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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
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/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for
the fiscal year ended March 31, 1998
or
/ / Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NO. 1-12235
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TRIUMPH GROUP, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 51-0347963
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
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FOUR GLENHARDIE CORPORATE CENTER,
1255 DRUMMERS LANE, SUITE 200,
WAYNE, PENNSYLVANIA 19087
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code:
(610) 975-0420
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
Title of Class
Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
------------------------
The number of outstanding shares of the Registrant's Common Stock, par value
$.001 per share, and Class D Common Stock, par value $.001 per share, on May 29,
1998 was 8,550,511 and 3,348,535, respectively. In making such calculation,
Registrant is not making a determination of the affiliate or non-affiliate
status of any holders of shares of Common Stock or Class D Common Stock.
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The aggregate market value of the shares of Common Stock held by
non-affiliates of the Registrant (computed by reference to the closing price of
such voting stock on the New York Stock Exchange on May 29, 1998 of $49) was
approximately $316,818,271.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated herein by reference:
Proxy Statement of Triumph Group, Inc. in connection with its 1998 Annual
Meeting of Stockholders is incorporated in part in Part III hereof, as specified
herein.
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TABLE OF CONTENTS
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ITEM NO. PAGE
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PART I.......................................................................................................... 4
1. Business............................................................................................. 4
2. Properties........................................................................................... 19
3. Legal Proceedings.................................................................................... 19
4. Submission of Matters to a Vote of Security Holders.................................................. 19
PART II......................................................................................................... 20
5. Market for Registrant's Common Equity and Related Stockholder Matters................................ 20
6. Selected Financial Data.............................................................................. 21
7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 23
8. Financial Statements and Supplementary Data.......................................................... 29
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................. 48
PART III........................................................................................................ 49
10. Directors and Executive Officers of Registrant....................................................... 49
11. Executive Compensation............................................................................... 50
12. Security Ownership of Certain Beneficial Owners and Management....................................... 50
13. Certain Relationships and Related Transactions....................................................... 50
PART IV......................................................................................................... 51
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................... 51
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PART I
ITEM 1. BUSINESS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 relating to the Company's
future operations and prospects, including statements that are based on current
projections and expectations about the markets in which the Company operates,
and management's beliefs concerning future performance and capital requirements
based upon current available information. Actual results could differ materially
from management's current expectations and there can be no assurance that
additional capital will not be required or that additional capital, if required,
will be available on reasonable terms, if at all, at such times and in such
amounts as may be needed by the Company. In addition to these factors and others
described elsewhere in this report, among other factors that could cause actual
results to differ materially are uncertainties relating to the integration of
acquired businesses, general economic conditions affecting the Company's two
business segments, dependence of certain of the Company's businesses on certain
key customers as well as competitive factors relating to the aviation and metals
industries. For a more detailed discussion of these and other factors affecting
the Company, see the Risk Factors described in Item 1 of this Annual Report on
Form 10-K. The Company does not undertake any obligation to revise these
forward-looking statements to reflect future events.
GENERAL
The Company designs, engineers, manufactures, repairs, overhauls and
distributes aircraft components, such as mechanical and electromechanical
control systems, aircraft and engine accessories, auxiliary power units
("APUs"), avionics and aircraft instruments. The Company serves a broad spectrum
of the aviation industry, including commercial airlines and air cargo carriers,
as well as original equipment manufacturers ("OEMs") of aerospace vehicles,
commercial and military aircraft, and aircraft components.
PRODUCTS AND SERVICES
The Company's aviation products and services may generally be divided into
three categories: structural components, instrument and flight controls, and
operational components. The following is a description of some of the products
and services offered by the Company in each of these three categories:
STRUCTURAL COMPONENTS. The Company performs stretch forming, bending, die
forming, machining, milling, welding, assembly and other fabrication on aircraft
wings, fuselages and skins for aircraft produced by OEMs such as The Boeing
Company ("Boeing") (including McDonnell Douglas and Rocketdyne, which have been
recently acquired by Boeing). The Company also manufactures metallic and
composite bonded honeycomb assemblies for fuselage, wings and flight control
surface parts for commercial airlines and other aircraft operators.
INSTRUMENT AND FLIGHT CONTROLS. The Company designs and engineers
mechanical and electromechanical controls such as remote valve operators and
push/pull controls ranging from simple vent controls to sophisticated
flight-critical engine controls for OEMs and commercial airlines and general
aviation. In certain cases, principally at Triumph Controls, Inc. ("TCI"), the
Company's designs and engineering for such controls are proprietary because such
designs are not sold to the OEM for whom the control is manufactured.
Consequently, the OEM generally relies on the Company to repair or replace such
component. The Company also performs repair and overhaul services and supplies
spare parts for various types of cockpit instruments and gauges for a broad
range of commercial airlines on a worldwide basis.
OPERATIONAL COMPONENTS. The Company performs complete repair and overhaul
services on APUs and components for APUs for both commercial airlines and OEMs.
APUs are used to provide power for all non-propulsion aircraft functions such as
air conditioning, lights and other electrical functions. The Company also
repairs and overhauls aircraft accessories, including constant speed drives,
pneumatic or
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electrically actuated valves, cabin compressors, starters and generators, and
manufactures refueling booms. Certain of these components, like the APUs, are
repaired pursuant to SFAR 36 certifications. In addition, the Company
manufactures hot section components for small propulsion jet engines, APUs and
land-based power units and combustion system components for power equipment
manufacturers. Finally, the Company provides precision machining services for
other operational components manufactured from refractory and other metals for
the aviation and aerospace industry.
INDUSTRY OVERVIEW AND TRENDS
Both the aircraft component production and component repair industries are
highly fragmented, each consisting of a limited number of well-capitalized
companies, which offer a broad range of products and services, and a large
number of smaller, specialized companies. The aviation industry has been
consolidating at an increasing pace in recent years, and it is expected that
such consolidation will continue for the foreseeable future.
A number of significant trends are currently affecting the market for the
design, engineering, manufacture, repair and overhaul of aircraft components.
These trends include the following:
INCREASES IN AIR TRANSIT AND AIRCRAFT PRODUCTION. Boeing's 1997 Market
Outlook projected that global air travel will increase by 75% and that the
number of passenger and cargo delivery aircraft in service will increase by 48%
through the year 2006. This trend will be driven, in part, by the anticipated
continued growth of established carriers engaged in the air freight and package
delivery businesses. Average passenger seat miles flown is also expected to
increase significantly over the next few years. Further, many new airlines are
expected to commence operations in the United States and abroad, especially in
China and other countries in Asia where air traffic previously was limited.
Because start-up airlines generally do not invest in the infrastructure
necessary to service their aircraft, such airlines outsource all or most of
their repair and overhaul services. To meet their needs, certain foreign and
many start-up airlines have turned to older aircraft which generally require
more frequent servicing. Further, as aging aircraft are retired, new aircraft
production is increasing. The number of surplus aircraft is expected to
significantly decline while new aircraft production is expected to increase over
the next several years. The continued growth in air transit and aircraft
production will increase the demand for aircraft component purchases and
repairs.
INCREASED OUTSOURCING BY AIRCRAFT OPERATORS AND OEMS. Aircraft operators
have come under increasing pressure to reduce both operating and capital costs
associated with providing aviation services. While several of the expenditures
incurred by aircraft operators are beyond their direct control, such as fuel
prices and labor costs, aircraft operators seeking cost reductions have
increased purchases of certain components from third parties and have outsourced
repair and overhaul functions. Aircraft components sold by third party suppliers
and aircraft components that have been repaired and overhauled are generally
less expensive than new aircraft components sold by OEMs. In addition, OEMs are
increasingly becoming "assemblers" of aviation products by outsourcing more
manufacturing and repair functions to third parties. In this regard, the Company
supplies many OEMs with aircraft components and subassemblies, in addition to
performing repair and overhaul services. In addition, as consolidation in the
aviation services industry continues, aviation services consumers are requiring
vendors to offer a broader range of services including, in some instances,
inventory maintenance and management services. The Company believes that its
broad array of aviation products and services and its reputation for quality and
timely and reliable delivery will position the Company to continue to capitalize
on the outsourcing trend. The Company anticipates that increased reliance on
outsourcing will continue to cause consolidation in the industry since only
those suppliers with extensive capacities and adequate capital will secure such
agreements with OEMs and aircraft operators.
REDUCTION IN THE NUMBER OF APPROVED SUPPLIERS AND VENDORS. In order to
reduce purchasing costs, streamline purchasing decisions and have greater
control over quality, purchasing departments of OEMs
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and aircraft operators have been reducing the number of approved suppliers and
vendors. In the past several years, several OEMs and aircraft operators have
reduced their supplier and vendor lists from as many as 50 to a core group of
five to ten "mega-suppliers" or "mega-vendors" who have the size and capacity to
meet their needs. The Company has secured a position on such lists of a number
of OEMs and airlines. The Company believes that this trend will continue in the
future and that, due to its established market presence and reputation for
quality, the Company will continue to be selected as an approved supplier and
vendor. See "--Government Regulation."
INCREASED MAINTENANCE AND SAFETY REQUIREMENTS. Under regulations
promulgated by the FAA and similar agencies in other countries, including the
Joint Aviation Authority (the "JAA") and the Civil Aviation Administration of
China (the "CAAC"), as well as guidelines established by OEMs and aircraft
operators, when an aircraft component fails to perform within certain prescribed
limits or after logging a prescribed number of flight hours, the aircraft
component must be brought to a repair facility certified by the FAA or similar
agency of a foreign nation for various types of designated service or
replacement. The FAA has changed the nature of the licenses that it grants, from
the grant of broad licenses for aircraft accessories or instruments within broad
classifications to more limited licenses covering specific parts within more
narrow classifications. The Company holds many perpetual broad licenses that
will continue unless abandoned, suspended or revoked. In addition, aircraft
components require regular maintenance and inspection and replacement of
"life-limited" components. The trend toward more stringent maintenance
requirements and more frequent maintenance and overhaul has increased the size
of the market for the repair of such components, because the use of new
components is not always cost effective. The Company believes that, because of
its broad licenses and long-standing emphasis on quality control, it will
benefit from these higher maintenance and safety standards.
INCREASED EMPHASIS ON COMPONENT TRACEABILITY. Because of concerns regarding
the use of unapproved aircraft spare parts, regulatory authorities have
increased the level of documentation that must be maintained on spare parts.
This requirement has been extended by OEMs and aircraft operators to the vendors
of spare parts. The high cost of required technology to compete effectively in
the redistribution market has made entry into and survival in the aircraft spare
parts redistribution market increasingly difficult and expensive. The Company
has implemented technology to enable it to meet these more stringent
traceability requirements and intends to continue to do so in the future.
COMPETITIVE ADVANTAGES
The Company believes that it is well positioned to take advantage of trends
affecting the market for the design, engineering, manufacture, repair and
overhaul of aircraft components due to:
BROAD ARRAY OF PRODUCTS AND SERVICES. The Company offers the aviation
industry a consolidated point of purchase for a broad array of aviation products
and services. The Company designs, engineers and manufactures aircraft
components to fulfill the particular needs and requirements of its customers,
including electromechanical controls and fuselage structural components for the
777 model aircraft for Boeing. In certain cases, the Company owns the
proprietary rights to these designs and, accordingly, the customer generally
relies on the Company to provide service on such aircraft components at every
stage of their useful lives, including the repair and overhaul or replacement of
such components. In addition, the Company manufactures aviation components
according to its customers' specifications. The Company also performs repair and
overhaul services for customers on various aviation components manufactured by
third parties such as AlliedSignal, Inc. ("AlliedSignal"). In addition, the
Company offers to maintain and manage inventories of aircraft components and
other products for certain of its customers. In certain instances, the Company's
customers require it to maintain and manage their inventories.
GOVERNMENT CERTIFICATIONS. The Company operates 15 FAA-certified repair
stations and has been granted licenses from the FAA and foreign regulatory
counterparts, including the JAA and the CAAC, to perform repair and overhaul
services on broad classifications of aircraft instruments and accessories.
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Without such broad certifications and licenses, which are often expensive and
time-consuming to obtain and involve extensive audit procedures, other companies
are precluded from offering these products and services, thereby constituting a
significant barrier to entry. See "--Government Regulation." In addition, the
Company holds two exclusive licenses issued by the FAA which permit the Company
to design, engineer, repair, test and release into service without FAA approval
certain products to its own specifications for certain aircraft components and
therefore to compete directly with OEMs with respect to such compo nents. These
exclusive licenses, known as SFAR 36 certifications, enable the Company to
offer, on a proprietary basis, certain repaired parts relating to various
aircraft accessories such as APUs and constant speed drives to its customers at
a lower cost than other companies that must purchase replacement parts from
third parties. The Company employs Designated Engineering Representatives
("DERs") who are certified to act on behalf of the FAA to develop, substantiate
and approve repairs on components.
EMPHASIS ON QUALITY CONTROL. The Company incurs significant expenses to
maintain the most stringent quality control of its products and services. In
addition to domestic and foreign governmental regulations, OEMs, commercial
airlines and other customers require that the Company satisfy certain
requirements relating to the quality of its products and services. The Company
has continually met or exceeded these requirements, and has successfully
completed many audits conducted on a regular basis by the Coordinated Agency for
Supplier Evaluation ("C.A.S.E."), a consortium of United States airlines. As a
C.A.S.E.-listed vendor, the Company is reviewed on a regular basis for quality
and efficiency. The Company also performs testing and certification procedures
on all of the products that it designs, engineers, manufactures, repairs and
overhauls, and maintains detailed records to ensure traceability of the
production of and service on each aircraft component. The Company believes that
its emphasis on quality control has enabled it to obtain many of the FAA
licenses it enjoys, including its exclusive SFAR 36 certifications. The expense
required to institute and maintain the Company's quality control procedures
represents a barrier to entry for other companies.
BROAD CUSTOMER BASE. Due to the Company's broad array of products and
services and its emphasis on quality control and timely delivery, the Company's
customers include virtually all of the world's major commercial airlines and an
increasing number of the most widely recognized air cargo carriers, including
Federal Express Corporation and United Parcel Service of America, Inc., and OEMs
such as Boeing, AlliedSignal, Bombardier, Inc. and Aerospatiale (AirBus). The
Company expects that its customer base will continue to strengthen and broaden
with increased cross-selling efforts by the Company of its related products and
services. Boeing (including McDonnell Douglas and Rocketdyne which have been
recently acquired by Boeing) accounted for more than 10% of the Company's
consolidated revenues for the 12 months ended March 31, 1998. Although the loss
of Boeing could have a material adverse effect on the Company, the Company
provides various products and services to numerous Boeing facilities and,
accordingly, the Company believes that the loss of all Boeing business is
unlikely.
ESTABLISHED INDUSTRY PRESENCE. The operating divisions and subsidiaries in
the Company's Aviation Group have substantial experience in the aviation
industry. These entities are characterized by experienced management and
highly-skilled employees. Because of its established industry presence, the
Company enjoys strong customer relations, name recognition and repeat business.
COMPANY STRATEGY
The Company intends to grow its aviation business through:
EXPANSION OF PRODUCTS AND SERVICES. The Company will continue to introduce
new aviation products and services to take advantage of the growing aviation
industry and the increasing demand for aviation products and services. In an
effort to expand its existing array of products and services and to capture
additional repair and overhaul business, the Company plans to expand, as
appropriate, its program for the distribution and inventory management of third
party aircraft components. The Company will also expand its assembly and
subassembly capabilities on certain aircraft components. By broadening its
products and
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services, the Company intends to further expand its position as a consoli dated
point of purchase to the aviation industry, capitalizing on the increasing trend
toward outsourcing and the reduction by aircraft operators and OEMs of the
number of approved suppliers and vendors.
ACQUISITIONS. The Company expects to continue its growth through
acquisitions of other companies, assets or product lines that add to or
complement the Company's existing aviation products and services. The Company
successfully completed seven acquisitions since October 1995, four of which were
completed since the Company's initial public offering. The Company acquired the
assets of J.D. Chapdelaine Co., which now operates as "JDC Company," as of April
30, 1997. JDC Company is engaged in the business of repairing, overhauling,
exchanging and selling instrumentation for the aviation industry. In addition,
the Company purchased Hydro-Mill Co. ("Hydro-Mill") on September 2, 1997.
Hydro-Mill manufactures, repairs and overhauls precision machine parts and
assemblies for the airline industry. The Company also acquired Stolper-Fabralloy
Company, L.L.C. ("Stolper") on October 29, 1997. Stolper fabricates precision
sheet metal components from high temperature alloys and provides repair and
overhaul services. Effective January 1, 1998, the Company purchased Frisby
Aerospace, Inc., which designs, manufactures, assembles and tests precision
aircraft components, including hydraulic controls, actuators, pump packages,
chassis, pneumatic valves and mechanical assemblies for military and commercial
OEMs, the United States government, prime contractors and major airlines.
Because of the fragmented nature of much of the market for aircraft products and
services, the Company believes that many additional acquisition opportunities
exist in the aviation industry. The Company is currently evaluating acquisition
opportunities. There can be no assurance that the Company will successfully
complete any of these acquisitions or, that if so acquired, such entities will
be properly integrated into the Company.
EXPANDED OPERATING CAPACITY. The Company plans to increase its operating
capacity to meet the expected increased growth and demand in the aviation
industry. The Company will increase its capital expenditures, including
expenditures for additional equipment and skilled labor, to support this
increased capacity. The Company intends to continue to invest in state of the
art machinery to increase its operating efficiencies and improve operating
margins.
INCREASED INTERNATIONAL MARKETING. The Company intends to continue to take
advantage of the expanding international market for aviation products and
services as worldwide air travel escalates and foreign nations, particularly
China and other countries in Asia, purchase used aircraft that require more
frequent repair and maintenance. The Company currently supplies products and
services to virtually every major commercial airline in the world and retains
independent sales representatives in a number of foreign countries. In addition,
the Company participates each year in several international trade shows,
including the Paris Air Show and the Singapore Air Show. The Company intends to
build on its existing international presence through continued market
penetration and, as appropriate opportunities arise, foreign acquisitions.
CAPITALIZING ON AVIATION GROUP AFFILIATION. Utilizing the group affiliation
of the Company's operating divisions and subsidiaries, the Company plans to
increase cross-selling of related capabilities to its customers. For example,
one of the Company's operating divisions distributes certain electromechanical
controls manufactured by a subsidiary of the Company. The Company's operating
divisions and subsidiaries will continue to share independent sales
representatives and jointly bid on projects where appropriate, while still
maintaining their individual identities.
HISTORICAL BACKGROUND
The Company was formed by members of management and Citicorp Venture
Capital, Ltd. ("CVC") to acquire (the "Acquisition") certain businesses and
assets from Alco Standard Corporation (now known as IKON Office Solutions, Inc.
or "IKON"). In connection with the Acquisition, 19 members of management
contributed capital in the aggregate amount of approximately $1.1 million and
CVC, an institutional investor, contributed capital in the aggregate amount of
approximately $6.9 million.
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PROPRIETARY RIGHTS
The Company benefits from its proprietary rights relating to certain
designs, engineering, manufacturing processes and repair and overhaul
procedures. For example, at TCI, the Company designs and engineers flight
control systems and retains the proprietary rights to these designs and
engineering. Accordingly, the customer generally relies on the Company to
provide initial and additional components, as well as to redesign, reengineer,
replace or repair and provide overhaul services on such aircraft components at
every stage of their useful lives. In addition, the Company has proprietary
rights to certain of its manufacturing processes. For certain products, the
Company's unique manufacturing capabilities are required by the customer's
specifications or designs, thereby necessitating reliance on the Company for
production of such designed product. The Company also holds two SFAR 36
certifications that permit it to develop proprietary repair procedures to be
used in certain repair and overhaul processes, enabling the Company to offer the
customer a lower cost alternative to purchasing the OEM's replacement part. The
Company employs three DERs who are certified to act on behalf of the FAA to
develop, substantiate and approve repairs on components for certain of the
Company's operating divisions and subsidiaries.
RAW MATERIALS AND REPLACEMENT PARTS
The Company purchases raw materials, primarily consisting of steel and
aluminum coils, sheets and shapes, from various vendors. The Company also
purchases replacement parts which are utilized in its various repair and
overhaul operations. Although the Company believes that these raw materials and
replacement parts are generally available at competitive prices from numerous
sources, castings and extrusions are in short supply and remain difficult to
purchase in sufficient amounts to meets its customers' demands. See "Risk
Factors--Limited Availability of Raw Materials."
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OPERATING DIVISIONS AND SUBSIDIARIES
The Company operates through several operating divisions and subsidiaries
which are divided into two groups: the Aviation Group and the Metals Group. The
following chart describes the operations, customer base and certain other
information with respect to the Company's operating divisions and subsidiaries:
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OPERATING NUMBER
DIVISION/SUBSIDIARY OF
(YEAR ESTABLISHED) LOCATION BUSINESS TYPE OF CUSTOMERS EMPLOYEES
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Aviation Group Sells and services Commercial airlines, U.S. 84
A. Biederman(1)............ Glendale, CA aircraft and industrial military and cargo
(1933) instruments. carriers.
Advanced Materials Repairs and manufactures Aviation OEMs and 310
Technologies, Inc.(3)...... Chandler, AZ components for APUs and aircraft operators.
(1987) Tempe, AZ gas turbine engines.
Aerospace Technologies, Manufactures metallic/ Commercial airlines, U.S. 129
Inc.(1).................. Fort Worth, TX composite bonded military and component
(1969) honeycomb assemblies and supplier industry.
repairs fuselage, wing,
flight control surface
parts and other flight
critical components.
Frisby Aerospace, Designs, manufactures, Military and commercial 119
Inc.(3).................... Clemmons, NC assembles and tests OEMs, U.S. government,
(1940) Freeport, NY precision aircraft prime contractors and
components. major airlines.
Hydro-Mill Co.(1).......... Chatsworth, CA Manufactures, repairs and Aviation OEMs, commercial 169
(1937) overhauls precision airlines and aircargo
machine parts and carriers.
assemblies.
JDC Company(3)............. Ft. Lauderdale, Specializes in the Aircraft manufacturers 53
(1985) FL repair, overhaul and ranging from general
Austin, TX exchange of aviation to wide-body air
electromechanical and transport.
pneumatic aircraft
instruments.
K-T Corporation............ Shelbyville, IN Performs stretch forming, Aviation OEMs, U.S. 211
(1963) bending, die forming, military and aerospace,
machining, welding, mass transportation,
assembly and other energy and heavy trucking
fabrication on aircraft industries.
wings, fuselages and
skins.
L.A. Gauge................. Sun Valley, CA Machines, bonds and Defense, aerospace, 50
(1954) fabricates medical, automotive and
ultra-precision parts. computer industries.
Lamar Electro-Air(1)(2).... Wellington, KS Repairs and overhauls U.S. government, 103
(1965) aircraft and engine commercial airlines and
accessories, manufactures general aviation aircraft
pneumatic and operators.
electrically actuated
valves for aircraft.
Northwest Industries....... Albany, OR Machines and fabricates Aerospace, nuclear, 33
(1960) refractory, reactive, medical, electronic and
heat and chemical industries.
corrosion-resistant
precision products.
Special Processes of Produces and applies Aviation OEMs and 25
Arizona, Inc.(1)........... Phoenix, AZ plasma coating. aircraft operators.
(1987)
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OPERATING NUMBER
DIVISION/SUBSIDIARY OF
(YEAR ESTABLISHED) LOCATION BUSINESS TYPE OF CUSTOMERS EMPLOYEES
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Stolper-Fabralloy Fabricates precision Commercial, military and 245
Company(3)................. Phoenix, AZ sheet metal components aerospace OEMs.
(1908) Brookfield, WI from high temperature
alloys and provides
repair and overhaul
services.
Triumph Air Repair(1)(2)... Phoenix, AZ Repairs and overhauls Worldwide commercial 127
(1979) APUs and supplemental airlines.
equipment.
Triumph Controls, Designs and manufactures Aviation OEMs, shipyards, 281
Inc.(1).................... North Wales, PA mechanical and repair and overhaul
(1943) electromechanical control facilities, airlines and
systems. U.S. and NATO military
forces.
Metals Group Great Western Produces steel products, Manufacturers, primarily 38
Steel.................... Chicago, IL specializing in flat in the home and office
(1918) rolled products. products industries.
Kilroy Structural Steel Erects structural steel General contractors, 69
Co......................... Cleveland, OH frameworks. engineers and architects
(1918) of commercial buildings
and bridges.
Triumph Industries......... Bridgeview, IL Produces and distributes Computer and electronic 53
(1960) specialty industries.
electrogalvanized
products.
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(1) Designates FAA-certified repair station.
(2) Designates SFAR 36 certification.
(3) Designates that two locations are FAA-certified repair stations.
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METALS PROCESSING AND DISTRIBUTION
The Company's Metals Group consists of two operating divisions and one
subsidiary with substantial experience in the metals industry. These businesses
include a leading producer of electrogalvanized steel products and a steel
service center specializing in flat rolled steel products. These entities supply
products to several hundred manufacturers and other customers in the computer
and electronics industries on a regional and national basis. In addition, the
Company operates a business engaged in the erection of structural frameworks for
buildings and bridges in the midwestern United States.
The Company's Metals Group processes, converts and distributes steel and
steel products including electrogalvanized steel products which are stamped,
formed, welded and painted, and coated steel for the electronic and computer
industries. The Company's steel service center specializes in flat rolled
products and their processing, including hot or cold rolled sheet and coil and
galvanized sheet and coil used primarily by the home and office products and
appliance industry.
The Company also erects structural framework, including steel members and
allied materials, for buildings and bridges, with a specialty in commercial and
industrial buildings. Included among the Company's projects are Jacobs' Field,
the Cleveland Indians' baseball stadium, and the Rock 'n Roll Hall of Fame in
Cleveland, Ohio. These structural erection services are provided on a
project-by-project basis primarily in the midwestern United States. These
projects are generally awarded on a fixed fee, competitive bid basis.
SALES AND MARKETING
Each of the Company's operating divisions and subsidiaries independently
conducts sales and marketing efforts directed at their respective customers and
industries and, in some cases, collaborates with other operating divisions and
subsidiaries within its group for cross-marketing efforts. Each sales force and
the respective officers of the operating divisions and subsidiaries are
responsible for obtaining new customers and maintaining relationships with
existing customers. Sales and marketing efforts are conducted primarily by
independent regional manufacturer's representatives and in-house personnel.
Generally, manufacturer's representatives receive a commission on sales and the
in-house sales personnel receive a base salary plus commission. Engaging
independent sales representatives at the local level facilitates responsiveness
to each customer's changing needs and current trends in each marketplace in
which the Company operates.
Presidents of each of the Company's operating divisions and subsidiaries in
the Aviation Group meet periodically to discuss ways to improve sales and
cross-marketing opportunities. The management of each operating division and
subsidiary of the Company also maintains close business relationships with many
customers, thereby furthering the sales and marketing efforts of their
businesses.
A significant portion of the Company's government and defense contracts are
awarded on a competitive bidding basis. The Company generally does not bid or
act as the primary contractor, but will typically bid and contract as a
subcontractor on contracts on a fixed fee basis. The Company generally sells to
its other customers on a fixed fee, negotiated contract or purchase order basis.
BACKLOG
As of March 31, 1998, the Company's Aviation and Metals Groups had
outstanding purchase orders representing an aggregate invoice price of
approximately $174.2 million and $12.6 million, respectively. As of March 31,
1997, the Company's Aviation and Metals Groups had outstanding purchase orders
representing an aggregate invoice price of approximately $93.2 million and $22.1
million, respectively. The Company believes that purchase orders in an aggregate
approximate amount of $40.6 million will not be shipped by the Aviation Group by
March 31, 1999. The Company believes that all of the purchase orders will be
shipped by the Metals Group by March 31, 1999.
12
<PAGE>
COMPETITION
The aircraft components production and repair industry is highly fragmented,
consisting of both a limited number of well-capitalized companies which offer a
broad range of products and services and a large number of smaller, specialized
companies. The Company believes that the principal competitive factors in the
aviation products and services industry are quality, turnaround time, overall
customer service and price. See "Competitive Advantages." The Company believes
that it competes favorably on the basis of the foregoing factors. The Company
does not believe that the location of its repair facilities is a significant
factor to its customers in selecting the Company, as substantially all of the
components serviced by the Company are transported by common carrier to the
Company's facilities for service.
The Company competes with third party manufacturers, some of which are
divisions or subsidiaries of OEMs or other large companies in the manufacture of
aircraft components and subassemblies. Competition for the repair and overhaul
of aviation components comes from three primary sources, some with greater
financial and other resources than the Company: OEMs, major commercial airlines
and other independent service companies. Certain major commercial airlines
continue to own and operate their own service centers, while others have begun
to sell their repair and overhaul services to other aircraft operators. The
repair and overhaul services provided by domestic airlines are primarily for
their own aircraft, although these airlines may outsource a limited amount of
repair and overhaul services to third parties. Foreign airlines that provide
repair and overhaul services typically provide these services not only for their
own aircraft but for other airlines as well. OEMs also maintain service centers
which provide repair and overhaul services for the components they manufacture.
Other independent service organizations also compete for the repair and overhaul
business of other users of aircraft components.
The Company's principal competitors in the metals industry include national
and regional steel mills, other steel service centers, steel erection companies
and pre-engineered building manufacturers. Some of these competitors have
greater financial and other resources than the Company.
GOVERNMENT REGULATION
The aviation industry is highly regulated in the United States by the FAA
and in other countries by similar agencies. The Company must be certified by the
FAA and, in some cases, by individual OEMs, in order to engineer and service
parts and components used in specific aircraft models. If material
authorizations or approvals were revoked or suspended, the operations of the
Company would be adversely affected. New and more stringent government
regulations may be adopted, or industry oversight heightened, in the future and
such new regulations, if enacted, or any industry oversight, if heightened, may
have an adverse impact on the Company.
The Company must also satisfy the requirements of its customers, including
OEMs, that are subject to FAA regulations, and provide these customers with
products and services that comply with the government regulations applicable to
aircraft components used in commercial flight operations. The FAA regulates
commercial flight operations and requires that aircraft components meet its
stringent standards. In addition, the FAA requires that various maintenance
routines be performed on aircraft components, and the Company currently
satisfies these maintenance standards in its repair and overhaul services.
Several of the Company's operating divisions are FAA-approved repair stations.
Currently, the FAA is granting licenses only for the manufacture or repair
of a specific aircraft component, rather than the broader licenses that have
been granted in the past. The FAA licensing process may be costly and
time-consuming. In order to obtain an FAA license, an applicant must satisfy all
applicable regulations of the FAA governing repair stations. These regulations
require that an applicant have experienced personnel, inspection systems,
suitable facilities and equipment. In addition, the applicant must demonstrate a
need for the license. Because an applicant must procure manufacturing and repair
manuals from third parties relating to a particular aircraft component in order
to obtain a license with respect to such component, the application process may
involve substantial cost.
13
<PAGE>
The license approval processes for the JAA and CAAC are similarly stringent,
involving potentially lengthy audits conducted by these regulatory authorities.
