity or by acceleration or otherwise; or (b) The Company shall fail to pay the Repurchase Price for any Equity Securities as and when required pursuant to Section 11 hereof (after giving effect to the provisions of Section 11.3); or (c) The Company or any of its Subsidiaries shall fail to perform or observe any of the covenants applicable to it set forth in Sections 7.5(a) or (b), 7.14 through 7.29 or 8 hereof; or (d) The Company or any of its Subsidiaries shall fail to perform or observe any covenant, agreement or provision set forth in this Agreement or any covenant, agreement, or provision to be performed or observed by it under any Financing Agreements, other than those provisions set forth in Sections 10.1(a), (b) and (c) above, and such failure shall not be rectified or cured to BankBoston's satisfaction within thirty (30) days after written notice from BankBoston; or (e) any representation or warranty made by the Company or any of its Subsidiaries to BankBoston in connection with this Agreement or any other Financing Agreement or any amendment to this Agreement or any other Financing Agreement shall prove to have been false in any material respect on the date as of which it was made or deemed to have been made or repeated; or (f) The Company or any of its Subsidiaries shall fail (i) to pay when due, or within any applicable period of grace, any obligation for borrowed money or credit received (including without limitation the Senior Indebtedness) and/or in respect of any Capital Leases in an aggregate amount in excess of $500,000 or fail to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound, evidencing or securing borrowed money or credit received (including without limitation the Senior Indebtedness) and/or in respect of any Capital Leases, in an aggregate amount in excess of $500,000 for such period of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof, or (ii) to perform and observe any of the covenants or provisions required to be performed or observed by it pursuant to the Credit Agreement or the Senior Loan Documents, and in either case such failure results in the acceleration of the maturity of the Company's obligations thereunder in an aggregate amount in excess of $500,000; or (g) the Company or any of its Subsidiaries shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of the Company or any of its Subsidiaries or of any substantial part of the assets of the Company or any of its Subsidiaries or shall commence any case or other proceeding relating to the Company or any of its Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application shall be filed or any such case or other proceeding shall be commenced against the Company or any of its Subsidiaries and the Company or any of its Subsidiaries shall indicate its approval thereof, consent thereto or acquiescence therein or such petition or application shall not be dismissed within sixty (60) days of the filing thereof; (h) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating the Company or any of its Subsidiaries bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of the Company or any Subsidiary of the Company in an involuntary case under federal bankruptcy laws as now or hereafter constituted; (i) there shall remain in force, undischarged, unsatisfied, unstayed and unbonded (to the reasonable satisfaction of BankBoston), for more than sixty (60) days, whether or not consecutive, any final judgment against the Company and/or any of its Subsidiaries that, with other outstanding final judgments, undischarged and unbonded (to the reasonable satisfaction of BankBoston), against the Company or any of its Subsidiaries exceeds in the aggregate $1,000,000; (j) with respect to any pension plan, an ERISA Reportable Event shall have occurred and BankBoston shall have determined in its reasonable discretion that such event reasonably could be expected to result in liability of the Company and/or any of its Subsidiaries to the PBGC or such pension plan in an aggregate amount exceeding $1,000,000 and such event in the circumstances occurring reasonably could constitute grounds for the termination of such pension plan by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer such pension plan; or a trustee shall have been appointed by the United States District Court to administer such pension plan; or the PBGC shall have instituted proceedings to terminate such pension plan; (k) if any of the Financing Agreements shall be canceled, terminated, revoked or rescinded otherwise than in accordance with the terms thereof or with the express prior written agreement, consent or approval of BankBoston, or any action at law, suit in equity or other legal proceeding to cancel, revoke or rescind any of the Financing Agreements shall be commenced by or on behalf of the Company or any of its Subsidiaries party thereto or any of their respective stockholders, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Financing Agreements is illegal, invalid or unenforceable in accordance with the terms thereof; (l) the Company or any of its Subsidiaries shall be enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting any material part of its business and such order shall continue in effect for more than thirty (30) days; (m) there shall occur for more than thirty (30) days the loss, suspension or revocation of, or failure to renew, any license or permit now held or hereafter acquired by the Company or any of its Subsidiaries if such loss, suspension, revocation or failure to renew would have a material adverse effect on the business or financial condition of the Company or such Subsidiary; or (n) Andersen Group, Inc., shall, at any time prior to the effectiveness of an IPO of the Company, legally or beneficially own less than a majority of the issued and outstanding voting stock of the Company (other than pursuant to BankBoston's exercise of the Warrant). 10.2. Remedies. (a) Subject to Section 3.6, upon the occurrence and continuance of any of the Events of Default under Section 10.1 hereof, in each and every such case, the holder of the Note may proceed to protect and enforce its rights by suit in equity, action at law and/or other appropriate proceedings either for specific performance of any covenant, provision or condition contained or incorporated by reference in this Agreement or in the Note or any of the Security Documents, including as permitted by applicable law the obtaining of the ex parte appointment of a receiver, or in aid of the exercise of any power granted in this Agreement or in the Note or any of the Security Documents, and (unless there shall have occurred an Event of Default under Section 10.1(h) hereof, in which case the unpaid balance of the Note shall automatically become due and payable) may by notice to the Company, declare all or any part of the unpaid principal amount of the Note then outstanding to be forthwith due and payable, and thereupon such unpaid principal amount or part thereof, together with interest accrued thereon and any Applicable Prepayment Charge and all other sums, if any, payable under this Agreement or the Note or the Security Documents shall become so due and payable without presentation, presentment, protest or further demand or notice of any kind, all of which are hereby expressly waived, and such holder may proceed to enforce payment of such amount or part thereof or any other legal or equitable right in such manner as it may elect. No remedy herein conferred herein is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. (b) Upon the occurrence and continuance of (A) any of the Events of Default under Sections 10.1(c) (with respect to a breach of Sections 7.21 and/or 7.25, each as incorporated by reference into Section 8.1) or (B) any failure of the Company to pay the Repurchase Price as and when required pursuant to Section 11 (after giving effect to the provisions of Section 11.3) or (C) any material breach by any party (other than BankBoston) of the Registration Rights Agreement or the Warrant or any other Financing Agreement then in effect, in each and every such case, (i) the Majority Holders of the Equity Securities may proceed to protect and enforce its or their rights by suit in equity, action at law and/or other appropriate proceeding for specific performance of any covenant, provision or condition contained or incorporated by reference in this Agreement or in any Related Agreement or (in the case of a breach under clause (B) above, and to the extent not prohibited by applicable laws) in any Security Document, or in aid of the exercise of any power granted in this Agreement or any Related Agreement or (in the case of a breach under clause (B) above, and to the extent not prohibited by applicable laws) in any Security Document, and (ii) the Majority Holders of the Equity Securities may give a Put Notice to the Company pursuant to Section 11 hereof and at any time after the giving of such Put Notice, the theretofore unexercised "put" rights set forth in Section 11 hereof shall, to the extent not already exercisable, be deemed to have become immediately exercisable and the Majority Holders of Equity Securities may in such Put Notice to the Company declare all or part of such theretofore unexercised "put" rights to be forthwith exercised and due and payable, whereupon the Repurchase Price for the Equity Securities subject thereto shall become so due and payable without presentation, presentment, protest or further demand or notice of any kind, all of which are expressly waived, and any such holder or holders may proceed to enforce payment of such amount or part thereof in such manner as it or they may elect. No remedy herein conferred herein is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. Notwithstanding the foregoing, after (x) full and final repayment of all amounts due in connection with the Notes (including all principal, interest, and prepayment premiums, if any) and (y) (to the extent that BankBoston exercises its rights to put the Equity Securities under Section 11.1 contemporaneously with repayment of the Notes) satisfaction of any obligations to repay the Repurchase Price, BankBoston shall release the Collateral from the lien of the Security Documents, and thereupon the provisions of this Section 10.2(b) shall no longer apply to any enforcement by BankBoston of the liens and security interests created pursuant to the Security Documents. 10.3. Waivers. Each of the Company and its Subsidiaries hereby waives, to the extent not prohibited by applicable law, (a) all presentments, demands for performance and notices of nonperformance (except to the extent specifically required by the provisions hereof), (b) any requirement of diligence or promptness on the part of any holder of Securities in the enforcement of its rights under the provisions of this Agreement, the Company's Charter, or any Financing Agreement, and (c) any and all notices of every kind and description which may be required to be given by any statute or rule of law. 10.4. Course of Dealing. No course of dealing between the Company or any of its Subsidiaries on the one hand, and BankBoston or any holder of Securities, on the other hand, shall operate as a waiver of any of BankBoston's or its rights under this Agreement, the Company's Charter, or any Financing Agreement. No delay or omission in exercising any right under this Agreement, the Company's Charter, or any Financing Agreement shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any other occasion. 11. REPURCHASE OF EQUITY SECURITIES. 11.1. Right to Put Equity Securities. At any time, but only on one occasion, on or after the Put Date, or on such earlier date as may be determined under Section 10.2(b) hereof, BankBoston may, by notice to the Company (a "Put Notice"), elect to sell to the Company (and the Company hereby agrees to repurchase from BankBoston), at the Repurchase Price specified in Section 11.4 hereof, such Equity Securities as are specified in the Put Notice. For all purposes of this Section 11, each Warrant shall be treated as the number of Common Shares for which it is then exercisable. 11.2. Put Closing. The put closing shall, subject to the terms of ss.10.2(b) take place at the offices of the Company at 10:00 a.m. local time on a date (a) not more than 120 days after the date a Put Notice is received by the Company as the Company shall specify by notice to BankBoston, or at such later time as Fair Market Value shall have been determined under Section 11.4(b) hereof, or (b) at such other time and place as BankBoston and the Company may agree upon (a "Put Closing Date"). At the put closing BankBoston will deliver to the Company a certificate or certificates evidencing all of the Equity Securities then to be purchased by the Company (properly endorsed or accompanied by stock powers or, in the case of any Warrant, assignments, with signature(s) guaranteed or similar appropriate documentation of authority to transfer) against payment of the Repurchase Price to BankBoston in the manner specified in Section 11.3 hereof. Except to the extent prohibited by applicable law, prior to the Put Closing Date, the Company will provide BankBoston with all material available information regarding the Company reasonably requested by BankBoston. 11.3. Payment. The Company shall pay the Repurchase Price at any closing under Section 11.2 hereof out of funds legally available therefor in cash or immediately available funds. If legally available funds are not sufficient to pay the Repurchase Price in full at any closing, the failure to pay the portion of the Repurchase Price for which legally available funds are not available shall not constitute an Event of Default. In the event that any portion of the Repurchase Price is not paid either in cash or immediately available funds, BankBoston shall retain all BankBoston's rights hereunder and with respect to the Equity Securities, as to that number of shares of Warrant Stock or portion of the Warrants exercisable for that number of shares as such unpaid portion represents (the "Unrepurchased Securities"), until such time as the unpaid portion of the Repurchase Price and interest thereon, determined as set forth below, shall be paid to BankBoston in full. If the Repurchase Price is not paid on or prior to the Put Closing Date, BankBoston shall be entitled, by notice to the Company (the "Rescission Notice"), to rescind BankBoston's put of such Unrepurchased Securities pursuant to Section 11.1. Unless and until the Company receives a Rescission Notice, the unpaid portion of the Repurchase Price allocable to the Unrepurchased Securities shall remain an obligation of the Company and shall become due and payable, in cash or immediately available funds, as soon as there are funds legally available therefor. Interest shall accrue from the date 120 days after the date on which the Company receives the applicable Put Notice on any unpaid portion of the Repurchase Price at the per annum rate that is 2% in excess of the Fixed Rate, compounded on a monthly basis to the extent permitted by law and payable on demand. 11.4. Repurchase Price for Equity Securities. (a) Repurchase Price. The repurchase price (the "Repurchase Price") shall be an amount equal to: (i) in the case of each Common Share, the quotient obtained by dividing (A) the greater of the Formula Value of the Company's common stock equity (as determined pursuant to Section 11.4(c) hereof) or the Fair Market Value of the Company's common stock equity (as determined pursuant to Section 11.4(b) hereof), calculated as of the date of the related Put Notice under Section 11.1 hereof, respectively, plus, the aggregate consideration to be paid to the Company upon the exercise of all then exercisable outstanding warrants, options or convertible securities pursuant to which the Company is then obligated to issue Common Stock by (B) the sum of (1) the number of shares of Common Stock then outstanding plus (2) the number of shares of Common Stock then issuable upon exercise of then outstanding warrants, options or convertible securities, in each case to the extent then exercisable; and (ii) in the case of each Warrant, (A) the product of the Repurchase Price per Common Share then purchasable thereunder as determined under this Section 11.4(a) multiplied by the number of such shares then purchasable thereunder, minus (B) the aggregate exercise price for such shares. (b) Fair Market Value. For a period of 20 days after the date of any Put Notice (the "Negotiation Period"), each party hereto agrees to negotiate in good faith to reach agreement upon the fair market value of the Company's common stock equity (the "Fair Market Value"). In the event that the parties are unable to agree upon the Fair Market Value by the end of the Negotiation Period, the Fair Market Value of the Company's common stock equity shall be determined for purposes of this Section 11.4(b) initially by an appraiser of nationally recognized standing selected by the Company (the "Company Appraiser") and whose appraisal (the "Company Appraisal") shall be furnished to BankBoston within 30 days after the end of the Negotiation Period. If BankBoston does not object to such determination within 15 days after receipt of such notice, the fair market value determined by the Company Appraiser shall be the Fair Market Value. If BankBoston objects to the Fair Market Value determined by the Company Appraiser, BankBoston may select an Appraiser of nationally recognized standing (the "BankBoston Appraiser") who shall review the determination of the Company Appraiser and issue a report thereon (the "BankBoston Appraisal"), within 30 days after delivery to BankBoston of the Company Appraisal. Within 10 days after delivery to the Company of the BankBoston Appraisal, the Company Appraiser and the BankBoston Appraiser shall meet in order to resolve any questions or differences with respect to the Fair Market Value. If such Appraisers agree on a Fair Market Value of the Company's common stock equity, such Fair Market Value shall be the Fair Market Value. If no agreement is reached, such Appraisers shall select an appraiser of nationally recognized standing (the "Third Appraiser") within five days after such meeting. Fair Market Value shall then be determined by the Third Appraiser within 30 days after delivery to the Company of the BankBoston Appraisal, and the determination of the Third Appraiser shall be conclusive and binding upon the Company and BankBoston. Fair Market Value shall in all cases be calculated by determining the Fair Market Value of the entire common stock equity interest of the Company taken as a whole, without premium for control or discounts for minority interests or restrictions on transfer. All expenses of the Company Appraiser shall be borne by the Company; all expenses of the BankBoston Appraiser shall be borne by BankBoston; and all expenses of the Third Appraiser shall be borne equally by the Company and BankBoston. (c) Formula Value. The Formula Value of the Company's common stock equity at any particular date of determination shall be an amount calculated by adding (1) the product obtained by (i) multiplying the number five (5) by (ii) the difference obtained by (x) the Company's EBITDA for the twelve (12) full calendar months immediately preceding such date (the "Test Period") minus (y) the lesser of (A) the aggregate amount of non-discretionary, required maintenance capital expenditures made by the Company during the Test Period and (B) the aggregate amount of the Company's depreciation expense during the twelve (12) calendar month period immediately preceding the Test Period, plus (2) the sum of the Company's and its Subsidiaries' cash balances and cash equivalents on hand as of such date, and minus (3) the aggregate amount of Indebtedness for borrowed money outstanding as of such date and not prohibited by this Agreement. 12. SUBSEQUENT HOLDERS OF SECURITIES. Whether or not any express assignment has been made in this Agreement, the provisions of this Agreement and the Financing Agreements that are for BankBoston's benefit as the holder of any Securities are also for the benefit of, and enforceable by, all subsequent holders of Securities. If BankBoston transfers any interest in the Common Shares to a transferee such that at any time more than one Person shall hold the Common Shares, then any action or decision provided herein to be taken or made by BankBoston during any such time in respect of the Common Shares shall be taken or made by the holders of at least 51% of the total number of then outstanding Common Shares. If BankBoston transfers any interest in the Warrants to a transferee such that at any time more than one Person shall hold the Warrants, then any action or decision provided herein to be taken or made by BankBoston during any such time in respect of the Warrants shall be taken or made by the holders of at least 51% of the total number of then outstanding Common Shares issuable upon exercise of the Warrants. If BankBoston transfers any interest in the Note to a transferee such that at any time more than one Person shall hold the Note, then any action or decision provided herein to be taken or made by BankBoston during any such time in respect of the Note shall be taken or made by the holders of at least 51% of the aggregate principal amount of the Note. 13. REGISTRATION RIGHTS. BankBoston shall have certain registration rights with respect to the Equity Securities as set forth in the Registration Rights Agreement. 14. REGISTRATION AND TRANSFER OF SECURITIES. 14.1. Registration, Transfer and Exchange of Note. (a) The Company shall keep at its principal office a register in which shall be entered the name and address of the registered holder of the Note issued by it and particulars of the Note held by it and of all transfers of such Note. References to the "holder" or "holder of record" of the Note shall mean the payee thereof unless the payee shall have presented the Note to the Company for transfer and the transferee shall have been entered in said register as a subsequent holder, in which case the terms shall mean such subsequent holder. The ownership of the Note shall be proven by such register and the Company may conclusively rely upon such register. (b) The holder of a Note may at any time and from time to time prior to maturity or redemption thereof surrender the Note held by it for exchange or (subject to compliance with the applicable provisions of Section 16 hereof) transfer at said office of the Company. Within a reasonable time thereafter and without expense (other than transfer taxes, if any) to such holder, the Company shall issue, at its expense, in exchange therefor another Note or Notes, dated the date to which interest has been paid on the surrendered Note, for the same aggregate principal amount as the unpaid principal amount of the Note or Notes so surrendered (subject to the applicable holder's endorsement or execution of any documents reasonably requested by the Company to evidence the cancellation of any surrendered Note), having the same maturity and rate of interest, containing the same provisions and subject to the same terms and conditions as the Note or Notes so surrendered. Each such new Note shall be in the denominations and registered in the name of such person or persons as the holder of such surrendered Note or Notes may designate in writing, and such exchange shall be made in a manner such that no additional or lesser amount of principal or interest shall result. The Company will pay shipping and insurance charges, from and to each holder's principal office, involved in the exchange or transfer of any Note. (c) Each Note issued hereunder, whether originally or in substitution for, or upon transfer or exchange of, any Note shall be registered on the date of execution thereof by the Company. The registered holder of record shall be deemed to be the owner of the Note for all purposes of this Agreement. All notices given hereunder to the holder of record shall be deemed validly given if given in the manner specified in Section 18 hereof. 14.2. Registration, Transfer and Exchange of Warrants. (a) The Company shall keep at its principal office a register in which shall be entered the names and addresses of the holders of Warrants issued by it and particulars of the respective Warrants held by them and of all transfers of such Warrants. References to the "holder" or "holder of record" of any Warrant shall mean the holder thereof unless the holder shall have presented such Warrant to the Company for transfer and the transferee shall have been entered in said register as a subsequent holder, in which case the terms shall mean such subsequent holder. The ownership of any of the Warrants shall be proven by such register and the Company may conclusively rely upon such register. (b) The holder of any of the Warrants may at any time and from time to time prior to exercise, repurchase or redemption thereof surrender any Warrant held by it for exchange or (subject to compliance with Section 16 hereof) transfer at said office of the Company. On surrender for exchange of the Warrants, properly endorsed, to the Company, the Company at its expense will issue and deliver to or on the order of the holder thereof a new warrant or warrants of like tenor, in the name of such holder or, upon payment by such holder of any applicable transfer taxes, as such holder may direct, calling in the aggregate on the face or faces thereof for the number of Common Shares called for on the face or faces of the Warrants so surrendered. The Company will pay shipping and insurance charges, from and to each holder's principal office, involved in the exchange or transfer of any Warrant. (c) Each Warrant issued hereunder, whether originally or in substitution for, or upon transfer or exchange of, any Warrant shall be registered on the date of execution thereof by the Company. The registered holder of record shall be deemed to be the owner of the Warrant for all purposes of this Agreement. All notices given hereunder to the holder of record shall be deemed validly given if given in the manner specified in Section 18 hereof. 14.3. Replacement of Securities. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Security and, in the case of any such loss, theft or destruction, upon delivery of an indemnity bond in such reasonable amount as the Company may determine (or, in the case of any Security held by BankBoston or another institutional holder, an unsecured indemnity agreement from BankBoston or such other holder reasonably satisfactory to the Company) or, in the case of any such mutilation, upon the surrender of such Security for cancellation to the Company at its principal office, the Company, at its own expense, will execute and deliver, in lieu thereof, a new Security of like tenor, dated in the case of a Note so that there will be no loss of interest. Any Security in lieu of which any such new Security has been so executed and delivered by the Company shall not be deemed to be outstanding for any purpose of this Agreement. 15. REGULATORY RESTRICTIONS. 