UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-27100
FIELDS AIRCRAFT SPARES, INC.
(Name of small business issuer as specified in its charter)
Utah 95-4218263
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4175 Guardian Street
Simi Valley, California 93063
(Address of principal executive offices)
Issuer's telephone number, including area code: (805) 583-0080
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
shares, par value $.05 per share
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ___
The issuer's revenues for the fiscal year ended January 1, 1999 were
$23,851,000.
As of January 1, 1999, 2,483,781 of the issuer's common shares were issued
and outstanding, approximately 1,699,614 of which were held by non-affiliates.
As of March 24, 1999, the aggregate market value of shares held by
non-affiliates was approximately $8,073,167.
Certain portions of the documents of the issuer listed below have been
incorporated by reference into indicated parts of the Form 10-KSB:
Notice of Annual Meeting of Shareholders and Proxy Statement anticipated to
be filed within 120 days after January 1, 1999....... Part III, Items 9-12.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format: Yes No X
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PART I.
This report includes statements that relate to future plans, financial
results or projections, events or performance, including statements with respect
to future business potential. These are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements involve both known and unknown risks and
uncertainties and actual results or performance may therefore differ materially
from the expected results or performance expressed or implied by the
forward-looking statements. The following important factors, in addition to
factors Fields Aircraft Spares, Inc. (the "Company") discusses elsewhere in this
report and in the documents that are incorporated into this report by reference,
could affect the Company's actual results or performance:
o the Company's ability to obtain profitability and acquire
enough capital or financing to sustain the Company until such
time;
o the Company's ability to effectively integrate acquired
companies and the effects of increased indebtedness as a
result of the Company's business acquisitions;
o the ability to expand the Company's business to make cost
effective the expansion of infrastructure put in place during
1998;
o the Company's ability to control costs;
o fluctuations in demand for the Company's products, which are
dependent upon the condition of the airline industry and the
Company's ability to collect receivables;
o the availability to the Company of acquisition and expansion
opportunities on attractive terms;
o the availability of capital to fund growth and acquisition
opportunities;
o the Company's continuing ability to acquire adequate inventory
and to obtain favorable pricing for such inventory;
o the Company's ability to develop and implement systems to
manage growing operations;
o adverse conditions in the capital markets or in the general
economy;
o the Company's ability to maintain existing customer or vendor
relationships;
o competitive pricing for the Company's products;
o customer concentration;
o changes in government regulation; and
o the effect and costs of Year 2000 issues.
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ITEM 1. BUSINESS
Development of the Company
The primary business of the Company is the manufacturing, distribution
and stocking of factory new cabin interior replacement parts applicable to
various commercial aircraft models and the redistribution of a wide variety of
new and reconditioned aircraft parts. The Company conducts its distribution,
stocking and redistribution business primarily through its subsidiary Fields
Aircraft Spares Incorporated, a California corporation ("FAS"). The Company
manufactures vacuum formed plastic aircraft cabin interior replacement parts
through its subsidiary Flightways Manufacturing, Inc. ("Flightways"), which the
Company acquired in January 1998. The Company manufactures hardware and
retaining devices for aircraft cabin interiors through its subsidiary Skylock
Industries ("Skylock"), acquired in April 1998. The Company intends to acquire
other aircraft cabin interior parts manufacturing companies.
All material aspects of the Company's business other than manufacturing
are conducted through FAS. Manufacturing is currently conducted through
Flightways and Skylock and future manufacturing is expected to be conducted in
subsidiaries. The business of the Company as conducted through FAS, Flightways
and Skylock is referred to in this document as the Company's business.
References in this document to the Company, where appropriate, shall be deemed
to be references to the Company and its subsidiaries, collectively.
In 1995, McDonnell Douglas Corporation (together with its affiliates
and/or divisions, "MDC") acquired Series A Convertible Preferred Stock of FAS
which converted to common shares of the Company in 1997. MDC was acquired by The
Boeing Company ("Boeing") in 1997. As a result of the conversion of Preferred
Stock and the acquisition of MDC, Boeing became the largest shareholder of the
Company owning approximately 23% of the outstanding shares as of December 31,
1998.
The Company was organized in 1984 as a Utah corporation.
The Industry
According to Boeing, in their 1998 Current Market Outlook, the world
commercial jetliner fleet is projected to grow from approximately 10,800
airplanes at the end of 1997 to over 23,500 airplanes in 2017, and the world
cargo jet fleet is expected to increase from approximately 1,400 in 1997 to
approximately 2,700 by 2017.
In its 24th annual aviation forecast, the Federal Aviation
Administration (the "FAA") reported that U.S. commercial airlines carried a
record 643.3 million people in 1998. The FAA also reported that the average load
factor (percentages of seats filled) reached a record 70.1% in 1998. The FAA
expects an increase of 2.5% in 1999 passenger numbers to 659.2 million and is
expected to average 3.4% growth annually. By 2010, an estimated one billion
passengers per year are forecast to travel. Air cargo domestic and international
revenue ton miles are expected to have annual increases of 5.3% and 6.6%
respectively over the next 12 years. The FAA is predicting that U.S. commercial
airlines will increase the size of their fleet to 7,165 planes over the next 12
years from 5,030 planes, an annual growth rate of 3%.
Industry analysts have estimated that 70% of cargo growth will be met
by converting aging passenger fleets to cargo configurations. Management
believes the number of 10 year and older planes in service continues to climb as
cost considerations in an intensely competitive environment favor the "used and
convert instead of new" purchase decision. This has contributed to the
absorption of surplus
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aircraft parts and inventories at a faster rate as airlines extend aircraft
utilization and convert aircraft into alternative uses.
The Company believes that all of these trends provide the underpinnings
to the long-term growth of the aircraft spare parts industry.
Business of the Company
The primary business of the Company is the manufacturing, distribution
and stocking of factory new cabin interior replacement parts applicable to
various commercial aircraft models and the redistribution of a wide variety of
new and reconditioned aircraft parts.
Prior to 1998, the Company's business had been concentrated in the
distribution and stocking, as an authorized factory distributor for various
manufacturers, of cabin interior replacement parts for a wide variety of
commercial aircraft models. The Company also distributes from what it believes
to be one of the largest factory new inventories, outside of Boeing, of parts
for DC-8, DC-9, DC-10 and MD- 80 aircraft. It also purchases and distributes
both new and used parts and related equipment from aircraft manufacturers for
other Boeing and Airbus aircraft. The Company sells, exchanges or leases parts
to commercial aircraft operators servicing both the passenger and cargo markets,
to overhaul facilities and to brokers throughout the world.
In January 1998, the Company, through the acquisition of Flightways,
expanded into the business of manufacturing aircraft cabin interior parts. The
Company acquired Skylock, a manufacturer of hardware and retaining devices for
aircraft interiors in April 1998 and intends to acquire additional strategic
manufacturing entities that will enhance the Company's ability to compete. The
Company expects that its business will be concentrated in the manufacturing and
the distribution and stocking, as an authorized factory distributor for various
manufacturers, of cabin interior replacement parts for a wide variety of
commercial aircraft models.
Distribution
The Company provides distribution services for manufacturers ("OEM") of
aircraft after-market replacement spare parts. The Company concentrates on the
stocking and distributing of interior cabin parts and is an authorized
distributor for a number of OEMs providing replacement parts for lavatories,
galleys, seats, lighting and cleaning products. The Company primarily sells
these parts to major air carriers and overhaul facilities. In some cases, the
Company has agreements or purchasing arrangements designating it as the sole or
primary source for specific replacement parts. The Company's acquisition
strategy as set forth below is also focused on acquiring selected manufacturers
and distributing its own manufactured parts.
The Company provides inventory management and supply services to air
carriers and aircraft overhaul facilities. By working closely with customers and
aircraft maintenance records, the Company forecasts replacement part demand,
purchases estimated demand from the OEMs, inventories the parts pending the
order, and then supplies the parts to the customers on a just-in-time basis.
This service allows the customers to reduce the cost of carrying and managing
inventory. Further, by consolidating orders, the Company is able to purchase
from OEMs at favorable prices, allowing it to sell to its customers at prices
often below those available to the customer when buying direct from the OEM.
The Company serves as the exclusive source of specific replacement
parts for galleys, lavatories and seats for two major airlines and one regional
carrier. The Company is in varying stages of negotiations with a number of other
airlines to become their exclusive source of various interior replacements
parts. No formal agreements have been reached with other airlines.
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Manufacturing
Through Flightways, acquired in January 1998, the Company manufacturers
high quality plastic replacement components for commercial aircraft seats and
interiors, including foodtrays, latches, shrouds, panels, armcaps, bumper
strips, escutcheons, and components for lavatories, galleys, cockpits, windows
and overhead units. Also, through its repair station, Flightways overhauls and
repairs seats, seating components, carts and modules.
In April 1998, the Company acquired 100% of the outstanding shares of
Skylock. Skylock is a designer and manufacturer of hardware and retaining
devices for aircraft interiors. Skylock focuses on using advanced technologies
and manufacturing methods to optimize such critical elements as appearance,
weight, ease of use and security.
The customers of Flightways and Skylock include aircraft equipment
manufacturers, air carriers and overhaul facilities. The Company operates
Flightways out of the Company's corporate headquarters in Simi Valley,
California, and Skylock out of separate manufacturing facilities in Monrovia,
California.
The Company delivers the products and services of Flightways and
Skylock through the Company's distribution system.
Redistribution Activities
The Company receives inquiries from its customers for parts that are
not currently held in its inventory. The salesperson receiving this request
checks a computerized industry database known as the Inventory Locator Service
("ILS") and utilizes the knowledge of the Company and its staff to locate a
suitable part. Once located, a purchase price is agreed with the owner of the
part. At that time, the sales person contacts the customer and extends a quote.
If the quote is accepted by the customer, the part is purchased and shipment to
the Company's warehouse is arranged. When received at the warehouse, both the
part and its accompanying paperwork are inspected. After inspection and
acceptance, the part is shipped to the customer.
Because of government and industry group guidelines, aircraft operators
have become increasingly careful from whom they buy parts. The Company has had
its quality control systems and procedures audited and evaluated by Boeing as
well as by a number of major airlines and freight operators. Almost every major
U.S. airline, freight operator and overhaul facility has designated the Company
as either an approved or preferred vendor. This preferred status has enabled the
Company to purchase parts for airlines, on a redistribution basis, when the
Company does not have the parts in stock.
Because parts for redistribution are not purchased until a
corresponding sale has been made, it is less capital intensive than the purchase
and sale of inventory. Redistribution allows incremental increases in sales
without corresponding increases in overhead.
Boeing Components and Parts
The Company believes that it has one of the largest factory new
inventories of DC-8, DC-9, DC- 10 and MD-80 parts outside of Boeing. This
inventory consists of over $ 60 million, catalog value, of factory new spare
parts and components purchased directly from Boeing in 1989 and 1991. The Boeing
inventory is generally sold at a discount to catalog value. The total future
discount to catalog value cannot be quantified at this time.
An important factor in the aircraft spare parts distribution market is
the documentation or traceability that is supplied with an aircraft spare part.
Boeing has re-certified the Company's Boeing
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inventory as directly traceable to their production certificate, and it is the
only inventory known to the Company outside of Boeing's direct control that has
been certified to allow Boeing to repurchase and ship to customers without
having to go through their quality control department for a source inspection.
Based upon its market research, the Company believes that in many cases
parts in this inventory are the only new material and in many cases are the only
material available in any condition.
Once the Company's Boeing inventory is depleted, this segment of
business will no longer be a revenue source for the Company.
New Material Acquisition
The Company uses information provided by its customers and industry
research to identify new parts and materials that customers have difficulty in
obtaining on short notice. The Company then stocks inventories of these items
and makes them available to its customers on a just-in-time basis as well as
through the ILS.
Business Growth Strategy
The Company intends to pursue the following areas of growth:
Obtain Additional Distributorships. The Company intends to pursue and
secure additional distributorships with other aircraft cabin interior
manufacturers. In addition, the Company intends to expand its distributorship
activities to other aircraft parts and systems.
Acquisitions. The aircraft industry is populated by a large number of
small manufacturing companies providing a variety of parts and services. With
the worldwide demand for aircraft increasing and the growth in outsourcing by
air carriers, along with their desire to reduce the number of vendors they deal
with, the Company believes there is significant opportunity to grow through
acquisition.
Capitalize on Authorized Vendor Status. The Company has been authorized
as a vendor of record by most major air carriers and aircraft overhaul
facilities. This provides the opportunity to expand sales with existing
customers, as those customers work to reduce the number of vendors they deal
with. Also, as the owner of what management believes to be one of the largest
inventories of factory new Boeing parts outside of Boeing, customers would be
reluctant to remove the Company as a vendor, which gives the Company a marketing
advantage over the competition.
Redistribution. The increasing population of aircraft in service is
expected to increase the demand for parts. With its relationships in the
industry, its status as a vendor to most major air carriers and its reputation
for quality and service, the Company intends to take advantage of this growing
segment of the market.
Expand new parts and material sales. The Company intends to increase
inventories of parts that customers have trouble obtaining on a timely basis
with the goal of providing complete inventory management and supply services to
air carriers.
Operations
The Company maintains an inventory consisting primarily of factory new
aircraft spare parts in its warehouses located in Fillmore and Simi Valley,
California. The Company's inventory is listed in two computerized data banks
that are available to the airline industry: SPEC 2000 and the ILS. The Company
pays a fee to be listed on such systems and continually updates the Company
information listed
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on the systems to keep them current. In addition, the Company provides an
inventory listing in computer readable form to many of its major customers. The
Company receives orders for spare parts from commercial aircraft operators
servicing both the passenger and cargo markets, from overhaul facilities, from
aircraft equipment manufacturers and from redistributors. The Company currently
has eight full-time inside salespersons and six full-time outside salespersons.
Additionally, the Company is represented on an international basis by a number
of independent outside general sales agents.
Orders for parts in inventory are filled and shipped, 24 hours per day,
F.O.B. from the Company's warehouses , generally within five hours of the
receipt of the order. The Company believes that a quick turn-around time,
between an order being taken and the part being delivered, is a key service for
which the customer is willing to pay. Reducing the time that an aircraft is on
the ground is a major advantage the Company offers to its customers. The
Company's warehouses are within 60 minutes from Los Angeles International
Airport and have a delivery service to the airport. In addition, the Company
utilizes commercial cargo carriers to deliver spare parts to the Los Angeles
airport and around the world. The Company emphasizes its ability to respond
quickly in obtaining parts for its customers.
The Company's business exposes it to possible claims for personal
injury or death that may result from the failure of an aircraft spare part sold
or manufactured by it. While the Company maintains what it believes to be
adequate liability insurance to protect it from such claims, and while no
material claims have, to date, been made against the Company no assurance can be
given that claims will not arise in the future or that such insurance coverage
will be adequate.
Pricing
The price at which the Company sells parts is based upon market
competition.
Marketing
The Company currently concentrates its marketing efforts in the
following areas:
(i) commercial airlines servicing the passenger market;
(ii) commercial airlines servicing the cargo market;
(iii) aircraft equipment manufacturers;
(iv) aircraft leasing companies; and
(v) overhaul facilities.
The Company has not conducted any formal market studies to determine
the actual size of each of its current and any proposed markets, and relies upon
the experience of its officers and key employees for such judgments.
The Company sells its products through three primary methods:
1. The use of its own sales staff which currently includes 14
salespersons. This staff calls on customers and potential customers to determine
the needs of such customers and responds to incoming calls. Once the need is
determined, the order is then sent to the Company's warehouses or manufacturing
facilities.
2. The use of computerized parts database systems.
3. The use of exclusive and non-exclusive general sales agency
agreements.
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The Company has developed literature and advertising material
describing the Company's products and services. The literature is distributed by
the Company's sales staff and agents, as well as by mail, to previous and
current customers, persons who have responded to previous advertising, and
companies believed to be engaged in the relevant market.
The Company also uses media advertising, such as trade journals and
technical publications, directed toward specific market segments. In addition,
the Company attends trade shows and puts on exhibitions directed to specific
market segments.
During the 1998 fiscal year, one customer of the Company accounted for
more than 10% of sales. No other single customer accounted for more than 10% of
the Company's sales. During the 1997 fiscal year, two of the Company's customers
each accounted for more than 10% of sales.
In an effort to increase foreign sales, the Company intends to engage
additional independent representatives to serve foreign markets.
Patents
Skylock has a design patent and a utility patent pending in the United
States and abroad for a galley retainer. The Company believes that the patents
are not critical to its continued business success and that the inability to
secure the patents would not have a material adverse effect on its business
operations.
Raw Materials and Suppliers
The Company has many sources for raw materials including high quality
metals and plastic sheets which are essential to its business. Suppliers of such
materials are located in many areas throughout the country. The Company does not
depend on a single source for the supply of its materials and believes that its
sources are adequate for its business.
Competition
The Company competes with a number of large and small sellers and
manufacturers of aircraft spare parts in the aviation after-market. These
competitors include OEM's such as Boeing, aircraft service companies and
aircraft spare parts redistributors. The major aircraft service companies and
aircraft spares parts redistributors with which the Company competes include AAR
Corp., AGES, Aviation Sales and The Memphis Group. For many of the Company's
competitors, the sale of aircraft spare parts is only a part of larger sales
operations. The manufacturing segments of the aviation industry in which
Flightways and Skylock operate are considered to be highly fragmented and
competitive. Many of the Company's competitors are larger and more established
than the Company and have greater financial resources and larger facilities and
marketing forces. The Company's increased emphasis during the past two years on
distributorships and its current expansion into manufacturing has exposed the
Company to new competitors.
Although the Company has not performed any market survey studies, it
believes that industry competition is based primarily upon service, price and
reputation of the supplier. The Company believes that it is competitive and that
it enjoys a good reputation. There can be no assurance, however, that the
Company has, or can maintain, a significant competitive advantage in any of
these areas.
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Government Regulation
The Company's business is regulated in the United States by the FAA.
The FAA has numerous regulations that must be complied with by the Company.
The Company is subject to U.S. federal governmental regulation on
foreign sales of its products. Depending on the type of product, the Company may
be subject to review by various federal agencies for a determination of whether
the specific product is a high technology product subject to restriction. Export
licenses may be denied for certain high technology products. If such a decision
is rendered, the Company may experience substantial time delays and expense in
the application and approval of export licenses. If export licenses are not
granted, the Company would be precluded from selling such products in certain
foreign markets.
The Company's sales in foreign countries are subject to various
applicable foreign governmental regulations. To date, compliance with such
regulations has not had a material adverse effect on the Company's operations.
Financing Arrangements
McDonnell Douglas Corporation Contracts
In 1995, the Company and MDC entered into a Debt Restructure Agreement
and related agreements (collectively the "MDC Agreement") pursuant to which MDC
canceled $7,658,500 of debt owed by the Company in exchange for 586,862 shares
of Series A Convertible Preferred Stock of FAS (the "Series A Shares") and a
cash payment of $850,000.
In connection with the MDC Agreement, the Company and MDC entered into
a Securities Exchange Agreement of even date with the MDC Agreement (the
"Exchange Agreement"). The Exchange Agreement provided for the mandatory
exchange of the Series A Shares for 25% of the issued and outstanding common
shares of the Company on a fully diluted basis within 10 days following the date
on which the common shares were approved for quotation, and were quoted for
trading on, The Nasdaq Stock MarketSM as a SmallCap issue. The Company exchanged
the MDC Series A Shares for 564,194 common shares on April 4, 1997. The Exchange
Agreement further provided for the Company to register the common shares issued
to MDC in connection with the Exchange Agreement under certain circumstances.
Credit Arrangements
On April 18, 1997, the Company's wholly owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit Commercial Funding ("NationsCredit") at an annual interest rate of
prime plus 3%. All assets of the Company and its subsidiaries are pledged as
collateral. In connection with the NationsCredit loan facility, the Company
issued NationsCredit an option to acquire 40,000 common shares of the Company at
a price of $6.25 per share.
In September 1997, the NationsCredit loan facility was amended to allow
the Company to issue 8.5% Subordinated Redeemable Debentures Due 2000 in the
principal amount of $10,000,000.
On April 29, 1998, Flightways also entered into a Loan and Security
Agreement with NationsCredit and became an additional borrower under the
Company's $10,000,000 facility. On September 14, 1998, the aggregate maximum
loan amount on the entire facility was increased to
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$15,000,000 from $10,000,000 and the interest rate was reduced to prime plus 2%.
The maturity date was also extended from April 17, 2000 to August 31, 2002.
Employees
At January 1, 1999, the Company had approximately 219 full-time
employees and four part-time employees. None of the employees are unionized.
Management is of the opinion that its relationship with its employees is good.
Management believes that persons with requisite training and experience are
available to meet Company needs if and when necessary.
Certain Factors That May Affect Future Results
The Company's operating results and financial condition have varied in
the past and may in the future vary significantly depending on a number of
factors. Except for the historical information in this report, the matters
contained in this report include forward-looking statements that involve risks
and uncertainties. The following factors, among others, could cause actual
results to differ materially from those contained in forward-looking statements
made in this report and presented elsewhere by management from time to time.
Such factors, among others, may have a material adverse effect upon the
Company's business, results of operation and financial condition.
Risk Factors Relating to the Company
Net Losses
The Company has had net losses of $1.95 million for fiscal 1998 and had
losses in the last four fiscal years. The Company may not be profitable in the
future.
Ability to Service Debt
The Company is highly leveraged. The Company issued approximately
$10,000,000 principal amount of 8.5% Subordinated Redeemable Debentures Due 2000
(the "Senior Debentures") as of September 30, 1997. As of January 1, 1999, the
Company had approximately $19.9 million in long-term debt outstanding, including
approximately $8,000,000 principal amount of Senior Debentures outstanding that
become due September 30, 2000. The Company's ability to service its debt is
dependent on growth of sales and maintenance of profit margins and upon the
ability to obtain additional capital to pay the amount due in 2000. A downturn
in the industry could seriously affect the Company's ability to repay the
outstanding debt.
Restrictions Imposed by Terms of Indebtedness
The Company has debt obligations which restrict, among other things,
the ability of the Company and/or its subsidiaries to (i) incur additional
indebtedness; (ii) pay dividends or make certain other distributions; (iii)
consummate certain asset sales; (iv) enter into certain transactions with
affiliates; (v) merge or consolidate with any other person; or (vi) sell,
assign, transfer, lease, convey or otherwise dispose of its assets. A breach of
any of the covenants in the debt obligations could result in a default under
each of the governing agreements. Upon the occurrence of an event of default
under the credit facility, the lenders could elect to declare all amounts
outstanding, together with accrued interest, to be immediately due and payable.
Substantially all of the assets of the Company and each of its subsidiaries are
pledged as collateral security for the credit facility. If the Company were
unable to repay all such outstanding amounts, the lenders could proceed against
the collateral granted to them to secure that indebtedness, and any proceeds
realized upon the sale of such collateral would be used first to satisfy all
amounts outstanding under the credit facility, and thereafter, any other
liabilities of the Company and its
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subsidiaries. If the indebtedness under the credit facility were to be
accelerated, there can be no assurance that the assets of the Company and its
subsidiaries would be sufficient to repay in full that indebtedness and any
other indebtedness of the Company and its subsidiaries, which could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
Growth Strategy and Risks Relating to Future Acquisitions
An element of the Company's strategy involves growth through the
acquisition of additional inventories of aircraft spare parts and the
acquisition of other companies, assets or product lines that would complement or
expand the Company's existing aircraft spare parts redistribution and inventory
management services business. The Company's ability to grow by acquisition is
dependent upon, and may be limited by, the availability of suitable aircraft
parts inventories, acquisition candidates and capital, and by restrictions
contained in the Company's credit agreements. In addition, acquisitions involve
risks that could adversely affect the Company's operating results, including the
assimilation of the operations and personnel of acquired companies, the
potential amortization of acquired intangible assets and the potential loss of
key employees of acquired companies. There can be no assurance that the
Company's controls, systems and procedures will be able to accommodate such
growth. The Company acquired Flightways and Skylock in 1998. There can be no
assurance that the Company will be able to consummate additional acquisitions on
satisfactory terms. The Company is currently evaluating a number of acquisition
opportunities and is at varying stages of negotiations with respect to such
acquisitions. No commitments or binding agreements have been entered into to
date and accordingly no assurance can be given that any of the additional
acquisitions currently being considered will be consummated.
The Company has acquired facilities and overhead which can accommodate
growth. If the Company is unable to expand as planned, the Company's fixed costs
could materially affect the profitability of the Company.
Year 2000
The Year 2000 problem is the result of computer programs and embedded
hardware chips that use two digits rather than four to define the applicable
date. The Company is addressing possible liabilities related to this issue on
its computer systems and machinery by making system and hardware changes before
January 1, 2000.
The Company has expended approximately $80,000 through the year ended
January 1, 1999 in addressing Year 2000 issues. The Company is not anticipating
the compliance cost to exceed $250,000 and expects to be completed at the end of
the third period of the 1999 fiscal year. The Company is expensing such costs as
incurred. The Company is also making inquiries of vendors to determine whether
vendors are Year 2000 compliant.
There can be no assurance that the Company or its suppliers or vendors
will be Year 2000 compliant. Failure of the Company or any third-party
enterprise with which the Company interacts to achieve that compliance could
have a material adverse effect on the Company, its financial condition and
results of operations.
No Assurance of Success
No assurance can be given that the contemplated business activities of
the Company will be successful or profitable.
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SmallCap Volatility of Stock Price; No Dividends
Until March 26, 1997, the Company's shares were quoted in the United
States on the OTC Bulletin Board. Commencing March 26, 1997, the shares have
been quoted on The Nasdaq Stock Market(sm) as a SmallCap issue. Since trading
began on Nasdaq, closing share prices have ranged from $3.375 to $14.00 per
share. Due to the relative newness of the market for the shares, the low average
volume of shares traded, the sporadic trading of shares, and other factors, the
Company anticipates that the market for the shares will continue to be highly
volatile. The Company has not paid cash dividends on its shares and does not
expect to do so in the foreseeable future.
Ability to Obtain and Maintain Distributorships
The Company deals directly with aircraft cabin interior manufacturers
to secure distributorships for products. Manufacturers for whom the Company
distributes parts could decide to sell parts directly rather than through the
Company or add additional distributors or cancel its distribution agreements
with the Company. The loss of exclusive or other distributorships could reduce
the products the Company sells and therefore have a material adverse effect on
the Company's business, financial condition and results of operations.
Uncertain Supply of Redistribution Inventory
The Company obtains its redistribution inventories of parts by
purchasing surplus inventory from airlines, overhaul facilities and other
suppliers. There is not an organized market for surplus parts, and the Company
must rely on field representatives and personnel, advertisements and its
reputation as a buyer of surplus inventory in order to generate opportunities to
purchase such equipment. The market for bulk sales of parts is highly
competitive, in some instances involving a bidding process. While the Company
has been able to purchase surplus inventory in this manner in the past, there
can be no assurance parts of the type required by the Company's customers will
be available on acceptable terms when needed in the future or that the Company
will continue to compete effectively in the purchase of such surplus equipment.
Customer Credit Risks
The Company's inability to collect receivables from a substantial sale
could adversely affect the Company's financial position and results of
operations for a particular period. The Company's bad debt expense was 0.9% and
0.6% of revenues for the years ended December 31, 1997 and January 1, 1999. The
Company anticipates that it may incur greater bad debt losses in the future as
its customer base grows and the Company experiences greater exposure to its
customers. There can be no assurance that the Company will not incur significant
bad debt losses in the future which individually, or in the aggregate, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Reliance on Executive Officers and Key Employees
The continued success of the Company is dependent to a significant
degree upon the services of its executive officers and upon the Company's
ability to attract and retain qualified personnel experienced in the various
phases of the Company's business. The ability of the Company to operate
successfully could be jeopardized if one or more of its executive officers were
unavailable and capable successors were not found. Currently the Company has
employment contracts with its Chief Executive Officer and the Chairman of the
Board. Such contracts by their terms expire December 31, 2000 and are
automatically renewable for additional one-year periods.
12
<PAGE>
Competition
There are numerous manufacturers and suppliers of aircraft spare parts
in the aviation market worldwide and, through inventory listing services,
customers have access to a broad array of suppliers. These include major
aircraft manufacturers, airline and aircraft service companies, and aircraft
spare parts redistributors. Certain of the Company's competitors have
substantially greater financial and other resources than the Company. There can
be no assurance that competitive pressures will not materially and adversely
affect the Company's business, financial condition or results of operations.
Risk Factors Relating to the Industry
Effects of the Economy on the Operations of the Company
Since the Company's customers consist of airlines, air cargo operators,
maintenance and repair facilities that service airlines and other aircraft spare
parts redistributors, the Company's business is affected by the economic factors
which affect the commercial aviation industry. When such factors adversely
affect the commercial aviation industry, they tend to reduce the overall demand
for aircraft spare parts, causing downward pressure on pricing and increasing
the credit risk associated with doing business with airlines. The volatile world
economy during the last 18 months increases the possibility of recession in the
airline industry. There can be no assurance that economic and other factors
which might affect the commercial aviation industry will not have an adverse
impact on the Company's results of operations.
Government Regulation
The aviation industry is highly regulated in the United States by the
FAA and in other countries by similar agencies. While the Company's business is
not regulated, the aircraft spare parts which it sells to its customers must be
accompanied by documentation which enables the customer to comply with
applicable regulatory requirements. There can be no assurance that new and more
stringent government regulations will not be adopted in the future or that any
such new regulations, if enacted, would not have an adverse impact on the
Company.
Product Liability
The Company's business exposes it to possible claims for personal
injury or death which may result from the failure of an aircraft spare part sold
by it. While the Company maintains what it believes to be adequate liability
insurance to protect it from such claims, and while no material claims have, to
date, been made against the Company, no assurance can be given that claims will
not arise in the future or that such insurance coverage will be adequate.
Additionally, there can be no assurance that insurance coverages can be
maintained in the future at an acceptable cost. Any such liability not covered
by insurance could have a material adverse effect on the financial condition of
the Company.
13
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
In July 1998, the Company entered into a lease for its new executive
offices and manufacturing and warehouse facilities located at 4175 Guardian
Street, Simi Valley, California. Its telephone number is (805) 583-0080. The
lease expires October 31, 2008. The two-story building, built in 1993, consists
of approximately 122,000 square feet of office, manufacturing and warehouse
space. The Company believes the space is adequate for its use.
The Company also has a warehouse located at 341 "A" Street, Fillmore,
California. In 1991, the Company exercised an option to purchase the building.
The warehouse is an older produce-packing building of wood and concrete
construction with a high-ceiling upper floor and a concrete lower/basement
floor, all clear span except for wooden pillar supports. The total storage area
for both floors is 83,600 sq. ft. Exterior open-air storage area (secured) is
approximately 18,700 sq. ft. A modern fire-prevention system with a ceiling
water pressure sprinkler system is installed on both floors. A visual/aural
monitoring security system operates inside the building and in all the exterior
property contained within the fenced area. The Company plans to spend
approximately $100,000 in fiscal 1999 on earthquake structural upgrades to the
warehouse.
On March 21, 1997, the Company signed a lease effective August 1, 1997
for executive offices and warehousing space. Subsequently, the Company
determined that these premises were too small for the Company and the premises
were sublet to a third party at a rent resulting in a small profit to Company.
On December 3, 1998, FAS signed a contract effective January 1, 1999
for warehousing services from a third party which includes a lease of warehouse
and storage facilities and provision of freight forwarding services at Heathrow
Airport in the London area. The initial term is one year and may be terminated
thereafter by either party upon 180 days notice.
The Company maintains an executive office located in London, England.
The office is leased from a third party by Belgravia Financial Services Limited,
an entity owned and controlled by certain officers and directors of the Company,
and is sublicensed to the Company on a month to month basis at a monthly rental
to the Company of $2,150.
The Company maintains adequate insurance on its properties.
The following chart provides more detailed information concerning the
Company's properties as of March 15, 1999:
Approximate Size
in
Location Sq. Ft. of Facility Lease Expiration Primary Use
Simi Valley, California 122,000 2008 Executive
Offices,
Manufacturing
and Warehouse
Fillmore, California 83,600(1) owned Warehouse
London, England 1,000 month to month Executive
Offices
Simi Valley, California 24,000 2002 Sublet to
Third Party
Heathrow, England 3,000 2000 Warehouse
(1) Located on two acres.
14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is currently not a party to any known litigation other than
routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended
January 1, 1999 to a vote of the Company's shareholders.
PART II.
ITEM 5. MARKET FOR COMMON SHARES AND RELATED SHAREHOLDER MATTERS
Market Information
The common shares of the Company were quoted over-the-counter under the
symbol FASS until March 25, 1997. Commencing March 26, 1997, the common shares
were quoted on The Nasdaq Stock Market(SM) as a SmallCap issue under the symbol
FASI.
The Nasdaq Stock Market(SM), which began operation in 1971, is the
world's first electronic securities market and the fastest growing stock market
in the U.S. Nasdaq utilizes today's information technologies--computers and
telecommunications--to unite its participants in a screen-based, floorless
market. It enables market participants to compete with each other for investor
orders in each Nasdaq security and, through the use of Nasdaq Workstation II(TM)
and other automated systems, facilitates the trading and surveillance of
thousands of securities. This competitive marketplace, along with the many
products and services available to issuers and their shareholders, attracts
today's largest and fastest growing companies to Nasdaq. These include industry
leaders in computers, pharmaceuticals, telecommunications, biotechnology, and
financial services. More domestic and foreign companies list on Nasdaq than on
all other U.S. stock markets combined.
The following table sets forth, for the fiscal quarters indicated, the
high and low bid quotations as reported by the National Quotation Bureau until
March 25, 1997 and thereafter by The Nasdaq Stock Market(SM). The quotations
quoted by the National Quotation Bureau reflect inter-dealer prices without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
Period 1997 1998
------ ---- ----
High Low High Low
Closing Closing Closing Closing
Price Price Price Price
First Quarter $6.00* $2.50* $10.63 $8.00
Second Quarter 6.75 5.00 10.25 6.75
Third Quarter 11.50 4.75 8.75 5.50
Fourth Quarter 14.00 8.00 7.00 4.50
* From January 1, 1997 to March 25, 1997 prices represent the
high and low bid. Thereafter price represents the closing
price on The Nasdaq Stock Market(SM)
15
<PAGE>
Shareholders
At January 1, 1999, the number of record holders of the Company's
common shares was approximately 256. The Company believes it has in excess of
300 round lot shareholders of beneficial interest of the Company's common
shares. The Company has no outstanding preferred shares.
Dividends
The Company utilizes all available funds for working capital purposes
and has never paid a dividend. Management does not anticipate paying dividends
in the foreseeable future on common shares. In addition, the Company's loan
arrangements restrict the payment of dividends by the subsidiaries of the
Company. There are no preferred shares currently outstanding. In the future, the
Company may issue preferred shares which may pay dividends.
Issuance of Shares Without Registration
During the year ended January 1, 1999, the Company issued the following
securities without registration under the Securities Act of 1933:
As of February 20, 1998, the Company received and accepted subscription
agreements for the sale of 26,333 units (the "Units"), representing 210,664
common shares of the Company, and 52,666 warrants to acquire 52,666 common
shares at $13.00 per share (the "Warrants"), for approximately $2.05 million.
The Units were sold to accredited non-U.S. persons in reliance on Regulation S.
The Warrants are exercisable at any time prior to February 20, 2000.
Etablissement Pour le Placement Prive, Zurich Switzerland ("EPP"),
acted as the Company's placement agent in connection with the offering and
received a commission of 9% of the sale price of the Units sold. EPP also
received a corporate development fee of approximately $61,620, which was based
on the number of Units sold.
As of January 18, 1999, the Company closed the sale of $700,000
principal amount of its 8.5% Subordinated Convertible Redeemable Debentures Due
2001 (the "Convertible Debentures") issued under an Indenture, dated as of
December 22, 1998, between the Company and EPP Finanz AG, as Trustee. The
Debentures were sold in reliance on an exemption from registration under Section
4(2) of the Securities Act of 1933 to an entity that represented to the Company
it was an accredited investor as defined in Regulation D ("Regulation D") of the
Securities Act of 1933.
The Debentureholder has the right at any time after April 18, 1999
through December 28, 2001, subject to prior redemption or repurchase, to convert
the principal amount of such holder's Convertible Debentures that is $1,000
principal amount or an integral multiple thereof, into common shares of the
Company at a conversion price of $5.50 per share. The Convertible Debentures are
redeemable, in whole or in part, at the option of the Company, at any time on or
after December 31, 1999, at 100% of the principal amount plus accrued interest.
EPP Finanz AG acted as the Company's placement agent in connection with
the offering and received a commission of 8% of the principal amount of
Convertible Debentures sold and was issued as a due diligence fee warrants to
purchase 7,000 common shares (the "EPP Warrants") at $7.50 per share pursuant to
the terms of the Placement Agent Agreement, dated December 18, 1998, between the
Company and EPP Finanz AG. The issuance of the EPP Warrants was made in reliance
on an exemption from registration under Section 4(2) of the Securities Act of
1933. EPP Finanz AG has represented to the Company that it is an accredited
investor as defined in Regulation D.
16
<PAGE>
The Company estimates that the total fees and expenses incurred by the
Company, in addition to the 8% commission described above, was approximately
$150,000. Accordingly, the net proceeds to the Company from the sale of the
Convertible Debentures was approximately $494,000.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto set forth elsewhere
in this Annual Report. On March 30, 1998, the Company changed its fiscal year to
a 52-53 week year ending on the Friday of the calendar week (beginning on Monday
and ending on Sunday) which contains the last business day of December. The 1998
fiscal year ended on January 1, 1999. The comparable period for the prior year
ended December 31, 1997.
General
The Company's net revenues have increased from $5.7 million in 1996 to
$23.9 million for the year ended January 1, 1999. Prior to 1998 the Company's
business had been concentrated in distribution and stocking, as an authorized
factory distributor for various manufacturers, of cabin interior replacement
parts for a wide variety of commercial aircraft models.
In January and April 1998 the Company acquired Flightways and Skylock,
respectively. These acquisitions, which expanded the Company's operations into
the manufacturing of cabin interior replacement parts, were accounted for using
the purchase method of accounting and accordingly, the operating results of the
acquired companies have been included in the Company's results of operations
since the date of acquisition.
The following tables illustrate certain selected financial information
regarding the Company:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
Statement of Operations Data: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales $23,851,000 $12,101,000 $5,734,000
Income from Operations $1,718,000 $1,538,000 $151,000
Net loss $(1,950,000) $(147,000) $(242,000)
Net loss per common share (basic) $(0.82) $(0.08) $(0.13)
Net loss per common share (diluted) $(0.51) $(0.06) $(0.13)
Balance Sheet Data at Fiscal Year End: 1998 1997 1996
---- ---- ----
Total Assets $31,042,000 $22,181,000 $11,499,000
Current Liabilities $5,049,000 $1,535,000 $7,418,000
Long Term Liabilities $19,917,000 $15,047,000 $268,000
Shareholders' Equity $6,076,000 $5,599,000 $3,813,000
</TABLE>
17
<PAGE>
The following table sets forth the Company's consolidated statement of
operations for the years ended:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
Statement of Operations (Dollars in
Thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales $23,851 100% $12,101 100% $5,734 100%
Cost of Sales 16,536 69 7,214 60 2,975 52
------ -- ----- --- ----- ---
Gross Profit 7,315 31 4,887 40 2,759 48
Operating Expenses 5,597 24 3,349 27 2,608 45
----- -- ----- --- ----- ---
Income From Operations 1,718 7 1,538 13 151 3
----- -- ----- --- ----- ---
Other Income (Expense)
Casualty Gain - - - - 949 16
Interest Expense (2,249) (9) (1,676) (14) (1,338) (23)
Other Expense, Net (1,410) (6) - - - -
------- --- ------- ----- ------ -----
Total Other Expense (3,659) (15) (1,676) (14) (389) (7)
------- ---- ------- ----- ------ -----
Loss Before Provision for Taxes (1,941) (8) (138) (1) (238) (4)
Income Tax 9 - 9 - 4 -
------- ----- ------- ----- ----- ----
Net Loss $ (1,950) (8%) $ (147) (1%) $(242) (4)%
========= == ======= == ===== ==
</TABLE>
The following table sets forth the statement of operations of each of the
segments of the Company and the Company on a consolidated basis for the year
ended January 1, 1999. All significant intercompany accounts and activity have
been eliminated.
<TABLE>
<CAPTION>
1998 Fiscal Year
-------------------------------------------------------------------------------------------
Distribution and
Redistribution Manufacturing Corporate Eliminations Consolidated
-------------- ------------- --------- ------------ ------------
Statement of Operations (Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Sales $15,737 $9,264 $ - $ (1,150) $23,851
Cost of Sales 10,212 7,474 - (1,150) 16,536
------ ----- ------ ------- ------
Gross Profit 5,525 1,790 - - 7,315
Operating Expenses 3,918 1,518 161 - 5,597
----- ----- ------ ------ -----
Income (Loss) From Operations 1,607 272 (161) - 1,718
----- ----- ------ ------ -----
Other Income (Expense)
Interest Expense (1,652) (308) (289) - (2,249)
Other Income (Expense), Net 43 (246) (1,207) - (1,410)
----- ----- ------- ------ -------
Total Other Expense (1,609) (554) (1,496) - (3,659)
Loss Before Provision For Taxes (2) (282) (1,657) - (1,941)
Income Tax 5 2 2 - 9
------- ------ ------ ------ ------
Net Loss $ (7) $(284) $(1,659) $ - $(1,950)
======= ===== ======= ====== =======
</TABLE>
18
<PAGE>
Results of Operations
Years Ended January 1, 1999 and December 31, 1997
For the year ended January 1, 1999 operations of the Company generated
operating income of $1,718,000, compared to operating income of $1,538,000 for
1997, an increase of approximately 11.7%. The increase in income from operations
for the year was primarily attributable to the inclusion of sales generated by
the acquisitions and the resulting increase in gross profit.
Net sales for the year ended January 1, 1999 were $23,851,000 compared
to $12,101,000 for the year ended December 31, 1997, an increase of $11,750,000,
or approximately 97%. This increase in sales included an increase of $3,636,000
from distribution and redistribution and approximately $6,491,000 as a result of
the inclusion of Flightways acquired in January 1998 and approximately
$1,623,000 as a result of the inclusion of sales of Skylock acquired in April
1998.
Costs of sales for the year ended January 1, 1999 and December 31, 1997
were $16,536,000 and $7,214,000, respectively (approximately 69% and 60% of
sales, respectively). The reduction in the gross margin percentage is as a
result of a change in the product mix of the Company and also the inclusion of
the results of Flightways and Skylock which, as manufacturing entities, have a
higher cost of goods sold percentage than parts distribution.
Operating expenses increased to $5,597,000 for the year ended January
1, 1999, from $3,349,000 for the year ended December 31, 1997 an increase of
$2,248,000. Of the increase, approximately $1,428,000 was attributable to the
inclusion of the activity of Flightways and Skylock, acquired in 1998. The
balance of $730,000 was principally attributable to the increase in sales
activity.
Interest expense, including amortization of debt issuance costs,
increased to $2,249,000 from $1,676,000 in the years ended January 1, 1999 and
December 31, 1997, respectively. This was attributable to interest on increased
debt amounts outstanding to finance expanded inventory and accounts receivable
levels needed to support growth and the acquisitions of Flightways and Skylock,
and was partially offset by decreasing interest rates.
During the year ended January 1, 1999, the Company recognized a
non-recurring charge to income of $1,200,000 to reflect non-recurring expenses
relating to the acquisition of a new facility, relocation costs and the initial
expansion of the newly acquired manufacturing operations.
As a result of the foregoing, the Company had a net loss for the year
ended January 1, 1999 of $1,950,000 as compared to a net loss of $147,000 for
the year ended December 31, 1997, an increase in net loss of $1,803,000. This
increase in net loss is entirely attributable to the one-time charge totaling
$1,200,000, amortization of goodwill of $218,000 related to the acquisitions and
increased interest expense of $573,000 on borrowings used to increase inventory
and accounts receivable levels needed to support growth and the acquisitions of
Flightways and Skylock. On a per share basis, net loss for the year ended
January 1, 1999 was $.51 per share diluted ($.82 per share basic) compared to a
net loss of $.06 per share diluted ($.08 per share basic) for the year ended
December 31, 1997.
Years Ended December 31, 1997 and December 31, 1996
For the year ended December 31, 1997 operations of the Company
generated operating income of $1,538,000, compared to operating income of
$151,000 for 1996, an increase of
19
<PAGE>
approximately 918%. The increase in income from operations for the year was
primarily attributable to an increase in sales and the resulting increase in
gross profit.
Net sales for the year ended December 31, 1997 were $12,101,000
compared to $5,734,000 for the year ended December 31, 1996, an increase of
$6,367,000, or approximately 111%. The increase in sales was made up of an
increase in after-market aircraft inventory management and supply sales and
redistribution sales of 164% and an increase in MDC inventory sales of 29%.