The Company's aviation and metals operations are also subject to a variety
of worker and community safety laws. The Occupational Safety and Health Act of
1970 ("OSHA") mandates general requirements for safe workplaces for all
employees. In addition, OSHA provides special procedures and measures for the
handling of certain hazardous and toxic substances. Specific safety standards
have been promulgated for workplaces engaged in the treatment, disposal or
storage of hazardous waste. The Company believes that its operations are in
material compliance with OSHA's health and safety requirements.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and regulation by government agencies, including the
Environmental Protection Agency ("EPA"). Among other matters, these regulatory
authorities impose requirements that regulate the emission, discharge,
generation, management, transportation and dispo sal of hazardous materials,
pollutants and contaminants, govern public and private response actions to
hazardous or regulated substances which may be or have been released to the
environment, and require the Company to obtain and maintain licenses and permits
in connection with its operations. This extensive regulatory framework imposes
significant compliance burdens and risks on the Company. Although management
believes that the Company's operations and its facilities are in material
compliance with such laws and regulations, there can be no assurance that future
changes in such laws, regulations or interpretations thereof or the nature of
the Company's operations will not require the Company to make significant
additional capital expenditures to ensure compliance in the future.
Certain of the Company's facilities have been or are currently the subject
of environmental remediation activities, the cost of which is subject to
indemnification provided by IKON pursuant to the Acquisition. One of these
facilities is connected with a site included on the National Priorities List of
Superfund sites maintained by the EPA. Another of these facilities is located on
a site included in the EPA's database of potential Superfund sites. IKON's
indemnification covers the Company for losses the Company might suffer in
connection with liabilities and obligations (and other liabilities and
obligations arising out of or in connection with the Acquisition) arising under
environmental, health and safety laws with respect to operations or use of those
facilities prior to their acquisition by the Company. More specifically, this
IKON indemnification covers both (i) the costs, claims and potential losses
associated with environmental matters identified in the purchase agreement for
the Acquisition as the result of environmental assessments or other disclosures
made in connection with the Acquisition, including the costs, claims and
potential losses associated with all the environmental remediation activities
and identified liabilities, and (ii) the losses connected to environmental
liabilities which were not identified in the purchase agreement and which arise
from conditions or activities existing at the facilities or operations acquired
from IKON prior to their acquisition from IKON, provided that they are
identified by the Company to IKON before July 22, 2000. Certain other facilities
acquired and operated by the Company or one of its subsidiaries, including a
leased facility located on an EPA National Priorities List site, were under
active investigation for environmental contamination by federal or state
agencies when acquired, and continue to be under such investigation. The Company
is indemnified by prior operators and/or present owners of the facilities for
liabilities which the Company incurs as a result of these investigations and the
environmental contamination found which pre-dates the Company's acquisition of
these facilities. Two Company facilities also have been the subject of notices
from a citizen group alleging failure to notify and file reports with
appropriate agencies regarding the presence of certain hazardous chemicals in
excess of specified threshold quantities. The Company has denied these
allegations and the citizen group has either withdrawn or ceased actively
pursuing these claims. See "Risk Factors--Potential Exposure to Environmental
Liabilities."
14
<PAGE>
EMPLOYEES
As of March 31, 1998, the Company employed 2,071 persons, of whom 199 were
management employees, 75 were sales and marketing personnel, 115 were technical
personnel, 265 were administrative personnel and 1,417 were production workers.
As of March 31, 1998, 339 full-time employees were subject to collective
bargaining agreements. Two of these collective bargaining agreements will expire
in the next 12 months. The Company has not experienced any material
labor-related work stoppage and considers its relations with its employees to be
good.
RISK FACTORS
Statements in this Annual Report on Form 10-K, including those concerning
the Company's expectations regarding the effect of industry trends on the
Company, competitive advantages, strategies, future sales, gross profits,
capital expenditures, selling, general and administrative expenses, and cash
requirements, include certain forward-looking statements. As such, actual
results may vary materially from such expectations. Factors which could cause
actual results to differ from expectations include dependence on the aviation
industry, requirements of capital, integration of acquired businesses,
government regulation, dependence on key customers, technological developments
and obsolete inventory. For a description of these and additional risks, see the
discussion below. There can be no assurance that the Company's results of
operations will not be adversely affected by one or more of these factors.
DEPENDENCE ON AVIATION INDUSTRY. A substantial percentage of the Company's
gross profit and operating income is derived from its Aviation Group. The
Company's aviation operations are focused on designing, engineering and
manufacturing aircraft components on new aircraft and performing repair and
overhaul services on existing aircraft and aircraft components; therefore, the
Company's business is directly affected by economic factors and other trends
that affect its customers in the aviation industry, including a possible
decrease in outsourcing by aircraft operators and OEMs or projected market
growth that may not materialize or be sustainable. When such economic and other
factors adversely affect the aviation industry, they tend to reduce the overall
customer demand for the Company's products and services, thereby decreasing the
Company's operating income. There can be no assurance that economic and other
factors that might affect the aviation industry will not have an adverse impact
on the Company's results of operations. See "Business--Industry Overview and
Trends."
CAPITAL REQUIREMENTS AND INTEGRATION OF ACQUIRED BUSINESSES. A key element
of the Company's strategy has been, and continues to be, internal growth and
growth through the acquisition of additional companies engaged in the aviation
industry. In order to grow internally, the Company will be required to make
significant capital expenditures. The Company's ability to grow by acquisition
is dependent upon, and may be limited by, the availability of suitable
acquisition candidates and capital, and by certain restrictions contained in the
Company's revolving credit facility (the "Credit Facility") and its other
financing arrangements. Growth by acquisition involves risks that could
adversely affect the Company's operating results, including difficulties in
integrating 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 will
be able to obtain the capital necessary to pursue its internal growth and
acquisition strategy, consummate acquisitions on satisfactory terms or, if any
such acquisitions are consummated, satisfactorily integrate such acquired
businesses into the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Business--Company Strategy."
COMPETITION. There are numerous competitors of the Company in both the
aviation services and metals processing and distribution industries. Competition
in the aviation industry comes from three primary sources: major commercial
airlines, many of which operate their own maintenance and overhaul units, OEMs,
which manufacture, repair and overhaul their own components, and other
independent service companies. The Company's principal competitors in the metals
industry include national and
15
<PAGE>
regional steel mills, other steel service centers, steel erection companies and
pre- engineered building manufacturers. Certain of the Company's competitors in
both aviation and metals have substantially greater financial and other
resources than the Company. There can be no assurance that competitive pressures
in either industry will not materially adversely affect the Company's business,
financial condition or results of operations. See "Business--Competition."
GOVERNMENT REGULATION AND INDUSTRY OVERSIGHT. The aviation industry is
highly regulated in the United States by the FAA and in other countries by
similar agencies. The Company must be certified by the FAA and, in some cases,
by individual OEMs in order to engineer and service parts and components used in
specific aircraft models. If material authorizations or approvals were revoked
or suspended, the operations of the Company would be adversely affected. New and
more stringent government regulations may be adopted, or industry oversight
heightened, in the future and any such new regulations, if enacted, or any
industry oversight, if heightened, may have an adverse impact on the Company.
See "Business-- Government Regulation."
FLUCTUATIONS IN OPERATING RESULTS. The Company's overall operating results
are affected by many factors, including the timing of orders from large
customers and the timing of expenditures to manufacture parts and purchase
inventory in anticipation of future sales of products and services. A large
portion of the Company's operating expenses are relatively fixed. Because
several operating divisions and subsidiaries of the Company typically do not
obtain long-term purchase orders or commitments from their customers, they must
anticipate the future volume of orders based upon the historic purchasing
patterns of customers and upon their discussions with customers as to their
future requirements. Cancellations, reductions or delays in orders by a customer
or group of customers could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE OF CERTAIN BUSINESSES ON KEY CUSTOMERS. One customer of the
Company, Boeing, accounted for more than 10%, and one other customer accounted
for more than 5%, of the Company's consolidated revenues during the 12 months
ended March 31, 1998, and the loss of either of these customers could have a
material adverse effect on the Company. In addition, certain of the Company's
operating divisions and subsidiaries have significant customers, the loss of
whom could have an adverse effect on such businesses.
LIMITED AVAILABILITY OF RAW MATERIALS. Recently, the Company has
experienced extended lead times for delivery of aircraft quality castings and
extrusions. Such extended lead times may affect the Company's ability to meet
its customers' demands on a timely basis. There can be no assurance that the
Company will be able to purchase sufficient aircraft-quality castings and
extrusions or other raw materials to meet the demands of its customers in the
future or that such aircraft-quality castings and extrusions or other raw
materials will be available on satisfactory terms or reasonable prices or that
such limited availability will not have a material adverse effect on the
Company.
TECHNOLOGICAL DEVELOPMENTS. The aviation industry is constantly undergoing
development and change, and accordingly, it is likely that new products,
equipment and methods of repair and overhaul service will be introduced in the
future. In order to keep pace with any new developments, the Company may need to
expend significant capital to purchase new equipment and machines or to train
its employees in the new methods of production and service. There can be no
assurance that the Company will be successful in developing new products or,
that such capital expenditures will not have a material adverse effect on the
Company.
RISKS REGARDING THE COMPANY'S INVENTORY. The Company offers to maintain and
manage inventories of aircraft components and other products for certain of its
customers. In addition, certain of the Company's customers require the Company
to maintain and manage their inventories. If this inventory is not used by the
Company, because the Company ceases to supply such customers with the related
products
16
<PAGE>
or services or because such components or other products become obsolete, the
Company will not realize any income to offset the expenses incurred by the
Company to acquire and maintain such inventory.
RELIANCE ON SKILLED PERSONNEL. From time to time, certain of the Company's
operating divisions and subsidiaries have experienced difficulties in attracting
and retaining skilled personnel to design, engineer, manufacture, repair and
overhaul sophisticated aircraft components. The ability of the Company to
operate successfully could be jeopardized if the Company is unable to attract
and retain a sufficient number of skilled personnel.
EXISTENCE OF COLLECTIVE BARGAINING AGREEMENTS. Several of the Company's
subsidiaries are parties to collective bargaining agreements with labor unions,
two of which will expire in the next 12 months. Under those agreements, the
Company currently employs approximately 339 full-time employees, and from time
to time employs up to an additional 150 temporary employees for its steel
erection business, all of whom are members of labor unions. Currently,
approximately 16% of the Company's permanent employees are represented by labor
unions and approximately 24% of the Aviation Group's revenues and 100% of the
Metals Group's revenues are derived from the operating divisions and
subsidiaries a portion of whose employees are unionized. The Company's inability
to negotiate acceptable contracts with these unions could result in strikes by
the affected workers and increased operating costs as a result of higher wages
or benefits paid to union members. If the unionized workers were to engage in a
strike or other work stoppage, or other employees were to become unionized, the
Company could experience a significant disruption of its operations and higher
ongoing labor costs, which could have an adverse effect on the Company's
business and results of operations.
PRODUCT LIABILITY; CLAIMS EXPOSURE. The Company's overall operations expose
it to potential liability for personal injury or death as a result of the
failure of an aircraft component that has been serviced by the Company, the
failure of an aircraft component designed or manufactured by the Company or the
irregularity of metal products processed or distributed by the Company. While
the Company believes that its liability insurance is adequate to protect it from
such liabilities and while no material claims have 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 coverage can be maintained in the future at an
acceptable cost. Any such liability not covered by insurance or for which third
party indemnification is not available could have a material adverse effect on
the financial condition of the Company. See "Business--Legal Proceedings."
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES. The Company's business
operations and facilities are subject to a number of federal, state and local
environmental laws and regulations. Although management believes that the
Company's operations and facilities are in material compliance with such laws
and regulations, there can be no assurance that future changes in such laws,
regulations or interpretations thereof or the nature of the Company's operations
will not require the Company to make significant additional capital expenditures
to ensure compliance in the future. Certain of Company's facilities have been or
are currently the subject of environmental remediation activities, the cost of
which is subject to indemnification provided by IKON. One of these facilities is
connected with a site included in the National Priorities List of Superfund
sites maintained by the EPA. Another of these facilities is located on a site
included in the EPA's database of potential Superfund sites. The IKON
indemnification covers both (i) the costs and claims associated with all of
these environmental remediation activities and liabilities and (ii) the cost of
unidentified liabilities that arise from conditions or activities existing at
facilities prior to their acquisition from IKON and that are identified before
July 22, 2000. Certain other facilities acquired and operated by the Company or
one of its subsidiaries, including a leased facility located on an EPA National
Priorities List site, have been under active investigation for environmental
contamination by federal or state agencies when acquired, and continue to be
under such investigation. The Company is indemnified by prior operators and/or
present owners of the facilities for liabilities which the Company incurs as a
result of
17
<PAGE>
these investigations and the environmental contamination found which pre-dates
the Company's acquisition of these facilities. Two Company facilities also have
been the subject of notices from a citizen group alleging failure to notify and
file reports with appropriate agencies regarding the presence of certain
hazardous chemicals in excess of specified threshold quantities, although the
citizen group has either withdrawn or ceased actively pursuing these claims. The
Company does not maintain environmental liability insurance, and if the Company
were required to pay the expenses related to these environmental liabilities,
such expenses could have a material adverse effect on the Company. See
"Business--Environmental Matters."
18
<PAGE>
ITEM 2. PROPERTIES
PROPERTIES
The Company's executive offices are located in Wayne, Pennsylvania, where
the Company leases 7,695 square feet of space. In addition, the Company owns or
leases the following facilities in which its operating divisions and
subsidiaries are located.
<TABLE>
<CAPTION>
SQUARE OWNED/
LOCATION DESCRIPTION FOOTAGE LEASED
- ------------------------- ----------------------------------------------------------------- --------- ---------
<S> <C> <C> <C>
AVIATION GROUP
Chandler, AZ Thermal processing facility/office............................... 7,000 Leased
Phoenix, AZ Plasma spray facility/office..................................... 13,500 Leased
Phoenix, AZ Repair and overhaul shop/office.................................. 50,000 Leased
Phoenix, AZ Manufacturing facility/office.................................... 35,000 Leased
Tempe, AZ Manufacturing facility/office.................................... 13,500 Owned
Tempe, AZ Machine shop..................................................... 9,300 Owned
Tempe, AZ Machine shop..................................................... 32,100 Owned
Chatsworth, CA Manfacturing facility/office..................................... 101,900 Owned
Chatsworth, CA Manufacturing facility........................................... 21,600 Leased
Glendale, CA Instrument shop/warehouse/office................................. 25,000 Leased
Santa Clara, CA Warehouse/repair shop/office..................................... 1,800 Leased
Sun Valley, CA Machine shop/office.............................................. 30,000 Owned
Ft. Lauderdale, FL Instrument shop/warehouse/office................................. 7,200 Leased
Shelbyville, IN Manufacturing facility/office.................................... 192,300 Owned
Shelbyville, IN Manufacturing facility/office.................................... 50,000 Owned
Wellington, KS Repair and overhaul/office....................................... 65,000 Leased
Freeport, NY Manufacturing facility/office/warehouse.......................... 29,000 Owned
Clemmons, NC Manufacturing facility/repair/office............................. 20,000 Owned
Albany, OR Machine shop/office.............................................. 25,000 Owned
North Wales, PA Manufacturing facility/office.................................... 111,400 Leased
Austin, TX Instrument shop/warehouse/office................................. 4,500 Leased
Fort Worth, TX Manufacturing facility/office.................................... 114,100 Owned
Brookfield, WI Manufacturing facility/office.................................... 62,000 Leased
METALS GROUP
Bridgeview, IL Steel processing facility/office................................. 135,700 Leased
Chicago, IL Steel distributing facility/office............................... 140,000 Owned
Cleveland, OH Steel fabrication facility/office................................ 163,000 Owned
Plain City, OH Office........................................................... 2,000 Leased
</TABLE>
The Company believes that its properties are adequate to support its
operations for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any material legal proceedings
outside of the ordinary course of business. The Company may in the future be
named as a defendant in lawsuits involving product defects, breach of warranty
or other actions relating to products that it manufactures or products that it
distributes that are manufactured by others. The Company believes that its
potential exposure is adequately covered by its aviation product and general
liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the New York Stock Exchange under the symbol
"TGI." The following table sets forth the range of high and low closing prices
for the Common Stock for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1998
1st Quarter............................................................... $31 7/8 $22 3/4
2nd Quarter............................................................... 33 5/8 27 1/8
3rd Quarter............................................................... 37 1/4 30 1/2
4th Quarter............................................................... 45 32 15/16
FISCAL 1997
3rd Quarter(1)............................................................ $27 1/4 $20 7/8
4th Quarter............................................................... 31 3/4 24
</TABLE>
- ------------------------
(1) Commencing on October 25, 1996, the day on which trading commenced following
the Company's initial public offering.
As of May 29, 1998, the reported closing price for the Common Stock was $49.
As of May 29, 1998, there were approximately 52 holders of record of the Common
Stock and the Company believes that its Common Stock was beneficially owned by
1,520 persons.
The Company has never declared or paid cash dividends on any class of its
Common Stock and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain its earnings, if
any, and reinvest them in the development of its business. The Credit Facility
and the Company's 10.5% subordinated promissory note in the aggregate principal
amount of $5.5 million payable to Teleflex Incorporated prohibit the Company
from paying dividends or making any distributions on its capital stock, except
for the payment of stock dividends and redemptions of an employee's shares of
capital stock upon termination of employment.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data should be read in
conjunction with the Consolidated Financial Statements and related Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein.
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
------------- TRIUMPH GROUP, INC.
----------------------
EIGHT MONTHS TEN MONTHS
ENDED ENDED YEARS ENDED
MAY 31, MARCH 31, MARCH 31,
------------- ----------- ----------------------
1993(1) 1994 1995 1996(2) 1997(3) 1998(4)
------------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA
Historical Operating Data:
Aviation Group
Net sales.................................. $ 46,517 $ 57,257 $ 70,714 $ 100,166 $ 167,731 $ 242,317
Cost of products sold...................... 34,568 39,941 51,395 70,643 110,932 164,978
------------- ----------- ---------- ---------- ---------- ----------
Gross profit............................... 11,949 17,316 19,319 29,523 56,799 77,339
Selling, general and administrative........ 5,830 6,799 8,761 12,915 24,228 29,611
Depreciation and amortization.............. 1,413 1,379 1,780 2,513 5,066 7,991
------------- ----------- ---------- ---------- ---------- ----------
Operating income, before corporate
expense(5)............................... 4,706 9,138 8,778 14,095 27,505 39,737
Metals Group
Net sales.................................. 57,216 72,738 93,451 86,608 82,747 87,141
Cost of products sold...................... 45,293 57,154 74,441 69,097 65,118 68,333
------------- ----------- ---------- ---------- ---------- ----------
Gross profit............................... 11,923 15,584 19,010 17,511 17,629 18,808
Selling, general and administrative........ 7,704 9,614 11,715 11,874 12,177 12,225
Depreciation and amortization.............. 658 594 916 999 979 1,100
------------- ----------- ---------- ---------- ---------- ----------
Operating income, before corporate
expense(5)............................... 3,561 5,376 6,379 4,638 4,473 5,483
------------- ----------- ---------- ---------- ---------- ----------
Combined operating income, before corporate
expene................................... $ 8,267 14,514 15,157 18,733 31,978 45,220
-------------
-------------
Corporate expense(6)....................... 1,573 1,606 2,522 4,371 3,944
Interest expense........................... 4,908 6,589 7,318 6,591 3,963
Gain on sale of assets..................... -- -- -- -- (2,250)
----------- ---------- ---------- ---------- ----------
Income from continuing operations, before
income taxes and extra-ordinary items.... 8,033 6,962 8,893 21,016 39,563
Income tax expense......................... 3,125 2,598 3,699 8,461 15,561
----------- ---------- ---------- ---------- ----------
Income from continuing operations, before
extraordinary items...................... 4,908 4,364 5,194 12,555 24,002
Extraordinary (loss) gain, net of income
taxes.................................... -- -- -- (1,478) 610
(Loss) income from discontinued
operations............................... (462) (2,852) 4,496 -- --
----------- ---------- ---------- ---------- ----------
Net income................................. $ 4,446 $ 1,512 $ 9,690 $ 11,077 $ 24,612
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Preferred stock dividends and accretion...... (366) (489) (740) (460) --
Redemption of preferred stock................ -- -- -- (1,746) --
----------- ---------- ---------- ---------- ----------
Income available to common stockholders...... $ 4,080 $ 1,023 $ 8,950 $ 8,871 $ 24,612
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
------------- TRIUMPH GROUP, INC.
----------------------
EIGHT MONTHS TEN MONTHS
ENDED ENDED YEARS ENDED
MAY 31, MARCH 31, MARCH 31,
------------- ----------- ----------------------
1993(1) 1994 1995 1996(2) 1997(3) 1998(4)
------------- ----------- ---------- ---------- ---------- ----------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Earnings per share(7):
Income from continuing operations, before
extraordinary items(7):
Basic.................................... $ 0.78 $ 0.66 $ 0.76 $ 1.39 $ 2.29
Diluted.................................. 0.70 0.60 0.68 1.27 2.14
Shares used in computing earnings per share:
Basic.................................... 5,850 5,850 5,850 7,447 10,485
Diluted.................................. 6,500 6,500 6,514 8,146 11,231
Balance Sheet Data:
Working capital.............................. $ 33,296 $ 49,152 $ 39,609 $ 60,379 $ 56,288 $ 92,171
Total assets................................. 152,761 104,905 111,386 161,406 171,315 301,445
Long-term debt, including current portion.... 69,013 74,403 71,738 98,769 24,392 34,498
Redeemable preferred stock................... -- 1,423 1,912 2,652 -- --
Total stockholders' equity................... 63,398 5,080 6,094 15,065 91,413 182,879
</TABLE>
- ------------------------
(1) Financial information related to the eight month period ended May 31, 1993
is unaudited and represents operating results for the divisions and
subsidiaries of the predecessor company which were purchased by the Company
as of June 1, 1993. Information is provided through operating income to
assist the reader in evaluating the Company's historical operating trends.
Financial information after operating income is excluded as the information
is not comparable to subsequent periods because of the significantly changed
corporate organization and capital structure which resulted from the
Acquisition.
(2) Results include the acquisitions of Triumph Controls, Inc. and Air Lab, Inc.
from the date of each respective acquisition. See Note 3 to the Consolidated
Financial Statements.
(3) Results include the acquisition of Advanced Materials Technologies, Inc.
from the date of acquisition. See Note 3 to the Consolidated Financial
Statements.
(4) Results include the acquisitions of JDC Company, Hydro-Mill Co.,
Stolper-Fabralloy Company and Frisby Aerospace, Inc. from the date of each
respective acquisition, and the sales of Air Lab and Deluxe Specialties
Mfg., Co. See Notes 3 and 4 to the Consolidated Financial Statements.
(5) Operating income, before corporate expense, is presented by group to assist
the reader in evaluating each of the group's results of operations before
financing and corporate expenses.
(6) Corporate expenses primarily consist of compensation, rent and general costs
related to the operation of the Company's corporate office and other general
expenses of the Company including professional fees.
(7) The earnings per share amounts prior to 1998 have been restated to comply
with Statement of Financial Accounting Standards No. 128, "Earnings per
Share".
22
<PAGE>
ITEM 7. 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 contained elsewhere herein.)
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997
AVIATION GROUP
NET SALES. Net sales for the Aviation Group increased by $74.6 million, or
44.5%, to $242.3 million for fiscal 1998 from $167.7 million for fiscal 1997.
This increase was primarily due to the inclusion of an aggregate of $77.8
million and $17.8 million in net sales for Advanced Materials Technologies, Inc.
("AMTI"), Frisby Aerospace, Inc. ("Frisby"), Hydro-Mill Co. ("Hydro"),
Stolper-Fabralloy Company ("Stolper") and JDC Company ("JDC") in fiscal 1998 and
fiscal 1997, respectively. The increase is partially offset by a reduction in
sales due to the sale of the Company's Air Lab division ("Air Lab") in the
second quarter of fiscal 1998. Air Lab had sales of $2.1 million and $5.5
million for the years ended March 31, 1998 and 1997, respectively. Net sales for
the other operating divisions and subsidiaries in the Aviation Group,
experienced a 12.4% increase in net sales over fiscal 1997. Increased demand for
overhaul and repair services from the commercial airlines and cargo carriers, as
well as increased orders of aircraft components from OEMs, accounted for the
increase in net sales in the Aviation Group.
COSTS OF PRODUCTS SOLD. Costs of products sold for the Aviation Group
increased by $54.0 million, or 48.7%, to $165.0 million for fiscal 1998 from
$110.9 million for fiscal 1997. This increase was primarily due to the inclusion
of $51.5 million and $10.1 million in fiscal 1998 and fiscal 1997, respectively,
of costs of products sold associated with net sales generated by AMTI, Frisby,
Hydro, Stolper and JDC. The remaining increase is associated with the increase
in net sales of the remaining operating divisions and subsidiaries in the
Aviation Group.
GROSS PROFIT. Gross profit for the Aviation Group increased by $20.5
million, or 36.2%, to $77.3 million for fiscal 1998 from $56.8 million for
fiscal 1997. This increase was primarily due to the inclusion of $26.4 million
and $7.7 million in fiscal 1998 and 1997, respectively, of gross profit on the
net sales generated by AMTI, Frisby, Hydro, Stolper and JDC. The remaining
increase was generated on the increased sales volume of the other operating
divisions and subsidiaries in the Aviation Group. As a percentage of net sales,
gross profit for the Aviation Group was 31.9% and 33.9% for fiscal 1998 and
fiscal 1997, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the Aviation Group increased by $5.4 million, or
22.2%, to $29.6 million for fiscal 1998 from $24.2 million for fiscal 1997,
primarily due to the AMTI, Frisby, Hydro, Stolper and JDC acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
Aviation Group increased by $2.9 million, or 57.7%, to $8.0 million for fiscal
1998 from $5.1 million for fiscal 1997, primarily due to the assets acquired in
connection with the AMTI, Frisby, Hydro, Stolper and JDC acquisitions.
OPERATING INCOME. Operating income for the Aviation Group increased by
$12.2 million, or 44.5%, to $39.7 million, excluding the $1.3 million gain on
the sale of Air Lab, for fiscal 1998 from $27.5 million for fiscal 1997. This
increase was assisted by the growth in aircraft production and the increased
outsourcing of repair and overhaul services by commercial aircraft operators.
This increase was also due to the addition of net sales and profits generated by
AMTI, Frisby, Hydro, Stolper and JDC, as well as the incremental operating
income resulting from increased sales volume. As a percentage of net sales,
operating income for the Aviation Group was 16.4% for both fiscal 1998 and
fiscal 1997.
23
<PAGE>
METALS GROUP
NET SALES. Net sales for the Metals Group increased by $4.4 million, or
5.3%, to $87.1 million for fiscal 1998 from $82.7 million for fiscal 1997. This
increase was primarily due to increased demand for both flat-rolled and
electro-galvanized steel products processed by the Company.
COSTS OF PRODUCTS SOLD. Costs of products sold for the Metals Group
increased by $3.2 million, or 4.9%, to $68.3 million for fiscal 1998 from $65.1
million for fiscal 1997. This increase was primarily due to increased sales
volume partially offset by lower costs of raw materials.
GROSS PROFIT. Gross profit for the Metals Group increased by $1.2 million,
or 6.7%, to $18.8 million for fiscal 1998 from $17.6 million for fiscal 1997,
due to the reasons discussed above. As a percentage of net sales, gross profit
for the Metals Group was 21.6% and 21.3% for fiscal 1998 and fiscal 1997,
respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the Metals Group remained unchanged at $12.2 million
for fiscal 1998 from fiscal 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Metals
Group increased by $0.1 million, or 12.4%, to $1.1 million for fiscal 1998 from
$1.0 million for fiscal 1997.
OPERATING INCOME. Operating income for the Metals Group increased by $1.0
million, or 22.6%, to $5.5 million, excluding the $1.0 million gain on the sale
of Deluxe Specialties, Mfg Co. ("Deluxe"), for fiscal 1998 from $4.5 million for
fiscal 1997, due to the reasons discussed above. As a percentage of net sales,
operating income for the Metals Group was 6.3% and 5.4% for fiscal 1998 and
fiscal 1997, respectively.
OVERALL RESULTS
CORPORATE EXPENSES. Corporate expenses decreased by $0.4 million, or 9.8%,
to $3.9 million for fiscal 1998 from $4.4 million for fiscal 1997.
INTEREST EXPENSE. Interest expense decreased by $2.6 million, or 39.9%, to
$4.0 million for fiscal 1998 from $6.6 million for fiscal 1997. This decrease
was primarily due to reduced debt levels associated with the application of the
proceeds from the public offering of the Company's Common stock and the proceeds
from the sale of Air Lab, partially offset by the acquisitions of Frisby, Hydro,
Stolper and JDC, the cash portions of which were financed by borrowings under
the Company's credit agreement.
INCOME TAX EXPENSE. The effective tax rate was 39.3% for fiscal 1998 and
40.3% for fiscal 1997.
INCOME FROM CONTINUING OPERATIONS, BEFORE EXTRAORDINARY ITEMS. Income from
continuing operations, before extraordinary items increased by $11.4 million, or
91.2%, to $24.0 million for fiscal 1998 from $12.6 million for fiscal 1997. This
increase was primarily due to the contribution generated by AMTI, Frisby, Hydro,
Stolper and JDC and the overall favorable conditions in the aviation industry
resulting in increased net sales of the Company's products and services.
EXTRAORDINARY ITEMS. An extraordinary gain in fiscal 1998 of $0.6 million
(net of tax provision of $0.4 million) relates to a discount for the prepayment
of the $8.0 million subordinated note payable to IKON Office Solutions, Inc. An
extraordinary loss in fiscal 1997 of $1.5 million (net of tax benefit of $1.0
million), relates to prepayment premiums and the related write-off of
unamortized deferred financing costs due to the early retirement of 11% senior
subordinated notes, senior term loans and the revolving credit facility.
NET INCOME. Net income increased by $13.5 million, or 122.2%, to $24.6
million for fiscal 1998 from $11.1 million for fiscal 1997. The increase in
fiscal 1998 net income was primarily attributable to the strong
24
<PAGE>
results of the Aviation Group, the extraordinary loss recorded in fiscal 1997
and the extraordinary gain recorded in fiscal 1998.
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
AVIATION GROUP
NET SALES. Net sales for the Aviation Group increased by $67.6 million, or
67.5%, to $167.7 million for fiscal 1997 from $100.2 million for fiscal 1996.
This increase was primarily due to the inclusion of an aggregate of $62.7
million and $11.0 million in net sales for Triumph Controls, Inc. ("TCI"), Air
Lab and AMTI in fiscal 1997 and fiscal 1996, respectively. Net sales for the
other operating divisions and subsidiaries in the Aviation Group, experienced a
17.8% increase in net sales over fiscal 1996. Increased demand for overhaul and
repair services from the commercial airlines and cargo carriers, as well as
increased orders of aircraft components from OEMs, accounted for the increase in
net sales in the Aviation Group.
COSTS OF PRODUCTS SOLD. Costs of products sold for the Aviation Group
increased by $40.3 million, or 57.0%, to $110.9 million for fiscal 1997 from
$70.6 million for fiscal 1996. This increase was primarily due to inclusion of
$35.5 million and $6.0 million in fiscal 1997 and fiscal 1996, respectively, of
costs of products sold associated with net sales generated by TCI, Air Lab and
AMTI. The remaining increase is associated with the increase in net sales of the
remaining operating divisions and subsidiaries in the Aviation Group.