15.1. Bank Holding Company Act. No Person which is a bank holding company or a subsidiary of a bank holding company (a "Bank Affiliate") as defined in the Bank Holding Company Act of 1956, as amended, or other applicable banking laws of the United States of America and the rules and regulations promulgated thereunder (the "Bank Holding Company Act") shall exercise its rights to acquire Common Stock, if, after giving effect to such acquisition, the Bank Affiliate, together with its Affiliates, would own more than five percent (5%) of the outstanding voting securities the Company. Notwithstanding the foregoing, to the extent not inconsistent with the Bank Holding Company Act, such acquisition rights may be exercised or shares of Common Stock may otherwise be acquired in the event that: (a) The Company shall vote to merge or consolidate with or into any other Person and after giving effect to such merger or consolidation the Bank Affiliate would not own more than five percent (5%) of the outstanding voting securities of the surviving corporation; (b) said holder desires to sell shares of Common Stock to be obtained by such acquisition in connection with any proposed purchase of Common Stock by another Person (other than a Bank Affiliate); or (c) said holder exercises its registration rights pursuant to the Registration Rights Agreement and the registration statement resulting therefrom is effective. 15.2. Statement of Compliance. For purposes of this Agreement, a written statement of BankBoston or any of its Affiliates acquiring Common Stock, delivered to the Company upon acquisition of any shares of Common Stock, to the effect that BankBoston or its Affiliate, as the case may be, is legally entitled to exercise its rights to purchase securities of the Company and that such exercise will not violate or contravene any law or regulation or any judgment, decree or order of any governmental authority then applicable to BankBoston or such Affiliate, as the case may be, shall be conclusive and binding upon the Company and shall absolutely obligate and bind the Company to deliver, in accordance with the other terms and provisions hereof, certificates or other appropriate instruments representing the securities so purchased. 16. RESTRICTIONS ON TRANSFER. 16.1. General Restriction. The Securities shall be transferable to Permitted Transferees only upon the satisfaction of the conditions set forth below in this Section 16. For purposes of this Section 16.1, a "Permitted Transferee" shall mean a Person (other than a natural person) that constitutes an "accredited investor" as defined in Rule 501 promulgated under the Securities Act. 16.2. Notice of Transfer. Prior to any transfer of any Securities, the holder thereof shall be required to give written notice to the Company describing in reasonable detail the manner and terms of the proposed transfer and the identity of the proposed transferee (the "Transfer Notice"), accompanied by (a) an opinion of BankBoston's Special Counsel addressed to the Company or other counsel reasonably acceptable to the Company, that such transfer may be effected without registration of such Securities under the Securities Act and applicable state securities laws, and (b) the written agreement of the proposed transferee to be bound by all of the provisions hereof and of the Financing Agreements, applicable to holders of such Securities hereunder or thereunder. 16.3. Restrictive Legends. Except as otherwise permitted by this Section 16, each Security shall bear the legend specified for such Security in Schedule 16.3 hereto and any other legend required by law or regulation. 16.4. Termination of Restrictions. The restrictions imposed by this Section 16 upon the transferability of Securities shall terminate as to any particular Securities when such Securities shall have been effectively registered under the Securities Act or sold pursuant to a Public Sale. Whenever any of such restrictions shall terminate as to any Securities, the holder thereof shall be entitled to receive from the Company, at such Person's expense, new Securities without such legends except that any legend required by law or regulation will be removed only upon delivery to the Company of an opinion of counsel of the type referred to in clause (a) of Section 16.2 hereof to the effect that such legend may be removed. 17. EXPENSES; INDEMNITY. (a) The Company hereby agrees to pay on demand all reasonable out-of-pocket expenses incurred by BankBoston, in connection with the transactions contemplated by this Agreement and the Related Agreements and in connection with any amendments or waivers (whether or not the same become effective) hereof or thereof and all reasonable out-of-pocket expenses incurred by BankBoston or any holder of any Security issued hereunder in connection with the enforcement of any rights hereunder, under any other Related Agreement or with respect to any Security, including without limitation (i) the cost and expenses of preparing and duplicating this Agreement, each other Financing Agreement and Related Agreement and the Securities; (ii) the cost of delivering to BankBoston's principal offices, insured to BankBoston's satisfaction, the Securities sold to BankBoston hereunder and any Securities delivered to BankBoston in exchange therefor or upon any exercise, conversion or substitution thereof; (iii) the reasonable fees, expenses and disbursements of BankBoston's Special Counsel in connection with the transactions contemplated by this Agreement and the Related Agreements and any amendments, modifications, approvals, consents or waivers hereunder or thereunder; (iv) the reasonable fees, expenses and disbursements of BankBoston's accountants and other consultants, in connection with BankBoston's due diligence investigation of the Company prior to the execution of this Agreement or following the occurrence of a default hereunder; (v) all documentary stamp and similar taxes at any time payable in respect of this Agreement, any other Related Agreement or the issuance of any of the Securities; and (vi) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys' fees and costs, travel and lodging expenses related to board attendance, observation or inspection, and reasonable consulting, accounting, appraisal, investment banking and similar professional fees and charges) incurred by BankBoston in connection with (A) the exercise, enforcement or preservation of rights under this Agreement or any of the Related Agreements against the Company or any of its Subsidiaries or the administration thereof whether before or after the occurrence of a Default or Event of Default and (B) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to BankBoston's relationship with the Company or its Subsidiaries. (b) The Company hereby further agrees to indemnify, exonerate and hold BankBoston and BankBoston's stockholders, officers, directors, employees and agents free and harmless from and against any and all actions, causes of action, suits, losses, liabilities, damages and expenses (including, without limitation, reasonable attorneys' fees and disbursements), incurred in any capacity by any of the indemnitees as a result of or relating to (A) any transaction financed or to be financed in whole or in part directly or indirectly with proceeds from the sale of any of the Securities, or (B) the execution, delivery, performance or enforcement of this Agreement (including, without limitation, any failure by the Company to comply with any of its covenants hereunder), the Related Agreements or any instrument contemplated hereby or thereby, except, in each such case, for any such liabilities arising from any indemnitee's breach of this Agreement, gross negligence or willful misconduct. (c) The Company hereby indemnifies BankBoston against and agrees that it will hold BankBoston harmless from any claim, demand or liability for any broker's, finder's or placement fees or lender's incentive fees alleged to have been incurred in connection with the transactions contemplated by this Agreement or the Related Agreements. (d) The obligations of the Company under this Section 17 shall survive payment or transfer of the Securities and the termination of this Agreement. 18. NOTICES. Any notice or other communication in connection with this Agreement, any other Financing Agreement or the Securities shall be deemed to be delivered if in writing (or in the form of a telex or telecopy) addressed as provided below (a) when actually delivered, telexed or telecopied to said address or (b) in the case of a letter, three business days shall have elapsed after the same shall have been deposited in the United States mails, postage prepaid and registered or certified: if to the Company, at The J.M. Ney Company, Ney Industrial Park, Bloomfield, Connecticut 06002, Attention: Andrew M. O'Shea, Chief Financial Officer, or at such other address for notice as the Company shall last have furnished in writing to the Person giving the notice; if to BankBoston, at 100 Pearl Street, Hartford, Connecticut 06103, Attention: Kevin Flaherty, Senior Vice President, or such other address for notice as BankBoston shall last have furnished in writing to the Person giving the notice; and If to any other holder of record of any Security, to it at its address set forth in the applicable register referred to in Section 14 hereof. 19. SURVIVAL OF COVENANTS. All covenants, agreements, representations and warranties made herein or in any other document referred to herein or delivered to BankBoston pursuant hereto shall be deemed to have been relied on by BankBoston, notwithstanding any investigation made by BankBoston or on BankBoston's behalf, and shall survive the execution and delivery to BankBoston hereof and of the Securities. 20. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and each holder of a Note and the Majority Holders of the Equity Securities, respectively, with respect to any provision of this Agreement which by its terms operates for the benefit of such respective holders. Any term of the Note may be amended and the observance of any term of the Notes may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holder of such Note with respect to whom such amendment or waiver is made. Notwithstanding the foregoing, (a) without the prior written consent of each holder of Equity Securities with respect to whom such amendment or waiver is made, no such amendment or waiver shall extend the scheduled date of any required repurchase of such respective Securities held by such holder or reduce the repurchase price payable thereon, (b) without the written consent of the aforesaid percentage of Securities reduce the aforesaid percentage of Securities the holders of which are required to consent to any such amendment or waiver, or (c) without the written consent of the percentage of the holders of each Security required to exercise the remedies provided in Section 10.2 hereof, increase such required percentage. Any amendment or waiver effected in accordance with this Section 20 shall be binding upon each holder of any Security sold pursuant to this Agreement and the Company. 21. CONSENT TO JURISDICTION. THE COMPANY HEREBY AGREES TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS IN AND OF THE STATE OF CONNECTICUT, AND CONSENTS THAT SERVICE OF PROCESS WITH RESPECT TO ALL COURTS IN AND OF THE STATE OF CONNECTICUT MAY BE MADE BY REGISTERED MAIL TO IT AT ITS ADDRESS SET FORTH ON PAGE 1 HEREOF. 22. RIGHT TO PUBLICIZE. The Company hereby acknowledges that BankBoston will have the right to publicize its investment in the Company as contemplated hereby by means of a tombstone advertisement or other customary advertisement in newspapers and other periodicals. 23. WAIVER OF JURY TRIAL. THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING EXISTING UNDER OR RELATING TO THIS AGREEMENT, THE SECURITIES OR ANY OF THE OTHER FINANCING AGREEMENTS. 24. GOVERNING LAW. THIS AGREEMENT AND EACH OF THE OTHER FINANCING AGREEMENTS ARE CONTRACTS UNDER THE LAWS OF THE STATE OF CONNECTICUT AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID STATE (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE COMPANY AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF CONNECTICUT OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE COMPANY BY MAIL AT THE ADDRESS SPECIFIED IN ss.18. THE COMPANY HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. 25. COMMERCIAL TRANSACTION; PREJUDGMENT REMEDY WAIVER. THE COMPANY REPRESENTS, WARRANTS AND ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS LOAN AGREEMENT AND THE OTHER FINANCING AGREEMENTS ARE A PART IS A "COMMERCIAL TRANSACTION" WITHIN THE MEANING OF CHAPTER 903A OF CONNECTICUT GENERAL STATUTES, AS AMENDED. THE COMPANY HEREBY WAIVES ITS RIGHT TO NOTICE AND PRIOR COURT HEARING OR COURT ORDER UNDER CONNECTICUT GENERAL STATUTES SECTIONS 52-278a ET. SEQ. AS AMENDED OR UNDER ANY OTHER STATE OR FEDERAL LAW WITH RESPECT TO ANY AND ALL PREJUDGMENT REMEDIES BANKBOSTON MAY EMPLOY TO ENFORCE THEIR RIGHTS AND REMEDIES HEREUNDER AND UNDER THE OTHER FINANCING AGREEMENTS. MORE SPECIFICALLY, COMPANY ACKNOWLEDGES THAT BANKBOSTON'S AND/OR ITS ATTORNEY MAY, PURSUANT TO CONN. GEN. STAT. ss.52-278f, ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT SECURING A COURT ORDER. THE COMPANY ACKNOWLEDGES AND RESERVES ITS RIGHT TO NOTICE AND A HEARING SUBSEQUENT TO THE ISSUANCE OF A WRIT FOR PREJUDGMENT REMEDY AS AFORESAID AND BANKBOSTON ACKNOWLEDGES COMPANY'S RIGHT TO SAID HEARING SUBSEQUENT TO THE ISSUANCE OF SAID WRIT. 26. MISCELLANEOUS. This Agreement and the other Financing Agreements set forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby and supersede any prior written or oral understandings with respect thereto. The invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of any other term or provision hereof. The headings in this Agreement are for convenience of reference only and shall not alter or otherwise affect the meaning hereof. THIS AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS WHICH TOGETHER SHALL CONSTITUTE ONE INSTRUMENT, AND SHALL BIND AND INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. If the foregoing corresponds with BankBoston's understanding of our agreement, kindly sign this letter and the accompanying copies thereof in the appropriate space below and return one counterpart of the same to the Company, at the address first listed above. Very truly yours, THE J.M. NEY COMPANY By: /s/ Andrew M. O'Shea -------------------- Title: Chief Financial Officer Accepted and agreed to: BANKBOSTON, N.A. By: /s/ Kevin Flaherty ------------------ Title: Senior Vice President EX-10.11 5 MATERIAL CONTRACTS E-5 Exhibit 10.11 ASSET PURCHASE AGREEMENT EFFECTIVE AS OF February 28, 1998 among CAE U.S. INC. (Buyer) and NEY ULTRASONICS INC. (Seller) and ANDERSEN GROUP, INC. (Andersen) ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT ("Agreement") is effective as of February 28, 1998, among CAE U.S. INC., a Delaware corporation ("Buyer"), NEY ULTRASONICS INC., a Delaware corporation ("Seller") and ANDERSEN GROUP, INC., a Connecticut corporation ("Andersen"). R E C I T A L S: The Seller desires to sell to Buyer, and Buyer desires to acquire from the Seller, all of the assets used by Seller in the operation of its business, except as specifically excluded herein (the "Business") for the consideration and on the terms and conditions set forth in this Agreement. Andersen is the ultimate parent company of Seller and has agreed to make certain representations and warranties contained in this Agreement and indemnify the Buyer pursuant to the terms hereof. NOW, THEREFORE, in consideration of the premises and the mutual agreements and undertakings hereinafter set forth, the parties hereto, intending to be legally bound, do hereby agree as follows: 1. DEFINITIONS Certain capitalized terms used in this Agreement have the meanings specified in the Glossary attached hereto. Other capitalized terms are defined in the body of this Agreement. 2. SALE AND TRANSFER OF ASSETS 2.1 ASSETS (a) Subject to the terms and conditions of this Agreement, at the Closing, the Seller will sell, transfer and convey all of the following assets to Buyer, and Buyer will purchase all of the following assets and business from the Seller: (i) all inventory, including without limitation, raw materials, work-in-progress, finished goods and replacement parts (collectively, the "Inventory") which exists on the Closing Date (as defined below); (ii) all office supplies, maintenance supplies, packaging materials, spare parts and similar items of the Business (collectively, the "Office Supplies") which exist on the Closing Date (as defined below); (iii) all accounts, accounts receivable, notes and notes receivable relating to the Business existing on the Closing Date which are payable to the Seller, including any security held by the Seller for the payment thereof (the accounts, accounts receivable, notes and notes receivable, including any related security therein, to be transferred to the Buyer pursuant hereto are collectively referred to herein as the "Accounts Receivable"); (iv) all prepaid expenses of the Seller relating to the Business existing on the Closing Date other than those related to Excluded Assets (as defined below). (v) all rights of the Seller under the contracts, agreements, leases, licenses and other instruments relating to the Business all as set forth in Part 3.17(a) and Part 3.17(b) of the Disclosure Schedule (as defined below); (vi) originals or copies of all of the Seller's books, records and accounts, correspondence, production records, technical, accounting, manufacturing and procedural manuals, customer lists, employment records, studies, reports or summaries relating to any environmental conditions or consequences of any operation relating to the Business, present or former, as well as all studies, reports or summaries relating to any environmental aspect or the general condition of the Assets (as defined below), and any confidential information which has been reduced to writing relating to or arising out of the Business; (vii) all rights of the Seller under express or implied warranties from the suppliers of the Business; (viii) all of the machinery, computer and other equipment, tools, hardware, maintenance, machinery and equipment and furniture, vehicles, and personal property relating to the Business owned, leased or used by the Seller on the Closing Date unless specifically excluded herein as an Excluded Asset (as defined below), whether or not reflected as capital assets in the accounting records of the Seller relating to the Business (collectively, the "Fixed Assets"); (ix) all of the Seller's right, title and interest in and to all Intellectual Property Assets, as defined in Section 3.22; and (x) except as specifically provided in Subsection 2.1(b) hereof, all other assets, properties, claims, rights and interests of the Seller relating to the Business which exist on the Closing Date, of every kind and nature and description, whether tangible or intangible, real, personal or mixed. (b) Notwithstanding the provisions of paragraph (a) above, the assets to be transferred to the Buyer under this Agreement shall not include those assets listed in Part 2.1(b) of the Disclosure Schedule (the "Excluded Assets"). (c) The Inventory, Office Supplies, Accounts Receivable, Assumed Contracts, Fixed Assets, Intellectual Property Assets, Software and other properties, assets and business of the Seller relating to the Business described in paragraph (a) above, other than the Excluded Assets, shall be referred to collectively as the "Assets." 2.2 ASSUMPTION OF LIABILITIES (a) On and after the Closing Date, the Buyer shall be responsible for and hereby assumes and agrees to perform, pay and discharge the following liabilities, obligations and commitments of the Seller relating to the Business (the "Assumed Liabilities"): (i) all trade accounts payable and accrued expenses of the Seller relating to the Business incurred in the ordinary course of business through the Closing Date, other than liabilities and liens for Taxes or deferred Taxes, accounts payable which are outstanding for more than three (3) months as of the Closing Date and accounts payable that are contingent or are not fixed in amount as of the Closing Date; (ii) all obligations of the Seller relating to the Business continuing after the Closing under the Assumed Contracts set forth in Part 3.17(a) of the Disclosure Schedule; (iii) all other liabilities and obligations of the Seller specifically set forth in Part 2.2 of the Disclosure Schedule; and (iv) any liability in respect of product liability, product warranty and other claims and obligations respecting products and services as contemplated in Section 2.3(a). (b) The Buyer shall not at the Closing assume or agree to perform, pay or discharge, and the Seller shall remain unconditionally liable for, all obligations, liabilities and commitments, fixed or contingent, of the Seller other than the Assumed Liabilities including, but not limited to, all pre-Closing Date obligations and liabilities of the Seller, of any nature whatsoever. (c) Notwithstanding any provision herein to the contrary, the Buyer shall be solely liable for the prompt and full discharge of the Assumed Liabilities and also for any liabilities arising from, or in connection with the Assets acquired by the Buyer after the consummation of the transactions contemplated hereby. (d) For greater certainty, and without limiting the generality of Section 2.2(b), Seller shall remain liable for and shall pay, satisfy, discharge, perform and fulfill, all other obligations and liabilities of Seller which are not Assumed Liabilities existing, accrued or accruing (whether direct or indirect, known or unknown) as at the Closing (the "Excluded Liabilities"), including, without limitation, the following obligations and liabilities: (i) any liability for Taxes payable, collectible or remittable by the Seller in respect of the Business and the Assets in respect of the period prior to the Closing Date, and, for greater certainty real property and other similar Taxes levied with respect to the Assets for a taxable period that includes but does not end on the Closing Date shall be apportioned between the Seller and the Buyer such that the Seller shall be liable for the amount determined by multiplying the Taxes to be apportioned by a fraction, the numerator of which is the number of days in the taxable period up to and including the Closing Date and the denominator of which is the total number of days in the period, and the Buyer shall be liable for the balance. (ii) any liability owing to any lender of the Seller, including without limitation, any bank overdrafts or bank indebtedness and any indebtedness or liabilities owing under any trust indenture, mortgage, promissory note, loan agreement, guaranty or other contract for the borrowing of money; (iii) any liability in respect of a Contract not disclosed in this Agreement; (iv) any liability of Seller owing to Buyer or any Affiliate of Buyer; (v) any liability or obligation in respect of the causes of action and grievances described in the Disclosure Schedules; (vi) any liability or obligation relating to the Excluded Assets; and (vii) any intercompany payables from Seller to any Affiliate of Seller. 2.3 PRODUCT LIABILITY AND WARRANTY OBLIGATIONS (a) The Buyer shall assume any and all Liability arising out of or resulting from any product liability, product warranty and other claims, liabilities and obligations arising from the products manufactured by the Seller. (b) The Seller shall indemnify and hold harmless the Buyer from and against any and all Liability, subject to the limitations provided in Section 2.3(c) arising out of Section 2.3(a) to the extent that such Liability relates to: (i) products manufactured, sold or delivered and/or services provided, by the Seller in connection with the shop order numbers identified on Part 2.3(a) of the Disclosure Schedule; (ii) any Recurring Defect (as defined below) existing on or before the Closing Date and contained in the Inventory comprising the Assets, whether such Liability arose before or after the Closing and whether known or unknown as of the Closing Date. Recurring Defect shall mean a specific defect in workmanship, design or component that arises in twenty-five percent (25%) or more of a particular type of product sold by the Seller. Notwithstanding anything contained herein to the contrary, with respect to any claim that may involve an obligation by the Seller pursuant to this Section 2.3(b), the Buyer shall provide the Seller with an opportunity to assess the claim and comment on its validity and the proposed response by the Buyer. (c) For purposes of calculating the indemnity provided in Section 2.3(b), all product warranty work shall be performed by Buyer at Buyer's Loaded Labor Cost plus material cost and reasonable out-of-pocket expenses, including freight costs, travel, lodging and meals. In any such case, provided such product warranty obligation was a valid and enforceable obligation or liability of the Seller and the claim in respect thereof was valid, the Seller shall reimburse the Buyer forthwith following demand by the Buyer for all costs set forth herein incurred by the Buyer in repairing or replacing products. (d) Notwithstanding the foregoing, nothing contained in this Section 2.3 shall affect the rights of the Buyer under Section 9 hereof in respect of any Liability suffered or incurred by it as a result of or arising out of any inaccuracy of any representation or warranty. 2.4 ADDITIONAL SELLER LIABILITIES [RESERVED] 2.5 PURCHASE PRICE Subject to the adjustment as set forth in Section 2.10, the purchase price ("Purchase Price") for the Assets will be Two Million Nine Hundred Thousand and 00/100 Dollars ($2,900,000.00) and shall be payable as follows: (a) Two Million Four Hundred Thousand and 00/100 Dollars ($2,400,000.00) shall be paid in immediately available funds at the Closing; and (b) the remainder of the Purchase Price shall be paid into escrow pursuant to the terms of the Escrow Agreement (as hereinafter defined) and disbursed in accordance with Section 2.10 of this Agreement. 2.6 OTHER CONSIDERATION In addition to the payment of the Purchase Price, Buyer shall enter into the Technology Assignment Agreement in the form of Exhibit 2.6 attached hereto (the "Technology Assignment Agreement"). 2.7 CLOSING The closing of the purchase and sale of the Assets (the "Closing") provided for in this Agreement will take place at the offices of Edwards & Angell, 750 Main Street, Hartford, Connecticut 06103 at 10:00 a.m. (local time) on March 4, 1998 or at such other time and place as the parties may agree. Subject to the provisions of Section 8.1(d), failure to consummate the purchase and sale provided for in this Agreement on the date and time and at the place determined pursuant to this Section 2.7 will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement. 2.8 APPORTIONMENT If the amounts of any common area charges under real property leases transferred to the Buyer have not been determined at the Closing Date, they shall be apportioned on the basis of such charges assessed for the preceding year, with a reapportionment upon and in the event of any new apportionment or valuation method or scheme; and if such charges which are to be apportioned shall thereafter be reduced, the amount of such reduction shall be apportioned between the Buyer and the Seller. 