Costs of sales for the year ended December 31, 1997 and December 31,
1996 were $7,214,000 and $2,975,000, respectively (approximately 60% and 25% of
sales, respectively). The reduction in the gross margin percentage is a result
of a change in the product mix of sales.
Operating expenses increased to $3,349,000 for the year ended December
31, 1997, from $2,608,000 for the year ended December 31, 1996 an increase of
$741,000. This was principally attributable to the increase in sales activity.
Interest expense, including amortization of debt issuance costs,
increased to $1,676,000 from $1,338,000 in the years ended December 31, 1997 and
December 31, 1996 respectively. The increase is entirely attributable to an
accelerated amortization of original loan costs and other fees associated with
the refinancing of the Company's primary loan with Norwest Bank.
During the year ended December 31, 1996, the Company recognized a
non-recurring gain of $949,000 in connection with a certain casualty insurance
claim. There were no non-recurring gains in 1997.
As a result of the foregoing the Company had a net loss for the year
ended December 31, 1997 of $147,000 as compared to a net loss of $242,000 for
the year ended December 31, 1996, a decrease in loss of $95,000. The net loss in
1997 is entirely attributable to the non-recurring accelerated amortization of
loan costs described in the prior paragraph. Any comparison between the two
periods should also take into consideration the 1996 non-recurring income as
described above.
Liquidity and Capital Resources
At January 1, 1999 the Company had working capital (current assets in
excess of current liabilities) of $17,375,000 compared to working capital of
$17,740,000 on December 31, 1997. Although the net result was a relatively small
reduction of $365,000 there were factors of substantial amounts affecting this,
the largest being the acquisitions of Flightways and Skylock.
The cost of the acquisition of Flightways was approximately $2,939,000
with a further approximately $1,100,000 being used to retire debt. The
acquisition was partially funded by an issuance of common shares which produced
net cash proceeds of $1,798,000, an increase in borrowing under the Company's
line of credit with NationsCredit of approximately $1,000,000 and cash. The
total cost of acquiring Skylock was approximately $1,556,000 which was financed
by a combination of cash of approximately $965,000 drawn from the Company's line
of credit with NationsCredit, an issue of common shares and a seller deferred
note conditional upon certain targets being met.
Operating activities used $5,222,000 and $2,681,000 of the Company's
cash flow for the years ended January 1, 1999 and December 1, 1997,
respectively. The major usage of cash was the increase in inventory of
$4,682,000 of which $1,779,000 was represented by the acquisitions and the
balance of the increase was as a result of an expansion in the Company's
aftermarket aircraft inventory management and supply program first introduced in
1997. Accounts receivable increased
20
<PAGE>
by $1,764,000 of which $2,519,000 was represented by the acquisitions. There
were increases in accounts payable of $1,515,000 of which the acquisitions
accounted for $803,000. Accrued liabilities increased by $408,000.
The Company's operations to date have been primarily funded through
bank loans, sales of equity and debentures, and seller's deferred purchase
notes. If the Company is not able to reach profitability and obtain additional
funding, the Company may not be able to meet its debt service obligations.
On February 20, 1998, the Company completed a private placement to
non-United States persons pursuant to Regulation S of the Securities Act of
1933, as amended. The Company issued 26,333 units consisting of 210,664 common
shares and warrants to acquire 52,666 common shares at $13 per share (the 1998
Warrants). The units were sold for approximately $2,055,000. The warrants are
exercisable at any time prior to the second anniversary of their issuance. EPP
acted as the Company's placement agent in connection with the offering and
received a commission of 9% of the sales price, or approximately $185,000. EPP
also received a development fee of approximately $61,620, which was based on the
number of units sold. After brokerage and issuance costs, the sale resulted in a
net infusion of capital of approximately $1,798,000. For financial accounting
purposes an additional $600,000 was offset against the proceeds of the placement
as additional costs in connection with the issuance of securities.
On September 14, 1998 the Company amended its Loan and Security
Agreements with NationsCredit by increasing the aggregate line of credit from
$10,000,000 to $15,000,000 and reducing the annual interest rate of prime plus
3% to prime plus 2%. The due date was extended to August 31, 2002. As of January
1, 1999, the Company's outstanding amount on its Credit Agreement with
NationsCredit was $11,140,000 at an interest rate of 9.75%.
In April, July, August and October 1998, warrants, originally issued in
1996 and 1997, were exercised to purchase 93,412, 12,118, 30,000 and 10,000
common shares for $6.25 per share. The net proceeds were $450,000, $72,000,
$178,000 and $59,000 after deducting costs of $134,000, $4,000, $9,000 and
$3,000, respectively for placement and issuance fees.
In January 1999, the Company completed the sale of $700,000, 8.5%
Subordinated Convertible Redeemable Debentures due 2001. The Debentures will
mature on December 31, 2001, unless previously redeemed or repurchased. Interest
on the Debentures is payable semiannually on June 30 and December 31 of each
year commencing June 30, 1999. The Debentures are redeemable, in whole or in
part, at the option of the Company, at any time on or after December 31, 1999,
at 100% of the principal amount plus accrued interest. The Debenture holders
have the right at any time after 90 days following the latest date of original
issuance of the Debentures through December 28, 2001, subject to prior
redemption or repurchase, to convert integral multiples of $1,000 of the
principal amount of such holder's Debentures into common shares at a conversion
price of $5.50 per common share.
The Company will, consistent with funding, seek to acquire other
companies in similar or allied businesses. Acquisitions will be undertaken
following an analysis of the potential acquisition, and its synergism with the
Company's existing business and with the capital needs of the acquired companies
compared to the capital needs and resources of the Company. There is no
assurance that any future acquisitions will be successfully completed.
The Company will be dependent on obtaining additional capital or on
restructuring its debt as it becomes due in the year 2000. If the Company
continues to incur losses, it will also require additional capital to cover such
losses.
21
<PAGE>
The Company will continue to actively seek debt or equity capital
infusions. The Company intends to use a substantial portion of any additional
capital to retire debt, pursue potential acquisitions and purchase inventory.
There is no assurance the Company will be successful in securing additional debt
or capital.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and report of independent public accountants
are filed as part of this report on pages F-1 through F-20.
The following financial statements of the Company are included beginning at page
F-1.
Independent Auditors' Report F-1
Consolidated Balance Sheets as of January 1,
1999 and December 31, 1997 F-2
Consolidated Statements of Operations for the years
ended January 1, 1999 and
December 31, 1997 and 1996 F-3
Consolidated Statements of Shareholders' Equity for
the years ended January 1, 1999
and December 31, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the years
ended January 1, 1999
and December 31, 1997 and 1996 F-5
Notes to the Consolidated Financial Statements F-6 through F-20
22
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
[LETTERHEAD]
1199 South Fairway Drive, 2nd Floor
Walnut, California 91789
PO Box 3949
City of Industry, California 91744
(909) 594-2713 Fax (909) 594-2357
www.msftllp.com
MOORE STEPHENS FRAZER AND TORBET, LLP
Certified Public Accountants and Consultants
The Board of Directors
Fields Aircraft Spares, Inc.
Simi Valley, California
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of Fields
Aircraft Spares, Inc., formerly known as Fields Industrial Group, Inc., as of
January 1, 1999 and December 31, 1997 and the related consolidated statements of
operations, shareholders' equity and cash flows for the years ended January 1,
1999, December 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 financial statements referred to above present
fairly, in all material respects, the financial position of Fields Aircraft
Spares, Inc. as of January 1, 1999 and December 31, 1997, and the results of its
operations and its cash flows for the years ended January 1, 1999 and December
31, 1997 and 1996 in conformity with generally accepted accounting principles.
/s/ Moore Stephens Frazer and Torbet, LLP
Certified Public Accountants
April 2, 1999
Creating New Horizons Since 1918
MS
An independently owned and operated member of Moore Stephens North America,
Inc. - members in principal cities throughout North America.
Moore Stephens North America, Inc. is a member of Moore Stephens International
Limited - members in principal cities throughout the world.
F-1
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 1, 1999 AND DECEMBER 31, 1997
ASSETS
1999 1997
-------------- -------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 431,000 $ 6,071,000
Accounts receivable, less allowance for doubtful
accounts of $191,000 in 1999 and $100,000
in 1997 5,057,000 1,955,000
Inventory 16,719,000 11,058,000
Prepaid expenses 217,000 191,000
-------------- -------------
Total current assets $ 22,424,000 $ 19,275,000
-------------- -------------
LAND, BUILDING AND EQUIPMENT:
Land $ 210,000 $ 210,000
Building and building improvements 1,275,000 1,065,000
Furniture and equipment 3,177,000 565,000
-------------- -------------
Totals $ 4,662,000 $ 1,840,000
Less accumulated depreciation and amortization 969,000 830,000
-------------- -------------
Land, building and equipment, net $ 3,693,000 $ 1,010,000
-------------- -------------
OTHER ASSETS:
Debt issuance costs, net of accumulated
amortization $ 910,000 $ 1,267,000
Goodwill, net of accumulated amortization 3,297,000
Other assets 718,000 629,000
-------------- -------------
Total other assets $ 4,925,000 $ 1,896,000
-------------- -------------
Total assets $ 31,042,000 $ 22,181,000
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,469,000 $ 1,239,000
Accrued liabilities 1,320,000 241,000
Current portion of notes and capital leases
payable 260,000 55,000
-------------- -------------
Total current liabilities $ 5,049,000 $ 1,535,000
-------------- -------------
LONG-TERM LIABILITIES: $ 19,917,000 $ 15,047,000
-------------- -------------
SHAREHOLDERS' EQUITY:
Common shares $ 372,000 $ 351,000
Additional paid-in capital 9,365,000 6,959,000
Retained deficit (3,661,000) (1,711,000)
-------------- -------------
Total shareholders' equity $ 6,076,000 $ 5,599,000
-------------- -------------
Total liabilities and shareholders'
equity $ 31,042,000 $ 22,181,000
============== =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 1, 1999 AND DECEMBER 31, 1997 AND 1996
1999 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
SALES $23,851,000 $12,101,000 $5,734,000
COST OF SALES 16,536,000 7,214,000 2,975,000
----------- ----------- ----------
GROSS PROFIT $ 7,315,000 $ 4,887,000 $2,759,000
OPERATING EXPENSES 5,597,000 3,349,000 2,608,000
----------- ----------- ----------
INCOME FROM OPERATIONS $ 1,718,000 $ 1,538,000 $ 151,000
OTHER EXPENSES 3,659,000 1,676,000 389,000
----------- ----------- ----------
LOSS BEFORE PROVISION FOR
INCOME TAXES $(1,941,000) $ (138,000) $ (238,000)
PROVISION FOR INCOME TAXES 9,000 9,000 4,000
----------- ----------- ----------
NET LOSS $(1,950,000) $ (147,000) $ (242,000)
=========== =========== ==========
NET LOSS PER SHARE (basic) $ (0.82) $ (0.08) $ (0.13)
=========== =========== ==========
NET LOSS PER SHARE (diluted) $ (0.51) $ (0.06) $ (0.13)
=========== =========== ==========
The accompanying notes are an integral part of this statement.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 1, 1999 AND DECEMBER 31, 1997 AND 1996
NUMBER ADDITIONAL TOTAL
OF SHARES PAID-IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT EQUITY
--------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1995 984,352 $297,000 $1,376,000 $(1,322,000) $351,000
Additional paid-in capital 2,050,000 2,050,000
Issuance of common shares 317,785 15,000 1,639,000 1,654,000
Net loss (242,000) (242,000)
--------- -------- ---------- ----------- ----------
BALANCES, DECEMBER 31, 1996 1,302,137 $312,000 $5,065,000 $(1,564,000) $3,813,000
Issuance of common shares 777,434 39,000 1,894,000 1,933,000
Net loss (147,000) (147,000)
--------- -------- ---------- ----------- ----------
BALANCES, DECEMBER 31, 1997 2,079,571 $351,000 $6,959,000 $(1,711,000) $5,599,000
Issuance of common shares 404,210 21,000 2,406,000 2,427,000
Net loss (1,950,000) (1,950,000)
--------- -------- ---------- ----------- ----------
BALANCES, JANUARY 1, 1999 2,483,781 $372,000 $9,365,000 $(3,661,000) $6,076,000
========= ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
JANUARY 1, 1999 AND DECEMBER 31, 1997 AND 1996
1999 1997 1996
------------ ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (1,950,000) $ (147,000) $ (242,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 449,000 99,000 120,000
Amortization expense 818,000 422,000 211,000
Loss on sale of assets 9,000 51,000
Increase in accounts receivable (1,764,000) (448,000) (226,000)
Increase in inventory (4,682,000) (2,950,000) (456,000)
Decrease (increase) in prepaid expenses 2,000 (42,000) (3,000)
Increase in other assets (27,000) (272,000)
Increase in accounts payable 1,515,000 375,000 376,000
Increase in other accrued liabilities 408,000 11,000 91,000
Decrease in income taxes payable (1,000)
------------ ----------- ------------
Net cash used in operating activities $ (5,222,000) $ (2,681,000) $ (350,000)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment $ (843,000) $ (24,000) $ (13,000)
Acquisition of businesses (4,112,000)
------------ ----------- ------------
Net cash used in investing activities $ (4,955,000) $ (24,000) $ (13,000)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on line of credit $ 4,094,000 $ (6,232,000) $ (1,195,000)
Principal payments on notes payable (1,385,000) (2,094,000) (193,000)
Borrowings on notes payable 94,000 18,837,000 74,000
Costs associated with issuance of notes payable (226,000) (1,782,000)
Proceeds from issuance of common shares 2,707,000 352,000 1,654,000
Costs associated with the issuance of common shares (747,000) (393,000)
------------ ----------- ------------
Net cash provided by financing activities $ 4,537,000 $ 8,688,000 $ 340,000
------------ ----------- ------------
NET (DECREASE) INCREASE IN CASH $ (5,640,000) $ 5,983,000 $ (23,000)
CASH AND CASH EQUIVALENTS, December 31, 1997, 1996
and 1995 6,071,000 88,000 111,000
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, January 1, 1999,
December 31, 1997 and 1996 $ 431,000 $ 6,071,000 $ 88,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
a. Principles of consolidation and company background
The consolidated Group financial statements include the
accounts of Fields Aircraft Spares, Inc. (FASI), a Utah corporation, and its
wholly-owned subsidiaries, Fields Aircraft Spares Incorporated (FASC),
Flightways Manufacturing, Inc. (FMI), Skylock Industries (Skylock) and Fields
Aero Management, Inc. (FAM). All subsidiaries are California corporations. All
significant intercompany accounts and activity have been eliminated.
The Group manufactures and distributes new aircraft parts and
equipment for use on international and domestic commercial and military aircraft
and purchases and sells parts on a redistribution basis.
b. Concentration of credit risk
Substantially all of the Group's trade accounts receivables
are due from customers in the airline industry located throughout the United
States and internationally. The Group performs periodic credit evaluations of
its customers' financial condition and does not require collateral. Credit
losses relating to customers in the airline industry have consistently been
within management's expectations.
c. Concentration of sales
The Group had sales to foreign companies that amounted to 11%,
12% and 17% of total sales for each of the years ended January 1, 1999 and
December 31, 1997 and 1996, respectively.
For the year ended January 1, 1999, two customers accounted
for sales of $5,243,000 and $1,855,000. For the year ended December 31, 1997,
two customers accounted for sales of $1,706,000 and $1,395,000. For the year
ended December 31, 1996, two customers accounted for sales of $657,000 and
$351,000.
d. Cash and cash equivalents
For purposes of the statement of cash flows, the Group
considers all highly liquid investments purchased with an original maturity of
three months or less to be a cash equivalent.
The Group currently maintains cash in bank deposit accounts,
which exceed federally insured limits. The Group has not experienced any losses
in such accounts and believes it is not exposed to any significant risks on cash
in bank deposit accounts. Uninsured balances were approximately $404,000 as of
January 1, 1999.
e. Fair value of financial instruments
The Group's financial instruments include cash and cash
equivalents, accounts receivable, accounts payable, notes payable and capital
lease obligations. The carrying amount of these financial instruments have been
estimated by management to approximate fair value.
F-6
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
f. Inventory
Inventory is valued at the lower of cost or market using the
first-in, first-out method. Where a group of parts was purchased together as a
lot, the cost of the lot was allocated to the individual parts by management pro
rata to the list selling price at the time of purchase. Consistent with industry
practice, inventory is carried as a current asset but not all inventory is
expected to be sold within one year.
Inventory as of January 1, 1999 and December 31, 1997
consisted of the following:
1999 1997
---- ----
Raw materials $ 324,000 $
Work-in-process 839,000
Finished goods 15,556,000 11,058,000
-------------- ---------------
Total $ 16,719,000 $ 11,058,000
============== ===============
g. Land, building and equipment
Land, building and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from 3 to 25 years.
The cost and related accumulated depreciation and amortization
of assets sold or otherwise retired are eliminated from the accounts and any
gain or loss is included in the statement of operations. The cost of maintenance
and repairs is charged to income as incurred, whereas significant renewals and
betterments are capitalized. Depreciation expense for the years ended January 1,
1999 and December 31, 1997 and 1996 amounted to $449,000, $99,000 and $120,000,
respectively.
Long-term assets of the Group are reviewed annually as to
whether their carrying value has become impaired, pursuant to the guidelines
established in Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of". Management considers assets to be impaired if the carrying value
exceeds the future projected cash flows from related operations. Management also
re-evaluates the periods of amortization to determine whether subsequent events
and circumstances warrant revised estimates of useful lives. As of January 1,
1999 management expects these assets to be fully recoverable.
h. Debt issuance costs
Debt issuance costs relate to the issuance of financing.
Amortization of debt issuance costs for the years ended January 1, 1999 and
December 31, 1997 and 1996 amounted to $583,000, $422,000 and $211,000
respectively. The costs are amortized using the straight-line method over the
lives of the respective loans.
F-7
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
i. Other assets
The Group capitalized $287,000 of costs related to Parts
Manufacturing Approvals (PMA's). Amortization of PMA costs for the year ended
January 1, 1999 amounted to $17,000. The costs are amortized using the
straight-line method over the estimated useful lives of three years.
j. Revenue recognition
The Group recognizes revenue from all types of sales under the
accrual method of accounting when title transfers. Title transfers at the
Group's facilities.
k. Earnings per share
The Group adopted SFAS No. 128, "Earnings Per Share." SFAS 128
requires the presentation of earnings per share (EPS) as Basic EPS and Diluted
EPS. Therefore, the EPS for the year ended December 31, 1997 has been restated
to conform to SFAS 128. The reconciliation of the basic and diluted EPS
components as of January 1, 1999 and December 31, 1997 are as follows:
For the years ended
January 1, 1999 December 31, 1997
--------------- -----------------
Net loss available to common shares $ (1,950,000) $ (147,000)
Interest on convertible debentures 170,000
-------------- -------------
Net loss available to common shares $ (1,780,000) $ (147,000)
============== =============
As of
January 1, 1999 December 31, 1997
--------------- -----------------
Number of common shares outstanding 2,483,781 2,079,571
Weighted averages (87,557) (766,221)
Potential dilutive shares 1,060,131 1,032,028
--------------- -----------------
Dilutive number of shares 3,456,355 2,345,378
============== =============
l. Income taxes
The Group files consolidated income tax returns. Deferred
income taxes relate to temporary differences between financial statement and
income tax reporting of certain accrued expenses, bad debts, inventory, and
depreciation.
F-8
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Group adopted SFAS No. 109, "Accounting for Income Taxes".
SFAS 109 requires the recognition of deferred income tax liabilities and assets
for the expected future tax consequences of temporary differences between income
tax basis and financial reporting basis of assets and liabilities. The income
tax effect of the temporary differences as of January 1, 1999 and December 31,
1997 consisted of the following:
1999 1997
---- ----
Deferred tax liability resulting from
taxable temporary differences in
accounting for inventory $ (280,000) $ (314,000)
Deferred tax liability resulting from
taxable temporary differences in
accounting for depreciation (19,000)
Deferred tax asset resulting from
deductible temporary differences
for allowance for doubtful accounts 82,000 6,000
Deferred tax asset resulting from
deductible temporary differences
for product warranty costs 3,000
Deferred tax asset resulting from
deductible temporary differences
for utilization of net operating loss
carryforwards for income tax purposes 1,601,000 1,078,000
Valuation allowance resulting from the
potential nonutilization of net operating
loss carryforwards for income tax purposes (1,387,000) (770,000)
---------- -----------
Total deferred income taxes $ - - $ - -
=========== ===========
m. Employee benefit plan
FASC has a 401(k) Plan under Section 401(k) of the Internal
Revenue Code. The Plan allows all employees who are not covered by a collective
bargaining agreement to defer up to 25% of their compensation on a pre-tax basis
through contributions to the Plan. Contributions to the Plan by FASC are
discretionary and are determined by the Board of Directors. No contributions
were made to the Plan during the years ended January 1, 1999 and December 31,
1997 and 1996.
n. 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 amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
its financial statements are reasonable and prudent. Actual results could differ
from these estimates.
F-9
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
o. Segment reporting
The Group reports its segment information based on types of
products and services produced. The segments are based on a distribution and
redistribution basis and on a manufacturing basis. The manufacturing segment has
two locations. The summary financial information for the segments as of January
1, 1999 and for the year then ended is as follows (000's omitted):
<TABLE>
<CAPTION>
Distribution
and Redistribution Manufacturing Corporate Eliminations Consolidated
------------------ ------------- --------- ------------ ------------
Assets
<S> <C> <C> <C> <C> <C>
Cash $ 161 $ 80 $ 190 $ $ 431
Accounts receivable, net 2,538 2,926 (407) 5,057
Inventory 14,940 1,779 16,719
Other current assets 213 4 217
Land, building and equipment, net 1,594 2,099 3,693
Other assets 1,329 3,593 12,258 (12,255) 4,925
----------- --------- ------- --------- ---------
Total Assets $ 20,775 $ 10,481 $12,448 $ (12,662) $ 31,042
=========== ========= ======= ========= =========
Liabilities & Shareholders' Equity
Current liabilities $ 3,133 $ 1,786 $ 507 $ (377) $ 5,049
Long term liabilities 14,119 4,413 8,005 (6,620) 19,917
Shareholders' equity 3,523 4,282 3,936 (5,665) 6,076
----------- --------- ------- --------- ---------
Total Liabilities & Shareholders'
Equity $ 20,775 $ 10,481 $12,448 $ (12,662) $ 31,042
=========== ========= ======= ========= =========
Net sales $ 15,737 $ 9,264 $ $ (1,150) $ 23,851
Cost of sales 10,212 7,474 (1,150) 16,536
----------- --------- ------- --------- ---------
Gross profit $ 5,525 $ 1,790 $ $ $ 7,315
Operating expenses 3,918 1,518 161 5,597
----------- --------- ------- --------- ---------
Income (loss) from operations $ 1,607 $ 272 $ (161) $ $ 1,718
Interest expense 1,069 308 289 1,666
Amortization of debt issuance costs 583 583
Amortization expense 235 235
Other (income) expense (43) 11 1,207 1,175
----------- --------- ------- --------- ---------
Loss before taxes $ (2) $ (282) $(1,657) $ $ (1,941)
Provision for taxes 5 2 9
----------- --------- ------- --------- ---------
Net Loss $ (7) $ (284) $(1,659) $ - $ (1,950)
=========== ========= ======= ========= =========
</TABLE>
All significant intercompany accounts and activity have been eliminated.
F-10
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
p. Change in accounting period
In March 1998, the Group elected to change its reporting year
to a 52-53 week year ending on the Friday of the calendar week (beginning on
Monday and ending on Sunday) which includes the last business day in December,
with each quarter being reported in a similar fashion. Accordingly, this
financial statement includes the balances as of January 1, 1999 and the
activities for the year then ended.
2. Shareholders' equity
FASI has 50,000 shares authorized of its $.001 par value
preferred stock. At January 1, 1999 and December 31, 1997, there were no shares
of preferred stock issued or outstanding.
FASI had the following common shares as of January 1, 1999 and
December 31, 1997:
1999 1997
---- ----
Authorized 5,000,000 5,000,000
Issued and outstanding 2,483,781 2,079,571
Par value $.05 $.05
In February 1995, the Group owed $7,658,000 to McDonnell
Douglas Corporation (MDC). MDC cancelled the debt in exchange for $850,000 plus
586,862 shares of Series A convertible preferred stock of FASC. This constituted
full and complete satisfaction of the MDC debt. The agreement provided for the
mandatory exchange of the Series A preferred stock of FASC for 25% of the total
outstanding common shares of FASI within 10 days following the date the common
shares are approved for quotation on, and is quoted for trading on, the Nasdaq
Stock Market.
FASI's common shares began quotation on the Nasdaq SmallCap
Market on March 26, 1997. On April 4, 1997 the MDC Series A shares were
exchanged by MDC for 564,194 common shares of FASI.
In 1996, FASI sold 317,785 common shares and 158,893 warrants.
Each warrant allows the holder to purchase one common share for $6.25. The net
proceeds were $1,654,000 after deducting costs of $481,000 for underwriting and
issuance.
In 1997, FASI issued 31,574 common shares and 41,128 warrants.
Each warrant allows the holder to purchase one common share for $6.25. FASI
issued another 15,000 common shares in association with the sale of $10,000,000
of subordinated debentures.
The Group has a Loan and Security Agreement for a line of
credit of up to $15,000,000, subject to the collateral balances of accounts
receivable and inventory, with NationsCredit Commercial Funding
("NationsCredit") at an interest rate of prime plus 2%. In connection with the
NationsCredit loan facility, FASI issued to NationsCredit in April 1997 an
option to acquire 40,000 common shares of FASI at a price of $6.25 per share.
F-11
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In September 1997, FASI closed the sale of $10,000,000
principal amount of Subordinated Redeemable Debentures due September 2000 issued
under an Indenture with Etablissement Pour le Placement Prive (EPP) as trustee.
The securities were sold in reliance on Regulation S of the Securities Act of
1933 to entities that represented to FASI to be accredited non-U.S. persons.
The Debenture holders have a one-time right at any time
between December 29, 1997 and September 27, 2000, subject to prior redemption or
repurchase, to convert up to 30% of the principal amount of such holder's
Debentures into common shares at a conversion price equal to 85% of the average
closing price of the common shares during the 20-trading day period ending on
the date of notice of conversion, but in no event less than $12.00 per share. In
the event that during any 20-day trading period, the average closing price of
the common shares equals or exceeds $12.00 per share, FASI may require the
conversion of up to 20% of the principal amount of outstanding Debentures at the
conversion price. Pursuant to this, in November 1997, FASI required the
conversion of $2,000,000 of Debentures in exchange for 166,666 common shares at
$12.00 per share.
The Debentures are redeemable, in whole or in part, at the
option of the Group, at any time on or after March 31, 1999 at 100% of the
principal amount plus accrued interest.
In February 1998, FASI entered into a supplemental Indenture
to the Indenture with EPP as trustee, relating to the 8.5% Subordinated
Redeemable Debentures due 2000. The supplemental Indenture provided that the
Debenture holders have the following additional rights: at any time between
February 20, 1998 and June 30, 1998, each holder could convert 20% of the
original principal amount of such holder's Debentures into common shares at a
conversion price of $9.75 per share; at any time between February 20, 1998 and
September 30, 1998, each holder could convert an additional 20% of the original
principal amount of such holder's Debentures into common shares at a conversion
price of $11.00 per share; at any time between February 20, 1998 and December
31, 1998, each holder could convert an additional 20% of the original principal
amount of such holder's Debentures into common shares at a conversion price of
$13.00 per share.
In February 1998, FASI accepted subscription agreements for
the sale of 210,664 shares of common stock and 52,666 warrants for approximately
$2,055,000. Each warrant allows the holder to purchase one common share for
$13.00. The securities were sold in reliance on Regulation S of the Securities
Act of 1933 to entities that represented to FASI to be accredited non-U.S.
persons.
In April 1998, 48,015 common shares were issued to acquire
Skylock Industries, Inc. In July 1998, warrants were exercised to purchase
12,118 common shares at $6.25 per share. The net proceeds were $72,000 after
deducting costs of $4,000 for underwriting and issuance. In addition, in April
1998, warrants were exercised to purchase 93,413 common shares for $6.25 per
share. The net proceeds were $450,000 after deducting costs of $134,000 for
underwriting and issuance. In August 1998, warrants were exercised to purchase
30,000 common shares at $6.25 per share. The net proceeds were $178,000 after
deducting costs of $9,000 for underwriting and issuance. In October 1998,
warrants were exercised to purchase
F-12
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10,000 common shares at $6.25 per share. The net proceeds exercised were $59,000
after deducting costs of $3,000 for underwriting and issuance.
3. Notes and capital leases payable
Notes and capital leases payable at January 1, 1999 and
December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
1999 1997
---- ----
<S> <C> <C>
Subordinated debentures with fixed interest at 8.50%
per annum, payable semi-annually, due September 2000 $ 8,000,000 $ 8,000,000
Line of credit from NationsCredit, collateralized by all assets of
the Group, interest at prime plus 2.0% (9.75% at
January 1, 1999), payable monthly, due August 2002 11,140,000 7,047,000
Notes and capital leases payable, collateralized by equipment,
monthly payments of $24,652 including interest at rates
ranging from 5.6%, to 16.6%, due through January 2004 1,010,000
Other notes payable 27,000 55,000
------------ ------------
Total notes and capital leases payable $ 20,177,000 $ 15,102,000
Less current portion 260,000 55,000
------------ ------------
Notes and capital leases payable, net of current portion $ 19,917,000 $ 15,047,000
============ ============
</TABLE>
Principal payment requirements on all notes and capital leases
payable based on terms explained above are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
1999 $ 260,000
2000 8,234,000
2001 1,013,000
2002 10,559,000
2003 111,000
Thereafter --
Total interest expense including the amortization of debt
issuance costs for the years ended January 1, 1999 and December 31, 1997 and
1996 amounted to $2,249,000, $1,676,000 and $1,338,000, respectively. Total
interest paid for the years ended January 1, 1999 and December 31, 1997 and 1996
amounted to $1,505,000, $1,048,000 and $1,706,000, respectively.
F-13
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. Other expenses
During the year ended January 1, 1999, the Group recorded
non-recurring expenses of $1,200,000 to reflect the acquisition of a new
facility, relocation costs and the initial expansion of the newly acquired
manufacturing operations. Other expenses, net of other income, for the years
ended January 1, 1999 and December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest expense $ 1,666,000 $ 1,254,000 $ 1,127,000
Amortization of debt issuance costs 583,000 422,000 211,000
Amortization expense 235,000
Other expense 1,200,000
Other income (25,000)
Casualty gain (949,000)
------------ ------------- ------------
Total other expenses $ 3,659,000 $ 1,676,000 $ 389,000
============ ============ ============
</TABLE>
During 1996, the Group reached a final settlement with its
insurance company regarding damages resulting from the January 1994 earthquake.
5. Provision for income taxes
The provision for income taxes for the years ended January 1,
1999 and December 31, 1997 and 1996 consisted of the following:
1999 1997 1996
---- ---- ----
Provision for income
taxes - State $ 9,000 $ 9,000 $ 4,000
======= ======= =======
Income taxes paid in 1998, 1997 and 1996 amounted to $3,000
each year. The Group has net operating loss carryovers available to offset
future federal and California taxable income. The amount and expiration dates of
the carryovers are as follows:
YEAR ENDING
DECEMBER 31, FEDERAL STATE
------------ ------- -----
1999 $ $ 580,000
2000 126,000
2001 110,000
2002 33,000
2003 850,000
2008 942,000
2009 1,161,000
2010 255,000
2011 272,000
2012 69,000
2013 1,703,000
F-14
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. Commitments
The Group leases facilities and vehicles under operating
leases expiring through October 31, 2008 and subleases a facility to a third
party. The minimum lease payments required under the leases as of January 1,
1999 are as follows:
YEAR ENDING OPERATING LEASE OPERATING LEASE
DECEMBER 31, EXPENSE INCOME
------------ ------- ------
1999 $ 984,000 $ 115,000
2000 1,003,000
2001 987,000
2002 913,000
2003 845,000
Thereafter 4,391,000
Lease expense for the years ended January 1, 1999 and December
31, 1997 and 1996 amounted to $651,000, $150,000 and $102,000, respectively.
Lease income for the year ended January 1, 1999 was $157,000.
7. Related party transactions
The Group leases a small overseas office facility on a month
to month basis from an entity owned by certain officers of the Group. Rental
expense on this office facility for the years ended January 1, 1999 and December
31, 1997 and 1996 amounted to $27,000, $26,000 and $19,000, respectively.
During 1998, the Group entered into an agreement to lease a
facility for a three-year period from the former owner of a Company acquired by
the Group. Rental expense on this facility for the year ended January 1, 1999
amounted to $36,000.
8. Share option plans
In November 1995, FASI adopted a Management Stock Option Plan
("Management Plan") an Employee Stock Option Plan ("Employee Plan"). Pursuant to
the Management Plan, FASI has issued options to five individuals involved in the
management of FASI to acquire up to 69,025 common shares of FASI at a purchase
price of $3.00 per share subject to vesting requirements, which includes FASI
obtaining sales during a 12-month period of $7,500,000 and an average closing
price for FASI's common shares for a three month period of $6.00, $9.00 and
$12.00, respectively, for each one-third of the options to vest. The first
one-third of these options vested as of June 1, 1997 and the second one-third
vested as of November 1, 1997. The options must be exercised within three years
of vesting. Pursuant to the Employee Plan, FASI has issued options to acquire
13,500 common shares of FASI to 20 employees of FASI at a purchase price of
$3.00 per share subject to vesting requirements, which include FASI obtaining
sales during a 12-month period of $7,500,000 and at least one year continued
employment after the grant of the option. These options vested as of June 1,
1997 and must be exercised within two years of vesting.
F-15
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In April 1997, FASI issued options to employees of the Group
to acquire up to 100,000 common shares of FASI at an exercise price of $6.25 per
share. Half of the options vested in April 1998 and the remaining half will vest
in April 1999. The options expire in April 2000.
In August 1997, FASI issued options to executives of the Group
to acquire up to 270,000 common shares of FASI at an exercise price of $10.00
per share. The options will vest if the Group meets the following conditions:
the Group must raise at least $7,500,000 in additional debt or equity capital
and the Group must have sales of at least $14,000,000 in any 12-month period
after the grant date. Half of the options vested August 6, 1998 and the other
half will vest August 1999. The conditions must be met by June 30, 1999 and the
options will expire three years after the vesting date.
In August 1997, FASI issued options to employees of the Group
to acquire up to 89,500 common shares of FASI at an exercise price of $8.25 per
share. Half of the options will vest in August 1998 and the remaining half will
vest in August 1999. The options expire in August 2002. The exercise price was
reduced in November 1998 to $6.25 per share with respect to options held by
employees who are not executive officers.
FASI granted share options to certain key employees and
executives on the following dates:
January 1998, Group A: 10,000 common shares at a price of
$8.35 per share. The common shares were cancelled in November 1998. Half of the
options will vest on January 15, 1999 and the remainder will vest on January 14,
2000. The options will expire January 16, 2003 and Group B: 40,000 common shares
at a price of $8.35 per share subject to certain vesting requirements. The
exercise price was reduced to $6.25 per share in November 1998. Subject to
satisfaction of performance conditions, half of the options will vest in January
1999, and the remainder vest in January 2000. Half of the options vested in
January 1999 after the performance conditions were met. The options expire three
years after vesting.
In February 1998, 119,600 common shares at a price of $10.00
per share subject to vesting requirements. Subject to satisfaction of
performance conditions, half of the options will vest in February 1999, and the
remainder will vest in February 2000. Half of the options vested in February
1999. The options expire in February 2003. The exercise price was reduced to
$6.25 per share in November 1998 with respect to options held by employees who
are not executive officers.
In March 1998, 5,000 options of which half vested on March 15,
1999 and the remainder will vest in March 2000, subject to performance
requirements and expire in March 2003.
In November 1998, FASI cancelled options to purchase 108,400
common shares that were held by certain officers and a director. On such date,
options to purchase 55,450 common shares of FASI at $6.25 per share were issued
to certain officers and directors and options for an additional 37,000 common
shares were issued to other employees. In addition, the vesting requirements of
16,408 options held by executive officers pursuant to the Management
F-16
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Plan were modified to replace a condition that the market price remain over
$12.00 per share with a condition that the officer remain employed by the Group
through November 3, 1999.
The Group accounts for share options under the provision of
APB Opinion 25 "Accounting for Stock Issued to Employees". Accordingly, no
compensation cost has been recognized for its share option grants. Had
compensation cost for the Group's share option grants been determined based on
the fair value at the grant dates consistent with the method of SFAS No. 123
"Accounting for Stock-Based Compensation", the Group's net loss and net loss per
share would have been increased to the pro forma amounts indicated below for the
years ended January 1, 1999 and December 31, 1997: 1999 1997 ---- ----
Net loss As reported $ (1,950,000) $ (147,000)
=============== ===============
Pro forma $ (4,199,000) $ (754,000)
=============== ===============
Basic loss per share As reported $ (.82) $ (.08)
=============== ===============
Pro forma $ (1.77) $ (.42)
=============== ===============
Diluted loss per share As reported $ (.51) $ (.06)
=============== ===============
Pro forma $ (1.12) $ (.38)
=============== ===============
The fair value of each option grant was estimated on the date
of the grant using the Black-Scholes option-pricing model with the following
assumptions for the April 1997, August 7, 1997 and August 28, 1997 grants,
respectively: risk-free interest rates of 6.4%, 5.7% and 6.0%; expected lives of
two years for all three grants; and volatility of 78% for all three grants. For
all the 1998 grants, risk-free interest rates ranging from 4.3% to 5.6% were
used, with expected lives of two to four years and volatility ranging from 68%
to 73%.
The fair value of the November 1995 option grant was
determined to be immaterial. Accordingly, the effect of these options on income
is not included in the above pro forma amounts.
9. Contingency
In the event of the death of a Director or Officer of the
Group, the Group is obligated to pay up to 100% of the Director's or Officer's
annual compensation to their beneficiary within the twelve months subsequent to
their death.
10. Acquisitions
In January 1998, the Group completed the acquisition of
Flightways Manufacturing, Inc. (FMI). FMI is a manufacturer of plastic
replacement components for commercial aircraft seats and interiors.
F-17
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Each share of FMI tendered into the offer was exchanged for
cash. The total cost of the acquisition excluding liabilities assumed was
approximately $2,939,156. The acquisition was accounted for as a purchase. The
purchase price was allocated to the assets acquired based on their estimated
fair market values and liabilities assumed. The assets, liabilities and results
of operations for FMI are included with those of the Group as of January 1, 1999
and for the year then ended.
The excess of the purchase price over the net assets acquired
and liabilities assumed of $2,841,000 is being amortized over 15 years.
Amortization of goodwill for the year ended January 1, 1999 amounted to
$185,000.
In April 1998, the Group acquired 100% of the issued and
outstanding shares of Skylock Industries (Skylock) by paying $965,000 in cash,
retiring $101,000 in Skylock debt and issuing 60,019 common shares of FASI. In
April 1998, a portion of the cash amount was paid and 48,015 common shares were
issued at closing. The remainder will be paid in one year, with the cash amount
to be paid and the number of shares to be issued based on Skylock's customer
order volume between April 1998 and April 1999.
The total cost of the acquisition was approximately
$1,556,000. The acquisition was accounted for as a purchase. The purchase price
was allocated to the assets acquired based on their fair market values and
liabilities assumed. The assets, liabilities and results of operations for
Skylock are included with those of the Group as of January 1, 1999 and for the
period from April 1, 1998 through January 1, 1999.
The excess of the purchase price over the net assets acquired
and liabilities assumed of $674,000 is being amortized over 15 years.
Amortization of goodwill for the year ended January 1, 1999 amounted to $33,000.
The summary pro forma results of operations of the Group
combined with FMI as though FMI was acquired as of the beginning of 1997 are as
follows:
Pro forma revenue $ 16,361,000
================
Pro forma net income $ 193,000
================
Pro forma net income per share (basic) $ .09
================
Pro forma net income per share (diluted) $ .08
================
The information required to include Skylock in the pro forma
results of operations for 1997 is not available.
F-18
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. Subsequent Event
In January 1999, FASI closed the sale of $700,000 of 8.5%
Subordinated Convertible Redeemable Debentures due 2001 issued under an
Indenture with EPP as trustee. The Securities were sold in reliance on
Regulation D of the Securities Act of 1933 to entities that represented to FASI
to be accredited investors. The Debentures will mature on December 31, 2001,
unless previously redeemed or repurchased. Interest on the Debentures is payable
semiannually on June 30 and December 31 of each year commencing June 30, 1999.
The Debentures are redeemable, in whole or in part, at the option of the Group,
at any time on or after December 31, 1999, at 100% of the principal amount, plus
accrued interest.
The Debenture holders will have the right at any time after 90
days following the latest date of original issuance of the Debentures through
December 28, 2001, subject to prior redemption or repurchase, to convert
integral multiples of $1,000 of the principal amount of such holder's Debentures
into common shares at a conversion price of $5.50 per common share.
12. Year 2000
The Group recognizes the potential implications of the Year
2000 (Y2K) issue on systems that may contain date-related transactions, data,
embedded chips, etc. The Group is assessing the impact of the Y2K issue on its
operations and is now in the process of renovating or replacing, as necessary,
the computer applications and business processes to provide for continued
services in the new millennium. The Group is also assessing the preparedness of
external entities that interface with the Group. There can be no assurance that
there will not be a material adverse effect on the Group if its actions and/or
those of related third parties fail to address all significant issues in a
timely manner.
The costs of the Group's Y2K compliance efforts are expensed
as incurred and are being funded with cash flows from operations. At this time,
the costs of these efforts are not expected to be material to the Group's
financial position or the results of their operations in any given period.
Time and cost estimates are based on currently available
information. Actual results could differ from those estimated.
13. Other Matters
The Group has recorded year-end adjustments which related
primarily to the activities of the acquired companies. These adjustments which
generally related to activities prior to the fourth quarter of 1998 amounted to
approximately $210,000.
F-19
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. Supplemental disclosures of cash flows information
Noncash investing and financing activities for the year ended
January 1, 1999 consisted of the following:
Acquisition of businesses:
Current assets other than cash $ 2,345,000
Fixed assets 1,395,000
Intangibles and other assets 3,594,000
Liabilities incurred or assumed 2,754,000
Common stock issued 468,000
Debt incurred in connection with fixed
asset acquisitions 904,000
F-20
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Information regarding directors, executive officers, promoters and control
persons of the Company and Management's compliance with Section 16(a) of the
Securities Exchange Act of 1934, as amended, appears under the sections
"Executive Officers", "Election of Directors" and "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" in the Company's Proxy Statement to be
filed within 120 days after January 1, 1999 with the Securities and Exchange
Commission relating to the Company's Annual Meeting of Shareholders and is
incorporated herein by reference thereto.
ITEM 10. EXECUTIVE COMPENSATION
Information regarding the compensation of the Company's executives appears under
the section "Executive Compensation" in the Company's Proxy Statement to be
filed within 120 days after January 1, 1999 with the Securities and Exchange
Commission relating to the Company's Annual Meeting of Shareholders and is
incorporated herein by reference thereto.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding beneficial security ownership of the Company's equity
securities appears under the section "Security Ownership of Certain Beneficial
Owners and Management" in the Company's Proxy Statement to be filed within 120
days after January 1, 1999 with the Securities and Exchange Commission relating
to the Company's Annual Meeting of Shareholders and is incorporated herein by
reference thereto.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Information regarding certain relationships and related transactions appears
under the section "Transactions With Related Parties" in the Company's Proxy
Statement to be filed within 120 days after January 1, 1999 with the Securities
and Exchange Commission relating to the Company's Annual Meeting of Shareholders
and is incorporated herein by reference thereto.
23
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
The following documents are included as exhibits.
Exhibit
SEC No. No. Description
2 2.1 Stock Purchase Agreement by and among the Company and
Sellers listed in Exhibit A to the agreement dated
January 2, 1998 (Incorporated by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K dated
January 16, 1998 (the "January 1998 8-K"))
3 3.1 Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 2.1 to the Company's Registration
Statement on Form 10-SB, filed October 30, 1995 (the
"Form 10-SB") and Exhibit 3.1.3 to the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter
ended June 30, 1997)
3 3.2 Amended and Restated By-laws (Incorporated by
reference to Exhibit 3.2 to Amendment No. 1 to the
Company's Annual Report on Form 10-KSB/A for the
fiscal year ended December 31, 1997 (the "1997
10-KSB/A), filed April 30, 1998)
4 4.1 Form of Warrant Agreement (1996-97 Regulation S
Private Placement) (Incorporated by reference to
Exhibit 4.1 to Amendment No. 1 to the Company's Annual
Report on Form 10-KSB/A for the fiscal year ended
December 31, 1996 (the "1996 10-KSB/A"), filed April
29, 1997)
4 4.2 Form of Option Agreement to NationsCredit Commercial
Funding (Incorporated by reference to Exhibit 4.2 to
the 1996 10-KSB/A)
4 4.3 Indenture for the 8.5% Subordinated Redeemable
Debentures Due 2000, dated as of September 30, 1997,
between the Company and Etablissement Pour le
Placement Prive, as Trustee (the "1997 Indenture").
(Incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated September
30, 1997 (the "September 1997 8-K"))
4 4.4 Form of 8.5% Subordinated Redeemable Debentures Due
2000 (included in Exhibit A to Exhibit 4.3 above)
(Incorporated by reference to Exhibit 4.2 to the
September 1997 8-K)
4 4.5 First Supplemental Indenture, dated February 20, 1998,
to the 1997 Indenture (Incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form
8-K dated February 20, 1998)
4 4.6 Form of Warrant Agreement (1998 Regulation S Private
Placement) (Incorporated by reference to Exhibit 4.6
to the 1997 10-KSB.)
4 4.7 Indenture for the 8.5% Subordinated Convertible
Redeemable Debentures Due 2001, dated as of December
22, 1998, between the Company and EPP Finanz AG, as
trustee (Incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K dated January
18, 1999 (the "January 1999 8-K"))
4 4.8 Form of 8.5% Subordinated Convertible Redeemable
Debentures Due 2001 (Included in Exhibit A to Exhibit
4.7 above)
24
<PAGE>
10 10.1 Debt Restructure Agreement dated February 7, 1995
between McDonnell Douglas Corporation and the
Registrant (Incorporated by reference to Exhibit 6.1
to the Form 10-SB)
10 10.2 Securities Exchange Agreement dated February 7, 1995,
between McDonnell Douglas Corporation and the
Registrant (Incorporated by reference to Exhibit 6.2
to the Form 10-SB)
10 10.3 1995 Management Stock Option Plan (Incorporated by
reference to Exhibit 6.5 to Form 10-SB/A)
10 10.4 1995 Employee Stock Option Plan (Incorporated by
reference to Exhibit 6.6 to Form 10-SB/A)
10 10.5 Loan Agreement between Fields Aircraft Spares
Incorporated and NationsCredit Commercial Funding,
dated April 18, 1997 (Incorporated by reference to
Exhibit 10.14 to 1996 Form 10-KSB/A)
10 10.6 Loan Agreement between Fields Aero Management, Inc.
and NationsCredit Commercial Funding, dated April 18,
1997 (Incorporated by reference to Exhibit 10.15 to
1996 Form 10- KSB/A)
10 10.7 Covenant not to Compete dated as of January 2, 1998,
by and among the Company, Flightways Manufacturing,
Inc. and Yung Ford (Incorporated by reference to
Exhibit 10.1 to January 1998 8-K)
10 10.8 Covenant not to Compete dated as of January 2, 1998,
by and among the Company, Flightways Manufacturing,
Inc. and Frank Scalise (Incorporated by reference to
Exhibit 10.2 to January 1998 8-K)
10 10.9 Covenant not to Compete dated as of January 2, 1998,
by and among the Company, Flightways Manufacturing,
Inc. and Christian J. Luhnow (Incorporated by
reference to Exhibit 10.3 to January 1998 8-K)
10 10.10 Form of Share Option Contract dated April 2, 1997
10 10.11 Form of Share Option Contract dated August 7, 1997
10 10.12 1997 Omnibus Stock Option Plan (Incorporated by
reference to Exhibit B to the Company's Definitive
Proxy Statement for the August 7, 1997 Annual Meeting,
filed June 26, 1997)
10 10.13 Form of Share Option Contract issued pursuant to 1997
Omnibus Stock Option Plan (Incorporated by reference
to Exhibit 10.23 of 1997 10-KSB/A)
10 10.14 Form of Share Option Contract dated January 16, 1998
(Incorporated by reference to Exhibit 10.24 of 1997
10-KSB/A)
10 10.15 1998 Nonqualified Share Option Plan (Incorporated by
reference to Exhibit 10.25 of 1997 10-KSB/A)
10 10.16 Form of Share Option Contract issued pursuant to 1998
Nonqualified Share Option Plan (Incorporated by
reference to Exhibit 10.26 of 1997 10-KSB/A)
25
<PAGE>
10 10.17 Employment Agreement dated as of January 1, 1998 by
and among the Company, Fields Aircraft Spares
Incorporated, Fields Aero Management, Inc. and Peter
Frohlich (Incorporated by reference to Exhibit 10.27
of 1997 10-KSB/A)
10 10.18 Employment Agreement dated as of January 1, 1998 by
and among the Company, Fields Aircraft Spares
Incorporated, Fields Aero Management, Inc. and Alan M.
Fields (Incorporated by reference to Exhibit 10.28 of
1997 10-KSB/A)
10 10.19 Employment Agreement dated as of January 1, 1998 by
and among the Company, Fields Aircraft Spares
Incorporated, Fields Aero Management, Inc. and
Lawrence J. Troyna (Incorporated by reference to
Exhibit 10.29 of 1997 10-KSB/A)
10 10.20 Sublease, dated for reference purposes April 28, 1998,
between Sunrise Medical HHG Inc., a California
corporation, as Sublandlord and Fields Aircraft
Spares, Incorporated, a California corporation, as
Subtenant, including Consent of Master Landlord and
First Amendment to Sublease, and Master Lease, dated
for reference purposes only, September 15, 1992, by
and between La Canada Flintridge Development
Corporation, LCF Income Group, Jerve M. Jones and
Peppertree Corporate Business Park, Ltd., as landlord,
and Guardian Products, Inc., as tenant, as amended by
First Amendment to Lease dated March 31, 1993.
Exhibits referred to in the Master Lease are omitted.
The Company agrees to furnish supplementally a copy of
any such Exhibit to the Commission upon request.
(Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on 10-QSB for the quarter
ended October 2, 1998 (the "1998 3Q 10-QSB") filed
November 16, 1998.))
10 10.21 Guaranty of Sublease, made and effective as of April
28, 1998, by Fields Aircraft Spares, Inc., a Utah
corporation, in favor of Sunrise Medical HHG Inc., a
California corporation. (Incorporated by reference to
Exhibit 10.2 to the Company's 1998 3Q 10-QSB)
10 10.22 Consulting Agreement made and entered into as of
September 3, 1998 between Fields Aircraft Spares, Inc.
and Christian J. Luhnow
10 10.23 First Amendment to Loan and Security Agreement dated
September ____, 1997 between Fields Aircraft Spares
Incorporated and NationsCredit Commercial Funding
Division
10 10.24 First Amendment to Loan and Security Agreement dated
April 29, 1998 between Fields Aero Management, Inc.
and NationsCredit Commercial Funding Division
10 10.25 Second Amendment to Loan and Security Agreement dated
April 29, 1998 between Fields Aircraft Spares
Incorporated and NationsCredit Commercial Funding
Division
10 10.26 Loan and Security Agreement dated April 29, 1998
between Flightways Manufacturing, Inc. and
NationsCredit Commercial Corporation
26
<PAGE>
10 10.27 Second Amendment to Loan and Security Agreement dated
September 14, 1998 between Fields Aero Management,
Inc. and NationsCredit Commercial Funding Division
10 10.28 Third Amendment to Loan and Security Agreement dated
September 14, 1998 between Fields Aircraft Spares
Incorporated and NationsCredit Commercial Funding
Division
10 10.29 First Amendment to Loan and Security Agreement dated
September 14, 1998 between Flightways Manufacturing,
Inc. and NationsCredit Commercial Funding Division
11 11.1 Statement re: Computation of Per Share Earnings
21 21.1 Subsidiaries of Registrant
27 27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
27
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: April 15, 1999
FIELDS AIRCRAFT SPARES, INC.
By /s/ Alan M. Fields
------------------
Alan M. Fields
President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Company and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Alan M. Fields President, Director and April 15, 1999
- ------------------------------- Principal Executive Officer
Alan M. Fields
/s/ Peter Frohlich Chairman, Director, April 15, 1999
- ------------------------------- Principal Financial Officer
Peter Frohlich and Principal Accounting
Officer
/s/ Leonard I. Fields Director April 15, 1999
- -------------------------------
Leonard I. Fields
/s/ Rt. Hon. Sir Jeremy Hanley Director April 15, 1999
- -------------------------------
Rt. Hon. Sir Jeremy Hanley
/s/ Mary L. Sprouse Director April 15, 1999
- -------------------------------
Mary L. Sprouse
/s/ Lawrence J. Troyna Director April 15, 1999
- -------------------------------
Lawrence J. Troyna
28
FIELDS AIRCRAFT SPARES, INC.
Issuer
AND
EPP FINANZ AG
Trustee
INDENTURE
Dated as of December 22, 1998
8.5% Subordinated Convertible Redeemable Debentures Due 2001
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
Section 1.1 Definitions............................................... 1
Section 1.2 Rules of Construction..................................... 6
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF DEBENTURES
Section 2.1 Designation, Amount and Issue of Debentures............... 6
Section 2.2 Form of Debentures........................................ 6
Section 2.3 Date and Denomination of Debentures;
Payments of Interest...................................... 7
Section 2.4 Execution of Debentures................................... 7
Section 2.5 Exchange and Registration of Transfer of
Debentures; Restrictions on Transfer...................... 8
Section 2.6 Mutilated, Destroyed, Lost or Stolen Debentures.......... 12
Section 2.7 Temporary Debentures..................................... 13
Section 2.8 Cancellation of Debentures Paid, Etc..................... 13
Section 2.9 CUSIP Numbers............................................ 13
ARTICLE III
REDEMPTION AND REPURCHASE OF DEBENTURES
Section 3.1 Redemption Prices........................................ 14
Section 3.2 Notice of Redemption; Selection of Debentures............ 14
Section 3.3 Payment of Debentures Called for Redemption.............. 15
ARTICLE IV
PARTICULAR COVENANTS OF THE COMPANY
Section 4.1 Payment of Principal and Interest........................ 16
Section 4.2 Maintenance of Office or Agency.......................... 16
Section 4.3 Appointments to Fill Vacancies in Trustee's Office....... 17
Section 4.4 Provisions as to Paying Agent............................ 17
i
<PAGE>
Section 4.5 Corporate Existence...................................... 18
Section 4.6 Stay, Extension and Usury Laws........................... 18
ARTICLE V
DEBENTUREHOLDERS' LISTS
Section 5.1 Debentureholders' Lists.................................. 18
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.1 Events of Default........................................ 19
Section 6.2 Payments of Debentures on Default; Suit Therefor......... 21
Section 6.3 Application of Monies Collected by Trustee............... 22
Section 6.4 Proceedings by Debentureholder........................... 23
Section 6.5 Proceedings by Trustee................................... 24
Section 6.6 Remedies Cumulative and Continuing....................... 24
Section 6.7 Direction of Proceedings and Waiver of Defaults
by Majority of Debentureholders.......................... 24
Section 6.8 Notice of Defaults....................................... 25
Section 6.9 Undertaking to Pay Costs................................. 25
ARTICLE VII
CONCERNING THE TRUSTEE
Section 7.1 Duties and Responsibilities of Trustee................... 25
Section 7.2 Reliance on Documents, Opinions, Etc..................... 26
Section 7.3 No Responsibility for Recitals, Etc...................... 27
Section 7.4 Trustee, Paying Agents, Conversion Agents or
Registrar May Own Debentures............................. 28
Section 7.5 Monies to Be Held in Trust............................... 28
Section 7.6 Compensation and Expenses of Trustee..................... 28
Section 7.7 Officers' Certificate as Evidence........................ 28
Section 7.8 Resignation or Removal of Trustee........................ 29
Section 7.9 Acceptance by Successor Trustee.......................... 30
Section 7.10 Successor by Merger, Etc................................. 30
ARTICLE VIII
CONCERNING THE DEBENTUREHOLDERS
Section 8.1 Action by Debentureholders............................... 30
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Section 8.2 Proof of Execution by Debentureholders................... 31
Section 8.3 Who Are Deemed Absolute Owners........................... 31
Section 8.4 Company-Owned Debentures Disregarded..................... 31
Section 8.5 Revocation of Consents, Future Holders Bound............. 32
ARTICLE IX
DEBENTUREHOLDERS' MEETINGS
Section 9.1 Purposes for Which Meetings May be Called................ 32
Section 9.2 Manner of Calling Meetings; Record Date.................. 33
Section 9.3 Call of Meeting by Company or Debentureholders........... 33
Section 9.4 Who May Attend and Vote at Meetings...................... 33
Section 9.5 Manner of Voting at Meetings and Record to be Kept....... 33
Section 9.6 Exercise of Rights of Trustee and Debentureholders
Not To Be Hindered or Delayed............................ 34
ARTICLE X
SUPPLEMENTAL INDENTURES
Section 10.1 Supplemental Indentures Without Consent of
Debentureholders......................................... 34
Section 10.2 Supplemental Indentures With Consent of
Debentureholders......................................... 35
Section 10.3 Effect of Supplemental Indentures........................ 36
Section 10.4 Notation on Debentures................................... 36
Section 10.5 Evidence of Compliance of Supplemental Indenture to Be
Furnished to the Trustee................................. 36
ARTICLE XI
CONSOLIDATION, MERGER, SALE, CONVEYANCE,
TRANSFER AND LEASE
Section 11.1 Company May Consolidate, Etc. on Certain Terms........... 37
Section 11.2 Successor Company To Be Substituted...................... 37
Section 11.3 Opinion of Counsel To Be Given to Trustee................ 37
ARTICLE XII
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
Section 12.1 Termination of Obligations upon Cancellation of
the Debentures........................................... 37
Section 12.2 Survival of Certain Obligations.......................... 38
Section 12.3 Acknowledgment of Discharge by Trustee................... 38
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Section 12.4 Application of Trust Assets.............................. 38
Section 12.5 Repayment to the Company; Unclaimed Money................ 39
Section 12.6 Reinstatement............................................ 39
ARTICLE XIII
IMMUNITY OF INCORPORATORS, SHAREHOLDERS,
OFFICERS AND DIRECTORS
Section 13.1 Indenture and Debentures Solely Corporate Obligations.... 39
ARTICLE XIV
CONVERSION OF DEBENTURES
Section 14.1 Right to Convert......................................... 40
Section 14.2 Exercise of Conversion Privilege; Issuance of Common
Stock on Conversion; No Adjustment for Interest
or Dividends............................................. 40
Section 14.3 Cash Payments in Lieu of Fractional Shares............... 42
Section 14.4 Conversion Price......................................... 42
Section 14.5 Adjustment of Conversion Price........................... 42
Section 14.6 Effect of Reclassification, Consolidation, Merger
or Sale.................................................. 44
Section 14.7 Taxes on Shares Issued................................... 45
Section 14.8 Reservation of Shares; Shares to Be Fully Paid........... 45
Section 14.9 Responsibility of Trustee................................ 45
Section 14.10 Notice to Holders Prior to Certain Actions............... 46
ARTICLE XV
SUBORDINATION
Section 15.1 Agreement to Subordinate................................. 46
Section 15.2 Certain Definitions...................................... 47
Section 15.3 Liquidation; Dissolution; Bankruptcy..................... 48
Section 15.4 Default on Senior Indebtedness........................... 48
Section 15.5 When Distribution Must Be Paid Over...................... 48
Section 15.6 Notice by Company........................................ 49
Section 15.7 Subrogation.............................................. 49
Section 15.8 Relative Rights.......................................... 49
Section 15.9 Subordination May Not Be Impaired by Company............. 50
Section 15.10 Distribution or Notice to Representative................. 50
Section 15.11 Rights of Trustee and Paying Agent....................... 50
Section 15.12 Authorization to Effect Subordination.................... 51
Section 15.13 Conversions Not Deemed Payment........................... 51
Section 15.14 Amendments............................................... 51
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ARTICLE XVI
MISCELLANEOUS PROVISIONS
Section 16.1 Provisions Binding on Company's Successors............... 51
Section 16.2 Official Acts by Successor Company....................... 52
Section 16.3 Addresses for Notices, Etc............................... 52
Section 16.4 Governing Law............................................ 52
Section 16.5 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee.................................. 52
Section 16.6 Legal Holidays........................................... 53
Section 16.7 Benefits of Indenture.................................... 53
Section 16.8 Table of Contents, Headings Etc.......................... 53
Section 16.9 Authenticating Agent..................................... 53
Section 16.10 Execution in Counterparts................................ 54
EXHIBIT A - Form of Debenture ..............................................A-1
EXHIBIT B - Form of Transferee Certificate for Debentures to be Issued to
Accredited Investors......................................B-1
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INDENTURE, dated as of December 22, 1998, by and between
FIELDS AIRCRAFT SPARES, INC., a Utah corporation (the "Company"), and EPP FINANZ
AG (the "Trustee"), a Lichtenstein corporation.
W I T N E S S E T H :
WHEREAS, for its lawful corporate purposes, the Company has
duly authorized the issuance of its 8.5% Subordinated Convertible Redeemable
Debentures Due 2001 (the "Debentures"), in an aggregate principal amount not to
exceed US $2,000,000 and, to provide the terms and conditions upon which the
Debentures are to be authenticated, issued and delivered, the Company has duly
authorized the execution and delivery of this Indenture; and
WHEREAS, the Debentures, the certificate of authentication to
be borne by the Debentures, a form of assignment, a form of conversion notice
and a certificate of transfer to be borne by the Debentures are to be
substantially in the forms hereinafter provided for; and
WHEREAS, all acts and things necessary to make the Debentures,
when executed by the Company and authenticated and delivered by the Trustee or a
duly authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute these presents a
valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issuance hereunder of the Debentures have in
all respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which
the Debentures are, and are to be, authenticated, issued and delivered, and in
consideration of the premises and of the purchase and acceptance of the
Debentures by the holders thereof, the Company covenants and agrees with the
Trustee for the equal and proportionate benefit of the respective holders from
time to time of the Debentures (except as otherwise provided below) as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The terms defined in this Section 1.1
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section 1.1. All
other terms used in this Indenture that are by reference defined in the
Securities Act (as hereinafter defined), except as herein otherwise expressly
provided for or
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unless the context otherwise requires, shall have the meanings assigned to such
terms in said Securities Act as in force on the date of this Indenture. The
words "herein," "hereof," "hereunder" and words of similar import refer to this
Indenture as a whole and not to any particular Article or Section.
Accredited Investor: The term "Accredited Investor" shall have
the meaning specified in Rule 501(a) under the Securities Act.
Affiliate: An "Affiliate" of any specified person shall mean
an "affiliate" as defined in Rule 144(a) as promulgated under the Securities
Act.
Board of Directors: The term "Board of Directors" shall mean
the Board of Directors of the Company or a committee of such Board of Directors
duly authorized to act for it.
Board Resolution: The term "Board Resolution" shall mean 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.
Business Day: The term "Business Day" shall mean a day, other
than a Saturday, a Sunday or a day on which the banking institutions in
Switzerland are authorized or obligated by law or executive order to close or a
day that is declared a United States or Swiss holiday.
Capital Stock: The term "Capital Stock" of any person shall
mean any and all shares, interests, participations or other equivalents (however
designated) of such person's corporate stock or any and all equivalent ownership
interests in a person (other than a corporation) whether now outstanding or
issued after the date hereof.
Commission: The term "Commission" shall mean the Securities
and Exchange Commission, as from time to time constituted, created under the
Exchange Act.
Common Stock: The term "Common Stock" shall mean any stock of
any class of the Company that does not have a preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and that is not subject to redemption
by the Company. Subject to the provisions of Section 14.6, however, shares
issuable on conversion of Debentures shall include only shares of the class
designated as common stock of the Company at the date of this Indenture or
shares of any class or classes resulting from any reclassification or
reclassifications thereof and that do not have a preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company and that are not subject
to redemption by the Company; provided that if at any time there shall be more
than one such resulting class, the shares of each such class then so issuable
shall be substantially in the proportion that the total number of shares of such
class resulting from all such reclassification bears to the total number of
shares of all such classes resulting from all such reclassifications.
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Company: The term "Company" shall mean Fields Aircraft Spares,
Inc. a Utah corporation, and subject to the provisions of Article XI, shall
include its successors and assigns.
Conversion Price: The term "Conversion Price" shall have the
meaning specified in Section 14.4.
Corporate Trust Office of the Trustee: The term "Corporate
Trust Office of the Trustee," or other similar term, shall mean the office of
the Trustee at which at any particular time its corporate trust business shall
be principally administered, which office is, at the date as of which this
Indenture is dated, located at Gartenstrasse 10, CH-8002, Zurich, Switzerland,
Attention: Dr. Dieter Wicki at which office it is authorized to receive notices
hereunder.
Debenture or Debentures: The terms "Debenture" or "Debentures"
shall mean any one or more, as the case may be, of the 8.5% Subordinated
Convertible Redeemable Debentures Due 2001 authenticated and delivered under
this Indenture.
Debentureholder; holder: The terms "Debentureholder" or
"holder" as applied to any Debenture, or other similar terms (but excluding the
term "beneficial holder"), shall mean any person in whose name at the time a
particular Debenture is registered on the Debenture registrar's books.
Debenture register: The term "Debenture register" shall have
the meaning specified in Section 2.5(a).
Debenture registrar: The term "Debenture registrar" shall have
the meaning specified in Section 2.5(a).
default: The term "default" shall mean any event that is, or
after notice or passage of time, or both, would be, an Event of Default.
Event of Default: The term "Event of Default" shall mean any
event specified in Section 6.1(a) through (e).
Exchange Act: The term "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
Indenture: The term "Indenture" shall mean this instrument as
originally executed or, if amended or supplemented as herein provided, as so
amended or supplemented.
Interest Payment Date: The term "Interest Payment Date" shall
mean each June 30 and December 31, beginning June 30, 1999.
Nonpayment Default: The term "Nonpayment Default" shall have
the meaning specified in Section 15.4(b).
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Officers' Certificate: The term "Officers' Certificate," when
used with respect to the Company, shall mean a certificate signed by two
authorized officers which shall include (a) any of the Chairman, President, the
Chief Executive Officer or the Chief Financial Officer and (b) any Treasurer or
Secretary or any Assistant Secretary of the Company, that is delivered to the
Trustee. Each such certificate shall include the statements provided for in
Section 16.5 if and to the extent required by the provisions of such Section.
Opinion of Counsel: The term "Opinion of Counsel" shall mean
an opinion in writing signed by legal counsel, who may be an employee of or
counsel to the Company or other counsel acceptable to the Trustee, that is
delivered to the Trustee. Each such opinion shall include the statements
provided for in Section 16.5 if and to the extent required by the provisions of
such Section.
Outstanding: The term "outstanding" with reference to
Debentures as of any particular time shall mean, subject to the provisions of
Section 8.4, all Debentures authenticated and delivered by the Trustee under
this Indenture, except
(a) Debentures theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Debentures, or portions thereof, for which monies in the
necessary amount shall have been deposited in trust with the Trustee
for payment, redemption or repurchase; provided that if such Debentures
are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been given pursuant to Article III or provision
satisfactory to the Trustee shall have been made for giving such
notice;
(c) Debentures paid or converted pursuant to Section 2.6
hereof or Debentures in lieu of or in substitution for which other
Debentures shall have been authenticated and delivered pursuant to the
terms of Section 2.6 unless proof satisfactory to the Trustee is
presented that any such Debentures are held by bona fide holders in due
course; and
(d) Debentures converted into Common Stock or cash pursuant to
Article XIV and Debentures not deemed outstanding pursuant to Section
3.2.
Paying Agent: The term Paying Agent shall mean any person
authorized by the Company to pay the principal of or interest on any Debentures
on behalf of the Company, which term may include the Company.
Payment Default: The term "Payment Default" shall have the
meaning specified in Section 15.4(a).
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person: The term "person" shall mean a corporation, an
association, a partnership, an individual, a joint venture, a joint stock
company, a trust, an unincorporated organization or a government or an agency or
a political subdivision thereof.
Predecessor Debenture: The term "Predecessor Debenture" of any
particular Debenture shall mean 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 2.6 in lieu of a lost, destroyed or stolen Debenture shall be
deemed to evidence the same debt as the lost, destroyed or stolen Debenture.
record date: The term "record date" with respect to any
interest payment date shall have the meaning set forth in Section 2.3 hereof.
Regulation D: The term "Regulation D" shall mean Regulation D
under the Securities Act and any successor regulation thereto.
Responsible Officer: The term "Responsible Officer" with
respect to the Trustee, shall mean an officer of the Trustee assigned and duly
authorized by the Trustee to administer its corporate trust matters.
Restricted Securities: The term "Restricted Securities" shall
have the meaning specified in Section 2.5(b).
Securities Act: The term "Securities Act" shall mean the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
Subsidiary: The term "Subsidiary" of any specified person
shall mean (i) a corporation a majority of whose capital stock with voting power
under ordinary circumstances to elect directors is at the time directly or
indirectly owned by such person or (ii) any other person (other than a
corporation) in which such person or such person and a Subsidiary or
Subsidiaries of such person or a Subsidiary or Subsidiaries of such person
directly or indirectly, at the date of determination thereof, has at least
majority ownership.
Successor Company: The term "Successor Company" shall have the
meaning specified in Section 11.1.
Trading Day: The term "Trading Day" shall mean (x) if the
applicable security is quoted on the Nasdaq SmallCap Market, a day on which
trades may be made thereon or (y) if the applicable security is not so listed,
admitted for trading or quoted, any day other than a Saturday or Sunday or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
Transfer: The term "transfer" shall have the meaning specified
in Section 2.5(c).
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Trustee: The term "Trustee" shall mean EPP Finanz AG its
successors and any corporation resulting from or surviving any consolidation or
merger to which it or its successors may be a party and any successor trustee at
the time serving as successor trustee hereunder.
Section 1.2 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF DEBENTURES
Section 2.1 Designation, Amount and Issue of Debentures. The
Debentures shall be designated as "8.5% Subordinated Convertible Redeemable
Debentures Due 2001." Debentures not to exceed the aggregate principal amount of
US $2,000,000 upon the execution of this Indenture, or from time to time
thereafter, may be executed by the Company and delivered to the Trustee for
authentication, and the Trustee shall thereupon authenticate and make available
for delivery said Debentures upon the written order of the Company, signed by
its (a) Chairman, Chief Executive Officer, President or Chief Financial Officer,
and (b) any Treasurer or Secretary or any Assistant Secretary, without any
further action by the Company hereunder.
Section 2.2 Form of Debentures. The Debentures will be offered
and sold to persons who are Accredited Investors in reliance on Regulation D
substantially in the form of Exhibit A hereto, with the legends in substantially
the form set forth in Exhibit A hereto and such other legends as may be
applicable thereto. Such Debentures shall constitute "restricted securities" as
defined in Regulation D and Rule 144 promulgated and the Securities Act.
Any of the Debentures may have such letters, numbers or other
marks of identification and such notations, legends and endorsements as the
Company officers executing the same may approve (execution thereof to be
conclusive evidence of such approval) and as are
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not inconsistent with the provisions of this Indenture, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which the Debentures may be
listed, or to conform to usage.
The terms and provisions contained in the form of Debenture
attached as Exhibit A hereto shall constitute, and are hereby expressly made, a
part of this Indenture and to the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
Section 2.3 Date and Denomination of Debentures; Payments of
Interest. The Debentures shall be issuable in registered form only without
coupons in denominations of $1,000 principal amount and integral multiples
thereof. Every Debenture shall be dated the date of its authentication, shall
bear interest from the original issue date of such Debenture and interest shall
be payable semiannually on each June 30 and December 31 commencing June 30,
1999, as specified on the face of the form of Debenture, attached as Exhibit A
hereto.
The person in whose name any Debenture (or its Predecessor
Debenture) is registered at the close of business on any record date with
respect to any interest payment date (including any Debenture that is converted
after the record date and on or before the interest payment date) shall be
entitled to receive the interest payable on such interest payment date
notwithstanding the cancellation of such Debenture upon any transfer, exchange
or conversion subsequent to the record date and prior to such interest payment
date. Interest may, at the option of the Company, be paid by check mailed to the
address of such person as it appears on the Debenture register. The term "record
date" with respect to any interest payment date shall mean the June 15 or
December 15 preceding said June 30 or December 31.
Interest on the Debentures shall be computed on the basis of a
360-day year composed of twelve 30-day months.
Section 2.4 Execution of Debentures. The Debentures shall be
signed in the name and on behalf of the Company by the signature of its
Chairman, Chief Executive Officer, President or Chief Financial Officer and
attested by the signature of its Treasurer, Secretary or any of its Assistant
Secretaries (any of which signatures may be printed, engraved or otherwise
reproduced thereon, by facsimile or otherwise). Only such Debentures as shall
bear thereon a certificate of authentication substantially in the form set forth
on the form of Debenture attached as Exhibit A hereto, manually executed by the
Trustee (or an authenticating agent appointed by the Trustee as provided by
Section 16.9), shall be entitled to the benefits of this Indenture or be valid
or obligatory for any purpose. Such certificate by the Trustee (or such an
authenticating agent) upon any Debenture executed by the Company shall be
conclusive evidence that the Debenture so authenticated has been duly
authenticated and delivered hereunder and that the holder is entitled to the
benefits of this Indenture.
In case any officer of the Company who shall have signed any
of the Debentures shall cease to be such officer before the Debentures so signed
shall have been authenticated and delivered by the Trustee, or disposed of by
the Company, such Debentures nevertheless may be
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authenticated and delivered or disposed of as though the person who signed such
Debentures had not ceased to be such officer of the Company; and any Debenture
may be signed on behalf of the Company by such persons as, at the actual date of
the execution of such Debenture, shall be the proper officers of the Company,
although at the date of the execution of this Indenture any such person was not
such an officer.
Section 2.5 Exchange and Registration of Transfer of
Debentures; Restrictions on Transfer.
(a) The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency of the Company designated pursuant to Section 4.2
being herein sometimes collectively 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 of transfers of Debentures.
Such Debenture register shall be in written form or in any form capable of being
converted into written form within a reasonable period of time. The Trustee is
hereby appointed "Debenture registrar" for the purpose of registering Debentures
and transfers of Debentures as herein provided. The Company may appoint one or
more co-registrars.
Upon surrender for registration of transfer of any Debenture
to the Debenture registrar or any co-registrar and satisfaction of the
requirements for such transfer set forth in this Section 2.5, the Company shall
execute, and the Trustee shall authenticate and make available for delivery, in
the name of the designated transferee or transferees, one or more new Debentures
of any authorized denominations and of a like aggregate principal amount and
bearing such legends as may be required by Section 2.5(b).
Debentures may be exchanged for other Debentures of any
authorized denominations and of a like aggregate principal amount, upon
surrender of the Debentures to be exchanged at any such office or agency.
Whenever any Debentures are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and make available for delivery, the
Debentures that the Debentureholder making the exchange is entitled to receive
bearing certificate numbers not contemporaneously outstanding.
All Debentures presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company, the Trustee, the
Debenture registrar or any co-registrar) be duly endorsed, or be accompanied by
a written instrument of transfer in form satisfactory to the Company, executed
by the Debentureholder thereof or his attorney duly authorized in writing.
A reasonable service charge shall be charged to the
Debentureholder for any exchange or registration of transfer of Debentures, and
the Company may require payment of a sum sufficient to cover any tax,
assessments or other governmental charges that may be imposed in connection
therewith.
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None of the Company, the Trustee, the Debenture registrar or
any co-registrar shall be required to exchange or register a transfer of (a) any
Debentures for a period of 15 days next preceding the mailing of a notice of
redemption, (b) any Debentures called for redemption or, if a portion of any
Debenture is selected or called for redemption, such portion thereof selected or
called for redemption, (c) any Debentures surrendered for conversion or, if a
portion of any Debenture is surrendered for conversion, such portion thereof
surrendered for conversion.
All Debentures issued upon any 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. All Debentures, the
transfer, exchange and/or registration of which is effectuated by the Trustee
pursuant to this Section 2.5, shall be accompanied by an Officers' Certificate
of the Company, executed by a Responsible Officer thereof, certifying that such
transfer, exchange and/or registration is authorized by the Company and
permitted hereunder.
(b) Every Debenture that bears or is required under this
Section 2.5(b) to bear the legend set forth in this Section 2.5(b) (together
with any Common Stock issued upon conversion of the Debenture and required to
bear the legend set forth in Section 2.5(c), collectively, the "Restricted
Securities") shall be subject to the restrictions on transfer set forth in this
Section 2.5(b), unless such restrictions on transfer shall have been waived by
the written consent of the Company or removed in accordance with the provisions
of Section 2.5(d), and the holder of each such Restricted Security, by such
holder's acceptance thereof, agrees to be bound by such restrictions on
transfer. As used in this Section 2.5(b), the term "transfer" encompasses any
sale, pledge, transfer or other disposition of any Restricted Security.
Any certificate evidencing any Debenture (and all securities
issued in exchange therefor or substitution thereof, other than Common Stock, if
any, issued upon conversion thereof, which shall bear the legend set forth in
Section 2.5(c), if applicable) shall bear a legend in substantially the
following form, unless otherwise agreed by the Company (with notice thereof to
the Trustee):
THE DEBENTURE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a) UNDER THE SECURITIES ACT) ("ACCREDITED INVESTOR") AND (B) IT IS
ACQUIRING THE DEBENTURE EVIDENCED HEREBY FOR INVESTMENT PURPOSES ONLY
AND NOT WITH A VIEW TOWARDS DISTRIBUTION; (2) AGREES THAT IT WILL NOT
RESELL OR OTHERWISE TRANSFER THE DEBENTURE EVIDENCED HEREBY OR THE
COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH DEBENTURE EXCEPT (A) TO
THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN
ACCREDITED INVESTOR THAT,
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PRIOR TO SUCH TRANSFER, FURNISHES TO EPP FINANZ AG AS TRUSTEE, A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THE DEBENTURE EVIDENCED HEREBY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (E) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT;
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE
DEBENTURE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE DEBENTURE
EVIDENCED HEREBY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH
ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO EPP FINANZ AG, AS TRUSTEE. IF THE PROPOSED
TRANSFER IS PURSUANT TO CLAUSE (C) OR (D) ABOVE, THE HOLDER MUST, PRIOR
TO SUCH TRANSFER, FURNISH TO EPP FINANZ AG, AS TRUSTEE, SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
Any Debenture (or security issued in exchange or substitution
therefor) as to which such restrictions on transfer shall have expired in
accordance with their terms may, upon satisfaction of the requirements of
Section 2.5(d) and surrender of such Debenture for exchange to the Debenture
registrar in accordance with the provisions of this Section 2.5, be exchanged
for a new Debenture or Debentures, of like tenor and aggregate principal amount,
which shall not bear the restrictive legend required by this Section 2.5(b).
(c) Any stock certificate representing Common Stock issued
upon conversion of any Debenture shall bear a legend in substantially the
following form, unless otherwise agreed by the Company (with written notice
thereof to the Trustee and any transfer agent for the Common Stock):
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD EXCEPT AS SET
FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT (1) IT
WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) TO AN "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT) THAT
PRIOR TO SUCH
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TRANSFER, FURNISHES TO THE COMPANY'S TRANSFER AGENT FOR ITS COMMON
STOCK, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE COMMON STOCK
EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH
TRANSFER AGENT), (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT; (2) PRIOR TO ANY SUCH TRANSFER PURSUANT TO
CLAUSE (C) OR (D) ABOVE, IT WILL FURNISH TO THE COMPANY'S TRANSFER
AGENT FOR COMMON STOCK, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE
COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE
SATISFACTION OF THE TRANSFER AGENT THAT THE COMMON STOCK EVIDENCED
HEREBY HAS BEEN OR IS BEING OFFERED AND SOLD PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR IN ACCORDANCE WITH RULE 144 UNDER THE
SECURITIES ACT.
Any such Common Stock as to which such restrictions on
transfer shall have expired in accordance with their terms may, upon
satisfaction of the requirements of Section 2.5(d) and surrender of the
certificates representing such shares of Common Stock for exchange in accordance
with the procedures of the transfer agent for the Common Stock, be exchanged for
a new certificate or certificates for a like aggregate number of shares of
Common Stock, which shall not bear the restrictive legend required by this
Section 2.5(c).
(d) Upon any sale or transfer of any Restricted Security (i)
that is effected pursuant to an effective registration statement under the
Securities Act, (ii) that is effected pursuant to Rule 144 as promulgated under
the Securities Act as determined by counsel to the Company or (iii) in
connection with which the Trustee (or transfer agent for the Common Stock, in
the case of shares of Common Stock) receives certificates and other information
(including an opinion of counsel, if requested) reasonably acceptable to the
Company to the effect that such security shall no longer be subject to the
resale restrictions under federal and state securities laws, then the Debenture
registrar or co-registrar (or transfer agent, in the case of Common Stock) shall
permit the holder thereof to exchange such Restricted Security for a security
that does not bear the legends set forth in Section 2.5(b) or 2.5(c), as
applicable, and shall rescind any such restrictions on transfer.
(e) Each holder or former holder of a Debenture agrees to
indemnify the Company and the Trustee against any liability that may result from
the transfer, exchange or
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assignment of such holder's or former holder's Debenture in violation of any
provision of this Indenture and/or applicable U.S. federal or state securities
law.
Section 2.6 Mutilated, Destroyed, Lost or Stolen Debentures.
In case any Debenture shall become mutilated or be destroyed, lost or stolen,
the Company in its discretion may execute, and upon its request, the Trustee or
an authenticating agent appointed by the Trustee shall authenticate and make
available for delivery a new Debenture bearing a number not contemporaneously
outstanding in exchange and substitution for the mutilated Debenture or in lieu
of and in substitution for the Debenture so destroyed, lost or stolen. The
Company may charge such applicant for the expenses of the Company in replacing a
Debenture. In every case the applicant for a substituted Debenture shall furnish
to the Company, to the Trustee and, if applicable, to such authenticating agent
such security or indemnity as may be required by them to save each of them
harmless from any loss, liability, cost or expense caused by or connected with
such substitution, and in every case of destruction, loss or theft, the
applicant shall also furnish to the Company, to the Trustee and, if applicable,
to such authenticating agent evidence to their satisfaction of the destruction,
loss or theft of such Debenture and of the ownership thereof.
The Trustee or such authenticating agent may authenticate any
such substituted Debenture and deliver the same upon the receipt of such
security or indemnity as the Trustee, the Company and, if applicable, such
authenticating agent may require. Upon the issuance of any substituted
Debenture, 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 connected therewith. In case any Debenture that has matured or is
about to mature or has been called for redemption or is about to be repurchased
or converted into Common Stock or cash shall become mutilated or be destroyed,
lost or stolen, the Company may, instead of issuing a substitute Debenture, pay
or authorize the payment of or convert or authorize the conversion of the same
(without surrender thereof, except in the case of a mutilated Debenture), as the
case may be, if the applicant for such payment or conversion shall furnish to
the Company, to the Trustee and, if applicable, to such authenticating agent
such security or indemnity as may be required by them to save each of them
harmless from any loss, liability, cost or expense caused by or connected with
such substitution, and in case of destruction, loss or theft, evidence
satisfactory to the Company, the Trustee and, if applicable, any paying agent or
conversion agent of the destruction, loss or theft of such Debenture and of the
ownership thereof.
Every substitute Debenture issued pursuant to the provisions
of this Section 2.6 in lieu of any Debenture that is destroyed, lost or stolen
shall constitute an additional contractual obligation of the Company, whether or
not the destroyed, lost or stolen Debenture shall be enforceable by anyone, and
shall be entitled to all the benefits of (but shall be subject to all the
limitations set forth in) this Indenture equally and proportionately with any
and all other Debentures duly issued hereunder. To the extent permitted by law,
all Debentures shall be held and owned upon the express condition that the
foregoing provisions are exclusive with respect to the replacement or payment or
conversion of mutilated, destroyed, lost or stolen Debentures and shall preclude
any and all other rights or remedies notwithstanding any law or statute
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existing or hereafter enacted to the contrary with respect to the replacement or
payment or conversion of negotiable instruments or other securities without
their surrender.
Section 2.7 Temporary Debentures. Pending the preparation of
definitive Debentures, the Company may execute and the Trustee or an
authenticating agent appointed by the Trustee shall, upon written request of the
Company, authenticate and make available for delivery temporary Debentures
(printed or lithographed). Temporary Debentures shall be issuable in any
authorized denomination and shall be substantially in the form of the definitive
Debentures but with such omissions, insertions and variations as may be
appropriate for temporary Debentures, all as may be determined by the Company.
Every such temporary Debenture shall be executed by the Company and
authenticated by the Trustee or such authenticating agent upon the same
conditions and in substantially the same manner, and with the same effect, as
the definitive Debentures. Without unreasonable delay the Company shall execute
and deliver to the Trustee or such authenticating agent definitive Debentures
and thereupon any or all temporary Debentures may be surrendered in exchange
therefor, at each office or agency maintained by the Company pursuant to Section
4.2 and the Trustee or such authenticating agent shall authenticate and make
available for delivery in exchange for such temporary Debentures an equal
aggregate principal amount of definitive Debentures. Such exchange shall be made
by the Company at its own expense and without any charge therefor. Until so
exchanged, the temporary Debentures shall in all respects be entitled to the
same benefits and subject to the same limitations under this Indenture as
definitive Debentures authenticated and delivered hereunder.
Section 2.8 Cancellation of Debentures Paid, Etc. All
Debentures surrendered for the purpose of payment, redemption, repurchase,
conversion, exchange or registration of transfer shall, if surrendered to the
Company or any paying agent or any Debenture registrar or any conversion agent,
be surrendered to the Trustee and promptly canceled by it or, if surrendered to
the Trustee, shall be promptly canceled by it and no Debentures shall be issued
in lieu thereof except as expressly permitted by any of the provisions of this
Indenture. If required by the Company, the Trustee shall return canceled
Debentures to the Company. If the Company shall acquire any of the Debentures,
such acquisition shall not operate as a redemption or satisfaction of the
indebtedness represented by such Debentures unless and until the same are
delivered to the Trustee for cancellation.
Section 2.9 CUSIP Numbers. The Company in issuing the
Debentures may use "CUSIP" numbers (if then generally in use), and, if so, the
Trustee shall use CUSIP numbers in notices of redemption as a convenience to
holders; provided that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Debentures or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Debentures, and any such
redemption shall not be affected by any defect in or omission of such numbers.
The Company shall promptly notify the Trustee of any change in the CUSIP
numbers.
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ARTICLE III
REDEMPTION AND REPURCHASE OF DEBENTURES
Section 3.1 Redemption Prices. The Debentures are not
redeemable at the option of the Company prior to December 31, 1999. At any time
on or after that date, the Debentures may be redeemed at the Company's option,
upon notice as set forth in Section 3.2, in whole at any time or in part from
time to time, at 100% plus accrued and unpaid interest thereon to the applicable
redemption date.
Section 3.2 Notice of Redemption; Selection of Debentures. In
case the Company shall desire to exercise the right to redeem all or, as the
case may be, any part of the Debentures pursuant to Section 3.1, it shall fix a
date for redemption and, in the case of any redemption pursuant to Section 3.1,
it or, at its written request accompanied by the proposed form of notice of
redemption (which must be received by the Trustee at least ten days prior to the
date the Trustee is requested to give notice as described below, unless a
shorter period is agreed to by the Trustee), the Trustee in the name of and at
the expense of the Company, shall mail or cause to be mailed a notice of such
redemption at least 30 and not more than 60 days prior to the date fixed for
redemption to the holders of Debentures so to be redeemed as a whole or in part
at their last addresses as the same appear on the Debenture register, provided
that subject to the approval of the form of notice by the Trustee if the Company
shall give such notice, it shall also give such notice, and notice of the
Debentures to be redeemed, to the Trustee. Such mailing shall be by first class
mail. The notice, if mailed in the manner herein provided, shall be conclusively
presumed to have been duly given, whether or not the holder receives such
notice. In any case, failure to give such notice by mail or any defect in the
notice to the holder of any Debenture designated for redemption as a whole or in
part shall not affect the validity of the proceedings for the redemption of any
other Debenture.
Each such notice of redemption shall identify the Debentures
to be redeemed (including CUSIP numbers), specify the aggregate principal amount
of Debentures to be redeemed, the date fixed for redemption, the redemption
price at which Debentures are to be redeemed, the place or places of payment,
that payment shall be made upon presentation and surrender of such Debentures,
that interest accrued to the date fixed for redemption shall be paid as
specified in said notice and that on and after said date, interest thereon or on
the portion thereof to be redeemed shall cease to accrue. Such notice shall also
state the current Conversion Price and the date on which the right to convert
such Debentures or portions thereof into Common Stock shall expire. If fewer
than all the Debentures are to be redeemed, the notice of redemption shall
identify the Debentures to be redeemed. In case any Debenture is to be redeemed
in part only, the notice of redemption shall state the portion of the principal
amount thereof to be redeemed and shall state that on and after the date fixed
for redemption, upon surrender of such Debenture, a new Debenture or Debentures
in principal amount equal to the unredeemed portion thereof shall be issued.