GROSS PROFIT. Gross profit for the Aviation Group increased by $27.3
million, or 92.4%, to $56.8 million for fiscal 1997 from $29.5 million for
fiscal 1996. Of this increase, $22.2 million was a result of the inclusion of
gross profit on the net sales generated by TCI, Air Lab and AMTI. In addition,
$5.1 million of gross profit was generated on the increased sales volume of the
other operating divisions and subsidiaries in the Aviation Group. As a
percentage of net sales, gross profit for the Aviation Group was 33.9% and 29.5%
for fiscal 1997 and fiscal 1996, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the Aviation Group increased by $11.3 million, or
87.6%, to $24.2 million for fiscal 1997 from $12.9 million for fiscal 1996, due
to increased sales volume and the TCI, Air Lab and AMTI acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
Aviation Group increased by $2.6 million, or 101.6%, to $5.1 million for fiscal
1997 from $2.5 million for fiscal 1996, primarily due to the assets acquired in
connection with the TCI, Air Lab and AMTI acquisitions.
OPERATING INCOME. Operating income for the Aviation Group increased by
$13.4 million, or 95.1%, to $27.5 million for fiscal 1997 from $14.1 million for
fiscal 1996. This increase was assisted by the growth in aircraft production and
the increased outsourcing of repair and overhaul services by commercial aircraft
operators. This increase was also due to the addition of net sales and profits
generated by TCI, Air Lab and AMTI, as well as the incremental operating income
resulting from increased sales volume. As a percentage of net sales, operating
income for the Aviation Group was 16.4% and 14.1% for fiscal 1997 and fiscal
1996, respectively.
METALS GROUP
NET SALES. Net sales for the Metals Group decreased by $3.9 million, or
4.5%, to $82.7 million for fiscal 1997 from $86.6 million for fiscal 1996. This
decrease was primarily due to reduced sales volume at the Company's steel
erecting facility.
COSTS OF PRODUCTS SOLD. Costs of products sold for the Metals Group
decreased by $4.0 million, or 5.8%, to $65.1 million for fiscal 1997 from $69.1
million for fiscal 1996. This decrease was primarily due to
25
<PAGE>
the reduced sales volume as a result of reorganizing the fabrication operations
at the Company's steel erecting facility.
GROSS PROFIT. Gross profit for the Metals Group increased by $0.1 million,
or 0.7%, to $17.6 million for fiscal 1997 from $17.5 million for fiscal 1996,
due to the reasons discussed above. As a percentage of net sales, gross profit
for the Metals Group was 21.3% and 20.2% for fiscal 1997 and fiscal 1996,
respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the Metals Group increased by $0.3 million, or 2.6%,
to $12.2 million for fiscal 1997 from $11.9 million for fiscal 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Metals
Group remained unchanged at $1.0 million for fiscal 1997 and 1996.
OPERATING INCOME. Operating income for the Metals Group decreased by $0.1
million, or 3.6%, to $4.5 million for fiscal 1997 from $4.6 million for fiscal
1996, due to the reasons discussed above. As a percentage of net sales,
operating income for the Metals Group was 5.4% for both years.
OVERALL RESULTS
CORPORATE EXPENSES. Corporate expenses increased by $1.9 million, or 73.3%,
to $4.4 million for fiscal 1997 from $2.5 million for fiscal 1996. This increase
was primarily due to additional incentive compensation, staffing and
professional fees associated with public company reporting requirements.
INTEREST EXPENSE. Interest expense decreased by $0.7 million, or 9.9%, to
$6.6 million for fiscal 1997 from $7.3 million for fiscal 1996. This decrease
was primarily due to reduced debt levels associated with the application of the
proceeds from the initial public offering of the Company's Common stock and the
proceeds from the sale of Quality Park Products, Inc. ("Quality Park"),
partially offset by the acquisitions of TCI, Air Lab, and AMTI, the cash
portions of which were financed by borrowings under the Company's credit
agreement.
INCOME TAX EXPENSE. The effective tax rate was 40.3% for fiscal 1997 and
41.6% for fiscal 1996.
INCOME FROM CONTINUING OPERATIONS, BEFORE EXTRAORDINARY LOSS. Income from
continuing operations, before extraordinary loss increased by $7.4 million, or
141.7%, to $12.6 million for fiscal 1997 from $5.2 million for fiscal 1996. This
increase was primarily due to the contribution generated by TCI, Air Lab and
AMTI and the overall favorable conditions in the aviation industry resulting in
increased net sales of the Company's products and services.
INCOME FROM DISCONTINUED OPERATIONS. The Company had income from
discontinued operations of $4.5 million in fiscal 1996, principally as a result
of the sale of Quality Park, which resulted in an after-tax gain of $2.5
million, and improved operating results at Quality Park due to the favorable
effects of restructuring efforts.
EXTRAORDINARY LOSS. An extraordinary loss in fiscal 1997 of $1.5 million
(net of tax benefit of $1.0 million), relates to prepayment premiums and the
related write-off of unamortized deferred financing costs due to the early
retirement of 11% senior subordinated notes, senior term loans and the revolving
credit facility.
NET INCOME. Net income increased by $1.4 million, or 14.3%, to $11.1
million for fiscal 1997 from $9.7 million for fiscal 1996. The increase in
fiscal 1997 net income was primarily attributable to the strong results of the
Aviation Group, partially offset by the extraordinary loss recorded in fiscal
1997 and the comparison to fiscal 1996 which included the results of
discontinued operations.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital needs are generally funded through cash flows
from operations and borrowings under its credit arrangements. The Company
generated approximately $13.6 million of cash flows from operating activities
for the twelve months ended March 31, 1998. The Company used approximately $83.4
million in investing activities, and raised $73.4 million in financing
activities for the twelve months ended March 31, 1998. As of March 31, 1998,
$106.0 million was available under the $125.0 million credit facility (the
"Credit Facility"). On October 24, 1997, the Company amended the Credit
Facility, increasing it to $125.0 million from $85.0 million. The Credit
Facility matures on March 31, 2003 and bears interest, at the option of the
Company, at the fluctuating prime rate or LIBOR, plus applicable points. On
March 31, 1998, an aggregate amount of approximately $17.7 million was
outstanding under the Credit Facility, $14.0 million of which was accruing
interest at LIBOR plus applicable basis points totaling 5.9875% per annum, and
$3.7 million of which was accruing at the prime rate of 8.5% per annum. Amounts
repaid under the Credit Facility may be reborrowed.
On September 15, 1997, the Company retired the remaining $8.0 million
subordinated note payable to IKON Office Solutions, Inc. (formerly Alco Standard
Corporation). The terms of the note provided for a $1.0 million discount in the
event the note was repaid by October 1, 1997. The cash payment of $7.0 million
was funded by the Company's long-term borrowings under its revolving credit
facility. The early extinguishment of this debt resulted in an extraordinary
gain of $0.6 million net of income taxes of $0.4 million.
In July 1997, the Company entered into a $10.0 million discretionary line of
credit ("Line of Credit"). The Line of Credit bears interest at the current rate
offered by the lender. Borrowings under the Line of Credit are payable on the
last day of the applicable interest period or on demand. The Line of Credit
expires in July 1998 and may be continued or renewed at that time. No amount was
outstanding on the Line of Credit as of March 31, 1998.
On May 5, 1997, the Company entered into a loan agreement with the City of
Shelbyville, Indiana related to the City of Shelbyville, Indiana Adjustable Rate
Economic Development Revenue Bonds, Series 1997 (the "Bonds"). The proceeds of
the Bonds of $5.0 million are being used to fund the expansion of the Company's
K-T Corporation facility. The Bonds are due to mature on May 1, 2012 and are
secured by an irrevocable letter of credit issued by PNC Bank, N.A.. The Bonds
bear interest at a variable weekly rate. At March 31, 1998, the interest rate of
the Bonds was 3.95%.
Capital expenditures were approximately $14.2 million for the twelve months
ended March 31, 1998 primarily for manufacturing machinery and equipment for the
Aviation Group. The Company funded these expenditures through borrowings under
its Credit Facility and from the proceeds from the Bonds. The Company expects
capital expenditures to be approximately $22.0 million for its fiscal year
ending March 31, 1999. The expenditures are expected to be used primarily to
expand capacity at several facilities in the Aviation Group.
In fiscal 1998, the Company acquired substantially all of the assets of
Frisby and JDC and also acquired all of the outstanding stock of Stolper and
Hydro. Frisby designs, manufactures, assembles and tests precision aircraft
components and subsystems from facilities located in Freeport, New York and
Clemmons, North Carolina. JDC, based in Ft. Lauderdale, Florida, specializes in
the repair, overhaul and exchange of electromechanical aircraft instruments.
Stolper fabricates sheet metal from high temperature alloys and provides repair
and overhaul service to aerospace end-users from facilities located in
Brookfield, Wisconsin and Phoenix, Arizona. Hydro, based in Chatsworth,
California, manufactures precision machined structural parts and assemblies for
the aerospace industry. The combined cash purchase price for these acquisitions
was $80,708 which was funded by borrowings under the Company's long-term debt
agreements. The Frisby acquisition agreement provides for a reduction in the
purchase price in the event certain performance measurements are not met on each
anniversary of the acquisition through the year 2003.
27
<PAGE>
Also in fiscal 1998, the Company sold substantially all of the assets of
Deluxe and Air Lab for $10,697 in cash and the assumption by the purchaser of
certain liabilities. The Company also sold a portion of the assets of one of its
divisions. In connection with the sale of Air Lab, the Company and Sextant
Avionique, Inc. ("Sextant") entered into a five year marketing and service
agreement pursuant to which A. Biederman, a division of the Company, will serve
as an authorized warranty and nonwarranty repair station for certain products of
Sextant and as an authorized distributor for spare parts of Sextant. The Company
believes that such marketing and service agreement will enhance customer service
and increase its market share in instrument repair and distribution.
In November 1997, the Company completed the sale of 2,000,845 shares of its
Common Stock for $33.00 a share through an underwritten public offering. In
addition, the Company granted the Underwriters of its public offering a 30 day
option to purchase additional shares to cover over-allotments. In December 1997,
the Underwriters exercised the over-allotment option and the Company sold an
additional 143,100 shares of its Common Stock. The net proceeds from the sale of
$66.8 million were used to repay long-term debt.
The Company believes that cash generated by operations, borrowings under the
Credit Facility, and proceeds from the Bonds will be sufficient to meet
anticipated cash requirements for its current operations. However, the Company
has a stated policy to grow through acquisition and is continuously evaluating
various acquisition opportunities. As a result, the Company currently is
pursuing the potential purchase of a number of candidates. In the event that
more than one of these transactions are successfully consummated, the
availability under the Credit Facility might be fully utilized and additional
funding sources may be needed. There can be no assurance that such funding
sources will be available to the Company.
YEAR 2000 DATE CONVERSION
The Year 2000 issue exists because many computer systems and applications
use two-digit date fields to designate a year. As the century date change
occurs, date-sensitive systems may recognize the year 2000 as 1900, or not at
all. This inability to recognize or properly treat the year 2000 may cause
systems to process financial and operational information incorrectly.
The Company recognizes the issue and has engaged in the review and
modification procedures necessary to make its systems Year 2000 compliant. Each
operating unit is taking the lead for its own conversion and most of the
conversion activities are occurring in conjunction with normal sustaining
activities.
Conversions are planned to be completed by the end of Fiscal 1999. The
Company does not anticipate that internal Year 2000 conversion issues will
materially impact operations or operating results.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 relating to the Company's
future operations and prospects, including statements that are based on current
projections and expectations about the markets in which the Company operates,
and management's beliefs concerning future performance and capital requirements
based upon current available information. Actual results could differ materially
from management's current expectations and there can be no assurance that
additional capital will not be required or that additional capital, if required,
will be available on reasonable terms, if at all, at such times and in such
amounts as may be needed by the Company. In addition to these factors, among
other factors that could cause actual results to differ materially are
uncertainties relating to the integration of acquired businesses, general
economic conditions affecting the Company's two business segments, dependence of
certain of the Company's businesses on certain key customers as well as
competitive factors relating to the aviation and metals industries. For a more
detailed discussion of these and other factors affecting the Company, see the
risk factors described in the Company's registration statement on Form S-3 filed
with Securities and Exchange Commission and in Item 1 of this Annual Report on
Form 10-K, for the year ended March 31, 1998, filed with the SEC in June 1998.
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Triumph Group, Inc.
We have audited the accompanying consolidated balance sheets of Triumph
Group, Inc. as of March 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended March 31, 1998. Our audits also included the financial
statement schedule listed in the index at Item 14 (a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Triumph Group, Inc. at March 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
April 17, 1998
29
<PAGE>
TRIUMPH GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
----------------------
<S> <C> <C>
1997 1998
---------- ----------
ASSETS
Current assets:
Cash.................................................................................... $ 993 $ 4,642
Accounts receivable, less allowance for doubtful accounts:
1997--$1,619 and 1998--$1,840......................................................... 39,220 63,433
Inventories............................................................................. 54,310 77,103
Prepaid expenses and other.............................................................. 1,036 1,298
Deferred income taxes................................................................... 1,795 2,763
---------- ----------
Total current assets.................................................................. 97,354 149,239
Property and equipment, net............................................................... 48,349 78,829
Excess of cost over net assets acquired, net.............................................. 13,516 55,998
Intangible assets and other, net.......................................................... 12,096 17,379
---------- ----------
Total assets.......................................................................... $ 171,315 $ 301,445
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 20,461 $ 27,396
Accrued expenses........................................................................ 16,255 24,285
Income taxes payable.................................................................... 3,951 4,712
Current portion of long-term debt....................................................... 399 675
---------- ----------
Total current liabilities............................................................. 41,066 57,068
Long-term debt, less current portion...................................................... 23,993 33,823
Deferred income taxes and other........................................................... 14,843 27,675
Stockholders equity:
Common stock, $.001 par value, 15,000,000 shares authorized, 5,801,898 and 8,547,236
shares issued and outstanding at March 31, 1997 and 1998, respectively................ 6 9
Class D common stock convertible, $.001 par value, 6,000,000 shares authorized,
3,947,690 and 3,348,535 shares issued and outstanding at March 31, 1997 and 1998,
respectively.......................................................................... 4 3
Capital in excess of par value.......................................................... 68,479 135,331
Retained earnings....................................................................... 22,924 47,536
---------- ----------
Total stockholders' equity............................................................ 91,413 182,879
---------- ----------
Total liabilities and stockholders' equity.......................................... $ 171,315 $ 301,445
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
30
<PAGE>
TRIUMPH GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ----------
Net sales.................................................................... $ 186,774 $ 250,478 $ 329,458
Operating costs and expenses:
Cost of products sold...................................................... 139,740 176,050 233,311
Selling, general and administrative........................................ 27,288 40,748 45,723
Depreciation and amortization.............................................. 3,535 6,073 9,148
Gain on sale of companies.................................................. -- -- (2,250)
---------- ---------- ----------
170,563 222,871 285,932
---------- ---------- ----------
Operating income............................................................. 16,211 27,607 43,526
Interest expense............................................................. 7,318 6,591 3,963
---------- ---------- ----------
Income from continuing operations, before income taxes and extraordinary
items...................................................................... 8,893 21,016 39,563
Income tax expense........................................................... 3,699 8,461 15,561
---------- ---------- ----------
Income from continuing operations, before extraordinary items................ 5,194 12,555 24,002
Extraordinary (loss) gain, net of income taxes............................... -- (1,478) 610
Income from discontinued operations.......................................... 4,496 -- --
---------- ---------- ----------
Net Income................................................................... $ 9,690 $ 11,077 $ 24,612
---------- ---------- ----------
---------- ---------- ----------
Preferred stock dividends and accretion...................................... (740) (460) --
Redemption of preferred stock................................................ -- (1,746) --
---------- ---------- ----------
Income available to common stockholders...................................... $ 8,950 $ 8,871 $ 24,612
---------- ---------- ----------
---------- ---------- ----------
Earnings Per Share--Basic:
Income from continuing operations, before extraordinary items.............. $ 0.76 $ 1.39 $ 2.29
Extraordinary (loss) gain, net of income taxes............................. -- (0.20) 0.06
Income from discontinued operations........................................ 0.77 -- --
---------- ---------- ----------
Net income................................................................. $ 1.53 $ 1.19 $ 2.35
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding--Basic............................ 5,850 7,447 10,485
---------- ---------- ----------
---------- ---------- ----------
Earnings Per Share--Assuming Dilution:
Income from continuing operations, before extraordinary items.............. $ 0.68 $ 1.27 $ 2.14
Extraordinary (loss) gain, net of income taxes............................. -- (0.18) 0.05
Income from discontinued operations........................................ 0.69 -- --
---------- ---------- ----------
Net income................................................................. $ 1.37 $ 1.09 $ 2.19
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding--Assuming Dilution................ 6,514 8,146 11,231
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
TRIUMPH GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON CAPITAL IN
STOCK EXCESS OF TREASURY RETAINED
ALL CLASSES PAR VALUE STOCK EARNINGS TOTAL
------------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1995.............................. $ 6 $ 994 $ (9) $ 5,103 $ 6,094
Net income........................................... 9,690 9,690
Redeemable preferred stock dividends................. (594) (594)
Accretion of redeemable preferred stock.............. (146) (146)
Sale of 26,000 shares of common stock................ 12 9 21
--- ---------- --- --------- ----------
Balance at March 31, 1996.............................. 6 1,006 -- 14,053 15,065
Net income........................................... 11,077 11,077
Issuance of 3,000,000 shares of common stock in
public offering and direct sale (net of $1,250
issuance costs).................................... 3 51,757 51,760
Redeemable preferred stock dividends................. (370) (370)
Accretion of redeemable preferred stock.............. (1,836) (1,836)
Compensation in stock options issued to employee..... 80 80
Purchase of 45,500 shares of common stock............ (85) (85)
Acquisition consideration in stock options issued.... 164 164
Exercise of options to purchase common stock......... 75 75
Conversion of minority interest in subsidiary to
common stock....................................... 619 619
Retirement of treasury stock......................... (10) 10 --
Exchange of redeemable preferred stock for common
stock.............................................. 4,858 4,858
Exchange of junior subordinated promissory notes for
common stock....................................... 1 10,005 10,006
--- ---------- --- --------- ----------
Balance at March 31, 1997.............................. 10 68,479 -- 22,924 91,413
Net income........................................... 24,612 24,612
Issuance of 2,143,945 shares of common stock in
public offering (net of $400 issuance costs)....... 2 66,810 66,812
Exercise of options to purchase common stock......... 42 42
--- ---------- --- --------- ----------
Balance at March 31, 1998.............................. $ 12 $ 135,331 $ -- $ 47,536 $ 182,879
--- ---------- --- --------- ----------
--- ---------- --- --------- ----------
</TABLE>
See notes to consolidated financial statements.
32
<PAGE>
TRIUMPH GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ----------
Operating Activities
Net income.................................................................... $ 9,690 $ 11,077 $ 24,612
Adjustments to reconcile net income to net cash provided by operating
activities:
Discontinued operations..................................................... (4,396) -- --
Gain on sale of companies................................................... -- -- (2,250)
Gain on extinguishment of debt.............................................. -- -- (1,000)
Depreciation and amortization............................................... 3,535 6,073 9,148
Other amortization included in interest expense............................. 276 206 139
Provision for doubtful accounts receivable.................................. 243 959 173
Provision for deferred income taxes......................................... 719 1,067 3,555
Interest on subordinated and junior subordinated promissory notes paid by
issuance of additional notes.............................................. 1,161 1,550 758
Write-off deferred financing costs.......................................... -- 915 --
Changes in other current assets and liabilities, net of
acquisitions and dispositions of businesses............................... 3,799 (13,483) (20,340)
Other....................................................................... 1,074 (215) (1,216)
---------- ---------- ----------
Net cash provided by operating activities..................................... 16,101 8,149 13,579
---------- ---------- ----------
Investing Activities
Capital expenditures, net..................................................... (1,897) (8,183) (14,220)
Proceeds from sale of discontinued operations................................. -- 27,350 --
Proceeds from sale of companies, net of cash sold............................. -- -- 11,572
Cost of businesses acquired, net of cash acquired............................. (34,137) (7,950) (80,708)
---------- ---------- ----------
Net cash (used in) provided by investing activities........................... (36,034) 11,217 (83,356)
---------- ---------- ----------
Financing Activities
Net proceeds from common stock offering....................................... -- 51,760 66,812
Net increase (decrease) in revolving credit facility.......................... 2,129 (23,841) 9,013
Sale (purchase) of treasury stock, net........................................ 21 (10) --
Proceeds from exercise of stock options....................................... -- -- 42
Proceeds from issuance of long-term debt...................................... 20,827 54,065 5,000
Refinancing and retirement of long-term debt.................................. -- (93,616) (7,000)
Repayment of debt and capital lease obligations............................... (3,251) (6,872) (423)
Payment of deferred financing cost............................................ -- (398) (18)
---------- ---------- ----------
Net cash provided by (used in) financing activities........................... 19,726 (18,912) 73,426
---------- ---------- ----------
Net change in cash............................................................ (207) 454 3,649
Cash at beginning of year..................................................... 746 539 993
---------- ---------- ----------
Cash at end of year........................................................... $ 539 $ 993 $ 4,642
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
Triumph Group, Inc. ("Triumph") is a Delaware corporation which, through its
operating subsidiaries, is engaged in aviation services and metals converting
and distribution.
The accompanying consolidated financial statements include the accounts of
Triumph and its subsidiaries (collectively, the "Company"). Intercompany
accounts and transactions have been eliminated from the consolidated financial
statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Triumph's aviation segment designs, engineers, manufactures or repairs and
overhauls aircraft components for commercial airlines, air cargo carriers and
original equipment manufacturers on a worldwide basis. Triumph's metals segment
manufactures, machines, processes and distributes metal products to customers in
the computer, construction, container, farm equipment and office furniture
industries, primarily within North America. The Company's trade accounts
receivable are exposed to credit risk; however, the risk is limited due to the
diversity of the customer base and the customer base's wide geographical area.
At March 31, 1998, trade accounts receivable from AlliedSignal and Boeing
Airplane Co. ("Boeing") represented approximately 16% and 12%, respectively, of
total accounts receivable. The Company had no other significant concentrations
of credit risk. For fiscal 1998, Boeing represented approximately 14% of
consolidated sales, mainly due to the combination of Boeing, McDonnell Douglas
and Rocketdyne. No other single customer accounts for more than 10% of the
Company's sales; however, the loss of any significant customer, including
Boeing, could have a material effect on the Company and its operating
subsidiaries. During fiscal years 1997 and 1998, the Company had export sales of
$32,853 and $45,237, respectively.
USE OF ESTIMATES
The preparation of the 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. Actual results could differ from those estimates.
EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share", which required the
Company to change the method used to compute earnings per share ("EPS") and to
restate all prior periods presented. The presentation of primary and fully
diluted EPS had been replaced with basic and diluted EPS, respectively. Basic
earnings per share is computed using the weighted average number of common
shares outstanding during the period. The computation of diluted earnings per
share includes the dilutive effect of securities that could
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
be exercised or converted into common stock. The following is a reconciliation
between the average outstanding shares used in the calculation of basic and
diluted EPS:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
<CAPTION>
(THOUSANDS)
<S> <C> <C> <C>
Weighted average common shares outstanding............................................. 5,850 7,447 10,485
Net effect of dilutive stock options................................................... 14 49 96
Net effect of dilutive warrant......................................................... 650 650 650
--------- --------- ---------
Weighted average common shares outstanding--assuming dilution.......................... 6,514 8,146 11,231
--------- --------- ---------
--------- --------- ---------
</TABLE>
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". Both Statements become effective for
fiscal periods beginning after December 15, 1997, with early adoption permitted.
The Company is evaluating the effects these Statements will have on its
financial reporting and disclosures. The Statements are expected to have no
material effect on the Company's results of operations, financial condition,
capital resources or liquidity.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over the
estimated useful lives of the related assets by the straight-line method.
Buildings and improvements are depreciated over a period of 15 to 39-1/2 years,
and machinery and equipment are depreciated over a period of 7 to 15 years
(except for furniture, fixtures and computer equipment which is depreciated over
a period of 3 to 10 years).
EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of cost over the fair value of net assets acquired is being
amortized on a straight-line basis over a period of twenty-five to thirty years.
Accumulated amortization at March 31, 1997 and 1998 was $609 and $1,896,
respectively. The carrying value of excess of cost over net assets acquired is
evaluated periodically in relation to the operating performance and expected
future undiscounted cash flows of the underlying businesses.
INTANGIBLE ASSETS
Intangible assets at March 31, 1997 and 1998 of $9,897 and $14,793,
respectively, consist primarily of patents, trademarks, aerospace designs and
covenant not-to-compete agreements. Intangible assets are amortized on a
straight-line basis over their estimated useful lives which range from five to
twenty-five years. Accumulated amortization at March 31, 1997 and 1998 was
$2,199 and $4,103, respectively.
REVENUE RECOGNITION
Revenues are recorded when services are performed or when products are
shipped except for long-term construction contracts which are recorded on the
percentage-of-completion method based on the relationship between actual costs
incurred and total estimated costs at completion. Estimated costs to
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
complete for each contract are reviewed periodically as work progresses and
appropriate adjustments are made to revenue recognition percentages, if
necessary. In the event such estimates indicate a loss would be incurred on the
contract, the estimated amount of such loss would be recognized in the period
the estimated loss was determined. Sales from long-term construction contracts
approximated 12%, 7% and 4% of total sales for the years ended March 31, 1996,
1997 and 1998, respectively.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its employee stock-based compensation (see Note 9).
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. ACQUISITIONS
In fiscal 1998, the Company acquired substantially all of the assets of
Frisby Aerospace ("Frisby") and J.D. Chapdelaine Co. ("JDC") and also acquired
all of the outstanding stock of Stolper-Fabralloy Company, LLC ("Stolper") and
Hydro-Mill Company ("Hydro"). Frisby designs, manufactures, assembles and tests
precision aircraft components and subsystems from facilities located in
Freeport, New York and Clemmons, North Carolina. JDC, based in Ft. Lauderdale,
Florida, specializes in the repair, overhaul and exchange of electromechanical
aircraft instruments. Stolper fabricates sheet metal from high temperature
alloys and provides repair and overhaul service to aerospace end-users from
facilities located in Brookfield, Wisconsin and Phoenix, Arizona. Hydro, based
in Chatsworth, California, manufactures precision machined structural parts and
assemblies for the aerospace industry. The combined purchase price for these
acquisitions was $93,632. The purchase price includes cash paid at closing, in
certain instances notes payable to the former owner, a long-term liability
related to a covenant not-to-compete contract, the assumption of certain
liabilities and direct costs of the acquisitions. The combined excess of
purchase price over net assets acquired of $43,769 is being amortized on a
straight-line basis over twenty-five to thirty years. The Frisby acquisition
agreement provides for a reduction in the purchase price in the event certain
performance measurements are not met on each anniversary of the acquisition
through year 2003.
In fiscal 1997, the Company acquired all of the outstanding stock of
Advanced Materials Technologies, Inc. ("AMTI") based in Tempe, Arizona for an
aggregate purchase price of $16,257, including cash consideration, an option to
purchase 13,000 shares of the Company's Class A Common Stock at an exercise
price of $1.87 per share valued at $164, a five-year covenant not-to-compete
contract and the assumption of certain liabilities and direct costs of the
transaction. AMTI repairs and refurbishes gas turbine engine components used in
the aviation industry. The excess of the purchase price over the fair value of
net assets acquired of $2,870 is being amortized over twenty-five years on a
straight-line basis.
In fiscal 1996, the Company acquired substantially all of the assets of
Triumph Controls, Inc. ("TCI"), formerly a division of Teleflex, Incorporated
("Teleflex"), and Air Lab, Inc. ("Air Lab"), for an aggregate purchase price of
$43,500. TCI manufactures and services mechanical controls for a broad range of
end users, primarily in the aviation industry. Air Lab services instruments and
avionics for the commercial aviation industry. The purchase price includes cash
paid, a long-term note, assumption of certain liabilities
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. ACQUISITIONS (CONTINUED)
and direct costs of the acquisition. The aggregate purchase price was allocated
to the assets based on their estimated fair values, including $5,500 of
intangible assets (patents, trademarks and aerospace designs). The excess of the
purchase price over the fair value of net assets acquired of $10,960 is being
amortized over twenty-five years on a straight-line basis.
These acquisitions have been accounted for under the purchase method and,
accordingly, are included in the consolidated financial statements from their
dates of acquisition. Changes in purchase accounting estimates may result in a
reallocation of the purchase price within one year of the acquisitions. These
acquisitions were funded by the Company's long-term borrowings in place at the
date of each respective acquisition.
The following unaudited pro forma information has been prepared assuming the
above acquisitions had taken place at the beginning of the year preceding the
year of acquisition.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ----------
Net sales.................................................................... $ 230,168 $ 331,835 $ 374,809
Income from continuing operations, before extraordinary items................ 8,317 13,927 25,186
Income from continuing operations, before extraordinary items per share:
Basic...................................................................... 1.30 1.57 2.40
Diluted.................................................................... 1.16 1.44 2.24
Net income................................................................... 12,813 12,449 25,796
Net income per common share:
Basic...................................................................... 2.06 1.38 2.46
Diluted.................................................................... 1.85 1.26 2.30
</TABLE>
The unaudited pro forma information includes adjustments for interest
expense that would have been incurred to finance the purchases, additional
depreciation based on the estimated fair market value of the property, plant,
and equipment acquired, and the amortization of the intangible assets arising
from the transactions. The unaudited pro forma financial information is not
necessarily indicative of the results of operations as they would have been had
the transactions been effected on the assumed dates.
4. DIVESTITURES AND DISCONTINUED PAPER OPERATIONS
In fiscal 1998, the Company sold substantially all of the assets of Deluxe
Specialties Mfg. Co. ("Deluxe") and Air Lab for $10,697 in cash and the
assumption by the purchasers of certain liabilities. The Company also sold a
portion of the assets of one of its divisions. The reported results for the year
ended March 31, 1998, include the $2,250 gain on sale of these assets. For the
years ended March 31, 1996, 1997 and 1998 these entities had net sales of
$11,553, $15,697, and $12,906, respectively, and operating income of $983,
$1,568, and $1,386, respectively.
On March 31, 1996, the Company sold substantially all of the assets of its
paper converting subsidiary, Quality Park Products, Inc. of St. Paul, MN, to
Mail-Well, Inc. for approximately $27,350 in cash and the assumption by the
purchaser of certain liabilities.
The results of Quality Park Products, Inc. have been reported separately as
a component of discontinued operations in the Consolidated Statements of Income.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. DIVESTITURES AND DISCONTINUED PAPER OPERATIONS (CONTINUED)
The following is a summary of the results of operations of the Company's
paper converting business:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1996
--------------------
<S> <C>
Net sales................................................................................... $ 99,531
Income from operations (net of taxes of $1,156)............................................. 2,046
Gain on sale (net of taxes--$1,633)......................................................... 2,450
-------
Income from discontinued operations......................................................... $ 4,496
-------
-------
</TABLE>
Interest expense of $2,045 was allocated to Quality Park Products, Inc. for
the year ended March 31, 1996. This amount is included in the income from
discontinued operations for that year. This cost was allocated based on the
operation's actual borrowings.
5. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out or last-in,
first-out methods) or market. The components of inventories are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Raw materials............................................................................... $ 15,863 $ 23,665
Work-in-process............................................................................. 17,295 26,796
Finished goods.............................................................................. 21,694 27,228
--------- ---------
Total inventories at FIFO cost.............................................................. 54,852 77,689
Less allowance to reduce certain FIFO costs to LIFO basis................................... 542 586
--------- ---------
Total inventories........................................................................... $ 54,310 $ 77,103
--------- ---------
--------- ---------
</TABLE>
Approximately 12% of the inventory is valued using the LIFO method at March
31, 1997 and 1998.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. INCOME TAXES
The components of income tax expense related to continuing operations are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Current:
Federal......................................................................... $ 2,689 $ 6,453 $ 10,430
State........................................................................... 291 941 1,576
--------- --------- ---------
2,980 7,394 12,006
Deferred:
Federal......................................................................... 574 1,169 2,993
State........................................................................... 145 (102) 562
--------- --------- ---------
719 1,067 3,555
--------- --------- ---------
$ 3,699 $ 8,461 $ 15,561
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Statutory federal income tax rate........................................................... 34.0% 35.0% 35.0%
State and local income tax rate, net of federal tax benefit................................. 3.2 2.6 3.5
Miscellaneous permanent items and non-deductible accruals................................... 1.3 0.8 0.9
Other....................................................................................... 3.1 1.9 (0.1)
--- --- ---
Effective income tax rate................................................................... 41.6% 40.3% 39.3%
--- --- ---
--- --- ---
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts reportable for income tax purposes. The components of
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Deferred tax assets:
Net operating loss carryforwards........................................................ $ -- $ 436
Accruals and reserves................................................................... 815 1,267
Accounts receivable..................................................................... 315 272
Inventories............................................................................. 947 1,158
--------- ---------
Deferred tax liabilities: 2,077 3,133
Property and equipment.................................................................. 6,214 13,906
Other assets............................................................................ 3,240 5,129
Prepaid expenses and other.............................................................. 812 900
--------- ---------
10,266 19,935
--------- ---------
Net deferred tax liabilities................................................................ $ 8,189 $ 16,802
--------- ---------
--------- ---------
</TABLE>
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. INCOME TAXES (CONTINUED)
Income taxes paid during the years ended March 31, 1996, 1997 and 1998 were
$904, $6,413 and $10,611, respectively. At March 31, 1996, the Company had
alternative minimum tax credit carryforwards of $1,558 for income tax purposes
which were fully utilized in 1997.
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Revolving credit facility................................................................... $ 8,707 $ 17,720
Subordinated promissory notes............................................................... 14,246 10,964
Industrial revenue bonds.................................................................... -- 5,000
Other debt and capital lease obligations.................................................... 1,439 814
--------- ---------
24,392 34,498
Less current portion........................................................................ 399 675
--------- ---------
$ 23,993 $ 33,823
--------- ---------
--------- ---------
</TABLE>
On March 30, 1998, the Company amended and restated its existing $125,000
credit agreement ("Credit Facility") with its lenders to extend the maturity
date of the existing Credit Facility, reduce interest rates and amend certain
covenants. The Credit Facility bears interest at either LIBOR plus between 0.30%
and 1.00% (0.375% and 1.25% at March 31, 1997) or the prime rate (or the Federal
funds rate plus 0.5% if greater) at the option of the Company and expires on
March 21, 2003 (2002 at March 31, 1997). The variation in the interest rate is
based upon the Company's ratio of total indebtedness to earnings before
interest, taxes, and depreciation and amortization. In addition, the Company is
required to pay a commitment fee of between 0.10% and 0.225% (0.125% and 0.25%
at March 31,1997) on the unused portion of the Credit Facility without penalty.
Additionally, the Company may allocate up to $5,000 of the available Credit
Facility for the issuance of letters of credit of which $1,000 and $1,300 was
used as of March 31, 1997 and 1998, respectively.
On September 15, 1997, the Company retired the remaining $8,000 subordinated
note payable to IKON Office Solutions, Inc. (formerly Alco Standard
Corporation). The terms of the note provided for a $1,000 discount in the event
the note was repaid by October 1, 1997. The cash payment of $7,000 was funded by
the Company's long-term borrowings under its Credit Facility. The early
extinguishment of this debt resulted in an extraordinary gain of $610, net of
income taxes of $390.
In July 1997, the Company entered into a $10,000 discretionary line of
credit ("Line of Credit"). The Line of Credit bears interest at the current rate
offered by the lender. Borrowings under the Line of Credit are payable on the
last day of the applicable interest period or on demand. The Line of Credit
expires in July 1998 and may be continued or renewed at that time. No amounts
were outstanding on this Line of Credit as of March 31, 1998.
On May 5, 1997, the Company entered into a loan agreement with the City of
Shelbyville, Indiana related to the City of Shelbyville, Indiana Adjustable Rate
Economic Development Revenue Bonds, Series 1997 (the "Bonds"). The proceeds of
the Bonds of $5,000 are being used to fund the expansion of the Company's K-T
Corporation facility. The Bonds are due to mature on May 1, 2012 and are secured
by
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. LONG-TERM DEBT (CONTINUED)
an irrevocable letter of credit issued by PNC Bank, N.A. The Bonds bear interest
at a variable weekly rate, which was 3.95% at March 31, 1998.
On October 30, 1996, the Company paid down the then outstanding balance on
the revolving credit facility using the proceeds from the Company's initial
public offering (see Note 8). On December 31, 1996, the Company amended the
credit agreement increasing the revolving credit facility to $85,000 and
retiring the $33,750 term loan.
On July 19, 1996, the Company entered into an unsecured credit agreement for
a $50,000 revolving credit facility and a $35,000 term loan. The proceeds of the
new term loan, amounts borrowed under the new revolving credit facility and the
proceeds received from the sale of Quality Park Products, Inc. (see Note 4) were
used to extinguish the outstanding balances of the revolving credit facility,
the senior term loans, and the senior subordinated notes existing at March 31,
1996. The early extinguishment of this debt resulted in an extraordinary loss of
$1,478, net of an income tax benefit of $985 related to the write-off of
unamortized deferred financing fees and prepayment penalties.
At March 31, 1997 and 1998, the interest rate on borrowings under the Credit
Facility was 8.25% and 6.51%, respectively. As of March 31, 1998, $105,980 of
additional borrowings were available under the Credit Facility.
At March 31, 1998, the Subordinated Promissory Notes consist of two notes, a
$4,000 principal amount bearing interest at 7%, due in annual installments of
$800 on July 1 of each year commencing in 1999 through and including 2003, and
$6,964 principal amount bearing interest at 10.5%, due in equal installments on
December 31, 2002 and December 31, 2003. With regard to the 10.5% note, the
Company, at its sole discretion, may pay interest by issuance of additional
10.5% notes and elected to do so for $146, $626 and $692 for the years ended
March 31, 1996, 1997 and 1998, respectively.
At March 31, 1997, the Subordinated Promissory Notes consist of two notes,
an $8,000 principal amount bearing interest at 10%, due in installments of
$6,750 and $1,250 on June 1, 2002 and June 1, 2003, respectively, but which was
subsequently retired on September 15, 1997, and $6,246 principal amount bearing
interest at 10.5%, due in equal installments on December 31, 2002 and December
31, 2003.
The indentures under the debt agreements described above contain
restrictions and covenants which include limitations on the Company's ability to
incur additional indebtedness, issue stock options or warrants (excluding the
initial public offering and the employee stock option plan described in Notes 8
and 9), make certain restricted payments and acquisitions, create liens, enter
into transactions with affiliates, sell substantial portions of its assets, make
capital expenditures and pay cash dividends.
Additional covenants require compliance with financial tests, including
leverage, interest coverage ratio, and maintenance of minimum net worth.
The fair value of the Company's Credit Facility and the Bonds approximate
their carrying values. The fair value of the subordinated promissory notes,
based on a discounted cash flow method, is approximately $12,200.
Maturities of long-term debt are as follows: 1999--$675 ; 2000 -$1,156 ;
2001--$1,141 ; 2002--$1,135; 2003--$22,337; thereafter, $8,054 through 2013.
Interest paid on indebtedness during the years ended March 31, 1996, 1997,
and 1998 amounted to $7,552, $5,986 and $3,277, respectively.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. LONG-TERM DEBT (CONTINUED)
Financing fees and expenses of $782 incurred with respect to indebtedness
have been capitalized and are reflected in other assets. These fees and expenses
are being amortized over the terms of the related indebtedness (5-8 years).
Total amortization (included in interest expense) for the years ended March 31,
1996, 1997 and 1998 was $276, $206 and $139, respectively. On July 19, 1996, in
conjunction with the refinancing, $915 in unamortized deferred financing fees
related to the extinguished debt were written off and an additional $398 in
financing fees related to the new credit agreement were capitalized.
8. STOCKHOLDERS' EQUITY
In November 1997, the Company completed the sale of 2,000,845 shares of its
Common stock for $33.00 a share through an underwritten public offering. In
addition, the Company granted the Underwriters of its public offering a 30 day
option to purchase additional shares to cover over-allotments. In December 1997,
the Underwriters exercised the over-allotment option and the Company sold an
additional 143,100 shares of its Common stock. The net proceeds from the sale of
$66,812 were used to repay long-term debt.
In October 1996, the Company completed the sale of 2,500,000 shares of its
Common stock for $19.00 per share through an underwritten public offering and
the sale of 125,000 shares of its Common stock for $17.67 per share through a
direct sale by the Company. In addition, the Company granted the underwriters of
its public offering a 30-day option to purchase up to 375,000 additional shares
of its Common stock for $19.00 a share to cover over-allotments. In November
1996, the underwriters exercised the over-allotment option and the Company sold
an additional 375,000 shares of its Common stock. The net proceeds from the
sales were $51,760. The total net proceeds were used to pay down a portion of
the Company's long-term borrowings under its credit agreement and $5,500 of the
10% subordinated promissory note (see Note 7).
In October 1996, in conjunction with the sale of Common stock, the Company
recapitalized the Common stock through a 65-for-one stock split. All references
to shares and earnings per share data in the financial statements have been
restated to give effect to the stock split. In addition, the Company increased
the authorized number of shares of Common stock to 15,000,000 and Class D common
stock to 6,000,000. During fiscal 1997 and 1998, 197,370 and 599,155 shares of
Class D common stock were converted to shares of the Company's Common stock.
In October 1996, in conjunction with the public offering described above,
the Company exchanged all outstanding Redeemable preferred stock for common
stock. The liquidation value of the Redeemable preferred stock plus accumulated
dividends at the date of the exchange of $4,858 was converted to 281,318 shares
of common stock at the initial public offering price of $19.00 (less
underwriting discounts and commissions and estimated offering expenses payable
by the Company). The accretion of the original issue discount and accumulated
dividends of $740 and $2,206, for the years ended March 31, 1996 and 1997,
respectively, were charged to retained earnings.
In addition, in October 1996, the Company exchanged all outstanding 14%
junior notes and a portion of the outstanding 10.5% junior notes for common
stock. The face value of the junior notes exchanged plus accrued but unpaid
interest at the date of exchange of $10,006 was exchanged for 579,395 shares of
common stock at the initial public offering price of $19.00 (less underwriting
discounts and commissions and estimated offering expenses payable by the
Company).
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. STOCKHOLDERS' EQUITY (CONTINUED)
The holders of the Common stock and the Class D common stock are entitled to
one vote per share on all matters to be voted upon by the stockholders of
Triumph except that Class D does not participate in the voting of directors and
are entitled to participate ratably in any distributions.
The holders of Class D common stock may elect at any time to convert any or
all such shares into the Common stock on a share-for-share basis.
The Company issued a stock purchase warrant in conjunction with the issuance
of the senior subordinated notes which allows the holder to purchase 650,000
shares of Common stock for an aggregate exercise price of one hundred dollars
through July 31, 2003. The proceeds from the issuance of the senior subordinated
notes allocated to the warrants of $100 have been included in capital in excess
of par value.
The Company has Preferred stock of $100 par value, 250,000 shares
authorized. At March 31, 1997 and 1998 no shares of Preferred stock are
outstanding. At March 31, 1996, the Company had Class A, B and C common shares
outstanding, $.001 par value. The Class A had 6,500,455 shares authorized and
1,300,000 shares issued. The Class B and Class C were convertible to Class A and
had 4,550,000 and 455 shares authorized and issued, respectively. In conjunction
with the public offering, the Class A, B and C were converted to Common stock
and Class D common stock.
9. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLAN
Approximately 160 employees participate in a noncontributory defined benefit
pension plan sponsored by the Company. Normal retirement under the Plan is age
65 and participants receive monthly benefits of a stated amount for each year of
service. The Company's funding policy for the Plan is to make the minimum annual
contributions required by applicable regulations. The Plan's assets are
primarily invested in stocks and bonds. The net periodic pension cost and
related pension liability is not material.
DEFINED CONTRIBUTION PENSION PLAN
The Company sponsors a defined contribution 401(k) plan, under which
salaried and certain hourly employees may defer a portion of their compensation.
Eligible participants may contribute to the plan up to 15% of their regular
compensation before taxes. During fiscal 1997, the Company increased its
matching contribution from 33% to 50% of the first 6% of compensation
contributed by the participant. All contributions and Company matches are
invested at the direction of the employee in one or more mutual funds. Company
matching contributions vest immediately and aggregated $437, $749 and $1,049 for
the years ended March 31, 1996, 1997 and 1998, respectively.
OTHER POSTRETIREMENT BENEFITS
In connection with the acquisition of TCI, the Company provides certain
postretirement medical and insurance benefits to eligible employees under a
Collective Bargaining Agreement. For any employees who retired through the date
of the acquisition, Teleflex retained all liabilities for benefits due and
administration of the postretirement benefits. The Company has assumed
responsibility for administration of the postretirement coverage for any
eligible employee who retires subsequent to the date of acquisition. The Company
will pay the costs related to these benefits upon retirement and will be
reimbursed by Teleflex for its pro rata portion based on relative length of
service. The Company does not fund the plan.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company has recorded a total liability of approximately $1,600 (as
estimated by actuaries) for other postretirement benefits, of which
approximately $1,500 is estimated to be reimbursed by the Seller as of March 31,
1998. These amounts are included in Other Liabilities and Other Assets,
respectively. The discount rate used was 6.5%. The annual expense for such
benefits is not material.
STOCK OPTION PLAN
The Company adopted the 1996 Stock Option Plan (the "Plan") which became
effective in October 1996. The Plan provides for grants of stock options to
officers and key employees of the Company. Shares of the Company granted under
the Plan are in nonqualified and incentive stock options. On October 25, 1996,
the Company granted options to certain officers and managers to purchase 248,340
shares of the Company's Common stock at the fair market value at the date of
grant, of $19.00 per share. The options vest and become exercisable ratably over
a four-year period beginning on October 25, 1997. The options expire ten years
from the date of grant.
On November 5, 1997, the Company granted options to certain key employees to
purchase 25,600 shares of the Company's Common stock at the fair market value at
the date of grant of $34.00 per share. The options vest and become exercisable
ratably over a four-year period beginning on November 5, 1998. The options
expire ten years from the date of grant.
SUMMARY OF STOCK OPTION PLAN ACTIVITY
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- -----------------
<S> <C> <C>
Balance, March 31, 1996.............................................................. 0
Granted.............................................................................. 248,340 $ 19.00
Forfeited............................................................................ (1,250) $ 19.00
--------- ------
Balance, March 31, 1997.............................................................. 247,090 $ 19.00
Granted.............................................................................. 25,600 $ 34.00
Exercised............................................................................ (2,238) $ 19.00
Forfeited............................................................................ (10,289) $ 19.00
--------- ------
Balance, March 31, 1998.............................................................. 260,163 $ 20.48
--------- ------
--------- ------
</TABLE>
SUMMARY OF STOCK OPTIONS OUTSTANDING AT MARCH 31, 1998
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------
<S> <C> <C> <C>
WEIGHTED AVERAGE NUMBER OF
EXERCISE REMAINING OPTIONS
PRICE NUMBER CONTRACTUAL LIFE (YRS) EXERCISABLE
- ------------- --------- ------------------------- -----------
$ 19.00 234,563 8.6 60,145
$ 34.00 25,600 9.6 0
--------- -----------
260,163 60,145
--------- -----------
--------- -----------
</TABLE>
At March 31, 1997 and 1998, 271,660 options and 256,349 options,
respectively, were available for issuance under the Plan.
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
During fiscal 1997, the Company adopted the disclosure-only option under
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The
Company uses the accounting method under APB Opinion No. 25 ("APB 25") and
related interpretations for its employee stock options. Under APB 25, when the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma disclosure, as required by SFAS 123, regarding net income and
earnings per share has been determined as if the Company had accounted for its
employee stock options under the fair value method.
Option valuation models use highly subjective assumptions to determine the
fair value of traded options with no vesting or trading restrictions. Because
options granted under the Plan have vesting requirements and cannot be traded,
and because changes in the assumptions can materially affect the fair value
estimate, in management's opinion, the existing valuation models do not
necessarily provide a reliable measure of the fair value of its employee stock
options.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 5.5% for 1997 and 5.9% for 1998; no
dividends; a volatility factor of the expected market price of the Company's
Common stock of .32 and .30 for 1997 and 1998, respectively, and a
weighted-average expected life of the options of 6 years.
For purposes of pro forma disclosures, the estimated fair value of the
options ($8.00 per share for the 1997 issuance and $14.19 for the 1998 issuance)
is amortized to expense over the options' assumed vesting period. Since the
Company's stock options vest over four years and additional options may be
granted each year, the pro forma effect on net income reported below is not
representative of the effect of fair value stock option expense on future years
pro forma net income. The following pro forma information has been prepared
assuming the Company accounted for its stock options under the fair value
method:
PRO FORMA NET INCOME AND EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
MARCH 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Pro forma net income........................................................................ $ 10,946 $ 24,130
Pro forma net income per share:
Basic..................................................................................... $ 1.17 $ 2.30
Diluted................................................................................... $ 1.07 $ 2.16
</TABLE>
10. LEASES
Capital lease assets are included in property and equipment and the related
obligations in other debt and capital lease obligations. Amortization of capital
lease assets is included in depreciation expense. At March 31, 1998, future
minimum payments under noncancelable operating leases with initial or remaining
terms of more than one year were as follows: 1999--$3,193 ; 2000--$2,737 ;
2001--$2,330 ; 2002--$2,038 ; 2003--$1,659; thereafter (through 2017)--$2,964.
In the normal course of business, operating leases are generally renewed or
replaced by other leases.
Total rental expense was $1,135, $1,830 and $2,479 for the years ended March
31, 1996, 1997 and 1998, respectively.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. PROPERTY AND EQUIPMENT
Net property and equipment at March 31, 1997 and 1998 is:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Land........................................................................................ $ 3,479 $ 6,460
Buildings and improvements.................................................................. 10,480 16,814
Machinery and equipment..................................................................... 45,494 71,454
--------- ---------
59,453 94,728
Less accumulated depreciation........................................................... 11,104 15,899
--------- ---------
$ 48,349 $ 78,829
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the years ended March 31, 1996, 1997 and 1998 was
$2,977, $4,480 and $6,348, respectively.
12. COMMITMENTS AND CONTINGENCIES
Certain of the Company's business operations and facilities are subject to a
number of federal, state and local environmental laws and regulations. The
Company is indemnified for environmental liabilities related to assets purchased
from IKON Office Solutions, Inc. (formerly Alco Standard Corporation) which
existed prior to the acquisition of the assets and any unidentified
environmental liabilities which arise subsequent to the date of settlement
through July 22, 2000, arising from conditions or activities existing at these
facilities prior to the acquisition. In the opinion of management, there are no
significant environmental concerns which would have a material effect on the
financial condition or operating results of the Company which are not covered by
such indemnification.
The Company is involved in certain litigation matters arising out of its
normal business activities. In the opinion of management, the ultimate
resolution of such litigation will not have a material effect on the financial
condition or operating results of the Company.
13. COLLECTIVE BARGAINING AGREEMENTS
Approximately 16% of the Company's labor force is covered under collective
bargaining agreements. These collective bargaining agreements expire over the
next several years.
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
14. SEGMENT REPORTING
Selected financial information for each segment is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ----------
Net sales:
Aviation................................................................... $ 100,166 $ 167,731 $ 242,317
Metals..................................................................... 86,608 82,747 87,141
---------- ---------- ----------
$ 186,774 $ 250,478 $ 329,458
---------- ---------- ----------
---------- ---------- ----------
Operating income (expenses):
Aviation................................................................... $ 14,095 $ 27,505 $ 39,737
Metals..................................................................... 4,638 4,473 5,483
Gain on sale of assets..................................................... -- -- 2,250
Corporate.................................................................. (2,522) (4,371) (3,944)
---------- ---------- ----------
$ 16,211 $ 27,607 $ 43,526
---------- ---------- ----------
---------- ---------- ----------
Assets:
Aviation................................................................... $ 101,219 $ 139,988 $ 264,593
Metals..................................................................... 29,965 28,815 33,762
Discontinued operations.................................................... 27,350 -- --
Corporate.................................................................. 2,872 2,512 3,090
---------- ---------- ----------
$ 161,406 $ 171,315 $ 301,445
---------- ---------- ----------
---------- ---------- ----------
Capital expenditures:
Aviation................................................................... $ 1,684 $ 6,756 $ 12,545
Metals..................................................................... 213 1,285 1,545
Corporate.................................................................. -- 142 130
---------- ---------- ----------
$ 1,897 $ 8,183 $ 14,220
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization:
Aviation................................................................... $ 2,513 $ 5,066 $ 7,991
Metals..................................................................... 999 979 1,100
Corporate.................................................................. 23 28 57
---------- ---------- ----------
$ 3,535 $ 6,073 $ 9,148
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FISCAL 1997(2) FISCAL 1998 (3)
------------------------------------- -------------------------------------
<CAPTION>
JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
-------- -------- ------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $55,184 $63,916 $64,691 $66,687 $71,856 $75,146 $86,170 $96,286
Gross profit.................. 16,038 18,376 20,964 19,050 21,099 22,133 24,782 28,133
Income from continuing
operations, before
extraordinary items......... 1,809 2,630 3,724 4,392 4,492 5,695 5,877 7,938
Extraordinary items, net of
tax......................... -- (1,478 ) -- -- -- 610 -- --
Net income.................... 1,809 1,152 3,724 4,392 4,492 6,305 5,877 7,938
Income from continuing
operations before
extraordinary items per
share (1):
Basic....................... 0.28 0.41 0.23 0.45 0.46 0.58 0.56 0.67
Diluted..................... 0.25 0.37 0.21 0.42 0.43 0.54 0.52 0.63
Net income per share (1):
Basic....................... 0.28 0.16 0.23 0.45 0.46 0.65 0.56 0.67
Diluted..................... 0.25 0.15 0.21 0.42 0.43 0.60 0.52 0.63
</TABLE>
- ------------------------
(1) Earnings per share for 1997 and the first two quarters of 1998 have been
restated to conform to SFAS No. 128.
(2) In fiscal 1997, the Company acquired AMTI on July 31, 1996.
(3) In fiscal 1998, the Company acquired JDC, Hydro, Stolper and Frisby on April
30, 1997, September 1, 1997, October 29, 1997 and February 18, 1998,
respectively. Also in fiscal 1998, the Company sold substantially all of the
assets of Air Lab and Deluxe on July 31, 1997 and March 31, 1998,
respectively.
16. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- ---------- ----------
Changes in other current assets and liabilities, net of acquisitions and
dispositions of businesses:
Accounts receivable........................................................... $ 3,540 $ (5,952) $ (12,081)
Inventories................................................................... (4,201) (8,060) (8,236)
Prepaid expenses and other current assets..................................... 353 (323) 67
Accounts payable, accrued expenses, and accrued income taxes payable.......... 4,107 852 (90)
--------- ---------- ----------
$ 3,799 $ (13,483) $ (20,340)
--------- ---------- ----------
--------- ---------- ----------
Non-cash investing and financing activities:
Covenant not-to-compete contract liability related to acquisition............. $ -- $ 2,800 $ 1,800
Seller note related to acquired business...................................... 5,500 -- 4,000
Non-cash proceeds from divestiture of discontinued operation.................. 10,300 -- --
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
48
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
DIRECTORS
The information required for Directors is included in the Proxy Statement of
the Company in connection with its 1998 Annual Meeting of Stockholders to be
held on July 21, 1998, under the heading "Proposal No. 1--Election of Directors"
and is incorporated herein by reference.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
EFFECTIVE DATE OF
ELECTION TO
NAME AGE POSITION PRESENT POSITION
- ------------------------------------------- --- ------------------------------------------- ------------------
<S> <C> <C> <C>
Richard C. Ill............................. 55 President and Chief Executive Officer July 1, 1993
John R. Bartholdson........................ 53 Senior Vice President, Chief Financial July 1, 1993
Officer and Treasurer
Richard M. Eisenstaedt..................... 52 Vice President, General Counsel and October 1, 1996
Secretary
Paul T. Stimmler........................... 59 Vice President and Assistant Secretary July 1, 1993
Kevin E. Kindig............................ 41 Controller and Assistant Secretary July 1, 1993
</TABLE>
RICHARD C. ILL has been President and Chief Executive Officer and a director
of the Company since 1993. Mr. Ill joined Alco Standard Corporation ("Alco") in
1968 and became Group Vice President of Metalsource, a steel distribution
business, in 1973. In 1975, Mr. Ill became President of Triumph Industries and,
in 1983, became President of Metalsource. In 1988, Mr. Ill became President of
Alco Diversified Services, a division of Alco. He was named Vice President of
Alco in 1989. Mr. Ill is a member of the Advisory Board of Outward Bound, USA
and the Board of Directors, Chairman's Council and Policy and Planning Committee
of the Steel Service Center Institute.
JOHN R. BARTHOLDSON has been Senior Vice President, Chief Financial Officer
and Treasurer and a director of the Company since 1993. Mr. Bartholdson joined
Alco Diversified Services in the fall of 1992. Prior to joining Alco Diversified
Services, Mr. Bartholdson was employed for 14 years by Lukens, Inc., the last
five years in the position of Senior Vice President and Chief Financial Officer.
Mr. Bartholdson serves on the Board of Directors of PBHG Funds, Inc.
RICHARD M. EISENSTAEDT became Vice President, General Counsel and Secretary
of the Company in October 1996. From 1988 to 1996, Mr. Eisenstaedt was an
attorney with Alco and Unisource Worldwide, Inc. ("Unisource"), an affiliate of
Alco, the last two years as General Counsel of Unisource.
PAUL T. STIMMLER has been Vice President of the Company since 1993 and also
served as Secretary of the Company until October 1996. From 1989 to 1993, Mr.
Stimmler was Group Vice President of Alco Diversified Services, responsible for
risk management, vehicle leasing, advertising, benefits administration and human
resources.
KEVIN E. KINDIG has been Controller of the Company since 1993. From 1985 to
1993, Mr. Kindig was employed by Lukens, Inc. in various positions, as
Manufacturing Accounting Manager since 1989 and as a financial analyst from 1985
to 1989.
49
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required regarding executive compensation is included in the
Proxy Statement of the Company in connection with its 1998 Annual Meeting of
Stockholders to be held on July 21, 1998, under the heading "Executive
Compensation" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required regarding security ownership is included in the
Proxy Statement of the Company in connection with its 1998 Annual Meeting of
Stockholders to be held on July 21, 1998, under the heading "Security Ownership
of Principal Stockholders and Management" and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required regarding certain relationships and related
transactions is included in the Proxy Statement of the Company in connection
with its 1998 Annual Meeting of Stockholders to be held on July 21, 1998, under
the heading "Certain Relationships and Related Transactions" and is incorporated
herein by reference.
50
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
(a)(1) The following consolidated financial statements are included in Item
8 of this report:
<TABLE>
<CAPTION>
TRIUMPH GROUP, INC. PAGE
- ----------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Report of Ernst & Young, LLP, Independent Auditors......................................................... 29
Consolidated Balance Sheets as of March 31, 1997 and 1998.................................................. 30
Consolidated Statements of Income for the Fiscal Years Ended March 31, 1996, 1997 and 1998................. 31
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended March 31, 1996, 1997 and 1998... 32
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 1996, 1997 and 1998............. 33
Notes to Consolidated Financial Statements................................................................. 34
</TABLE>
(a)(2) The following financial statement schedule is included in this
report:
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Schedule II--Valuation and Qualifying Accounts............................................................. 52
</TABLE>
All other schedules have been omitted as not applicable or because the
information is included elsewhere in the Consolidated Financial Statements or
notes thereto.
(a)(3) The following is a list of exhibits. Where so indicated by footnote,
exhibits which were previously filed are incorporated by reference.
51
<PAGE>
TRIUMPH GROUP, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING ADDITIONS
OF CHARGED TO ADDITIONS(1) BALANCE AT
YEAR EXPENSE (DEDUCTIONS)(2) END OF YEAR
----------- ------------- ----------------- -----------
<S> <C> <C> <C> <C>
For year ended March 31, 1998:............................ $ 495
Allowance for doubtful accounts receivable.............. $ 1,619 $ 173 $ (447) $ 1,840
For year ended March 31, 1997:............................ $ 36
Allowance for doubtful accounts receivable.............. $ 973 $ 959 $ (349) $ 1,619
For year ended March 31, 1996:............................ $ 59
Allowance for doubtful accounts receivable.............. $ 766 $ 243 $ (95) $ 973
</TABLE>
- ------------------------
(1) Additions consist of accounts receivable recoveries, miscellaneous
adjustments and amounts recorded in conjunction with the acquisitions of
Triumph Controls, Inc., Air Lab, Inc., Advanced Materials Technologies,
Inc., JDC Company, Hydro-Mill Co., Stolper-Fabralloy Company and Frisby
Aerospace, Inc.
(2) Deductions represent write-offs of related account balances and amounts
recorded in conjunction with the sales of Air Lab and Deluxe Specialties,
Mfg. Co.