2.9 CLOSING OBLIGATIONS (a) At the Closing, the Seller will deliver to Buyer: (i) the Bill of Sale in the form of Exhibit 2.9(a)(i) (the "Bill of Sale"); (ii) the assignments and such other certificates, documents and instruments of sale, transfer, conveyance and assignment as Buyer and its counsel may reasonably request; (iii) the Technology Assignment Agreement in form and substance satisfactory to the Buyer; (iv) a certificate executed by the Seller and Andersen representing and warranting to Buyer that Seller's and Andersen's representations and warranties in this Agreement were accurate in all respects as of the date of this Agreement and are accurate in all respects as of the Closing Date as if made on the Closing Date (giving full effect to any supplements to the Disclosure Schedules that were delivered by the Seller to Buyer prior to the Closing Date in accordance with this Agreement); (v) the Disclosure Schedule in form and substance satisfactory to the Buyer; (vi) the New Lease as set forth in Section 5.8(a); (vii) the Escrow Agreement in the form of Exhibit 2.9(a)(vii) (the "Escrow Agreement"); (viii) the Trademark Assignment Agreement in the form of Exhibit 2.9(a)(viii) (the "Trademark Assignment Agreement"); and (ix) the Agreement and Use of Name and Logo, in the form of Exhibit 2.9(a)(ix). (b) At the Closing, Buyer will deliver to the Seller: (i) the Purchase Price in accordance with Section 2.5; (ii) a certificate executed by Buyer to the effect that, each of Buyer's representations and warranties in this Agreement were accurate in all respects as of the date of this Agreement and are accurate in all respects as of the Closing Date as if made on the Closing Date (giving full effect to any supplements to the Disclosure Schedule that were delivered by the Buyer to Seller prior to the Closing Date in accordance with this Agreement); (iii) the Technology Assignment Agreement executed by Buyer; (iv) the New Lease as set forth in Section 5.8(a) executed by the Buyer; (v) the Escrow Agreement; (vi) the Trademark Assignment Agreement; and (vii) the Agreement and Use of Name and Logo. 2.10 PURCHASE PRICE ADJUSTMENT (a) Buyer and Seller have based the Purchase Price on the assumption that (i) the Capital Employed of the Seller contained on the August 1, 1997 Balance Sheet was One Million Nine Hundred Thousand and 00/100 Dollars ($1,900,000.00) ("Estimated Capital Employed"); and (ii) the Operating Income of the Seller for the period ending Februaryy28, 1998 will be Four Hundred Sixty-Eight Thousand and 00/100 Dollars ($468,000.00) ("Estimated Operating Income"). The Purchase Price will be adjusted as follows: (i) if the Capital Employed shown on the Closing Financial Statements exceeds the Estimated Capital Employed, the Purchase Price shall be increased dollar-for-dollar by the amount of the increase; (ii) if the Capital Employed shown on the Closing Financial Statements is less than the Estimated Capital Employed, the Purchase Price shall be reduced dollar-for-dollar by the amount of the decrease; (iii) if the Operating Income on the Closing Financial Statements exceeds the Estimated Operating Income, the Purchase Price shall not be adjusted; and (iv) if the Operating Income on the Closing Financial Statements, after giving effect to the audit adjustment referred to in Section 2.11(c), is less than Four Hundred Twenty One Thousand and 00/100 Dollars ($421,000.00), the Purchase Price shall be reduced Five and 00/100 Dollars ($5.00) for every One Dollar ($1.00) of the amount of the difference between the Operating Income on the Closing Financial Statements after giving effect to such adjustments in Section 2.11(c), and the Estimated Operating Income. (b) Solely for purposes of calculating the adjustment to Operating Income referred to in Section 2.10(a)(iv) in connection with the preparation of the Closing Financial Statements, there shall be a post closing adjustment equal to the difference between (i) the amount of revenue, cost and income recognized by Seller in preparing the Closing Financial Statements, for the Pratt and Whitney job, and two Johnson & Johnson jobs (shop order numbers 34244 and 34905) and (ii) the final revenue, cost and income attributable to the Pratt & Whitney job and the Johnson & Johnson jobs (shop order numbers 34244 and 34905). (c) The amount of the adjustment to the Purchase Price set forth in Section 2.10(a) shall be added to the sum of Five Hundred Thousand and 00/100 Dollars ($500,000.00), if an increase is due, and subtracted from the sum of Five Hundred Thousand and 00/100 Dollars ($500,000.00), if a reduction is due, and paid by Buyer in accordance with the time periods set forth in Section 2.11 below. If the amount of the adjustment pursuant to Section 2.10(a) exceeds Five Hundred Thousand and 00/100 Dollars ($500,000.00), and is a reduction, Seller shall pay the additional amount in excess of Five Hundred Thousand and 00/100 Dollars ($500,000.00) to Buyer in accordance with the time periods set forth in Section 2.11 below. 2.11 ADJUSTMENT PROCEDURE (a) The Seller will prepare and the Buyer's Auditors, Price Waterhouse L.L.P., will audit the Closing Financial Statements of the Seller. The Seller will deliver the Closing Financial Statements to Buyer and the Buyer's Auditor within forty-five (45) days after the Closing Date. The Buyer and the Buyer's Auditor shall have forty-five (45) days after receipt of the Closing Financial Statements from the Seller to review the Closing Financial Statements and deliver to the Buyer and the Seller the Auditor's Report stating that the Closing Financial Statements fairly present (1) the Balance Sheet and the statement of Net Assets of Seller at February 28, 1998 in conformity with Generally Accepted Accounting Principles applied on a consistent basis with the past practices of Seller and with the August 1, 1997 Balance Sheet and (2) the Operating Income of Seller for the fiscal year ended February 28, 1998 in conformity with Generally Accepted Accounting Principles applied on a consistent basis with the past practices of the Seller and with Seller's Operating Income Statement for the five (5) months ended July 31, 1997 and the March 1997 Forecast. If within ten (10) days following delivery of the Auditor's Report, either party has not given notice of its objection to the Closing Financial Statements (such notice must contain a statement of the basis of such objection), then the Capital Employed and Operating Income reflected in the Closing Financial Statements will be used in computing the adjustment amount set forth in Section 2.10(c). If either party gives such notice of objection, the Buyer and the Seller shall attempt in good faith to resolve the matter or matters in dispute. If the Buyer and the Seller, notwithstanding such good faith effort, shall have failed to resolve the matter or matters in dispute within twenty (20) business days after receipt of the written notice of dispute, then any remaining disputed matters shall be finally and conclusively determined by an independent auditing firm of recognized national standing (the "Arbiter") selected by the Buyer and the Seller, which shall be Arthur Andersen L.L.P., unless such firm shall have a conflict of interest with the Buyer or the Seller which is not waived by the appropriate party. Promptly, but not later than twenty (20) business days after its acceptance of its appointment, the Arbiter shall determine (based upon a review of work papers and other documents and information relating to the disputed issues as the Arbiter may request) only those issues in dispute and shall render a report as to the disputes, which report shall be conclusive and binding upon the parties hereto. If within twenty (20) business days of the receipt of a written notice of dispute the parties determine that Arthur Andersen cannot serve as the Arbiter because of a conflict of interest with either the Buyer or the Seller and the parties cannot agree upon a substitute within such period, the parties shall submit the matter of the selection of the Arbiter to the American Arbitration Association ("AAA") for resolution. Any such arbitration shall take place in, and shall be in accordance with the Commercial Arbitration Rules of the AAA in Hartford, Connecticut. Each of the Buyer and the Seller shall promptly select a single arbitrator and file with the AAA a notice of appointment. The two (2) arbitrators so chosen shall select a third arbitrator who shall act as chairperson of the arbitration. If either the Buyer or the Seller should abstain from selecting an arbitrator, or should the two arbitrators selected above fail to select a third, then at the request of either party, the President of the AAA shall select an arbitrator, to fill the vacant position within ten (10) business days of such request. The arbitration panel shall thereafter select the Arbiter, and the Buyer and the Seller agree to cooperate with the arbitration panel to facilitate the speedy selection of the Arbiter. The fees and expenses of the arbitration panel shall be borne fifty percent (50%) by the Buyer and fifty percent (50%) by the Seller. In resolving any disputed item, the Arbiter may not assign a value to any particular item greater than the greatest value for such item claimed by either party or less than the smallest value for such item claimed by either party in each case, as presented to the Arbiter. The fees and disbursements of the Arbiter shall be allocated between the Buyer and the Seller based upon the percentage ratio that the sum of the net amounts subject to dispute resolved against each of the parties bears to the total of the net amounts subject to dispute. For this purpose, the "net amounts subject to dispute" shall represent the difference between the amount of such items as proposed by the Buyer and the corresponding amount of such items proposed by the Seller, in each case as submitted to the Arbiter. (b) On the tenth (10th) business day following the date on which the Closing Financial Statements are agreed to in accordance with Section 2.11(a), the final determination of the Purchase Price Adjustment shall be made, and paid in accordance with Section 2.10(c). (c) For purposes of complying with the terms set forth herein, each party shall cooperate with and promptly make available to the other party and its auditors and representatives, all information, records, data, auditors' working papers, and access to its personnel, shall permit access to its facilities and shall permit the other party and its auditors and representatives to make copies of all information, records, data and auditors' working papers, in each case as may be reasonably required in connection with the analysis of the Closing Financial Statements, the calculation of the Capital Employed and Operating Income and the resolution of any dispute(s) thereunder. Buyer acknowledges that the Percentage-of-Completion Method of Accounting shall be used in the preparation of the Closing Financial Statements in connection with shop orders related to the Pratt and Whitney job and the Johnson & Johnson jobs (shop order numbers 34244 and 34905). Seller represents that the Johnson & Johnson jobs are scheduled for substantial completion in February 1998 and actual delivery in February or March 1998 and the Pratt & Whitney job is scheduled for actual delivery in April 1998. Seller agrees that the consideration required to be paid by Buyer under the Technology Assignment Agreement shall not apply to the Pratt and Whitney job and the Johnson and Johnson jobs (shop order numbers 34244 and 34905). Buyer and Seller agree that any audit adjustments (excluding the adjustment pursuant to Section 2.10(b) proposed by Buyer's Auditor to the Closing Financial Statements will be included only to the extent such audit adjustments exceed Ten Thousand and 00/100 Dollars ($10,000.00) and such audit adjustments will not include any adjustments to (1) the Intellectual Property Assets, as long as the Intellectual Property Assets are accounted for consistently with the past practices of Seller (2) Taxes and (3) Environmental Laws. 3. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND ANDERSEN The Seller and Andersen, jointly and severally, represent and warrant to Buyer as follows: 3.1 ORGANIZATION AND GOOD STANDING (a) The Seller is a corporation duly organized, validly existing and in good standing under the laws of Delaware, with full corporate power and authority to conduct its business as it is now being conducted and to own or use the properties and assets that it purports to own or use. The Seller is qualified to do business and is in good standing as a foreign corporation under the laws of each jurisdiction in which it is required to be so qualified, except where its failure to qualify would not have Material Adverse Effect on the Business. (b) Andersen is a corporation duly organized, validly existing and in good standing under the laws of Connecticut, with full corporate power and authority to conduct its business as it is now being conducted and to own or use the properties and assets that it purports to own or use. Andersen is qualified to do business and is in good standing as a foreign corporation under the laws of each jurisdiction in which it is required to be so qualified, except where its failure to qualify would not have a Material Adverse Effect on Andersen. (c) The Seller and Andersen have delivered to Buyer copies of its respective Organizational Documents, as currently in effect, and such Organization Documents have not been amended, modified or terminated. 3.2 AUTHORITY; NO CONFLICT (a) This Agreement constitutes the legal, valid, and binding obligation of the Seller and Andersen, enforceable against the Seller and Andersen in accordance with its terms. Each of Seller and Andersen has the full corporate power and authority to execute and deliver this Agreement and the other documents contemplated to be executed and delivered at the Closing by the Seller and Andersen and to perform its respective obligations under this Agreement and such other documents. (b) Except as set forth in Part 3.2 of the Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation or performance of any of the transactions contemplated hereby will, directly or indirectly (with or without notice or lapse of time): (i) contravene, conflict with, or result in a violation of (A) any provision of the Organizational Documents of the Seller or Andersen, or (B) any resolution adopted by the Board of Directors of Andersen or Seller or the stockholders of the Seller; (ii) contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the transactions contemplated hereby or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which the Seller or Andersen may be subject; (iii) contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any material Governmental Authorization that is held by the Seller or that otherwise relates to the Seller's Business; (iv) cause Buyer to become subject to, or to become liable for the payment of any Tax (except as relates to Buyer's ownership of the Assets or conduct of the Seller's Business after the Closing); (v) cause any of the Seller's Assets to be reassessed or revalued by any taxing authority or other Governmental Body (except as relates to Buyer's purchase or ownership of the Seller's Assets or conduct of the Seller's Business after the Closing); (vi) contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any material Contract; or (vii) result in the imposition or creation of any Encumbrance upon or with respect to any of the Seller's Assets. Except as set forth in Part 3.2 of the Disclosure Schedule, the Seller is not required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the transactions contemplated hereby. 3.3 OWNERSHIP OF SELLER The Stockholders set forth in Part 3.3 of the Disclosure Schedule are and will be on the Closing Date all of the record and beneficial owners and holders of all of the issued and outstanding shares of Seller. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights or other contracts that could require Seller to issue, sell or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, or other similar agreements with respect to Seller except as disclosed in Part 3.3 of the Disclosure Schedule. 3.4 FINANCIAL STATEMENTS (a) The Seller has delivered to the Buyer (or will deliver to the Buyer in accordance with this Agreement) (i) unaudited Operating Income statements of the Seller for the fiscal years ended February 1997 and 1998 and (ii) the interim Operating Income statements of the Seller for periods within Seller's fiscal year ending February 28, 1998, including, the Seller's Operating Income statements of Seller for the five months ended July 31, 1997 dated August 1, 1997 (the "Income Statements"), copies of which are attached to Part 3.4(a) of the Disclosure Schedule. Such Income Statements fairly present in all material respects the results of operations of the Seller for the periods referred to in such Income Statements in conformity with Generally Accepted Accounting Principles applied on a basis consistent with the past practices of the Seller (except for certain inter-company allocations reflected on Part 3.4(a) of the Disclosure Schedule which are consistent with the past practices of the Seller and except for the absence of income tax expense or benefit). (b) The Seller has delivered to the Buyer (or will deliver to the Buyer in accordance with this Agreement) (i) Balance Sheet of Seller as of February 28, 1997 and the Balance Sheet and statement of Net Assets of Seller at February 28, 1998, and (ii) the August 1, 1997 Balance Sheet, (collectively the "Balance Sheet Information"), copies of which are attached to Part 3.4(b) of the Disclosure Schedule. The Balance Sheet Information (i) was prepared based upon the books of accounts and other financial records of the Seller, (ii) presents fairly the Balance Sheet Information of the Seller as of the date thereof in conformity with Generally Accepted Accounting Principles applied on a basis consistent with the past practices of the Seller, and (iii) as of the Closing Date, the Balance Sheet Information will include all adjustments that are necessary for a fair presentation of the such information as of the date hereof. 3.5 BOOKS AND RECORDS The books of account, minute books, stock record books and other records of the Seller or the relevant portions of such documents relating to Seller, copies of which have been made available to Buyer, are true, complete, accurate and correct in all respects and have been maintained in accordance with sound business practices, including the maintenance of an adequate system of internal controls. 3.6 TITLE TO ASSETS; ENCUMBRANCES (a) Except as otherwise indicated in Parts 3.6 or 3.22 of the Disclosure Schedule, the Seller has good and marketable title to, or a valid leasehold interest in and has the right to convey, all the Assets owned by it, located on the Property or shown on the August 1, 1997 Balance Sheet or acquired after the date thereof, including all of the Assets reflected in the Financial Statements (except for personal property sold since the date of the Financial Statements, as the case may be, in the Ordinary Course of Business), and all of the Assets purchased or otherwise acquired by the Seller since the date of such Financial Statements (except for personal property acquired and sold since the date of such Financial Statements in the Ordinary Course of Business and consistent with past practice). All of the Assets are free and clear of all Encumbrances other than the Permitted Encumbrances. The delivery to the Buyer of the instruments of transfer of ownership contemplated by this Agreement will vest good and marketable title to the Assets in the Buyer, free of any Encumbrances, except Permitted Encumbrances. (b) Upon the consummation of the transactions contemplated by this Agreement, the Buyer will own, lease or have the legal right to use all the Assets (used in the conduct of the Business or otherwise owned, leased or used by the Seller) and, with respect to Assumed Contracts, will become a party to or enjoy the right to the benefits of all contracts, agreements and other arrangements relating to the conduct of the Business or otherwise retain Seller's interest in the Assets without incurring any material penalty or other materially adverse consequence, including, without limitation, any material increase in rentals, royalties, or licenses or other fees imposed as a result of, or arising from, the consummation of the transactions contemplated by this Agreement. Immediately following the Closing, the Buyer shall own and possess all documents, books, records, agreement and financial data or the relevant portions of such documents of any sort used by the Seller in the conduct of the Business or otherwise. (c) The Assets and the Excluded Assets constitute all the properties, assets and rights forming a part of, used, held or intended to be used in, and all such properties, assets and rights as are necessary in the conduct of, the Business. 3.7 REAL PROPERTY (a) All real property (including, without limitation, all interests in and rights to real property) and improvements located thereon which are leased by Seller and used in connection with the Seller's Business are listed on the Disclosure Schedule in Section 3.7 in response to this section (the "Real Property"). Seller does not own any Real Property. (b) With respect to the Real Property that is leased by Seller, which is identified on the Disclosure Schedule: (i) Seller has delivered to Buyer a true and complete copy of every lease and sublease to which Seller is a tenant or subtenant (the "Leases"), and shall describe each Lease on the Disclosure Schedule by listing the name of the landlord or sublandlord, a description of the lease premises, the commencement and expiration dates of the current term, the security deposited by Seller with the landlord or sublandlord, if any, the monthly rental (including base and all additional rents), and whether Seller may assign the Lease to Buyer (if the consent of the landlord or sublandlord is required for such an assignment, that should be set forth on the Disclosure Schedule); and (ii) each Lease is, and at Closing shall be, in full force and effect and has not been assigned, modified, supplemented or amended except as listed on the Disclosure Schedule in Section 3.7, and neither Seller nor the landlord or sublandlord under any Lease is in default under any of the Leases, and no circumstances or state of facts presently exists which, with the giving of notice or passage of time, or both, would permit the landlord or sublandlord under any Lease to terminate any lease. (c) Except as disclosed on Part 3.7(c) of the Disclosure Schedules, to the Seller's Knowledge, the water, electric, gas and sewer utility services and the septic tank and storm drainage facilities currently available to the Real Property have been properly and lawfully operated and are adequate for the present use of the Real Property by Seller in conducting the Seller's Business, are not being appropriated by Seller but rather are being supplied to Seller by utility companies or municipalities pursuant to valid and enforceable contracts, and there is no condition which will result in the termination of the present access from the Real Property to such utility services and other facilities. (d) Seller has not received any notices, oral or written, from any governmental body, and otherwise has no Knowledge that the assessed value of the Real Property has been determined to be greater than that upon which any tax was paid for the 1997 tax year applicable to each such tax, or from any insurance carrier of Seller of fire hazards with respect to the Real Property or any portion thereof is affected by any assessment which is or may become payable in annual installments, of which one or more is then payable or has been paid, then for the purpose of this Agreement, all the unpaid installments of any such assessment including, without limitation, those which are to become due and payable after Closing, shall be deemed to be liens on the Real Property and shall be paid or discharged at or prior to Closing. (e) Seller has not received any notices, oral or written, and otherwise has no Knowledge, that any governmental body having the power of eminent domain over the Real Property has commenced or intends to exercise the power of eminent domain or a similar power with respect to all or any part of the Real Property. If between the date of this Agreement and Closing, the Real Property or any portion thereof or interest therein shall be taken or condemned as a result of the exercise of the power of eminent domain, or if a governmental body having the power of eminent domain informs Seller or the Buyer that it intends to take or condemn all or part of the Real Property then the Buyer may elect to terminate this Agreement. If the Buyer does not elect to terminate this Agreement (a) the Buyer shall have the sole right, in the name of Seller, if the Buyer so elects, to negotiate for, claim, consent and receive all damages on account thereof, (b) Seller shall be relieved of its obligation to convey to the Buyer the Real Property taken or condemned, (c) at Closing, Seller shall assign to the Buyer all of Seller's rights to all damages payable for such taking or injury of the Real Property and shall pay to the Buyer all damages theretofore paid to Seller by reason thereof, and (d) following Closing, Seller shall give the Buyer such further assurances of such rights and assignment as the Buyer may from time to time reasonably request. (f) The Real Property and the present uses thereof comply with all Regulations of all governmental bodies having jurisdiction over the Real Property, and Seller has received no notices, oral or written, from any governmental body, and otherwise has no Knowledge, that the Real Property or any improvements erected or situated thereon, or the uses conducted thereon or therein, violate any regulations of any governmental body having jurisdiction over the Real Property. (g) The improvements located on the Real Property are in good condition and are structurally sound, and all mechanical and other systems located therein are in good operating condition, subject to normal wear, and no condition exists requiring material repairs, alterations or corrections. (h) Between the date of this Agreement and Closing, Seller shall not sell, mortgage or encumber the Real Property, or do or permit any act which diminishes title to or value of the Real Property. (i) To the Seller's Knowledge, no work for municipal improvements has been commenced on or in connection with the Real Property or any street adjacent thereto. To the Seller's Knowledge, no assessment for public improvements has been made against the Real Property which remains unpaid. To the Seller's Knowledge, no notice from any county, township or other governmental body has been served upon the Real Property or received by Seller requiring or calling attention to the need for any work, repair, construction, alteration or installation on or in connection with the Real Property which has not been complied with. 3.8 CONDITION AND SUFFICIENCY OF ASSETS (a) Section 3.8 of the Disclosure Schedule sets forth a true, correct and complete list of all Fixed Assets, including a description and the book value thereof. The Fixed Assets of the Seller are structurally sound, are in good operating condition and repair, ordinary wear and tear excepted, and are adequate for the uses to which they are being put, and none of such Fixed Assets are in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The Fixed Assets are sufficient for the continued conduct of the Seller's Business after the Closing in substantially the same manner as conducted prior to the Closing. 