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On or prior to the Business Day prior to the redemption date
specified in the notice of redemption given as provided in this Section 3.2, the
Company shall deposit with the Trustee or with one or more paying agents (or, if
the Company is acting as its own paying agent, set aside, segregate and hold in
trust as provided in Section 4.4) an amount of money sufficient to redeem on the
redemption date all the Debentures so called for redemption (other than those
theretofore surrendered for conversion into Common Stock or cash) at the
appropriate redemption price, together with accrued interest to the date fixed
for redemption. If any Debenture called for redemption is converted pursuant
hereto, any money deposited with the Trustee or any paying agent or so
segregated and held in trust for the redemption of such Debenture shall be paid
to the Company upon its written request or, if then held by the Company, shall
be discharged from such trust. If fewer than all the Debentures are to be
redeemed, the Company shall give the Trustee written notice in the form of an
Officers' Certificate not fewer than 45 days (or such shorter period of time as
may be acceptable to the Trustee) prior to the redemption date as to the
aggregate principal amount of Debentures to be redeemed.
If fewer than all the Debentures are to be redeemed, the
Trustee shall select the Debentures or portions thereof to be redeemed (in
principal amounts of $1,000 or integral multiples thereof), by lot or, in its
discretion, on a pro rata basis. If any Debenture selected for partial
redemption is converted in part after such selection, the converted portion of
such Debenture shall be deemed (so far as may be) to be the portion to be
selected for redemption. The Debentures (or portions thereof) so selected shall
be deemed duly selected for redemption for all purposes hereof, notwithstanding
that any such Debenture is converted as a whole or in part before the mailing of
the notice of redemption.
Upon any redemption of less than all Debentures, the Company
and the Trustee may treat as outstanding any 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 3.3 Payment of Debentures Called for Redemption. If
notice of redemption has been given as above provided, the Debentures or portion
of Debentures with respect to which such notice has been given shall, unless
converted into Common Stock pursuant to the terms hereof, become due and payable
on the date and at the place or places stated in such notice at the applicable
redemption price, together with interest thereon accrued to the date fixed for
redemption, and on and after said date (unless the Company shall default in the
payment of such Debentures at the redemption price, together with interest
thereon accrued to said date), interest on the Debentures or portion of
Debentures so called for redemption shall cease to accrue, and such Debentures
shall cease after the close of business on the Business Day next preceding the
date fixed for redemption to be convertible into Common Stock or cash and,
except as provided in Sections 7.5 and 12.4, to be entitled to any benefit or
security under this Indenture, and the holders thereof shall have no right in
respect of such Debentures except the right to receive the redemption price
thereof and unpaid interest thereon to the date fixed for redemption. On
presentation and surrender of such Debentures at a place of payment in said
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notice specified, the said Debentures or the specified
portions thereof shall be paid and redeemed by the Company at the applicable
redemption price, together with interest accrued thereon to the date fixed for
redemption; provided that any semi-annual payment of interest becoming due on
the date fixed for redemption shall be payable to the holders of such Debentures
registered as such on the relevant record date subject to the terms and
provisions of Section 2.3 hereof.
Upon presentation of any Debenture redeemed in part only, the
Company shall execute and the Trustee shall authenticate and make available for
delivery to the holder thereof, at the expense of the Company, a new Debenture
or Debentures, of authorized denominations, in principal amount equal to the
unredeemed portion of the Debentures so presented.
If any Debenture called for redemption shall not be so paid
upon surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate borne
by the Debenture and such Debenture shall remain convertible into Common Stock
until the principal shall have been paid or duly provided for.
ARTICLE IV
PARTICULAR COVENANTS OF THE COMPANY
Section 4.1 Payment of Principal and Interest. The Company
covenants and agrees that it shall duly and punctually pay or cause to be paid
the principal and interest on each of the Debentures at the places, at the
respective times and in the manner provided herein and in the Debentures. Each
installment of interest on the Debentures due on any semi-annual interest
payment date may be paid by mailing checks for the interest payable to or upon
the written order of the holders of Debentures entitled thereto as they shall
appear on the Debenture register. An installment of principal or interest shall
be considered paid on the date due if the Trustee or paying agent (other than
the Company, a Subsidiary of the Company or any Affiliate of any of them) holds
on that date money designated for and sufficient to pay the installment of
principal or interest and is not prohibited from paying such money to the
holders of the Debentures pursuant to the terms of this Indenture.
Section 4.2 Maintenance of Office or Agency. The Company shall
maintain an office or agency where the Debentures may be surrendered for
registration of transfer or exchange or for presentation for payment or for
conversion, redemption or repurchase and where notices and demands to or upon
the Company in respect of the Debentures and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of 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 Corporate Trust Office of the Trustee.
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The Company may also from time to time designate one or more
other offices or agencies where the Debentures may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations. The Company shall give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
The Company will initially act as paying agent and initially
designates the Trustee as Debenture registrar and conversion agent and the
offices of the Trustee in Zurich, Switzerland as the office or agency of the
Company for the purposes set forth in this Section 4.2.
So long as the Trustee is the Debenture registrar, the Trustee
agrees to mail, or cause to be mailed, the notices set forth in Section 7.8(a).
Section 4.3 Appointments to Fill Vacancies in Trustee's
Office. The Company, whenever necessary to avoid or fill a vacancy in the office
of Trustee, shall appoint, in the manner provided in Section 7.8, a Trustee, so
that there shall at all times be a Trustee hereunder.
Section 4.4 Provisions as to Paying Agent.
(a) The Paying Agent agrees subject to the provisions of this
Section 4.4:
(1) that it shall hold all sums held by it as such agent for
the payment of the principal of or interest on the Debentures (whether
such sums have been paid to it by the Company or by any other obligor
on the Debentures) in trust for the benefit of the holders of the
Debentures;
(2) that it shall give the Trustee written notice of any
failure by the Company (or by any other obligor on the Debentures) to
make any payment of the principal of or interest on the Debentures when
the same shall be due and payable; and
(3) that at any time during the continuance of an Event of
Default, upon request of the Trustee, it shall forthwith pay to the
Trustee all sums so held in trust.
The Company shall, before each due date of the principal of or
interest on the Debentures, deposit with the Paying Agent a sum sufficient to
pay such principal or interest, and (unless such paying agent is the Trustee)
the Company shall promptly notify the Trustee of any failure to take such
action.
(b) If the Company shall act as its own paying agent, it
shall, on or before each due date of the principal of or interest on the
Debentures, set aside, segregate and hold in trust for the benefit of the
holders of the Debentures a sum sufficient to pay such principal or interest so
becoming due and shall notify the Trustee of any failure to take such action and
of
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any failure by the Company (or any other obligor under the Debentures) to make
any payment of the principal of or interest on the Debentures when the same
shall become due and payable.
(c) Anything in this Section 4.4 to the contrary
notwithstanding, the Company may, at any time, for the purpose of obtaining a
satisfaction and discharge of this Indenture, or for any other reason, pay or
cause to be paid to the Trustee all sums held in trust by the Company or any
paying agent hereunder as required by this Section 4.4, such sums to be held by
the Trustee upon the trusts herein contained and upon such payment by the
Company or any paying agent to the Trustee, the Company or such paying agent
shall be released from all further liability with respect to such sums.
(d) Anything in this Section 4.4 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in this Section
4.4 is subject to Sections 12.3 and 12.4.
Section 4.5 Corporate Existence. Subject to Article XI, the
Company shall do or cause to be done all things necessary to preserve and keep
in full force and effect (i) its corporate existence, and the corporate,
partnership or other existence of any Subsidiary of the Company, in accordance
with the respective organizational documents (as the same may be amended from
time to time) of the Company or any such Subsidiary and (ii) the rights (charter
and statutory), licenses and franchises of the Company and its Subsidiaries;
provided that the Company shall not be required to preserve any such right,
license or franchise, or the corporate, partnership or other existence of any of
its Subsidiaries if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
its Subsidiaries, taken as a whole, and that the loss thereof is not materially
adverse to the holders of the Debentures.
Section 4.6 Stay, Extension and Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, plead or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law that would prohibit
or forgive the Company from paying all or any portion of the principal of or
interest on the Debentures as contemplated herein, wherever enacted, now or at
any time hereafter in force, or that may affect the covenants or the performance
of this Indenture; and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law has been enacted.
ARTICLE V
DEBENTUREHOLDERS' LISTS
Section 5.1 Debentureholders' Lists. The Trustee shall
preserve in as current a form as is reasonably practicable the most recent list
available to it of the names and addresses
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of holders of Debentures. If the Trustee is not the Debenture registrar, the
Company shall furnish to the Trustee and Paying Agent on or before at least
seven Business Days preceding each interest payment date and at such other times
as the Trustee may request in writing a list in such form and as of such date as
the Trustee reasonably may require of the names and addresses of holders of
Debentures.
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.1 Events of Default. In case one or more of the
following Events of Default (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) shall have occurred and
be continuing:
(a) default in the payment of the principal of the Debentures
when due at maturity, upon redemption or otherwise (whether or not such
payment shall be prohibited by Article XV of this Indenture), and
continuance of such default for a period of 60 days; or
(b) default in the payment of any installment of interest on
the Debentures as and when the same shall become due and payable
(whether or not such payment shall be prohibited by Article XV of this
Indenture), and continuance of such default for a period of 60 days; or
(c) a failure on the part of the Company to duly observe or
perform any other covenants or agreements on the part of the Company in
this Indenture (other than a default in the performance or breach of a
covenant or agreement that is specifically dealt with elsewhere in this
Section 6.1) that continues for a period of 90 days after the date on
which written notice of such failure, requiring the Company to remedy
the same, shall have been given to the Company by the Trustee, or to
the Company and a Responsible Officer of the Trustee, by the holders of
at least 25% in aggregate principal amount of the Debentures at the
time outstanding determined in accordance with Section 8.4; or
(d) the Company shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect, or seeking the
appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it or shall make a general assignment for
the benefit of creditors or shall fail generally to pay its debts as
they become due; or
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(e) an involuntary case or other proceeding shall be commenced
against the Company seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official
of it or any substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and unstayed for a
period of 60 consecutive days;
then, and in each and every such case (other than an Event of Default specified
in Section 6.1(d) or (e)), unless the principal of all of the Debentures shall
have already become due and payable, either the Trustee or the holders of not
less than 25% in aggregate principal amount of the Debentures then outstanding
hereunder determined in accordance with Section 8.4, by notice in writing to the
Company (and to the Trustee if given by Debentureholders), may declare the
principal of the Debentures and the interest accrued thereon to be due and
payable immediately, and upon any such declaration the same shall become and
shall be immediately due and payable, anything in this Indenture or in the
Debentures contained to the contrary notwithstanding. If an Event of Default
specified in Section 6.1(d) or (e) occurs and is continuing, the principal of
all the Debentures and the interest accrued thereon shall be immediately due and
payable. The foregoing provision is subject to the conditions that if, at any
time after the principal of the Debentures shall have been so declared due and
payable, and before any judgment or decree for the payment of the monies due
shall have been obtained or entered as hereinafter provided, the Company shall
pay or shall deposit with the Trustee a sum sufficient to pay all matured
installments of interest upon all Debentures and the principal of any and all
Debentures that shall have become due otherwise than by acceleration (with
interest on overdue installments of interest (to the extent that payment of such
interest is enforceable under applicable law) and on such principal at the rate
borne by the Debentures, to the date of such payment or deposit) and amounts due
to the Trustee pursuant to Section 7.6, and if any and all defaults under this
Indenture, other than the nonpayment of principal of and accrued interest on
Debentures that shall have become due by acceleration, shall have been cured or
waived pursuant to Section 6.7, then and in every such case the holders of a
majority in aggregate principal amount of the Debentures then outstanding, by
written notice to the Company and to the Trustee, may waive all defaults or
Events of Default and rescind and annul such declaration and its consequences;
but no such waiver or rescission and annulment shall extend to or shall affect
any subsequent default or Event of Default, or shall impair any right consequent
thereto. The Company shall notify a Responsible Officer of the Trustee, promptly
upon becoming aware thereof, of any Event of Default.
In case the Trustee shall have proceeded to enforce any right
under this Indenture and such proceedings shall have been discontinued or
abandoned because of such waiver or rescission and annulment or for any other
reason or shall have been determined adversely to the Trustee, then and in every
such case the Company, the holders of Debentures and the Trustee shall be
restored respectively to their several positions and rights hereunder, and all
rights, remedies and powers of the Company, the holders of Debentures and the
Trustee shall continue as though no such proceeding had been taken.
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Section 6.2 Payments of Debentures on Default; Suit Therefor.
The Company covenants that (a) in case a default shall be made in the payment of
any installment of interest upon any of the Debentures as and when the same
shall become due and payable, and such default shall have continued for a period
of 60 days, or (b) in case default shall be made in the payment of the principal
of any of the Debentures as and when the same shall have become due and payable,
whether at maturity of the Debentures or in connection with any redemption or
repurchase, by declaration or otherwise, and such default shall have continued
for a period of 60 days, then, upon demand of the Trustee, the Company shall pay
to the Trustee, for the benefit of the holders of the Debentures, the whole
amount that then shall have become due and payable on all such Debentures for
principal or interest, or both, as the case may be, with interest upon the
overdue principal and (to the extent that payment of such interest is
enforceable under applicable law) upon the overdue installments 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
reasonable compensation to the Trustee, its agents, attorneys and counsel, and
any expenses or liabilities incurred by the Trustee hereunder other than through
its negligence or bad faith. Until such demand by the Trustee, the Company may
pay the principal of and interest on the Debentures to the registered holders,
whether or not the Debentures are overdue.
In case the Company shall fail forthwith to pay such amounts
upon such demand, the Trustee, in its own name and as trustee of an express
trust, shall be entitled and empowered to institute any actions or proceedings
at law or in equity for the collection of the sums so due and unpaid and may
prosecute any such action or proceeding to judgment or final decree, and may
enforce any such judgment or final decree against the Company or any other
obligor on the Debentures and collect in the manner provided by law out of the
property of the Company or any other obligor on the Debentures wherever situated
the monies adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy
or for the reorganization of the Company or any other obligor on the Debentures
under Title 11 of the United States Code or any other applicable law, or in case
a receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Company or such other obligor, the property of the Company or
such other obligor, or in the case of any other judicial proceedings relative to
the Company or such other obligor upon the Debentures, or to the creditors or
property of the Company or such other obligor, 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 pursuant to the provisions of this Section 6.2, shall
be entitled and empowered, by intervention in such proceedings or otherwise, to
file and prove a claim or claims for the whole amount of principal and interest
owing and unpaid in respect of the Debentures and, in case of any judicial
proceedings, to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee and of the
Debentureholders allowed in such judicial proceedings relative to the Company or
any other obligor on the Debentures, its or their creditors, or its or their
property and to collect and receive any monies or other property payable or
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deliverable on any such claims and to distribute the same after the deduction of
any amounts due the Trustee under Section 7.6; and any receiver, assignee or
trustee in bankruptcy or reorganization, liquidator, custodian or similar
official is hereby authorized by each of the Debentureholders 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 it for reasonable compensation, expenses, advances and
disbursements, including counsel fees incurred by it up to the date of such
distribution. To the extent that such payment of reasonable compensation,
expenses, advances and disbursements out of the estate in any such proceedings
shall be denied for any reason, payment of the same shall be secured by a lien
on, and shall be paid out of, any and all distributions, dividends, monies,
securities and other property that the holders of the Debentures may be entitled
to receive in such proceedings, whether in liquidation or under any plan of
reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or adopt on behalf of any Debentureholder any
plan of reorganization or arrangement affecting the Debentures or the rights of
any Debentureholder, or to authorize the Trustee to vote in respect of the claim
of any Debentureholder in any such proceeding.
All rights of action and of asserting claims under this
Indenture, or under any of the Debentures, may be enforced by the Trustee
without the possession of any of the Debentures or the production thereof on any
trial or other proceeding relative thereto, and any such suit or 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 any proceedings brought by the Trustee pursuant to this
Indenture or any supplement hereto (and in any proceedings involving the
interpretation of any provision of this Indenture to which the Trustee shall be
a party), the Trustee shall be held to represent all the holders of the
Debentures, and it shall not be necessary to make any holders of the Debentures
parties to any such proceedings.
Section 6.3 Application of Monies Collected by Trustee. Any
monies collected by the Trustee pursuant to this Article VI shall be applied in
the order following, at the date or dates fixed by the Trustee for the
distribution of such monies, upon presentation of the several Debentures and
stamping thereon 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 7.6;
Second: Subject to the provisions of Article XV, in case the
principal of the outstanding Debentures shall not have become due and
be unpaid, to the payment of interest on the Debentures in default in
the order of the maturity of the installments of such interest, with
interest (to the extent that such interest has been collected by the
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Trustee) upon the overdue installments of interest at the rate borne by
the Debentures, such payments to be made ratably to the persons
entitled thereto; and
Third: Subject to the provisions of Article XV, in case the
principal of the outstanding Debentures shall have become due, by
declaration or otherwise, and be unpaid, to the payment of the whole
amount then holding and unpaid upon the Debentures for principal and
interest, with interest on the overdue principal and (to the extent
that such interest has been collected by the Trustee) upon overdue
installments of interest at the rate borne by the Debentures; and in
case such monies shall be insufficient to pay in full the whole amounts
so due and unpaid upon the Debentures, then to the payment of such
principal and interest without preference or priority of principal over
interest, or of interest over principal or of any installment of
interest over any other installment of interest, or of any Debenture
over any other Debenture, ratably to the aggregate of such principal
and accrued and unpaid interest.
Section 6.4 Proceedings by Debentureholder. No holder of any
Debenture shall have any right by virtue of or by availing of any provision of
this Indenture to institute any suit, action or proceeding in equity or at law
upon or under or with respect to this Indenture, or for the appointment of a
receiver, trustee, liquidator, custodian or other similar official, or for any
other remedy hereunder, unless such holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance thereof, as
hereinbefore provided, and unless also the holders of not less than 25% in
aggregate principal amount of the Debentures then outstanding shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee for 60 days after
its receipt of such notice, request and offer of indemnity, shall have neglected
or refused to institute any such action, suit or proceeding, and no direction
inconsistent with such written request shall have been given to the Trustee
pursuant to Section 6.7; it being understood and intended, and being expressly
covenanted by the taker and holder of every Debenture with every other taker and
holder and the Trustee, 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 holder of
Debentures, to obtain or seek to obtain priority over or preference to any other
such holder or to enforce any right under this Indenture, except in the manner
herein provided and for the equal, ratable and common benefit of all holders of
Debentures (except as otherwise provided herein). For the protection and
enforcement of this Section 6.4, each and every Debentureholder and the Trustee
shall be entitled to such relief as can be given either at law or in equity.
Notwithstanding any other provision of this Indenture and any
provision of any Debenture, the right of any holder of any Debenture to receive
payment of the principal of and interest on such Debenture, on or after the
respective due dates expressed in such Debenture, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such holder
except as otherwise set forth herein.
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Anything in this Indenture or the Debentures to the contrary
notwithstanding, the holder of any Debenture, without the consent of either the
Trustee or the holder of any other Debenture, in his own behalf and for his own
benefit, may enforce, and may institute and maintain any proceeding suitable to
enforce, his rights of conversion as provided herein.
Section 6.5 Proceedings by Trustee. In case of an Event of
Default and subject to the provisions of Section 7.6 hereof, the Trustee may in
its discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either by suit in
equity or by action at law or by proceeding in bankruptcy or otherwise, whether
for the specific enforcement of any covenant or agreement contained in this
Indenture or in aid of the exercise of any power granted in this Indenture or to
enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
Section 6.6 Remedies Cumulative and Continuing. Except as
provided in Section 2.6, all powers and remedies given by this Article VI to the
Trustee or to the Debentureholders shall, to the extent permitted by law, be
deemed cumulative and not exclusive of such powers and remedies or of any other
powers and remedies available to the Trustee or the holders of the Debentures,
by judicial proceedings or otherwise, to enforce the performance or observance
of the covenants and agreements contained in this Indenture, and no delay or
omission of the Trustee or of any holder of any of the Debentures to exercise
any right or power accruing upon any default or Event of Default occurring and
continuing as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such default or any acquiescence therein; and,
subject to the provisions of Section 6.4, every power and remedy given by this
Article VI or by law to the Trustee or to the Debentureholders may be exercised
from time to time, and as often as shall be deemed expedient, by the Trustee or
by the Debentureholders.
Section 6.7 Direction of Proceedings and Waiver of Defaults by
Majority of Debentureholders. The holders of a majority in aggregate principal
amount of the Debentures at the time outstanding (determined in accordance with
Section 8.4) 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 (a) such direction
shall not be in conflict with any rule of law or with this Indenture and (b) the
Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction. The holders of a majority in aggregate
principal amount of the Debentures at the time outstanding (determined in
accordance with Section 8.4) may on behalf of the holders of all of the
Debentures waive any past default or Event of Default hereunder and its
consequences except (i) a default in the payment of interest on, or the
principal of, the Debentures, (ii) a failure by the Company to convert any
Debentures into Common Stock or cash, as the case may be, or (iii) a default in
respect of a covenant or provisions hereof that under Article X cannot be
modified or amended without the consent of the holders of all Debentures then
outstanding. Whenever any default or Event of Default hereunder shall have been
waived as permitted by this Section 6.7, said default or Event of Default shall
for all purposes of the Debentures and this Indenture be deemed to have been
cured and to be not continuing and the Company, the Trustee and the
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holders of the Debentures shall as reasonably possible be restored to their
former positions and rights hereunder; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
Section 6.8 Notice of Defaults. The Trustee shall, within 90
days after the occurrence of a default, mail to all Debentureholders, as the
names and addresses of such holders appear upon the Debenture register, notice
of all defaults of which a Responsible Officer has actual knowledge, unless such
defaults shall have been cured or waived before the giving of such notice;
provided that, except in the case of default in the payment of the principal of
or interest on any of the Debentures, the Trustee shall be protected in
withholding such notice if and so long as a Responsible Officer of the Trustee
in good faith determine that the withholding of such notice is in the interests
of the Debentureholders.
Section 6.9 Undertaking to Pay 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 and expenses, 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; provided that the provisions
of this Section 6.9 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 Debentures at the time
outstanding determined in accordance with Section 8.4 or to any suit instituted
by any Debentureholder for the enforcement of the payment of the principal of or
interest on any Debenture on or after the due date expressed in such Debenture
or to any suit for the enforcement of the right to convert any Debenture in
accordance with the provisions of Article XIV.
ARTICLE VII
CONCERNING THE TRUSTEE
Section 7.1 Duties and Responsibilities of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of an Event of Default:
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(1) the Trustee need perform only those duties that
are specifically set forth in this Indenture and no others;
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;
provided that in the case of any such certificates or opinions
that 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 (but need not confirm or
investigate the accuracy of mathematical calculations or other
facts stated therein).
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(1) this paragraph (c) does not limit the effect of
paragraph (b) of this Section 7.1;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the
Trustee unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts reasonably available to the
Trustee; and
(3) the Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section
6.7.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section
7.1.
(e) The Trustee may refuse to perform any duty or exercise any
right or power or extend or risk its own funds or otherwise incur any financial
liability unless it receives indemnity satisfactory to it against any loss,
liability or expense.
Section 7.2 Reliance on Documents, Opinions, Etc. Except as
otherwise provided in Section 7.1:
(a) The Trustee may rely and shall be protected in acting upon
any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, debenture, coupon or other paper
or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties;
(b) Any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate; and any resolution of the
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Board of Directors may be evidenced to the Trustee by a copy thereof
certified by the Secretary or an Assistant Secretary of the Company;
(c) The Trustee may consult with counsel of its selection and
any advice or opinion of counsel shall be full and complete
authorization and protection in respect of any action taken or omitted
by it hereunder in good faith and in accordance with such advice or
opinion of counsel;
(d) 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 by it with due care hereunder; no paying agent who is not the
Trustee shall be deemed an agent of the Trustee, and the Trustee (in
its capacity as Trustee) shall not be responsible for any act or
omission by any such paying agent;
(e) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by the Indenture at the request or
direction of any of the holders pursuant to this Indenture unless such
holders have offered the Trustee reasonable security or indemnity
against the costs, expenses and liabilities that would be incurred by
it in compliance with such request or direction.
(f) Subject to the provisions of Section 7.1(c), the Trustee
shall not be liable for any action it takes or omits to take in good
faith that it believes to be authorized or within its rights or powers;
(g) In connection with any request to transfer or exchange any
Debenture, the Trustee may request a direction (in the form of an
Officers' Certificate) from the Company and an Opinion of Counsel with
respect to compliance with any restrictions on transfer or exchange
imposed by this Indenture, the Securities Act, other applicable law or
the rules and regulations of any exchange on which the Debentures or
the capital stock may be traded, and the Trustee may rely and shall be
protected in acting upon such direction and in accordance with such
Officers' Certificate and Opinion of Counsel;
(h) The Trustee may rely and shall be fully protected in
acting upon the determination and notice by the Company of the
Conversion Price; and
(i) The Trustee shall not be deemed to have knowledge of any
Event of Default or other fact or event upon the occurrence of which it
may be required to take action hereunder unless one of its Responsible
Officers has actual knowledge thereof obtained by a written statement.
Section 7.3 No Responsibility for Recitals, Etc. The recitals
contained herein and in the Debentures (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture
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or of the Debentures. The Trustee shall not be accountable for the use or
application by the Company of any Debentures or the proceeds of any Debentures
authenticated and delivered by the Trustee in conformity with the provisions of
this Indenture.
Section 7.4 Trustee, Paying Agents, Conversion Agents or
Registrar May Own Debentures. The Trustee, any paying agent, any conversion
agent or any Debenture registrar, in its individual or any other capacity, may
become the owner or pledgee of Debentures with the same rights it would have if
it were not Trustee, paying agent, conversion agent or Debenture registrar.
Section 7.5 Monies to Be Held in Trust. Subject to the
provisions of Section 12.4, all monies received by the Trustee or Paying Agent
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received. Money held by the Trustee or Paying Agent
in trust hereunder need not be segregated from other funds except to the extent
required by law. The Trustee or Paying Agent shall be under no liability for
interest on any money received by it hereunder except as may be agreed to in
writing from time to time by the Company and the Trustee or Paying Agent.
Section 7.6 Compensation and Expenses of Trustee. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, such compensation as the Company and the Trustee shall
from time to time agree in writing, for all services rendered by it hereunder in
any capacity (which shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust), and the Company shall pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Indenture (including the reasonable compensation
and the expenses and disbursements of its counsel and of all persons not
regularly in its employ) except any such expense, disbursement or advance as may
arise from its negligence or bad faith. The Company also covenants to indemnify
each of the Trustee or any predecessor Trustee in any capacity under this
Indenture and its agents and any authenticating agent for, and to hold them
harmless against, any and all loss, liability, damage, claim or expense,
including taxes (other than taxes based on the income of the Trustee) incurred
without negligence or bad faith on the part of the Trustee or such agent or
authenticating agent, as the case may be, and arising out of or in connection
with the acceptance or administration of this trust or in any other capacity
hereunder, including the costs and expenses of defending themselves against any
claim of liability in the premises. The obligations of the Company under this
Section 7.6 to compensate or indemnify the Trustee and to pay or reimburse the
Trustee for expenses, disbursements and advances shall be secured by a lien
prior to that of the Debentures upon all property and funds held or collected by
the Trustee as such, except funds held in trust for the benefit of the holders
of particular Debentures. The obligation of the Company under this Section shall
survive the satisfaction and discharge of this Indenture.
Section 7.7 Officers' Certificate as Evidence. Except as
otherwise provided in Section 7.1, whenever in the administration of the
provisions of this Indenture the Trustee shall deem it necessary or desirable
that a matter be proved or established prior to taking or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
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specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Trustee, be deemed to be conclusively proved and established by an
Officers' Certificate delivered to the Trustee, and such Officers' Certificate,
in the absence of negligence or bad faith on the part of the Trustee, shall be
full warrant to the Trustee for any action taken or omitted by it under the
provisions of this Indenture upon the faith thereof.
Section 7.8 Resignation or Removal of Trustee.
(a) The Trustee may at any time resign by giving written
notice of such resignation to the Company; and the Company shall mail, or cause
to be mailed, notice thereof to the holders of Debentures at their addresses as
they shall appear on the Debenture register. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor trustee by written
instrument, in duplicate, executed by order of the Board of Directors, one copy
of which instrument shall be delivered to the resigning Trustee and one copy to
the successor trustee.
(b) In case 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, the Company
may remove the Trustee and appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to the
successor trustee, or any Debentureholder who has been a bona fide holder of a
Debenture or Debentures 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. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of
the Debentures at the time outstanding may at any time remove the Trustee and
nominate a successor trustee, which shall be deemed appointed as successor
trustee unless within ten days after notice to the Company of such nomination
the Company objects thereto, in which case the Trustee so removed or any
Debentureholder, upon the terms and conditions and otherwise as provided in the
next paragraph, may petition any court of competent jurisdiction for an
appointment of a successor trustee.
If no successor trustee shall have been so appointed and have
accepted appointment within 60 days after removal or the mailing of such notice
of resignation to the Debentureholders, the Trustee resigning or being removed
may petition any court of competent jurisdiction for the appointment of a
successor trustee, or, in the case of either resignation or removal, any
Debentureholder who has been a bona fide holder of a Debenture or Debentures for
at least six months may, on behalf of himself and all others similarly situated,
petition any such court for the appointment of a successor trustee. Such court
may thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
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(d) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this Section 7.8
shall become effective upon acceptance of appointment by the successor trustee
as provided in Section 7.9.
Section 7.9 Acceptance by Successor Trustee. Any successor
trustee appointed as provided in Section 7.8 shall execute, acknowledge and
deliver to the Company and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon, the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but on the written request of the Company
or of the successor trustee, the Trustee ceasing to act shall, upon payment of
any amounts then due it pursuant to the provisions of Section 7.6, execute and
deliver an instrument transferring to such successor trustee all the rights and
powers of the Trustee so ceasing to act. Upon request of any such successor
trustee, the Company shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor trustee all such
rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a lien
upon all property and funds held or collected by such trustee as such, except
for funds held in trust for the benefit of holders of particular Debentures, to
secure any amounts then due it pursuant to the provisions of Section 7.6.
Upon acceptance of appointment by a successor trustee as
provided in this Section 7.9, the Company shall mail or cause to be mailed
notice of the succession of such Trustee hereunder to the holders of Debentures
at their addresses as they shall appear on the Debenture register. If the
Company fails to mail such notice within ten days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Company.
Section 7.10 Successor by Merger, Etc. 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 to the Trustee hereunder.
ARTICLE VIII
CONCERNING THE DEBENTUREHOLDERS
Section 8.1 Action by Debentureholders. Whenever in this
Indenture it is provided that the holders of a specified percentage in aggregate
principal amount of the Debentures may take any action (including the making of
any demand or request, the giving of any notice, consent or waiver or the taking
of any other action), the fact that at the time of taking any such action, the
holders of such specified percentage have joined therein may be evidenced (a) by
any instrument or any number of instruments of similar tenor executed by
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Debentureholders in person or by agent or proxy appointed in writing, (b) by the
record of the holders of Debentures voting in favor thereof at any meeting of
Debentureholders duly called and held in accordance with the provisions of
Article IX or (c) by a combination of such instrument or instruments and any
such record of such a meeting of Debentureholders. Whenever the Company or the
Trustee solicits the taking of any action by the holders of the Debentures, the
Company or the Trustee may fix in advance of such solicitation, a date as the
record date for determining holders entitled to take such action. The record
date shall be not more than 15 days prior to the date of commencement of
solicitation of such action.
Section 8.2 Proof of Execution by Debentureholders. Subject to
the provisions of Sections 7.1, 7.2 and 9.5, proof of the execution of any
instrument by a Debentureholder or by agent or proxy shall be sufficient if made
in accordance with Section 7.3 hereof. The holding of Debentures shall be proved
by the Debenture register or by a certificate of the Debenture registrar.
The record of any Debentureholders' meeting shall be proved in
the manner provided in Section 9.5.
Section 8.3 Who Are Deemed Absolute Owners. The Company, the
Trustee, any paying agent, any conversion agent and any Debenture registrar may
deem the person in whose name such Debenture shall be registered upon the books
of the Company to be, and may treat such person as, the absolute owner of such
Debenture (whether or not such Debenture shall be overdue and notwithstanding
any notation of ownership or other writing thereon) for the purpose of receiving
payment of or on account of the principal of and interest on such Debenture, for
conversion of such Debenture and for all other purposes; and neither the Company
nor the Trustee nor any paying agent nor any conversion agent nor any Debenture
registrar shall be affected by any notice to the contrary. All such payments so
made to any holder for the time being, or upon order of such holder, shall be
valid and, to the extent of the sum or sums so paid, effectual to satisfy and
discharge the liability for monies payable upon any such Debenture.
Section 8.4 Company-Owned Debentures Disregarded. In
determining whether the holders of the requisite aggregate principal amount of
Debentures have concurred in any direction, consent, waiver or other action
under this Indenture, Debentures that are owned by the Company or any other
obligor on the Debentures or by any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
other obligor on the Debentures shall be disregarded and deemed not to be
outstanding for the purpose of any such determination; provided that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, consent, waiver or other action, only Debentures that a
Responsible Officer of the Trustee actually knows are so owned shall be so
disregarded. Debentures so owned that have been pledged in good faith may be
regarded as outstanding for the purposes of this Section 8.4 if the pledgee
shall establish to the satisfaction of the Trustee the pledger's right to vote
such Debentures and that the pledgee is not the Company, any other obligor on
the Debentures or a person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company or any such other
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obligor. In the case of a dispute as to such right, any
decision by the Trustee taken upon the advice of counsel shall be full
protection to the Trustee. Upon request of the Trustee, the Company shall
furnish to the Trustee promptly an Officers' Certificate listing and identifying
all Debentures, if any, known by the Company to be owned or held by or for the
account of any of the above described persons; and subject to Section 7.1, the
Trustee shall be entitled to accept such Officers' Certificate as conclusive
evidence of the facts therein set forth and of the fact that all Debentures not
listed therein are outstanding for the purpose of any such determination.
Section 8.5 Revocation of Consents, Future Holders Bound. At
any time prior to (but not after) the evidencing to the Trustee, as provided in
Section 8.1, of the taking of any action by the holders of the percentage in
aggregate principal amount of the Debentures specified in this Indenture in
connection with such action, any holder of a Debenture that is shown by the
evidence to be included in the Debentures the holders of which have consented to
such action may, by filing written notice with the Trustee at its Corporate
Trust Office and upon proof of holding as provided in Section 8.2, revoke such
action so far as concerns such Debenture. Except as aforesaid, any such action
taken by the holder of any Debenture shall be conclusive and binding upon such
holder and upon all future holders and owners of such Debenture and of any
Debentures issued in exchange or substitution therefor, irrespective of whether
any notation in regard thereto is made upon such Debenture or any Debenture
issued in exchange or substitution therefor.
ARTICLE IX
DEBENTUREHOLDERS' MEETINGS
Section 9.1 Purposes for Which Meetings May be Called. A
meeting of Debentureholders may be called at any time and from time to time
pursuant to the provisions of this Article IX for any of the following purposes:
(1) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiving of any
default hereunder and its consequences, or to take any other action
authorized to be taken by Debentureholders pursuant to any of the
provisions of Article VI;
(2) to remove the Trustee and appoint a successor trustee
pursuant to the provisions of Article VII;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 10.2; or
(4) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of
the Debentures under any other provisions of this Indenture or under
applicable law.
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Section 9.2 Manner of Calling Meetings; Record Date. The
Trustee may at any time call a meeting of Debentureholders to take any action
specified in Section 9.1, to be held at such time and at such place as the
Trustee shall determine. Notice of every meeting of the Debentureholders,
setting forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting, shall be mailed not less than 30
nor more than 60 days prior to the date fixed for the meeting to such
Debentureholders at their addresses as such addresses appear in the Debenture
register. For the purpose of determining Debentureholders entitled to notice of
any meeting of Debentureholders, the Company, upon written notice to the
Trustee, shall fix in advance a date as the record date for such determination,
such date to be a business day not more than ten days prior to the date of the
mailing of such notice as hereinabove provided. Only persons in whose name any
Debenture shall be registered in the Debenture register at the close of business
on a record date fixed by the Trustee as aforesaid, or by the Company or the
Debentureholders as provided in Section 9.3, shall be entitled to notice of the
meeting of Debentureholders with respect to which such record date was so fixed.
Section 9.3 Call of Meeting by Company or Debentureholders. In
case at any time the Company, pursuant to a resolution of its Board of Directors
or the holders of at least 10% in aggregate principal amount of the Debentures
then outstanding shall have requested the Trustee to call a meeting of
Debentureholders to take any action authorized in Section 9.1 by written request
setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Trustee shall not have mailed notice of such meeting within 20
days after receipt of such request, then the Company or the holders of
Debentures in the amount above specified, as the case may be, may fix the record
date with respect to, and determine the time and the place for, such meeting and
may call such meeting to take any action authorized in Section 9.1, by mailing
notice thereof as provided in Section 9.2. The record date fixed as provided in
the preceding sentence shall be set forth in a written notice to the Trustee and
shall be a business day not less than 15 nor more than 20 days after the date on
which the original request is sent to the Trustee.
Section 9.4 Who May Attend and Vote at Meetings. Only persons
entitled to receive notice of a meeting of Debentureholders and their respective
proxies duly appointed by an instrument in writing shall be entitled to vote at
such meeting. The only persons who shall be entitled to be present or to speak
at any meeting of Debentureholders shall be the persons entitled to vote at such
meeting and their counsel and any representatives of the Trustee and its counsel
and any representatives of the Company and its counsel. When a determination of
Debentureholders entitled to vote at any meeting of Debentureholders has been
made as provided in this Section, such determination shall apply to any
adjournments thereof.
Section 9.5 Manner of Voting at Meetings and Record to be
Kept. The vote upon any resolution submitted to any meeting of Debentureholders
shall be by written ballots on each of which shall be subscribed the signature
of the Debentureholder or proxy casting such ballot and the identifying number
or numbers of the Debentures held or represented in respect of which such ballot
is cast. The chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in duplicate of all votes cast at the meeting. A record in duplicate of
the proceedings of each meeting of
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Debentureholders shall be prepared by the secretary of the meeting and there
shall be attached to said record the original reports of the inspectors of votes
on any vote by ballot taken thereat and affidavits by one or more persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was mailed as provided in Section 9.2. The record shall
show the identifying numbers of the Debentures voting in favor of or against any
resolution. Each counterpart of such record shall be signed and verified by the
affidavits of the chairman and secretary of the meeting and one of the
counterparts shall be delivered to the Company and the other to the Trustee to
be preserved by the Trustee.
Any counterpart record so signed and verified shall be
conclusive evidence of the matters therein stated and shall be the record
referred to in clause (b) of Section 8.1.
Section 9.6 Exercise of Rights of Trustee and Debentureholders
Not To Be Hindered or Delayed. Nothing in this Article IX contained shall be
deemed or construed to authorize or permit, by reason of any call of a meeting
of Debentureholders or any rights expressly or impliedly conferred hereunder to
make such call, any hinderance or delay in the exercise of any right or rights
conferred upon or reserved to the Trustee or to the Debentureholders under any
of the provisions of this Indenture or of the Debentures.
ARTICLE X
SUPPLEMENTAL INDENTURES
Section 10.1 Supplemental Indentures Without Consent of
Debentureholders. The Company, when authorized by a Board Resolution, and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto for one or more of the following purposes:
(a) to make provision with respect to the conversion rights of
the holders of Debentures pursuant to the requirements of Section 14.6;
(b) subject to Article XV, to convey, transfer, assign,
mortgage or pledge to the Trustee as security for the Debentures, any
property or assets;
(c) to evidence the succession of another person to the
Company, or successive successions, and the assumption by the Successor
Company of the covenants, agreements and obligations of the Company
pursuant to Article XI;
(d) to add to the covenants of the Company such further
covenants, restrictions or conditions as the Board of Directors and the
Trustee shall consider to be for the benefit of the holders of
Debentures and to make the occurrence, or the occurrence and
continuance, of a default in any such additional covenants,
restrictions or conditions a default or an Event of Default permitting
the enforcement of all or any of the several
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remedies provided in this Indenture as herein set forth; provided that
in respect of any such additional covenant, restriction or condition,
such supplemental indenture may provide for a particular period of
grace after default (which period may be shorter or longer than that
allowed in the case of other defaults) or may provide for an immediate
enforcement upon such default or may limit the remedies available to
the Trustee upon such default;
(e) to provide for the issuance under this Indenture of
Debentures in coupon form (including Debentures registrable as to
principal only) and to provide for exchangeability of such Debentures
with the Debentures issued hereunder in fully registered form and to
make all appropriate changes for such purpose;
(f) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture that may be
defective or inconsistent with any other provision contained herein or
in any supplemental indenture, or to make such other provisions in
regard to matters or questions arising under this Indenture that shall
not adversely affect the interests of the holders of the Debentures; or
(g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Debentures.
The Trustee is hereby authorized to join with the Company in
the execution of any such supplemental indenture, to make any further
appropriate agreements and stipulations that may be therein contained and to
accept the conveyance, transfer and assignment of any property thereunder, but
the Trustee shall not be obligated to, but may in its discretion, enter into any
supplemental indenture that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of
this Section 10.1 may be executed by the Company and the Trustee without the
consent of the holders of any of the Debentures at the time outstanding,
notwithstanding any of the provisions of Section 10.2.
Section 10.2 Supplemental Indentures With Consent of
Debentureholders. With the consent (evidenced as provided in Article VIII) of
the holders of not less than a majority in aggregate principal amount of the
Debentures at the time outstanding, the Company, when authorized by a Board
Resolution and the Trustee, may from time to time and at any time 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 any supplemental indenture or of modifying in any manner the
rights of the holders of the Debentures; provided that no such supplemental
indenture shall (i) without the consent of the holders of each Debenture so
affected, extend the fixed maturity of any Debenture, or reduce the rate or
extend the time of payment of interest thereon, or reduce the principal amount
thereof, or reduce any amount payable on redemption or repurchase thereof, or
impair or affect the right of any Debentureholder to institute suit for the
payment thereof or make the principal thereof or interest thereon payable in any
coin or currency other than that provided in the
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Debentures, modify the subordination provisions in a manner adverse to the
holders of the Debentures, or impair the right to convert the Debentures into
Common Stock or cash subject to the terms set forth herein or (ii) without the
consent of the holders of all the Debentures then outstanding, reduce the
aforesaid percentage of Debentures, the holders of which are required to consent
to any such supplemental indenture.
Upon the request of the Company, accompanied by a copy of a
Board Resolution certified by its Secretary or Assistant Secretary authorizing
the execution of any such supplemental indenture, and upon the filing with the
Trustee of evidence of the consent of Debentureholders as aforesaid, the Trustee
shall join with the Company in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such supplemental
indenture.
It shall not be necessary for the consent of the
Debentureholders under this Section 10.2 to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
Section 10.3 Effect of Supplemental Indentures. Upon the
execution of any supplemental indenture pursuant to the provisions of this
Article X, this Indenture shall be and be deemed to be modified and amended in
accordance therewith and the respective rights, limitation of rights,
obligations, duties and immunities under this Indenture of the Trustee, the
Company and the holders of Debentures shall thereafter be determined, exercised
and enforced hereunder subject in all respects to such modifications and
amendments and all the terms and conditions of any such supplemental indenture
shall be and be deemed to be part of the terms and conditions of this Indenture
for any and all purposes.
Section 10.4 Notation on Debentures. Debentures authenticated
and delivered after the execution of any supplemental indenture pursuant to the
provisions of this Article X may bear a notation in form approved by the Company
as to any matter provided for in such supplemental indenture, but they need not
do so. After notice to the Trustee, if the Company shall determine to add such a
notation, new Debentures so modified as to conform, in the opinion of the Board
of Directors, to any modification of this Indenture contained in any such
supplemental indenture may, at the Company's expense, be prepared and executed
by the Company, authenticated by the Trustee (or an authenticating agent duly
appointed by the Trustee pursuant to Section 16.14) and delivered in exchange
for the Debentures then outstanding, upon surrender of such Debentures then
outstanding.
Section 10.5 Evidence of Compliance of Supplemental Indenture
to Be Furnished to the Trustee. The Trustee shall be furnished with and, subject
to the provisions of Sections 7.1 and 7.2, may rely conclusively upon an
Officers' Certificate and an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant hereto complies with the requirements
of this Article X.
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ARTICLE XI
CONSOLIDATION, MERGER, SALE, CONVEYANCE,
TRANSFER AND LEASE
Section 11.1 Company May Consolidate, Etc. on Certain Terms.