52
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of Triumph Group, Inc.*
3.2 Bylaws of Triumph Group, Inc.*
4 Form of certificate evidencing Common Stock of Triumph Group, Inc.*
10.1 Form of Employment Agreement with Richard C. Ill.*
10.2 Form of Employment Agreement with John R. Bartholdson.*
10.3 Credit Agreement with PNC Bank, N.A. dated July 19, 1996.*
10.4 Guaranty of the Company to PNC Bank, N.A. dated July 19, 1996.*
10.5 Purchase Agreement dated as of July 22, 1993 between the Company and Citicorp Venture Capital,
Ltd.*
10.6 Registration Agreement dated as of July 22, 1993 among the Company, Citicorp Venture Capital,
Ltd., World Equity Partners, L.P. and certain members of management of the Company.*
10.7 Warrant dated July 22, 1993 issued to World Equity Partners, L.P.*
10.8 Warrant Agreement dated as of July 22, 1993 among the Company, Citicorp Venture Capital, Ltd. and
World Equity Partners, L.P.*
10.9 Asset Purchase Agreement dated as of December 31, 1995 among the Company, Triumph Control
Systems, Inc. and Teleflex Incorporated.*
10.10 Subordinated Promissory Note dated December 31, 1995 payable to Teleflex Incorporated.*
10.11 Stock Purchase Agreement dated as of July 31, 1996 among The Triumph Group Holdings, Inc.,
Advanced Materials Technologies, Inc. and certain members of management of Advanced Materials
Technologies, Inc.*
10.12 Executive Securities Agreement dated July 31, 1996 between the Company and Jay Donkersloot, as
amended.*
10.13 Non-Competition Agreement dated July 31, 1996 between the Company and Jay Donkersloot.*
10.14 Executive Stock Agreement dated as of May 9, 1995 between the Company and John M. Brasch.*
10.15 Form of 1996 Stock Option Plan.*
10.16 Form of Executive Securities Agreement.*
10.17 Executive Stock Agreement between the Company and Richard C. Ill.*
10.18 Executive Stock Agreement between the Company and John R. Bartholdson.*
10.19 Executive Stock Agreement between the Company and Paul T. Stimmler.*
10.20 Executive Stock Agreement between the Company and Kevin E. Kindig.*
10.21 First Amendment to Credit Agreement with PNC Bank, National Association, dated December 31,
1996.**
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
10.22 Replacement Revolving Credit Note dated December 31, 1996 payable to PNC Bank, National
Association.**
10.23 Amended and Restated Credit Agreement with PNC Bank, National Association, dated as of March 31,
1997.**
10.24 Second Replacement Revolving Credit Note dated March 31, 1997 payable to PNC Bank, National
Association.**
10.25 First Amendment to Credit Agreement with PNC Bank, National Association dated 10/23/97.****
10.26 Third Replacement Revolving Credit Note with PNC Bank, National Association dated as of October
23, 1997.
10.27 Replacement Revolving Credit Note with First Union National Bank, dated as of October 23, 1997.
10.28 Replacement Revolving Credit Note with Mellon Bank, N.A. dated as of October 23, 1997.
10.29 Amended and Restated Credit Agreement with PNC Bank, National Association, dated as of March 30,
1998.
10.30 Agreement with Hydro-Mill Co. dated September 2, 1997.***
10.31 Agreement with Stolper-Fabralloy Company, L.L.C. dated October 29, 1997.****
21.1 Subsidiaries of Triumph Group, Inc.
23.1 Consent of Ernst & Young LLP.
27 Financial Data Schedule for the year ended March 31, 1998.
27.1 Financial Data Schedule for the twelve, three, six and nine months ended March 31, 1996, June 30,
1996, September 30, 1996 and December 31, 1996, respectively. Restated for a change in accounting
principle for earnings per share.
27.2 Financial Data Schedule for the twelve, three and six months ended March 31, 1997, June 30, 1997
and September 30, 1997, respectively. Restated for a change in accounting principle for earnings
per share.
</TABLE>
- ------------------------
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-10777), declared effective on October 24, 1996.
** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended March 31, 1997.
*** Incorporated by reference to the Company's Current Report on Form 8-K filed
September 14, 1997.
****Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997.
REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the quarter ended March 31,
1998.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed by the undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
TRIUMPH GROUP INC
Dated: June 18, 1998 By: /s/ RICHARD C. ILL
-----------------------------------------
Richard C. Ill
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PRINCIPAL EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
/s/ RICHARD C. III Officer and Director
- ------------------------------ (Principal Executive June 18, 1998
Richard C. III Officer)
Senior Vice President,
/s/ JOHN R. BARTHOLDSON Chief Financial Officer,
- ------------------------------ Treasuer and Director June 18, 1998
John R. Bartholdson (Principal Financial
Offier)
/s/ KEVIN E. KINDIG
- ------------------------------ Controller (Principal June 18, 1998
Kevin E. Kindig Accounting Officer)
/s/ RICHARD C. GOZON
- ------------------------------ Director June 18, 1998
Richard C. Gozon
/s/ CLAUDE F. KRONK
- ------------------------------ Director June 18, 1998
Claude F. Kronk
/s/ JOSEPH M. SILVESTRI
- ------------------------------ Director June 18, 1998
Joseph M. Silvestri
/s/ MICHEAL A. DELANEY
- ------------------------------ Director June 18, 1998
Micheal A. Delaney
55
<PAGE>
Exhibit 10.26
REPLACEMENT
REVOLVING CREDIT NOTE
$65,000,000 Wayne, Pennsylvania
October 23, 1997
(replaces Note dated March 31, 1997)
FOR VALUE RECEIVED, the undersigned, (the "Borrower") promise
to pay the order of PNC BANK, NATIONAL ASSOCIATION (the "Bank"), on or before
the Expiration Date, the principal sum of Sixty Five Million Dollars
($65,000,000), or if less, the aggregate amount of the Bank's ratable share of
all Revolving Credit Loans made by the Banks to the Borrower under the "Credit
Agreement" dated as of March 31, 1997, as amended, among the Borrower, the
several other banks from time to time party thereto, and PNC Bank, National
Association, as "Agent" for the Banks.
The Borrower shall pay interest on the unpaid principal
balance hereof from time to time outstanding from the date hereof at the rate or
rates per annum specified by the Borrower pursuant to Section 3.1.1 of, or as
otherwise provided in, the Credit Agreement.
Upon the occurrence and during the continuation of an Event of
Default, the Borrower shall pay interest on the entire principal amount of the
then outstanding Revolving Credit Loans evidenced by this Revolving Credit Note
at a rate per annum equal to two hundred basis points (2% per annum) above the
rate of interest otherwise applicable with respect to such loans. Such interest
rate will accrue before and after any judgment has been entered.
Subject to the provisions of the Credit Agreement, interest on
this Revolving Credit Note will be payable on the first Business Day of each
calendar quarter after the date hereof and on the Expiration Date.
If any payment or action to be made or taken hereunder shall
be stated to be or become due on a day which is not a Business Day, such payment
or action shall be made or taken on the next following Business Day and such
extension of time shall be included in computing interest or fees, if any, in
connection with such payment or action.
Subject to the provisions of the Credit Agreement, payments of
both principal and interest shall be made without setoff, counterclaim or other
deduction of any nature at the Principal Office in lawful money of the United
States of America in immediately available funds.
<PAGE>
This Note is one of the Revolving Credit Notes referred to in,
and is entitled to the benefits of, the Credit Agreement and other Loan
Documents, including the representations, warranties, covenants, conditions,
security interests or Liens contained or granted therein. The Credit Agreement
among other things contains provisions for acceleration of the maturity hereof
upon the happening of certain stated events and also for prepayment, in certain
circumstances, on account of principal hereof prior to maturity upon the terms
and conditions therein specified.
All capitalized terms used herein shall, unless otherwise
defined herein, have the same meanings given to such terms in the Credit
Agreement.
Except as otherwise provided in the Credit Agreement, the
Borrower waives presentment, demand, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note and the Credit Agreement.
This Note shall bind the Borrower and its successors and
assigns, and the benefits hereof shall inure to the benefit of the Bank and its
successors and assigns. All references herein to the "Borrower" and the "Bank"
shall be deemed to apply to the Borrower and the Bank, respectively, and their
respective successors and assigns.
This Note and any other documents delivered in connection
herewith and the rights and obligations of the parties hereto and thereto shall
for all purposes be governed by and construed and enforced in accordance with
the internal laws of the Commonwealth of Pennsylvania without giving effect to
its conflicts of law principles.
This Note amends, restates, and replaces the Revolving Credit
Note dated March 31, 1997 of Borrower to Bank.
IN WITNESS WHEREOF, the undersigned has executed this Note by
its duly authorized officers with the intention that it constitute a sealed
instrument.
ATTEST: TRIUMPH GROUP, INC.
By:
- --------------------------- ----------------------------
Richard M. Eisenstaedt, John R. Bartholdson,
Secretary Senior Vice President
<PAGE>
Exhibit 10.27
REPLACEMENT
REVOLVING CREDIT NOTE
$30,000,000 Wayne, Pennsylvania
October 23, 1997
(replaces Note dated March 31, 1997)
FOR VALUE RECEIVED, the undersigned, (the "Borrower") promise
to pay the order of FIRST UNION NATIONAL BANK (the "Bank"), on or before the
Expiration Date, the principal sum of Thirty Million Dollars ($30,000,000), or
if less, the aggregate amount of the Bank's ratable share of all Revolving
Credit Loans made by the Banks to the Borrower under the "Credit Agreement"
dated as of March 31, 1997, as amended, among the Borrower, the several other
banks from time to time party thereto, and PNC Bank, National Association, as
"Agent" for the Banks.
The Borrower shall pay interest on the unpaid principal
balance hereof from time to time outstanding from the date hereof at the rate or
rates per annum specified by the Borrower pursuant to Section 3.1.1 of, or as
otherwise provided in, the Credit Agreement.
Upon the occurrence and during the continuation of an Event of
Default, the Borrower shall pay interest on the entire principal amount of the
then outstanding Revolving Credit Loans evidenced by this Revolving Credit Note
at a rate per annum equal to two hundred basis points (2% per annum) above the
rate of interest otherwise applicable with respect to such loans. Such interest
rate will accrue before and after any judgment has been entered.
Subject to the provisions of the Credit Agreement, interest on
this Revolving Credit Note will be payable on the first Business Day of each
calendar quarter after the date hereof and on the Expiration Date.
If any payment or action to be made or taken hereunder shall
be stated to be or become due on a day which is not a Business Day, such payment
or action shall be made or taken on the next following Business Day and such
extension of time shall be included in computing interest or fees, if any, in
connection with such payment or action.
Subject to the provisions of the Credit Agreement, payments of
both principal and interest shall be made without setoff, counterclaim or other
deduction of any nature at the Principal Office in lawful money of the United
States of America in immediately available funds.
<PAGE>
This Note is one of the Revolving Credit Notes referred to in,
and is entitled to the benefits of, the Credit Agreement and other Loan
Documents, including the representations, warranties, covenants, conditions,
security interests or Liens contained or granted therein. The Credit Agreement
among other things contains provisions for acceleration of the maturity hereof
upon the happening of certain stated events and also for prepayment, in certain
circumstances, on account of principal hereof prior to maturity upon the terms
and conditions therein specified.
All capitalized terms used herein shall, unless otherwise
defined herein, have the same meanings given to such terms in the Credit
Agreement.
Except as otherwise provided in the Credit Agreement, the
Borrower waives presentment, demand, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note and the Credit Agreement.
This Note shall bind the Borrower and its successors and
assigns, and the benefits hereof shall inure to the benefit of the Bank and its
successors and assigns. All references herein to the "Borrower" and the "Bank"
shall be deemed to apply to the Borrower and the Bank, respectively, and their
respective successors and assigns.
This Note and any other documents delivered in connection
herewith and the rights and obligations of the parties hereto and thereto shall
for all purposes be governed by and construed and enforced in accordance with
the internal laws of the Commonwealth of Pennsylvania without giving effect to
its conflicts of law principles.
This Note amends, restates, and replaces the Revolving Credit
Note dated March 31, 1997 of Borrower to Bank.
IN WITNESS WHEREOF, the undersigned has executed this Note by
its duly authorized officers with the intention that it constitute a sealed
instrument.
ATTEST: TRIUMPH GROUP, INC.
By:
- ----------------------------- --------------------------------
Richard M. Eisenstaedt, John R. Bartholdson,
Secretary Senior Vice President
<PAGE>
Exhibit 10.28
REPLACEMENT
REVOLVING CREDIT NOTE
$30,000,000 Wayne, Pennsylvania
October 23, 1997
(replaces Note dated March 31, 1997)
FOR VALUE RECEIVED, the undersigned, (the "Borrower") promise to pay the
order of MELLON BANK, N.A. (the "Bank"), on or before the Expiration Date,
the principal sum of Thirty Million Dollars ($30,000,000), or if less, the
aggregate amount of the Bank's ratable share of all Revolving Credit Loans
made by the Banks to the Borrower under the "Credit Agreement" dated as of
March 31, 1997, as amended, among the Borrower, the several other banks from
time to time party thereto, and PNC Bank, National Association, as "Agent"
for the Banks.
The Borrower shall pay interest on the unpaid principal balance hereof
from time to time outstanding from the date hereof at the rate or rates per
annum specified by the Borrower pursuant to Section 3.1.1 of, or as otherwise
provided in, the Credit Agreement.
Upon the occurrence and during the continuation of an Event of Default,
the Borrower shall pay interest on the entire principal amount of the then
outstanding Revolving Credit Loans evidenced by this Revolving Credit Note at
a rate per annum equal to two hundred basis points (2% per annum) above the
rate of interest otherwise applicable with respect to such loans. Such
interest rate will accrue before and after any judgment has been entered.
Subject to the provisions of the Credit Agreement, interest on this
Revolving Credit Note will be payable on the first Business Day of each
calendar quarter after the date hereof and on the Expiration Date.
If any payment or action to be made or taken hereunder shall be stated to
be or become due on a day which is not a Business Day, such payment or action
shall be made or taken on the next following Business Day and such extension
of time shall be included in computing interest or fees, if any, in
connection with such payment or action.
Subject to the provisions of the Credit Agreement, payments of both
principal and interest shall be made without setoff, counterclaim or other
deduction of any nature at the Principal Office in lawful money of the United
States of America in immediately available funds.
<PAGE>
This Note is one of the Revolving Credit Notes referred to in, and is
entitled to the benefits of, the Credit Agreement and other Loan Documents,
including the representations, warranties, covenants, conditions, security
interests or Liens contained or granted therein. The Credit Agreement among
other things contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events and also for prepayment, in certain
circumstances, on account of principal hereof prior to maturity upon the
terms and conditions therein specified.
All capitalized terms used herein shall, unless otherwise defined herein,
have the same meanings given to such terms in the Credit Agreement.
Except as otherwise provided in the Credit Agreement, the Borrower waives
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement
of this Note and the Credit Agreement.
This Note shall bind the Borrower and its successors and assigns, and the
benefits hereof shall inure to the benefit of the Bank and its successors and
assigns. All references herein to the "Borrower" and the "Bank" shall be
deemed to apply to the Borrower and the Bank, respectively, and their
respective successors and assigns.
This Note and any other documents delivered in connection herewith and the
rights and obligations of the parties hereto and thereto shall for all
purposes be governed by and construed and enforced in accordance with the
internal laws of the Commonwealth of Pennsylvania without giving effect to
its conflicts of law principles.
This Note amends, restates, and replaces the Revolving Credit Note dated
March 31, 1997 of Borrower to Bank.
IN WITNESS WHEREOF, the undersigned has executed this Note by its duly
authorized officers with the intention that it constitute a sealed instrument.
ATTEST: TRIUMPH GROUP, INC.
By:
- ----------------------------- --------------------------------
Richard M. Eisenstaedt, John R. Bartholdson,
Secretary Senior Vice President
<PAGE>
Exhibit 10.29
$125,000,000 REVOLVING CREDIT FACILITY
AMENDED AND RESTATED CREDIT AGREEMENT
by and among
TRIUMPH GROUP, INC.
AS BORROWER
and
THE BANKS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION
AS AGENT
Dated as of March 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
1. CERTAIN DEFINITIONS.................................................................... 1
1.1 Certain Definitions...................................................... 1
1.2 Construction............................................................. 14
1.2.1 Number; Inclusion............................................ 14
1.2.2 Determination................................................ 14
1.2.3 Agent's Discretion and Consent............................... 15
1.2.4 Documents Taken as a Whole................................... 15
1.2.5 Headings..................................................... 15
1.2.6 Implied References to this Agreement......................... 15
1.2.7 Persons...................................................... 15
1.2.8 Modifications to Documents................................... 15
1.2.9 From, To and Through......................................... 16
1.2.10 Shall; Will.................................................. 16
1.3 Accounting Principles.................................................... 16
2. REVOLVING CREDIT FACILITY.............................................................. 16
2.1 Revolving Credit Commitments............................................. 16
2.2 Nature of Banks' Obligations with Respect to Revolving Credit Loans. .... 16
2.3 Commitment Fees.......................................................... 17
2.4 Revolving Credit Loan Requests........................................... 17
2.5 Making Revolving Credit Loans............................................ 18
2.6 Revolving Credit Notes................................................... 18
2.7 Use of Proceeds.......................................................... 18
2.8 Letter of Credit Subfacility. ........................................... 19
2.8.1 Issuance of Letters of Credit................................ 19
2.8.2 Participations............................................... 19
2.8.3 Letter of Credit Fees........................................ 19
2.8.4 Disbursements, Reimbursement................................. 20
2.8.5 Documentation................................................ 20
2.8.6 Determinations to Honor Drawing Requests..................... 20
2.8.7 Nature of Participation and Reimbursement Obligations. ...... 21
2.8.8 Indemnity.................................................... 22
2.8.9 Liability for Acts and Omissions............................. 22
2.9 Extension by Banks of the Expiration Date.................... 23
</TABLE>
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
3. INTEREST RATES......................................................................... 23
3.1 Interest Rate Options.................................................... 23
3.1.1 Revolving Credit Interest Rate Options....................... 24
3.1.2 Rate Quotations.............................................. 24
3.2 Interest Periods......................................................... 24
3.2.1 Ending Date and Business Day................................. 25
3.2.2 Amount of Borrowing Tranche.................................. 25
3.2.3 Termination Before Expiration Date........................... 25
3.2.4 Renewals..................................................... 25
3.3 Interest After Default................................................... 25
3.3.1 Letter of Credit Fees, Interest Rate......................... 25
3.3.2 Other Obligations............................................ 25
3.3.3 Acknowledgment............................................... 26
3.4 Euro-Rate Unascertainable................................................ 26
3.4.1 Unascertainable.............................................. 26
3.4.2 Illegality; Increased Costs; Deposits Not Available.......... 26
3.4.3 Agent's and Banks' Rights.................................... 27
3.5 Selection of Interest Rate Options....................................... 27
4. PAYMENTS............................................................................... 28
4.1 Payments................................................................. 28
4.2 Pro Rata Treatment of Banks.............................................. 28
4.3 Interest Payment Dates................................................... 28
4.4 Voluntary Prepayments and Commitment Reductions.......................... 29
4.4.1 Right to Prepay.............................................. 29
4.4.2 Replacement of a Bank........................................ 30
4.4.3 Right to Reduce Commitments.................................. 30
4.5 Mandatory Prepayments and Commitment Reductions.......................... 31
4.5.1 [RESERVED]................................................... 31
4.5.2 Permanent Reduction of Commitments........................... 31
4.5.3 Application among Interest Rate Options...................... 31
4.6 Additional Compensation in Certain Circumstances......................... 31
4.6.1 Increased Costs or Reduced Return Resulting
From Taxes, Reserves, Capital Adequacy Requirements,
Expenses, Etc. .............................................. 31
4.6.2 Indemnity.................................................... 32
</TABLE>
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
5. REPRESENTATIONS AND WARRANTIES......................................................... 33
5.1 Representations and Warranties........................................... 33
5.1.1 Organization and Qualification............................... 33
5.1.2 Capitalization and Ownership................................. 33
5.1.3 Subsidiaries................................................. 34
5.1.4 Power and Authority.......................................... 34
5.1.5 Validity and Binding Effect.................................. 34
5.1.6 No Conflict.................................................. 35
5.1.7 Litigation................................................... 35
5.1.8 Title to Properties.......................................... 35
5.1.9 Financial Statements......................................... 35
5.1.10 Margin Stock................................................. 36
5.1.11 Full Disclosure.............................................. 36
5.1.12 Taxes........................................................ 37
5.1.13 Consents and Approvals....................................... 37
5.1.14 No Event of Default; Compliance with Instruments............. 37
5.1.15 Patents, Trademarks, Copyrights, Licenses, Etc............... 38
5.1.16 Insurance.................................................... 38
5.1.17 Compliance with Laws......................................... 38
5.1.18 Material Contracts........................................... 38
5.1.19 Investment Companies......................................... 38
5.1.20 Plans and Benefit Arrangements............................... 39
5.1.21 Employment Matters........................................... 40
5.1.22 Environmental Matters........................................ 40
5.1.23 Senior Debt Status........................................... 42
5.2 Updates to Schedules..................................................... 42
6. CONDITIONS OF LENDING.................................................................. 42
7. COVENANTS.............................................................................. 43
7.1 Affirmative Covenants.................................................... 43
7.1.1 Preservation of Existence, Etc............................... 43
7.1.2 Payment of Liabilities, Including Taxes, Etc................. 43
7.1.3 Maintenance of Insurance..................................... 43
7.1.4 Maintenance of Properties and Leases......................... 44
7.1.5 Maintenance of Patents, Trademarks, Etc...................... 44
7.1.6 Visitation Rights............................................ 45
7.1.7 Keeping of Records and Books of Account...................... 45
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
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<S> <C>
7.1.8 Plans and Benefit Arrangements............................... 45
7.1.9 Compliance with Laws......................................... 46
7.1.10 Use of Proceeds.............................................. 46
7.2 Negative Covenants....................................................... 46
7.2.1 Indebtedness................................................. 46
7.2.2 Liens........................................................ 47
7.2.3 Guaranties................................................... 47
7.2.4 Loans and Investments........................................ 48
7.2.5 Dividends and Related Distributions.......................... 48
7.2.6 Liquidations, Mergers, Consolidations, Acquisitions.......... 49
7.2.7 Dispositions of Assets or Subsidiaries....................... 49
7.2.8 Affiliate Transactions....................................... 50
7.2.9 Subsidiaries, Partnerships and Joint Ventures................ 50
7.2.10 Continuation of Present Business............................. 51
7.2.11 Plans and Benefit Arrangements............................... 51
7.2.12 Fiscal Year.................................................. 52
7.2.13 Issuance of Stock............................................ 52
7.2.14 Changes in Organizational Documents.......................... 53
7.2.15 Capital Expenditures and Leases.............................. 53
7.2.16 Minimum Interest Coverage Ratio.............................. 53
7.2.17 Maximum Total Indebtedness to EBITDA Ratio................... 54
7.2.18 Minimum Net Worth............................................ 54
7.2.19 Intentionally Omitted........................................ 54
7.2.20 Negative Pledges............................................. 54
7.3 Reporting Requirements................................................... 54
7.3.1 Quarterly Financial Statements............................... 54
7.3.2 Annual Financial Statement................................... 55
7.3.3 Compliance Certificate....................................... 55
7.3.4 Notice of Default............................................ 56
7.3.5 Notice of Litigation......................................... 56
7.3.6 Certain Events............................................... 56
7.3.7 Budgets, Forecasts, Other Reports and Information............ 57
7.3.8 Notices Regarding Plans and Benefit Arrangements............. 58
7.3.8.1 Certain Events................................. 58
7.3.8.2 Notices of Involuntary Termination and
Annual Reports............................... 59
7.3.8.3 Notice of Voluntary Termination................ 59
8. DEFAULT................................................................................ 59
</TABLE>
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
8.1 Events of Default................................................................. 59
8.1.1 Payments Under Loan Documents......................................... 59
8.1.2 Breach of Warranty.................................................... 60
8.1.3 Refusal to Permit Inspections; Breach of Negative Covenants........... 60
8.1.4 Breach of Other Covenants............................................. 60
8.1.5 Defaults in Other Agreements or Indebtedness.......................... 60
8.1.6 Final Judgments or Orders............................................. 60
8.1.7 Loan Document Unenforceable........................................... 61
8.1.8 Uninsured Losses; Proceedings Against Assets.......................... 61
8.1.9 Notice of Lien or Assessment.......................................... 61
8.1.10 Insolvency............................................................ 61
8.1.11 Events Relating to Plans and Benefit Arrangements..................... 61
8.1.12 Cessation of Business................................................. 62
8.1.13 Change of Control..................................................... 62
8.1.14 Involuntary Proceedings............................................... 63
8.1.15 Voluntary Proceedings................................................. 63
8.2 Consequences of Event of Default.................................................. 63
8.2.1 Events of Default Other Than Bankruptcy, Insolvency or
Reorganization Proceedings.......................................... 63
8.2.2 Bankruptcy, Insolvency or Reorganization Proceedings.................. 64
8.2.3 Set-off............................................................... 64
8.2.4 Suits, Actions, Proceedings........................................... 65
8.2.5 Application of Proceeds............................................... 65
9. THE AGENT....................................................................................... 65
9.1 Appointment....................................................................... 65
9.2 Delegation of Duties.............................................................. 66
9.3 Nature of Duties; Independent Credit Investigation................................ 66
9.4 Actions in Discretion of Agent; Instructions from the Banks....................... 67
9.5 Reimbursement and Indemnification of Agent by the Borrower........................ 67
9.6 Exculpatory Provisions............................................................ 68
9.7 Reimbursement and Indemnification of Agent by Banks............................... 68
9.8 Reliance by Agent................................................................. 69
9.9 Notice of Default................................................................. 69
9.10 Notices........................................................................... 69
9.12 Holders of Notes.................................................................. 70
9.13 Equalization of Banks............................................................. 70
9.14 Successor Agent................................................................... 71
9.15 Agent's Fee....................................................................... 71
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
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<S> <C>
9.16 Availability of Funds.......................................................... 71
9.17 Calculations................................................................... 72
9.18 Beneficiaries.................................................................. 72
10. MISCELLANEOUS............................................................................... 72
10.1 Modifications, Amendments or Waivers........................................... 72
10.1.1 Increase of Commitment; Extension or Expiration Date............... 72
10.1.2 Extension of Payment; Reduction of Principal Interest or Fees;
Modification of Terms of Payment.................................. 73
10.1.3 Miscellaneous...................................................... 73
10.2 No Implied Waivers; Cumulative Remedies; Writing Required...................... 73
10.3 Reimbursement and Indemnification of Banks by the Borrower; Taxes.............. 73
10.4 Holidays....................................................................... 74
10.5 Funding by Branch, Subsidiary or Affiliate..................................... 75
10.5.1 Notional Funding................................................... 75
10.5.2 Actual Funding..................................................... 75
10.6 Notices........................................................................ 76
10.7 Severability................................................................... 76
10.8 Governing Law.................................................................. 76
10.9 Prior Understanding............................................................ 77
10.10 Duration; Survival............................................................. 77
10.11 Successors and Assigns......................................................... 77
10.12 Confidentiality................................................................ 78
10.13 Counterparts .................................................................. 79
10.14 Agent's or Bank's Consent ..................................................... 79
10.15 Exceptions .................................................................... 79
10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL ........................................ 79
10.17 Tax Withholding Clause ........................................................ 80
10.18 Public Filings ................................................................ 81
</TABLE>
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<PAGE>
LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
<TABLE>
<S> <C>
SCHEDULE 1.1(B) - COMMITMENTS OF BANKS
SCHEDULE 1.1(P) - PERMITTED LIENS
SCHEDULE 5.1.1 - QUALIFICATIONS TO DO BUSINESS
SCHEDULE 5.1.2 - CAPITALIZATION
SCHEDULE 5.1.3 - SUBSIDIARIES
SCHEDULE 5.1.8 - TITLE TO PROPERTY
SCHEDULE 5.1.13 - CONSENTS AND APPROVALS
SCHEDULE 5.1.20 - EMPLOYEE BENEFIT PLAN DISCLOSURES
SCHEDULE 5.1.22 - ENVIRONMENTAL DISCLOSURES
SCHEDULE 7.2.1 - PERMITTED INDEBTEDNESS
EXHIBITS
EXHIBIT 1.1(A) - ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(P) - PRICING GRID
EXHIBIT 1.1(R) - REVOLVING CREDIT NOTE
EXHIBIT 2.4 - LOAN REQUEST
EXHIBIT 7.3.3 - COMPLIANCE CERTIFICATE
</TABLE>
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FIRST AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is dated as of March 30,
1998 and is made by and among TRIUMPH GROUP, INC., a Delaware corporation, (the
"Borrower"), the BANKS (as hereinafter defined), and PNC BANK, NATIONAL
ASSOCIATION, in its capacity as agent for the Banks under this Agreement
(hereinafter referred to in such capacity as the "Agent").
WITNESSETH:
WHEREAS, the Banks currently provide a revolving credit facility for
the Borrower in an aggregate principal amount of up to $125,000,000 pursuant to
an Amended and Restated Credit Agreement dated as of March 31, 1997, as amended
(the "1997 Credit Agreement"); and
WHEREAS, the parties wish to amend and restate the 1997 Credit
Agreement on the terms and conditions set forth below;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. CERTAIN DEFINITIONS
1.1 Certain Definitions.
In addition to words and terms defined elsewhere in this Agreement, the
following words and terms shall have the following meanings, respectively,
unless the context hereof clearly requires otherwise:
Affiliate as to any Person shall mean any other Person (i) which
directly or indirectly controls, is controlled by, or is under common control
with such Person, (ii) which beneficially owns or holds 10% or more of any class
of the voting or other equity interests of such Person, or (iii) 10% or more of
any class of voting interests or other equity interests of which is beneficially
owned or held, directly or indirectly, by such Person. Control, as used in this
definition, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise, including
the power to elect a majority of the directors or trustees of a corporation or
trust, as the case may be.
Agent shall mean PNC Bank, National Association, and its successors and
assigns.
Agent's Fee shall have the meaning assigned to that term in Section
9.15.
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Agent's Letter shall have the meaning assigned to that term in Section
9.15.
Agreement shall mean this Amended and Restated Credit Agreement, as the
same may be supplemented or amended from time to time, including all schedules
and exhibits.
Annual Statements shall have the meaning assigned to that term in
Section 0.
Assignment and Assumption Agreement shall mean an Assignment and
Assumption Agreement by and among a Purchasing Bank, the Transferor Bank and the
Agent, as Agent and on behalf of the remaining Banks, substantially in the form
of Exhibit 1.1(A).
Authorized Officer shall mean those individuals, designated by written
notice to the Agent from the Borrower, authorized to execute notices, reports
and other documents on behalf of the Borrower required hereunder. The Borrower
may amend such list of individuals from time to time by giving written notice of
such amendment to the Agent.
Banks shall mean the financial institutions named on Schedule 1.1(B)
and their respective successors and assigns as permitted hereunder, each of
which is referred to herein as a Bank.
Base Rate shall mean the greater of (i) the interest rate per annum
announced from time to time by the Agent at its Principal Office as its then
prime rate, which rate may not be the lowest rate then being charged commercial
borrowers by the Agent, or (ii) the Federal Funds Effective Rate plus 1/2% per
annum.
Base Rate Option shall mean the Revolving Credit Base Rate Option.
Benefit Arrangement shall mean at any time an "employee benefit plan,"
within the meaning of Section 3(3) of ERISA, which is neither a Plan nor a
Multiemployer Plan and which is maintained, sponsored or otherwise contributed
to by any member of the ERISA Group.
Borrower shall mean Triumph Group, Inc.
Borrowing Date shall mean, with respect to any Loan, the date for the
making thereof or the renewal or conversion thereof to the same or a different
Interest Rate Option, which shall be a Business Day.
Borrowing Tranche shall mean specified portions of Loans outstanding as
follows: (i) any Loans to which a Euro-Rate Option applies which become subject
to the same Interest Rate Option under the same Loan Request by the Borrower and
which have the same Interest
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Period shall constitute one Borrowing Tranche, and (ii) all Loans to which a
Base Rate Option applies shall constitute one Borrowing Tranche.
Business Day shall mean any day other than a Saturday or Sunday or a
legal holiday on which commercial banks are authorized or required to be closed
for business in Pittsburgh, Pennsylvania.