3.9 ACCOUNTS RECEIVABLE All Accounts Receivable of Seller that are reflected on the Seller's Closing Date Financial Statements or on the aged list of receivables that identifies as of such date had been outstanding (i) current (ii) one to fifteen (15) days past due (iii) sixteen (16) to sixty (60) days past due, (iv) sixty-one (61) to ninety (90) days past due, and (v) over ninety (90) days past due represent or will represent valid obligations arising from sales actually made or services actually performed in the Ordinary Course of Business. Unless paid prior to the Closing Date, the Accounts Receivable are or will be as of the Closing Date current and collectible. There is no contest, claim, or right of set-off, other than returns in the Ordinary Course of Business, under any contract or arrangement with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable. Part 3.9 of the Disclosure Schedule contains a complete and accurate list of all Accounts Receivable as of the Closing Date. 3.10 INVENTORY All Inventory of the Seller, whether or not reflected in the Closing Financial Statements, has been maintained in the Ordinary Course of Business, consists of tangible property that is, of a good and merchantable quality, quantity and condition, usable and saleable in the Ordinary Course of Business and is valued under the job order cost system in accordance with Generally Accepted Accounting Principles consistent with past practice based upon the Ordinary Course of Business of the Seller, and is not subject to any write-down or write-off. As of the Closing Date, Seller is not under any liability or obligation to any Person with respect to the return of Inventory sold or delivered prior to Closing. 3.11 NO UNDISCLOSED LIABILITIES Except as set forth in Part 3.11 of the Disclosure Schedule, the Seller has no liabilities or obligations of any nature (whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations reflected or reserved against in the Closing Financial Statements and current liabilities incurred in the Ordinary Course of Business since the respective dates thereof. 3.12 TAXES (a) The Seller, Andersen or Ney has filed or caused to be filed or will file or cause to be filed (on a timely basis, giving effect to allowable extensions, since April 20, 1992) all Tax Returns that are or were required to be filed by or with respect to the Seller or the Seller's Business, pursuant to applicable Legal Requirements. The Seller has delivered to Buyer copies of all such Tax Returns filed since April 20, 1992. All Tax Returns filed by the Seller are true, correct and complete in all material respects as such and to the extent that such Tax Returns may affect the transactions contemplated by this Agreement. The Seller, Andersen or Ney has paid or will pay, or made provision for the payment of, all Taxes that have or may have become due pursuant to those Tax Returns or pursuant to any assessment received by the Seller, except such Taxes, if any, as are listed in Part 3.12 of the Disclosure Schedule and are being contested in good faith and as to which adequate reserves have been provided in the Closing Financial Statements. (b) Except as set forth in Part 3.12(b) of the Disclosure Schedule, there are no outstanding liabilities for Taxes payable, collectible or remittable by the Seller, whether assessed or not, which may result in a material Encumbrance on or other claim against or seizure or sale of all or any part of the Assets or would otherwise adversely affect the Business or would result in the Buyer becoming liable or responsible therefor. There are no actions, suits, proceedings, or, to the knowledge of the Seller, investigations or claims pending or threatened against the Seller in respect of Taxes which may result in a material Encumbrance on or other claim against or seizure or sale of any of the Assets or liability or responsibility on the part of the Buyer for Taxes payable, collectible or remittable by the Seller nor are any material matters under discussion by Seller or its representatives with any governmental authority relating to Taxes. The Seller, Andersen or Ney has withheld from all remuneration (including taxable benefits) of employees of the Business all Taxes and other deductions required to be withheld therefrom and has remitted the same to the proper tax or other receiving authority within the time required under applicable legislation. 3.13 NO MATERIAL ADVERSE CHANGE Except as otherwise expressly permitted under this Agreement, since August 1, 1997 there has not been any Material Adverse Change in the Seller's Business, operations, properties, prospects, assets, or condition of the Seller or the Seller's Business, and no event has occurred or circumstance exists that may result in such a Material Adverse Change in the Seller or the Seller's Business. 3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS (a) Except as set forth in Part 3.14 of the Disclosure Schedule: (i) The Seller is in compliance in all material respects with each Legal Requirement that is or was applicable to it or to the conduct or operation of the Seller's Business or the ownership, lease, or use of any of its Assets or any Facilities; and (ii) The Seller has not received any notice or other communication (whether oral or written) from any Governmental Body or any other Person and, to the Seller's Knowledge, no event has occurred or circumstance exists that (with or without notice or lapse of time) (A) may constitute or result in a violation by the Seller of, or a failure on the part of the Seller to comply with, any Legal Requirement, or (B) may give rise to any obligation on the part of the Seller to undertake, or to bear all or any portion of the cost of, any remedial action of any nature with respect to any Legal Requirement. (b) Part 3.14 of the Disclosure Schedule contains a complete and accurate list of each material Governmental Authorization that is held by the Seller or that otherwise relates to the Seller's Business. Each material Governmental Authorization listed or required to be listed in Part 3.14 of the Disclosure Schedule is valid and in full force and effect. 3.15 LEGAL PROCEEDINGS (a) Except as set forth in Part 3.15 of the Disclosure Schedule, there is no pending Proceeding: (i) that has been commenced by or against the Seller or that otherwise relates to or may affect the Seller's Business or any Facilities, or concerning any other property or person, who has been affected by the Seller's Business; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated hereby. To the Seller's Knowledge, (1) no such Proceeding has been Threatened, and (2) Seller has no reason to believe any such Proceeding will be commenced based upon facts existing as of the Closing Date other than as set forth in Part 3.15 of the Disclosure Schedule. The Seller has delivered to Buyer copies of all pleadings, correspondence, and other documents relating to each Proceeding listed in Part 3.15 of the Disclosure Schedule. The Proceedings listed in Part 3.15 of the Disclosure Schedule will not have a material adverse effect on the Seller's Business, Assets, operations, condition, or prospects of the Seller's Business. (b) Except as set forth in Part 3.15 of the Disclosure Schedule: (i) The Seller is not subject to any Order that relates in any respect to the Seller's Business, any of the Assets or any Facility; and (ii) To the Seller's Knowledge, no employee or agent of Seller is subject to any Order that prohibits such agent or employee from engaging in or continuing any conduct, activity or practice relating to the Seller's Business. 3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS Except as set forth in Part 3.16 of the Disclosure Schedule or as otherwise expressly permitted in this Agreement, since March 1, 1997, the Seller has conducted the Seller's Business only in the Ordinary Course of Business and there has not been any: (a) change in the Seller's authorized or issued capital stock; grant of any stock option or right to purchase shares of capital stock of the Seller; issuance of any security convertible into such capital stock; grant of any registration rights; purchase, redemption, retirement, or other acquisition by the Seller of any shares of any such capital stock; or declaration or payment of any dividend or other distribution or payment in respect of shares of capital stock; (b) amendment to the Organizational Documents of the Seller; (c) except in the Ordinary Course of Business, payment or increase by the Seller of any bonuses, salaries, or other compensation to any stockholder, director, officer, or employee or entry into any employment, severance, or similar contract with any director, officer, or employee; (d) adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any employees of the Seller; (e) damage to or destruction or loss of any asset or property of the Seller, whether or not covered by insurance, materially and adversely affecting the properties, Assets, business, financial condition, or prospects of the Seller (including, the loss or prospective loss of any material business relationships); (f) entry into, termination of, or receipt of notice of termination of (i) any license, exclusive contract or arrangement, joint venture, credit, or similar agreement, or (ii) any contract or transaction involving a total remaining commitment by or to the Seller (determined on an individual basis) of at least Ten Thousand and 00/100 Dollars ($10,000.00); (g) other than in the Ordinary Course of Business, sale, lease, or other disposition of any Asset or property of the Seller or mortgage, pledge, or imposition of any lien or other encumbrance on any material Asset or property of the Seller, including the sale, lease, or other disposition of any of the Intellectual Property Assets; (h) cancellation or waiver of any claims or rights with a value (determined individually) to the Seller in excess of Ten Thousand and 00/100 Dollars ($10,000.00); (i) change in the accounting methods used by the Seller; (j) capital expenditures or commitments for capital expenditures in excess of Ten Thousand and 00/100 Dollars ($10,000.00) individually or Fifty Thousand and 00/100 Dollars ($50,000.00) in the aggregate. (k) loan to, guaranty of any indebtedness of or incurrence of any indebtedness on behalf of any Person; (l) failure to pay any creditor any amount owed to such creditor when due; (m) sale of Inventory other than in the Ordinary Course of the Business consistent with past practice; (n) material changes in the customary methods of operations of the Seller, including, without limitation, practices and policies relating to manufacturing, purchasing, Inventories, marketing, selling and pricing; (o) merger with, consolidation with or acquisition of any Person or acquisition of a substantial portion of the assets or business of any Person or any division or line of business thereof, or other acquisition of any material assets other than in the ordinary course of business consistent with past practice; (p) agreement, arrangement or transaction with any of its directors, officers, employees or shareholders (or with any relative, beneficiary, spouse or Affiliate of such Person); or (q) agreement, whether oral or written, by the Seller to do any of the foregoing; 3.17 CONTRACTS; NO DEFAULTS (a) Part 3.17(a) of the Disclosure Schedule contains a complete and accurate list, of each of the Contracts of the Seller which has an amount requiring payment (i) to the Seller, in the aggregate, or in any individual payment, in excess of Ten Thousand and 00/100 Dollars ($10,000.00), (ii) by the Seller in the aggregate, or in any individual payment in excess of Ten Thousand and 00/100 Dollars ($10,000.00) and (iii) all open purchase orders of Seller entered into on the form attached in Part 3.17(a) of the Disclosure Schedule (collectively (i), (ii) and (iii) and the agreements set forth on Part 3.17(b) of the Disclosure Schedule the "Assumed Contracts"). Seller has delivered or made available to Buyer, or will deliver or make available to Buyer, true and complete copies of all of the contracts referred to in 3.17(a) (i) and (ii) hereof. (b) Except as set forth in Part 3.17(b) of the Disclosure Schedule, the Seller has no rights under, and has not or may not become subject to any obligation or liability under, any other contract that relates in any respect to Seller's Business or the Assets. (c) Except as set forth in Part 3.17(c) of the Disclosure Schedule, each Assumed Contract identified or required to be identified in Part 3.17(a) of the Disclosure Schedule is in full force and effect and is valid and enforceable in accordance with its terms. (d) Except as set forth in Part 3.17(d) of the Disclosure Schedule: (i) the Seller is in compliance in all material respects with all applicable terms and requirements of each of the Assumed Contracts; (ii) to the Seller's Knowledge, each other Person that has or had any obligation or liability under any of the Assumed Contracts is in compliance in all material respects with all applicable terms and requirements of such Assumed Contract; (iii) to the Seller's Knowledge, no event has occurred and no circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a material violation or breach of, or give the Seller or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Assumed Contract; and (iv) the Seller has not given to or received from any other Person, at any time since August 1, 1997, any notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Assumed Contract. (e) Other than in the Ordinary Course of Business, there are no pending renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to the Seller under current or completed contracts with any Person included in the Assumed Contracts and no such Person has made an oral or written demand for such renegotiation. 3.18 INSURANCE (a) The Seller has delivered or will deliver to Buyer on the Closing Date: (i) true and complete copies of all policies of insurance to which the Seller is a party or under which the Seller is or has been covered at any time within the five (5) years preceding the date of this Agreement; (ii) true and complete copies of all pending applications for policies of insurance; and (iii) there are no claims or loss history with respect to such policies for the five (5) years preceding the date of this Agreement. With respect to each current insurance policy: (A) the policy is legal, valid, binding, enforceable, and in full force and effect; (B) neither Seller nor any other party to the policy is in breach or default (including with respect to the payment of premiums or the giving of notices), and no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit termination, modification or acceleration, under the policy; and (C) no party to the policy has repudiated any provision thereof. Seller has been covered during the past ten (10) years by insurance in scope and amount customary and reasonable for the businesses in which it has engaged during the aforementioned period. Part 3.18 of the Disclosure Schedule describes any self-insurance arrangements affecting the Seller. (b) Part 3.18(b) of the Disclosure Schedule describes: (i) any self-insurance arrangement by or affecting the Seller or the Seller's Business, including any reserves established thereunder; (ii) any contract or arrangement, other than a policy of insurance, for the transfer or sharing of any risk by the Seller's Business; and (iii) all obligations of the Seller to third parties with respect to insurance (including such obligations under leases and service agreements) and identifies the policy under which such coverage is provided. 3.19 ENVIRONMENTAL MATTERS Except as set forth in Part 3.19 of the Disclosure Schedule: (a) The Seller is, and at all times has been, in compliance in all material respects with all Environmental Laws and has no material liability thereunder. The Seller has obtained all Environmental Permits and is and has been in compliance with their requirements. Seller has not received any order, notice, or other communication from (i) any Governmental Body or private citizen acting in the public interest, or (ii) the current or prior owner or operator of any Facilities, of any actual or potential violation, liability or failure by Seller to comply with any Environmental Law, or of any actual or Threatened obligation to undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to any of the Facilities or any other properties or assets (whether real, personal, or mixed) in which the Seller has had an interest, or with respect to any property or Facility at or to which Hazardous Materials were generated, manufactured, disposed, stored, treated, transported, recycled, refined, transferred, imported, or processed by or on behalf of the Seller or any other Person for whose conduct it is or may be held responsible. (b) There are no pending or, to the Seller's Knowledge, Threatened claims, Encumbrances, or other restrictions of any nature, resulting from any Environmental, Health, and Safety Liabilities or arising under or pursuant to any Environmental Law, with respect to or affecting any of the Facilities or any other properties and assets (whether real, personal, or mixed) in which the Seller has or had an interest. (c) Neither the Seller or, to the Seller's Knowledge, any other Person for whose conduct it is or may be held responsible, has any Environmental, Health, and Safety Liabilities with respect to the Facilities or, to the Seller's Knowledge with respect to any other properties and assets (whether real, personal, or mixed) in which the Seller (or any predecessor), has or had an interest. (d) To the Seller's Knowledge, there has been no Release or Threat of Release, of any Hazardous Materials that would constitute a material violation of or create any material liability under any Environmental Laws at or from the Facilities or at any other locations where any Hazardous Materials were generated, manufactured, disposed, stored, treated, transported, recycled, refined, transferred, produced, imported, used, or processed from or by the Facilities, or from or by any other properties and assets (whether real, personal, or mixed) in which the Seller has or had an interest. (e) Attached to the Disclosure Schedule in Part are true, complete and accurate copies of all Environmental Permits, environmental reports, studies, notices, disclosures and documentation pertaining to the Facilities, including, without limitation any and all notices, reports or other documents submitted to or received from any Governmental Body or any private citizen acting in the public interest. 3.20 EMPLOYEES (a) Part 3.20 of the Disclosure Schedule contains a complete and accurate list of the following information for each employee of the Seller, including each employee on leave of absence or layoff status: employee name; job title; current compensation paid or payable and any change in compensation since February 28, 1997; vacation accrued; and service credited for purposes of vesting and eligibility to participate under the Seller's fringe benefit plans. (b) To the Seller's Knowledge, except as set forth in Part 3.20 of the Disclosure Schedule, no Seller employee is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or proprietary rights agreement, between such employee and any other Person ("Proprietary Rights Agreement") that in any way adversely affects or will affect (i) the performance of his duties as an employee in the Seller's Business, or (ii) the ability of the Buyer to conduct the Seller's Business. (c) Except as set forth in Part 3.20 of the Disclosure Schedule, all officers, management, employees, technical employees and all other employees of the Seller are under written obligation to the Seller to maintain in confidence all confidential information acquired by them in the course of their employment and to assign to the Seller all inventions made by them within the scope of their employment during such employment and for a reasonable period thereafter. 3.21 LABOR RELATIONS; COMPLIANCE Since February 28, 1997, the Seller has not been or is not a party to any collective bargaining or other labor Contract. Since February 28, 1997, there has not been, there is not presently pending or existing, and there is not to the Seller's Knowledge, Threatened, (a) any strike, slowdown, picketing, work stoppage, or employee grievance process, (b) any Proceeding against or affecting the Seller's Business relating to the alleged violation of any Legal Requirement pertaining to labor relations or employment matters, including any charge or complaint filed by an employee or union with Governmental Body, organizational activity, or other labor or employment dispute against or affecting the Seller or its Business, or (c) any application for certification of a collective bargaining agent. To the Seller's Knowledge, no event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute. There is no lockout of any employees by the Seller, and no such action is contemplated by the Seller. To the Seller's Knowledge, the Seller has complied in all material respects with all Legal Requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health, and plant closing. The Seller is not liable for the payment of any compensation, damages, taxes, fines, penalties, or other amounts, however designated, for failure to comply with any of the foregoing Legal Requirements. 3.22 INTELLECTUAL PROPERTY (a) Intellectual Property Assets--For the purposes of this Agreement the term "Intellectual Property Assets" includes: (i) the name "Ney Ultrasonics" and all fictional business names, trading names, registered and unregistered trademarks, service marks, and applications used in the Business and owned, used or licensed by Ney or the Seller and listed on Part 3.22(c) (collectively, "Marks"); (ii) all copyrights in both published works and unpublished works used in the Business and owned, used or licensed by Ney or Seller and listed on Part 3.22(a) (collectively, "Copy rights"); (iii) the computer software and all related software code documentation, and commentaries, owned or licensed by the Seller or Ney in the conduct of the Business and listed at Part 3.22(c) of the Disclosure Schedule (the "Software"). (b) Agreements -- Part 3.22(b) of the Disclosure Schedule contains a complete and accurate list and summary description, including any royalties paid or received by the Seller, of all Contracts relating to the Intellectual Property Assets to which the Seller is a party or by which the Seller is bound, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs with a value of less than $2,000 under which the Seller is the licensee. There are no outstanding and, to the Seller's Knowledge, no Threatened disputes or disagreements with respect to any such agreement. (c) Trademarks. (i) Part 3.22(c) of the Disclosure Schedule contains a complete and accurate list and summary description of all Marks. (ii) Except as set forth on Part 3.22(c) of the Disclosure Schedule, all Marks that have been registered with the applicable Trademark Office are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety (90) days after the Closing Date. (iii) Except as set forth on Part 3.22(c) of the Disclosure Schedule, no Mark has been or is now involved in any opposition, invalidation, or cancellation and, to the Seller's Knowledge, no such action is Threatened with the respect to any of the Marks. (iv) Except as set forth on Part 3.22(c) of the Disclosure Schedule, to the Seller's Knowledge, there is no potentially interfering trademark or trademark application of any third party. (d) Non-Infringement. (i) Except as listed on Part 3.22(d) of the Disclosure Schedule, no action is pending or, to the Seller's Knowledge Threatened with respect to the Seller's ownership of, or potential infringements of or any other claims as to the Intellectual Property Assets or current products of Seller. None of the Intellectual Property Assets including, the current products manufactured by the Seller infringe, violate or constitute a misappropriation (or to Seller's Knowledge in the past infringed, violated or constituted a misappropriation) of any intellectual property rights of any other person or entity. Neither Seller, Ney or Andersen has received any complaint, claim or notice alleging any such infringement, violation or misappropriation, and to the Seller's Knowledge, there is no threatened complaint, claim or notice. (ii) Seller has taken all reasonable measures to protect the proprietary nature and value of each of the Intellectual Property Assets. No other person or entity has any rights to any of the Intellectual Property Assets owned or used by Seller and to the Seller's Knowledge, no other person or entity is infringing, violating or misappropriating any of the Intellectual Property Assets. (e) Software. (i) The Software of the Seller included in the Intellectual Property Assets as defined above performs materially in accordance with the documentation and other written descriptions used in connection with the Software and is free of material defects in programming and operation, is in machine-readable form, and contains all currently available computer programs, materials, tapes, know-how, object and source codes, other written materials, know-how and processes related to the Software. Seller has delivered to the Buyer complete and correct copies of all user and technical documentation currently available related to the Software. (f) Ownership of Intellectual Property Assets -- Except as contemplated by the Technology Agreements, Seller owns and has the right to use and on the Closing Date shall own and have the right to use and sell the products incorporating all of the Intellectual Property Assets used in the operation of the Seller's Business or necessary for the operation of the Seller's Business as presently conducted. 