The Company shall not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all of its assets (determined on a
consolidated basis) to any person unless: (i) the resulting, surviving or
transferee person (the "Successor Company") (if not the Company) expressly
assumes by a supplemental indenture, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under this
Indenture and the Debentures, including the rights pursuant to Article XIV
hereof, (ii) immediately after giving effect to such transaction, no Event of
Default has happened and is continuing and (iii) the Company delivers to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
Section 11.2 Successor Company To Be Substituted. In case of
any such consolidation, merger, sale, conveyance, transfer or lease and upon the
assumption by the Successor Company, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the due and
punctual payment of the principal of and interest on all of the Debentures and
the due and punctual performance of all of the covenants and conditions of this
Indenture to be performed by the Company, such Successor Company shall succeed
to and be substituted for the Company, with the same effect as if it had been
named herein as the party hereto. When a Successor Company duly assumes all the
obligations of the Company pursuant to this Indenture and the Debentures, the
predecessor shall be released from all such obligations.
Section 11.3 Opinion of Counsel To Be Given to Trustee. The
Trustee, subject to Sections 7.1 and 7.2, shall receive an Officers' Certificate
and an Opinion of Counsel as conclusive evidence that any such consolidation,
merger, sale, conveyance, transfer or lease and any such assumption complies
with the provisions of this Article XI.
ARTICLE XII
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
Section 12.1 Termination of Obligations upon Cancellation of
the Debentures. The Company may terminate all of its obligations under this
Indenture (subject to Section 12.2) when:
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(a) (1) all Debentures theretofore authenticated and delivered
(other than Debentures that have been destroyed, lost or stolen and
that have been replaced, converted or paid as provided in Section 2.6)
have been delivered to the Trustee for cancellation; and
(2) the Company has paid or caused to be paid all
other sums payable hereunder and under the Debentures by the Company;
or
(b) (1) the Debentures not previously delivered to the Trustee
for cancellation shall have become due and payable or are by their
terms to become due and payable within one year or are to be called for
redemption under arrangements satisfactory to the Trustee upon delivery
of notice, (ii) the Company shall have irrevocably deposited with the
Trustee, as trust funds, cash, in an amount sufficient to pay principal
of and interest on the outstanding Debentures, to maturity or
redemption, as the case may be, (iii) such deposit shall not result in
a breach or violation of, or constitute a default under, any agreement
or instrument pursuant to which the Company is a party or by which it
or its property is bound and (iv) the Company has delivered to the
Trustee an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee, each stating that all conditions related
to such discharge have been complied with.
Section 12.2 Survival of Certain Obligations. Notwithstanding
the satisfaction and discharge of this Indenture and of the Debentures referred
to in Section 12.1, the respective obligations of the Company and the Trustee
under Sections 2.3, 2.4, 2.5, 2.6, 3.1, 4.2, 5.1, 6.4, 6.9, 7.5, 7.8, 12.4,
12.5, 12.6, Articles XIV and XV shall survive until the Debentures are no longer
outstanding, and thereafter, the obligations of the Company and the Trustee
under Sections 6.9, 7.5, 12.4, 12.5 and 12.6 shall survive. Nothing contained in
this Article XII shall abrogate any of the rights, obligations or duties of the
Trustee under this Indenture.
Section 12.3 Acknowledgment of Discharge by Trustee. Subject
to Section 12.6, after (i) the conditions of Section 12.1 have been satisfied,
(ii) the Company has paid or caused to be paid all other sums payable hereunder
by the Company and (iii) the Company has delivered to the Trustee an Officers'
Certificate stating that all conditions precedent referred to in clause (i)
above relating to the satisfaction and discharge of this Indenture have been
complied with, the Trustee upon written request shall acknowledge in writing the
discharge of the Company's obligations under this Indenture except for those
surviving obligations specified in Section 12.2.
Section 12.4 Application of Trust Assets. The Trustee shall
hold any cash deposited with it in the irrevocable trust established pursuant to
Section 12.1. The Trustee shall apply the deposited cash in accordance with this
Indenture and the terms of the irrevocable trust agreement established pursuant
to Section 12.1, as the case may be, to the payment of principal of and interest
on the Debentures. The cash so held in trust and deposited with the Trustee in
compliance with Section 12.1 shall not be part of the trust estate under this
Indenture, but shall constitute a separate trust fund for the benefit of all
holders entitled thereto. Except as specifically provided herein, the Trustee
shall not be requested to invest any amounts held by it for the benefit of the
holders or pay interest on uninvested amounts to any holder.
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Section 12.5 Repayment to the Company; Unclaimed Money.
Subject to applicable laws governing escheat of such property, and upon
termination of the trust established pursuant to Section 12.1 hereof, the
Trustee shall promptly pay to the Company upon written request any excess cash
held by them. Additionally, if amounts for the payment of principal or interest
remains unclaimed for two years, the Trustee shall, upon written request, pay
such amounts back to the Company forthwith. Thereafter, all liability of the
Trustee with respect to such amounts shall cease. After payment to the Company,
holders entitled to such payment must look to the Company for such payment as
general creditors unless an applicable abandoned property law designates another
person.
Section 12.6 Reinstatement. If the Trustee is unable to apply
any cash in accordance with Section 12.1 by reason of any legal proceeding or by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture and the Debentures shall be revived and
reinstated as though no deposit had occurred pursuant to Section 12.1 until such
time as the Trustee is permitted to apply all such cash in accordance with
Section 12.1; provided that if the Company makes any payment of principal of or
interest on any Debentures following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the holders of such Debentures to
receive such payment from the amounts held by the Trustee.
ARTICLE XIII
IMMUNITY OF INCORPORATORS, SHAREHOLDERS,
OFFICERS AND DIRECTORS
Section 13.1 Indenture and Debentures Solely Corporate
Obligations. No recourse for the payment of the principal of or interest on any
Debenture, or for any claim based thereon or otherwise in respect thereof, and
no recourse under or upon any obligation, covenant or agreement of the Company
in this Indenture or in any supplemental indenture or in any Debenture, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, shareholder, officer or director, as such, past,
present or future, of the Company or of any successor entity, either directly or
through the Company or any successor entity, 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 all such liability is
hereby expressly waived and released as a condition of, and as a consideration
for, the execution of this Indenture and the issuance of the Debentures.
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ARTICLE XIV
CONVERSION OF DEBENTURES
Section 14.1 Right to Convert. Subject to and upon compliance
with the provisions of this Indenture, the holder of any Debenture shall have
the one-time right, at the option of such holder, at any time after 90 days
following the latest date of original issuance of the Debentures and prior to
the close of business on December 28, 2001 (except that, with respect to any
Debenture or portion of a Debenture that shall be called for redemption or
delivered for repurchase, such right shall terminate at the close of business
one Business Day immediately preceding the date fixed for redemption or
repurchase of such Debenture or portion of a Debenture unless the Company shall
default in payment due upon redemption thereof) to convert the principal amount
of any such Debenture, or any portion of such principal amount that is $1,000 or
an integral multiple thereof, of such holder's outstanding principal amount of
Debentures, into that number of fully paid and nonassessable shares (calculated
as to each conversion to the nearest 1/100 of a share) of Common Stock (as such
shares shall then be constituted) obtained by dividing the aggregate principal
amount of the Debentures or portion thereof surrendered for conversion by the
Conversion Price in effect at such time as such amount shall be certified by the
Company as provided in an Officers' Certificate, by surrender of the Debenture
so to be converted in whole or in part in the manner provided in Section 14.2. A
holder of Debentures is not entitled to any rights of a holder of Common Stock
until such holder has converted such holder's Debentures to Common Stock and
only to the extent such Debentures are deemed to have been converted to Common
Stock under this Article XIV.
Section 14.2 Exercise of Conversion Privilege; Issuance of
Common Stock on Conversion; No Adjustment for Interest or Dividends. In order to
exercise the conversion privilege with respect to any Debenture in definitive
form, the holder of any such Debenture to be converted in whole or in part shall
surrender such Debenture, duly endorsed, at an office or agency maintained by
the Company pursuant to Section 4.2, accompanied by the funds, if any, required
by the penultimate paragraph of this Section 14.2, and shall give written notice
of conversion in the form provided on the form of Debenture (or such other
notice that is acceptable to the Company) to the office or agency that the
holder elects to convert such Debenture or the portion thereof specified in said
notice. Such notice shall state the name, telephone number and facsimile number
of the contact person for the Conversion Notice and shall also state the name or
names (with address) in which the certificate or certificates for shares of
Common Stock that shall be issuable on such conversion shall be issued and shall
be accompanied by transfer taxes, if required pursuant to Section 14.7. Each
such Debenture surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the name of the holder of such Debenture as it
appears on the Debenture register, be duly endorsed by, or be accompanied by
instruments of transfer in form satisfactory to the Company duly executed by,
the holder or his duly authorized attorney.
As promptly as practicable after satisfaction of the
requirements for conversion set forth above, subject to Section 14.1(b) and in
compliance with any restrictions on transfer
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if shares issuable on conversion are to be issued in a name other than that of
the Debentureholder (as if such transfer were a transfer of the Debenture or
Debentures (or portion thereof) so converted), the Company shall issue and shall
deliver to such holder at the office or agency maintained by the Company for
such purpose pursuant to Section 4.2, a certificate or certificates for the
number of full shares issuable upon the conversion of such Debenture or portion
thereof in accordance with the provisions of this Article XIV and a check or
cash in respect of any fractional interest in respect of a Common Stock arising
upon such conversion, as provided in Section 14.3. In case any Debenture of a
denomination greater than $1,000 shall be surrendered for partial conversion,
and subject to Section 2.3, the Company shall execute and the Trustee shall
authenticate and make available for delivery to the holder of the Debenture so
surrendered, without charge to him, a new Debenture or Debentures in authorized
denominations in an aggregate principal amount equal to the unconverted portion
of the surrendered Debenture.
Each conversion shall be deemed to have been effected as to
any such Debenture (or portion thereof) on the date on which the requirements
set forth above in this Section 14.2 have been satisfied as to such Debenture
(or portion thereof), and, subject to Section 14.1(b), the person in whose name
any certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become on said date the holder of
record of the shares represented thereby; provided that any such surrender on
any date when the stock transfer books of the Company shall be closed shall
constitute the person in whose name the certificates are to be issued as the
record holder thereof for all purposes on the next succeeding day on which such
stock transfer books are open, but such conversion shall be at the Conversion
Price in effect on the date upon which such Debenture shall have been
surrendered.
Any Debenture or portion thereof surrendered for conversion
during the period from the close of business on the record date for any interest
payment date to the opening of business on the next succeeding interest payment
date shall (unless such Debenture or portion thereof being converted shall have
been called for redemption on a redemption date during the period from the close
of business on or after any record date for the payment of interest to the close
of business on the business day following the corresponding interest payment
date) be accompanied by payment, in funds acceptable to the Company, of an
amount equal to the interest payable on such succeeding interest payment date on
the principal amount being converted; provided that no such payment need be made
if there shall exist at the time of conversion a default in the payment of
interest on the Debentures. An amount equal to such payment shall be paid by the
Company on the corresponding interest payment date to the holder of such
Debenture at the close of business on such record date; provided that if the
Company shall default in the payment of interest on such interest payment date,
such amount shall be paid to the person who made such required payment. The
interest payment with respect to a Debenture called for redemption on a date
between the close of business on any record date for the payment of interest to
the close of business on the business day following the corresponding interest
payment date and surrendered for conversion during that period shall be payable
on the corresponding interest payment date to the registered holder at the close
of business on that record date (notwithstanding the conversion of such
Debenture before the corresponding interest payment date) and a holder who
elects to convert during that period need not include funds equal to the
interest paid. Except as provided above in this Section 14.2, no adjustment
shall be made
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for interest accrued on any Debenture converted or for dividends on any shares
issued upon the conversion of such Debenture as provided in this Article XIV.
Section 14.3 Cash Payments in Lieu of Fractional Shares. No
fractional shares of Common Stock or scrip representing fractional shares shall
be issued upon conversion of Debentures. If more than one Debenture shall be
surrendered for conversion at one time by the same holder, the number of fully
paid and nonassessable shares of Common Stock issuable upon conversion of a
Debenture shall be determined by dividing the aggregate principal amount of such
Debentures or portion thereof surrendered for conversion by the Conversion Price
in effect at such time. The aggregate number of shares of Common Stock issuable
upon conversion shall be rounded to the nearest 1/100th of a share (with .005
being rolled upward). If any fractional share of stock would be issuable upon
the conversion of any Debenture or Debentures, the Company shall make an
adjustment therefor in cash determined by multiplying the fractional share by
the Conversion Price.
Section 14.4 Conversion Price. The Conversion Price shall be
equal to the $5.50 per share (herein called the "Conversion Price"), subject to
adjustment as provided in this Article XIV.
Section 14.5 Adjustment of Conversion Price. The Conversion
Price shall be adjusted from time to time by the Company as follows:
(a) In case the Company shall (i) pay a dividend or make a
distribution on its outstanding Common Stock in shares of its Common
Stock, (ii) subdivide or split its outstanding Common Stock into a
greater number of shares, (iii) combine its outstanding Common Stock
into a smaller number of shares or (iv) issue any shares of capital
stock by reclassification of its Common Stock, the conversion price in
effect immediately prior thereto shall be adjusted so that the holder
of any Debentures thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock of the Company
which such holder would have owned or have been entitled to receive
after the occurrence of any of the events described above had such
Debentures been surrendered for conversion immediately prior to the
occurrence of such event or the record date therefor, whichever is
earlier. An adjustment made pursuant to this subsection (a) shall
become effective immediately after the close of business on the record
date for determination of shareholders entitled to receive such
dividend or distribution in the case of a dividend or distribution
(except as provided in Section 14.5(e)) and shall become effective
immediately after the close of business on the effective date in the
case of a subdivision, split, combination or reclassification.
(b) In case the Company shall, by dividend or otherwise,
distribute property or assets to all holders of its Common Stock (other
than any dividends or distributions of the Company's Capital Stock to
which Section 14.5(a) applies), and excluding any dividend or
distribution (x) in connection with the liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary, (y) in
cash or (z) referred to in Section 14.5(a) (any of the foregoing
hereinafter in this Section 14.5(b) called the
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"Property")), then, in each such case, the Company shall make proper
provision so that each Debentureholder who converts a Debenture (or any
portion thereof) after the date fixed for determination of shareholders
entitled to receive such distribution shall be entitled to receive upon
such conversion, in addition to the shares of Common Stock issuable
upon such conversion, the amount and kind of Property that such holder
would have been entitled to receive if such holder had, immediately
prior to such determination date, converted such Debenture into Common
Stock.
(c) The Company may make such reductions in the Conversion
Price, in addition to those required by Sections 14.5(a), as the Board
of Directors considers to be advisable to avoid or diminish any income
tax to holders of Common Stock or rights to purchase Common Stock
resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax
purposes. To the extent permitted by applicable law, the Company from
time to time may reduce the Conversion Price by any amount for any
period of time if the period is at least 20 days, the reduction is
irrevocable during the period and the Board of Directors shall have
made a determination that such reduction would be in the best interests
of the Company, which determination shall be conclusive and described
in a Board Resolution. Whenever the Conversion Price is reduced
pursuant to the preceding sentence, the Company shall mail to all
holders of record of the Debentures a notice of the reduction at least
15 days prior to the date the reduced Conversion Price takes effect,
and such notice shall state the reduced Conversion Price and the period
it shall be in effect.
(d) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such price; provided that any adjustments that by reason of
this Section 14.5(d) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Article XIV shall be made by the Company and
shall be made to the nearest 1/100 (with 0.005 being rolled upward).
No adjustment need be made for a change in the par value, or
to or from no par value, of the Common Stock.
To the extent the Debentures become convertible into cash,
assets, property or securities (other than Common Stock of the
Company), no adjustment need be made thereafter as to the cash, assets,
property or such securities (except as such securities may otherwise by
their terms provide), and interest shall not accrue on such cash.
(e) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Trustee and any
conversion agent other than the Trustee an Officers' Certificate
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
Promptly after delivery of such certificate, the Company shall prepare
a notice of such adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the
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Conversion Price to the holder of each Debenture at his last address
appearing on the Debenture register provided for in Section 2.5, within
20 days after execution thereof. Failure to deliver such notice shall
not effect the legality or validity of any such adjustment.
Section 14.6 Effect of Reclassification, Consolidation, Merger
or Sale. If any of the following events occur, namely (i) any reclassification
or change of outstanding shares of Common Stock (other than a change in par
value, or to or from no par value, as a result of a subdivision or combination),
(ii) any consolidation, merger or combination of the Company with another
corporation as a result of which holders of Common Stock shall be entitled to
receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock or (iii) any sale or conveyance
of the properties and assets of the Company as, or substantially as, an entirety
(determined on a consolidated basis) to any other corporation as a result of
which holders of Common Stock shall be entitled to receive stock, securities or
other property or assets (including cash) with respect to or in exchange for
such Common Stock, then the Company or the successor or purchasing corporation,
as the case may be, shall execute with the Trustee a supplemental indenture
providing that the Debentures shall be convertible into the kind and amount of
shares of stock and other securities or property or assets (including cash)
receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance by a holder of a number of shares of Common
Stock issuable upon conversion of such Debentures (assuming, for such purposes,
a sufficient number of authorized shares of Common Stock available to convert
all such Debentures) immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance, assuming such holder of
Common Stock did not exercise his rights of election, if any, as to the kind or
amount of securities, cash or other property receivable upon such
reclassification, change, consolidation, merger, combination, sale or conveyance
(provided that, if the kind or amount of securities, cash or other property
receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance is not the same for each share of Common Stock
in respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purposes of this Section 14.6 the kind and
amount of securities, cash or other property receivable upon such
reclassification, change, consolidation, merger, combination, sale or conveyance
for each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares). Such
supplemental indenture shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
XIV.
The Company shall cause notice of the execution of such
supplemental indenture to be mailed to each holder of Debentures, at his address
appearing on the Debenture register provided for in Section 2.5, within 20 days
after execution thereof. Failure to deliver such notice shall not affect the
legality or validity of such supplemental indenture.
The above provisions of this Section 14.6 shall similarly
apply to successive reclassifications, changes, consolidations, mergers,
combinations, sales and conveyances.
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Section 14.7 Taxes on Shares Issued. The issuance of stock
certificates on conversions of Debentures shall be made without charge to the
converting Debentureholder for any transfer or similar tax in respect of the
issue thereof. The Company shall not, however, be required to pay any tax that
may be payable in respect of any transfer involved in the issue and delivery of
stock in any name other than that of the holder of any Debenture converted, and
the Company shall not be required to issue or deliver any such stock certificate
unless and until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
Section 14.8 Reservation of Shares; Shares to Be Fully Paid.
The Company shall provide, free from preemptive rights, out of its authorized
but unissued shares or shares held in treasury, sufficient shares to provide for
the conversion of the Debentures from time to time as such Debentures are
presented for conversion.
Before taking any action that 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 shall take
all corporate action that may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue shares of such Common Stock
at such adjusted Conversion Price.
The Company covenants that all shares of Common Stock that may
be issued upon conversion of Debentures shall, upon issuance, be fully paid and
nonassessable by the Company and free from all taxes, liens and charges with
respect to the issuance thereof.
Section 14.9 Responsibility of Trustee. The Trustee and any
other conversion agent shall not at any time be under any duty or responsibility
to any holder of Debentures to determine whether any facts exist that may
require any adjustment of the Conversion Price or notice thereof, or with
respect to the nature, accuracy or extent or calculation 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. The Trustee
and any other conversion agent shall not be accountable with respect to the
validity or value (or the kind or amount) of any shares of Common Stock, or of
any securities or property, that may at any time be issued or delivered upon the
conversion of any Debenture; and the Trustee and any other conversion agent make
no representations with respect thereto or actions or omissions by the Company
in connection with this Article XIV. Subject to the provisions of Section 7.1,
neither the Trustee nor any conversion agent shall be responsible for any
failure of the Company to issue, transfer or deliver any shares of Common Stock
or stock certificates or other securities or property or cash upon the surrender
of any Debenture for the purpose of conversion or to comply with any of the
duties, responsibilities or covenants of the Company contained in this Article
XIV. Without limiting the generality of the foregoing, neither the Trustee nor
any conversion agent shall be under any responsibility to determine whether a
supplemental indenture under Section 14.6 hereof need to be entered into or the
correctness of any provisions contained in any supplemental indenture entered
into pursuant to Section 14.6 relating either to the kind or amount of shares of
stock or securities or property (including cash) receivable by
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Debentureholders upon the conversion of their Debentures after any event
referred to in such Section 14.6 or to any adjustment to be made with respect
thereto, and may accept as conclusive evidence of the correctness of any such
provisions, and shall be protected in relying upon, the Officers' Certificate
(which the Company shall be obligated to file with the Trustee prior to the
execution of any such supplemental indenture) with respect thereto.
Section 14.10 Notice to Holders Prior to Certain Actions. In
case:
(a) the Company makes any distribution or dividend that would
require an adjustment in the Conversion Price pursuant to Section 14.5;
or
(b) the Company takes any action that would require a
supplemental indenture pursuant to Section 14.6; or
(c) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Debentures at his address appearing on the Debenture register, as
promptly as possible but in any event at least 15 days prior to the applicable
date hereinafter specified, a notice stating (x) the date on which a record date
is to be taken for the purpose of such dividend, distribution, rights, options
or warrants, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution,
rights, options or warrants are to be determined or (y) the date on which such
reclassification, change, consolidation, merger, sale, conveyance, transfer,
dissolution, liquidation or winding-up is expected to become effective or occur
and the date as of which it is expected that holders of record of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, change, consolidation, merger,
sale, conveyance, transfer, dissolution, liquidation or winding-up. Neither the
failure to give such notice nor any defect therein shall affect the legality or
validity of the proceedings referenced in clauses (a) through (c) of this
Section 14.10.
ARTICLE XV
SUBORDINATION
Section 15.1 Agreement to Subordinate. The Company agrees, and
each Debentureholder by accepting a Debenture agrees, that the indebtedness
evidenced by the Debentures is subordinated in right of payment, to the extent
and in the manner provided in this Article XV, to the prior payment in full of
all Senior Indebtedness and that the subordination is for the benefit of the
holders of Senior Indebtedness.
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Section 15.2 Certain Definitions. For purposes of this Article
XV, the following terms shall have the meaning indicated:
(1) "Representative" shall mean a duly authorized indenture
trustee or other trustee, agent or representative for any Senior
Indebtedness.
(2) "Senior Indebtedness" with respect to the Debentures means
the principal of, premium, if any, and interest (including any interest
accruing subsequent to a bankruptcy or other similar proceeding whether
or not such interest is an allowed claim enforceable in a bankruptcy
case) on, and any fees, costs, expenses and any other amounts
(including indemnity payments) related to the following, whether
outstanding on the date hereof or hereafter incurred or created: (a)
indebtedness, matured or unmatured, whether or not contingent, of the
Company to NationsCredit Commercial Corporation, through its
NationsCredit Commercial Funding Division, its affiliates, its
successors or its assigns, regardless of whether evidenced by notes or
other written obligations, (b) indebtedness of others of any of the
kinds described in the preceding clause (a) assumed or guaranteed by
the Company, (c) indebtedness, matured or unmatured, whether or not
contingent, of the Company to the trustee, paying agent or holders of
the Company's 8.5% Subordinated Redeemable Debentures due 2000 issued
pursuant to an Indenture dated as of September 30, 1997, and (d)
renewals, extensions, modifications, amendments, and refundings of, and
indebtedness and obligations of a successor person issued in exchange
for or in replacement of, indebtedness or obligations of the kinds
described in the preceding clauses (a), (b) and (c), unless the
agreement pursuant to which any such indebtedness described in clauses
(a) through (d) is created, issued, assumed or guaranteed expressly
provides that such indebtedness is not senior or superior in right of
payment to the Debentures; provided that the following shall not
constitute Senior Indebtedness: (i) any indebtedness or obligation of
the Company in respect of the Debentures, (ii) any indebtedness (other
than the debentures described in clause (c)) that is subordinated or
junior in any respect to any other indebtedness of the Company other
than Senior Indebtedness; and (iii) any indebtedness incurred for the
purchase of goods or materials in the ordinary course of business.
For the purposes of this Indenture, Senior Indebtedness shall
not be deemed to have been paid in full until the holders of the Senior
Indebtedness shall have indefeasibly received payment in full in cash of all
Senior Indebtedness; provided that if any holder of Senior Indebtedness agrees
to accept payment in full of such Senior Indebtedness for consideration other
than cash, such holder shall be deemed to have indefeasibly received payment in
full of such Senior Indebtedness. The provisions of this Article XV shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment of any of the Senior Indebtedness is rescinded or must otherwise be
returned by any holder of Senior Indebtedness upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, all as though such payment had not
been made.
A distribution may consist of cash, securities or other
property, by set-off or otherwise.
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Section 15.3 Liquidation; Dissolution; Bankruptcy. Upon any
distribution to creditors of the Company in a liquidation or dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, in an assignment for the
benefit of creditors or any marshalling of the Company's assets and liabilities,
(a) holders of all Senior Indebtedness shall first be entitled to receive
payment in full of all amounts due or to become due thereon before
Debentureholders shall be entitled to receive any payment with respect to the
principal of or interest on the Debentures (except that Debentureholders may
receive securities that are subordinated to at least the same extent as the
Debentures to Senior Indebtedness and any securities issued in exchange for
Senior Indebtedness) and (b) until all Senior Indebtedness (as provided in
clause (a) above) is paid in full, any distribution to which Debentureholders
would be entitled but for this Article shall be made to holders of Senior
Indebtedness (except that Debentureholders may receive securities that are
subordinated to at least the same extent as the Debentures to (x) Senior
Indebtedness and (y) any securities issued in exchange for Senior Indebtedness),
as their interests may appear.
Section 15.4 Default on Senior Indebtedness. The Company may
not make any payment upon or in respect of the Debentures (except in such
subordinated securities) and may not acquire from the Trustee or any
Debentureholder any Debenture for cash or property (other than securities that
are subordinated to at least the same extent as the Debenture to (i) Senior
Indebtedness and (ii) any securities issued in exchange for Senior Indebtedness)
until all Senior Indebtedness has been paid in full if:
(a) a default in the payment of the principal of, premium, if
any, or interest on Senior Indebtedness occurs and is continuing beyond
any applicable period of grace (a "Payment Default"); or
(b) a default, other than a Payment Default on Senior
Indebtedness occurs and is continuing that permits holders of the
Senior Indebtedness as to which such default relates to accelerate its
maturity (a "Nonpayment Default") and the Trustee or the Company
receives a notice of the default from the Representative or
Representatives of holders of at least a majority in principal amount
of Senior Indebtedness then outstanding.
The Company may and shall resume payments on and distributions
in respect of the Debentures and may acquire them upon the date on which the
default is cured or waived, in writing, if this Article XV otherwise permits the
payment, distribution or acquisition at the time of such payment or acquisition.
Section 15.5 When Distribution Must Be Paid Over. In the event
that the Trustee (or paying agent if other than the Trustee) or any
Debentureholder receives any payment of principal or interest with respect to
the Debentures at a time when such payment is prohibited by Section 15.3 or 15.4
hereof, such payment shall be held by the Trustee (or paying agent if other than
the Trustee) or such Debentureholder, in trust for the benefit of, and
immediately shall be paid over and delivered, upon written request, to, the
holders of Senior Indebtedness as their interests may appear or their
Representative under the indenture or other agreement (if
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any) pursuant to which 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 accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform only such obligations on the part of the Trustee
as are specifically set forth in this Article XV, 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 shall not be liable
to any such holders if the Trustee shall pay over or distribute to or on behalf
of Debentureholders or the Company or any other person money or assets to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
XV, except if such payment is made as a result of the willful misconduct or
gross negligence of the Trustee.
Section 15.6 Notice by Company. The Company shall promptly
notify the Trustee and the paying agent in writing of any facts known to the
Company that would cause a payment of any principal or interest with respect to
the Debentures to violate this Article XV, but failure to give such notice shall
not affect the subordination of the Debentures to the Senior Indebtedness as
provided in this Article XV.
Section 15.7 Subrogation. Until all Senior Indebtedness is
paid in full and until the Debentures are paid in full, Debentureholders shall
be subrogated (equally and ratably with all other indebtedness pari passu with
the Debentures) to the rights of holders of Senior Indebtedness (but subordinate
to the rights of the holders of Senior Indebtedness) to receive distributions
applicable to Senior Indebtedness to the extent that distributions otherwise
payable to the Debentureholders have been applied to the payment of Senior
Indebtedness. A distribution made under this Article XV to holders of Senior
Indebtedness that otherwise would have been made to Debentureholders is not, as
between the Company and Debentureholders, a payment by the Company on the
Debentures.
Section 15.8 Relative Rights. This Article XV defines the
relative rights of Debentureholders and holders of Senior Indebtedness. Nothing
in this Indenture shall:
(a) impair, as between the Company and the Debentureholders,
the obligation of the Company, which is absolute and unconditional, to
pay principal of and interest on the Debentures in accordance with
their terms;
(b) affect the relative rights of Debentureholders and
creditors of the Company other than their rights in relation to holders
of Senior Indebtedness; or
(c) prevent the Trustee or any Debentureholder from exercising
its available remedies upon a default or Event of Default, subject to
the rights of holders and owners of Senior Indebtedness to receive
distributions and payments otherwise payable to Debentureholders.
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If the Company fails because of this Article XV to pay
principal of or interest on a Debenture on the due date, the failure is still a
default or Event of Default.
Section 15.9 Subordination May Not Be Impaired by Company. No
right of any holder of Senior Indebtedness to enforce the subordination of the
indebtedness evidenced by the Debentures shall be impaired by any act or failure
to act by the Company or any holder of Debentures or by the failure of the
Company or any holder of Debentures to comply with this Indenture.
Section 15.10 Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of Senior
Indebtedness, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company
referred to in this Article XV, the Trustee and the Debentureholders shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other person making any distribution to the
Trustee or to the Debentureholders 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 XV.
Section 15.11 Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article XV or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any facts that would prohibit the making of any payment or distribution by the
Trustee, and the Trustee and the paying agent may continue to make payments on
the Debentures, unless the Trustee shall have actual knowledge or shall have
received at its Corporate Trust Office at least three Business Days prior to the
date of such payment written notice of facts that would cause the payment of any
principal and interest with respect to the Debentures to violate this Article
XV. Only the Company or a Representative may give the notice. Nothing in this
Article XV shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.6 hereof.
The Trustee shall be entitled to rely on the delivery to it of
a written notice by a person representing such person to be a holder of Senior
Indebtedness (or a trustee or agent on behalf of such holder) to establish that
such notice has been given by a holder of Senior Indebtedness (or a trustee or
agent on behalf of any such holder). 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 XV, 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 XV, and if such
evidence is not furnished, the Trustee may defer any payment which it may be
required to make for the
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benefit of such person pursuant to the terms of this Indenture pending judicial
determination as to the rights of such person to receive such payment.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness with the same rights it would have if it were not Trustee.
Any paying agent, any authenticating agent, any conversion agent, any Debenture
registrar and their successors may do the same with like rights.
Section 15.12 Authorization to Effect Subordination. Each
holder of a Debenture by the holder's acceptance thereof authorizes and directs
the Trustee on the holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination as provided in this Article XV and
appoints the Trustee to act as the holder's attorney-in-fact for any and all
such purposes. Without limiting the foregoing, each Representative is hereby
irrevocably authorized and empowered (in its own name or in the name of the
Debentureholders or the Trustee or otherwise), but shall have no obligation, to
demand, sue for, collect and receive every payment or distribution referred to
in Section 15.3 above and give acquittance therefor and to file claims and
proofs of claim and take such other action as it may deem necessary or advisable
for the exercise or enforcement of any of the rights or interests of the holders
or owners of the Senior Indebtedness hereunder; provided that for purposes of
this Section 15.12 holders or owners of Senior Indebtedness may act only through
such Representative.
Section 15.13 Conversions Not Deemed Payment. For the purposes
of this Article XV only, the issuance and delivery of Common Stock upon
conversion of the Debentures in accordance with Article XIV shall not be deemed
to constitute a payment or distribution on account of the principal of or
interest on the Debentures or on account of the purchase or other acquisition of
Debentures. Nothing contained in this Article or elsewhere in this Indenture or
in the Debentures is intended to or shall impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the holders, the right,
which is absolute and unconditional, of the holder of any Debenture to convert
such Debenture in accordance with Article XIV.
Section 15.14 Amendments. The provisions of this Article XV
shall not be amended or modified without the written consent of the holders of
Senior Indebtedness or their Representative.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
Section 16.1 Provisions Binding on Company's Successors. All
the covenants, stipulations, promises and agreements in this Indenture made by
the Company shall bind its successors and assigns whether so expressed or not.
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Section 16.2 Official Acts by Successor Company. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board (including the Board of Directors), committee or
officer of the Company shall and may be done and performed with like force and
effect by the like board, committee or officer of any corporation that shall at
the time be the lawful sole successor of the Company.
Section 16.3 Addresses for Notices, Etc. Any notice or demand
that by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Debentures on the Company shall be
deemed to have been sufficiently given or made, for all purposes if given or
served by being sent by prepaid overnight delivery or being deposited postage
prepaid by registered or certified mail in a post office letter box addressed
(until another address is filed by the Company with the Trustee) to Fields
Aircraft Spares, Inc., 4175 Guardian Street, Simi Valley, California 93063-3382,
Attention: President, with a copy to Richard T. Beard, Callister Nebeker &
McCullough, Gateway Tower East, Suite 900, 10 East South Temple, Salt Lake City,
Utah 84133. Any notice, direction, request or demand hereunder to or upon the
Trustee shall be deemed to have been sufficiently given or made, for all
purposes, if given or served by being sent by prepaid overnight delivery or
being deposited postage prepaid by registered or certified mail in a post office
letter box addressed to the Corporate Trust Office of the Trustee, which office
is, at the date as of which this Indenture is dated, located at Gartenstrasse
10, CH-8002, Zurich, Switzerland, Attention: Dr. Dieter Wicki.
The Trustee, by notice to the Company, may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Debentureholder shall
be mailed to him by first class mail, postage prepaid, at the address of such
Debentureholder as it appears on the Debenture register and shall be
sufficiently given to such Debentureholder if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Debentureholder
or any defect in it shall not affect its sufficiency with respect to other
Debentureholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
Section 16.4 Governing Law. This Indenture shall be deemed to
be a contract made under the substantive laws of Utah and for all purposes shall
be construed in accordance with the substantive laws of Utah without regard to
conflicts of laws principles thereof.
Section 16.5 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions 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 have been complied
with.
52
<PAGE>
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include: (1) a statement that the person
making such certificate or opinion has read such covenant or condition, (2) a
brief statement as to the nature and scope of the examination or investigation
upon which the statement or opinion contained in such certificate or opinion is
based, (3) a statement that, in the opinion of such person, 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 or not, in the opinion of such
person, such condition or covenant has been complied with.
Section 16.6 Legal Holidays. In any case where any interest
payment date, date fixed for redemption or stated maturity of any Debenture or
the last date on which a holder has the right to convert his Debentures shall
not be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Debentures) payment of interest or principal or conversion
of the 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
Interest Payment Date, date fixed for redemption, or at the stated maturity, or
on such last day for conversion, provided that no interest shall accrue for the
period from and after such interest payment date, date fixed for redemption or
stated maturity, as the case may be.
Section 16.7 Benefits of Indenture. Nothing in this Indenture
or in the Debentures, expressed or implied, shall give to any person, other than
the parties hereto, any paying agent, any authenticating agent, any conversion
agent, any Debenture registrar and their successors hereunder and the holders of
Debentures, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
Section 16.8 Table of Contents, Headings Etc. The table of
contents and the titles and headings of the articles and sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof.
Section 16.9 Authenticating Agent. The Trustee may appoint an
authenticating agent that shall be authorized to act on its behalf and subject
to its direction in the authentication and delivery of Debentures in connection
with the original issuance thereof and transfers and exchanges of Debentures
hereunder, including under Sections 2.4, 2.5, 2.6, 2.7 and 3.3, as fully to all
intents and purposes as though the authenticating agent had been expressly
authorized by this Indenture and those Sections to authenticate and deliver
Debentures. For all purposes of this Indenture, the authentication and delivery
of Debentures by the authenticating agent shall be deemed to be authentication
and delivery of such Debentures "by the Trustee" and a certificate of
authentication executed on behalf of the Trustee by an authenticating agent
shall be deemed to satisfy any requirement hereunder or in the Debentures for
the Trustee's certificate of authentication.
Any corporation into which any authenticating agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger,
53
<PAGE>
consolidation or conversion to which any authenticating agent shall be a party,
or any corporation succeeding to the corporate trust business of any
authenticating agent, shall be the successor of the authenticating agent
hereunder, if such successor company is otherwise eligible under this Section,
without the execution or filing of any paper or any further act on the part of
the parties hereto or the authenticating agent or such successor company.
Any authenticating agent may at any time resign by giving
written notice of resignation to the Trustee and to the Company. The Trustee may
at any time terminate the agency of any authenticating agent by giving written
notice of termination to such authenticating agent and to the Company. Upon
receiving such a notice of resignation or upon such a termination, or in case at
any time any authenticating agent shall cease to be eligible under this Section,
the Trustee shall promptly appoint a successor authenticating agent (which may
be the Trustee), shall give written notice of such appointment to the Company
and shall mail notice of such appointment to all holders of Debentures as the
names and addresses of such holders appear on the Debenture register.
The Company agrees to pay to the authenticating agent from
time to time reasonable compensation for its services.
The provisions of Sections 7.2, 7.3, 7.4, 8.3 and this Section
16.9 shall be applicable to any authenticating agent.
Section 16.10 Execution in Counterparts. This Indenture may be
executed in any number of counterparts, each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.
54
<PAGE>
EPP Finanz AG hereby accepts the trusts in this Indenture
declared and provided, upon the terms and conditions hereinabove set forth.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly signed and attested, all as of the date first written
above.
FIELDS AIRCRAFT SPARES, INC.
By: /s/ Peter Frohlich
----------------------------
Name: Peter Frohlich
Title: Chairman
Attest:
/s/ S.H. Carrington-Green
- ------------------------------
EPP FINANZ AG,
as Trustee
By: /s/ Herbert Towning
------------------------------
Name: Herbert Towning
Title:
Attest:
/s/ Judith White
- -----------------------------
55
<PAGE>
EXHIBIT A - FORM OF DEBENTURE
[FORM OF FACE OF DEBENTURE]
No.
$-----------------
CUSIP 316572 AB 2
FIELDS AIRCRAFT SPARES, INC.
8.5% Subordinated Convertible Redeemable Debentures Due 2001
THE DEBENTURE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a) UNDER THE SECURITIES ACT) ("ACCREDITED INVESTOR") AND (B) IT IS
ACQUIRING THE DEBENTURE EVIDENCED HEREBY FOR INVESTMENT PURPOSES ONLY
AND NOT WITH A VIEW TOWARDS DISTRIBUTION; (2) AGREES THAT IT WILL NOT
RESELL OR OTHERWISE TRANSFER THE DEBENTURE EVIDENCED HEREBY OR THE
COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH DEBENTURE EXCEPT (A) TO
THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO EPP
FINANZ AG AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THE DEBENTURE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM SUCH TRUSTEE), (D) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (E) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THE DEBENTURE EVIDENCED HEREBY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THE DEBENTURE EVIDENCED HEREBY, THE
HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO
EPP FINANZ AG, AS TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO
CLAUSE (C) OR (D) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO EPP FINANZ AG, AS
A-1
<PAGE>
TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS
THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
FIELDS AIRCRAFT SPARES, INC., a corporation duly organized and
validly existing under the laws of the State of Utah (the "Company"), which term
includes any Successor Company 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 December 31, 2001, at the
Corporate Trust Office of the Trustee, in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts, and to pay interest, semi-annually on June
30 and December 31 of each year (each an "Interest Payment Date"), commencing
June 30, 1999, on said principal sum at said office or agency, in like coin or
currency, at the rate per annum specified in the title of this Debenture, from
the original issue date of this Debenture or the most recent Interest Payment
Date, as the case may be, next preceding the date of this Debenture to which
interest has been paid or duly provided for, unless the date hereof is a date to
which interest has been paid or duly provided for, in which case from the date
of this Debenture, or unless no interest has been paid or duly provided for on
the Debentures, in which case from the original issue date of this Debenture
until payment of said principal sum has been made or duly provided for. The
interest so payable on any June 30 or December 31 will be paid to the person in
whose name this Debenture (or one or more Predecessor Debentures) is registered
at the close of business on the record date, which shall be the June 15 or
December 15 (whether or not a Business Day) next preceding such June 30 or
December 31, respectively; provided that any such interest not punctually paid
or duly provided for shall be payable as provided in the Indenture. Interest
shall be paid by check mailed to the registered holder at the registered address
of such person unless other arrangements are made in accordance with the
provisions of the Indenture.
Reference is made to the further provisions of this Debenture
set forth on the reverse hereof, including, without limitation, provisions
giving the holder of this Debenture the right to convert the principal amount of
this Debenture into Common Stock of the Company on the terms and subject to the
limitations referred to on the reverse hereof and as more fully specified in the
Indenture. Such further provisions shall for all purposes have the same effect
as though fully set forth at this place.
This Debenture shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been manually
signed by the Trustee, or a duly authorized authenticating agent under the
Indenture.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to
be duly executed under its corporate seal.
FIELDS AIRCRAFT SPARES, INC.
By:
---------------------------
Name:
Title:
Attest:
- ---------------------------
Secretary
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Debentures described in the within-named
Indenture.
By:
----------------------------------
Authorized Signatory
A-3
<PAGE>
[FORM OF REVERSE OF DEBENTURE]
FIELDS AIRCRAFT SPARES, INC.
8.5% Subordinated Convertible Redeemable Debentures Due 2001
This Debenture is one of a duly authorized issue of Debentures
of the Company, designated as its 8.5% Subordinated Convertible Redeemable
Debentures Due 2001 (herein called the "Debentures"), limited to the aggregate
principal amount of $2,000,000 all issued or to be issued under and pursuant to
an Indenture dated as of December 22, 1998 (the "Indenture"), between the
Company and EPP Finanz AG, as trustee (the "Trustee"), to which Indenture and
all indentures supplemental thereto reference is hereby made for a complete
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the
Debentures. Each Debenture is subject to, and qualified by, all such terms as
set forth in the Indenture certain of which are summarized hereon and each
holder of a Debenture is referred to the corresponding provisions of the
Indenture for a complete statement of such terms. To the extent that there is
any inconsistency between the summary provisions set forth in the Debentures and
the Indenture, the provisions of the Indenture shall govern. Capitalized terms
used but not defined in this Debenture shall have the meanings ascribed to them
in the Indenture.
In case an Event of Default, as defined in the Indenture,
shall have occurred and be continuing, the principal of and accrued interest on
all Debentures may be declared, and upon said declaration shall become, due and
payable, in the manner, with the effect and subject to the conditions provided
in the Indenture.
The payment of principal of and interest on the Debentures
will, to the extent set forth in the Indenture, be subordinated in right of
payment to the prior payment in full of all Senior Indebtedness (as defined in
the Indenture). Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding related to the Company or its
property, in an assignment for the benefit of creditors or any marshalling of
the Company's assets and liabilities, the holders of all Senior Indebtedness
will first be entitled to receive payment in full of all amounts due or to
become due thereon before the holders of the Debentures will be entitled to
receive any payment in respect of the principal of or interest on the Debentures
(except that holders of Debentures may receive securities that are subordinated
at least to the same extent as the Debentures to Senior Indebtedness and any
securities issued in exchange for Senior Indebtedness).
The Company also may not make any payment upon or in respect
of the Debentures (except in such subordinated securities) and may not acquire
from the Trustee or the holder of any Debenture for cash or property (other than
securities subordinated to at least the same extent as the Debenture to (i) all
Senior Indebtedness and (ii) any securities issued in exchange for Senior
Indebtedness) until all Senior Indebtedness has been paid in full if (a) a
default in the payment of the principal of, premium, if any, or interest on
Senior Indebtedness
A-4
<PAGE>
occurs and is continuing beyond any applicable period of grace or (b) any other
default occurs and is continuing with respect to Senior Indebtedness that
permits holders of the Senior Indebtedness as to which such default relates to
accelerate its maturity and the Trustee receives a notice of such default from
the representative or representatives of holders of at least a majority in
principal amount of Senior Indebtedness then outstanding. Payments on the
Debentures may and shall be resumed upon the date on which such default is cured
or waived.
In the event that the Trustee (or paying agent if other than
the Trustee) or any holder of the Debentures receives any payment of principal
or interest with respect to the Debentures at a time when such payment is
prohibited under the Indenture, such payment shall be held in trust for the
benefit of, and immediately shall be paid over and delivered to, the holders of
Senior Indebtedness or their representative as their respective interests may
appear. After all Senior Indebtedness is paid in full and until the Debentures
are paid in full, the holders of the Debentures shall be subrogated (equally and
ratably with all other Indebtedness pari passu with the Debentures) to the
rights of holders of Senior Indebtedness to receive distributions applicable to
Senior Indebtedness to the extent that distributions otherwise payable to the
holders of the Debentures have been applied to the payment of Senior
Indebtedness.