Capital Stock shall mean any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants or options to purchase any of the foregoing.
Closing Date shall mean, on this Agreement, March 30, 1998.
Commitment shall mean as to any Bank its Revolving Credit Commitment,
and Commitments shall mean the aggregate of the Revolving Credit Commitments of
all of the Banks.
Commitment Fee shall have the meaning assigned to that term in Section
0.
Consolidated EBITDA shall mean for any period of determination
Consolidated Net Income (before extraordinary items) for such period plus the
amount of income tax expense, interest expense, depreciation and amortization
expense deducted from earnings in determining such Consolidated Net Income. For
any period in which Borrower or one of its Subsidiaries has completed an
acquisition permitted under this Agreement, the calculation of Consolidated
EBITDA for such period shall reflect, on a pro forma basis, the financial
performance of the acquired entity or assets as though the acquisition had been
completed at the beginning of the period of determination.
Consolidated Net Worth shall mean as of any date of determination total
stockholders' equity of the Borrower and its Subsidiaries as of such date
determined and consolidated in accordance with GAAP.
Consolidated Interest Expense shall mean for any period of
determination the amount of cash interest expense deducted from the earnings of
the Borrower and its Subsidiaries in determining Consolidated Net Income for
such period in accordance with GAAP.
Consolidated Net Income shall mean for any fiscal period the net income
(or loss) after income taxes of the Borrower and its Subsidiaries for such
period determined and consolidated in accordance with GAAP.
Consolidated Total Indebtedness shall mean as of any date of
determination the
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aggregate of all Indebtedness, other than PIK Subordinated Indebtedness, of the
Borrower and its Subsidiaries as of such date determined and consolidated in
accordance with GAAP.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money
of the United States of America.
Environmental Complaint shall mean any written complaint setting forth
a cause of action for personal or property damage or natural resource damage or
equitable relief, order, notice of violation, citation, request for information
issued pursuant to any Environmental Laws by an Official Body, subpoena or other
written notice asserting or threatening a claim relating to, arising out of, or
issued pursuant to any of the Environmental Laws or any Environmental
Conditions, as the case may be.
Environmental Conditions shall mean any conditions of the environment,
including the workplace, the ocean, natural resources (including flora or
fauna), soil, surface water, groundwater, any actual or potential drinking water
supply sources, substrata or the ambient air, relating to or arising out of, or
caused by the use, handling, storage, treatment, recycling, generation,
transportation, release, spilling, leaking, pumping, emptying, discharging,
injecting, escaping, leaching, disposal, dumping, threatened release or other
management or mismanagement of Regulated Substances resulting from the use of,
or operations on, the Property.
Environmental Laws shall mean all federal, state, local and foreign
Laws and regulations, including permits, licenses, authorizations, bonds,
orders, judgments, consent decrees issued, or entered into, pursuant thereto,
relating to pollution or protection of human health or the environment or
employee safety in the workplace.
ERISA shall mean the Employee Retirement Income Security Act of 1974,
as the same may be amended or supplemented from time to time, and any successor
statute of similar import, and the rules and regulations thereunder, as from
time to time in effect.
ERISA Group shall mean, at any time, the Borrower and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control and all other entities which, together with
the Borrower, are treated as a single employer under Section 414 of the Internal
Revenue Code.
Euro-Rate shall mean with respect to the Loans comprising any Borrowing
Tranche to which the Euro-Rate Option applies for any Interest Period, the
interest rate per annum determined by the Agent by dividing (the resulting
quotient rounded upward to the nearest 1/100th of 1% per annum) (i) the rate of
interest determined by the Agent in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the eurodollar
rate at approximately 11:00 A.M., London time, two (2) London Business Days
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prior to the first day of such Interest Period for an amount comparable to such
Borrowing Tranche and having a borrowing date and a maturity comparable to such
Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve
Percentage. The Euro-Rate shall be adjusted with respect to any Euro-Rate Option
outstanding on the effective date of any change in the Euro-Rate Reserve
Percentage as of such effective date. The Agent shall give prompt notice to the
Borrower of the Euro-Rate as determined or adjusted in accordance herewith,
which determination shall be conclusive absent manifest error.
Euro-Rate Option shall mean the Revolving Credit Euro-Rate Option.
Euro-Rate Reserve Percentage shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Agent which is in effect during any relevant period, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the reserve requirements (including supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency Liabilities") of a member bank in such System.
Event of Default shall mean any of the Events of Default described in
Section 0.
Expiration Date shall mean, with respect to the Revolving Credit
Commitments, March 31, 2003; provided that the Expiration Date may be extended
under Section 2.9.
Federal Funds Effective Rate for any day shall mean the rate per annum
(based on a year of 360 days and actual days elapsed and rounded upward to the
nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates on overnight
federal funds transactions arranged by federal funds brokers on the previous
trading day, as computed and announced by such Federal Reserve Bank (or any
successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
GAAP shall mean generally accepted accounting principles as are in
effect from time to time, subject to the provisions of Section 0, and applied on
a consistent basis both as to classification of items and amounts.
Governmental Acts shall have the meaning assigned to that term in
Section 0.
Guaranty of any Person shall mean any obligation of such Person
guaranteeing any
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liability or obligation of any other Person in any manner,
whether directly or indirectly, including any performance bond or other
suretyship arrangement and any other form of assurance against loss, except (i)
endorsement of negotiable or other instruments for deposit or collection in the
ordinary course of business, (ii) any guaranty of an obligation to indemnify or
hold harmless any other Person incurred in connection with an acquisition or
divestiture of Capital Stock or assets permitted under this Agreement, or (iii)
any guaranty by Borrower of the obligations of any of its direct or indirect
Subsidiaries incurred in the ordinary course of business.
Historical Statements shall have the meaning assigned to that term in
Section 0.
Indebtedness shall mean, as to any Person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such Person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other transaction
(including forward sale or purchase agreements, capitalized leases and
conditional sales agreements) having the commercial effect of a borrowing of
money entered into by such Person to finance its operations or capital
requirements (but not including trade payables and accrued expenses incurred in
the ordinary course of business which are not represented by a promissory note
or other evidence of indebtedness), or (v) any Guaranty of Indebtedness for
borrowed money.
Interest Coverage Ratio shall mean for any period of determination the
ratio of (i) Consolidated EBITDA for such period to (ii) Consolidated Interest
Expense for such period.
Interest Period shall have the meaning assigned to such term in Section
3.2.
Interest Rate Option shall mean any Euro-Rate Option or Base Rate
Option.
Interim Statements shall have the meaning assigned to that term in
Section 0.
Internal Revenue Code shall mean the Internal Revenue Code of 1986, as
the same may be amended or supplemented from time to time, and any successor
statute of similar import, and the rules and regulations thereunder, as from
time to time in effect.
K-T IRB shall mean the proposed City of Shelbyville, Indiana,
Adjustable Rate Economic Development Revenue Bonds (K-T Corporation Project)
Series 1997 in the aggregate principal amount of $5,000,000.
K-T Letter of Credit shall mean the letter of credit to be issued by
PNC Bank, National
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Association in the face amount of $5,061,650 for the account of The Triumph
Group Operations, Inc., d/b/a K-T Corporation in support of the K-T IRB.
Labor Contracts shall mean all employment agreements, employment
contracts, collective bargaining agreements and other agreements among the
Borrower or Subsidiary of the Borrower and its employees.
Law shall mean any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.
Letter of Credit shall have the meaning assigned to that term in
Section 0.
Letter of Credit Fee shall have the meaning assigned to that term in
Section 0.
Letters of Credit Outstanding shall mean at any time the sum of (i) the
aggregate undrawn face amount of outstanding Letters of Credit and (ii) the
aggregate amount of all unpaid and outstanding Reimbursement Obligations. The
term does not include the K-T Letter of Credit.
Lien shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, whether voluntarily or involuntarily given, including any
conditional sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security and any
filed financing statement or other notice of any of the foregoing (whether or
not a lien or other encumbrance is created or exists at the time of the filing).
Loan Documents shall mean this Agreement, the Notes and any other
instruments, certificates or documents delivered or contemplated to be delivered
hereunder or thereunder or in connection herewith or therewith, as the same may
be supplemented or amended from time to time in accordance herewith or
therewith, and Loan Document shall mean any of the Loan Documents.
Loan Request shall mean a request for Revolving Credit Loans made in
accordance with Section 2.4 or a request to select, convert to or renew a
Euro-Rate Option in accordance with Section 3.2, 9.13.
Loans shall mean collectively and Loan shall mean separately all
Revolving Credit Loans or any Revolving Credit Loan.
Material Adverse Change shall mean any set of circumstances or events
which (a) has or is reasonably expected to have any material adverse effect
whatsoever upon the validity or
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enforceability of this Agreement or any other Loan Document, (b) is or is
reasonably expected to be material and adverse to the business, properties,
assets, financial condition, results of operations or prospects of the Borrower
and its Subsidiaries taken as a whole , (c) impairs materially or is reasonably
expected to impair materially the ability of the Borrower and its Subsidiaries
taken as a whole to duly and punctually pay or perform its Indebtedness, or (d)
impairs materially or is reasonably expected to impair materially the ability of
the Agent or any of the Banks, to the extent permitted, to enforce their legal
remedies pursuant to this Agreement or any other Loan Document.
Month, with respect to an Interest Period under the Euro-Rate Option,
shall mean the interval between the days in consecutive calendar months
numerically corresponding to the first day of such Interest Period. If any
Euro-Rate Interest Period begins on a day of a calendar month for which there is
no numerically corresponding day in the month in which such Interest Period is
to end, the final month of such Interest Period shall be deemed to end on the
last Business Day of such final month.
Multiemployer Plan shall mean any employee benefit plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any member of the ERISA Group is then making or accruing
an obligation to make contributions or, within the preceding five Plan years,
has made or had an obligation to make such contributions.
Multiple Employer Plan shall mean a Plan which has two or more
contributing sponsors (including the Borrower or any member of the ERISA Group)
at least two of whom are not under common control, as such a plan is described
in Sections 4063 and 4064 of ERISA.
Notes shall mean the Revolving Credit Notes.
Notices shall have the meaning assigned to that term in Section 10.6.
Obligation shall mean any obligation or liability of any of the
Borrower to the Agent or any of the Banks, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, now or hereafter
existing, or due or to become due, under or in connection with this Agreement,
the Notes, the Letters of Credit, the Agent's Letter or any other Loan Document.
Official Body shall mean any national, federal, state, local or other
government or political subdivision or any agency, authority, bureau, central
bank, commission, department or instrumentality of either, or any court or
tribunal in each case whether foreign or domestic, with jurisdiction to act with
the force of law with respect to pertinent matters.
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Partnership Interests shall have the meaning given to such term in
Section 5.1.3.
PBGC shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA or any successor.
Permitted Investments shall mean:
(i) direct obligations of the United States of America or any agency or
instrumentality thereof or obligations backed by the full faith and credit of
the United States of America maturing in twelve (12) months or less from the
date of acquisition;
(ii) commercial paper maturing in 180 days or less rated not lower than
A-1, by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc.
on the date of acquisition;
(iii) demand deposits, time deposits, money market account deposits or
certificates of deposit maturing within one year in commercial banks whose
obligations are rated A-1, A or the equivalent or better by Standard & Poor's
Corporation on the date of acquisition;
(iv) shares of money market mutual funds that invest substantially all
of their assets in the investments described in clauses (i) through (iii) above;
and
(v) investments in Subsidiaries permitted under this Agreement.
Permitted Liens shall mean:
(i) Liens for taxes, assessments, or similar charges, incurred in the
ordinary course of business and which are not yet due and payable;
(ii) Pledges or deposits made in the ordinary course of business to
secure payment of worker's compensation, or to participate in any fund in
connection with worker's compensation, unemployment insurance, old-age pensions
or other social security programs;
(iii) Liens of mechanics, materialmen, warehousemen, carriers, or other
like Liens, securing obligations incurred in the ordinary course of business
that are not yet due and payable and Liens of landlords securing obligations to
pay lease payments that are not yet due and payable or in default;
(iv) Good-faith pledges or deposits made in the ordinary course of
business to secure performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, not in excess of the aggregate amount
due thereunder, or to secure statutory obligations, or surety, appeal,
indemnity, performance or other similar bonds required in the
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ordinary course of business;
(v) Encumbrances consisting of zoning restrictions, easements or other
restrictions on the use of real property, none of which materially impairs the
use of such property or the value thereof, and none of which is violated in any
material respect by existing or proposed structures or land use;
(vi) Liens, security interests and mortgages in favor of the Agent for
the benefit of the Banks;
(vii) Liens on property leased by the Borrower or Subsidiary of the
Borrower under capital and operating leases permitted in Section 0 securing
obligations of the Borrower or Subsidiary to the lessor under such leases;
(viii) Any Lien existing on the date of this Agreement and described on
Schedule 1.1(P), provided that the principal amount secured thereby is not
hereafter increased, and no additional assets become subject to such Lien;
(ix) Purchase Money Security Interests, provided that the aggregate
amount of loans and deferred payments secured by such Purchase Money Security
Interests shall not exceed $5,000,000 (excluding for the purpose of this
computation any loans or deferred payments secured by Liens described on
Schedule 1.1(P)); and
(x) The following, (A) if the validity or amount thereof is being
contested in good-faith by appropriate and lawful proceedings diligently
conducted so long as levy and execution thereon have been stayed and continue to
be stayed or (B) if a final judgment is entered and such judgment is discharged
within sixty (60) days of entry, and in either case they do not affect the
Collateral or, in the aggregate, materially impair the ability of the Borrower
to perform its Obligations hereunder or under the other Loan Documents:
(1) Claims or Liens for taxes, assessments or charges due
and payable and subject to interest or penalty, provided that the
Borrower maintains such reserves or other appropriate provisions as
shall be required by GAAP and pays all such taxes, assessments or
charges forthwith upon the commencement of proceedings to foreclose
any such Lien;
(2) Claims, Liens or encumbrances upon, and defects of title
to, real or personal property other than the Collateral, including any
attachment of personal or real property or other legal process prior to
adjudication of a dispute on the merits; or
(3) Claims or Liens of mechanics, materialmen, warehousemen,
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carriers, or other statutory nonconsensual Liens.
(4) Liens resulting from final judgments or orders described
in Section 0.
Person shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, government or political subdivision or agency thereof, or any other
entity.
Plan shall mean at any time an employee pension benefit plan (including
a Multiple Employer Plan, but not a Multiemployer Plan) which is covered by
Title IV of ERISA or is subject to the minimum funding standards under Section
412 of the Internal Revenue Code and either (i) is maintained by any member of
the ERISA Group for employees of any member of the ERISA Group or (ii) has at
any time within the preceding five years been maintained by any entity which was
at such time a member of the ERISA Group for employees of any entity which was
at such time a member of the ERISA Group.
PIK Subordinated Indebtedness shall mean Indebtedness which by its
terms is subordinated to the Obligations of the Borrower to the Banks and on
which interest is payable, at the option of the payor, in cash or by the
issuance of additional Indebtedness that is likewise subordinated.
PNC Bank shall mean PNC Bank, National Association, its successors and
assigns.
Potential Default shall mean any event or condition which with notice,
passage of time or a determination by the Agent or the Required Banks, or any
combination of the foregoing, would constitute an Event of Default.
Pricing Grid means the chart attached hereto as Exhibit 1.1(P) which
sets forth the rates at which Commitment Fees, Letter Credit Fees and interest
rate margins are calculated on the basis of the Total Indebtedness to EBITDA
Ratio.
Principal Office shall mean the main banking office of the Agent in
Pittsburgh, Pennsylvania.
Prohibited Transaction shall mean any prohibited transaction as defined
in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which
neither an individual nor a class exemption has been issued by the United States
Department of Labor.
Property shall mean all real property, both owned and leased, of the
Borrower.
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Purchase Money Security Interest shall mean Liens upon tangible
personal property securing loans to Borrower or any Subsidiary or deferred
payments by Borrower or such Subsidiary for the purchase of such tangible
personal property.
Purchasing Bank shall mean a Bank which becomes a party to this
Agreement by executing an Assignment and Assumption Agreement.
Ratable Share shall mean the proportion that a Bank's Commitment bears
to the Commitments of all of the Banks.
Regulated Substances shall mean any substance, including any solid,
liquid, semisolid, gaseous, thermal, thoriated or radioactive material, refuse,
garbage, wastes, chemicals, petroleum products, by-products, coproducts,
impurities, dust, scrap, heavy metals, any substance defined as a "hazardous
substance," "pollutant," "pollution," "contaminant," "hazardous or toxic
substance," "extremely hazardous substance," "toxic chemical," "toxic waste,"
"hazardous waste," "industrial waste," "residual waste," "solid waste,"
"municipal waste," "mixed waste," "infectious waste," "chemotherapeutic waste,"
"medical waste," "regulated substance" or any related materials, substances or
wastes as now or hereafter defined pursuant to any Environmental Laws,
ordinances, rules, regulations or other directives of any Official Body, the
generation, manufacture, extraction, processing, distribution, treatment,
storage, disposal, transport, recycling, reclamation, use, reuse, spilling,
leaking, dumping, injection, pumping, leaching, emptying, discharge, escape,
release or other management or mismanagement of which is regulated by the
Environmental Laws.
Regulation U shall mean Regulation U, T, G or X as promulgated by the
Board of Governors of the Federal Reserve System, as amended from time to time.
Reimbursement Obligation shall have the meaning assigned to such term
in Section 2.8.4(i).
Reportable Event means a reportable event described in Section 4043 of
ERISA and regulations thereunder with respect to a Plan or Multiemployer Plan.
Required Banks shall mean (i) if there are no Loans outstanding, Banks
whose Commitments aggregate at least 71% of the Commitments of all of the Banks,
or (ii) if there are Loans outstanding, Banks whose Loans outstanding aggregate
at least 71% of the total principal amount of the Loans outstanding hereunder.
Revolving Credit Base Rate Option shall mean the option of the Borrower
to have Revolving Credit Loans bear interest at the rate and under the terms and
conditions set forth in Section 0.
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Revolving Credit Commitment shall mean, as to any Bank at any time, the
amount initially set forth opposite its name on Schedule 1.1(B) in the column
labeled "Amount of Commitment for Revolving Credit Loans," and thereafter on
Schedule I to the most recent Assignment and Assumption Agreement, and Revolving
Credit Commitments shall mean the aggregate Revolving Credit Commitments of all
of the Banks.
Revolving Credit Euro-Rate Option shall mean the option of the Borrower
to have Revolving Credit Loans bear interest at the rate and under the terms and
conditions set forth in Section 0.
Revolving Credit Loans shall mean collectively and Revolving Credit
Loan shall mean separately all Revolving Credit Loans or any Revolving Credit
Loan made by the Banks or one of the Banks to the Borrower pursuant to Section 0
or 2.8.4(i) hereof.
Revolving Credit Notes shall mean collectively and Revolving Credit
Note shall mean separately all the Revolving Credit Notes of the Borrower in the
form of Exhibit 1.1(R) evidencing the Revolving Credit Loans together with all
amendments, extensions, renewals, replacements, refinancings or refundings
thereof in whole or in part.
Revolving Facility Usage shall mean at any time the sum of the
Revolving Credit Loans outstanding and the Letters of Credit Outstanding.
Shares shall have the meaning assigned to that term in Section 5.1.2.
Subsidiary of any Person at any time shall mean (i) any corporation or
trust of which 50% or more (by number of shares or number of votes) of the
outstanding capital stock or shares of beneficial interest normally entitled to
vote for the election of one or more directors or trustees (regardless of any
contingency which does or may suspend or dilute the voting rights) is at such
time owned directly or indirectly by such Person or one or more of such Person's
Subsidiaries, or any partnership of which such Person is a general partner or of
which 50% or more of the partnership interests is at the time directly or
indirectly owned by such Person or one or more of such Person's Subsidiaries, or
(ii) any corporation, trust, partnership or other entity which is controlled or
capable of being controlled by such Person or one or more of such Person's
Subsidiaries.
Subsidiary Shares shall have the meaning assigned to that term in
Section 5.1.3.
Total Indebtedness to EBITDA Ratio shall mean the ratio of Consolidated
Total Indebtedness to Consolidated EBITDA.
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Transferor Bank shall mean the selling Bank pursuant to an Assignment
and Assumption Agreement.
1.2 Construction.
Unless the context of this Agreement otherwise clearly requires, the
following rules of construction shall apply to this Agreement and each of the
other Loan Documents:
1.2.1 Number; Inclusion.
references to the plural include the singular, the plural,
the part and the whole; "or" has the inclusive meaning represented by the phrase
"and/or," and "including" has the meaning represented by the phrase "including
without limitation";
1.2.2 Determination.
references to "determination" of or by the Agent or the
Banks shall be deemed to include good-faith estimates by the Agent or the Banks
(in the case of quantitative determinations) and good-faith beliefs by the Agent
or the Banks (in the case of qualitative determinations) and such determination
shall be conclusive absent manifest error;
1.2.3 Agent's Discretion and Consent.
whenever the Agent or the Banks are granted the right herein
to act in its or their sole discretion or to grant or withhold consent such
right shall be exercised in good-faith;
1.2.4 Documents Taken as a Whole.
the words "hereof," "herein," "hereunder," "hereto" and
similar terms in this Agreement or any other Loan Document refer to this
Agreement or such other Loan Document as a whole and not to any particular
provision of this Agreement or such other Loan Document;
1.2.5 Headings.
the section and other headings contained in this Agreement
or such other Loan Document and the Table of Contents (if any), preceding this
Agreement or such other Loan Document are for reference purposes only and shall
not control or affect the construction of this Agreement or such other Loan
Document or the interpretation thereof in any respect;
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1.2.6 Implied References to this Agreement.
article, section, subsection, clause, schedule and exhibit
references are to this Agreement or other Loan Document, as the case may be,
unless otherwise specified;
1.2.7 Persons.
reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement or other Loan Document, as the case may be, and
reference to a Person in a particular capacity excludes such Person in any other
capacity;
1.2.8 Modifications to Documents.
reference to any agreement (including this Agreement and any
other Loan Document together with the schedules and exhibits hereto or thereto),
document or instrument means such agreement, document or instrument as amended,
modified, replaced, substituted for, superseded or restated;
1.2.9 From, To and Through.
relative to the determination of any period of time, "from"
means "from and including," "to" means "to but excluding," and "through" means
"through and including"; and
1.2.10 Shall; Will.
references to "shall" and "will" are intended to have the
same meaning.
1.3 Accounting Principles.
Except as otherwise provided in this Agreement, all computations and
determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the meanings
ascribed to such terms by GAAP.
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2. REVOLVING CREDIT FACILITY
2.1 Revolving Credit Commitments.
Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, each Bank severally agrees to
make Revolving Credit Loans to the Borrower at any time or from time to time on
or after the date hereof to the Expiration Date provided that after giving
effect to such Loan the aggregate amount of Loans from such Bank shall not
exceed such Bank's Revolving Credit Commitment minus such Bank's Ratable Share
of the Letters of Credit Outstanding. Within such limits of time and amount and
subject to the other provisions of this Agreement, the Borrower may borrow,
repay and reborrow pursuant to this Section 2.1.
2.2 Nature of Banks' Obligations with Respect to Revolving
Credit Loans.
Each Bank shall be obligated to participate in each request for
Revolving Credit Loans pursuant to Section 2.4 in accordance with its Ratable
Share. The aggregate of each Bank's Revolving Credit Loans outstanding hereunder
to the Borrower at any time shall never exceed its Revolving Credit Commitment
minus its Ratable Share of the Letter of Credit Outstandings. The obligations of
each Bank hereunder are several. The failure of any Bank to perform its
obligations hereunder shall not affect the Obligations of the Borrower to any
other party nor the several obligations of the other Banks to the Borrower; nor
shall any other party be liable for the failure of such Bank to perform its
obligations hereunder. The Banks shall have no obligation to make Revolving
Credit Loans hereunder on or after the Expiration Date.
2.3 Commitment Fees.
Accruing from the date hereof until the Expiration Date, the Borrower
agrees to pay to the Agent for the account of each Bank, as consideration for
such Bank's Revolving Credit Commitment hereunder, a nonrefundable commitment
fee (the "Commitment Fee"), calculated on a per annum (365 or 366 days, as
appropriate, and actual days elapsed) basis under the Pricing Grid, on the
average daily difference between the amount of (i) such Bank's Revolving Credit
Commitment as the same may be constituted from time to time and (ii) the
principal amount of such Bank's Ratable Share of Revolving Facility Usage. All
Commitment Fees shall be payable in arrears on the first Business Day of each
calendar quarter after the date hereof and on the Expiration Date or upon
acceleration of the Notes.
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2.4 Revolving Credit Loan Requests.
Except as otherwise provided herein, the Borrower may from time to time
prior to the Expiration Date request the Banks to make Revolving Credit Loans,
or renew or convert the Interest Rate Option applicable to existing Revolving
Credit Loans pursuant to Section 3.2, by delivering to the Agent, not later than
(i) 2:00 p.m., Eastern time, three (3) Business Days prior to the proposed
Borrowing Date with respect to the making of Revolving Credit Loans to which the
Euro-Rate Option applies or the conversion to or the renewal of the Euro-Rate
Option for any Revolving Credit Loans; and (ii) 1:00 p.m., Eastern time on
either the proposed Borrowing Date with respect to the making of a Revolving
Credit Loan to which the Base Rate Option applies or the last day of the
preceding Interest Period with respect to the conversion to the Base Rate Option
for any Revolving Credit Loan, of a duly completed request therefor
substantially in the form of Exhibit 2.4 or a request by telephone immediately
confirmed in writing by letter, facsimile or telex in such form (each, a "Loan
Request"), it being understood that the Agent may rely on the authority of any
individual making such a telephonic request without the necessity of receipt of
such written confirmation. Each Revolving Credit Loan Request shall be
irrevocable and shall specify (i) the proposed Borrowing Date; (ii) the
aggregate amount of the proposed Revolving Credit Loans comprising each
Borrowing Tranche, which shall be in integral multiples of $500,000 and not less
than $1,000,000 for each Borrowing Tranche to which the Euro-Rate Option applies
and not less than the lesser of $200,000 or the maximum amount available for
Borrowing Tranches to which the Base Rate Option applies; (iii) whether the
Euro-Rate Option or Base Rate Option shall apply to the proposed Revolving
Credit Loans comprising the Borrowing Tranche; and (iv) in the case of a
Borrowing Tranche to which the Euro-Rate Option applies, an appropriate Interest
Period for the proposed Revolving Credit Loans comprising such Borrowing
Tranche.
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2.5 Making Revolving Credit Loans.
The Agent shall, promptly after receipt by it of a Loan Request
pursuant to Section 2.4, notify the Banks of its receipt of such Loan Request
specifying: (i) the proposed Borrowing Date and the time and method of
disbursement of such Revolving Credit Loans; (ii) the amount and type of each
such Revolving Credit Loan and the applicable Interest Period (if any); and
(iii) the apportionment among the Banks of the Revolving Credit Loans as
determined by the Agent in accordance with Section 0. Each Bank shall remit the
principal amount of each Revolving Credit Loan to the Agent such that the Agent
is able to, and the Agent shall, to the extent the Banks have made funds
available to it for such purpose, fund such Revolving Credit Loans to the
Borrower in U.S. Dollars and immediately available funds at the Principal Office
prior to 2:00 p.m., Eastern time, on the Borrowing Date, provided that if any
Bank fails to remit such funds to the Agent in a timely manner, the Agent may
elect in its sole discretion to fund with its own funds the Revolving Credit
Loans of such Bank on the Borrowing Date, and such Bank shall be subject to the
repayment obligation in Section 0.
2.6 Revolving Credit Notes.
The Obligation of the Borrower to repay the aggregate unpaid principal
amount of the Revolving Credit Loans made by each Bank, together with interest
thereon, is and shall continue to be evidenced by a replacement Revolving Credit
Note dated October 23, 1997 payable to the order of such Bank in a face amount
equal to the Revolving Credit Commitment of such Bank.
2.7 Use of Proceeds.
The proceeds of the Revolving Credit Loans shall be used for the
purpose of refinancing existing indebtedness and for general corporate purposes,
including acquisitions permitted hereunder.
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2.8 Letter of Credit Subfacility.
2.8.1 Issuance of Letters of Credit.
Borrower may request the issuance of a letter of credit
(each a "Letter of Credit") by delivering to the Agent a completed application
and agreement for letters of credit in such form as the Agent may specify from
time to time by no later than 10:00 a.m., Eastern time, at least five (5)
Business Days, or such shorter period as may be agreed to by the Agent, in
advance of the proposed date of issuance. Subject to the terms and conditions
hereof and in reliance on the agreements of the other Banks set forth in this
Section 0, the Agent will issue a Letter of Credit provided that each Letter of
Credit shall (A) have a maximum maturity of twelve (12) months from the date of
issuance, and (B) in no event expire later than one Business Day prior to the
Expiration Date and providing that in no event shall (i) the Letters of Credit
Outstanding exceed, at any one time, $5,000,000 or (ii) the Revolving Facility
Usage exceed, at any one time, the Revolving Credit Commitments.
2.8.2 Participations.
Immediately upon issuance of each Letter of Credit, and
without further action, each Bank shall be deemed to, and hereby agrees that it
shall, have irrevocably purchased for such Bank's own account and risk from the
Agent an individual participation interest in such Letter of Credit and drawings
thereunder in an amount equal to such Bank's Ratable Share of the maximum amount
which is or at any time may become available to be drawn thereunder, and each
such Bank shall be responsible to reimburse the Agent immediately for its
Ratable Share of any disbursement under any Letter of Credit which has not been
reimbursed by Borrower in accordance with Section 2.8.4(i).
2.8.3 Letter of Credit Fees.
The Borrower shall pay (i) to the Agent for the ratable
account of the Banks a fee (the "Letter of Credit Fee") calculated on a per
annum (365 or 366 days, as appropriate, and actual days elapsed) basis under the
Pricing Grid, and (ii) to the Agent for its own account a fronting fee equal to
1/8% per annum, which fees shall be computed on the daily average Letters of
Credit Outstanding and shall be payable quarterly in arrears commencing with the
first Business Day of each calendar quarter following issuance of each Letter of
Credit and on the Expiration Date. The Borrower shall also pay to the Agent for
the Agent's sole account the Agent's then in effect customary fees and
administrative expenses payable with respect to the Letters of Credit as the
Agent may generally charge or incur from time to time in connection with the
issuance, maintenance, modification (if any), assignment or transfer (if any),
negotiation, and administration of Letters of Credit.
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2.8.4 Disbursements, Reimbursement.
(i) Borrower shall be obligated immediately to
reimburse Agent for all amounts which Agent is required to advance pursuant to
the Letters of Credit (the "Reimbursement Obligation"). Such amounts advanced
shall become, at the time they are advanced, Revolving Credit Loans from the
Banks, unless Borrower discharges its Reimbursement Obligation before such
amounts are advanced. Such Revolving Credit Loans shall bear interest at the
rate applicable under the Base Rate Option unless the Borrower elects to have a
different Interest Rate Option apply to such Revolving Credit Loans pursuant to
and in accordance with the provisions contained in Section 0.