3.23 EMPLOYEE BENEFIT MATTERS (a) Part 3.23(a) of the Disclosure Schedule contains a list of each employee pension benefit plan (within the meaning of section 3(2) of ERISA) to which Seller contributes or is required to contribute on behalf of its employees. Also attached to the Disclosure Schedule with respect to each of such plans are the most recent summary plan descriptions. With respect to each of the plans listed in the Disclosure Schedule: (i) A determination letter has been received to the effect that any such qualified plan is qualified under Section 401 of the Code and the trusts maintained pursuant thereto are exempt from the Federal income taxation under Section 501 of the Code. (ii) No reportable event, as such term is defined in Section 4043(b) of ERISA, has occurred and is continuing with respect to any of such plans which are subject to Section 4043(b) of ERISA, other than those which might arise as a result of the transactions contemplated by this Agreement. (iii) Neither Seller nor any ERISA Affiliate has incurred any outstanding liability to the Pension Benefit Guaranty Corporation (other than for the payment of premiums) and will not incur any liability to the Pension Benefit Guaranty Corporation as a result of the transactions contemplated by this Agreement which would have a Material Adverse Effect. (iv) No "prohibited transaction" as such term is defined in Section 4975 of the Code and Section 406 of ERISA, has occurred with respect to such plans which could subject Buyer to a tax or penalty for such prohibited transactions imposed by either Section 502 of ERISA or Section 4975 of the Code. (v) With respect to any plan that is subject to Title IV of ERISA, no such plan has an accumulated funding deficiency. (vi) Neither Seller nor any ERISA Affiliate has incurred any withdrawal liability with respect to any multi-employer plan under Section 4201 of ERISA nor has received any notification that any multi-employer plan is in reorganization or has terminated. (vii) All employees of Seller who accept employment by Buyer will, as of the Closing Date, be fully vested in benefits accrued under any plan qualified under Section 401 of the Code and maintained by Seller or any ERISA Affiliate of Seller. (b) Seller shall comply with the health care continuation coverage requirements of Section 162(k) and 4980B of the Code and Sections 601 through 608 of ERISA, for all Employees of Seller who have a qualifying event as a result of this Agreement. (c) Entry into this Agreement and performing the obligations hereunder will not violate any law, regulation, or contract relating to any employee benefit plan (within the meaning of Section 3(3) of ERISA) maintained by Seller or subject or expose Buyer to any excise tax or recapture of investment tax credit. Buyer will have no responsibility with respect to any employee benefit plan (within the meaning of Section 3(3) of ERISA) maintained by Seller or any ERISA Affiliate of the Seller. 3.24 CUSTOMERS Listed in Part 3.24 of the Disclosure Schedule are the names and addresses of the customers (by revenue) of the Seller for each of the last three (3) fiscal years and the eleven (11) months ended January 31, 1998, and the amount for which each such customer was invoiced during each such period. Except as disclosed in Part 3.24 of the Disclosure Schedule, the Seller has not received any notice or has any Knowledge that any customer of the Seller, as listed in Part 3.24 of the Disclosure Schedule, for the year ended February 28, 1997 or the eleven (11) months ended January 31, 1998, has ceased, or will cease, to use the products, equipment, goods or services of the Seller, or has substantially reduced, or will substantially reduce, the use of such products, equipment, goods or services at any time. 3.25 SUPPLIERS Listed in Part 3.25 of the Disclosure Schedule are the names and addresses of the suppliers of Seller for each of the last three (3) fiscal years and the eleven (11) months ended Januaryy31, 1998 and the amount of raw materials, suppliers, merchandise or other goods purchased by Seller. Except as disclosed in Part 3.25 of the Disclosure Schedule, the Seller has not received any notice and does not have any Knowledge that any significant supplier will not sell raw materials, supplies, merchandise or other goods to the Seller at any time after the Closing Date on terms and conditions substantially similar to those used in its current sales to the Seller. Except as disclosed in Part 3.25 of the Disclosure Schedule, each of the Seller's outstanding blanket orders for raw materials, supplies, merchandise and other goods can be terminated at any time by the Seller without incurring any penalty or payment. 3.26 DISCLOSURE (a) No representation or warranty of the Seller in this Agreement and no statement in the Disclosure Schedule omits to state a material fact required to be made in such representation or warranty or in the Disclosure Schedule and necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading. (b) There is no fact known to the Seller that has specific application to the Seller's Business (other than general economic or industry conditions) and that could have a Material Adverse Effect on Seller or Seller's Business that has not been set forth in this Agreement or the Disclosure Schedule. 3.27 TRANSACTIONS WITH AFFILIATES Except as disclosed in Part 3.27 of the Disclosure Schedule, no stockholder, director, officer or employee of Seller, or any member of his or her immediate family or any other of its, his or her affiliates, owns or has any ownership interest in any corporation or other entity, or any Related Person, that is or was during the last three years a party to, or in any property which is or was during the last three years the subject of, any material contract, agreement or understanding, business arrangement or relationship with Seller. 3.28 BROKERS OR FINDERS The Seller and its agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement. 4. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: 4.1 ORGANIZATION AND GOOD STANDING Buyer is a corporation duly organized, validly existing, and in good standing under Delaware law, with full corporate power and authority to conduct its business as it is now being conducted and to own or use the properties and assets that it purports to own or use except where its failure to qualify would not have a Material Adverse Effect on Buyer. Buyer has delivered to the Seller copies of its Organizational Documents, as currently in effect. 4.2 AUTHORITY; NO CONFLICT (a) This Agreement constitutes the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. Buyer has the full corporate power and authority to execute and deliver this Agreement and the other documents contemplated to be executed and delivered at the Closing by Buyer and to perform its obligations under this Agreement and such other documents. (b) Except as set forth in Part 4.2 of the Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation or performance of any of the transactions contemplated hereby will give any Person the right to prevent, delay, or otherwise interfere with any of the transactions contemplated hereby pursuant to: (i) any provision of Buyer's Organizational Documents; (ii) any resolution adopted by the board of directors of the Buyer; (iii) any Legal Requirement or Order to which Buyer may be subject; or (iv) any material contract to which Buyer is a party or by which Buyer may be bound. Except as set forth in Part 4.2 of the Disclosure Schedule, Buyer is not and will not be required to obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the transactions contemplated hereby. 4.3 CERTAIN PROCEEDINGS There is no pending Proceeding that has been commenced against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated hereby. To Buyer's Knowledge, no such Proceeding has been Threatened. 5. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE Buyer's obligation to purchase the Assets and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part): 5.1 ACCURACY OF REPRESENTATIONS After giving effect to the matters set forth in the Disclosure Schedules, all of the representations and warranties of the Seller and Andersen in this Agreement (considered collectively), and each of these representations and warranties (considered individually), must have been accurate in all material respects (other than representations and warranties having materiality qualifiers, which shall be accurate in all respects) as of the date of this Agreement, and must be accurate in all material respects (other than representations and warranties having materiality qualifiers, which shall be accurate in all respects) as of the Closing Date as if made on the Closing Date, after giving effect to any supplement to the Disclosure Schedules. 5.2 SELLER'S PERFORMANCE (a) All of the covenants and obligations that the Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), must have been duly performed and complied with in all material respects. (b) Each document required to be delivered pursuant to Section 2.9 must have been delivered. 5.3 CONSENTS Except as set forth in Section 7.1(b), each of the Consents identified in Part 3.2 of the Disclosure Schedule, must have been obtained and must be in full force and effect. 5.4 ADDITIONAL DOCUMENTS Each of the following documents must have been delivered to Buyer by the Seller: (a) an opinion of Edwards & Angell, dated the Closing Date, in the form of Exhibit 5.4(a); (b) such other documents as Buyer may reasonably request for the purpose of (i) enabling its counsel to provide the opinion referred to in Section 6.4(a), (ii) evidencing the accuracy of any of the Seller's representations and warranties, (iii)yevidencing the performance by the Seller of, or the compliance by the Seller with, any covenant or obligation required to be performed or complied with by the Seller, and (iv)yevidencing the satisfaction of any condition referred to in this Section 5; (c) a certified copy of the corporate proceedings required on the part of Seller to authorize and carry out this Agreement and to convey, assign, transfer and deliver the Assets to Buyer; (d) within fifteen (15) days after Closing Date, unless otherwise provided, an update of the following Disclosure Schedules with a true, correct and complete list and amount, as of February 28, 1998: (i) the Fixed Assets; (ii) the Accounts Receivable, including an Aging thereof; (iii) the trade accounts payable assumed under this Agreement; (iv) the accrued expenses assumed under this Agreement, upon delivery of Closing Financial Statements; (v) all unfilled customers orders; and (vi) all shipments made during the period from August 1, 1997 through February 28, 1998; the nature of which information shall not be materially different from the information supplied by Seller as of the date hereof. 5.5 NO PROCEEDINGS Since the date of this Agreement, there must not have been commenced or Threatened against Buyer, or against any Person affiliated with Buyer, any Proceeding (a) involving any challenge to, or seeking damages or other relief in connection with, any of the transactions contemplated hereby, or (b) that may reasonably have the effect of preventing, delaying, making illegal, or otherwise interfering with any of the transactions contemplated hereby. 5.6 NO CLAIM REGARDING ASSETS OR SALE PROCEEDS There must not have been made or Threatened by any Person any claim asserting that such Person (a) is the holder or the beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, the Assets, or (b) is entitled to all or any portion of the Purchase Price payable for the Assets. 5.7 NO PROHIBITION Neither the consummation nor the performance of any of the transactions contemplated hereby will, directly or indirectly (with or without notice or lapse of time), materially contravene, or conflict with, or result in a material violation of, or cause Buyer or any Person affiliated with Buyer to suffer any material adverse consequence under, (a) any applicable Legal Requirement or Order, or (b) any Legal Requirement or Order that has been published, introduced, or otherwise proposed by or before any Governmental Body. 5.8 OTHER AGREEMENTS (a) Seller shall have negotiated and delivered a New Lease acceptable to Buyer with respect to the property located at 1280 Blue Hills Avenue, Bloomfield, Connecticut 06002 (the "New Lease") that provides for the lease of the premises to Buyer and the termination of the existing lease on or before the Closing Date. (b) Buyer shall have negotiated employment agreements with key employees of the Seller which are set forth in Part 5.8(b) of the Disclosure Schedule. 6. CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATION TO CLOSE The Seller's obligation to sell the Assets and to take the other actions required to be taken by the Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by the Seller, in whole or in part): 6.1 ACCURACY OF REPRESENTATIONS All of Buyer's representations and warranties in this Agreement (considered collectively), and each of these representations and warranties (considered individually), must have been accurate in all material respects (other than representations and warranties having materiality qualifiers, which shall be accurate in all respects) as of the date of this Agreement and must be accurate in all material respects (other than representations and warranties having materiality qualifiers, which shall be accurate in all respects) as of the Closing Date as if made on the Closing Date, after giving effect to any supplement to the Disclosure Schedules. 6.2 BUYER'S PERFORMANCE (a) All of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), must have been performed and complied with in all material respects. (b) Buyer must have delivered each of the documents required to be delivered by Buyer pursuant to Section 2.9 and must have paid the Purchase Price. 6.3 CONSENTS Each of the Consents identified in Part 4.2 of the Disclosure Schedule must have been obtained and must be in full force and effect. 6.4 ADDITIONAL DOCUMENTS Buyer must have caused the following documents to be delivered to Seller: (a) an opinion of Keating, Muething & Klekamp, dated the Closing Date, in the form of Exhibit 6.4(a); and (b) such other documents as the Seller may reasonably request for the purpose of (i) enabling its counsel to provide the opinion referred to in Section 5.4(a), (ii) evidencing the accuracy of any representation or warranty of Buyer, (iii) evidencing the performance by Buyer of, or the compliance by Buyer with, any covenant or obligation required to be performed or complied with by Buyer, or (iv) evidencing the satisfaction of any condition referred to in this Section 6. 6.5 NO INJUNCTION There must not be in effect any Legal Requirement or any injunction or other Order that (a) prohibits the sale of the Assets by the Seller to Buyer, and (b) has been adopted or issued, or has otherwise become effective, since the date of this Agreement. 7 ADDITIONAL AGREEMENTS 7.1 PRE-CLOSING CONDITIONS The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing, except as otherwise indicated. (a) Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary in order to consummate and make effective the transactions contemplated by this Agreement. (b) Seller will give any notices to third parties, and shall obtain any third party consents that are required or that the Buyer may reasonably request in connection with the matters referred to in this Agreement. Each of the Parties will give any notices to, make any filings with, and use its best efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in this Agreement and the Disclosure Schedules. If any such consents or approvals relating to an Assumed Contract have not been obtained prior to the Closing Date and the assignment of any such Assumed Contract would constitute a breach thereof, then Seller shall hold such Assumed Contract and all benefits derived therefrom (economic or otherwise) in trust for the Buyer. Seller shall continue to use its best efforts to obtain any such consents or approvals relating to Assumed Contracts after the Closing Date. Until such consent or approval has been obtained, or if it cannot be obtained, Seller shall continue to maintain the existence of such Assumed Contract, as agent and trustee for Buyer, at Seller's expense (net of expenses Buyer would have incurred had the applicable Assumed Contract been assigned or transferred), and for the benefit of Buyer. (c) The Seller will not engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. (d) Except as set forth herein, the Seller will keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, and relationships with lessors, licensors, suppliers, customers and employees. (e) The Seller will permit representatives of the Buyer to have full access, at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Seller, to all premises, properties, personnel, books, records (including Tax records or the relevant portions thereof), contracts, and documents of or pertaining to the Seller. (f) The Seller will give prompt written notice to the Buyer of any material adverse development causing a breach of any of the representations and warranties in Section 3 above. Each Party will give prompt written notice to the others of any material adverse development causing a breach of any of its own representations and warranties in this Agreement. No disclosures by any Party pursuant to this Section 7.1(f), however, shall be deemed to amend or supplement, the Disclosure Schedules or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. (g) Prior to the Closing Date, Ney, Andersen and Seller will not (i) solicit, initiate, or encourage the submission of any proposal or offer from any Person relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the Assets, of the Seller (including any acquisition structured as a merger, consolidation, or share exchange) or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing. The Seller will notify the Buyer immediately if any Person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing. 7.2 POST-CLOSING COVENANTS The Parties agree as follows with respect to the period following the Closing. (a) In case at any time after the Closing any further action is necessary to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party may request, all at the sole cost and expense of the requesting Party. The Seller acknowledges and agrees that from and after the Closing, the Buyer will be entitled to copies of all documents, books, records (including the relevant portions of Tax records), agreements, and financial data of any sort relating to the Seller's Business. (b) In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction or prior to the Closing Date involving the Seller, each of the other Parties will cooperate with it and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party. (c) Seller will not take any action that is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier or other business associate of the Seller from maintaining the same business relationships with the Buyer after the Closing as it maintained with the Seller prior to the Closing. The Seller will refer all customer inquiries relating to the business of the Seller to the Buyer from and after the Closing. (d) The Seller will treat and hold as such all of the Confidential Information, refrain from using any of the Confidential Information, except in connection with this Agreement, and deliver promptly to the Buyer or destroy, at the request and option of the Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in its possession. In the event that Seller is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, that Seller will notify the Buyer promptly of the request or requirement so that the Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 7.2(d). If, in the absence of a protective order or the receipt of a waiver hereunder, the Seller is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, that Seller may disclose the Confidential Information to the tribunal; provided, however, that Seller shall use its order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the Buyer shall designate. The foregoing provisions shall not apply to any Confidential Information which is generally available to the public immediately prior to the time of disclosure. (e) With respect to the collection of the Accounts Receivable: (i) After the Closing Date, Buyer shall use reasonable efforts to attempt to collect all of the Accounts Receivable with reasonable diligence consistent with Buyer's general business practice for a period of ninety (90) days following the Closing Date (the "Collection Period"), but shall not be required to institute any legal proceedings or use a collection agency to enforce the collection of any such Accounts Receivable. Upon the expiration of the Collection Period, Buyer shall furnish Seller with a collection report setting forth the Accounts Receivables which remain uncollected. Within ten (10) days after receipt of such collection report, Seller shall pay to Buyer an amount equal to the Gross Accounts Receivable (as defined below) which have not been collected. Upon receipt of such payment, Buyer shall deliver to the Seller all right, title and interest in and any tangible evidence of the uncollected Accounts Receivable then in the possession of Buyer and Seller shall be entitled to use such customary and reasonable actions as it deems necessary or desirable in order to collect such unpaid accounts; provided that Seller shall consult with Buyer prior to taking any collection action which might reasonably be expected to jeopardize the Buyer's relationship with such customer. For purposes of this Section, Gross Accounts Receivable means, the gross Accounts Receivable as of the Closing Date less any reserve for Accounts Receivable shown on the Closing Financial Statements. (ii) The Seller will, if requested by Buyer, cooperate with Buyer in collecting any Accounts Receivable. The Buyer will, if requested by Seller, cooperate with Seller in collecting any Accounts Receivable. (iii) The Seller hereby authorizes Buyer to open any and all mail addressed to Seller if received on or after the Closing Date and hereby grants to the Buyer a power of attorney to endorse and cash any checks or instruments made payable or endorsed to Seller or its order and received by Buyer. (iv) The Seller agrees that it will forward promptly to Buyer any monies, checks or instruments received by Seller after the Closing Date with respect to the Accounts Receivable. (v) Any sums received by the Buyer in respect of Accounts Receivable after payment for such receivable by the Seller shall be promptly transmitted by the Buyer to the Seller. (f) Buyer shall operate the Business in the Ordinary Course of Business consistent with Seller's past practices for the period from the date of this Agreement until the Closing Date. (g) Within thirty (30) days after the Closing Date, Seller shall remove all containerized Hazardous Waste (as that term is defined by the Environmental Laws) generated by Seller prior to the Closing Date. (h) Within ten (10) days after the Closing Date, Seller and Buyer shall execute any and all documents required to comply with the Connecticut Property Transfer Law. 7.3 TAX MATTERS The following provisions shall govern the allocation of responsibility as between Buyer and Seller for certain tax matters following the Closing Date: (a) Buyer and Seller shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns pursuant to this Section and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Seller agrees (A) to retain all books and records with respect to Tax matters pertinent to the Seller relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Buyer, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (B) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the transferring, destroying or discarding any such books and records and, if the other party so requests, the Seller shall allow the other party to take possession of such books and records. (b) Buyer and Seller further agree, upon request, to use their best efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). (c) Buyer and Seller further agree, upon request, to provide the other party with all information that either party may be required to report. (d) All tax sharing agreements or similar agreements with respect to or involving the Seller shall not be assumed by Buyer after the Closing Date, the Buyer shall not be bound thereby or have any liability thereunder. (e) All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement shall be paid by Seller when due, and Seller will, at their own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees, and, if required by applicable law, Buyer will, and will cause its affiliates to, join in the execution of any such Tax Returns and other documentation. 7.4 SEVERANCE MATTERS Seller shall pay all severance, termination and other payments (whether in the form of cash or otherwise) pursuant to any written or oral agreements of Seller or its Affiliates and expenses applicable to the employees of Seller, including, but not limited to, any other compensation payable to employees of Seller under applicable plant closing or similar laws with respect to employees of Seller who are not offered employment by the Buyer. 7.5 NONCOMPETITION BY SELLER AND STOCKHOLDERS (a) For a period of five years after the Closing (the "Restricted Period") neither the Seller, Andersen, Ney or any Affiliate thereof shall engage, directly or indirectly, in any business anywhere in the United States that develops, designs, manufactures, sells or markets products or services of the kind developed, designed, manufactured, sold and marketed by the Business or the Seller as of the Closing Date or, without the prior written consent of the Buyer, directly or indirectly, own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, partner, stockholder, consultant or otherwise, any Person that competes with the Buyer, the Business or the Seller in developing, designing, manufacturing, selling or marketing products or services of the kind developed, designed, manufactured, sold or marketed by the Business or the Seller as of the Closing; provided, however, that, for the purposes of this section ownership of securities having no more than five percent (5%) of the outstanding voting power of any competitor which are listed on any national securities exchange or traded actively in the national over-the-counter market shall not be deemed to be in violation of this section so long as the Person owning such securities has no other connection or relationship with such competitor. (b) As a separate and independent covenant, the Seller agrees with the Buyer that, for a period of five years following the Closing, neither the Seller, Andersen, Ney or any Affiliate thereof shall, in any way, directly or indirectly, for the purpose of conducting or engaging in any business that develops, designs, manufactures, sells or markets products or services of the kind developed, designed, manufactured, sold or marketed by the Business or the Seller as of the Closing, call upon, solicit, advise or otherwise do, or attempt to do, business with any customers of the Business or the Seller in order to take away or interfere or attempt to interfere with any custom, trade, business or patronage of the Business or the Seller, or interfere with or attempt to interfere with any officers, employees, representatives or agents of the Business or the Seller, or induce or attempt to induce any of them to leave the employ of the Seller or violate the terms of their contracts, or any employment arrangements, with the Company. (c) The Restricted Period shall be extended by the length of any period during which the Seller is in breach of the terms of this Section 7.5. 8. TERMINATION 8.1 TERMINATION EVENTS This Agreement may, by notice given prior to or at the Closing, be terminated: (a) by either Buyer or the Seller if a material Breach of any provision of this Agreement has been committed by the other party and such Breach has not been waived or cured within 10 days after notice of such breach; (b) (i) by Buyer if any of the conditions in Section 5 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date; or (ii) by the Seller, if any of the conditions in Section has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of the Seller to comply with its obligations under this Agreement) and Seller has not waived such condition on or before the Closing Date; (c) by mutual consent of Buyer and the Seller; or (d) by either Buyer or the Seller if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before March 4, 1998 or such later date as the parties may agree upon. 8.2 EFFECT OF TERMINATION Each party's right of termination under Section 8.