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Debentures at the time outstanding, evidenced
as in the Indenture provided, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or modifying in any manner the
rights of the holders of the Debentures; provided that no such supplemental
indenture shall (i) extend the fixed maturity of any Debenture, or reduce the
rate or extend the time of payment of interest thereon, or reduce the principal
amount thereof, or reduce any amount payable on redemption thereof, or impair or
affect the right of any Debentureholder to institute suit for the payment
thereof, or make the principal thereof or interest thereon payable in any coin
or currency other than that provided in the Debentures, modify the subordination
provisions in a manner adverse to the holders of the Debentures, or impair the
right to convert the Debentures into Common Stock subject to the terms set forth
in the Indenture without the consent of the holder of each Debenture so affected
or (ii) reduce the aforesaid percentage of Debentures, the holders of which are
required to consent to any such supplemental indenture, without the consent of
the holders of all Debentures then outstanding. The Company and the Trustee may
amend or supplement the Indenture without notice to or consent of any holder of
Debentures in certain events specified in the Indenture. It is also provided in
the Indenture that, prior to any declaration accelerating the maturity of the
Debentures, the holders of a majority in aggregate principal amount of the
Debentures at the time outstanding may on behalf of the holders of all of the
Debentures waive any past default or Event of Default under the Indenture and
its consequences except a default in the payment of interest or the principal of
any of the Debentures, a failure by the Company to convert any Debentures into
Common Stock of the Company, unless otherwise excused pursuant to the terms of
the Indenture, or a default in respect of a covenant or provision of the
Indenture that under Article X thereof cannot be modified or amended without the
consent of the holders of all Debentures then outstanding. Any such consent or
waiver by the holder of this Debenture (unless revoked as provided in the
A-5
<PAGE>
Indenture) shall be conclusive and binding upon such holder and upon all future
holders and owners of this Debenture and any Debentures that may be issued in
exchange or substitution hereof, irrespective of whether or not any notation
thereof is made upon this Debenture or such other Debentures.
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
interest on this Debenture at the place, at the respective times, at the rate
and in the coin or currency herein prescribed.
Interest on the Debentures shall be computed on the basis of a
360-day year composed of twelve 30-day months.
The Debentures are issuable in registered form without coupons
in denominations of $1,000 principal amount and integral multiples thereof. At
the office or agency of the Company referred to on the face hereof, and in the
manner and subject to the limitations provided in the Indenture, without payment
of any service charge but with payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any
registration or exchange of Debentures, Debentures may be exchanged for a like
aggregate principal amount of Debentures of other authorized denominations.
The Debentures are not redeemable at the option of the Company
prior to December 31, 1999. At any time on or after that date, the Debentures
may be redeemed at the Company's option, upon notice as set forth in the
Indenture, in whole at any time or in part from time to time, at 100% of the
principal amount, together with accrued interest to the date fixed for
redemption; provided that if the date fixed for redemption is a date on or after
the record date and on or before the next following Interest Payment Date, then
the interest payable on such date shall be paid to the holder of record on the
next preceding June 15 or December 15, respectively.
Subject to the provisions of the Indenture, the holder hereof
has the right, at its option, at any time after 90 days following the latest
date of original issuance of the Debentures and prior to the close of business
on December 28, 2001, subject to prior redemption or repurchase, or, as to all
or any portion hereof called for redemption, prior to the close of business one
business day before the date fixed for redemption (unless the Company shall
default in payment due upon redemption thereof), to convert the principal hereof
or any portion of such principal that is $1,000 or an integral multiple thereof,
into that number of fully paid and non-assessable shares of the Company's Common
Stock, as said shares shall be constituted at the date of conversion, obtained
by dividing the principal amount of this Debenture or portion thereof to be
converted by the conversion price (the "Conversion Price") equal to the greater
of $5.50 per share or such conversion price as adjusted from time to time as
provided in the Indenture, upon surrender of this Debenture, together with a
conversion notice as provided in the Indenture, to the Company at the Corporate
Trust Office of the Trustee, and, unless the shares issuable on conversion are
to be issued in the same name as this Debenture, duly
A-6
<PAGE>
endorsed by, or accompanied by instruments of transfer in form satisfactory to
the Company duly executed by, the holder or by his duly authorized attorney.
Except as described in the Indenture, no adjustment will be
made on conversion of any Debentures for interest accrued thereon or for
dividends paid on any Common Stock issued. A Holder of Debentures at the close
of business on a record date will be entitled to receive the interest payable on
such Debentures on the corresponding interest payment date. However, Debentures
surrendered for conversion during the period from the close of business on a
record date to the opening of business on the next succeeding interest payment
date must be accompanied by funds equal to the interest payable on such
succeeding interest payment date on the principal amount so converted (unless
such Debenture or portion thereof being converted is called for redemption on a
redemption date during the period from the close of business on or after any
record date to the close of business on the business day following the
corresponding interest payment date). The interest payment with respect to a
Debenture called for redemption on a date between the close of business on any
record date for the payment of interest to the close of business on the business
day following the corresponding interest payment date and surrendered for
conversion during that period will be payable on the corresponding interest
payment date to the registered Holder at the close of business on that record
date (notwithstanding the conversion of such Debenture before the corresponding
interest payment date). A Holder of Debentures who elects to convert during that
period need not include funds equal to the interest paid. The Company is not
required to issue fractional shares of Common Stock upon conversion of
Debentures and, in lieu thereof, will pay a cash adjustment based upon the
conversion price.
Upon due presentment for registration of transfer of this
Debenture at the Corporate Trust Office of the Trustee, a new Debenture or
Debentures of authorized denominations for an equal aggregate principal amount
will be issued to the transferee in exchange thereof, subject to the conditions
and limitations provided in the Indenture, without charge except for any tax or
other governmental charge imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying
agent, any conversion agent and any Debenture registrar may deem and treat the
registered holder hereof as the absolute owner of this Debenture (whether or not
this Debenture shall be overdue and notwithstanding any notation of ownership or
other writing hereon made by anyone other than the Company or any Debenture
registrar), for the purpose of receiving payment hereof, or on account hereof,
for the conversion hereof and for all other purposes, and neither the Company
nor the Trustee nor any other authenticating agent nor any paying agent nor any
other conversion agent nor any Debenture registrar shall be affected by any
notice to the contrary. All payments made to or upon the order of such
registered holder shall, to the extent of the sum or sums paid, satisfy and
discharge liability for monies payable on this Debenture.
No recourse for the payment of the principal of or interest on
this Debenture, or for any claim based hereon or otherwise in respect hereof,
and no recourse under or upon any obligation, covenant or agreement of the
Company in the Indenture or any indenture supplemental thereto or in any
Debenture, or because of the creation of any indebtedness
A-7
<PAGE>
represented thereby, shall be had against any incorporator, shareholder, officer
or director, as such, past, present or future, of the Company or of any
Successor Company, either directly or through the Company or any Successor
Company, 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.
A-8
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of
the face of this Debenture, shall be construed as though they were written out
in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties ______________ Custodian
JT TEN - as joint tenants with right of (Cust)
survivorship and not as tenants ______________ under
in common (Minor)
Uniform Gifts to
Minors Act _______________
(State)
Additional abbreviations may also be used though not in the
above list.
A-9
<PAGE>
[FORM OF CONVERSION NOTICE]
CONVERSION NOTICE
To: Fields Aircraft Spares, Inc.
The undersigned registered owner of this Debenture hereby
irrevocably exercises the option to convert this Debenture, or the portion
hereof (which is $1,000 principal amount or an integral multiple thereof) below
designated, into Common Shares, par value $.05 per share, of the Company in
accordance with the terms of the Indenture referred to in this Debenture, and
directs that the shares issuable and deliverable upon such conversion, together
with any check in payment for fractional shares and any Debentures representing
any unconverted principal amount hereof, be issued and delivered to the
registered holder hereof unless a different name has been indicated below. If
shares or any portion of this Debenture not converted are to be issued in the
name of a person other than the undersigned, the undersigned will check the
appropriate box below and pay all transfer taxes payable with respect thereto.
Any amount required to be paid to the undersigned on account of interest
accompanies this Debenture.
Dated:_______________________ Contact Person: ____________________
Fax Number:_________________________
_____________________________ Telephone Number:___________________
- -----------------------------
Signature(s)
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if Common Shares are to be issued, or
Debentures to be delivered, other than to and in the name of the registered
holder.
- --------------------------------
Signature Guarantee
A-10
<PAGE>
Fill in for registration of shares if to be issued, and Debentures if to be
delivered, other than to and in the name of the registered holder:
- ------------------------------------------------------------
(Name)
- ------------------------------------------------------------
(Street Address)
- ------------------------------------------------------------
(City, State and Zip Code)
Please print name and address
Principal amount to be converted (if less than all) $_______
Social Security or
Other Taxpayer Identification Number _______________________
A-11
<PAGE>
[FORM OF ASSIGNMENT]
For value received _____________________________ hereby
sell(s), assign(s) and transfer(s) unto _________________________ (Please insert
social security or other identifying number of assignee) the within Debenture,
and hereby irrevocably constitutes and appoints ________________________________
attorney to transfer the said Debenture on the books of the Company, with full
power of substitution in the premises.
In connection with any transfer of the within Debenture, the
undersigned confirms that such Debenture is being transferred:
|_| To Fields Aircraft Spares, Inc. or a subsidiary thereof; or
|_| Pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended; or
|_| To an accredited investor pursuant to and in compliance with the
Securities Act of 1933, as amended; or
|_| Pursuant to and in compliance with Rule 144 under the Securities Act
of 1933, as amended.
The Trustee may refuse to register any of the within
Debentures in the name of any person other than the registered holder thereof
(or hereof); unless the Trustee has received such certifications, legal opinions
and/or other information as the Company has reasonably requested to confirm that
such transfer is being made pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act of 1933, as
amended.
In addition, if the transferee is an accredited investor, the
holder must furnish to the Trustee (i) a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
security evidenced hereby in substantially the form of Exhibit B to the
Indenture and (ii) such other certifications, legal opinions or other
information as it may reasonably require to confirm that such transfer is being
made pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933, as amended.
A-12
<PAGE>
Dated: _______________________
- ------------------------------
- ------------------------------
Signature(s)
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15.
- --------------------------------------------------
Signature Guarantee
NOTICE: The signature on the conversion notice or the assignment must correspond
with the name as written upon the face of the Debenture in every particular
without alteration or enlargement or any change whatever.
A-13
<PAGE>
EXHIBIT B - FORM OF TRANSFEREE CERTIFICATE FOR DEBENTURES
TO BE ISSUED TO ACCREDITED INVESTORS
EPP Finanz AG
as Trustee
Gartenstrasse 10
CH-8002
Zurich, Switzerland
Attention: Corporate Trust Administration
Re: Fields Aircraft Spares, Inc.
8.5% Subordinated Convertible Redeemable
Debentures Due 2001 (the "Debentures")
Reference is hereby made to the Indenture dated as of December
22, 1998 (as supplemented from time to time, the "Indenture") between Fields
Aircraft Spares, Inc. and EPP Finanz AG, as Trustee. Capitalized terms used but
not defined herein shall have the meanings given to them in the Indenture.
The undersigned is delivering this letter in connection with
the transfer of Debentures to the undersigned, which Debentures are to be held
by the undersigned in definitive registered form.
The undersigned hereby confirms that:
(i) the undersigned is an "accredited investor" within the
meaning of Rule 501(a) under the Securities Act of 1933, as amended (the
"Securities Act"), or an entity in which all of the equity owners are accredited
investors within the meaning of Rule 501(a) under the Securities Act (an
"Accredited Investor");
(ii) (A) any purchase of Debentures by the undersigned will be
for the undersigned's own account or for the account of one or more other
Accredited Investors or as fiduciary for the account of one or more trusts, each
of which is an "accredited investor" within the meaning of Rule 501(a)(7) under
the Securities Act and for each of which we exercise sole investment discretion
or (B) we are a "bank," within the meaning of Section 3(a)(2) of the Securities
Act, or a "savings and loan association" or other institution described in
Section 3(a)(5)(A) of the Securities Act that is acquiring Debentures as
fiduciary for the account of one or more institutions for which we exercise sole
investment discretion;
(iii) the undersigned has such knowledge and experience in
financial and business matters that the undersigned is capable of evaluating the
merits and risks of purchasing Debentures;
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(iv) the undersigned is not acquiring Debentures with a view
to distribution thereof or with any present intention of offering or selling
Debentures or the Common Stock issuable upon conversion thereof, except as
permitted below; provided that the disposition of the undersigned's property and
property of any accounts for which the undersigned is acting as fiduciary shall
remain at all times within the undersigned's control; and
(v) the undersigned acknowledges that it has had access to
such financial and other information as the undersigned deems necessary in
connection with the undersigned's decision to purchase Debentures.
The undersigned understands that the Debentures have been
issued in a transaction not involving any public offering within the United
States within the meaning of the Securities Act and that the Debentures and the
shares of Common Stock issuable upon conversion thereof (collectively, the
"Securities") have not been registered under the Securities Act or any
applicable state securities laws, and the undersigned agrees, on the
undersigned's own behalf and on behalf of each account for which the undersigned
acquires any Securities, that if in the future the undersigned decides to resell
or otherwise transfer such Securities, such Securities may be resold or
otherwise transferred only (a) to the Company or any subsidiary thereof, (b) to
a person who is a "qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in a transaction meeting the requirements of Rule 144A, (c)
to an Accredited Investor that, prior to such transfer, furnishes to the trustee
(or transfer agent, as the case may be) for such Securities a signed letter
containing certain representations and agreements relating to the restrictions
on transfer of such Securities (the form of which letter can be obtained from
such trustee, or transfer agent, as the case may be), (d) pursuant to the
exemption from registration provided by Rule 144 under the Securities Act (if
applicable) or (e) pursuant to a registration statement which has been declared
effective under the Securities Act. The undersigned agrees that any such
transfer of Securities referred to in this paragraph shall be in accordance with
applicable securities laws of any State of the United States or any other
applicable jurisdiction and in accordance with the legends set forth on the
Securities. The undersigned further agrees to provide any person purchasing any
of the Securities from the undersigned a notice advising such purchaser that
resales of such Securities are restricted as stated herein. The undersigned
understands that the registrar and transfer agent for the Securities will not be
required to accept for registration or transfer any Securities, except upon
presentation of evidence satisfactory to the Company that the foregoing
restrictions on transfer have been complied with. The undersigned further
understands that any Securities will be in the form of definitive physical
certificates and that such certificates will bear a legend (unless the sale of
the Securities has been registered under the Securities Act) reflecting the
substance of this paragraph.
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The undersigned acknowledges that the Transferor, others and
you will rely upon the undersigned's confirmation, acknowledgments and
agreements set forth herein, and the undersigned agrees to notify you promptly
in writing if any of the undersigned's representations or warranties herein
ceases to be accurate and complete.
Dated: __________, ____
---------------------------------
(Name of Transferee)
By:_________________________________
Name:
Title:
Address:
B-3
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement"), is made and entered
into as of the 3 day of September, 1998, by and among FIELDS AIRCRAFT SPARES,
INC., a Utah corporation (the "Company"), and CHRISTIAN J. LUHNOW an individual
("Luhnow"), with reference to the following facts:
A. Luhnow is currently employed, on a full-time basis, as an
officer and employee of the Company.
B. It has been mutually agreed and accepted that Luhnow's
current employment be terminated, and that Luhnow agree to enter into this
Consulting Agreement.
WHEREFORE, in consideration of the foregoing recitals and the
agreements and covenants contained herein and other valuable consideration, the
parties agree as follows:
1. TERMINATION OF EMPLOYMENT; COMMENCEMENT OF CONSULTING.
Luhnow and the Company hereby agree that, effective as of
September 22, 1998 (the "Effective Date"), Luhnow's employment as an officer and
a full-time employee of the Company shall terminate. Prior to such termination,
Luhnow intends to use all accrued vacation and sick leave. From and after the
Effective Date, Luhnow shall be retained as a consultant to the Company, on the
terms and for the period provided herein.
2. TERM OF CONSULTING AGREEMENT.
The term of this Agreement shall commence on the Effective
Date, and shall continue for six (6) months until March 22, 1999 (the "Term"),
unless sooner terminated as provided herein.
3. DUTIES OF LUHNOW.
Luhnow shall consult with and advise the senior management of
the Company regarding (i) potential acquisitions, including evaluation and
negotiation of such acquisitions and (ii) the manufacturing operations of the
Company (the "Services"). Luhnow may, with the consent of the Company, provide
such Services by telephone. The Services shall be provided at the request of the
Company; provided, however, that Luhnow shall not be required to devote more
than forty (40) hours per month during the Term to providing the Services. In
addition, Luhnow acknowledges that the Company shall have no obligation to
actually utilize the Services, provided that the Company makes payment to Luhnow
as provided herein.
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4. COMPENSATION FOR SERVICES.
4.1. Consulting Fees. As consideration for providing the
Services, Luhnow shall receive a consulting fee of Sixteen Thousand Six Hundred
Sixty-Six Dollars and Sixty-Seven Cents ($16,666.67) per month for the first
three (3) months of the Term, representing payment in full for the Services
during the Term, payable in arrears on or before the last day of each month,
commencing October 21, 1998.
4.2. Termination of Benefits. Luhnow acknowledges that, as a
consultant, Luhnow shall not be a member or entitled to participation in any
insurance, health or other employee benefit programs of the Company in effect as
of the Effective Date.
4.3. Employee Stock Options. In connection with the
termination of Luhnow's employment as an officer and full-time employee of the
Company, 20,000 of the options held by Luhnow will fully vest on January 16,
1999 and will be exercisable by Luhnow until January 15, 2000; provided,
however, that such 20,000 options shall immediately vest upon the death of
Luhnow. All remaining options will terminate effective September 22, 1998.
4.4. Reimbursement of Expenses. The Company agrees to
reimburse Luhnow for all expenses incurred by Luhnow (i) prior to the date
hereof in accordance with applicable Company policies regarding such
reimbursement, and (ii) for expenses actually and reasonably incurred by Luhnow
during the Term in performing the Services, provided that such expenses are
approved by the Company in advance.
4.5. Office Space. The Company agrees to provide Luhnow with
office space and reasonable support services, including telephone service,
consistent with Luhnow's status, during the Term, at no cost to Luhnow.
5. TERMINATION. This Agreement may only be terminated by Company for
cause. As used herein, "cause" shall mean:
5.1. Failure to Provide Services. Luhnow's failure or refusal
to provide the Services hereunder, which failure or refusal continues for thirty
(30) days following written notice from the Company; or
5.2. Other Breach of Agreement. Luhnow's material breach of
any other term or provision of this Agreement.
5.3. Termination Upon Death or Disability. In addition, this
Agreement shall automatically terminate upon Luhnow's death or permanent
disability. As used herein, "permanent disability" shall mean Luhnow's
substantial inability to perform the Services, as determined by a physician
reasonably acceptable to the Company, which
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inability continues for more than thirty (30) consecutive days, or for more than
forty-five (45) days during the Term.
6. OBLIGATIONS OF LUHNOW - PROPERTY RIGHTS; NON-COMPETITION.
6.1. Definitions. As used in this Agreement, the following
definitions shall apply:
(a) "Confidential Information" means any and all
information disclosed to Luhnow or which Luhnow gains knowledge of as a
consequence of or through Luhnow's employment by or consulting with the Company
(including information conceived, originated, discovered or developed by Luhnow)
about Company's products, processes, and services, including information
relating to research, development, inventions, manufacture, purchasing,
accounting, engineering, marketing, merchandising, selling, trade secrets, or
customer lists, which information the Company maintains as confidential.
(b) "Conflicting Organization" means any person,
business, company or organization engaged in or about to become engaged in a
business or activity which is substantially similar to, or would reasonably be
deemed to compete with, the business of the Company.
6.2. Non-Disclosure. Except as required in Luhnow's duties to
Company and then only with Company's prior written consent, Luhnow will not,
directly or indirectly, use for Luhnow's own benefit or the benefit of others,
or disseminate, disclose, lecture upon or publish articles concerning, any
Confidential Information either during or at any time after the term of this
Agreement.
6.3. Obligation to Return Confidential Information. All
documents, papers, notes, notebooks, memoranda, computer files, and other
written or electronic records of any kind made by Luhnow during and in
connection with Luhnow's employment by Company or consulting with the Company,
shall remain the property of Company at all times. Upon the termination of
Luhnow's consulting with Company, all documents, papers, notes, notebooks,
memoranda, computer files and other written or electronic records in Luhnow's
possession, whether prepared by Luhnow or others will be left with Company.
6.4. Non-Competition. Luhnow shall not, either directly or
indirectly:
(a) During the term of this Agreement, own an
interest in, operate, join, control, participate in, or be connected as an
officer, agent, consultant, independent contractor, partner, shareholder, or
principal of, any Conflicting Organization. Ownership of less than five percent
(5%) of the common stock or equity interest of a public corporation shall not be
deemed in violation of this provision.
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(b) During the term of this Agreement, undertake
planning for or organization of any Conflicting Organization or any business
activity materially competitive with Company's business or combine with other
agents or representatives of Company for the purpose of organizing any such
Conflicting Organization or materially competitive business activity.
(c) During the term of this Agreement, and for a
period of three (3) years thereafter, directly or indirectly, or by action in
concert with others, induce or influence or seek to induce or influence, any
person who is engaged as an officer, consultant, agent, independent contractor,
or otherwise by Company to terminate his or her employment or engagement.
7. RELEASES.
7.1. As a material inducement to the Company to enter into
this Agreement, Luhnow hereby releases the Company and its subsidiaries,
affiliates, successors, assigns, officers, directors, shareholders, employees,
and agents from any and all claims, demands, causes of action, obligations, and
liabilities, whether known or unknown, and whether suspected or unsuspected,
that now exist or may hereafter exist, with the exception of the obligations,
representations and warranties of the Company contained in this Agreement,
arising out of any facts or circumstances existing, occurring, or commencing on
or prior to the date of this Agreement, including without limitation those
claims arising out of Luhnow's employment with the Company and/or Luhnow's
resignation or termination therefrom, including, but not limited to any claim
that the Company discriminated against Luhnow on the basis of Luhnow's race,
sex, religion, national origin, handicap, ancestry or age, that the Company or
any employee thereof engaged in sexual harassment of Luhnow, that the Company
violated any promise or agreement either express or implied with Luhnow, or that
the Company has terminated Luhnow for any illegal reason or in an illegal
fashion, or by reason of any act or omission concerning any matter, cause or
thing, including without limiting the generality of the foregoing any rights or
claims arising under statutes including the Employee Retirement Income Security
Act of 1974, Title VII of the Civil Rights Act of 1964 and the Civil Rights Act
of 1991, the Americans with Disabilities Act, the Age Discrimination in
Employment Act of 1967, 29 U.S.C. ss. 621, et seq., the California Fair
Employment and Housing Act, California Labor Code ss. 970, or any claim for
severance pay, bonus or incentive payments, vacation pay, sick leave, holiday
pay, life insurance, health insurance and medical insurance, pension benefits or
any claim of discrimination, which could have been alleged by Luhnow.
In connection with the foregoing release, Luhnow expressly
acknowledges and agrees that:
i. The foregoing release constitutes a voluntary
waiver of any and all rights and claims Luhnow has or may have against
the Company or any other party released in the foregoing release as of
the date of Luhnow's execution of this
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Agreement under the federal Age Discrimination in Employment Act of
1967, as amended, 29 U.S.C. Section 621 et seq.;
ii. Luhnow has waived rights or claims pursuant to
the foregoing release in exchange for consideration received from the
Company, the value of which exceeds payment or remuneration to which
Luhnow was already entitled;
iii. Luhnow has been advised to consult with an
attorney concerning this Agreement, and the foregoing release, prior to
executing it;
iv. Luhnow has had in excess of 21 days to consider
the terms of this Agreement, and the foregoing release;
v. Luhnow may revoke this Agreement at any time
during the seven (7) day period following execution of this Agreement,
and this Agreement does not become effective or enforceable until the
revocation period has expired, which will be the Effective Date of this
Agreement.
7.2. The Company, for itself and its officers, directors and
shareholders, hereby releases Luhnow and the successors and assigns of Luhnow
from any and all claims, demands, causes of actions, obligations, and
liabilities, whether known or unknown, and whether suspected or unsuspected,
that now exist or may hereafter exist, arising out of any facts or circumstances
existing, occurring, or commencing on or prior to the date of this Agreement.
Notwithstanding the foregoing, nothing contained in this Section 7.2 will
release Luhnow from any claims, demands, causes of action, obligations, and
liabilities, whether known or unknown, and whether suspected or unsuspected,
that now exist or may hereafter exist, arising out of any obligations assumed by
Luhnow under the Stock Purchase Agreement, dated as of January 2, 1998, by and
among Fields Aircraft Spares, Inc. and certain selling shareholders, as well as
that certain Covenant Not to Compete agreement entered into by Luhnow pursuant
to such Stock Purchase Agreement. In addition, Luhnow hereby agrees to cooperate
in any investigation, trial preparation or defense of the pending sexual
harassment litigation. The Company agrees that, to the extent practicable, such
assistance and cooperation can be provided by telephone, and will be scheduled,
to the extent within the control of the Company, so as not to unreasonably
interfere with Luhnow's business activities.
7.3. Luhnow and the Company each specifically intend that this
Agreement operate as a full and complete waiver and release of any and all
unknown claims whatsoever. In connection herewith, Luhnow and the Company each
knowingly and expressly acknowledge and waive the benefits of Section 1542 of
the Civil Code of California, which provides:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
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TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
Luhnow and the Company acknowledge that they may have
sustained losses or have claims which are presently unknown and unsuspected.
Nevertheless, both parties agree and acknowledge that this Agreement has been
negotiated and agreed upon in light of this realization and, being fully aware
of this situation, each of the parties hereto intends hereby to release, acquit
and forever discharge the other party from and against all unknown claims,
including damages, losses and the results of losses which are presently unknown
and unanticipated, without exception.
7.4. Luhnow and the Company each covenant and agree not to
institute or cause to be instituted against the other any suits or action for
damages or any injunction for or by reason of any damage, loss, injury, claim,
demand, cause of action, obligation or liability that has been released by one
party to the other under the terms of subsections 7.1, 7.2 or 7.3 of this
section. Each party agrees to indemnify and hold harmless the other from any
claim or liability that the other may suffer or may be required to pay on
account of any breach of this subsection 7.4.
8. MISCELLANEOUS.
8.1. Independent Contractor. The relationship between Luhnow
and the Company is that of independent contractor. This Agreement is not
authority for Luhnow to act for the Company as its agent or make commitments for
the Company. Luhnow agrees and acknowledges that he is not an employee of the
Company and that he is, in fact, an independent business. Luhnow further agrees
that he is responsible for paying all of the appropriate taxes, and for
appropriate insurance, including workers' compensation and general liability
insurance. Luhnow further agrees and acknowledges that he is not an employee or
officer of the Company, that he will not represent himself as an employee or
officer of the Company, and will support the Company's efforts to accurately
describe this relationship in any proceedings.
8.2. Entire Agreement. This Agreement, together with the
exhibits hereto and agreements expressly referenced herein, constitutes the
entire understanding between the parties, and supersedes all prior agreements
and negotiations, whether oral or written. There are no other agreements between
the parties, except as set forth herein. No supplement, modification, waiver or
termination of this Agreement shall be binding unless in writing and executed by
all parties hereto. The parties expressly agree that this Agreement supersedes
entirely any agreement, oral or written, relating to Luhnow's employment or
consulting with, or compensation by, the Company.
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8.3. No Assignment; Binding Effect. Neither this Agreement nor
any rights, benefits or obligations hereunder, may be assigned by any party to
this Agreement without the prior express written consent of the other party.
Subject to the foregoing, this Agreement shall inure to the benefit of and be
binding upon all of the parties hereto and their respective executors,
administrators, successors and permitted assigns.
8.4. Headings; Construction. The headings of the Sections
contained in this Agreement are for reference purposes only, and shall not
affect the meaning or interpretation of this Agreement. The parties have been
advised by counsel in connection with this Agreement. This Agreement shall be
construed and interpreted in accordance with the plain meaning of its language,
and not for or against either party, and as a whole, giving effect to all of the
terms, conditions and provisions hereof.
8.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
8.6. Counterparts. This Agreement may be executed in two or
more counterparts, which shall together constitute one and the same agreement.
This Agreement has been negotiated and entered into in, and the obligations of
the parties hereto are to be performed entirely or primarily in, the County of
Los Angeles, State of California, regardless of the place of execution of any of
such counterparts.
8.7. Arbitration. The parties hereby agree that all disputes
or claims arising hereunder shall be submitted to arbitration in accordance with
the rules of the American Arbitration Association. Such arbitration shall take
place in Los Angeles, California. The parties expressly agree and acknowledge
that any award rendered in such arbitration shall be final, binding and
conclusive, and judgement may be entered in any court of competent jurisdiction
upon any such award. Nothing in this Section 8.7 shall limit or restrict the
right of the Company to seek injunctive relief, pursuant to Section 8.10 hereof.
8.8. Attorneys' Fees. In the event that any party to this
Agreement shall commence any arbitration, suit or action to interpret or enforce
this Agreement, the prevailing party in such action or arbitration shall recover
such party's costs and expenses incurred in connection therewith, including
attorney's fees and costs of appeal, if any.
8.9. No Third Party Benefit. Nothing contained in this
Agreement shall be deemed to confer any right or benefit on any person who is
not a party to this Agreement.
8.10. Injunctive Relief. Luhnow hereby expressly agrees and
acknowledges that a breach by Luhnow of any of Luhnow's obligations under
Section 6 hereof would result in severe and irreparable injury to the Company,
which injury could not
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be adequately compensated by an award of money damages, and Luhnow therefore
agrees and acknowledges that the Company shall be entitled to injunctive relief
in the event of any such breach of this Agreement, or to enjoin or prevent such
a breach. Luhnow further expressly waives any requirement or obligation of the
Company to post any bond or provide any other security in connection with
obtaining such injunctive relief.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date, month and year first above written.
Fields Aircraft Spares, Inc.,
a Utah corporation
By: /s/ Alan M. Fields /s/ Christian J. Luhnow
--------------------------- ---------------------------
Christian J. Luhnow
Its: President
8
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") is entered into as of
September __, 1997, between FIELDS AIRCRAFT SPARES INCORPORATED, a California
corporation ("Borrower"), and NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender").
WHEREAS, Borrower has requested that Lender amend the Loan
Agreement dated April 18, 1997 (the "Loan Agreement") in various respects, and
Lender has agreed to do so subject to the terms contained herein;
NOW THEREFORE, in consideration of the premises and mutual
agreements herein contained, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. Amendments to Loan Agreement.
(a) Section 2.2(e) of the Loan Agreement is hereby amended and
restated in its entirety as follows:
"(e) Minimum Borrowing Fee. A minimum borrowing fee equal to the
excess, if any, of (i) interest which would have been payable in
respect of each period set forth in Section 6(e) of Schedule A if, at
all times during such period, the principal balance of the Loans was
equal to the lesser of (a) the Minimum Loan Amount and (b) the sum of
the maximum amount of Availability plus the maximum amount of
Availability under the Aero Management Loan Agreement over (ii) the sum
of the actual interest payable in respect of such period plus the
actual interest payable under the Aero Management Loan Agreement in
respect of such period, which fee shall be fully earned as of the first
day of such period and payable on the date set forth in Section
6(e)(ii) of Schedule A and on the Maturity Date."
(b) Section 4 of Schedule A to the Loan Agreement is hereby
amended and restated in its entirety as follows:
"4. Minimum Loan Amount: $2,500,000 beginning on October 1, 1997,
which amount shall be increased by
$425,000 on the first day of each month
thereafter for six months, provided, that
such amount shall be capped at $5,000,000
and shall remain at $5,000,000 for the
duration of Term"
<PAGE>
(c) Section 6(e) of Schedule A to the Loan Agreement is hereby
amended and restated in its entirety as follows:
"(e) Minimum Borrowing Fee:
(i) Applicable Period: Each month
(ii) Date payable: The first day of each month"
3.Other Amendments. This Amendment shall constitute an
amendment to the Loan Agreement and all of the other Loan Documents as
appropriate to express the agreements contained herein. In all other respects,
the Loan Agreement and the other Loan Documents shall remain unchanged and in
full force and effect in accordance with their original terms.
4.Miscellaneous.
(a)Warranties and Absence of Defaults. In order to induce
Lender to enter into this Amendment, Borrower hereby warrants to Lender, as of
the date hereof, that:
(i) The representations and warranties of Borrower
contained in the Loan Agreement are true and correct as of the
date hereof as if made on the date hereof.
(ii) All information, reports and other papers and
data heretofore furnished to Lender by Borrower in connection
with this Amendment, the Loan Agreement and the other Loan
Documents are accurate and correct in all material respects
and complete insofar as may be necessary to give Lender true
and accurate knowledge of the subject matter thereof. Borrower
has disclosed to Lender every fact of which it is aware which
might adversely affect the business, operations or financial
condition of Borrower or the ability of Borrower to perform
its obligations under this Amendment, the Loan Agreement or
under any of the other Loan Documents. None of the information
furnished to Lender by or on behalf of Borrower contained any
material misstatement of fact or omitted to state a material
fact or any fact necessary to make the statements contained
herein or therein not materially misleading.
(iii) No Event of Default or Default exists as of the
date hereof.
(b) Expenses. Borrower agrees to pay on demand all costs and
expenses of Lender (including the reasonable fees and expenses of outside
counsel for Lender) in connection with the preparation, negotiation, execution,
delivery and administration of this
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Amendment and all other instruments or documents provided for herein or
delivered in connection herewith. In addition, Borrower agrees to pay, and save
Lender harmless from all liability for, any stamp or other taxes which may be
payable in connection with the execution or delivery of this Amendment or the
Loan Agreement, as amended hereby, and the execution and delivery of any
instruments or documents provided for herein or delivered or to be delivered
hereunder or in connection herewith. All obligations provided in this Section
4(b) shall survive any termination of this Amendment and the Loan Agreement as
amended hereby.
(c) Governing Law. This Amendment shall be a contract made
under and governed by the internal laws of the State of New York.
(d) Counterparts. This Amendment may be executed in any number
of counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment.
(e) Reference to Loan Agreement. On and after the
effectiveness of the amendment to the Loan Agreement accomplished hereby, each
reference in the Loan Agreement to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import, and each reference to the Loan Agreement in
any other Loan Documents, or other agreements, documents or other instruments
executed and delivered pursuant to the Loan Agreement, shall mean and be a
reference to the Loan Agreement, as amended by this Amendment.
(f) Successors. This Amendment shall be binding upon Borrower,
Lender and their respective successors and assigns, and shall inure to the
benefit of Borrower, Lender and the successors and assigns of Lenders.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
and delivered at New York, New York as of the date first above written.
FIELDS AIRCRAFT SPARES INCORPORATED
By /s/ Lawrence J. Troyna
-----------------------------------
Its Chief Financial Officer
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ Scott James Lorimer
-----------------------------------
Its Vice President
The undersigned guarantors hereby acknowledge the foregoing
amendment and ratify and reaffirm their respective guarantees of the obligations
of Fields Aircraft Spares Incorporated.
FIELDS AERO MANAGEMENT, INC.
By /s/ Lawrence J. Troyna
----------------------------
Its Corporate Secretary
FIELDS AIRCRAFT SPARES, INC.
By /s/ Lawrence J. Troyna
----------------------------
Its Corporate Secretary
-4-
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") is entered into as of
April 29, 1998, between FIELDS AERO MANAGEMENT, INC., a California corporation
("Borrower"), and NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender").
WHEREAS, Borrower has requested that Lender amend the Loan and
Security Agreement dated April 18, 1997 (the "Loan Agreement") in various
respects, and Lender has agreed to do so subject to the terms contained herein;
NOW THEREFORE, in consideration of the premises and mutual
agreements herein contained, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. Amendments to Loan Agreement.
(a) Section 5.18(v) of the Loan Agreement is hereby amended to
delete the reference to "Fields" and to substitute therefor a reference to "any
Other Borrower".
(b) Section 7.2 of the Loan Agreement is hereby amended (i) to
delete the first reference to "Fields" and to substitute therefor a reference to
"each Other Borrower", and (ii) to delete the reference to "Fields Loan
Agreement" and to substitute therefor a reference to "Additional Loan Agreement
to which it is a party".
(c) Section 8.1(xiv) of the Loan Agreement is hereby amended
to delete the reference to "the Fields" and to substitute therefor a reference
to "any Additional".
(d) Section 1(d)(i) of Schedule A to the Loan Agreement is
hereby amended (i) to delete the first reference to "Fields" and to substitute
therefor a reference to "Other Borrower", and (ii) to delete the second
reference to "Fields" and to substitute therefor a reference to "the Other
Borrowers".
(e) Section 1(g) of Schedule A to the Loan Agreement is hereby
amended to delete the reference to "Fields" and to substitute therefor a
reference to "Other Borrower".
(f) Schedule B to the Loan Agreement is hereby amended to:
(i) Insert the following definitions:
""Additional Loan Agreements" means the Fields Loan Agreement,
the Flightways Loan Agreement, and all other Loan and Security
Agreements now or hereafter executed between Lender and any
Affiliate of Borrower, Fields, Flightways or Spares that
Borrower, all
<PAGE>
Other Borrowers at the time and Lender designate as an
Additional Loan Agreement.
"Flightways" means Flightways Manufacturing, Inc., a
California corporation and an Affiliate of Borrower.
"Flightways Loan Agreement" means the Loan and Security
Agreement dated as of April __, 1998, between Flightways and
Lender, as it may be amended from time to time.
"Flightways Loan Balance" means the outstanding balance of all
monetary obligations (including without limitation the
aggregate undrawn face amount of all outstanding letters of
credit, bankers acceptances and other credit accommodations
and all interest, fees and costs due or, in Lender's
estimation, likely to become due in connection therewith) of
Flightways under the Flightways Loan Agreement.
"Other Borrowers" means, collectively, Fields, Flightways and
any other borrower of Lender under an Additional Loan
Agreement.
"Other Borrower Loan Balance" means the Fields Loan Balance,
the Flightways Loan Balance and the outstanding balance of all
monetary obligations (including without limitation the
aggregate undrawn face amount of all outstanding letters of
credit, bankers acceptances and other credit accommodations
and all interest, fees and costs due or, in Lender's
estimation, likely to become due in connection therewith) of
each Other Borrower under each Additional Loan Agreement."
(ii) Amend the definition of "Borrower Guaranty" to
(i) insert a reference to ", as amended or modified from time
to time," after the word "herewith", and (ii) delete the
reference to "Fields" and to substitute therefor a reference
to "Other Borrower".
3. Other Amendments. This Amendment shall constitute an
amendment to the Loan Agreement and all of the other Loan Documents as
appropriate to express the agreements contained herein. In all other respects,
the Loan Agreement and the other Loan Documents shall remain unchanged and in
full force and effect in accordance with their original terms.
4. Miscellaneous.
(a) Warranties and Absence of Defaults. In order to induce
Lender to enter into this Amendment, Borrower hereby warrants to Lender, as of
the date hereof, that:
(i) The representations and warranties of Borrower
contained in the Loan Agreement are true and correct as of the
date hereof as if made on the date hereof.
-2-
<PAGE>
(ii) All information, reports and other papers and
data heretofore furnished to Lender by Borrower in connection
with this Amendment, the Loan Agreement and the other Loan
Documents are accurate and correct in all material respects
and complete insofar as may be necessary to give Lender true
and accurate knowledge of the subject matter thereof. Borrower
has disclosed to Lender every fact of which it is aware which
might adversely affect the business, operations or financial
condition of Borrower or the ability of Borrower to perform
its obligations under this Amendment, the Loan Agreement or
under any of the other Loan Documents. None of the information
furnished to Lender by or on behalf of Borrower contained any
material misstatement of fact or omitted to state a material
fact or any fact necessary to make the statements contained
herein or therein not materially misleading.
(iii) No Event of Default or Default exists as of the
date hereof.
(b) Expenses. Borrower agrees to pay on demand all costs and
expenses of Lender (including the reasonable fees and expenses of outside
counsel for Lender) in connection with the preparation, negotiation, execution,
delivery and administration of this Amendment and all other instruments or
documents provided for herein or delivered in connection herewith. In addition,
Borrower agrees to pay, and save Lender harmless from all liability for, any
stamp or other taxes which may be payable in connection with the execution or
delivery of this Amendment or the Loan Agreement, as amended hereby, and the
execution and delivery of any instruments or documents provided for herein or
delivered or to be delivered hereunder or in connection herewith. All
obligations provided in this Section 4(b) shall survive any termination of this
Amendment and the Loan Agreement as amended hereby.
(c) Governing Law. This Amendment shall be a contract made
under and governed by the internal laws of the State of New York.
(d) Counterparts. This Amendment may be executed in any number
of counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment.
(e) Reference to Loan Agreement. On and after the
effectiveness of the amendment to the Loan Agreement accomplished hereby, each
reference in the Loan Agreement to "this Amendment," "hereunder," "hereof,"
"herein" or words of like import, and each reference to the Loan Agreement in
any other Loan Documents, or other agreements, documents or other instruments
executed and delivered pursuant to the Loan Agreement, shall mean and be a
reference to the Loan Agreement, as amended by this Amendment.
-3-
<PAGE>
(f) Successors. This Amendment shall be binding upon Borrower,
Lender and their respective successors and assigns, and shall inure to the
benefit of Borrower, Lender and the successors and assigns of Lenders.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
and delivered at New York, New York as of the date first above written.
FIELDS AERO MANAGEMENT, INC.
By /s/ Lawrence J. Troyna
-----------------------------
Its CFO
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ Scott James Lorimer
-----------------------------
Its Vice President
-4-
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT (this "Amendment") is entered into as of
April 29, 1998, between FIELDS AIRCRAFT SPARED INCORPORATED, a California
corporation ("Borrower"), and NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender").
WHEREAS, Borrower and Lender have amended the Loan and
Security Agreement dated April 18, 1997 (as amended, the "Loan Agreement")
pursuant to that certain First Amendment to Loan and Security Agreement dated as
of September ___, 1997; and
WHEREAS, Borrower has requested that Lender further amend the
Loan Agreement in various respects, and Lender has agreed to do so subject to
the terms contained herein;
NOW THEREFORE, in consideration of the premises and mutual
agreements herein contained, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. Amendments to Loan Agreement.
(a) Section 2.2(e) of the Loan Agreement is hereby amended to
(i) delete the first reference to "Aero Management Loan Agreement" and to
substitute therefor a reference to "Other Borrower Loan Agreements", and (ii)
delete the second reference to "Aero Management Loan Agreement" and to
substitute therefor a reference to "Other Borrower Loan Agreements".
(b) Section 2.2(d)(ii) of the Loan Agreement is hereby amended
to delete the reference to "Aero Management" and to substitute therefor a
reference to "Other Borrower".
(c) Section 5.18(v) of the Loan Agreement is hereby amended to
delete the reference to "Aero Management" and to substitute therefor a reference
to "any Other Borrower".
(d) Section 7.2 of the Loan Agreement is hereby amended (i) to
delete the first reference to "Aero Management" and to substitute therefor a
reference to "each Other Borrower", and (ii) to delete the reference to "Aero
Management Loan Agreement" and to substitute therefor a reference to "Additional
Loan Agreement to which it is a party".
(e) Section 8.1(xiv) of the Loan Agreement is hereby amended
to delete the reference to "the Aero Management" and to substitute therefor a
reference to "any Additional".
<PAGE>
(f) Section 1(d)(i) of Schedule A to the Loan Agreement is
hereby amended (i) to delete the first reference to "Aero Management" and to
substitute therefor a reference to "Other Borrower", and (ii) to delete the
second reference to "Aero Management" and to substitute therefor a reference to
"the Other Borrowers".
(g) Section 1(d)(ii) of Schedule A to the Loan Agreement is
hereby amended to (i) delete the first reference to "Aero Management" and to
substitute therefor a reference to "Other Borrower", and (ii) to delete the
second reference to "Aero Management" and to substitute therefor a reference to
"the Other Borrowers".
(h) Section 1(g) of Schedule A to the Loan Agreement is hereby
amended to delete the reference to "Aero Management" and to substitute therefor
a reference to "Other Borrower".
(i) Schedule B to the Loan Agreement is hereby amended to:
(i) Insert the following definitions:
""Additional Loan Agreements" means the Aero Management Loan
Agreement, the Flightways Loan Agreement, and all other Loan
and Security Agreements now or hereafter executed between
Lender and any Affiliate of Borrower, Aero Management,
Flightways or Spares that Borrower, all Other Borrowers at the
time and Lender designate as an Additional Loan Agreement.
"Flightways" means Flightways Manufacturing, Inc., a
California corporation and an Affiliate of Borrower.
"Flightways Loan Agreement" means the Loan and Security
Agreement dated as of April __, 1998, between Flightways and
Lender, as it may be amended from time to time.