(ii) The Agent will notify the (A) Borrower of
each demand or presentment for payment or other drawing under each Letter of
Credit, and (B) Banks of the amount required to be advanced pursuant to the
Letters of Credit. Before 10:00 a.m., Eastern time, on the date of any advance
the Agent is required to make pursuant to the Letters of Credit, each Bank shall
make available such Bank's Ratable Share of such advance in immediately
available funds to the Agent.
2.8.5 Documentation.
The Borrower agrees to be bound by the terms of the Agent's
application and agreement for Letters of Credit and the Agent's written
regulations and customary practices relating to Letters of Credit, though such
interpretation may be different from the Borrower's own. In the event of a
conflict between such application or agreement and this Agreement, this
Agreement shall govern. It is understood and agreed that, except in the case of
gross negligence or willful misconduct, the Agent shall not be liable for any
error, negligence and/or mistakes, whether of omission or commission, in
following the Borrower's instructions or those contained in the Letters of
Credit or any modifications, amendments or supplements thereto.
2.8.6 Determinations to Honor Drawing Requests.
In determining whether to honor any request for drawing
under any Letter of Credit by the beneficiary thereof, the Agent shall be
responsible only to determine that the documents and certificates required to be
delivered under such Letter of Credit have been delivered and that they comply
on their face with the requirements of such Letter of Credit.
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2.8.7 Nature of Participation and Reimbursement
Obligations.
The obligation of the Banks to participate in Letters of Credit
pursuant to Section 0 and the obligation of the Banks pursuant to Section 0 to
fund Revolving Credit Loans upon a draw under a Letter of Credit and the
Obligations of the Borrower to reimburse the Agent upon a draw under a Letter of
Credit pursuant to Section 0 shall be absolute, unconditional and irrevocable,
and shall be performed strictly in accordance with the terms of such sections
under all circumstances, including the following circumstances:
(i) the failure of the Borrower or any other
Person to comply with the conditions set forth in Sections 2.1, 2.4, 0 or Error!
Reference source not found, or as otherwise set forth in this Agreement for the
making of a Revolving Credit Loan, it being acknowledged that such conditions
are not required for the making of a Revolving Credit Loan under Section 2.8.4;
(ii) any lack of validity or enforceability of
any Letter of Credit;
(iii) the existence of any claim, set-off,
defense or other right which the Borrower or any Bank may have at any time
against a beneficiary or any transferee of any Letter of Credit (or any Persons
for whom any such transferee may be acting), the Agent or other bank or any
other Person or, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying
transaction between the Borrower or its Subsidiaries and the beneficiary for
which any Letter of Credit was procured);
(iv) any draft, demand, certificate or other
document presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(v) payment by the Agent under any Letter of
Credit against presentation of a demand, draft or certificate or other document
which does not comply with the terms of such Letter of Credit;
(vi) any adverse change in the business,
operations, properties, assets, condition (financial or otherwise) or prospects
of the Borrower or its Subsidiaries;
(vii) any breach of this Agreement or any
other Loan Document by any party thereto;
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(viii) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing;
(ix) the fact that an Event of Default or a
Potential Default shall have occurred and be continuing; or
(x) the Expiration Date shall have passed or
this Agreement or the Commitments hereunder shall have been terminated;
provided that none of the Banks nor the Borrower shall be precluded from
bringing any separate action based on any circumstances described in clauses
(ii) or (v) above.
2.8.8 Indemnity.
In addition to amounts payable as provided in Section 0, the
Borrower hereby agrees to protect, indemnify, pay and save harmless the Agent
from and against any and all claims, demands, liabilities, damages, losses,
costs, charges and expenses (including reasonable and actual fees, expenses and
disbursements of counsel) which the Agent may incur or be subject to as a
consequence, direct or indirect, of (i) the issuance of any Letter of Credit,
other than as a result of (A) the gross negligence or willful misconduct of the
Agent as determined by a final judgment of a court of competent jurisdiction,
(B) the payment by the Agent under any Letter of Credit against presentation of
a demand, draft or certificate or other document which does not substantially
comply with the terms of such Letter of Credit, or (C) subject to the following
clause (ii), the wrongful dishonor by the Agent of a proper demand for payment
made under any Letter of Credit; or (ii) the failure of the Agent to honor a
drawing under any such Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
government or governmental authority (all such acts or omissions herein called
"Governmental Acts").
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2.8.9 Liability for Acts and Omissions.
As between the Borrower and the Agent, the Borrower assumes
all risks of the acts and omissions of, or misuse of the Letters of Credit by,
the respective beneficiaries of such Letters of Credit. In furtherance and not
in limitation of the foregoing, the Agent shall not be responsible for: (i) the
form, validity, sufficiency, accuracy, genuineness or legal effect of any
document submitted by any party in connection with the application for an
issuance of any such Letter of Credit, even if it should in fact prove to be in
any or all respects invalid, insufficient, inaccurate, fraudulent or forged;
(ii) the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) failure of the beneficiary of
any such Letter of Credit to comply fully with any conditions required in order
to draw upon such Letter of Credit (provided the beneficiary shall have
substantially complied with such conditions); (iv) errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they be in cipher; (v)
errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; or (viii) any consequences arising
from causes beyond the control of the Agent, including any Governmental Acts,
and none of the above shall affect or impair, or prevent the vesting of, any of
the Agent's rights or powers hereunder.
In furtherance and extension and not in limitation of the
specific provisions set forth above, any action taken or omitted by the Agent
under or in connection with the Letters of Credit issued by it or any documents
and certificates delivered thereunder, if taken or omitted in good-faith, shall
not put the Agent under any resulting liability to the Borrower.
2.9 Extension by Banks of the Expiration Date.
Upon or promptly after delivery by the Borrower of the annual financial
statements to be provided under Section 0 for the fiscal year ending March 31,
1998 or any subsequent fiscal year, the Borrower may request a one-year
extension of the Expiration Date by written notice to the Banks, and the Banks
agree to respond to the Borrower's request for an extension within sixty (60)
days following receipt of the request; provided, however, that all the Banks
must consent to any extension of the Expiration Date and the failure of the
Banks to respond within such time period shall not in any manner constitute an
extension of the Expiration Date.
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3. INTEREST RATES
3.1 Interest Rate Options.
The Borrower shall pay interest in respect of the outstanding unpaid
principal amount of the Loans as selected by it from the Base Rate Option or
Euro-Rate Option set forth below applicable to the Loans, it being understood
that, subject to the provisions of this Agreement, the Borrower may select
different Interest Rate Options and different Interest Periods to apply
simultaneously to the Loans comprising different Borrowing Tranches and may
convert to or renew one or more Interest Rate Options with respect to all or any
portion of the Loans comprising any Borrowing Tranche, provided that there shall
not be at any one time outstanding more than five (5) Borrowing Tranches in the
aggregate among all of the Loans. If at any time the designated rate applicable
to any Loan made by any Bank exceeds such Bank's highest lawful rate, the rate
of interest on such Bank's Loan shall be limited to such Bank's highest lawful
rate.
3.1.1 Revolving Credit Interest Rate Options.
The Borrower shall have the right to select from the
following Interest Rate Options applicable to the Revolving Credit Loans:
(i) Revolving Credit Base Rate Option: A
fluctuating rate per annum (computed on the basis of a year of 365 or 366 days,
as the case may be, and actual days elapsed) equal to the Base Rate plus the
applicable number of basis points calculated under the Pricing Grid, such
interest rate to change automatically from time to time effective as of the
effective date of each change in the Base Rate; or
(ii) Revolving Credit Euro-Rate Option: A rate
per annum (computed on the basis of a year of 360 days and actual days elapsed)
equal to the Euro-Rate plus the applicable number of basis points calculated
under the Pricing Grid.
3.1.2 Rate Quotations.
The Borrower may call the Agent on or before the date on
which a Loan Request is to be delivered to receive an indication of the rates
then in effect, but it is acknowledged that such projection shall not be binding
on the Agent or the Banks nor affect the rate of interest which thereafter is
actually in effect when the election is made.
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3.2 Interest Periods.
At any time when the Borrower shall select, convert to or renew a
Euro-Rate Option, the Borrower shall notify the Agent thereof at least three (3)
Business Days prior to the effective date of such Euro-Rate Option by delivering
a Loan Request. The notice shall specify an interest period (the "Interest
Period") during which such Interest Rate Option shall apply, such Interest
Period to be one, two, three or six Months in the event of a Euro-Rate Option,
provided, that:
3.2.1 Ending Date and Business Day.
any Interest Period which would otherwise end on a date
which is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day;
3.2.2 Amount of Borrowing Tranche. each Borrowing Tranche of
Euro-Rate Loans shall be in integral multiples of $500,000 and not less than
$1,000,000;
3.2.3 Termination Before Expiration Date. the Borrower shall
not select, convert to or renew an Interest Period for any portion of the Loans
that would end after the Expiration Date; and
3.2.4 Renewals.
in the case of the renewal of a Euro-Rate Option at the end
of an Interest Period, the first day of the new Interest Period shall be the
last day of the preceding Interest Period, without duplication in payment of
interest for such day.
3.3 Interest After Default.
To the extent permitted by Law, upon the occurrence of an Event of
Default and until such time such Event of Default shall have been cured or
waived:
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3.3.1 Letter of Credit Fees, Interest Rate.
the Letter of Credit Fees and the rate of interest for each
Loan otherwise applicable pursuant to the Pricing Grid shall be increased by
2.0% per annum; and
3.3.2 Other Obligations.
each other Obligation hereunder if not paid when due shall
bear interest at a rate per annum equal to the sum of the rate of interest
applicable under the Revolving Credit Base Rate Option plus an additional 2.0%
per annum from the time such Obligation becomes due and payable and until it is
paid in full.
3.3.3 Acknowledgment.
The Borrower acknowledges that such increased rates reflect,
among other things, the fact that such Loans or other amounts have become a
substantially greater risk given their default status and that the Banks are
entitled to additional compensation for such risk; and, all such interest shall
be payable by Borrower upon demand by Agent.
3.4 Euro-Rate Unascertainable.
3.4.1 Unascertainable.
If on any date on which a Euro-Rate would otherwise be
determined, the Agent shall have determined that:
(i) adequate and reasonable means do not exist
for ascertaining such Euro-Rate, or
(ii) a contingency has occurred which
materially and adversely affects the London interbank eurodollar market relating
to the Euro-Rate,
then the Agent shall have the rights specified in Section 0.
3.4.2 Illegality; Increased Costs; Deposits Not
Available.
If at any time any Bank shall have determined that:
(i) the making, maintenance or funding of any
Loan to which a Euro-Rate Option applies has been made impracticable or unlawful
by compliance by
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such Bank in good-faith with any Law or any interpretation or application
thereof by any Official Body or with any request or directive of any such
Official Body (whether or not having the force of Law), or
(ii) such Euro-Rate Option will not adequately
and fairly reflect the cost to such Bank of the establishment or maintenance of
any such Loan, or
(iii) after making all reasonable efforts,
deposits of the relevant amount in Dollars for the relevant Interest Period for
a Loan to which a Euro-Rate Option applies are not available to such Bank with
respect to such Loan in the London interbank market, then the Agent shall have
the rights specified in Section 3.4.3.
3.4.3 Agent's and Banks' Rights.
In the case of any event specified in subsection 3.4.1
above, the Agent shall promptly so notify the Banks and the Borrower thereof,
and in the case of an event specified in subsection 3.4.2 above, such Bank shall
promptly so notify the Agent and endorse a certificate to such notice as to the
specific circumstances of such notice, and the Agent shall promptly send copies
of such notice and certificate to the other Banks and the Borrower. Upon such
date as shall be specified in such notice (which shall not be earlier than the
date such notice is given), the obligation of (A) the Banks, in the case of such
notice given by the Agent, or (B) such Bank, in the case of such notice given by
such Bank, to allow the Borrower to select, convert to or renew a Euro-Rate
Option shall be suspended until the Agent shall have later notified the
Borrower, or such Bank shall have later notified the Agent, of the Agent's or
such Bank's, as the case may be, determination that the circumstances giving
rise to such previous determination no longer exist. If at any time the Agent
makes a determination under subsection 3.4.1 of this Section 3.4 and the
Borrower has previously notified the Agent of its selection of, conversion to or
renewal of a Euro-Rate Option and such Interest Rate Option has not yet gone
into effect, such notification shall be deemed to provide for selection of,
conversion to or renewal of the Base Rate Option otherwise available with
respect to such Loans. If any Bank notifies the Agent of a determination under
subsection 3.4.2 of this Section 3.4, the Borrower shall, subject to the
Borrower's indemnification Obligations under Section 4.6.2, as to any Loan of
the Bank to which a Euro-Rate Option applies, on the date specified in such
notice either convert such Loan to the Base Rate Option otherwise available with
respect to such Loan or prepay such Loan in accordance with Section 4.4. Absent
due notice from the Borrower of conversion or prepayment, such Loan shall
automatically be converted to the Base Rate Option otherwise available with
respect to such Loan upon such specified date.
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3.5 Selection of Interest Rate Options.
If the Borrower fails to select a new Interest Period to apply to any
Borrowing Tranche of Euro-Rate Loans at the expiration of an existing Interest
Period applicable to such Borrowing Tranche in accordance with the provisions of
Section 3.1, the Borrower shall be deemed to have converted such Borrowing
Tranche to the Revolving Credit Base Rate Option, as applicable, commencing upon
the last day of the existing Interest Period.
4. PAYMENTS
4.1 Payments.
All payments and prepayments to be made in respect of principal,
interest, Commitment Fees, Letter of Credit Fees, Agent's Fee or other fees or
amounts due from the Borrower hereunder shall be payable prior to 1:00 p.m.,
Eastern time, on the date when due without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived by the Borrower,
and without set-off, counterclaim or other deduction of any nature, and an
action therefor shall immediately accrue. Such payments shall be made to the
Agent at the Principal Office for the ratable accounts of the Banks with respect
to the Loans in U.S. Dollars and in immediately available funds, and the Agent
shall promptly distribute such amounts to the Banks in immediately available
funds, provided that in the event payments are received by 1:00 p.m., Eastern
time, by the Agent with respect to the Loans and such payments are not
distributed to the Banks on the same day received by the Agent, the Agent shall
pay the Banks the Federal Funds Effective Rate with respect to the amount of
such payments for each day held by the Agent and not distributed to the Banks.
The Agent's and each Bank's statement of account, ledger or other relevant
record shall, in the absence of manifest error, be conclusive as the statement
of the amount of principal of and interest on the Loans and other amounts owing
under this Agreement and shall be deemed an "account stated."
4.2 Pro Rata Treatment of Banks.
Each borrowing shall be allocated to each Bank according to its Ratable
Share, and each selection of, conversion to or renewal of any Interest Rate
Option and each payment or prepayment by the Borrower with respect to principal,
interest, Commitment Fees, Letter of Credit Fees, or other fees (except for the
Agent's Fee) or amounts due from the Borrower hereunder to the Banks with
respect to the Loans, shall (except as provided in Section 3.4.2 [Illegality;
Increased Costs; Deposits not Available] in the case of an event specified in
Section 3.4, 3.4.1 [Euro-Rate Unascertainable], 4.4 [Voluntary Prepayments] or
4.6.1 [Additional Compensation in Certain Circumstances]) be made in proportion
to the applicable
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Loans outstanding from each Bank and, if no such Loans are then outstanding, in
proportion to the Ratable Share of each Bank.
4.3 Interest Payment Dates.
Interest on Loans to which the Base Rate Option applies shall be due
and payable in arrears on the first Business Day of each calendar quarter after
the date hereof and on the date such Loans are repaid in full. Interest on Loans
to which the Euro-Rate Option applies shall be due and payable on the last day
of each Interest Period for those Loans and, if such Interest Period is longer
than three (3) months, also on the last day of every third month during such
Interest Period. Interest on mandatory prepayments of principal under Section
4.5 shall be due on the date such mandatory prepayment is due. Interest on the
principal amount of each Loan or other monetary Obligation shall be due and
payable on demand after such principal amount or other monetary Obligation
becomes due and payable (whether on the stated maturity date, upon acceleration
or otherwise).
4.4 Voluntary Prepayments and Commitment Reductions.
4.4.1 Right to Prepay.
The Borrower shall have the right at its option from time to
time to prepay the Loans in whole or part without premium or penalty (except as
provided in subsection 4.4.2 below or in Section 4.6):
(i) at any time with respect to any Loan to
which the Base Rate Option applies,
(ii) on the last day of the applicable
Interest Period with respect to Loans to which a Euro-Rate Option applies,
(iii) on the date specified in a notice by any
Bank pursuant to Section 3.4.2 [Illegality; Increased Costs; Deposits Not
Available] with respect to any Loan to which a Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the
Loans, it shall provide a prepayment notice to the Agent on or before the date
of prepayment of Loans setting forth the following information:
(x) the date, which shall be a Business Day,
on which the proposed prepayment is to be made;
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(y) a statement indicating the application of the
prepayment; and
(z) the total principal amount of such prepayment, which
shall not be less than $200,000 for the Revolving Credit Loans.
All prepayment notices shall be irrevocable. The principal
amount of the Loans for which a prepayment notice is given, together with
interest on such principal amount except with respect to Loans to which the Base
Rate Option applies, shall be due and payable on the date specified in such
prepayment notice as the date on which the proposed prepayment is to be made.
Except as provided in Section 3.3.3, if the Borrower prepays a Loan but fail to
specify the applicable Borrowing Tranche which the Borrower is prepaying, the
prepayment shall be applied first to Loans to which the Base Rate Option
applies, then to Loans to which the Euro-Rate Option applies. Any prepayment
hereunder shall be subject to the Borrower's Obligation to indemnify the Banks
under Section 4.6.2.
4.4.2 Replacement of a Bank.
In the event any Bank (i) gives notice under Section 3.4.2 or Section
4.6, (ii) does not fund Revolving Credit Loans because the making of such Loans
would contravene any Law applicable to such Bank, (iii) does not approve any
action as to which consent of the Required Banks is requested by the Borrower
and obtained hereunder, or (iv) becomes subject to the control of an Official
Body (other than normal and customary supervision), then the Borrower shall have
the right at its option, with the consent of the Agent, which shall not be
unreasonably withheld, to prepay the Loans of such Bank in whole, together with
all interest accrued thereon, and terminate such Bank's Commitment within ninety
(90) days after (w) receipt of such Bank's notice under Section 3.4.2 or 4.6.1,
(x) the date such Bank has failed to fund Revolving Credit Loans because the
making of such Loans would contravene Law applicable to such Bank, (y) the date
of obtaining the consent which such Bank has not approved, or (z) the date such
Bank became subject to the control of an Official Body, as applicable; provided
that the Borrower shall also pay to such Bank at the time of such prepayment any
amounts required under Section 4.6 and any accrued interest due on such amount
and any related fees; provided, however, that the Commitment of such Bank shall
be provided by one or more of the remaining Banks or a replacement bank
acceptable to the Agent; provided, further, the remaining Banks shall have no
obligation hereunder to increase their Commitments. Notwithstanding the
foregoing, the Agent may only be replaced subject to the requirements of Section
9.14 and provided that all Letters of Credit have expired, been terminated or
replaced or cash collateral or backup letters of credit shall have been
deposited.
4.4.3 Right to Reduce Commitments.
The Borrower shall have the right at its option from time to
time to reduce
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permanently the Revolving Credit Commitments upon at least one
Business Day's advance notice to the Agent. Each such permanent reduction shall
be in the minimum amount of $1,000,000 and shall reduce the Revolving Credit
Commitment of each Bank in proportion to its Ratable Share. Upon the effective
date of each permanent reduction in the Revolving Credit Commitments, the
Borrower shall also prepay, with interest and with any additional compensation
required under Section 4.6.2, the amount (if any) by which the Revolving
Facility Usage at the time of the reduction exceeds the amount of the Revolving
Commitments as reduced.
4.5 Mandatory Prepayments and Commitment Reductions.
4.5.1 [RESERVED]
4.5.2 Permanent Reduction of Commitments.
All prepayments required pursuant to this Section 4.5. shall
be applied to the permanent reduction of the Revolving Credit Commitments.
4.5.3 Application among Interest Rate Options.
All prepayments required pursuant to this Section 4.5 shall
first be applied among the Interest Rate Options to the principal amount of the
Loans subject to a Base Rate Option, then to Loans subject to the Euro-Rate
Option. In accordance with Section 4.6.2, the Borrower shall indemnify the Banks
for any loss or expense, including loss of margin, actually incurred with
respect to any such prepayments applied against Loans subject to a Euro-Rate
Option on any day other than the last day of the applicable Interest Period.
4.6 Additional Compensation in Certain Circumstances.
4.6.1 Increased Costs or Reduced Return Resulting From
Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc.
If any Law, guideline or interpretation or any change in any
Law, guideline or interpretation or application thereof by any Official Body
charged with the interpretation or administration thereof or compliance with any
request or directive (whether or not having the force of Law) of any central
bank or other Official Body:
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(i) subjects any Bank to any tax or changes
the basis of taxation with respect to this Agreement, the Notes, the Loans or
payments by the Borrower of principal, interest, Commitment Fees, or other
amounts due from the Borrower hereunder or under the Notes (except for taxes on
the overall net income of such Bank),
(ii) imposes, modifies or deems applicable any
reserve, special deposit or similar requirement against credits or commitments
to extend credit extended by, or assets (funded or contingent) of, deposits with
or for the account of, or other acquisitions of funds by, any Bank, or
(iii) imposes, modifies or deems applicable
any capital adequacy or similar requirement (A) against assets (funded or
contingent) of, or letters of credit, other credits or commitments to extend
credit extended by, any Bank, or (B) otherwise applicable to the obligations of
any Bank under this Agreement,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Bank with respect to this Agreement, the Notes or the making, maintenance or
funding of any part of the Loans (or, in the case of any capital adequacy or
similar requirement, to have the effect of reducing the rate of return on any
Bank's capital, taking into consideration such Bank's customary policies with
respect to capital adequacy) by an amount which such Bank in its sole discretion
deems to be material, such Bank shall from time to time notify the Borrower and
the Agent of the amount determined in good-faith (using any averaging and
attribution methods employed in good-faith) by such Bank to be necessary to
compensate such Bank for such increase in cost, reduction of income or
additional expense (to the extent not reflected in the determination of Base
Rate). Such notice shall set forth in reasonable detail the basis for such
determination. Such amount shall be due and payable by the Borrower to such Bank
ten (10) Business Days after such notice is given.
4.6.2 Indemnity.
In addition to the compensation required by subsection 4.6.1
of this Section 4.6, the Borrower shall indemnify each Bank against all
liabilities, losses or expenses (including loss of margin, any loss or expense
incurred in liquidating or employing deposits from third parties and any loss or
expense incurred in connection with funds acquired by a Bank to fund or maintain
Loans subject to the Euro-Rate Option) which such Bank actually sustains or
incurs as a consequence of any
(i) payment, prepayment, conversion or renewal
of any Loan to which the Euro-Rate Option applies on a day other than the last
day of the
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corresponding Interest Period (whether or not such payment or prepayment is
mandatory, voluntary or automatic and whether or not such payment or prepayment
is then due),
(ii) attempt by the Borrower to revoke
(expressly, by later inconsistent notices or otherwise) in whole or part any
notice relating to Loan Requests under Section 2.4 or Section 3.2 or prepayments
under Section 4.4, or
(iii) default by the Borrower in the
performance or observance of any covenant or condition contained in this
Agreement or any other Loan Document, including any failure of the Borrower to
pay when due (by acceleration or otherwise) any principal, interest, Commitment
Fee or any other amount due hereunder.
If any Bank actually sustains or incurs any such loss or
expense, it shall from time to time notify the Borrower of the amount determined
in good-faith by such Bank (which determination may include such assumptions,
allocations of costs and expenses and averaging or attribution methods as such
Bank shall deem reasonable) to be necessary to indemnify such Bank for such loss
or expense. Such notice shall set forth in reasonable detail the basis for such
determination. Such amount shall be due and payable by the Borrower to such Bank
ten (10) Business Days after such notice is given.
5. REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties.
The Borrower represents and warrants to the Agent and each of the Banks
as follows:
5.1.1 Organization and Qualification.
The Borrower and each Subsidiary of the Borrower is a
corporation or partnership, duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. The Borrower and
each Subsidiary of the Borrower has the lawful power to own or lease its
properties and to engage in the business it presently conducts or proposes to
conduct. The Borrower and each Subsidiary of the Borrower is duly licensed or
qualified and in good standing in each jurisdiction listed on Schedule 5.1.1 and
in all other jurisdictions where the property owned or leased by it or the
nature of the business transacted by it or both makes such licensing or
qualification necessary.
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5.1.2 Capitalization and Ownership.
Schedule 5.1.2 states, as of the Closing Date, the
authorized capital stock of the Borrower, the issued and outstanding shares
(referred to herein as the "Shares") of such stock, and the names of any parties
beneficially owning, individually or through affiliates, more than 5% thereof.
All of the Shares have been validly issued and are fully paid and nonassessable.
There are no options, warrants or other rights outstanding to purchase any such
Shares except as indicated on Schedule 5.1.2.
5.1.3 Subsidiaries.
Schedule 5.1.3 states, as of the Closing Date, the name of
each of the Borrower's Subsidiaries, its jurisdiction of incorporation, its
authorized capital stock, the issued and outstanding shares (referred to herein
as the "Subsidiary Shares") and the owners thereof if it is a corporation and
its outstanding partnership interests (the "Partnership Interest") if it is a
partnership. The Borrower and each Subsidiary of the Borrower has good and
marketable title to all of the Subsidiary Shares and Partnership Interests it
purports to own, free and clear in each case of any Lien. All Subsidiary Shares
and Partnership Interests have been validly issued, and all Subsidiary Shares
are fully paid and nonassessable. All capital contributions and other
consideration required to be made or paid in connection with the issuance of the
Partnership Interests have been made or paid, as the case may be. There are no
options, warrants or other rights outstanding to purchase any such Subsidiary
Shares or Partnership Interests except as indicated on Schedule 5.1.3.
5.1.4 Power and Authority.
The Borrower and each of its Subsidiaries has full power to
enter into, execute, deliver and carry out this Agreement and the other Loan
Documents to which it is a party, to incur the Indebtedness contemplated by the
Loan Documents and to perform its Obligations under the Loan Documents to which
it is a party, and all such actions have been duly authorized by all necessary
proceedings on its part.
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5.1.5 Validity and Binding Effect.
This Agreement has been duly and validly executed and
delivered by the Borrower, and each other Loan Document which the Borrower is
required to execute and deliver on or after the date hereof will have been duly
executed and delivered by the Borrower on the required date of delivery of such
Loan Document. This Agreement and each other Loan Document constitutes, or will
constitute, legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with its terms, except to the extent that
enforceability of any of such Loan Document may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights generally or limiting the right of specific
performance.
5.1.6 No Conflict.
Neither the execution and delivery of this Agreement or the
other Loan Documents by the Borrower nor the consummation of the transactions
herein or therein contemplated or compliance with the terms and provisions
hereof or thereof by them will conflict with, constitute a default under or
result in any breach of (i) the terms and conditions of the certificate of
incorporation, bylaws or other organizational documents of the Borrower or (ii)
any Law or of any material agreement, instrument, order, writ, judgment,
injunction or decree to which the Borrower is a party or by which it is bound or
to which it is subject, or result in the creation or enforcement of any Lien,
charge or encumbrance whatsoever upon any property (now or hereafter acquired)
of the Borrower (other than Liens granted under the Loan Documents).
5.1.7 Litigation.
There are no actions, suits, proceedings or investigations
pending or, to the knowledge of the Borrower, threatened against the Borrower or
any Subsidiary of the Borrower at law or equity before any Official Body which
individually or in the aggregate may result in any Material Adverse Change.
Neither the Borrower nor any Subsidiaries of the Borrower is in violation of any
order, writ, injunction or any decree of any Official Body which may result in
any Material Adverse Change.
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5.1.8 Title to Properties.
The real property owned or leased by the Borrower and each
Subsidiary of the Borrower is described on Schedule 5.1.8. The Borrower and each
Subsidiary of the Borrower has good and marketable title to or valid leasehold
interests in all properties, assets and other rights which it purports to own or
lease or which are reflected as owned or leased on its books and records, free
and clear of all Liens and encumbrances except Permitted Liens, and subject to
the terms and conditions of the applicable leases. All leases of property are in
full force and effect without the necessity for any consent which has not
previously been obtained upon consummation of the transactions contemplated
hereby.
5.1.9 Financial Statements.
(i) Historical Statements. The Borrower has delivered to the
Agent copies of its audited consolidated and unaudited consolidating year-end
financial statements for and as of the end of the fiscal year ended March 31,
1997 (the "Annual Statements"). In addition, the Borrower has delivered to the
Agent copies of its Form 10-Q for the period ended December 31, 1997 (the
"Interim Statements") (the Annual and Interim Statements being collectively
referred to as the Historical Statements"). The Historical Statements were
compiled from the books and records maintained by the Borrower's management, are
correct and complete and present fairly in all material respects the financial
condition of the Borrower as of their dates and the results of operations for
the fiscal periods then ended and have been prepared in accordance with GAAP
consistently applied, subject (in the case of the Interim Statements) to normal
year-end audit adjustments and the absence of footnotes.
(ii) Accuracy of Financial Statements. The Borrower does not
have any liabilities, contingent or otherwise, or forward or long-term
commitments that are not disclosed in the Historical Statements or in the notes
thereto, and except as disclosed therein there are no unrealized or anticipated
losses from any commitments of the Borrower or any Subsidiary of the Borrower
which may cause a Material Adverse Change. Since December 31, 1997, no Material
Adverse Change has occurred.
5.1.10 Margin Stock.
Neither the Borrower nor any of its Subsidiaries engages or
intends to engage principally, or as one of its important activities, in the
business of extending credit for the purpose, immediately, incidentally or
ultimately, of purchasing or carrying margin stock (within the meaning of
Regulation U). No part of the proceeds of any Loan has been or will be used,
immediately, incidentally or ultimately, to purchase or carry any margin stock
or to
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extend credit to others for the purpose of purchasing or carrying any margin
stock or to refund Indebtedness originally incurred for such purpose, or for any
purpose which entails a violation of or which is inconsistent with the
provisions of Regulation U of the Board of Governors of the Federal Reserve
System. Neither the Borrower nor any of its Subsidiaries holds or intends to
hold margin stock in such amounts that more than 25% of the reasonable value of
the assets of the Borrower or any of its Subsidiaries are or will be represented
by margin stock.
5.1.11 Full Disclosure.
Neither this Agreement nor any other Loan Document, nor any
certificate, statement, agreement or other documents furnished to the Agent or
any Bank in connection herewith or therewith, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which they were made, not misleading. On the Closing Date, there is no fact
known to the Borrower which materially adversely affects the business, property,
assets, financial condition, results of operations or prospects of the Borrower
or any Subsidiary of the Borrower which has not been set forth in this Agreement
or in the certificates, statements, agreements or other documents furnished in
writing to the Agent and the Banks prior to or at the date hereof in connection
with the transactions contemplated hereby.