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 8.1, all further obligations of the parties under this Agreement will terminate, except that the obligations in Section 10.1 will survive; provided, however, that if this Agreement is terminated by a party because of the Breach of the Agreement by the other party or because one or more of the conditions to the terminating party's obligations under this Agreement is not satisfied as a result of the other party's failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies will survive such termination unimpaired. 9. INDEMNIFICATION; REMEDIES 9.1 SURVIVAL All representations, warranties, covenants, and obligations in this Agreement, the Disclosure Schedule, the supplements to the Disclosure Schedule, the certificate delivered pursuant to Section 2.9(a)(iv) and Section 2.9(b)(ii) and any other certificate or document delivered pursuant to this Agreement will survive the Closing. However, the written waiver of any condition based on the accuracy of any representation or warranty in this Agreement, or on the performance of or compliance with any covenant or obligation in this Agreement, will eliminate the right to indemnification, payment of Damages, or other remedy based on such representations, warranties, covenants and obligations. 9.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE SELLER AND ANDERSEN The Seller and Andersen, jointly and severally, hereby indemnify and hold harmless Buyer and its Representatives, stockholders, controlling persons, and affiliates (collectively, the "Indemnified Persons") for, and will pay to the Indemnified Persons the amount of, any loss, liability, claim, damage (including incidental and consequential damages), expense (including costs of investigation and defense and reasonable attorneys' fees) or diminution of value, whether or not involving a third-party claim (collectively, "Damages"), arising, directly or indirectly, from or in connection with: (a) any Breach of any representation or warranty made by the Seller or Andersen in this Agreement or any other certificate or document delivered by the Seller or Andersen pursuant to this Agreement; (b) any Breach of any representation or warranty made by the Seller or Andersen in this Agreement as if such representation or warranty were made on and as of the Closing Date; (c) any Breach by the Seller or Andersen of any covenant or obligation in this Agreement; (d) any product shipped or manufactured by, or any services provided by, the Seller on or prior to the Closing Date, including, without limitation, any damages arising out of allegations of personal injury or property suffered by any third party, or activities or omissions of the Seller that occurred on or prior to the Closing Date; (e) any claim by any Person for brokerage or finder's fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such Person with the Seller (or any Person acting on their behalf) in connection with any of the transactions contemplated hereby; (f) any Environmental, Health and Safety Liabilities that relate to the business or operation of the Seller, the Assets or the Facilities on or prior to the Closing Date, whether or not the facts underlying such Environmental, Health and Safety Liabilities are disclosed in the Disclosure Schedule, known or unknown to the Seller; or (g) any Tax liabilities or obligations of the Seller. 9.3 TIME LIMITATIONS If the Closing occurs, the Seller and Andersen will have no liability (for indemnification or otherwise) with respect to any representation or warranty, or covenant or obligation to be performed and complied with prior to the Closing Date, other than those in Sections 2.3(b), 3.6 (title only), 3.10, 3.12, 3.15 and 3.19, unless on or before the second anniversary of the Closing Date, Buyer notifies the Seller and Andersen of a claim specifying the factual basis of that claim in reasonable detail to the extent then known by Buyer, a claim with respect to Section 3.6 (title only), 3.12 or 3.15, or a claim for indemnification or reimbursement not based upon any representation or warranty or any covenant or obligation to be performed and complied with prior to the Closing Date, may be made at any time within the applicable statute of limitations; a claim with respect to Section 3.19, which must be made within the seventh anniversary date from the Closing Date; a claim with respect to Section 3.10 which must be made within ninety (90) days from the Closing Date; and a claim with respect to Section 2.3(b) which must be made within the time period provided by Seller's warranty with respect to such product. 9.4 LIMITATIONS ON AMOUNT -- SELLER The Seller and Andersen will have no liability (for indemnification or otherwise) with respect to the matters described in Section 9.2 until the total of all Damages actually paid or incurred by Buyer with respect to such matters (excluding, however, any individual matter in the amount of Five Hundred and 00/100 Dollars ($500.00) or less) exceeds Twenty Thousand and 00/100 Dollars ($20,000.00) and then for the full amount of such Damages (excluding, however, any individual matter in the amount of Five Hundred and 00/100 Dollars ($500.00) or less). However, this Section 9.4 will not apply to any intentional Breach by the Seller or Andersen of any covenant or obligation, and the Seller and Andersen will be liable for all Damages with respect to such Breaches in an amount not to exceed the Purchase Price, as adjusted, plus the total of all payments made under the Technology Assignment Agreement as of the date the claim is asserted nor shall this section apply to claims by Buyer with respect to Sections 2.3(b), 3.6 (title only), 3.9, 3.10, 3.12, 3.15 and 3.19 of this Agreement for which Seller and Andersen shall be liable for the full amount of such Damages. 9.5 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS (a) Promptly after receipt by the Indemnified Persons under Section 9.2 of notice of the commencement of any Proceeding against it, such Indemnified Persons will, if a claim is to be made against an indemnifying party under such Section, give notice to the indemnifying party of the commencement of such claim, but the failure to notify the indemnifying party will not relieve the indemnifying party of any liability that it may have to any Indemnified Persons, except to the extent that the indemnifying party demonstrates that the defense of such action is prejudiced by the indemnifying party's failure to give such notice. (b) If any Proceeding referred to in Section 9.5(a) is brought against the Indemnified Persons and it gives notice to the indemnifying party of the commencement of such Proceeding, the indemnifying party will, unless the claim involves Taxes, be entitled to participate in such Proceeding and, to the extent that it wishes (unless (i) the indemnifying party is also a party to such Proceeding and the Indemnified Persons determine in good faith that joint representation would be inappropriate, or (ii) the indemnifying party fails to provide reasonable assurance to the Indemnified Party of its financial capacity to defend such Proceeding and provide indemnification with respect to such Proceeding), to assume the defense of such Proceeding with counsel satisfactory to the indemnified Persons and, after notice from the indemnifying party to the Indemnified Persons of its election to assume the defense of such Proceeding, the indemnifying party will not, as long as it diligently conducts such defense, be liable to the Indemnified Persons under this Section 9.5 for any fees of other counsel or any other expenses with respect to the defense of such Proceeding, in each case subsequently incurred by the Indemnified Persons in connection with the defense of such Proceeding, other than reasonable costs of investigation. If the indemnifying party assumes the defense of a Proceeding, (i) it will be conclusively established for purposes of this Agreement that the claims made in that Proceeding are within the scope of and subject to indemnification; (ii) no compromise or settlement of such claims may be effected by the indemnifying party without the Indemnified Persons' consent unless (A) there is no finding or admission of any violation of Legal Requirements or any violation of the rights of any Person and no effect on any other claims that may be made against the Indemnified Persons, and (B) the sole relief provided is monetary damages that are paid in full by the indemnifying party; and (iii) the Indemnified Persons will have no liability with respect to any compromise or settlement of such claims effected without its consent. If notice is given to an indemnifying party of the commencement of any Proceeding and the indemnifying party does not, within ten (10) days after the Indemnified Persons' notice is given, give notice to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party will be bound by any determination made in such Proceeding or any compromise or settlement effected by the Indemnified Persons. (c) Notwithstanding the foregoing, if an Indemnified Person determines in good faith that there is a reasonable probability that a Proceeding may adversely affect it or its Affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnified Persons may, by notice to the indemnifying party, assume the exclusive right to defend, compromise, or settle such Proceeding, but the indemnifying party will not be bound by any determination of a Proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld). 9.6 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS A claim for indemnification for any matter not involving a third-party claim may be asserted by notice to the Seller and Andersen from whom indemnification is sought. 9.7 EXCLUSIVE REMEDIES Nothing in this Section 9.7 is intended to restrict any remedies which may be available to Buyer with respect to any breach of or other default under any separate agreement executed in connection with any matter described in this Agreement, including (without limitation) breaches of or defaults under the Technology Assignment Agreement. 9.8 RIGHT TO SET OFF; EFFECT OF INDEMNIFICATION PAYMENT In the event that amounts are owed for indemnification pursuant to Section 9 of this Agreement by the Seller and Andersen and such amounts remain unpaid at the date upon which the Buyer must pay consideration to the Seller pursuant to the Technology Assignment Agreement, the Buyer may set off such amounts against the payments owed to the Seller at such date. 10. GENERAL PROVISIONS 10.1 EXPENSES Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the transactions contemplated hereby, including all fees and expenses of agents, representatives, counsel and accountants. In the event of termination of this Agreement, the obligation of each party to pay its own expenses will be subject to any rights of such party arising from a breach of this Agreement by another party. 10.2 PUBLIC ANNOUNCEMENTS Any public announcement or similar publicity with respect to this Agreement or the transactions contemplated hereby will be issued at such time as required by applicable law and as agreed upon by the parties hereto. The Seller and Buyer will consult with each other in good faith concerning the means by which the Seller's employees, customers, and suppliers and others having dealings with the Seller's Business will be informed of the transactions contemplated hereby, and Buyer and the Seller will have the right to be present for any such communication. 10.3 NOTICES All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt), or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service, in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties): The Seller: Ney Ultrasonics Inc. 1280 Blue Hills Avenue Bloomfield, Connecticut 06002 Attention: Mr. Francis E. Baker Facsimile No.: 860/242-8388 with a copy to: Bernard F. Travers III, Esq. Andersen Group, Inc. 1280 Blue Hills Avenue Bloomfield, Connecticut 06002 Facsimile No.: 860/242-8388 with a copy to: Edwards & Angell 101 Federal Street Boston, Massachusetts 02110-1800 Attention: Robert W. Curry, Esq. Facsimile No.: 617/439-4170 Buyer: CAE U.S. Inc. 4933 Provident Drive Cincinnati, Ohio 45246 Attention: John J. Hartig, Vice President Facsimile No.: 513/870-1778 with a copy to: CAE Blackstone 9 North Main Street Jamestown, New York 14702 Attention: Geoff Bond Facsimile No.: 716/665-2480 with a copy to: Keating, Muething & Klekamp, P.L.L. 1800 Provident Tower One East Fourth Street Cincinnati, Ohio 45202 Attention: James M. Jansing, Esq. Facsimile No.: 513/579-6956 10.4 FURTHER ASSURANCES; RECORDS RETENTION The parties agree: (a) to furnish upon request to each other such further information; (b) to execute and deliver to each other such other documents; and (c) to do such other acts and things, all as the other party or parties may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement. Buyer shall retain all files, books and other records relating to the operation of the Seller's Business after the Closing in a manner that is consistent with Buyer's general records retention policy (under which Buyer currently retains most records for seven (7) years) and shall, after the Closing, give the Seller and its respective representative(s) access thereto during regular business hours on reasonable prior notice. 10.5 WAIVER Except as otherwise provided in Section 9.2, the rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 10.6 ENTIRE AGREEMENT AND MODIFICATION This Agreement supersedes all prior agreements, arrangements or understandings between the parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by all the parties hereto. 10.7 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS Neither Buyer nor the Seller may assign any of its rights under this Agreement without the prior consent of the other parties, which will not be unreasonably withheld, except that Buyer may assign any of its rights under this Agreement to any Subsidiary of Buyer. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 10.8 SEVERABILITY If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 10.9 SECTION HEADINGS, CONSTRUCTION The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 10.10 TIME OF ESSENCE With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence. 10.11 GOVERNING LAW This Agreement will be governed by and construed under the laws of Connecticut without regard to conflicts of laws principles. 10.12 COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. [The Remainder of this Page Intentionally Left Blank] IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above. BUYER: CAE U.S. INC. By: /s/ Paul G. Renaud ------------------- Title: Vice President-Finance and Secretary SELLER: NEY ULTRASONICS INC. By: /s/ Bernard F. Travers, III --------------------------- Title: Assistant Secretary ANDERSEN: ANDERSEN GROUP, INC. By: /s/ Francis E. Baker --------------------- Title: Secretary Solely for purposes for Section of the Agreement. NEY: THE J. M. NEY COMPANY By: /s/ Andrew M. O'Shea --------------------- Title: Chief Financial Officer GLOSSARY "Accounts Receivable" -- as defined in Section 2.1(a). "Affiliate" -- with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. "Affiliated Group" -- means an affiliated group as defined in Section 1504 of the Code (or any analogous combined, consolidated or unitary group defined under state, local or foreign income Tax law) of which the Seller is or has been a member. "Agreement" -- as defined in the first paragraph of this Agreement. "Assets" -- as defined in Section 2.1 hereof. "Assumed Contracts" -- as defined in Section 3.17(a). "Assumed Liabilities" -- as defined in Section 2.2(a). "Auditors" -- as defined in Section 2.11(a). "August 1, 1997 Balance Sheet" -- means the balance sheet dated August 1, 1997 delivered by Seller to Buyer which reflects the financial condition of Seller at July 31, 1997. "Breach" -- a "Breach" of a representation, warranty, covenant, obligation or other provision of this Agreement or any instrument delivered pursuant to this Agreement will be deemed to have occurred if there is or has been: (a) any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation or other provision; or (b) any claim (by any Person) or other occurrence or circumstance that is or was inconsistent with such representation, warranty, covenant, obligation, or other provision, and the term "Breach" means any such inaccuracy, breach, failure, claim, occurrence, or circumstance. "Business" -- as defined in the Recitals. "Buyer" -- as defined in the first paragraph of this Agreement. "Capital Employed" -- assets less current liabilities as reflected on the Balance Sheet of Seller at February 28, 1998 determined in accordance with Generally Accepted Accounting Principles consistently applied as presented on the August 1, 1997 Balance Sheet. "Closing" -- as defined in Section 2.7. "Closing Date" -- the date and time as of which the Closing actually takes place. "Closing Financial Statements" -- the Balance Sheet and statement of Net Assets of the Seller as of February 28, 1998 and the Operating Income Statement of the Seller for the fiscal year ending February 28, 1998. "Code" -- the Internal Revenue Code of 1986, as amended from time to time. "Consent" -- any approval, consent, ratification, waiver or other authorization (including any Governmental Authorization). "Contracts" -- all contracts, commitments or other arrangements to which the Seller is a party and related to the Seller's Business. "Copyrights" -- as defined in Section 3.22(a)(ii). "Damages" -- as defined in Section 9.2. "Disclosure Schedule" -- the disclosure schedule delivered by the Seller to Buyer concurrently with the execution and delivery of this Agreement. "Encumbrance" -- any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership. "Environment" -- soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins and wetlands), ground waters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource. "Environmental, Health, and Safety Liabilities" -- any cost, damages, expense, liability, obligation, or other responsibility arising from or under Environmental Law or Occupational Safety and Health Law and consisting of or relating to: (a) any environmental, health, or safety matters or conditions (including on-site or off-site contamination, occupational safety and health, toxic exposure, and regulation of chemical substances or products); (b) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, damages, losses, claims, demands and response, investigative, oversight, remedial or inspection costs and expenses arising under Environmental Law or Occupational Safety and Health Law; (c) financial responsibility under Environmental Law or Occupational Safety and Health Law for cleanup costs or corrective action, including any investigation, cleanup, removal, containment, or other remediation or response actions ("Cleanup") required by applicable Environmental Law or Occupational Safety and Health Law (whether or not such Cleanup has been required or requested by any Governmental Body or any other Person) and for any natural resource damages; or (d) any other compliance, corrective, investigative or remedial measures required under Environmental Law or Occupational Safety and Health Law. "Environmental Laws" -- any Legal Requirement, now in effect, and any judicial or administrative interpretation thereof, including any judicial, administrative order, consent decree or judgment, relating to the environment, health, safety or Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act, 4288 U.S.C. 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. ss.ss.6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. ss.ss.6901 et seq.; the Clean Water Act, 33 U.S.C. ss.ss.1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. ss.ss.2601 et seq.; the Clean Air Act, 42 U.S.C. ss.ss.7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. ss.ss. 300f et seq.; the Atomic Energy Act, 42 U.S.C. ss.ss.2011 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act 7 U.S.C. ss.ss.136 et seq.; and the Federal Food, Drug and Cosmetic Act, 21 U.S.C. ss.ss.301 et seq. "Environmental Permits" -- all permits, approvals, identification numbers, licenses and other authorizations required under any applicable Environmental Law. "ERISA" -- the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliates" -- in relation to any Person, any trade or business (whether or not incorporated) which is a member of a group of which that Person is a member and which is under common control within the meaning of Section 414 of the Code. "Excluded Assets" -- as defined in Section 2.1(b). "Excluded Liabilities" -- as defined in Section 2.2(d). "Facilities" -- any real property, leaseholds, or other interests currently owned or operated by Seller in the conduct of the Seller's Business and any buildings, plants, structures, or equipment (including motor vehicles) currently owned or operated by Seller in the conduct of the Seller's Business. "Financial Statements" -- as defined in Section 3.4. "Governmental Authorization" -- any approval, consent, license, permit, waiver, or other authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement, other than Environmental Permits. "Governmental Body" -- any: (a) nation, state, county, city, town, village, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official or entity and any court or other tribunal); (d) multi-national organization or body; or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature. "Hazardous Materials" -- (a) 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 polychlorinated biphenyls, and radon gas, (b) any other chemicals, materials or substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "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 regulated by any Governmental Authority. "Indemnified Persons" -- as defined in Section 9.2. "Intellectual Property Assets" -- as defined in Section 3.22. "Knowledge" or "Seller's Knowledge" -- Seller will be deemed to have "Knowledge" of a particular fact or other matter if an individual set forth on Schedule I attached hereto, which lists certain employees of Seller, Ney and Andersen, is actually aware of such fact or other matter or would reasonably be expected to discover or otherwise become aware of such fact or other matter in the ordinary course of conducting his or her duties in the absence of gross negligence. "Leases" -- as defined in Section 3.7(b)(i). "Legal Requirement" -- any federal, state, local, municipal, foreign, international, multinational or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty. "Liability" -- any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Legal Requirement (including, without limitation, any Environmental Laws) Governmental Body and those arising under any contract, agreement, arrangement, commitment or undertaking. "Loaded Labor Cost" -- means Buyer's direct labor cost, plus 35% of such direct labor cost to cover all benefit costs with respect to the employees of Buyer. "March 1997 Forecast" -- means the financial forecast dated March 1997 delivered by Seller to Buyer. "Marks" -- as defined in Section 3.22(a)(i). "Material Adverse Change" or "Material Adverse Effect" -- means any event or change which either individually or in combination with other events or changes had or is likely to have a material adverse effect on the assets, business, prospects, financial condition, or results of operations of the Person. "Net Assets" -- assets less current liabilities of Seller as reflected on the Seller's Balance Sheets determined in accordance with Generally Accepted Accounting Principles consistently applied. "New Lease" -- as defined in Section 5.8(a). "Ney" -- means The J.M. Ney Company, a Delaware corporation. "Occupational Safety and Health Law" -- any Legal Requirement designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards and any program, whether governmental or private (including those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthful working conditions. "Operating Income" -- revenue less the cost of goods sold and related operating expenses incurred in the ordinary course of business and before income tax deductions determined in accordance with Generally Accepted Accounting Principles consistently applied and consistent with the Operating Income Statements of Seller as of July 31, 1997 dated Augusty1, 1997. "Order" -- any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator. "Ordinary Course of Business" -- an action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" only if: (a) such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; (b) such action is not required to be specifically authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority); and (c) such action is similar in nature and magnitude to actions customarily taken, without any specific authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person. "Organizational Documents" -- (a) the Certificate of Incorporation and By-laws of a corporation; and (b) any amendment to any of the foregoing. "Percentage-of-Completion Method of Accounting" -- the method of accounting relating to percentage of completion determined in accordance with Generally Accepted Accounting Principles. "Permitted Encumbrances" -- means liens for Taxes not yet due and payable. "Person" -- any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body. "Proceeding" -- any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Body or arbitrator. "Purchase Price" -- as defined in Section 2.5. "Real Property" -- as defined in Section 3.7(a). "Related Person" -- with respect to a particular individual: (a) each other member of such individual's family; (b) any Person that is directly or indirectly controlled by such individual or one or more members of such individual's family; (c) any Person in which such individual or members of such individual's family hold (individually or in the aggregate) a material interest; and (d) any Person with respect to which such individual or one or more members of such individual's family serves as a director, officer, partner, executor or trustee (or in a similar capacity). With respect to a specified Person other than an individual: (a) any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with such specified Person; (b) any Person that holds a material interest in such specified Person; (c) each Person that serves as a director, officer, partner, executor, or trustee of such specified Person (or in a similar capacity); (d) any Person in which such specified Person holds a material interest; (e) any Person with respect to which such specified Person serves as a general partner or a trustee (or in a similar capacity); and (f) any Related Person of any individual described in clause (b) or (c). For purposes of this definition, (a) the "Family" of an individual includes (i) the individual, (ii) the individual's spouse, (iii) any other natural person who is related to the individual or the individual's spouse within the second degree, and (iv) any other natural person who resides with such