"Flightways Loan Balance" means the outstanding balance of all
monetary obligations (including without limitation the
aggregate undrawn face amount of all outstanding letters of
credit, bankers acceptances and other credit accommodations
and all interest, fees and costs due or, in Lender's
estimation, likely to become due in connection therewith) of
Flightways under the Flightways Loan Agreement.
"Other Borrowers" means, collectively, Aero Management,
Flightways and any other borrower of Lender under an
Additional Loan Agreement.
"Other Borrower Loan Balance" means the Aero Management Loan
Balance, the Flightways Loan Balance and the outstanding
balance of all monetary obligations (including without
limitation the aggregate undrawn face amount of all
outstanding letters of credit, bankers acceptances and other
credit accommodations and all interest, fees and
-2-
<PAGE>
costs due or, in Lender's estimation, likely to become due in
connection therewith) of each Other Borrower under each
Additional Loan Agreement."
(ii) Amend the definition of "Borrower Guaranty" to
(i) insert a reference to ", as amended or modified from time
to time," after the word "herewith", and (ii) delete the
reference to "Aero Management" and to substitute therefor a
reference to "Other Borrower".
3. Other Amendments. This Amendment shall constitute an
amendment to the Loan Agreement and all of the other Loan Documents as
appropriate to express the agreements contained herein. In all other respects,
the Loan Agreement and the other Loan Documents shall remain unchanged and in
full force and effect in accordance with their original terms.
4. Miscellaneous.
(a) Warranties and Absence of Defaults. In order to induce
Lender to enter into this Amendment, Borrower hereby warrants to Lender, as of
the date hereof, that:
(i) The representations and warranties of Borrower
contained in the Loan Agreement are true and correct as of the
date hereof as if made on the date hereof.
(ii) All information, reports and other papers and
data heretofore furnished to Lender by Borrower in connection
with this Amendment, the Loan Agreement and the other Loan
Documents are accurate and correct in all material respects
and complete insofar as may be necessary to give Lender true
and accurate knowledge of the subject matter thereof. Borrower
has disclosed to Lender every fact of which it is aware which
might adversely affect the business, operations or financial
condition of Borrower or the ability of Borrower to perform
its obligations under this Amendment, the Loan Agreement or
under any of the other Loan Documents. None of the information
furnished to Lender by or on behalf of Borrower contained any
material misstatement of fact or omitted to state a material
fact or any fact necessary to make the statements contained
herein or therein not materially misleading.
(iii) No Event of Default or Default exists as of the
date hereof.
(b) Expenses. Borrower agrees to pay on demand all costs and
expenses of Lender (including the reasonable fees and expenses of outside
counsel for Lender) in connection with the preparation, negotiation, execution,
delivery and administration of this Amendment and all other instruments or
documents provided for herein or delivered in connection herewith. In
-3-
<PAGE>
addition, Borrower agrees to pay, and save Lender harmless from all liability
for, any stamp or other taxes which may be payable in connection with the
execution or delivery of this Amendment or the Loan Agreement, as amended
hereby, and the execution and delivery of any instruments or documents provided
for herein or delivered or to be delivered hereunder or in connection herewith.
All obligations provided in this Section 4(b) shall survive any termination of
this Amendment and the Loan Agreement as amended hereby.
(c) Governing Law. This Amendment shall be a contract made
under and governed by the internal laws of the State of New York.
(d) Counterparts. This Amendment may be executed in any number
of counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment.
(e) Reference to Loan Agreement. On and after the
effectiveness of the amendment to the Loan Agreement accomplished hereby, each
reference in the Loan Agreement to "this Amendment," "hereunder," "hereof,"
"herein" or words of like import, and each reference to the Loan Agreement in
any other Loan Documents, or other agreements, documents or other instruments
executed and delivered pursuant to the Loan Agreement, shall mean and be a
reference to the Loan Agreement, as amended by this Amendment.
(f) Successors. This Amendment shall be binding upon Borrower,
Lender and their respective successors and assigns, and shall inure to the
benefit of Borrower, Lender and the successors and assigns of Lenders.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
and delivered at New York, New York as of the date first above written.
FIELDS AIRCRAFT SPARES INCORPORATED
By /s/ Lawrence J. Troyna
------------------------------
Its CFO
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ Scott James Lorimer
------------------------------
Its Vice President
-4-
NationsCredit Commercial Funding
Loan and Security Agreement
This Loan and Security Agreement (as it may be amended, this
"Agreement") is entered into on April 29, 1998 between NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender"),
having an address at 1177 Avenue of the Americas, 36th Floor, New York, New York
10036 and FLIGHTWAYS MANUFACTURING, INC. ("Borrower"), whose chief executive
office is located at 7660 Densmore Avenue, Van Nuys, California 91406
("Borrower's Address"). The Schedules to this Agreement are an integral part of
this Agreement and are incorporated herein by reference. Terms used, but not
defined elsewhere, in this Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 Amount. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) Revolving Loans and Credit Accommodations. From time to
time during the Term at Borrower's request, make revolving loans to Borrower
("Revolving Loans"), and make letters of credit, bankers acceptances and other
credit accommodations ("Credit Accommodations") available to Borrower, in each
case to the extent that there is sufficient Availability at the time of such
request to cover, dollar for dollar, the requested Revolving Loan or Credit
Accommodation; provided, that after giving effect to such Revolving Loan or
Credit Accommodation, (x) the outstanding balance of all monetary Obligations
(including the principal balance of any Term Loan and, solely for the purpose of
determining compliance with this provision, the Credit Accommodation Balance)
will not exceed the Maximum Flightways Facility Amount set forth in Section 1 of
Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "Availability" means:
(i) the aggregate amount of Eligible Accounts (less
maximum existing or asserted taxes, discounts, credits and allowances)
multiplied by the Accounts Advance Rate set forth in Section 1(b)(i) of
Schedule A but not to exceed the Accounts Sublimit set forth in Section
1(c) of Schedule A;
plus
(ii) the lower of cost or market value of Eligible
Inventory multiplied by the Inventory Advance Rate(s) set forth in
Section 1(b)(ii) of Schedule A, but not to exceed the Inventory
Sublimit(s) set forth in Section 1(d) of Schedule A;
minus
1
<PAGE>
(iii) all Reserves which Lender has established
pursuant to Section 1.2 (including those to be established in
connection with the requested Revolving Loan or Credit Accommodation);
and
minus
(iv) the outstanding balance of all of the monetary
Obligations (excluding the Credit Accommodation Balance and the
principal balance of the Term Loan). (b) Term Loan. On the date of this
Agreement, make a term loan to Borrower (the "Term Loan") in the
principal amount, if any, set forth in Section 2(a) of Schedule A.
1.2 Reserves. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion ("Reserves") to
reflect (i) events, conditions, contingencies or risks which affect or may
affect (A) the Collateral or its value, or the security interests and other
rights of Lender in the Collateral or (B) the assets, business or prospects of
Borrower or any Obligor, (ii) Lender's good faith concern that any Collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender determines in
good faith constitutes, or could constitute, a Default or Event of Default or
(iv) any other events or circumstances which Lender determines in good faith
make the establishment or revision of a Reserve prudent. Without limiting the
foregoing, Lender shall (x) in the case of each Credit Accommodation issued for
the purchase of Inventory (a) which meets the criteria for Eligible Inventory
set forth in clauses (i), (ii), (iii), (v) and (vi) of Eligible Inventory, (b)
which is or will be in transit to one of the locations set forth in Section
10(d), (c) which is fully insured in a manner satisfactory to Lender and (d)
with respect to which Lender is in possession of all bills of lading and all
other documentation which Lender has requested, all in form and substance
satisfactory to Lender in its sole discretion, establish a Reserve equal to the
cost of such Inventory (plus all duties, freight, taxes, insurance, costs and
other charges and expenses relating to such Credit Accommodation or such
Eligible Inventory) multiplied by a percentage equal to 100% minus the Inventory
Advance Rate applicable to Eligible Inventory and (y) in the case of any other
Credit Accommodation issued for any purpose, establish a Reserve equal to the
full amount of such Credit Accommodation plus all costs and other charges and
expenses relating to such Credit Accommodation. In addition, (x) Lender shall
establish a permanent Reserve in the amount set forth in Section 1(f) of
Schedule A, and (y) if the outstanding principal balance of the Term Loan
advance with respect to Eligible Equipment exceeds the percentage of the
appraised value of such Eligible Equipment set forth in Section 2(a) of Schedule
A, Lender may establish an additional Reserve in the amount of such excess (and,
for this purpose, payments of principal of the Term Loan made by Borrower shall
be deemed to apply to the Term Loan advance with respect to Eligible Equipment
and Real Property, respectively, in proportion to the original principal amounts
of such advances). Lender may, in its discretion, establish and revise Reserves
by deducting them in determining Availability or by reclassifying Eligible
Accounts or Eligible Inventory as ineligible.
2
<PAGE>
1.3 Other Provisions Applicable to Credit Accommodations. Lender may,
in its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; provided, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
1.4 Repayment. Accrued interest on all monetary Obligations shall be
payable on the first day of each month. Principal of the Term Loan shall be
repaid as set forth in Section 2(b) of Schedule A. If at any time any of the
Loan Limits are exceeded, Borrower will immediately pay to Lender such amounts
and/or provide cash collateral to Lender with respect to the Credit
Accommodation Balance in the manner set forth in Section 7.3, as shall cause
Borrower to be in full compliance with all of the Loan Limits. Notwithstanding
the foregoing, Lender may, in its sole discretion, make or permit Revolving
Loans, the Term Loan, any Credit Accommodations or any other monetary
Obligations to be in excess of any of the Loan Limits; provided, that Borrower
shall, upon Lender's demand, pay to Lender such amounts as shall cause Borrower
to be in full compliance with all of the Loan Limits. All unpaid monetary
Obligations shall be payable in full on the Maturity Date set forth in Section
7.1 or, if earlier, the date of any early termination pursuant to Section 7.2.
1.5 Minimum Borrowing. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to equal or exceed, at all times
prior to the Maturity Date, the Minimum Loan Amount set forth in Section 4 of
Schedule A and (ii) maintain Availability sufficient to enable Borrower to do
so. However, Lender shall not be obligated to loan Borrower the Minimum Loan
Amount other than in accordance with all of the terms and conditions of this
Agreement.
2. INTEREST AND FEES.
2.1 Interest. All Loans and other monetary Obligations shall bear
interest at the Interest Rate(s) set forth in Section 3 of Schedule A, except
where expressly set forth to the contrary in this Agreement or another Loan
Document; provided, that after the occurrence of an Event of Default, all Loans
and other monetary Obligations shall, at Lender's option, bear interest at a
rate per annum equal to two percent (2%) in excess of the rate otherwise
applicable thereto (the "Default Rate") until paid in full (notwithstanding the
entry of any judgment against Borrower or the exercise of any other right or
remedy by Lender), and all such interest shall be payable on demand. Changes in
the Interest Rate shall be effective as of the date of any change in the Prime
Rate. Notwithstanding anything to the contrary contained in this Agreement, the
aggregate of all amounts deemed to be interest hereunder and charged
3
<PAGE>
or collected by Lender is not intended to exceed the highest rate permissible
under any applicable law, but if it should, such interest shall automatically be
reduced to the extent necessary to comply with applicable law and Lender will
refund to Borrower any such excess interest received by Lender.
2.2 Fees and Warrants. Borrower shall pay Lender the following fees,
and issue Lender the following warrants, which are in addition to all interest
and other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
(a) Closing Fee. A closing fee in the amount set forth in
Section 6(a) of Schedule A.
(b) Facility Fees. A facility fee for the Initial Term in the
amount set forth in Section 6(b)(i) of Schedule A (which shall be fully earned
as of the date of this Agreement and shall be payable in equal installments due,
respectively, on each anniversary thereof during the Initial Term), and a
facility fee for each Renewal Term in the amount set forth in Section 6(b)(ii)
of Schedule A (which shall be fully earned as of the first day of such Renewal
Term and shall be payable in equal installments due, respectively, on the first
day of such Renewal Term and on each anniversary thereof during such Renewal
Term).
(c) Servicing Fee. A monthly servicing fee in the amount set
forth in Section 6(c) of Schedule A, in consideration of Lender's administration
and other services for each month (or part thereof), which shall be fully earned
as of, and payable in advance on, the date of this Agreement and on the first
day of each month thereafter so long as any of the Obligations are outstanding.
(d) Unused Line Fee. An unused line fee set forth in Section
6(d) of Schedule A.
(e) Minimum Borrowing Fee. A minimum borrowing fee equal to
the excess, if any, of (i) interest which would have been payable in respect of
each period set forth in Section 6(e) of Schedule A if, at all times during such
period, the principal balance of the Loans was equal to the Minimum Loan Amount
over (ii) the actual interest payable in respect of such period, which fee shall
be fully earned as of the first day of such period and payable on the date set
forth in Section 6(e)(ii) of Schedule A and on the Maturity Date.
(f) Success Fee. A success fee in the amount set forth in
Section 6(e)(i) of Schedule A, which shall be fully earned as of the date of
this Agreement and payable as set forth in Section 6(f) of Schedule A.
(g) Warrants. Warrants to acquire the capital stock of Spares,
as summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Spares contemporaneously with this
Agreement.
4
<PAGE>
(h) Credit Accommodation Fees. All of the fees relating to
Credit Accommodations set forth in Section 6(i) and 6(j) of Schedule A.
2.3 Computation of Interest and Fees. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
2.4 Loan Account; Monthly Accountings. Lender shall maintain a loan
account for Borrower reflecting all advances, charges, expenses and payments
made pursuant to this Agreement (the "Loan Account"), and shall provide Borrower
with a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or admissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations. Interest, fees
and other monetary Obligations due and owing under this Agreement (including
fees and other amounts paid by Lender to issuers of Credit Accommodations) may,
in Lender's discretion, be charged to the Loan Account, and will thereafter be
deemed to be Revolving Loans and will bear interest at the same rate as other
Revolving Loans.
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the
Obligations when due, Borrower hereby grants to Lender a continuing security
interest in all of Borrower's property and interests in property, whether
tangible or intangible, now owned or in existence or hereafter acquired or
arising, wherever located, including Borrower's interest in all of the
following, whether or not eligible for lending purposes: (i) all Accounts,
Chattel Paper, Instruments, Documents, Goods (including Inventory, Equipment,
farm products and consumer goods), Investment Property, General Intangibles,
Deposit Accounts and money, (ii) all proceeds and products of all of the
foregoing (including proceeds of any insurance policies, proceeds of proceeds
and claims against third parties for loss or any destruction of any of the
foregoing) and (iii) all books and records relating to any of the foregoing.
4. ADMINISTRATION.
4.1 Lock Boxes and Blocked Accounts. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("Account Proceeds"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or in the name of Lender
(a "Lock
5
<PAGE>
Box") or (ii) depositing all Account Proceeds received by Borrower into one or
more bank accounts maintained in Lender's name (each, a "Blocked Account"),
under an arrangement acceptable to Lender with a depository bank acceptable to
Lender, pursuant to which all funds deposited into each Blocked Account are to
be transferred to Lender in such manner, and with such frequency, as Lender
shall specify or (iii) a combination of the foregoing. Borrower agrees to
execute, and to cause its depository banks to execute, such Lock Box and Blocked
Account agreements and other documentation as Lender shall require from time to
time in connection with the foregoing.
4.2 Remittance of Proceeds. Except as provided in Section 4.1, all
proceeds arising from the sale or other disposition of any Collateral shall be
delivered, in kind, by Borrower to Lender in the original form in which received
by Borrower not later than the second Business Day after receipt by Borrower.
Until so delivered to Lender, Borrower shall hold such proceeds separate and
apart from Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3 Application of Payments. Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations, in such order and manner as
Lender shall determine, whether or not the Obligations are due, and whether
before or after the occurrence of a Default or an Event of Default. For purposes
of determining Availability, such amounts will be credited to the Loan Account
and the Collateral balances to which they relate upon Lender's receipt of advice
from Lender's Bank (set forth in Section 11 of Schedule A) that such items have
been credited to Lender's account at Lender's Bank (or upon Lender's deposit
thereof at Lender's Bank in the case of payments received by Lender in kind), in
each case subject to final payment and collection. However, for purposes of
computing interest on the Obligations, such items shall be deemed applied by
Lender one and one-half Business Days after Lender's receipt of advice of
deposit thereof at Lender's Bank.
4.4 Notification; Verification. Lender or its designee may, from time
to time, whether or not a Default or Event of Default has occurred: (i) verify
directly with the Account Debtors the validity, amount and other matters
relating to the Accounts and Chattel Paper, by means of mail, telephone or
otherwise, either in the name of Borrower or Lender or such other name as Lender
may choose; (ii) notify Account Debtors that Lender has a security interest in
the Accounts and that payment thereof is to be made directly to Lender; and
(iii) demand, collect or enforce payment of any Accounts and Chattel Paper (but
without any duty to do so).
4.5 Power of Attorney. Borrower hereby grants to Lender an irrevocable
power of attorney, coupled with an interest, authorizing and permitting Lender
(acting through any of its officers, employees, attorneys or agents), at any
time (whether or not a Default or Event of Default has occurred and is
continuing, except as expressly provided below), at Lender's option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise: (i) execute on
behalf of
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Borrower any documents that Lender may, in its sole discretion, deem advisable
in order to perfect and maintain Lender's security interests in the Collateral,
to exercise a right of Borrower or Lender, or to fully consummate all the
transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or lease (as lessor or lessee) any real or personal property which is part of
the Collateral or in which Lender has an interest; (iii) execute on behalf of
Borrower any invoices relating to any Accounts, any draft against any Account
Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy,
any notice of Lien or claim, assignment or satisfaction of mechanic's,
materialman's or other Lien; (iv) receive and otherwise take control in any
manner of any cash or non-cash items of payment or proceeds of Collateral; (v)
endorse Borrower's name on all checks and other forms of remittances received by
Lender; (vi) pay, contest or settle any Lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (vii)
after the occurrence of a Default or Event of Default, grant extensions of time
to pay, compromise claims relating to, and settle Accounts, Chattel Paper and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (viii) pay any sums required on account of
Borrower's taxes or to secure the release of any Liens therefor; (ix) pay any
amounts necessary to obtain, or maintain in effect, any of the insurance
described in Section 5.13; (x) settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (xi) instruct any third party having custody or control of any
Collateral or books or records belonging to, or relating to, Borrower to give
Lender the same rights of access and other rights with respect thereto as Lender
has under this Agreement; and (xii) after the occurrence of a Default or Event
of Default, change the address for delivery of Borrower's mail in respect of
payments from Account Debtors and receive and open all mail addressed to
Borrower; provided, that Lender shall promptly forward all other mail of
Borrower to Borrower at its address set forth in Section 9.1. Any and all sums
paid, and any and all costs, expenses, liabilities, obligations and reasonable
attorneys' fees incurred, by Lender with respect to the foregoing shall be added
to and become part of the Obligations, shall be payable on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to any of
the Obligations. Borrower agrees that Lender's rights under the foregoing power
of attorney or any of Lender's other rights under this Agreement or the other
Loan Documents shall not be construed to indicate that Lender is in control of
the business, management or properties of Borrower.
4.6 Disputes. Borrower shall promptly notify Lender of all disputes or
claims relating to Accounts and Chattel Paper. Borrower will not, without
Lender's prior written consent, compromise or settle any Account or Chattel
Paper for less than the full amount thereof, grant any extension of time of
payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or Chattel
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Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper; except
that prior to an Event of Default Borrower may do such things in the ordinary
course of business. Borrower will promptly report any such permitted settlement
or forgiveness to Lender.
4.7 Invoices. At Lender's request, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender, to reflect Lender's security
interest therein.
4.8 Inventory.
(a) Returns. Provided that no Event of Default has occurred
and is continuing, if any Account Debtor returns any Inventory to Borrower in
the ordinary course of its business, Borrower will promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor in
the appropriate amount (sending a copy to Lender). After the occurrence of an
Event of Default, Borrower will not accept any return without Lender's prior
written consent. Regardless of whether an Event of Default has occurred,
Borrower will, until such time as Borrower has issued a credit memorandum to the
Account Debtor, (i) hold the returned Inventory in trust for Lender; (ii)
segregate all returned Inventory from all of Borrower's other property; (iii)
conspicuously label the returned Inventory as Lender's property; and (iv)
immediately notify Lender of the return of such Inventory, specifying the reason
for such return, the location and condition of the returned Inventory and, at
Lender's request, deliver such returned Inventory to Lender at an address
specified by Lender.
(b) Other Covenants. Borrower will not, without Lender's prior
written consent, (i) store any Inventory or other Collateral with any
warehouseman or other third party other than as set forth in Section 9(d) of
Schedule A or (ii) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis. Borrower will produce Inventory only in
accordance with the Fair Labor Standards Act of 1938 as amended, and all rules,
regulations and orders promulgated thereunder.
4.9 Access to Collateral, Books and Records. At reasonable times, and
on one Business Day's notice, prior to the occurrence of a Default or an Event
of Default, and at any time and with or without notice after the occurrence of a
Default or an Event of Default, Lender or its agents shall have the right to
inspect the Collateral, and the right to examine and copy Borrower's books and
records. Lender shall take reasonable steps to keep confidential all information
obtained in any such inspection or examination, but Lender shall have the right
to disclose any such information to its auditors, regulatory agencies, attorneys
and participants, and pursuant to any subpoena or other legal process; provided,
however, that if Lender is required to disclose any such information pursuant to
any subpoena or other legal process, Lender shall notify Borrower of such
required disclosure and Lender shall refrain from making such disclosure until
the earlier of Borrower's consent thereto and the date immediately prior to the
expiration of the period in which Lender must comply with such subpoena or other
legal process, during which time Borrower shall be entitled to pursue all
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remedies available to Borrower to delay or prevent such disclosure; provided,
further, that Lender shall not be liable for any damages or other costs or
expenses resulting from any action of Borrower under this Section 4.9, and
Borrower agrees to indemnify Lender for any losses incurred by Lender as a
result of any such actions by Borrower under this Section 4.9. Borrower agrees
to give Lender access to any or all of Borrower's premises to enable Lender to
conduct such inspections and examinations. Such inspections and examinations
shall be at Borrower's expense and the charge therefor shall be $650 per person
per day (or such higher amount as shall represent Lender's then current standard
charge), plus reasonable out-of-pockets expenses. Lender may, at Borrower's
expense, use Borrower's personnel, computer and other equipment, programs,
printed output and computer readable media, supplies and premises for the
collection, sale or other disposition of Collateral to the extent Lender, in its
sole discretion, deems appropriate. Borrower hereby irrevocably authorizes all
accountants and third parties to disclose and deliver to Lender, at Borrower's
expense, all financial information, books and records, work papers, management
reports and other information in their possession regarding Borrower and not
subject to professional privilege, such as attorney-client privilege. Borrower
will not enter into any agreement with any accounting firm, service bureau or
third party to store Borrower's books or records at any location other than
Borrower's Address without first obtaining Lender's written consent (which
consent may be conditioned upon such accounting firm, service bureau or other
third party agreeing to give Lender the same rights with respect to access to
books and records and related rights as Lender has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) compliance with
each such covenant will be a condition to each Loan and Credit Accommodation:
5.1 Existence and Authority. Borrower is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation. Borrower is qualified and licensed to do business in
all jurisdictions in which any failure to do so would have a material adverse
effect on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
Borrower, and all other Obligors who have signed them, in accordance with their
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respective terms. Sections 9(g) and 9(h) of Schedule A sets forth the ownership
of Borrower and its Subsidiaries as of the date of this Agreement.
5.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct and complete legal name. Listed in
Section 9 of Schedule A are all prior names of Borrower and all of Borrower's
present and prior trade names. Borrower shall give Lender at least 30 days'
prior written notice before changing its name or doing business under any other
name. Borrower has complied with all laws relating to the conduct of business
under a fictitious business name. Borrower represents and warrants that (i) to
the best of its knowledge, each trade name does not refer to another corporation
or other legal entity; (ii) all Accounts invoiced under any such trade names are
owned exclusively by Borrower and are subject to the security interest of Lender
and the other terms of this Agreement and (iii) all schedules of Accounts,
including any sales made or services rendered using the trade name shall show
Borrower's name as assignor.
5.3 Title to Collateral; Permitted Liens. Borrower has good and
marketable title to the Collateral. The Collateral now is and will remain free
and clear of any and all liens, charges, security interests, encumbrances and
adverse claims, except for Permitted Liens. Lender now has, and will continue to
have, a first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens, and Borrower will at all times
defend Lender and the Collateral against all claims of others. None of the
Collateral which is Equipment is or will be affixed to any real property in such
a manner, or with such intent, as to become a fixture. Borrower is not a lessee
under any real property lease pursuant to which the lessor may obtain any rights
in any of the Collateral, and no such lease now prohibits, restrains, impairs or
conditions, or will prohibit, restrain, impair or condition, Borrower's right to
remove any Collateral from the leased premises. Whenever any Collateral is
located upon premises in which any third party has an interest (whether as
owner, mortgagee, beneficiary under a deed of trust, lien or otherwise),
Borrower shall, whenever requested by Lender, cause each such third party to
execute and deliver to Lender, in form acceptable to Lender, such waivers and
subordinations as Lender shall specify, so as to ensure that Lender's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the Collateral now or
in the future may be located.
5.4 Accounts and Chattel Paper. As of each date reported by Borrower,
all Accounts which Borrower has reported to Lender as being Eligible Accounts
comply in all respects with the criteria for eligibility established by Lender
and in effect at such time. Should an Account that has been reported in good
faith as an Eligible Account subsequently be determined to be ineligible,
Borrower will have 15 days to fix the error by providing a new report not
including that Account and no Event of Default shall have occurred provided that
the amount advanced to Borrower does not exceed Availability. All Accounts and
Chattel Paper are genuine and in all respects what they purport to be, arise out
of a completed, bona fide and unconditional and non-contingent sale and delivery
of goods or rendition of services
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by Borrower in the ordinary course of its business and in accordance with the
terms and conditions of all purchase orders, contracts or other documents
relating thereto, each Account Debtor thereunder had the capacity to contract at
the time any contract or other document giving rise to such Accounts and Chattel
Paper were executed, and the transactions giving rise to such Accounts and
Chattel Paper comply with all applicable laws and governmental rules and
regulations.
5.5 Investment Property. Borrower will take any and all actions
required or requested by Lender, from time to time, to (i) cause Lender to
obtain exclusive control of any Investment Property in a manner acceptable to
Lender and (ii) obtain from any issuers of Investment Property and such other
Persons as Lender shall specify, for the benefit of Lender, written confirmation
of Lender's exclusive control over such Investment Property. For purposes of
this Section 5.5, Lender shall have exclusive control of Investment Property if
(A) such Investment Property consists of certificated securities and Borrower
delivers such certificated securities to Lender (with appropriate endorsements
if such certificated securities are in registered form); (B) such Investment
Property consists of uncertificated securities and either (x) Borrower delivers
such uncertificated securities to Lender or (y) the issuer thereof agrees,
pursuant to documentation in form and substance satisfactory to Lender, that it
will comply with instructions originated by Lender without further consent by
Borrower, and (C) such Investment Property consists of security entitlements and
either (x) Lender becomes the entitlement holder thereof or (y) the appropriate
securities intermediary agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with entitlement orders originated
by Lender without further consent by Borrower.
5.6 Place of Business; Location of Collateral. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower has
places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least 30
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
5.7 Financial Condition, Statements and Reports. All financial
statements delivered to Lender by or on behalf of Borrower have been prepared in
conformity with GAAP and completely and fairly reflect the financial condition
of Borrower in all material respects, at the times and for the periods therein
stated (subject to year-end adjustments). Between the last date covered by any
such financial statement provided to Lender and the date hereof, there has been
no material adverse change in the financial condition or business of Borrower.
Borrower is solvent and able to pay its debts as they come due, and has
sufficient capital to carry on its business as now conducted and as proposed to
be conducted. All schedules, reports and other information and documentation
delivered by Borrower to Lender
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with respect to the Collateral are, or will be, when delivered, true, correct
and complete as of the date delivered or the date specified therein in all
material respects.
5.8 Tax Returns and Payments; Pension Contributions. Borrower has
timely filed all tax returns and reports required by applicable law, and
Borrower has timely paid all applicable taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes; provided, that Borrower (i) in good faith
contests Borrower's obligation to pay such taxes by appropriate proceedings
promptly and diligently instituted and conducted; (ii) notifies Lender in
writing of the commencement of, and any material development in, the
proceedings; (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a Lien upon any of the Collateral and (iv)
maintains adequate reserves therefor in conformity with GAAP. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay, all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency. Borrower shall, at all
times, utilize the services of an outside payroll service providing for the
automatic deposit of all payroll taxes payable by Borrower.
5.9 Compliance with Laws. Borrower has complied in all material
respects with all provisions of all applicable laws and regulations, including
those relating to Borrower's ownership of real or personal property, the conduct
and licensing of Borrower's business, the payment and withholding of taxes,
ERISA and other employee matters, safety and environmental matters.
5.10 Litigation. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower. There is no claim, suit, litigation,
proceeding or investigation pending or (to the best of Borrower's knowledge)
threatened by or against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which may result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Lender in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower.
5.11 Use of Proceeds. All proceeds of all Loans will be used solely for
lawful business purposes.
5.12 Insurance. Borrower will at all times carry property, liability
and other insurance, with insurers acceptable to Lender, in such form and
amounts, and with such deductibles
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and other provisions, as Lender shall require, and Borrower will provide
evidence of such insurance to Lender, so that Lender is satisfied that such
insurance is, at all times, in full force and effect. Each property insurance
policy shall name Lender as loss payee and shall contain a lender's loss payable
endorsement in form acceptable to Lender, each liability insurance policy shall
name Lender as an additional insured, and each business interruption insurance
policy shall be collaterally assigned to Lender, all in form and substance
satisfactory to Lender. All policies of insurance shall provide that they may
not be cancelled or changed without at least thirty (30) days' prior written
notice to Lender, shall contain breach of warranty coverage, and shall otherwise
be in form and substance satisfactory to Lender. Upon receipt of the proceeds of
any such insurance, Lender shall apply such proceeds in reduction of the
Obligations as Lender shall determine in its sole discretion. Borrower will
promptly deliver to Lender copies of all reports made to insurance companies.
5.13 Financial and Collateral Reports. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender and is consistent with GAAP):
(a) Collateral Reports. On or before the fifteenth (15th) day
of each month, an aging of Borrower's Accounts, Chattel Paper and notes
receivable, and weekly inventory reports, if any, all in such form, and together
with such additional certificates, schedules and other information with respect
to the Collateral or the business of Borrower or any Obligor, as Lender shall
request, in each case, with respect to any items that exceed dollar limits
established by Lender either orally or in writing from time to time; provided,
that Borrower's failure to execute and deliver the same shall not affect or
limit Lender's security interests and other rights in any of the Accounts, nor
shall Lender's failure to advance or lend against a specific Account affect or
limit Lender's security interest and other rights therein. Together with each
such schedule, Borrower shall furnish Lender, upon its request, with copies (or,
at Lender's request, originals) of all contracts, orders, invoices, and other
similar documents, and all original shipping instructions, delivery receipts,
bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Accounts, and Borrower warrants the
genuineness of all of the foregoing. In addition, Borrower shall deliver to
Lender, upon its request, the originals of all Instruments, Chattel Paper,
security agreements, guaranties and other documents and property evidencing or
securing any Accounts, immediately upon receipt thereof and in the same form as
received, with all necessary endorsements. Lender may destroy or otherwise
dispose of all documents, schedules and other papers delivered to Lender
pursuant to this Agreement (other than originals of Instruments, Chattel Paper,
security agreements, guaranties and other documents and property evidencing or
securing any Accounts) six months after Lender receives them, unless Borrower
requests their return in writing in advance and arranges for their return to
Borrower at Borrower's expense.
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(b) Annual Statements. Not later than one hundred twenty (120)
days after the close of each fiscal year of Borrower, unqualified (except for a
qualification for a change in accounting principles with which the accountant
concurs) audited financial statements of Borrower and its Subsidiaries as of the
end of such year, on a consolidated and consolidating basis, certified by a firm
of independent certified public accountants of recognized standing selected by
Borrower but acceptable to Lender, together with a copy of any management letter
issued in connection therewith;
(c) Interim Statements. Not later than twenty-five (25) days
after the end of each month hereafter which is not the last month of a calendar
quarter, and forty-five (45) days after the last day of a calendar quarter,
including the last month of Borrower's fiscal year, unaudited interim financial
statements of Borrower and its Subsidiaries as of the end of such month and of
the portion of Borrower's fiscal year then elapsed, on a consolidated and
consolidating basis, certified by the principal financial officer of Borrower as
prepared in accordance with GAAP and fairly presenting the consolidated
financial position and results of operations of Borrower and its Subsidiaries
for such month and period subject only to changes from audit and year-end
adjustments and except that such statements need not contain notes;
(d) Projections. No later than the end of each fiscal year of
Borrower, such projections of the business of Borrower and its Subsidiaries as
Lender shall request from time to time;
(e) Shareholder Reports, Etc. Promptly after the sending or
filing thereof, as the case may be, copies of any proxy statements, financial
statements or reports which Borrower has made available to its shareholders and
copies of any regular, periodic and special reports or registration statements
which Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
(f) ERISA Reports. Upon request by Lender, copies of any
annual report to be filed pursuant to the requirements of ERISA in connection
with each plan subject thereto; and
(g) Other Information. Such other data and information
(financial and otherwise) as Lender, from time to time, may reasonably request,
bearing upon or related to the Collateral or Borrower's and each of its
Subsidiary's financial condition or results of operations.
Concurrently with the delivery of the financial statements described in
clause (b) above, Borrower shall forward to Lender a copy of the accountants'
letter to Borrower's management that is prepared in connection with such
financial statements.
5.14 Litigation Cooperation. Should any third-party suit or proceeding
be instituted by or against Lender with respect to any Collateral or in any
manner relating to Borrower, Borrower shall, without expense to Lender, make
available Borrower and its officers, employees and agents, and Borrower's books
and records, without charge, to the extent that
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Lender may deem them reasonably necessary in order to prosecute or defend any
such suit or proceeding.
5.15 Maintenance of Collateral, Etc. Borrower will maintain all of its
Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim relating
to the Collateral or which may result in an adverse impact upon Borrower's
business, assets or financial condition.
5.16 Notification of Changes. Borrower will promptly notify Lender in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, or any material adverse change in the business
or financial affairs of Borrower or the existence of any circumstance which
would make any representation or warranty of Borrower untrue in any material
respect or constitute a material breach of any covenant of Borrower.
5.17 Further Assurances. Borrower agrees, at its expense to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.
5.18 Negative Covenants. Borrower will not, without Lender's prior
written consent which consent will not be unreasonably withheld or delayed, (i)
merge or consolidate with another Person, form any new Subsidiary or acquire any
interest in any Person; (ii) acquire any assets except in the ordinary course of
business and as otherwise permitted by this Agreement and the other Loan
Documents; (iii) enter into any transaction outside the ordinary course of
business; (iv) sell or transfer any Collateral or other assets, except that
Borrower may sell finished goods Inventory in the ordinary course of its
business; (v) make any loans to, or investments in, any other Person (including
without limitation any Other Borrower) in the form of money or other assets
except for the loan existing on the date hereof and set forth in Section 9(i) of
Schedule A; (vi) incur any debt outside the ordinary course of business except
the debt existing on the date hereof and set forth in Section 9(j) of Schedule
A; (vii) guaranty or otherwise become liable with respect to the obligations of
another party or entity; (viii) pay or declare any dividends or other
distributions on Borrower's stock, if Borrower is a corporation (except for
dividends payable solely in capital stock of Borrower) or with respect to any
equity interests, if Borrower is not a corporation; (ix) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's capital
stock or other equity interests; (x) make any change in Borrower's capital
structure (except for a transfer of the ownership of all of the capital stock of
Borrower from Spares to Aero Management pursuant to documentation acceptable to
Lender in its sole discretion); (xi) dissolve or elect to dissolve; (xii) pay
any principal or interest on any indebtedness owing to an Affiliate, (xiii)
enter into
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any transaction with an Affiliate other than on arms-length terms; or (xiv)
agree to do any of the foregoing.
5.19 Financial Covenants.
(a) Capital Expenditures. Borrower will not expend or commit
to expend, directly or indirectly, for capital expenditures (including capital
lease obligations) in excess of the amount set forth in Section 8(a) of Schedule
A as the Capital Expenditure Limitation in any fiscal year.
(b) Net Worth. Borrower will at all times maintain a net worth
of at least the amount set forth in Section 8(b) of Schedule A as the Minimum
Net Worth Requirement.
(c) Working Capital. Borrower will at all times maintain
working capital of at least the amount set forth in Section 8(c) of Schedule A
as the Minimum Working Capital Requirement.
(d) Other Financial Covenants. Borrower will comply with any
additional financial covenants set forth in Section 8(f) of Schedule A.
6. RELEASE AND INDEMNITY.
6.1 Release. Borrower hereby releases Lender and its Affiliates and
their respective directors, officers, employees, attorneys and agents and any
other Person affiliated with or representing Lender (the "Released Parties")
from any and all liability arising from acts or omissions under or pursuant to
this Agreement, whether based on errors of judgment or mistake of law or fact,
except for those arising from gross negligence or willful misconduct. However,
in no circumstance will any of the Released Parties be liable for lost profits
or other special or consequential damages. Such release is made on the date
hereof and remade upon each request for a Loan or Credit Accommodation by
Borrower. Without limiting the foregoing:
(a) Lender shall not be liable for (i) any shortage or
discrepancy in, damage to, or loss or destruction of, any goods, the sale or
other disposition of which gave rise to an Account; (ii) any error, act,
omission, or delay of any kind occurring in the settlement, failure to settle,
collection or failure to collect any Account; (iii) settling any Account in good
faith for less than the full amount thereof; or (iv) any of Borrower's
obligations under any contract or agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods to
the documents presented, the validity or genuineness of any documents, delay,
default or fraud by Borrower, shippers and/or any other Person. Borrower agrees
that any action taken by Lender, if taken in good faith, or any action taken by
an issuer of any Credit Accommodation, under or in connection with any Credit
Accommodation, shall be binding on Borrower and shall not create any resulting
liability to Lender. In furtherance thereof, Lender shall have the full right
and
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<PAGE>
authority to clear and resolve any questions of non-compliance of documents, to
give any instructions as to acceptance or rejection of any documents or goods,
to execute for Borrower's account any and all applications for steamship or
airway guaranties, indemnities or delivery orders, to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
6.2 Indemnity. Borrower hereby agrees to indemnify the Released Parties
and hold them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including attorneys' fees), of every nature, character and description, which
the Released Parties may sustain or incur based upon or arising out of any of
the transactions contemplated by this Agreement or the other Loan Documents or
any of the Obligations, including any transactions or occurrences relating to
the issuance of any Credit Accommodation, the Collateral relating thereto, any
drafts thereunder and any errors or omissions relating thereto (including any
loss or claim due to any action or inaction taken by the issuer of any Credit
Accommodation) (and for this purpose any charges to Lender by any issuer of
Credit Accommodations shall be conclusive as to their appropriateness and may be
charged to the Loan Account), or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Lender relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the willful misconduct of the Released Parties). Notwithstanding any provision
in this Agreement to the contrary, the indemnity agreement set forth in this
Section shall survive any termination of this Agreement.
7. TERM.
7.1 Maturity Date. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement shall initially continue in effect
until the Initial Maturity Date set forth in Section 7 of Schedule A (the
"Initial Term"); provided, that such date shall automatically be extended (the
Initial Maturity Date, as it may be so extended, being referred to as the
"Maturity Date") for successive additional terms of three years each (each a
"Renewal Term"), unless one party gives written notice to the other, not less
than sixty (60) days prior to the Maturity Date, that such party elects not to
extend the Maturity Date. This Agreement and the other Loan Documents and
Lender's security interests in and Liens upon the Collateral, and all
representations, warranties and covenants of Borrower contained herein and
therein, shall remain in full force and effect after the Maturity Date until all
of the monetary Obligations are indefeasibly paid in full.
7.2 Early Termination. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective thirty (30) business days
after written notice of termination is given to Lender or (ii) by Lender at any
time after the occurrence of an Event of Default, without notice, effective
immediately. Notwithstanding the foregoing, no such early
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<PAGE>
termination shall be effective unless each Other Borrower simultaneously
terminates the Additional Loan Agreement to which it is a party. If so
terminated by Borrower under this Section 7.2, Borrower shall pay to Lender (i)
an early termination fee (the "Early Termination Fee") in the amount set forth
in Section 6(h) of Schedule A plus (ii) any earned but unpaid Facility Fee. Such
fee shall be due and payable on the effective date of termination and thereafter
shall bear interest at a rate equal to the highest rate applicable to any of the
Obligations. In addition, if Borrower so terminates and repays the Obligations
without having provided Lender with at least thirty (30) days' prior written
notice thereof, an additional amount equal to thirty (30) days of interest at
the applicable Interest Rate(s), based on the average outstanding amount of the
Obligations for the six month period immediately preceding the date of
termination.
7.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether or not all or any part of such Obligations are otherwise
then due and payable. Without limiting the generality of the foregoing, if, on
the Maturity Date or on any earlier effective date of termination, there are any
outstanding Credit Accommodations, then on such date Borrower shall provide to
Lender cash collateral in an amount equal to 110% of the Credit Accommodation
Balance to secure all of the Obligations (including estimated attorneys' fees
and other expenses) relating to said Credit Accommodations or such greater
percentage or amount as Lender reasonably deems appropriate, pursuant to a cash
pledge agreement in form and substance satisfactory to Lender.
7.4 Effect of Termination. No termination shall affect or impair any
right or remedy of Lender or relieve Borrower of any of the Obligations until
all of the monetary Obligations have been indefeasibly paid in full. Upon
indefeasible payment and performance in full of all of the monetary Obligations
(or the provision of cash collateral with respect to the Credit Accommodation
Balance as set forth in Section 7.3) and termination of this Agreement, Lender
shall promptly deliver to Borrower termination statements, requests for
reconveyances and such other documents as may be reasonably required to
terminate Lender's security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 Events of Default. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Lender immediate written notice thereof: (i) if any warranty,
representation, statement, report or certificate made or delivered to Lender by
Borrower or any of Borrower's officers, employees or agents is untrue or
misleading; (ii) if Borrower fails to pay when due any principal or interest on
any Loan or any other monetary Obligation; (iii) if Borrower breaches any
covenant or obligation contained in this Agreement or any other Loan Document or
fails to perform any other non-monetary Obligation; (iv) if any levy,
assessment, attachment, seizure, lien or encumbrance (other than a Permitted
Lien) is made or permitted to exist on all or any part of the Collateral; (v) if
one or more judgments aggregating in excess of $25,000, or any injunction or
attachment, is obtained against Borrower or any Obligor or which remains
unstayed for more
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<PAGE>
than ten (10) days or is enforced; (vi) the occurrence of any default under any
financing agreement, security agreement or other agreement, instrument or
document executed and delivered by (A) Borrower with, or in favor of, any Person
other than Lender or (B) Borrower or any Affiliate of Borrower with, or in favor
of, Lender or any Affiliate of Lender; (vii) the dissolution, death, termination
of existence in good standing, insolvency or business failure or suspension or
cessation of business as usual of Borrower or any Obligor (or of any general
partner of Borrower or any Obligor if it is a partnership) or the appointment of
a receiver, trustee or custodian for all or any part of the property of, or an
assignment for the benefit of creditors by Borrower or any Obligor, or the
commencement of any proceeding by Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, or if Borrower makes or sends a notice of a bulk transfer or
calls a meeting of its creditors; (viii) the commencement of any proceeding
against Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; (ix) the actual or
attempted revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations or any security document by any Obligor;
(x) if Borrower makes any payment on account of any indebtedness or obligation
which has been subordinated to the Obligations other than as permitted in the
applicable subordination agreement, or if any Person who has subordinated such
indebtedness or obligations attempts to limit or terminate its subordination
agreement; (xi) if there is any actual or threatened indictment of Borrower or
any Obligor under any criminal statute or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any Obligor,
pursuant to which the potential penalties or remedies sought or available
include forfeiture of any property of Borrower or such Obligor; (xii) if there
is a change in the record or beneficial ownership of an aggregate of more than
20% of the outstanding shares of stock of Borrower (or partnership or membership
interests if it is a partnership or limited liability company), in one or more
transactions, compared to the ownership of outstanding shares of stock (or
partnership or membership interests) of Borrower as of the date hereof, without
the prior written consent of Lender; (xiii) if there is any change in the chief
executive officer, chairman or chief financial officer of Borrower; (xiv) if an
event of default occurs under any Additional Loan Agreement; or (xv) if Lender
determines in good faith that the Collateral is insufficient to fully secure the
Obligations or that the prospect of payment of performance of the Obligations is
impaired.