individual, and (b) "material interest" means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or other voting interests representing at least ten percent (10%) of the outstanding voting power of a Person or equity securities or other equity interests representing at least ten percent (10%) of the outstanding equity securities or equity interests in a Person. "Release" -- any disposal, abandonment, spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping, or other releasing into the Environment, whether intentional or unintentional. "Representative" -- with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "Seller" -- as defined in the first paragraph of this Agreement. "Software" -- as defined in Section 3.22(a)(iii). "Subsidiary" -- with respect to any Person (the "Owner"), any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation's or other Person's board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred) are held by the Owner or one or more of its Subsidiaries; when used without reference to a particular Person, "Subsidiary" means a Subsidiary of the Seller. "Tax Returns" -- any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "Taxes" --means any (A) federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax, of any kind whatsoever, whether disputed or not, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing; (B) liability of Seller or Ney for the payment of any amounts of the type described in clause (A) arising as a result of being (or ceasing to be) a member of any Affiliated Group (or being included (or required to be included) in any Tax Return relating thereto or as a party to any Tax allocation or Tax sharing agreement or any other contractual obligation to indemnify any other person with respect to Taxes); and (C) liability of Seller or Ney for the payment of any amounts of the type described in clause (A) as a transferee or successor, by contract (including as result of any express or implied obligation to indemnify or otherwise assume or succeed to the liability of any other person), or otherwise. "Technology Agreements" -- means the (i) Microsonic License Agreement dated September 1, 1996 between Electronic Power Components, Inc., William L. Puskas and The J.M. Ney Company, (ii) Ultrasonic License Agreement dated March 1, 1993, as amended, between Electronic Power Components, Inc., William L. Puskas and The J.M. Ney Company, and (iii) the Commercial Ultrasonic Cleaners Agreement dated June 1, 1996. "Threat of Release" -- a substantial likelihood of a Release that may require action in order to prevent or mitigate damage to the Environment that may result from such Release. "Threatened" -- a claim, Proceeding, dispute, action, or other matter will be deemed to have been "Threatened" if any demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing), or if any other event has occurred or any other circumstances exist, that would lead a prudent Person to conclude that such a claim, Proceeding, dispute, action, or other matter is likely to be asserted, commenced, taken or otherwise pursued in the future. "Warranty Provision" -- as defined in Section 2.3. EX-10.12 6 MATERIAL CONTRACTS E-6 Exhibit 10.12 AMENDMENT AGREEMENT AMENDMENT AGREEMENT (this "Agreement") dated as of December 29, 1997 by and among The J.M. Ney Company (the "Borrower"), BankBoston, N.A. (successor by merger to Bank of Boston Connecticut) ("BankBoston") and Rhode Island Hospital Trust National Bank ("RIHT" and, collectively with BankBoston, the "Banks"), with respect to a certain Revolving Credit and Deferred Payment Sales Agreement dated as of October 8, 1996 by and among the Borrower and the Banks (the "Credit Agreement"). W I T N E S S E T H: WHEREAS, pursuant to the terms of the Credit Agreement, the Banks provided certain financing to the Borrower; and WHEREAS, the Borrower has requested that the Banks amend certain provisions of the Credit Agreement; and WHEREAS, the Banks are willing to amend certain terms and conditions of the Credit Agreement on the terms and conditions set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ss.1. Definitions. Capitalized terms used herein without definition that are defined in the Credit Agreement shall have the same meanings herein as therein. ss.2. Ratification of Existing Agreements. All of the Borrower's obligations and liabilities to the Banks as evidenced by or otherwise arising under the Credit Agreement, the Note, the Letters of Credit and the other Loan Documents, are, by the Borrower's execution of this Amendment, ratified and confirmed in all respects. In addition, by the Borrower's execution of this Amendment, the Borrower represents and warrants that no counterclaim, right of set-off or defense of any kind exists or is outstanding with respect to such obligations and liabilities. ss.3. Representations and Warranties. All of the representations and warranties made by the Borrower in the Credit Agreement, the Note, the Letters of Credit and the other Loan Documents are true and correct on the date hereof as if made on and as of the date hereof, except to the extent of changes permitted by the Credit Agreement, the Note, the Letters of Credit, the other Loan Documents or this Agreement or specifically consented to in writing by the Banks, and except to the extent that any of such representations and warranties relate by their terms to a prior date. ss.4. Amendment to the Credit Agreement. 4.1. Amendment to ss.1.1. Section 1.1 of the Credit Agreement is hereby amended as follows: (i) the definition of "Availability Amount" is hereby amended in its entirety to read as follows: "Availability Amount. The lesser of (a) the amount by which the Commitment exceeds the sum of (i) the aggregate outstanding balance of all Revolving Loans, plus (ii) the Deferred Payment Sale Amount, plus (iii) the Fair Market Value of Consigned Precious Metal plus (iv) the Maximum Drawing Amount, plus (v) the aggregate amount of all Unpaid Reimbursement Obligations plus (vi) the Fair Market Value of all Segregated Precious Metal and (b) after giving effect to any proposed Deferred Payment Sale with respect to any type of Precious Metal, 90% of the aggregate number of ounces of such type of Precious Metal that are (i) owned by the Borrower and (ii) not subject to any liens other than liens in favor of the Banks (e.g. if the Borrower owns 1000 ounces of silver Precious Metal (exclusive of Segregated Precious Metals and Consigned Precious Metals) prior to a Deferred Payment Sale of silver, the Borrower will be limited to a Deferred Payment Sale of 9000 ounces of silver under this clause (b))." (ii) the definition of "Borrowing Base" is hereby amended and restated in its entirety to read as follows: "Borrowing Base. The sum of (a) 85% of Eligible Receivables in respect of account debtors located within the United States, plus (b) 70% of the Eligible Receivables in respect of account debtors located outside of the United States, plus (c) the Applicable Percentage of each type of Eligible Precious Metal Inventory after subtracting from the number of ounces of each type of Precious Metals owned by the Borrower to be included in Eligible Precious Metal Inventory hereunder (1) the Fair Market Value of 110% of the number of ounces of that type of Precious Metal that is the subject of a Deferred Payment Sale, (2) the Fair Market Value of 110% of the number of ounces of that type of Consigned Precious Metals and (3) the Fair Market Value of 110% of the number of ounces of that type of Segregated Precious Metals." (iii) the definition of "Consolidated Financial Obligations" is hereby amended and restated in its entirety to read as follows: "Consolidated Financial Obligations. With respect to any period, an amount equal to the sum of all payments on Indebtedness that become due and payable or that are to become due and payable during such period pursuant to any agreement or instrument to which the Borrower or any of its Subsidiaries is a party relating to the borrowing of money or the obtaining of credit or in respect of Capitalized Leases (including, without limitation, Deferred Payment Sale Interest). Demand obligations shall be deemed to be due and payable during any fiscal year during which such obligations are outstanding." (iv) the definition of "Deferred Payment Sale Interest" is hereby amended and restated in its entirety to read as follows: "Deferred Payment Sale Interest. Interest on the principal balance of Deferred Payment Sale Amount calculated in accordance with the method and/or amount set forth on the Confirmation Order for the applicable sale (which will be the Consignment Rate plus the Applicable Margin)." (v) the definition of "Eligible Receivables" is hereby amended by deleting the phrase "(iv) as to which the account debtor is located outside the United States (except as otherwise agreed in writing in its discretion by BKB with respect to specific foreign account debtors)" and inserting the phrase "(iv) as to which the account debtor is located outside the United States (except (x) if such account debtor is located within any other country which is a member of the Organization for Economic Cooperation and Development and has been an account debtor of the Borrower in good standing for at least six consecutive months and (y) as otherwise agreed in writing in its discretion by BKB with respect to specific foreign account debtors)" in its place. (vi) the definition of "EBITDA" is hereby amended and restated in its entirety to read as follows: "EBITDA. The sum of (a) Consolidated Net Income (or Net Loss) for any period, plus (b) any income taxes (as calculated in accordance with the Tax Sharing Agreement) and interest expense of the Borrower and its Subsidiaries for such period, plus (c) depreciation and amortization of the Borrower and its Subsidiaries for such period, all as determined in conformity with generally accepted accounting principles." (vii) the definition of "Generally Accepted Accounting Principles or generally accepted accounting principles" is hereby amended by adding the following sentence at the end thereof: "Notwithstanding anything to the contrary in the foregoing, the Borrower shall base its accounting and financial calculations (including without limitation those pursuant to ss.9) on the "first-in, first-out" or "FIFO" method. Financial statements may be prepared using the "last-in first-out" or "LIFO" method, but shall for purposes of the Banks be adjusted to the "first-in first-out" or "FIFO" method." (viii) the definition of "Obligations" is hereby amended by adding the phrase ", Purchase and Consignment" immediately after the word "Loans" appearing in the eighth line thereof. (ix) the definition of "Revolving Loan Maturity Date" is hereby amended and restated in its entirety to read as follows: "Revolving Loan Maturity Date. December 29, 2002." (x) the following new definitions are hereby inserted into Section 1.1 in their appropriate alphabetical order: "Applicable Margin. With respect to any LIBOR Rate Loan, Purchase and Consignment or Deferred Payment Sale, at any time, the Applicable Margin shall be the interest rate margin determined by BKB (in the case of LIBOR Rate Loans) or RIHT (in the case of a Purchase and Consignment or Deferred Payment Sale) based upon the OCF/TDS Ratio for the immediately preceding fiscal quarter end, effective as of the fifth Business Day after the financial statements referred to in ss.7.4 hereof have been received or, if earlier, are required to be furnished by the Borrower to the Banks for such fiscal quarter, expressed as a per annum rate of interest as follows:
---------------------------------- ---------------------- -------------------- ------------------ OCF/TDS Ratio Deferred Payment Consigned Rate LIBOR Rate Sale Applicable Applicable Margin Applicable Margin Margin ---------------------------------- ---------------------- -------------------- ------------------ -------------------- ------------- ---------------------- ------------------- ------------------- Greater Than But Less Or Equal To Than -------------------- ------------- ---------------------- ------------------- ------------------- -------------------- ------------- ---------------------- ------------------- ------------------- -------------------- ------------- ---------------------- ------------------- ------------------- -------------------- ------------- ---------------------- ------------------- ------------------- 1.50:1 - 1.75% 1.75% 1.75% -------------------- ------------- ---------------------- ------------------- ------------------- -------------------- ------------- ---------------------- ------------------- ------------------- 1.25:1 1.50:1 2.00% 2.00% 2.00% -------------------- ------------- ---------------------- ------------------- -------------------
provided, however, that, in the event that the Borrower fails to timely provide the financial statements referred to above in accordance with the terms hereof, and without prejudice to any additional rights under Section 12 hereof, no downward adjustment of the Applicable Margin shall occur until the second Business Day afte the actual delivery of such statements." "Consigned Precious Metal. Precious Metal (a) located at Permitted Inventory Locations, (b) subject to a Purchase and Consignment and consigned by RIHT to the Borrower pursuant to the terms of this Credit Agreement and (c) for which RIHT has not received payment or which has not been Redelivered to RIHT." "Consigned Precious Metal Report. A Consigned Precious Metal Report signed by the principal financial or accounting officer of the Borrower and in substantially the form of Exhibit C hereto." "Consignment Advance Rate Percentage. Ninety percent (90%)." "Consignment Commitment. With respect to RIHT, RIHT's commitment to make Purchases and Consignments of Precious Metal in an aggregate amount up to the Consignment Limit, as the same may be reduced from time to time; or, if such commitment is terminated pursuant to the provisions hereof, zero." "Consignment Drawdown Date. The date on which any Purchase and Consignment is made or is to be made." "Consignment Fees. Consignment fees on Consigned Precious Metal at the rates set forth in ss.4A.2." "Consignment Limit. The amount by which the Commitment exceeds the sum of (i) the aggregate outstanding balance of all Revolving Loans, plus (ii) the Deferred Payment Sale Amount, plus (iii) the Fair Market Value of Segregated Precious Metals plus (iv) the Maximum Drawing Amount, plus (v) the aggregate amount of all Unpaid Reimbursement Obligations." "Consignment Purchase Price. See ss.4A.1." "Consignment Rate. A rate determined by RIHT in its discretion by reference to its cost of leasing metals." "Management Agreement. That certain Financial, Investment Banking and Professional Services Agreement dated as of December 1, 1997 between the Borrower and Andersen Group, Inc." "OCF/TDS Ratio. See ss.9.1." "Permitted Indebtedness. Indebtedness permitted pursuant to ss.8.1." "Purchases and Consignments. Purchases and consignments of the Borrower's Precious Metal made or to be made by RIHT pursuant to ss.4A.1(a)." "Purchase and Consignment Request. See ss.4A.3." "Redeliver(ed) or Redelivery. The delivery by the Borrower to RIHT's Head Office, at the Borrower's sole risk and expense, of Precious Metal in bullion form of a type and quality which is acceptable to RIHT." "Segregated Precious Metal. See ss.4B.1." "Segregated Storage Limit. The amount by which the Commitment exceeds the sum of (i) the aggregate outstanding balance of all Revolving Loans, plus (ii) the Deferred Payment Sale Amount, plus (iii) the Fair Market Value of Consigned Precious Metal plus (iv) the Maximum Drawing Amount, plus (v) the aggregate amount of all Unpaid Reimbursement Obligations." "Segregated Storage. The storage of RIHT's Precious Metal in a vault located at Borrower's principal office, such Precious Metal located therein to be in the form as originally delivered by RIHT to customer and to be physically segregated from the Borrower's other Precious Metal in such vault, if any, by means of a physical barrier acceptable to RIHT." "Spot Value. At any time, with respect to the calculation of the Dollar value of Precious Metal, (a) in all cases in which the Borrower is purchasing Precious Metal or in which the value of Consigned Precious Metal or Segregated Precious Metal is being calculated (for purposes of determining the Consignment Limit or Segregated Storage Limit, as the case may be), RIHT's "ask" spot quotation for Precious Metal at such times times the number of ounces of such Precious Metal and (b) in all cases in which RIHT is purchasing Precious Metal, RIHT's "bid" spot quotation for Precious Metal at such time times the number of ounces of such Precious Metal." "Subordinate Indebtedness. The Indebtedness of the Borrower to the Subordinate Lender pursuant to the Subordinate Loan Documents." "Subordinate Lender. BankBoston, N.A., as lender pursuant to the Subordinate Loan Documents, but excluding BankBoston, N.A.'s successors and assigns thereunder." "Subordinate Loan Documents. That certain Securities Purchase Agreement dated as of December 29, 1997 between the Borrower and the Subordinate Lender, and all other documents and agreements entered into and/or delivered in connection therewith." "Warrant. Those certain warrants each dated as of December 29, 1997 between the Borrower and Subordinate Lender, in respect of the purchase of up to an aggregate of 40,000 shares of the common stock of the Borrower, as amended and in effect from time to time, together with any replacement warrants." 4.2. Amendment to ss.2.1. Section 2.1 of the Credit Agreement is hereby amended by adding the phrase ", the Fair Market Value of Consigned Precious Metals, the Fair Market Value of Segregated Precious Metals" immediately after the word "Obligations" appearing in the eighth line thereof. 4.3. Amendment to ss.2.2. Section 2.2 of the Credit Agreement is hereby amended by adding the phrase ", the Fair Market Value of Consigned Precious Metals, the Fair Market Value of Segregated Precious Metals" immediately after the word "Obligations" appearing in the sixth line thereof. 4.4. Amendment to ss.2.5(b). Section 2.5(b) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(b) Each LIBOR Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of each Interest Period with respect thereto at the LIBOR Rate determined for such Interest Period plus the Applicable Margin from time to time in effect." 4.5. Amendment to Credit Agreement by Addition of New Sections 4A and 4B. The Credit Agreement is hereby amended by adding the new Sections 4A and 4B thereto that are set forth on Exhibit A attached hereto. 4.6. Amendment to ss.5.1(a). The last sentence of Section 5.1(a) of the Credit Agreement is hereby amended in its entirety to read as follows: "The Deferred Payment Sale Amount and all amounts due and payable in connection with Consigned Precious Metals and Segregated Precious Metals that are owed to RIHT, including, without limitation, all Deferred Payment Sale Interest, all Consignment Fees, all Purchase Prices, Precious Metals Fees and Brokerage Fees, shall be repaid by the Borrower to RIHT in the applicable Precious Metal or in immediately available Dollars and in accordance with the terms hereof or the requirements of the applicable Confirmation Order." 4.7. Amendment to ss.5.2. Section 5.2 of the Credit Agreement is hereby amended by (a) adding the phrase ", Consignment Fees" immediately after the word "Loans" appearing in the second line thereof and (b) adding the phrase "and the aggregate amount of Consigned Precious Metals and Segregated Precious Metals" immediately after the word "Amount" appearing in the tenth line thereof. 4.8. Amendment toss.5.5. Section 5.5 of the Credit Agreement is hereby amended in its entirety to read as follows: "ss.5.5. Additional Costs, Etc. If any present or future applicable law, which expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to any Bank by any central bank or other fiscal, monetary or other governmental authority (whether or not having the force of law), shall: (a) subject any Bank to any tax, levy, impost, duty charge, fee, deduction or withholding of any nature with respect to this Agreement, the other Loan Documents, the Commitment or the Consignment Commitment or the Revolving Loans, Letters of Credit, Consigned Precious Metals, Segregated Precious Metals or Deferred Payment Sales (other than taxes based upon or measured by the income or profits of such Bank), or (b) materially change the basis of taxation (except for change in taxes on income or profits) of payments to any Bank of the principal of or the interest on any Revolving Loan, Letters of Credit, the aggregate amount of Consignment Precious Metals or Segregated Precious Metals, Deferred Payment Sale Amount, or any other amounts payable to any Bank under this Agreement or any of the other Loan Documents, or (c) impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Agreement) any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or letters of credit issued by, or commitments of an office of any Bank, or (d) impose on any Bank any other conditions or requirements with respect to this Agreement, the other Loan Documents, the Commitment, the Consignment Commitment, the Revolving Loans, the Letters of Credit, Consigned Precious Metals, Segregated Precious Metals the Deferred Payment Sales, or any class of loans or commitments of which any of the Revolving Loans, the Letters of Credit, Consigned Precious Metals, Segregated Precious Metals or Deferred Payment Sales forms a part, and the result of any of the foregoing is: (i) to increase the cost to any Bank of making, funding, issuing, renewing, extending or maintaining any of the Revolving Loans, Letters of Credit, Consigned Precious Metals, Segregated Precious Metals, Deferred Payment Sales, the Consignment Commitment or the Commitment, or (ii) to reduce the amount of principal, interest or other amount payable to such Bank hereunder on account of the Commitment or the Consignment Commitment or any of the Revolving Loans, Letters of Credit, the Consigned Precious Metals, Segregated Precious Metals or Deferred Payment Sales, or (iii) to require such Bank to make any payment or to forego any interest or other sum payable hereunder the amount of which payment or foregone interest or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Bank from the Borrower hereunder, then, and in each such case, the Borrower will, upon demand made by such Bank at any time and from time to time and as often as the occasion therefor may arise, pay to such Bank such additional amounts as will be sufficient to compensate such Bank for such additional cost, reduction, payment or foregone interest or other sum." 4.9. Amendment to ss.5.6. Section 5.6 of the Credit Agreement is amended by (a) adding the phrase "or the Consignment Commitment immediately after the word "Commitment" appearing in the seventh line thereof, (b) adding the phrase ", the Consigned Precious Metals, the Segregated Precious Metals" immediately after the word "Credit" appearing in the eighth line thereof and (c) adding the phrase ",Consignment Rate" immediately after the word "Rate" appearing in the tenth line thereof. 4.10. Amendment to ss.5.9. Section 5.9(a) of the Credit Agreement is hereby amended by adding the phrase ", the aggregate amount of any Consigned Precious Metals or Segregated Precious Metals" immediately after the word "Loan" appearing in the second line thereof. Section 5.9(b) of the Credit Agreement is hereby amended by adding the phrase " the Fair Market Value of Consigned Precious Metals, the Fair Market Value of Segregated Precious Metals" immediately after the word "Obligations," appearing in the third line thereof. 4.11. Amendment to ss.5.10. Section 5.10 of the Credit Agreement is hereby amended by adding the phrase "all amounts due and payable in connection with Consigned Precious Metals and Segregated Precious Metals" immediately after the word "Obligations" appearing in the fourth line thereof. 4.12. Amendment to ss.6.4. Section 6.4 of the Credit Agreement is hereby amended by deleting the phrase "ending February 29, 1996" appearing therein and inserting the phrase "ended February 28, 1997, and the quarterly financial statements for the fiscal quarter ending August 31, 1997" in its place. 4.13. Amendment toss.7. The preamble to Section 7 of the Credit Agreement is hereby amended in its entirety to read as follows: "ss.7. Affirmative Covenants of the Borrowers. The Borrower covenants and agrees that, so long as any Revolving Loan or Letter of Credit, the Deferred Payment Sale Amount, any amount of Consigned Precious Metals or Segregated Precious Metals or other Obligation is outstanding hereunder or under any Loan Document or any Bank has any obligation to make an Revolving Loan, Deferred Payment Sale or Purchase and Consignment or issue any Letter of Credit." 4.14. Amendment to ss.7.3. Section 7.3 of the Credit Agreement is hereby amended by inserting the following sentence at the end thereof: "The Borrower shall base its accounting and financial calculations (including without limitation those pursuant to ss.9) on the "first-in, first-out" or "FIFO" method." 4.15. Amendment to ss.7.4(e). Section 7.4(e) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(e) on (i) the fourth day of each calendar week, a Borrowing Base report in respect of Eligible Precious Metal Inventory, and (ii) the fourth day of each calendar month, a Borrowing Base report in respect of Eligible Receivables, in each case certified by the chief financial officer, controller or president of the Borrower, and in form reasonably acceptable to BKB;" 4.16. Amendment to ss.7.4(g). Section 7.4(g) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(g) (i) until the effectiveness of an IPO, promptly upon the mailing or filing thereof, copies of all financial statements, reports and proxy statements mailed to the public shareholders of Andersen Group, Inc. or any controlling stockholder of the Borrower, and copies of all registration statements and Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission (or any successor thereto) or any national securities exchange by Andersen Group, Inc. or any controlling stockholder of Andersen Group, Inc.; and (ii) after the effectiveness of an initial public offering of the stock of the Borrower, promptly upon the mailing or filing thereof, copies of all financial statements, reports and proxy statements mailed to the public shareholders of the Borrower, and copies of all registration statements and Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission (or any successor thereto) or any national securities exchange by the Borrower or any controlling stockholder of the Borrower." 