8.2 Remedies. Upon the occurrence of any Event of Default, and at any time
thereafter, Lender, at its option, and without notice or demand of any kind (all
of which are hereby expressly waived by Borrower), may do any one or more of the
following: (i) cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other Loan Document; (ii) accelerate and declare all
or any part of the Obligations to be immediately due, payable and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any of the Obligations; (iii) take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes Lender, without judicial process, to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of
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the Collateral, and remain (or cause a custodian to remain) on the premises in
exclusive control thereof, without charge for so long as Lender deems it
reasonably necessary in order to complete the enforcement of its rights under
this Agreement or any other agreement; provided, that if Lender seeks to take
possession of any of the Collateral by court process, Borrower hereby
irrevocably waives (A) any bond and any surety or security relating thereto
required by law as an incident to such possession, (B) any demand for possession
prior to the commencement of any suit or action to recover possession thereof
and (C) any requirement that Lender retain possession of, and not dispose of,
any such Collateral until after trial or final judgment; (iv) require Borrower
to assemble any or all of the Collateral and make it available to Lender at one
or more places designated by Lender which are reasonably convenient to Lender
and Borrower, and to remove the Collateral to such locations as Lender may deem
advisable; (v) complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Lender shall have the right to use Borrower's premises,
vehicles and other Equipment and all other property without charge; (vi) sell,
lease or otherwise dispose of any of the Collateral, in its condition at the
time Lender obtains possession of it or after further manufacturing, processing
or repair, at one or more public or private sales, in lots or in bulk, for cash,
exchange or other property, or on credit (a "Sale"), and to adjourn any such
Sale from time to time without notice other than oral announcement at the time
scheduled for Sale (and, in connection therewith, (A) Lender shall have the
right to conduct such Sale on Borrower's premises without charge, for such times
as Lender deems reasonable, on Lender's premises, or elsewhere, and the
Collateral need not be located at the place of Sale; (B) Lender may directly or
through any of its Affiliates purchase or lease any of the Collateral at any
such public disposition, and if permissible under applicable law, at any private
disposition and (C) any Sale of Collateral shall not relieve Borrower of any
liability Borrower may have if any Collateral is defective as to title, physical
condition or otherwise at the time of sale); (vii) demand payment of and collect
any Accounts, Chattel Paper, Instruments and General Intangibles included in the
Collateral and, in connection therewith, Borrower irrevocably authorizes Lender
to endorse or sign Borrower's name on all collections, receipts, Instruments and
other documents, to take possession of and open mail addressed to Borrower and
remove therefrom payments made with respect to any item of Collateral or
proceeds thereof and, in Lender's sole discretion, to grant extensions of time
to pay, compromise claims and settle Accounts, General Intangibles and the like
for less than face value; and (viii) demand and receive possession of any of
Borrower's federal and state income tax returns and the books and records
utilized in the preparation thereof or relating thereto. In addition to the
rights and remedies set forth above, Lender shall have all the other rights and
remedies accorded a secured party after default under the UCC and under all
other applicable laws, and under any other Loan Document, and all of such rights
and remedies are cumulative and non-exclusive. Exercise or partial exercise by
Lender of one or more of its rights or remedies shall not be deemed an election
or bar Lender from subsequent exercise or partial exercise of any other rights
or remedies. The failure or delay of Lender to exercise any rights or remedies
shall not operate as a waiver thereof, but all rights and remedies shall
continue in full force and effect until all of the Obligations have been fully
paid and performed. If notice of any sale or other disposition of Collateral is
required by law, notice at least seven (7) days prior to the sale
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designating the time and place of sale in the case of a public sale or the time
after which any private sale or other disposition is to be made shall be deemed
to be reasonable notice, and Borrower waives any other notice. If any Collateral
is sold or leased by Lender on credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment is collected
by Lender.
8.3 Application of Proceeds. Subject to any application required by
law, all proceeds realized as the result of any Sale shall be applied by Lender
to the Obligations in such order as Lender shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; but Borrower shall remain liable to Lender for any deficiency.
If Lender, in its sole discretion, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any Sale, Lender shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Lender of
the cash therefor.
9. GENERAL PROVISIONS.
9.1 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service, by regular first-class mail or certified mail return receipt requested,
addressed to Lender at the address shown in the heading to this Agreement or
Borrower at 2251-A Ward Avenue, Simi Valley, California 93065, or by facsimile
to the facsimile number shown in Section 9(k) of Schedule A, or at any other
address (or to any other facsimile number) designated in writing by one party to
the other party in the manner prescribed in this Section 9.1. All notices shall
be deemed to have been given when received or when delivery is refused by the
recipient.
9.2 Severability. If any provision of this Agreement, or the
application thereof to any party or circumstance, is held to be void or
unenforceable by any court of competent jurisdiction, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.3 Integration. This Agreement and the other Loan Documents represent
the final, entire and complete agreement between Borrower and Lender and
supersede all prior and contemporaneous negotiations, oral representations and
agreements, all of which are merged and integrated into this Agreement. THERE
ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES
WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 Waivers. The failure of Lender at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other Loan Documents shall not waive or diminish any right of Lender later to
demand and receive strict compliance therewith. Any waiver of any default shall
not waive or affect any other default, whether prior or subsequent, and whether
or not similar. None of the provisions of this Agreement or any other Loan
Document shall be deemed to have been waived by any act or knowledge of
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Lender or its agents or employees, but only by a specific written waiver signed
by an authorized officer of Lender and delivered to Borrower. Borrower waives
demand, protest, notice of protest and notice of default or dishonor, notice of
payment and nonpayment, release, compromise, settlement, extension or renewal of
any commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
9.5 Amendment. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
9.6 Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement and the other Loan
Documents.
9.7 Attorneys Fees and Costs. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents or Borrower or any Obligor; to administer
this Agreement and the other Loan Documents (including the cost of periodic
financing statement, tax lien and other searches conducted by Lender); to
enforce, or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, Account Debtors; to commence, intervene in, or defend any
action or proceeding; to initiate any complaint to be relieved of the automatic
stay in bankruptcy; to file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; to examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; to protect, obtain
possession of, lease, dispose of, or otherwise enforce Lender's security
interests in, the Collateral; and to otherwise represent Lender in any
litigation relating to Borrower. If either Lender or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including reasonable attorneys' fees and costs incurred in the enforcement
of, execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Lender may be entitled pursuant to this
Section shall immediately become part of the Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
9.8 Benefit of Agreement; Assignability. The provisions of this
Agreement shall be binding upon and inure to the benefit of the respective
successors, assigns, heirs, beneficiaries and representatives of Borrower and
Lender; provided, that Borrower may not assign or transfer any of its rights
under this Agreement without the prior written consent of Lender, and any
prohibited assignment shall be void. No consent by Lender to any assignment
shall release Borrower from its liability for any of the Obligations. Lender
shall have the right to
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assign all or any of its rights and obligations under the Loan Documents, and to
sell participating interests therein, to one or more other Persons, and Borrower
agrees to execute all agreements, instruments and documents requested by Lender
in connection with each such assignment and participation.
9.9 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower or any other Obligor.
9.10 Headings; Construction. Section and subsection headings are used
in this Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
9.11 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN NEW YORK OR THE STATE IN WHICH ANY OF THE COLLATERAL IS
LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT ANY CLAIM OR
DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL COURTS OF NEW
YORK. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER AND SHALL BE
DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE EXTENT PERMITTED
BY LAW. NOTHING IN THIS
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AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE
ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE
TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE FORUM OR JURISDICTION.
9.12 WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM
OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO LENDER'S
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as
of the date set forth in the heading.
Borrower: Lender:
FLIGHTWAYS MANUFACTURING, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ Lawrence J. Troyna By /s/ Scott James Lorimer
------------------------ -----------------------------
Its CFO Its Authorized Signatory
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Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement
between FLIGHTWAYS MANUFACTURING, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "Agreement").
1. Loan Limits for Revolving Loans:
(a) Maximum Facility
Amount: $10,000,000
(b) Advance Rates:
(i) Accounts 80%; provided, that if the
Advance Rate: Dilution Percent age exceeds
5%, such advance rate will
be reduced by the number of
full or partial percentage
points of such excess
(ii) Inventory
Advance
Rate(s):
(A) Finished
goods: not applicable
(B) Raw 40% against eligible raw
materials: material inventory
(C) Work in
process: not applicable
(c) Accounts Sublimit: At any time of determination,
the Maximum Flightways
Facility Amount less the
aggregate advances against
Inventory outstanding at
such time
(d) Inventory
Sublimit(s):
A-1
<PAGE>
(i) Overall sublimit $5,000,000, minus the portion
on advances of the Other Borrower Loan
against Eligible Balance at such time that is
Inventory predicated on eligible
inventory of the Other
Borrowers
(ii) Sublimit on not applicable
advances
against finished
goods
(iii) Sublimit on
advances
against raw
materials $1,000,000
(iv) Sublimit on
advances
against work in
process not applicable
(e) Credit
Accommodation
Limit: not applicable
(f) Permanent Reserve
Amount: not applicable
(g) Maximum Flightways $10,000,000, minus the Other
Facility Amount Borrower Loan Balance at such
time
2. Loan Limits for Term
Loan:
(a) Principal Amount: not applicable
(b) Repayment Schedule: not applicable
3. Interest Rates:
(a) Revolving Loans: 3.00% per annum in excess of
the Prime Rate
(b) Term Loan: not applicable
A-2
<PAGE>
4. Minimum Loan Amount: not applicable
5. Maximum days after
invoice date for Eligible
Accounts: 90
6. Fees:
(a) Closing Fee: not applicable
(b) Facility Fee:
(i) Initial Term: not applicable
(ii) Renewal
Term(s): not applicable
(c) Servicing Fee: not applicable
(d) Unused Line Fee: not applicable
(e) Minimum Borrowing
Fee: not applicable
(i) Applicable period: not applicable
(ii) Date payable: not applicable
(f) Success Fee: not applicable
(g) Warrants: not applicable
(h) Early Termination
Fee: not applicable
(i) Fees for letters of
credit (or guaranties
by Lender): not applicable
A-3
<PAGE>
(j) Fees for other Credit
Accommodations: not applicable
7. Initial Maturity Date: April 17, 2000
8. Financial Covenants:
(a) Capital Expenditure
Limitation: not applicable
(b) Minimum Net Worth
Requirement: not applicable
(c) Minimum Working
Capital Requirement: not applicable
(d) Limitation on
Purchase Money
Security Interests: not applicable
(e) Limitation on
Equipment Leases: not applicable
(f) Additional Financial
Covenants: not applicable
9. Borrower Information:
(a) Prior Names of
Borrower: None
(b) Prior Trade Names of
Borrower: None
(c) Existing Trade
Names of Borrower: None
(d) Inventory Locations: 7660 Densmore Avenue
Van Nuys, California 91406
(e) Other Locations: None
A-4
<PAGE>
(f) Litigation: Robert Snukal versus
Flightways Manufacturing,
Inc.
(g) Ownership of Borrower: 100% owned by Spares
(h) Subsidiaries (and
ownership thereof): None
(i) Existing Loans: None
(j) Existing
Indebtedness: None
(k) Facsimile Numbers:
Borrower: (818) 908-2186
Lender: (212) 597-1666
10. Description of Real None
Property:
11. Lender's Bank: The First National Bank of
Chicago One First National
Plaza Chicago, Illinois 60670
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as
of the date set forth in the heading to the Agreement.
Borrower: Lender:
FLIGHTWAYS MANUFACTURING, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ Lawrence J. Troyna By /s/ Scott James Lorimer
------------------------- -------------------------------
Its CFO Its Authorized Signatory
A-5
<PAGE>
Schedule B
Definitions
This Schedule is an integral part of the Loan and Security Agreement
between FLIGHTWAYS MANUFACTURING, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING (the "Agreement").
As used in the Agreement, the following terms have the following
meanings:
"Account" means any right to payment for Goods sold or leased
or for services rendered which is not evidenced by an Instrument or Chattel
Paper, whether or not it has been earned by performance.
"Account Debtor" means the obligor on an Account or Chattel
Paper.
"Account Proceeds" has the meaning set forth in Section 4.1.
"Additional Loan Agreement" means the Aero Management Loan
Agreement, the Fields Loan Agreement and all other Loan and Security Agreements
between Lender and any Affiliate of Borrower, Aero Management, Fields or Spares
that Borrower, all Other Borrowers at the time and Lender designate as an
Additional Loan Agreement.
"Aero Management" means Fields Aero Management, Inc., a
California corporation and an Affiliate of Borrower.
"Aero Management Loan Agreement" means the Loan and Security
Agreement dated as of April 18, 1997 between Aero Management and Lender, as it
may be amended from time to time.
"Aero Management Loan Balance" means the outstanding balance of all
monetary obligations (including without limitation the aggregate undrawn face
amount of all outstanding letters of credit, bankers acceptances and other
credit accommodations and all interest, fees and costs due or, in Lender's
estimation, likely to become due in connection therewith) of Aero Management
under the Aero Management Loan Agreement.
"Affiliate" means, with respect to any Person, a relative,
partner, shareholder, member, manager, director, officer, or employee of such
Person, any parent or subsidiary of such Person, or any Person controlling,
controlled by or under common control with such Person or any other Person
affiliated, directly or indirectly, by virtue of family membership, ownership,
management or otherwise other than McDonnell Douglas Corporation or any of its
affiliates.
"Agreement" and "this Agreement" mean the Loan and Security
Agreement of which this Schedule B is a part and the Schedules thereto.
"Availability" has the meaning set forth in Section 1.1(a)
B-1
<PAGE>
"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C. ss. 101 et seq.).
"Blocked Account" has the meaning set forth in Section 4.1.
"Borrower" has the meaning set forth in the heading to the
Agreement.
"Borrower's Address" has the meaning set forth in the heading
to the Agreement.
"Borrower Guaranty" means the Guaranty dated as of January 2,
1997, as it may be amended or modified from time to time, executed by Borrower,
pursuant to which Borrower has guaranteed repayment in full of the Other
Borrower Loan Balance.
"Business Day" means a day other than a Saturday or Sunday or
any other day on which Lender or banks in New York are authorized to close.
"Chattel Paper" has the meaning set forth in the UCC.
"Collateral" means all property and interests in property in
or upon which a security interest or other Lien is granted pursuant to this
Agreement or the other Loan Documents.
"Credit Accommodation" has the meaning set forth in Section
1.1(a).
"Credit Accommodation Balance" means the sum of (i) the
aggregate undrawn face amount of all outstanding Credit Accommodations and (ii)
all interest, fees and costs due or, in Lender's estimation, likely to become
due in connection therewith.
"Default" means any event which with notice or passage of
time, or both, would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1.
"Deposit Account" has the meaning set forth in the UCC.
"Dilution Percentage" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Borrower's Accounts as a percentage of Borrower's gross sales, calculated on a
ninety (90) day rolling average.
"Document" has the meaning set forth in the UCC.
"Early Termination Fee" has the meaning set forth in Section
7.2.
"Eligible Account" means, at any time of determination, an
Account which satisfies the general criteria set forth below and which is
otherwise acceptable to Lender (provided, that Lender may, in its sole
discretion, change the general criteria for acceptability of Eligible Accounts
upon at least fifteen (15) days' prior notice to Borrower). An Account shall be
deemed to meet the current general criteria if (i) neither the Account Debtor
nor any of its Affiliates is an Affiliate, creditor or supplier of Borrower
(provided, that Accounts deemed to be ineligible solely by reason
B-2
<PAGE>
of this clause (i) because the Account Debtor is a creditor or supplier of
Borrower shall be considered Eligible Accounts to the extent the amount of such
Accounts exceeds the amount owing by Borrower to such Account Debtor); (ii) it
does not remain unpaid more than the number of days after the original invoice
date set forth in Section 5 of Schedule A; (iii) the Account Debtor or its
Affiliates are not past due on other Accounts owing to Borrower comprising more
than 50% of all of the Accounts owing to Borrower by such Account Debtor or its
Affiliates; (iv) all Accounts owing by the Account Debtor or its Affiliates do
not represent more than 25% of all otherwise Eligible Accounts unless otherwise
approved by Lender (provided, that Accounts which are deemed to be ineligible
solely by this clause (iv) shall be considered Eligible Accounts to the extent
of the amount thereof which does not exceed 20% of all otherwise Eligible
Accounts); (v) no covenant, representation or warranty contained in this
Agreement with respect to such Account (including any of the representations set
forth in Section 5.4) has been breached; (vi) the Account is not subject to any
contra relationship, counterclaim, dispute or set-off; (vii) the Account
Debtor's chief executive office or principal place of business is located in the
United States or Provinces of Canada which have adopted the Personal Property
Security Act or a similar act, unless (A) the sale is fully backed by a letter
of credit, guaranty or acceptance acceptable to Lender in its sole discretion,
and if backed by a letter of credit, such letter of credit has been issued or
confirmed by a bank satisfactory to Lender, is sufficient to cover such Account,
and if required by Lender, the original of such letter of credit has been
delivered to Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender, or (B) suc
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender; provided, that an aggregate
amount of up to $75,000 of foreign Accounts in excess of the existing credit
insurance limits shall be deemed to be subject to credit insurance so long as
Borrower has applied for acceptable credit insurance relating to such Accounts
or credit insurance in any amount is already in effect for such Account Debtor;
(viii) it is absolutely owing to Borrower and does not arise from a sale on a
bill-and-hold, guarantied sale, sale-or-return, sale-on-approval, consignment,
retainage or any other repurchase or return basis or consist of progress
billings; (ix) Lender shall have verified the Account in a manner satisfactory
to Lender; (x) the Account Debtor is not the United States of America or any
state or political subdivision (or any department, agency or instrumentality
thereof), unless Borrower has complied with the Assignment of Claims Act of 1940
(31 U.S.C. ss.203 et seq.) or other applicable similar state or local law in a
manner satisfactory to Lender; (xi) it is at all times subject to Lender's duly
perfected, first priority security interest and to no other Lien that is not a
Permitted Lien, and the goods giving rise to such Account (A) were not, at the
time of sale, subject to any Lien except Permitted Liens and (B) have been
delivered to and accepted by the Account Debtor, or the services giving rise to
such Account have been performed by Borrower and accepted by the Account Debtor;
(xii) the Account is not evidenced by Chattel Paper or an Instrument of any kind
and has not been reduced to judgment; (xiii) the Account Debtor's total
indebtedness to Borrower does not exceed the amount of any credit limit
established by Borrower or Lender and the Account Debtor is otherwise deemed to
be creditworthy by Lender (provided, that Accounts deemed to be ineligible
solely by reason of this clause (xiii) shall be considered Eligible Accounts to
the extent the amount of such Accounts does not exceed the lower of such credit
limits); (xiv) there are no facts or circumstances existing, or which could
reasonably be anticipated to occur, which might result in any adverse change in
the Account Debtor's financial condition or impair or delay
B-3
<PAGE>
the collectibility of all or any portion of such Account; (xv) Lender has been
furnished with all documents and other information pertaining to such Account
which Lender has requested, or which Borrower is obligated to deliver to Lender,
pursuant to this Agreement; and (xvi) Borrower has not made an agreement with
the Account Debtor to extend the time of payment thereof beyond the time periods
set forth in clause (ii) above.
"Eligible Equipment" means, at any time of determination,
Equipment owned by Borrower which Lender, in its sole discretion, deems to be
eligible for borrowing purposes.
"Eligible Inventory" means, at any time of determination,
Inventory (other than packaging materials and supplies) which satisfies the
general criteria set forth below and which is otherwise acceptable to Lender
(provided, that Lender may, in its sole discretion, change the general criteria
for acceptability of Eligible Inventory upon at least fifteen (15) days' prior
written notice to Borrower). Inventory shall be deemed to meet the current
general criteria if (i) it consists of finished goods; (ii) it is in good, new
and saleable condition; (iii) it is not slow-moving, obsolete, unmerchantable,
returned due to defects or repossessed; (iv) it is not in the possession of a
processor, consignee or bailee, or located on premises leased or subleased to
Borrower, or subject to a mortgage in favor of a Person other than Lender,
unless such processor, consignee, bailee or mortgagee or the lessor or sublessor
of such premises, as the case may be, has executed and delivered all
documentation which Lender shall require to evidence the subordination or other
limitation or extinguishment of such Person's rights with respect to such
Inventory and Lender's right to gain access thereto; (v) it meets all standards
imposed by any governmental agency or authority, and if required to be
registered with the Federal Aviation Administration, it has been so registered;
(vi) it conforms in all respects to any covenants, warranties and
representations set forth in the Agreement; (vii) it is at all times subject to
Lender's duly perfected, first priority security interest and no other Lien
except a Permitted Lien; (viii) it has not been consigned to Borrower; and (ix)
it is situated at an Inventory Location listed in Section 9(d) of Schedule A or
other location of which Lender has been notified as required by Section 5.6.
"Equipment" means all Goods which are used or bought for use
primarily in business (including farming or a profession) or by a Person who is
a non-profit organization or governmental subdivision or agency and which are
not Inventory, farm products or consumer goods, including all machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies and jigs, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to, or spare parts for, any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974 and all rules, regulations and orders promulgated thereunder.
"Event of Default" has the meaning set forth in Section 8.1.
"Fields" means Fields Aircraft Spares Incorporated, a
California corporation and an Affiliate of Borrower.
B-4
<PAGE>
"Fields Loan Agreement" means the Loan and Security Agreement
dated as of April 18, 1997 between Fields and Lender, as it may be amended from
time to time.
"Fields Loan Balance" means the outstanding balance of all
monetary obligations (including without limitation the aggregate undrawn face
amount of all outstanding letters of credit, bankers acceptances and other
credit accommodations and all interest, fees and costs due or, in Lender's
estimation, likely to become due in connection therewith) of Fields under the
Fields Loan Agreement.
"GAAP" means generally accepted accounting principles as in
effect from time to time, consistently applied.
"General Intangibles" has the meaning set forth in the UCC,
and includes all books and records pertaining to the Collateral and other
business and financial records in the possession of Borrower or any other
Person, inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than
"intent to use" applications until a verified statement of use
is filed with respect to such applications) and the goodwill of the business
symbolized thereby, names, trade names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, customer lists, security and other
deposits, causes of action and other rights in all litigation presently or
hereafter pending for any cause or claim (whether in contract, tort or
otherwise), and all judgments now or hereafter arising therefrom, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, internet addresses, proprietary
information, purchase orders, and all insurance policies and claims (including
life insurance, key man insurance, credit insurance, liability insurance,
property insurance and other insurance), tax refunds and claims, letters of
credit, banker's acceptances and guaranties, computer programs, discs, tapes and
tape files in the possession of Borrower or any other Person, claims under
guaranties, security interests or other security held by or granted to Borrower,
all rights to indemnification and all other intangible property of every kind
and nature.
"Goods" means all things which are movable at the time the
security interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"Initial Term" has the meaning set forth in Section 7.1.
"Instrument" has the meaning set forth in the UCC.
"Inventory" means all Goods held for sale or lease or
furnished or to be furnished under contracts of service, including all raw
materials, work in process, finished goods, goods in transit and materials and
supplies which are or might be used or consumed in a business or used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of such Goods, and all products of the foregoing, and shall include
interests in goods represented by Accounts, returned, reclaimed or repossessed
goods and rights as an unpaid vendor.
B-5
<PAGE>
"Investment Property" shall mean all of Borrower's securities,
whether certificated or uncertificated, securities entitlements, securities
accounts, commodity contracts and commodity accounts.
"Lender" has the meaning set forth in the heading to the
Agreement.
"Lien" means any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property, whether
such interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be deemed
to be the owner of any property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes.
"Loan Account" has the meaning set forth in Section 2.4.
"Loan Documents" means the Agreement and all notes, guaranties
(including without limitation the Borrower Guaranty), security agreements,
certificates, landlord's agreements, Lock Box and Blocked Account agreements and
all other agreements, documents and instruments now or hereafter executed or
delivered by Borrower or any Obligor in connection with, or to evidence the
transactions contemplated by, this Agreement.
"Loan Limits" means, collectively, the Availability limits and
all other limits on the amount of Loans and Credit Accommodations set forth in
this Agreement.
"Loans" means, collectively, the Revolving Loans and any Term
Loan.
"Lock Box" has the meaning set forth in Section 4.1.
"Maturity Date" has the meaning set forth in Section 7.1.
"Obligations" means all present and future Loans, advances,
debts, liabilities, obligations, guaranties (including without limitation the
Borrower Guaranty), covenants, duties and indebtedness at any time owing by
Borrower to Lender, whether evidenced by this Agreement or any note or other
instrument or document, whether arising from an extension of credit, opening of
a Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in Borrower's indebtedness owing to
others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, loan fees, Early Termination Fees, minimum borrowing fees and any
other sums chargeable to Borrower under this Agreement or under any other Loan
Document.
B-6
<PAGE>
"Obligor" means any guarantor, endorser, acceptor, surety or
other person liable on, or with respect to, the Obligations or who is the owner
of any property which is security for the Obligations, other than Borrower.
"Other Borrower" means, collectively, Aero Management, Fields
and any other borrower under an Additional Loan Agreement.
"Other Borrower Loan Balance" means the Fields Loan Balance,
the Aero Management Loan Balance and the outstanding balance of any monetary
obligations (including without limitation the aggregate undrawn face amount of
all outstanding letters of credit, bankers acceptances and other credit
accommodations and all interest, fees and costs due or, in Lender's estimation,
likely to become due in connection therewith) of each Other Borrower under each
Additional Loan Agreement.
"Permitted Liens" means: (i) purchase money security interests
in specific items of Equipment in an aggregate amount not to exceed the limit
set forth in Section 8(d) of Schedule A; (ii) leases of specific items of
Equipment in an aggregate amount not to exceed the limit set forth in Section
8(e) of Schedule A; (iii) Liens for taxes not yet due and payable; (iv)
additional Liens which are fully subordinate to the security interests of Lender
and are consented to in writing by Lender; (v) security interests being
terminated concurrently with the execution of this Agreement; (vi) Liens of
materialmen, mechanics, warehousemen or carriers arising in the ordinary course
of business and securing obligations which are not delinquent; (vii) Liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clause (i) or (ii) above;
provided, that any extension, renewal or replacement Lien is limited to the
property encumbered by the existing Lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; and (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Lender will have the
right to require, as a condition to its consent under clause (iv) above, that
the holder of the additional Lien sign an intercreditor agreement in form and
substance satisfactory to Lender, in its sole discretion, acknowledging that the
Lien is subordinate to the security interests of Lender, and agreeing not to
take any action to enforce its subordinate Lien so long as any Obligations
remain outstanding, and that Borrower agree that any uncured default in any
obligation secured by the subordinate Lien shall also constitute an Event of
Default under this Agreement.
"Person" means any individual, sole proprietorship,
partnership, joint venture, limited liability company, trust, unincorporated
organization, association, corporation, government or any agency or political
division thereof, or any other entity.
"Prime Rate" means, at any given time, the prime rate as
quoted in The Wall Street Journal as the base rate on corporate loans posted as
of such time by at least 75% of the nation's 30 largest banks (which rate is not
necessarily the lowest rate offered by such banks).
"Real Property" means the real property described in Section
10 of Schedule A.
"Released Parties" has the meaning set forth in Section 6.1.
B-7
<PAGE>
"Renewal Term" has the meaning set forth in Section 7.1.
"Reserves" has the meaning set forth in Section 1.2.
"Revolving Loans" has the meaning set forth in Section 1.1(b).
"Sale" has the meaning set forth in Section 8.2.
"Spares" means Fields Aircraft Spares, Inc., a Utah
corporation and the parent of Borrower.
"Subsidiary" means any corporation or other entity of which a
Person owns, directly or indirectly, through one or more intermediaries, more
than 50% of the capital stock or other equity interest at the time of
determination.
"Term" means the period commencing on the date of this
Agreement and ending on the Maturity Date.
"Term Loan" has the meaning set forth in Section 1.1(b).
"UCC" means, at any given time, the Uniform Commercial Code as
adopted and in effect at such time in the State of New York.
All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with GAAP.
All other terms contained in this Agreement, unless otherwise indicated, shall
have the meanings provided by the UCC, to the extent such terms are defined
therein. The term "including," whenever used in this Agreement, shall mean
"including but not limited to." The singular form of any term shall include the
plural form, and vice versa, when the context so requires. References to
Sections, subsections and Schedules are to Sections and subsections of, and
Schedules to, this Agreement. All references to agreements and statutes shall
include all amendments thereto and successor statutes in the case of statutes.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as
of the date set forth in the heading to the Agreement.
Borrower: Lender:
FLIGHTWAYS MANUFACTURING, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ Lawrence J. Troyna By /s/ Scott James Lorimer
-------------------------- -------------------------------
Its CFO Its Authorized Signatory
B-8
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT (this "Amendment") is entered into as of
September 14, 1998, between FIELDS AERO MANAGEMENT, INC., a California
corporation ("Borrower"), and NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender").
WHEREAS, Borrower and Lender have amended the Loan and
Security Agreement dated April 18, 1997 (as amended, the "Loan Agreement")
pursuant to that certain First Amendment to Loan and Security Agreement dated as
of April ___, 1998; and
WHEREAS, Borrower has requested that Lender further amend the
Loan Agreement in various respects, and Lender has agreed to do so subject to
the terms contained herein;
NOW THEREFORE, in consideration of the premises and mutual
agreements herein contained, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. Amendments to Loan Agreement.
(a) Sections 1(a) and 1(g) of Schedule A to the Loan Agreement
are hereby amended to delete the reference to "$10,000,000" therein and to
substitute therefor a reference to "$15,000,000."
(b) Section 3(a) of Schedule A to the Loan Agreement is hereby
amended to delete the reference to "3.00%" therein and to substitute therefor a
reference to "2.00%".
(c) Section 7 of Schedule A to the Loan Agreement is hereby
amended to delete the reference to "April 17, 2000," therein and to substitute
therefor a reference to "August 31, 2002."
3. Other Amendments. This Amendment shall constitute an
amendment to the Loan Agreement and all of the other Loan Documents as
appropriate to express the agreements contained herein. In all other respects,
the Loan Agreement and the other Loan Documents shall remain unchanged and in
full force and effect in accordance with their original terms.
4. Effectiveness. This Amendment shall become effective as of
the date hereof upon receipt by Lender of a fully executed copy hereof.
5. Miscellaneous.
(a) Warranties and Absence of Defaults. In order to induce
Lender to enter into this Amendment, Borrower hereby warrants to Lender, as of
the date hereof, that:
<PAGE>
(i) The representations and warranties of Borrower
contained in the Loan Agreement are true and correct as of the date
hereof as if made on the date hereof.
(ii) All information, reports and other papers and
data heretofore furnished to Lender by Borrower in connection with this
Amendment, the Loan Agreement and the other Loan Documents are accurate
and correct in all material respects and complete insofar as may be
necessary to give Lender true and accurate knowledge of the subject
matter thereof. Borrower has disclosed to Lender every fact of which it
is aware which might adversely affect the business, operations or
financial condition of Borrower or the ability of Borrower to perform
its obligations under this Amendment, the Loan Agreement or under any
of the other Loan Documents. None of the information furnished to
Lender by or on behalf of Borrower contained any material misstatement
of fact or omitted to state a material fact or any fact necessary to
make the statements contained herein or therein not materially
misleading.
(iii) No Event of Default or Default exists as of the
date hereof.
(b) Expenses. Borrower agrees to pay on demand all costs and
expenses of Lender (including the reasonable fees and expenses of outside
counsel for Lender) in connection with the preparation, negotiation, execution,
delivery and administration of this Amendment and all other instruments or
documents provided for herein or delivered in connection herewith. In addition,
Borrower agrees to pay, and save Lender harmless from all liability for, any
stamp or other taxes which may be payable in connection with the execution or
delivery of this Amendment or the Loan Agreement, as amended hereby, and the
execution and delivery of any instruments or documents provided for herein or
delivered or to be delivered hereunder or in connection herewith. All
obligations provided in this Section 5(b) shall survive any termination of this
Amendment and the Loan Agreement as amended hereby.
(c) Governing Law. This Amendment shall be a contract made
under and governed by the internal laws of the State of New York.
(d) Counterparts. This Amendment may be executed in any number
of counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment.
(e) Reference to Loan Agreement. On and after the
effectiveness of the amendment to the Loan Agreement accomplished hereby, each
reference in the Loan Agreement to "this Amendment," "hereunder," "hereof,"
"herein" or words of like import, and each reference to the Loan Agreement in
any other Loan Documents, or other agreements, documents or other
-2-
<PAGE>
instruments executed and delivered pursuant to the Loan Agreement, shall mean
and be a reference to the Loan Agreement, as amended by this Amendment.
(f) Successors. This Amendment shall be binding upon Borrower,
Lender and their respective successors and assigns, and shall inure to the
benefit of Borrower, Lender and the successors and assigns of Lenders.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
and delivered at New York, New York as of the date first above written.
FIELDS AERO MANAGEMENT, INC.
By /s/ Alan M. Fields
-------------------------------
Its President & CEO
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ Scott James Lorimer
-------------------------------
Its Vice President
-3-
THIRD AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT (this "Amendment") is entered into as of
September 14, 1998, between FIELDS AIRCRAFT SPARES INCORPORATED, a California
corporation ("Borrower"), and NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender").
WHEREAS, Borrower and Lender have amended the Loan and
Security Agreement dated April 18, 1997 (as amended, the "Loan Agreement")
pursuant to that certain First Amendment to Loan and Security Agreement dated as
of September ___, 1997 and that certain Second Amendment to Loan and Security
Agreement dated as of April ___, 1998; and
WHEREAS, Borrower has requested that Lender further amend the
Loan Agreement in various respects, and Lender has agreed to do so subject to
the terms contained herein;
NOW THEREFORE, in consideration of the premises and mutual
agreements herein contained, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. Amendments to Loan Agreement.
(a) Section 2.2(d) of the Agreement is amended to delete the
reference to "$10,000,000" therein and to substitute therefor a reference to
"the Maximum Facility Amount".
(b) Sections 1(a), 1(g) and 1(d)(i) of Schedule A to the Loan
Agreement are hereby amended to delete the references to "$10,000,000" therein
and to substitute therefor a reference to "$15,000,000".
(c) Section 1(d)(ii) of Schedule A to the Loan Agreement is
hereby amended to delete the reference to "$4,000,000" therein and to substitute
therefor a reference to "7,000,000".
(d) Section 3(a) of Schedule A to the Loan Agreement is hereby
amended to delete the reference to "3.00%" therein and to substitute therefor a
reference to "2.00%".
(e) Sections 6(b)(i) and (ii) of Schedule A to the Loan
Agreement are hereby amended to delete the references to "$150,000" and
"$225,000," respectively, therein, and to substitute therefor, in each case,
"0.75% of the Maximum Facility Amount for each year".
(f) Section 6(h) of Schedule A to the Loan Agreement is hereby
deleted in its entirety and a new Section 6(h) is substituted therefor as
follows:
<PAGE>
(h) Early Termination Fee. "3% of Maximum
Facility Amount if terminated on or before August 31,
1999; 2 1/2% of Maximum Facility Amount if terminated
after August 31, 1999 but on or before August 31,
2000; 2% of Maximum Facility Amount if terminated
after August 31, 2000 but before August 31, 2001, and
1% of the Maximum Facility Amount if terminated
thereafter and prior to the Maturity Date."
(i) Section 7 of Schedule A to the Loan Agreement is
hereby amended to delete the reference to "April 17, 2000" therein and
to substitute therefor a reference to "August 31, 2002."
3. Other Amendments. This Amendment shall constitute an
amendment to the Loan Agreement and all of the other Loan Documents as
appropriate to express the agreements contained herein. In all other respects,
the Loan Agreement and the other Loan Documents shall remain unchanged and in
full force and effect in accordance with their original terms.
4. Effectiveness. This Amendment shall be effective as of the
date hereof upon receipt by Lender of a fully executed copy of this Amendment
and payment by Borrower of an accommodation fee of $50,000.
5. Miscellaneous.
(a) Warranties and Absence of Defaults. In order to induce
Lender to enter into this Amendment, Borrower hereby warrants to Lender, as of
the date hereof, that:
(i) The representations and warranties of Borrower
contained in the Loan Agreement are true and correct as of the date
hereof as if made on the date hereof.
(ii) All information, reports and other papers and
data heretofore furnished to Lender by Borrower in connection with this
Amendment, the Loan Agreement and the other Loan Documents are accurate
and correct in all material respects and complete insofar as may be
necessary to give Lender true and accurate knowledge of the subject
matter thereof. Borrower has disclosed to Lender every fact of which it
is aware which might adversely affect the business, operations or
financial condition of Borrower or the ability of Borrower to perform
its obligations under this Amendment, the Loan Agreement or under any
of the other Loan Documents. None of the information furnished to
Lender by or on behalf of Borrower contained any material misstatement
of fact or omitted to state a material fact or any fact necessary to
make the statements contained herein or therein not materially
misleading.
-2-
<PAGE>
(iii) No Event of Default or Default exists as of the
date hereof.
(b) Expenses. Borrower agrees to pay on demand all costs and
expenses of Lender (including the reasonable fees and expenses of outside
counsel for Lender) in connection with the preparation, negotiation, execution,
delivery and administration of this Amendment and all other instruments or
documents provided for herein or delivered in connection herewith. In addition,
Borrower agrees to pay, and save Lender harmless from all liability for, any
stamp or other taxes which may be payable in connection with the execution or
delivery of this Amendment or the Loan Agreement, as amended hereby, and the
execution and delivery of any instruments or documents provided for herein or
delivered or to be delivered hereunder or in connection herewith. All
obligations provided in this Section 5(b) shall survive any termination of this
Amendment and the Loan Agreement as amended hereby.
(c) Governing Law. This Amendment shall be a contract made
under and governed by the internal laws of the State of New York.
(d) Counterparts. This Amendment may be executed in any number
of counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment.
(e) Reference to Loan Agreement. On and after the
effectiveness of the amendment to the Loan Agreement accomplished hereby, each
reference in the Loan Agreement to "this Amendment," "hereunder," "hereof,"
"herein" or words of like import, and each reference to the Loan Agreement in
any other Loan Documents, or other agreements, documents or other instruments
executed and delivered pursuant to the Loan Agreement, shall mean and be a
reference to the Loan Agreement, as amended by this Amendment.
(f) Successors. This Amendment shall be binding upon Borrower,
Lender and their respective successors and assigns, and shall inure to the
benefit of Borrower, Lender and the successors and assigns of Lenders.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
and delivered at New York, New York as of the date first above written.
FIELDS AIRCRAFT SPARES INCORPORATED
By /s/ Alan M. Fields
----------------------------------
Its President & CEO
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ Scott James Lorimer
----------------------------------
Its Vice President
-4-
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") is entered into as of
September 14, 1998, between FLIGHTWAYS MANUFACTURING, INC., a California
corporation ("Borrower"), and NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender").
WHEREAS, Borrower has requested that Lender amend the Loan and
Security Agreement dated April __, 1998 (the "Loan Agreement") in various
respects, and Lender has agreed to do so subject to the terms contained herein;
NOW THEREFORE, in consideration of the premises and mutual
agreements herein contained, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. Amendments to Loan Agreement.
(a) Sections 1(a) and 1(g) of Schedule A to the Loan Agreement
are hereby amended to delete the reference to "$10,000,000" therein and to
substitute therefor a reference to "$15,000,000."
(b) Section 3(a) of Schedule A to the Loan Agreement is hereby
amended to delete the reference to "3.00%" therein and to substitute therefor a
reference to "2.00%".
(c) Section 7 of Schedule A to the Loan Agreement is hereby
amended to delete the reference to "April 17, 2000," therein and to substitute
therefor a reference to "August 31, 2002."
3. Other Amendments. This Amendment shall constitute an
amendment to the Loan Agreement and all of the other Loan Documents as
appropriate to express the agreements contained herein. In all other respects,
the Loan Agreement and the other Loan Documents shall remain unchanged and in
full force and effect in accordance with their original terms.
4. Effectiveness. This Amendment shall become effective as of
the date hereof upon receipt by Lender of a fully executed copy hereof.
5. Miscellaneous.
(a) Warranties and Absence of Defaults. In order to induce
Lender to enter into this Amendment, Borrower hereby warrants to Lender, as of
the date hereof, that:
(i) The representations and warranties of Borrower
contained in the Loan Agreement are true and correct as of the date
hereof as if made on the date hereof.
<PAGE>
(ii) All information, reports and other papers and
data heretofore furnished to Lender by Borrower in connection with this
Amendment, the Loan Agreement and the other Loan Documents are accurate
and correct in all material respects and complete insofar as may be
necessary to give Lender true and accurate knowledge of the subject
matter thereof. Borrower has disclosed to Lender every fact of which it
is aware which might adversely affect the business, operations or
financial condition of Borrower or the ability of Borrower to perform
its obligations under this Amendment, the Loan Agreement or under any
of the other Loan Documents. None of the information furnished to
Lender by or on behalf of Borrower contained any material misstatement
of fact or omitted to state a material fact or any fact necessary to
make the statements contained herein or therein not materially
misleading.
(iii) No Event of Default or Default exists as of the
date hereof.
(b) Expenses. Borrower agrees to pay on demand all costs and
expenses of Lender (including the reasonable fees and expenses of outside
counsel for Lender) in connection with the preparation, negotiation, execution,
delivery and administration of this Amendment and all other instruments or
documents provided for herein or delivered in connection herewith. In addition,
Borrower agrees to pay, and save Lender harmless from all liability for, any
stamp or other taxes which may be payable in connection with the execution or
delivery of this Amendment or the Loan Agreement, as amended hereby, and the
execution and delivery of any instruments or documents provided for herein or
delivered or to be delivered hereunder or in connection herewith. All
obligations provided in this Section 5(b) shall survive any termination of this
Amendment and the Loan Agreement as amended hereby.
(c) Governing Law. This Amendment shall be a contract made
under and governed by the internal laws of the State of New York.
(d) Counterparts. This Amendment may be executed in any number
of counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment.
(e) Reference to Loan Agreement. On and after the
effectiveness of the amendment to the Loan Agreement accomplished hereby, each
reference in the Loan Agreement to "this Amendment," "hereunder," "hereof,"
"herein" or words of like import, and each reference to the Loan Agreement in
any other Loan Documents, or other agreements, documents or other instruments
executed and delivered pursuant to the Loan Agreement, shall mean and be a
reference to the Loan Agreement, as amended by this Amendment.
-2-
<PAGE>
(f) Successors. This Amendment shall be binding upon Borrower,
Lender and their respective successors and assigns, and shall inure to the
benefit of Borrower, Lender and the successors and assigns of Lenders.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
and delivered at New York, New York as of the date first above written.
FLIGHTWAYS MANUFACTURING, INC.
By /s/ Alan M. Fields
------------------------------
Its CEO
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ Scott James Lorimer
------------------------------
Its Vice President
-3-
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS (LOSS) PER SHARE
For the year ended January 1, 1999 For the year ended December 31, 1997
Income Shares Per-share Income Shares Per-share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Income from operations $ (1,950,000) $ (147,000)
Common shares outstanding 2,483,781 2,079,571
Effect of weighted averages (110,872) (303,325)
------------ --------- ----------- ---------
Basic earnings per share $ (1,950,000) 2,372,909 $ (0.82) $ (147,000) 1,776,246 $ (0.08)
======== =======
Dilutive securities 1,060,131 1,032,028
Effect of weighted averages
of dilutive securities 23,315 (462,895)
Interest on convertible
securities 170,000
------------ --------- ----------- ---------
Diluted earnings per share $ (1,780,000) 3,456,355 $ (0.51) $ (147,000) 2,345,379 $ (0.06)
============ ========= ======== =========== ========= =======
</TABLE>
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY STATE OF INCORPORATION
Fields Aircraft Spares Incorporated California
Fields Aero Management, Inc. California
Flightways Manufacturing, Inc. California
Skylock Industries California
Each of the subsidiaries listed above is wholly owned subsidiary of the Company,
except that the Company owns over 99% of Flightways Manufacturing, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> JAN-01-1999
<CASH> 431,000
<SECURITIES> 0
<RECEIVABLES> 5,248,000
<ALLOWANCES> 191,000
<INVENTORY> 16,719,000
<CURRENT-ASSETS> 22,424,000
<PP&E> 4,662,000
<DEPRECIATION> 969,000
<TOTAL-ASSETS> 31,042,000
<CURRENT-LIABILITIES> 5,049,000
<BONDS> 19,917,000
0
0
<COMMON> 372,000
<OTHER-SE> 5,704,000
<TOTAL-LIABILITY-AND-EQUITY> 31,042,000
<SALES> 23,851,000
<TOTAL-REVENUES> 23,851,000
<CGS> 16,536,000
<TOTAL-COSTS> 21,916,000
<OTHER-EXPENSES> 1,410,000
<LOSS-PROVISION> 217,000
<INTEREST-EXPENSE> 2,249,000
<INCOME-PRETAX> (1,941,000)
<INCOME-TAX> 9,000
<INCOME-CONTINUING> (1,950,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,950,000)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.51)
</TABLE>