4.17. Amendment toss. 7.4(h). Section 7.4(h) of the Credit Agreement is amended in its entirety to read as follows: "(h) as soon as available and in any event not later than 6:00 p.m. on the fourth Business Day of each calendar week, (i) a summary (certified by the chief financial officer, controller or president of the Borrower and substantially in form reasonably acceptable to BKB) of the long and short positions of the Borrower (including, without limitation, their respective open, forward, and options and future contracts) for Precious Metal and the Precious Metal Inventory of the Borrower as at the close of business on the previous Friday (or if such Friday was not a Business Day, then as at the close of business on the next prior Business Day), and promptly thereafter, a written advice with respect to the foregoing, together with such reasonable detail as to permit the Banks to ascertain the basis of such calculations and summaries, (ii) a schedule (certified by the chief financial officer, controller or president of the Borrower) setting forth the calculations necessary to show the Borrower's compliance with the terms of Section 8.10 hereof; and (iii) a Consigned Precious Metal Report setting forth (A) the aggregate amount of Consigned Precious Metals, Segregated Precious Metals and the Borrower's other Precious Metal as of the end of such date, and (B) a calculation of the Consignment Advance Rate Percentage multiplied by the Fair Market Value of the sum of (1) Borrower's Precious Metal (exclusive of Segregated Precious Metal and Precious Metal that is the subject of a Deferred Payment Sale) plus (2) Consigned Precious Metal as of such date." 4.18. Amendment toss.8. The preamble to Section 8 of the Credit Agreement is hereby amended in its entirety to read as follows: "ss.8. Certain Negative Covenants of the Borrower. The Borrower covenants and agrees that, so long as any Revolving Loan, Letter of Credit, any amount of Consigned Precious Metals or Segregated Precious Metals, the Deferred Payment Sale Amount or other amount due and payable under any of the Loan Documents is outstanding or any Bank has any obligation to make any Revolving Loan or Deferred Payment Sale or Purchase and Consignment or issue any Letter of Credit:" 4.19. Amendment to ss.8.1. Section 8.1 of the Credit Agreement is hereby amended by (i) deleting the reference to "$800,000" appearing in clause (j) thereof and inserting a reference to "$1,000,000" in its place, and (ii) adding the following new clauses (k), (l) and (m) at the end of Section 8.1: (k) Subordinate Indebtedness to the Subordinate Lender underwritten by Equitable Securities Corp.; (l) Subordinate Indebtedness to Andersen Group, Inc. that satisfies each of the following conditions: (a) the obligation to repay such Indebtedness is evidenced by a written agreement between the Borrower (or its Subsidiary, as applicable) and Andersen Group, Inc., and (b) the Borrower (or its Subsidiary, as applicable) and Andersen Group, Inc. shall have entered into a Subordination Agreement in form and substance satisfactory to the Banks in respect of such Indebtedness; and (m) Indebtedness in an aggregate amount not to exceed $3,000,000 that: (i) is incurred or assumed solely in connection with an acquisition permitted pursuant to ss.8.4(a)(iv), and (ii) consists of either (x) the Borrower's obligation to pay to the seller of the assets or stock so acquired all or a portion of the purchase price for the assets or stock so acquired, or (y) the Borrower's assumption of indebtedness that (1) existed prior to such acquisition (and was not created in contemplation of such acquisition) in connection with the assets or stock so acquired, and (2) is payable to a third party lender." 4.20. Amendment to ss.8.2. Section 8.2 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (vii) thereof, (ii) deleting the punctuation "." at the end of clause (viii) thereof and inserting the phrase "; and" in its place, and (iii) adding the following new clauses (ix) and (x) immediately following clause (viii) thereof: "(ix) second priority liens created by the Subordinate Loan Documents to secure the Subordinate Indebtedness; and (x) liens which (a) secure Indebtedness permitted pursuant to ss.8.1(m) and (b) encumber the assets and/or stock acquired by the Borrower pursuant to the provisions of ss.8.4(a)(iv)." 4.21. Amendment to ss.8.3. Section 8.3 of the Credit Agreement is hereby amended by (i) deleting the words "of United States banks having total assets in excess of $1,000,000,000" appearing in clause (b) thereof and inserting the words "(x) of United States banks having total assets in excess of $1,000,000,000 or (y) which deposits, certificates and acceptances are fully insured by the Federal Deposit Insurance Corporation" in their place, and (ii) deleting the reference to "$1,000,000,000" appearing in clause (h) thereof and inserting a reference to "$250,000,000" in its place. 4.22. Amendment to ss.8.4(a). Section 8.4(a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(a) The Borrower will not, and will not permit any of its Subsidiaries to, become a party to any merger or consolidation, or agree to or effect any asset acquisition or stock acquisition other than (i) the sale of inventory and leasing of equipment in the ordinary course of business; (ii) the merger or consolidation of one or more of the Subsidiaries of the Borrower with and into the Borrower, (iii) the merger or consolidation of two or more Subsidiaries of the Borrower, provided, that, if a merger or consolidation occurs between a Subsidiary which is partially owned by the Borrower and a Subsidiary which is wholly owned by the Borrower, the wholly owned subsidiary shall be the surviving entity, and (iv) so long as no Default or Event of Default shall have occurred, the acquisition by the Borrower of the assets or stock of another Person, provided that such acquisition meets each of the following criteria: (v) the aggregate purchase price to be paid by the Borrower in respect of such acquisition (when aggregated with the aggregate purchase price paid by the Borrower in respect of all other acquisitions effected pursuant to this Section 8.4(a)(iv)) does not exceed $5,000,000, (w) the assets acquired (or, in the case of a stock acquisition, the assets and business of the Person acquired) are of a type, quality and character consistent with the Borrower's existing business plan and strategy, and do not cause a material change in the nature of the business in which the Borrower is engaged, all as determined by BKB, (x) as of the date of such acquisition, the Borrower shall have granted to the Banks a first priority perfected lien on and security interest in (except for Permitted Liens) all of the assets and stock acquired by the Borrower and all of the assets and stock directly or indirectly held by any Person acquired by the Borrower, (y) all corporate, partnership, governmental and other proceedings and approvals in connection with such acquisition, and all transaction documents incidental to such acquisition, shall be in form and substance reasonably satisfactory to the Banks, and (z) the Borrower shall have provided the Banks with evidence that, after giving effect to the proposed acquisition, the Borrower shall continue to satisfy the financial covenants set forth in ss.9 on a pro forma basis." 4.23. Amendment to ss.8.4(b). Section 8.4(b) of the Credit Agreement is hereby amended by adding the following new sentence at the end thereof: "Notwithstanding the foregoing, and subject to the following proviso, the Borrower may dividend and transfer to Andersen Group, Inc. (or, in the case of the assets described in the following clause (y), transfer to Ney Ultrasonics Inc.) each of the following: (x) the stock of Ney Ultrasonics Inc. and (y) after delivery to the Banks of a pro forma asset statement approved by the Banks, the personal property used primarily by Ney Ultrasonics Inc. in its Ultrasonics business with an aggregate value not to exceed the value shown on such asset statement and approved by the Banks; provided, that (i) the aggregate unpaid principal and interest in respect of all loans made by the Borrower to Ney Ultrasonics Inc. does not exceed $750,000 as of the applicable date of such dividend, (ii) after giving effect to such dividend, the Borrower shall retain all rights to repayment of such loans theretofore made by the Borrower to Ney Ultrasonics Inc., and (iii) Andersen Group, Inc. shall agree in writing that the net proceeds of the sale of Ney Ultrasonics Inc. shall be applied first to pay off such loans made by the Borrower to Ney Ultrasonics Inc. prior to any other application of such net sale proceeds." 4.24. Amendment to ss.8.8. Section 8.8 of the Credit Agreement is hereby amended by adding the following new sentence at the end thereof: "Notwithstanding anything to the contrary in this ss.8.8, the Borrower may (i) make payments to Andersen Group, Inc. pursuant to the Tax Sharing Agreement, as provided in ss.8.9, (ii) enter into the Management Agreement with Andersen Group, Inc. as provided in ss.ss.8.1(l) and 8.14, and (iii) issue a note in an aggregate principal amount of up to $4,000,000 to Andersen Group, Inc. as provided in ss.ss.8.1(l) and 8.14, provided that the Borrower shall in no event fail to comply with ss.ss.8.1(l), 8.9 and 8.14." 4.25. Amendment toss.8.9. Section 8.9 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "ss.8.9 Dividends and Distributions. Except for (i) accrued and unpaid dividends in the amount of $1,413,163 declared as of December 1, 1997 and (ii) any additional distributions as may be declared based on the Borrower's net income through November 30, 1997 in accordance with ss.8.9 of this Agreement as in effect prior the effectiveness of the Amendment Agreement dated as of December 29, 1997 among the Banks and the Borrower, the Borrower shall not make any dividend or distribution to or for the benefit of its shareholders; provided, that as long as (a) no Default or Event of Default has occurred, and (b) after giving effect to such dividend or distribution, the Borrower will be in compliance with all of its covenants in ss.9 herein, the Borrower may make payments to Andersen Group, Inc. in any fiscal year of the Borrower ending on or after February 28, 1997 in an aggregate amount equal to required payments under the Tax Sharing Agreement; and provided further that (i) the Borrower may repurchase its securities in accordance with the Subordinate Loan Documents, (ii) the Borrower may pay dividends to the holders of its common stock pro rata solely in shares of common stock, and (iii) the Borrower may dividend the stock and assets of Ney Ultrasonics Inc. to Andersen Group, Inc. in accordance with ss.8.4(b)." 4.26. Addition of ss.8.13. The following new Section 8.13 is hereby inserted in the Credit Agreement immediately following Section 8.12: "ss.8.13 Amendments to Subordinate Indebtedness. The Borrower will not amend, modify or waive in any material respect any term or condition of any Subordinate Loan Document without the prior written consent of the Banks." 4.27. Addition of ss.8.14. The following new Section 8.14 is hereby inserted in the Credit Agreement immediately following Section 8.13: "ss.8.14. Payments to Andersen Group. The Borrower will not (and will not permit any of its Subsidiaries to) repay any Indebtedness held by, pay any management fees due to, or make any other payments (other than distributions permitted hereunder) (the "Subordinated Payments") to Andersen Group, Inc.; provided, that the Borrower may (and shall) make Subordinated Payments in respect of such subordinated management fees and interest accrued on such subordinated Indebtedness as earned or accrued quarterly in arrears so long as: (a) the obligation to pay such Subordinated Payments shall be evidenced by a written agreement between the Borrower (or such Subsidiary, as applicable) and Andersen Group, Inc., (b) the Borrower or such Subsidiary and Andersen Group, Inc. shall have entered into a Subordination Agreement in form and substance satisfactory to the Banks with respect to the payment of any Subordinated Payments (a "Subordination Agreement"), (c) both before and after giving effect to such payment, no Default or Event of Default shall have occurred and be continuing under the Loan Documents, (d) both before and after giving effect to such payment, the Borrower's Consolidated Net Income for the fiscal quarter ending immediately preceding such date of payment is not less than $1.00 (as evidenced by a certificate delivered by the Borrower to the Banks prior to making such payment), (e) both before and after giving effect to such payment, the difference between (x) the Borrower's Consolidated Net Income for the fiscal quarter ending immediately preceding such date of payment minus (y) the amount of such payment, is not less than $1.00 (as evidenced by a certificate delivered by the Borrower to the Banks prior to making such payment), and (f) the aggregate amount of all Subordinated Payments made to Andersen Group, Inc. during any fiscal year of the Borrower does not exceed the sum of (x) required payments under the Tax Sharing Agreement for such fiscal year plus (y) fifty percent (50%) of the Borrower's net income for the immediately preceding fiscal year of the Borrower." 4.28. Amendment toss.9. The preamble to Section 9 of the Credit Agreement is hereby amended in its entirety to read as follows: "ss.9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees that, so long as any Revolving Loan or Letter of Credit, or the Deferred Payment Sale Amount, any amount of Consigned Precious Metals or Segregated Precious Metals or other amount due and payable under any of the Loan Documents, is outstanding or any Bank has any obligation to make any Revolving Loan, Purchase and Consignment or Deferred Payment Sale or issue any Letter of Credit." 4.29. Amendment toss.9.1. Section 9.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "ss.9.1 Ratio of EBITDA to Debt Payments. As of the last day of the four fiscal quarters of the Borrower most recently ended, the Borrower shall not permit the ratio (the "OCF/TDS Ratio") of (a) EBITDA of the Borrower for such period of four fiscal quarters plus, to the extent deducted in determining EBITDA, any accrued Subordinated Payments payable by the Borrower to Andersen Group, Inc. for such period and which are permitted pursuant to ss.ss.8.1(l) and 8.14, less (i) Capital Expenditures (other than Capital Expenditures of the Borrower during the fiscal year ending February 28, 1999 in an aggregate amount of up to $1,000,000) that were not financed for their express purpose by BKB and (ii) taxes paid by the Borrower for such period of four fiscal quarters, to (b) Consolidated Financial Obligations (excluding the amounts of any accrued Subordinated Payments payable by the Borrower to Andersen Group, Inc. for such period and which are permitted pursuant to ss.ss.8.1(l) and 8.14) during the such period of four fiscal quarters, to be less than 1.25 to 1." 4.30. Amendment toss.9.2. Section 9.2 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "ss.9.2 Ratio of Liabilities to Tangible Net Worth. At all times set forth in the chart below, the Borrower shall not permit the ratio of (a) Consolidated Total Liabilities of the Borrower (excluding accrued subordinated Permitted Indebtedness payable by the Borrower to Andersen Group, Inc. which is permitted pursuant to ss.ss.8.1(l) and 8.14), to (b) the sum of the Borrower's Consolidated Tangible Net Worth plus accrued subordinated Permitted Indebtedness payable by the Borrower to Andersen Group, Inc. which is permitted pursuant to ss.ss.8.1(l) and 8.14, to exceed the applicable ratio set forth in the table below: - --------------------------------------------------------- ---------------------- Period Ratio - --------------------------------------------------------- ---------------------- - --------------------------------------------------------- ---------------------- December 29, 1997 2.50 to 1 through November 30, 1998 - --------------------------------------------------------- ---------------------- - --------------------------------------------------------- ---------------------- December 1, 1998 through 2.25 to 1 November 30, 1999 - --------------------------------------------------------- ---------------------- - --------------------------------------------------------- ---------------------- December 1, 1999 through 2.00 to 1 maturity - --------------------------------------------------------- ---------------------- 4.31. Amendment toss.9.3. Section 9.3 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "ss.9.3 Minimum Net Worth. The Borrower shall not at any time permit (a) the sum of (i) the Borrower's Consolidated Tangible Net Worth plus (ii) subordinated Permitted Indebtedness due and owing to Andersen Group, Inc., to be less than (b) the sum (x) of $9,500,000 plus (y) 50% of the Borrower's positive Consolidated Net Income for each fiscal year ending on or after February 28, 1998." 4.32. Amendment toss.9.5. Section 9.5 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "ss.9.5 Consecutive Net Losses. The Borrower shall not permit Consolidated Net Income plus, to the extent deducted in determining Consolidated Net Income, any accrued Subordinated Payments payable by the Borrower to Andersen Group, Inc. for such period and which are permitted pursuant to ss.ss.8.1(l) and 8.14, to be less than $0.00 in any two consecutive fiscal quarters of the Borrower." 4.33. Amendment toss.9.6. Section 9.6 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "ss.9.6 Capital Expenditures. The Borrower shall not make or commit to Capital Expenditures in excess of $2,750,000 during any fiscal year of the Borrower ending on or after February 28, 1997, unless the Banks agree in writing to finance Capital Expenditures in excess of $2,750,000 during the applicable fiscal year on terms acceptable to the Banks and the Borrower." 4.34. Amendment toss.11. The preamble to Section 11 of the Credit Agreement s hereby amended in its entirety to read as follows: "ss.11. Conditions to All Borrowings. The obligations of the Banks to make any Revolving Loan, Purchases and Consignments or Deferred Payment Sales or issue any Letter of Credit, whether on or after the Closing Date, shall also be subject to the satisfaction of the following conditions precedent: 4.35. Amendments to ss.12.1(a), (k) and (n). (i) Sections 12.1(a), (k) and (o) of the Credit Agreement are hereby amended in their entirety to read as follows: "(a) the Borrower shall fail to pay when due any principal of any Revolving Loan, any Reimbursement Obligation or any Deferred Payment Sale Amount or pay for or Redeliver Consigned Precious Metal or Segregated Precious Metal when the same shall become due and payable;" "(k) any uninsured loss, theft or destruction of or damage to any Consigned Precious Metal or Segregated Precious Metal or any Precious Metal that is the subject of a Deferred Payment Sale or to any products or property which includes Precious Metal that is Consigned Precious Metal or Segregated Precious Metal or the subject of a Deferred Payment Sale or to any other Collateral;" "(o) Andersen Group, Inc., shall, at any time prior to an IPO of the Borrower, legally or beneficially own less than a majority of the issued and outstanding voting stock of the Borrower (other than pursuant to Subordinate Lender's exercise of the Warrant); or" (ii) Section 12.1 of the Credit Agreement is hereby amended by adding the following new clause (p) immediately following clause (o) thereof: "(p) the Borrower or any of its Subsidiaries shall fail to pay or perform when due, or within any applicable period of grace, any payment or other obligation under any of the Subordinate Loan Documents." (iii) The last paragraph of Section 12.1 of the Credit Agreement is amended in its entirety to read as follows: "then, and in any such event, (1) the Borrower shall purchase all Consigned Precious Metal and Segregated Precious Metal in accordance with the provisions of ss.4A.4 and ss.4B hereof (as applicable) and (2) the Banks may, by notice in writing to the Borrower declare all amounts owing with respect to this Credit Agreement, the Notes and the other Loan Documents to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; provided that in the event of any Event of Default specified in ss.ss.12.1(g) or 12.1(h), all such amounts shall become immediately due and payable automatically and without any requirement of notice from any Bank. For the purposes of this ss.12, RIHT shall have the right in its discretion to calculate the Deferred Payment Sale Amounts and the applicable repurchase price for all Consigned Precious Metals and Segregated Precious Metals based upon RIHT's spot prices for the applicable Precious Metals as of the date that the Event of Default is declared to have occurred or as of such date that RIHT determines to be appropriate under the circumstances." 4.36. Amendment to ss.12.2. Section 12.2 of the Credit Agreement is hereby amended by adding the phrase ", Purchases and Consignments, the outstanding amount of Segregated Precious Metals" immediately after the word "Loans" appearing in the fourth and tenth lines thereof. 4.37. Amendment to ss.12.3. Section 12.3 of the Credit Agreement is hereby amended by adding the phrase ", Purchases and Consignments" immediately after the word (a) "Credit" appearing in the third line thereof and (b) "Loans" appearing in the fifth line thereof. 4.38. Amendment to ss.15. Section 15 of the Credit Agreement is hereby amended by adding the phrase ", Purchases and Consignments, Segregated Precious Metals" immediately after the word "Loans" appearing in the eighth line thereof. 4.39. Amendment to ss.16. Section 16 of the Credit Agreement is hereby amended by adding the phrase ", Purchases and Consignments, Segregated Precious Metal delivery" immediately after the word "Loans" appearing in the seventh and eleventh lines thereof. 4.40. Amendment to ss.17.1. Section 17.1 of the Credit Agreement is hereby amended by adding the phrase "Consignment Commitment or" immediately after the word "of" appearing on the fourth line thereof. 4.41. Amendment to Schedule 6.7. Schedule 6.7 to the Credit Agreement is hereby amended and restated in its entirety to read as set forth on Schedule 6.7 annexed hereto. ss.5. Conditions Precedent. The effectiveness of the amendments contemplated herein shall be subject to the satisfaction of each of the following conditions precedent: 5.1. All of the representations and warranties made by Borrower and the Guarantor herein, whether directly or incorporated by reference, shall be true and correct on the date hereof, except as provided in ss.3 hereof; 5.2. Agent shall have received evidence satisfactory to Agent that no Default or Event of Default shall have occurred and be continuing; and 5.3. Borrower shall have paid all fees, expenses and other costs incurred by Agent and the Banks in connection with this Amendment (including, without limitation, all attorney's and other professionals' fees and expenses). ss.6. Miscellaneous Provisions. 6.1. Except as otherwise expressly provided by this Agreement, all of the respective terms, conditions and provisions of the Credit Agreement, the Note and the other Loan Documents shall remain the same. It is declared and agreed by each of the parties hereto that the Credit Agreement, the Note and the other Loan Documents, each as amended hereby, shall continue in full force and effect, and that this Agreement and the Credit Agreement, the Note and the other Loan Documents, as applicable, shall be read and construed as one instrument. 6.2. This Agreement is intended to take effect under, and shall be construed according to and governed by, the laws of the State of Connecticut. 6.3. This Agreement may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Agreement it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. 6.4. After the sale or other distribution of the Borrower's Ultrasonics business (including any dividend of all the shares of Ney Ultrasonics Inc. to Andersen Group, Inc.), the Banks shall, promptly after the Borrower's request and at the Borrower's expense, release the Guaranty and the liens in favor of the Banks on the assets of Ney Ultrasonics Inc. [THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY] IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement to be executed in its name and behalf by its duly authorized officer as of the date first written above. THE J.M. NEY COMPANY By: /s/ Andrew M. O'Shea ------------------------ Its Chief Financial Officer BANKBOSTON, N.A. By:/s/ Kevin Flaherty --------------------- Its Sr. Vice President RHODE ISLAND HOSPITAL TRUST NATIONAL BANK By:/s/ Jay Zi ------------- Its Sr. Vice President EX-21 7 SUBSIDIARIES OF THE REGISTRANT E-7 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT State or Country of Name or Organization Incorporation -------------------- ------------- AG Investors, Inc. Florida AGI Technology, Inc. Connecticut Andersen Realty, Inc. Delaware Ney International, Inc. U.S. Virgin Islands Ney Technology, Inc. (f/k/a Ney Ultrasonics Inc.) Delaware The J.M. Ney Company Delaware New Jersey Precious Metals, Inc. Delaware Garden State Refining, Inc. Delaware EX-23 8 CONSENTS OF EXPERTS AND COUNSEL E-8 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Post Effective Amendment No. 1 to Registration Statement No. 333-17659 of Andersen Group, Inc. and subsidiaries on Form S-8 of our reports dated April 16, 1998, relating to the consolidated financial statement and financial statement schedules appearing in this Annual Report on Form 10-K of Andersen Group, Inc. and subsidiaries for the year ended February 28, 1998. /s/Deloitte & Touche LLP Hartford, Connecticut May 28, 1998 EX-27.1 9 FINANCIAL DATA SCHEDULE
5 E-9 Exhibit 27.1 Andersen Group, Inc. Financial Data Schedule Commercial and Industrial Companies Article 5 of Regulation S-X This schedule contains summary financial information extracted from the Consolidated Financial Statements of Andersen Group, Inc. for the fiscal year ended February 28, 1998 and is qualified in its entirety by reference to such financial statements. U.S.DOLLARS Year Feb-28-1998 Mar-01-1997 Feb-28-1998 1,000 2,516 9,001 7,521 130 8,076 27,126 21,854 12,411 44,771 8,367 11,759 0 4,769 2,103 13,324 44,771 25,397 28,868 17,040 25,907 7,704 17 1,233 2,961 1,191 1,770 442 0 0 1,772 .92 .91
EX-27.2 10 FINANCIAL DATA SCHEDULE
5 E-10 Exhibit 27.2 Andersen Group, Inc. Restated Financial Data Schedule Commercial and Industrial Companies Article 5 of Regulation S-X This schedule contains summary financial information extracted from the Consolidated Financial Statements of Andersen Group, Inc. for the fiscal year ended February 28, 1997 and is qualified in its entirety by reference to such financial statements. RESTATED U.S.DOLLARS Year Feb-28-1997 Mar-01-1996 Feb-28-1997 1,000 3,219 5,345 2,963 190 9,040 20,893 20,946 11,610 37,677 8,710 7,041 4,891 0 2,103 11,544 37,677 20,643 20,501 13,259 21,049 7,000 76 811 (548) (882) 334 (35) 0 0 22 .01 .01 Represents income tax benefit Antidilutive
EX-27.3 11 FINANCIAL DATA SCHEDULE
5 E-11 Exhibit 27.3 Andersen Group, Inc. Restated Financial Data Schedule Commercial and Industrial Companies Article 5 of Regulation S-X This schedule contains summary financial information extracted from the Consolidated Financial Statements of Andersen Group, Inc. for the fiscal year ended February 29, 1996 and is qualified in its entirety by reference to such financial statements. RESTATED U.S.DOLLARS Year Feb-29-1996 Mar-01-1995 Feb-29-1996 1,000 4,116 3,809 4,461 124 8,612 20,966 19,858 10,742 38,798 9,204 7,349 5,280 0 2,103 11,522 38,798 18,624 19,437 12,016 22,310 9,057 97 1,259 (2,873) (952) (1,921) 3,854 0 0 (1,933) 1.23 1.23 Represents income tax benefit Antidilutive
-----END PRIVACY-ENHANCED MESSAGE-----