5.1.12 Taxes.
All federal, state, local and other tax returns required to
have been filed with respect to the Borrower and each Subsidiary of the Borrower
have been filed, and payment or adequate provision has been made for the payment
of all taxes, fees, assessments and other governmental charges which have or may
become due pursuant to said returns or to assessments received, except to the
extent that such taxes, fees, assessments and other charges are being contested
in good faith by appropriate proceedings diligently conducted and for which such
reserves or other appropriate provisions, if any, as shall be required by GAAP
shall have been made. Other than extensions of tax return filing deadlines for
which the Borrower has applied in the ordinary course of business, there are no
agreements or waivers extending the statutory period of limitations applicable
to any federal income tax return of the Borrower or any of its Subsidiaries for
any period.
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5.1.13 Consents and Approvals.
No consent, approval, exemption, order or authorization of,
or a registration or filing with, any Official Body or any other Person is
required by any Law or any agreement in connection with the execution, delivery
and carrying out of this Agreement and the other Loan Documents by the Borrower,
except as listed on Schedule 5.1.13, all of which shall have been obtained or
made on or prior to the Closing Date except as otherwise indicated on Schedule
5.1.13.
5.1.14 No Event of Default; Compliance with Instruments.
No event has occurred and is continuing and no condition
exists or will exist after giving effect to the borrowings to be made on the
Closing Date under the Loan Documents which constitutes an Event of Default or
Potential Default. Neither the Borrower nor any of its Subsidiaries is in
violation of (i) any term of its certificate of incorporation, bylaws, or other
organizational documents or (ii) any material agreement or instrument to which
it is a party or by which it or any of its properties may be subject or bound
where such violation would constitute a Material Adverse Change.
5.1.15 Patents, Trademarks, Copyrights, Licenses, Etc.
The Borrower and each Subsidiary of the Borrower owns or
possesses all the material patents, trademarks, service marks, trade names,
copyrights, licenses, registrations, franchises, permits and rights necessary to
own and operate its properties and to carry on its business as presently
conducted and planned to be conducted by the Borrower and its Subsidiaries,
without known conflict with the rights of others.
5.1.16 Insurance.
All insurance policies and other bonds to which the Borrower
and each of its Subsidiaries is a party are valid and in full force and effect.
No notice has been given or claim made and no grounds exist to cancel or avoid
any of such policies or bonds or to reduce the coverage provided thereby. Such
policies and bonds provide adequate coverage from reputable and financially
sound insurers in amounts sufficient to insure the assets and risks of the
Borrower and each Subsidiary of the Borrower in accordance with prudent business
practice in the industries of the Borrower and its Subsidiaries.
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5.1.17 Compliance with Laws.
The Borrower and its Subsidiaries are in compliance in all
material respects with all applicable Laws (other than Environmental Laws which
are specifically addressed in subsection 5.1.22) in all jurisdictions in which
the Borrower and its Subsidiaries do business except where the failure to so
comply would not constitute a Material Adverse Change.
5.1.18 Material Contracts.
All material contracts relating to the business operations
of the Borrower and each Subsidiary of the Borrower, including all employee
benefit plans and Labor Contracts are valid, binding and enforceable upon the
Borrower or each such Subsidiary and each of the other parties thereto in
accordance with their respective terms, and there is no default thereunder by
the Borrower or any such Subsidiary or, to the Borrower's knowledge, with
respect to parties other than the Borrower or any such Subsidiary, which could
result in a Material Adverse Change.
5.1.19 Investment Companies.
Neither the Borrower nor any of its Subsidiaries is an
"investment company" registered or required to be registered under the
Investment Company Act of 1940 or under the "control" of an "investment company"
as such terms are defined in the Investment Company Act of 1940 and shall not
become such an "investment company" or under such "control."
5.1.20 Plans and Benefit Arrangements.
Except as set forth on Schedule 5.1.20:
(i) The Borrower and each member of the ERISA
Group are in compliance in all material respects with any applicable provisions
of ERISA with respect to all Benefit Arrangements, Plans and Multiemployer
Plans. There has been no Prohibited Transaction with respect to any Benefit
Arrangement or any Plan or, to the knowledge of the Borrower, with respect to
any Multiemployer Plan or Multiple Employer Plan, which could result in any
material liability of the Borrower or any other member of the ERISA Group. The
Borrower and all members of the ERISA Group have made when due any and all
payments required to be made under any agreement relating to a Multiemployer
Plan or a Multiple Employer Plan or any Law pertaining thereto. With respect to
each Plan and Multiemployer Plan, the Borrower and each member of the ERISA
Group (i) have fulfilled in all material respects their obligations under the
minimum funding standards of ERISA, (ii) have not incurred any liability to the
PBGC, and (iii) have not had asserted against them any penalty for
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failure to fulfill the minimum funding requirements of ERISA.
(ii) To the Borrower's knowledge, each
Multiemployer Plan and Multiple Employer Plan is able to pay benefits thereunder
when due.
(iii) Neither the Borrower nor any other
member of the ERISA Group has instituted or intends to institute proceedings to
terminate any Plan.
No event requiring notice to the PBGC under Section
302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with
respect to any Plan, and no amendment with respect to which security is required
under Section 307 of ERISA has been made or is reasonably expected to be made to
any Plan.
(iv) The aggregate actuarial present value of
accumulated benefit obligations (as per Financial Accounting Standards Board
Opinion No. 87) under each Plan, as disclosed in, and as of the date of, the
most recent actuarial report for such Plan, does not exceed the aggregate fair
market value of the assets of such Plan.
(v) Neither the Borrower nor any other member
of the ERISA Group has incurred or reasonably expects to incur any material
withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer
Plan. Neither the Borrower nor any other member of the ERISA Group has been
notified by any Multiemployer Plan or Multiple Employer Plan that such
Multiemployer Plan or Multiple Employer Plan has been terminated within the
meaning of Title IV of ERISA and, to the knowledge of the Borrower, no
Multiemployer Plan or Multiple Employer Plan is reasonably expected to be
reorganized or terminated, within the meaning of Title IV of ERISA.
(vi) To the extent that any Benefit
Arrangement is insured, the Borrower and all members of the ERISA Group have
paid when due all premiums required to be paid for all periods through the
Closing Date. To the extent that any Benefit Arrangement is funded other than
with insurance, the Borrower and all members of the ERISA Group have made when
due all contributions required to be paid for all periods through the Closing
Date.
(vii) All Plans, Benefit Arrangements and to
the knowledge of the Borrower Multiemployer Plans have been administered in all
material respects in accordance with their terms and the applicable provisions
of ERISA.
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5.1.21 Employment Matters.
The Borrower and each of its Subsidiaries is in compliance
with the Labor Contracts and all applicable federal, state and local labor and
employment Laws including those related to equal employment opportunity and
affirmative action, labor relations, minimum wage, overtime, child labor,
medical insurance continuation, worker adjustment and relocation notices,
immigration controls and worker and unemployment compensation, where the failure
to comply would constitute a Material Adverse Change. There are no outstanding
grievances, arbitration awards or appeals therefrom arising out of the Labor
Contracts or current or threatened strikes, picketing, handbilling or other work
stoppages or slowdowns at facilities of the Borrower or any of its Subsidiaries
which in any case would constitute a Material Adverse Change.
5.1.22 Environmental Matters.
Except as disclosed on Schedule 5.1.22 and except as is not
reasonably likely to constitute or result in a Material Adverse Change:
(i) Neither the Borrower nor any Subsidiary
of the Borrower has received any Environmental Complaint from any Official
Body or private Person alleging that such Borrower or Subsidiary or, with
respect to the Property, any prior or subsequent owner of the Property is a
potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601, et seq., and the
Borrower has no reason to believe that such an Environmental Complaint is
reasonably likely to be received. There are no pending or, to the Borrower's
knowledge, threatened Environmental Complaints relating to the Borrower or
any Subsidiary of the Borrower or, to the Borrower's knowledge with respect
to the Property, any prior or subsequent owner of the Property pertaining to,
or arising out of, any Environmental Conditions.
(ii) There are no circumstances at, on or
under the Property that constitute a breach of or non-compliance with any of the
Environmental Laws, and there are no Environmental Conditions at, on or under
the Property or, to the knowledge of the Borrower, at, on or under adjacent
property, that prevent compliance with the Environmental Laws at the Property.
(iii) Neither the Property nor any structures,
improvements, equipment, fixtures, activities or facilities thereon or
thereunder contain or use Regulated Substances except in compliance with
Environmental Laws. There are no processes, facilities, operations, equipment or
any other activities at, on or under the Property, or, to the knowledge of the
Borrower, at, on or under adjacent property, that currently result in the
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release or threatened release of Regulated Substances onto the Property, except
to the extent that such releases or threatened releases are not a breach of or
otherwise not a violation of the Environmental Laws or are not likely to result
in a Material Adverse Change.
(iv) The Borrower and each Subsidiary of the
Borrower has all permits, licenses, authorizations, plans and approvals
necessary under the Environmental Laws for the conduct of the business of the
Borrower and its Subsidiaries as presently conducted. The Borrower and each
Subsidiary of the Borrower has submitted all notices, reports and other filings
required by the Environmental Laws to be submitted to an Official Body which
pertain to past and current operations on the Property.
(v) All past and present on-site generation,
storage, processing, treatment, recycling, reclamation, disposal or other use or
management of Regulated Substances at, on, or under the Property and all
off-site transportation, storage, processing, treatment, recycling, reclamation,
disposal or other use or management of Regulated Substances has been done by the
Borrower and its Subsidiaries in accordance with the Environmental Laws.
5.1.23 Senior Debt Status.
The Obligations of the Borrower under this Agreement, the
Notes, and each of the other Loan Documents to which it is a party do rank and
will rank at least pari passu in priority of payment with all other Indebtedness
of the Borrower except Indebtedness of the Borrower to the extent secured by
Permitted Liens. There is no Lien upon or with respect to any of the properties
or income of the Borrower or any Subsidiary of the Borrower which secures
indebtedness or other obligations of any Person except for Permitted Liens.
5.2 Updates to Schedules.
Should any of the information or disclosures provided on any
of the Schedules attached hereto become outdated or incorrect in any material
respect, the Borrower shall promptly provide the Agent in writing with such
revisions or updates to such Schedule as may be necessary or appropriate to
update or correct same; provided, however, that no Schedule shall be deemed to
have been amended, modified or superseded by any such correction or update, nor
shall any breach of warranty or representation resulting from the inaccuracy or
incompleteness of any such Schedule be deemed to have been cured thereby, unless
and until the Required Banks, in their sole and absolute discretion, shall have
accepted in writing such revisions or updates to such Schedule.
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6. CONDITIONS OF LENDING
At the time of making any new Loans or issuing any new Letters of
Credit hereunder and after giving effect to the proposed borrowings: the
representations and warranties of the Borrower contained in Article 5 shall be
true on and as of the date of such additional Loan or Letter of Credit with the
same effect as though such representations and warranties had been made on and
as of such date (except representations and warranties which expressly relate
solely to an earlier date or time, which representations and warranties shall be
true and correct on and as of the specific dates or times referred to therein)
and the Borrower shall have performed and complied with all covenants and
conditions hereof; no Event of Default or Potential Default shall have occurred
and be continuing or shall exist; the making of the Loans or issuance of such
Letter of Credit shall not contravene any Law applicable to the Borrower or any
Subsidiary of the Borrower or any of the Banks; and the Borrower shall have
delivered to the Agent a duly executed and completed Loan Request or application
for a Letter of Credit as the case may be.
7. COVENANTS
7.1 Affirmative Covenants.
The Borrower covenants and agrees that until payment in full of the
Loans and interest thereon, expiration or termination of all Letters of Credit,
satisfaction of all of the Borrower's other Obligations under the Loan Documents
and termination of the Revolving Credit Commitments, the Borrower shall comply
at all times with the following affirmative covenants:
7.1.1 Preservation of Existence, Etc.
The Borrower shall, and shall cause each of its Subsidiaries
to, maintain its corporate existence and its license or qualification and good
standing in each jurisdiction in which its ownership or lease of property or the
nature of its business makes such license or qualification necessary.
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7.1.2 Payment of Liabilities, Including Taxes, Etc.
The Borrower shall, and shall cause each of its Subsidiaries
to, duly pay and discharge all liabilities to which it is subject or which are
asserted against it, promptly as and when the same shall become due and payable,
including all taxes, assessments and governmental charges upon it or any of its
properties, assets, income or profits, prior to the date on which penalties
attach thereto, except to the extent that such liabilities, including taxes,
assessments or charges, are being contested in good-faith and by appropriate and
lawful proceedings diligently conducted and for which such reserve or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made, but only to the extent that failure to discharge any such liabilities
would not result in any additional liability which would adversely affect to a
material extent the financial condition of the Borrower or Subsidiary of the
Borrower, provided that the Borrower and its Subsidiaries will pay all such
liabilities forthwith upon the commencement of proceedings to foreclose any Lien
which may have attached as security therefor.
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7.1.3 Maintenance of Insurance.
The Borrower shall, and shall cause each of its Subsidiaries
to, insure its properties and assets against loss or damage by fire and such
other insurable hazards as such assets are commonly insured (including fire,
extended coverage, property damage, workers' compensation, public liability and
business interruption insurance) and against other risks (including errors and
omissions) in such amounts as similar properties and assets are insured by
prudent companies in similar circumstances carrying on similar businesses, and
with reputable and financially sound insurers, including self-insurance to the
extent customary, all as reasonably determined by the Agent. At the request of
the Agent, the Borrower shall deliver (x) on the Closing Date and annually
thereafter an original certificate of insurance signed by the Borrower's
independent insurance broker describing and certifying as to the existence of
the insurance required to be maintained by this Agreement and the other Loan
Documents, together with a copy of the endorsement described in the next
sentence attached to such certificate and (y) from time to time a summary
schedule indicating all insurance then in force with respect to the Borrower and
its Subsidiaries. Such policies of insurance shall contain special endorsements,
in form and substance acceptable to the Agent, which shall (i) specify the Agent
as an additional insured as its interests may appear, with the understanding
that any obligation imposed upon the insured (including the liability to pay
premiums) shall be the sole obligation of the Borrower or relevant Subsidiary
and not that of the Agent, (ii) include effective waivers by the insurer of all
claims for insurance premiums against the Agent, (iii) provide that no
cancellation of such policies for any reason (including non-payment of premium)
nor any change therein shall be effective until at least thirty (30) days after
receipt by the Agent of written notice of such cancellation or change, (iv) be
primary without right of contribution of any other insurance carried by or on
behalf of any additional insureds, and (v) provide that inasmuch as the policy
covers more than one insured, all terms, conditions, insuring agreements and
endorsements (except limits of liability) shall operate as if there were a
separate policy covering each insured. The Borrower shall notify the Agent
promptly of any occurrence causing a material loss or decline in value of
insured assets and the estimated (or actual, if available) amount of such loss
or decline. Any monies received by the Agent constituting insurance proceeds
may, at the option of the Agent, be disbursed to the Borrower or the relevant
Subsidiary on such terms as are deemed appropriate by the Agent for the repair,
restoration and/or replacement of property in respect of which such proceeds
were received.
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7.1.4 Maintenance of Properties and Leases.
The Borrower shall, and shall cause each of its Subsidiaries
to, maintain in good repair, working order and condition (ordinary wear and tear
excepted) in accordance with the general practice of other businesses of similar
character and size, all of those properties useful or necessary to its business,
and from time to time, the Borrower will make or cause to be made all
appropriate repairs, renewals or replacements thereof.
7.1.5 Maintenance of Patents, Trademarks, Etc.
The Borrower shall, and shall cause each of its Subsidiaries
to, maintain in full force and effect all patents, trademarks, trade names,
copyrights, licenses, franchises, permits and other authorizations necessary for
the ownership and operation of its properties and business if the failure so to
maintain the same would constitute a Material Adverse Change.
7.1.6 Visitation Rights.
The Borrower shall, and shall cause each of its Subsidiaries
to, permit any of the officers or authorized employees or representatives of the
Agent or any of the Banks to visit and inspect any of its properties and to
examine and make excerpts from its books and records and discuss its business
affairs, finances and accounts with its officers, all in such detail and at such
times during normal business hours and as often as any of the Banks may
reasonably request, provided that each Bank shall provide the Borrower and the
Agent with reasonable notice prior to any visit or inspection. In the event any
Bank desires to conduct an audit of the Borrower, such Bank shall make a
reasonable effort to conduct such audit contemporaneously with any audit to be
performed by the Agent. The Borrower shall not be obligated to reimburse the
Agent and the Banks for more than one audit per year.
7.1.7 Keeping of Records and Books of Account.
The Borrower shall, and shall cause each of its Subsidiaries
to, maintain and keep proper books of record and account which enable the
Borrower and its Subsidiaries to issue financial statements in accordance with
GAAP and as otherwise required by applicable Laws of any Official Body having
jurisdiction over the Borrower or any Subsidiary of the Borrower, and in which
full, true and correct entries shall be made in all material respects of all its
dealings and business and financial affairs.
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7.1.8 Plans and Benefit Arrangements.
The Borrower shall, and shall cause each member of the ERISA
Group to, comply with the provisions of ERISA and the Internal Revenue Code
applicable to each Plan and Benefit Arrangement except where such failure, alone
or in conjunction with any other failure, would not result in a Material Adverse
Change. Without limiting the generality of the foregoing, the Borrower shall
cause all of its Plans and all Plans maintained by any member of the ERISA Group
to be funded in accordance with the minimum funding requirements of ERISA and
shall make, and cause each member of the ERISA Group to make, in a timely
manner, all contributions due to Plans, Benefit Arrangements and Multiemployer
Plans.
7.1.9 Compliance with Laws.
The Borrower shall, and shall cause each of its Subsidiaries
to, comply with all applicable Laws, including all Environmental Laws, in all
respects, provided that it shall not be deemed to be a violation of this Section
7.1.9 if any failure to comply with any Law would not result in fines,
penalties, remediation costs, other similar liabilities or injunctive relief
which in the aggregate would constitute a Material Adverse Change.
7.1.10 Use of Proceeds.
The Borrower will use the proceeds of the Loans only for
lawful purposes in accordance with Section 0 as applicable and such uses shall
not contravene any applicable Law or any other provision hereof.
7.2 Negative Covenants.
The Borrower covenants and agrees that until payment in full of the
Loans and interest thereon, expiration or termination of all Letters of Credit,
satisfaction of all of the Borrower's other Obligations hereunder and
termination of the Revolving Credit Commitments, the Borrower shall comply, and
shall cause its Subsidiaries to comply, with the following negative covenants:
7.2.1 Indebtedness.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, at any time create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness under the Loan
Documents;
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(ii) Existing Indebtedness as set forth on
Schedule 7.2.1 (including any extensions or renewals thereof, provided there is
no increase in the amount thereof or other significant change in the terms
thereof unless otherwise specified on Schedule 7.2.1);
(iii) Capitalized and operating leases as and
to the extent permitted under Section 7.2.15;
(iv) PIK Subordinated Indebtedness, provided
that no such Indebtedness shall mature earlier than one year after the
Expiration Date in effect at the time such Indebtedness was incurred. The PIK
Subordinated Indebtedness issued to Teleflex Incorporated matures in December
2002, which is more than one year after the Expiration Date in effect at the
time such Indebtedness was incurred. Such Indebtedness may be repaid at maturity
so long as no Event of Default then exists or will result from such payment;
(v) Indebtedness secured by Purchase Money
Security Interests not exceeding $5,000,000 in the aggregate outstanding at any
time;
(vi) Indebtedness under lines of credit to
Borrower for money market borrowings of no more than $10,000,000 in the
aggregate outstanding at any time;
(vii) Indebtedness assumed by Borrower or any
Subsidiary in an acquisition or merger permitted under Section 7.2.6(ii),
provided that such assumption did not and will not cause an Event of Default;
and
(viii) Other Indebtedness of Subsidiaries;
provided that the sum of the outstanding principal amount of (A) all
Indebtedness of Subsidiaries, including Guaranties and all other Indebtedness of
Subsidiaries described elsewhere in this Section 7.2.1 except for PIK
Subordinated Indebtedness, which shall be excluded from the calculation, plus
(B) secured Indebtedness of the Borrower shall not at any time exceed 20% of
Consolidated Net Worth.
7.2.2 Liens.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, at any time create, incur, assume or suffer to exist any Lien
on any of its property or assets, tangible or intangible, now owned or hereafter
acquired, or agree or become liable to do so, except Permitted Liens.
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7.2.3 Guaranties.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, at any time, directly or indirectly, become or be liable in
respect of any Guaranty, or assume, guarantee, become surety for, endorse or
otherwise agree, become or remain directly or contingently liable upon or with
respect to any obligation or liability of any other Person, except for
Guaranties of Indebtedness of the Borrower and its Subsidiaries permitted
hereunder.
7.2.4 Loans and Investments.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, at any time make or suffer to remain outstanding any loan or
advance to, or purchase, acquire or own any stock, bonds, notes or securities
of, or any partnership interest (whether general or limited) in, or any other
investment or interest in, or make any capital contribution to, any other
Person, or agree, become or remain liable to do any of the foregoing, except:
(i) trade credit extended on usual and
customary terms in the ordinary course of business;
(ii) advances to employees to meet expenses
incurred by such employees in the ordinary course of business;
(iii) Permitted Investments;
(iv) loans, advances, investments and capital
contributions in and to the Subsidiaries of the Borrower; and
(v) acquisitions permitted under Section
7.2.6(ii).
7.2.5 Dividends and Related Distributions.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, make or pay, or agree to become or remain liable to make or
pay, any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of or in respect of its shares of
capital stock or partnership interests on account of the purchase, redemption,
retirement or acquisition of its shares of capital stock (or warrants, options
or rights therefor) or partnership interests, except
(i) dividends or other distributions payable
to the Borrower by its Subsidiaries;
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(ii) dividends payable by the Borrower to the
holders of its common stock, provided that the aggregate amount of such
dividends paid during any fiscal year does not exceed 50% of Consolidated Net
Income for the preceding fiscal year and provided further that no Event of
Default exists at the time of any such payment or will result from the payment;
(iii) redemptions of an employee's Capital
Stock in the Borrower upon termination of employment provided that no Event of
Default then exists or will result from the redemption;
(iv) dividends or other distributions payable
in stock, including stock splits; and
(v) the distribution of common shares in
Borrower to Citicorp Venture Capital, Ltd. upon the conversion of Citicorp
Venture Capital's Class D Capital Stock in Borrower.
7.2.6 Liquidations, Mergers, Consolidations, Acquisitions.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a party
to any merger or consolidation, or acquire by purchase, lease or otherwise all
or substantially all of the assets or capital stock of any other Person, except
that
(i) any Subsidiary may consolidate or merge
into the Borrower or another Subsidiary; and
(ii) the Borrower or any of its Subsidiaries
may acquire assets or Capital Stock of other Persons engaged in the business of
aviation services, metals converting, or metals distribution provided that (a)
any such Person has a history of positive operating profits and reasonable
prospects for continuing to produce operating profits in the future; (b) no
Event of Default exists or will result from such acquisition; (c) following the
closing of the acquisition, the Borrower will have at least $2,000,000 in
availability under the Revolving Credit Commitments; and (d) the Borrower
notifies the Agent of the acquisition at least 30 days before it is scheduled to
close.
7.2.7 Dispositions of Assets or Subsidiaries.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer or
dispose of, voluntarily or
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involuntarily, any of its properties or assets, tangible or intangible
(including sale, assignment, discount or other disposition of accounts, contract
rights, chattel paper, equipment or general intangibles with or without recourse
or of capital stock, shares of beneficial interest or partnership interests of a
Subsidiary of the Borrower), except:
(i) transactions involving the sale of
inventory in the ordinary course of business;
(ii) any sale, transfer or lease of assets in
the ordinary course of business which are no longer necessary or required in the
conduct of the Borrower's business;
(iii) any sale, transfer or lease of assets by
any Subsidiary of the Borrower to the Borrower or another Subsidiary;
(iv) any sale, transfer or lease of assets in
the ordinary course of business which are replaced by substitute assets acquired
or leased within the parameters of Section 7.2.15;
(v) any sale, transfer, or lease of assets the
after-tax proceeds of which, when added to the after-tax proceeds of other
sales, transfers and leases of assets in the same fiscal year, do not exceed
$5,000,000 in the aggregate for Borrower and its Subsidiaries; and
(vi) any sale, transfer or lease of assets,
other than those specifically excepted pursuant to clauses (i) through (v)
above, which is approved by the Required Banks.
7.2.8 Affiliate Transactions.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, enter into or carry out any transaction (including purchasing
property or services from or selling property or services to any Affiliate of
the Borrower or other Person) unless such transaction is not otherwise
prohibited by this Agreement, is entered into in the ordinary course of business
upon fair and reasonable arm's-length terms and conditions and is in accordance
with all applicable Law. The payment of customary directors fees shall not be
considered a prohibited Affiliate transaction.
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7.2.9 Subsidiaries, Partnerships and Joint Ventures.
(i) The Borrower shall not and shall not
permit any of its Subsidiaries to, become or agree to become a general or
limited partner in any general or limited partnership or a joint venturer in any
joint venture, except that the Borrower and its Subsidiaries may be general or
limited partners in any of its or their Subsidiaries.
(ii) The Borrower will not invest or advance
more than $50,000 to Triumph Group Foreign Sales Corporation.
7.2.10 Continuation of Present Business.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, engage in any business other than aviation services and metals
converting and distribution, substantially as conducted and operated by the
Borrower or Subsidiary during the present fiscal year, and the Borrower or
Subsidiary shall not permit any material change in such business.
7.2.11 Plans and Benefit Arrangements.
The Borrower shall not, and shall not permit any of its
Subsidiaries to:
(i) fail to satisfy the minimum funding
requirements of ERISA and the Internal Revenue Code with respect to any Plan;
(ii) request a minimum funding waiver from the
Internal Revenue Service with respect to any Plan;
(iii) engage in a Prohibited Transaction with
any Plan, Benefit Arrangement or Multiemployer Plan which, alone or in
conjunction with any other circumstances or set of circumstances resulting in
liability under ERISA, would constitute a Material Adverse Change;
(iv) permit the aggregate actuarial present
value of all benefit liabilities (whether or not vested) under each Plan,
determined on a plan termination basis, as disclosed in the most recent
actuarial report completed with respect to such Plan, to exceed, as of any
actuarial valuation date, the fair market value of the assets of such Plan by
more than $1,000,000;
(v) fail to make when due any contribution to
any Multiemployer Plan that the Borrower or any member of the ERISA Group may be
required to
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make under any agreement relating to such Multiemployer Plan, or any Law
pertaining thereto;
(vi) withdraw (completely or partially) from
any Multiemployer Plan or withdraw (or be deemed under Section 4062(e) of ERISA
to withdraw) from any Multiple Employer Plan, where any such withdrawal is
likely to result in a material liability of the Borrower or any member of the
ERISA Group;
(vii) terminate, or institute proceedings to
terminate, any Plan, where such termination is likely to result in a material
liability to the Borrower or any member of the ERISA Group;
(viii) make any amendment to any Plan with
respect to which security is required under Section 307 of ERISA; or
(ix) fail to give any and all notices and make
all disclosures and governmental filings required under ERISA or the Internal
Revenue Code, where such failure is likely to result in a Material Adverse
Change.
7.2.12 Fiscal Year.
The Borrower shall not, and shall not permit any Subsidiary
of the Borrower to, change its fiscal year from the twelve-month period
beginning April 1 and ending March 31.
7.2.13 Issuance of Stock.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, issue any additional shares of its Capital Stock or any
options, warrants or other rights in respect thereof, except the issuance of
Capital Stock of the Borrower:
(i) pursuant to a secondary public offering;
(ii) to the existing shareholders, management,
and directors of the Borrower under stock option plans;
(iii) to World Equity Partners, L.P. pursuant
to warrants for the issuance of 650,000 shares;
(iv) in connection with acquisitions permitted
under Section 7.2.6, provided that such issuance does not result in an Event of
Default;
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(v) to existing shareholders pursuant to stock
splits; or
(vi) to Citicorp Venture Capital, Ltd. upon
the conversion of its Class D Capital Stock to common shares.
7.2.14 Changes in Organizational Documents.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, amend any provisions of its certificate of incorporation
relating to capital stock without providing at least thirty (30) calendar days'
prior written notice to the Agent and the Banks and, in the event such change
would be adverse to the Banks as determined by the Agent in its sole discretion,
obtaining the prior written consent of the Required Banks. The Banks agree that
an increase in the number of the Borrower's authorized common shares to 50
million would not be adverse to the Banks.
7.2.15 Capital Expenditures and Leases.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, make any payments on account of the purchase or lease of any
assets which if purchased would constitute fixed assets or which if leased would
constitute a capitalized lease, except for
(i) such payments in connection with
acquisitions permitted under Section 7.2.6(ii);
(ii) such payments up to $15,000,000 in the
aggregate for the fiscal year ending March 31, 1998;
(iii) such payments in an amount not to exceed
the greater of $18,000,000 or 150% of the previous year's depreciation (for the
Borrower and its Subsidiaries, determined and consolidated in accordance with
GAAP) for any fiscal year ending after March 31, 1998; and
(iv) such payments up to $5,000,000 per year
in the aggregate under operating leases.
All such capital expenditures and leases shall be made under
usual and customary terms and in the ordinary course of business.
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7.2.16 Minimum Interest Coverage Ratio.
The Borrower shall not permit the Interest Coverage Ratio,
calculated as of the end of each fiscal quarter for the four fiscal quarters
then ended, to be less than 3.0 to 1.0.
7.2.17 Maximum Total Indebtedness to EBITDA Ratio.
The Borrower shall not at any time permit the Total
Indebtedness to EBITDA Ratio, calculated as of the end of each fiscal quarter
(with EBITDA to be measured for the four fiscal quarters then ending), to exceed
3.00 to 1.00.
7.2.18 Minimum Net Worth.
The Borrower shall not at any time permit Consolidated Net
Worth to be less than $82,000,000 plus (i) 50% of Consolidated Net Income for
each fiscal year in which net income was earned (as opposed to net loss)
beginning with the fiscal year ending March 31, 1998 (with the necessary
adjustment to be made as of the end of the relevant fiscal year) and (ii) 100%
of the proceeds (after the payment of any fees and expenses) from any capital
contribution to, or any sale or issuance of Capital Stock by, the Borrower (with
any necessary adjustment to be made upon the receipt of such proceeds).
7.2.19 Intentionally Omitted.
7.2.20 Negative Pledges. The Borrower shall not and shall
not permit any of its Subsidiaries to, agree with any Person (i) to limit its
ability to provide collateral security to the Banks and (ii) to limit the
ability of Borrower's Subsidiaries to pay dividends or make other distributions
to Borrower.
7.3 Reporting Requirements.
The Borrower covenants and agrees that until payment in full of the
Loans and interest thereon, expiration or termination of all Letters of Credit,
satisfaction of all of the Borrower's other Obligations hereunder and under the
other Loan Documents and termination of the Revolving Credit Commitments, the
Borrower will furnish or cause to be furnished to the Agent and each of the
Banks:
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7.3.1 Quarterly Financial Statements.
As soon as available and in any event within forty-five (45)
calendar days after the end of each of the first three fiscal quarters in each
fiscal year, the Borrower's financial statements, consisting of consolidated
balance sheets as of the end of such fiscal quarter and related consolidated
statements of income, stockholders' equity and cash flows for the fiscal quarter
then ended and the fiscal year through that date, all in reasonable detail and
certified (subject to normal year-en audit adjustments and the absence of
footnotes) by the Chief Executive Officer, President or Chief Financial Officer
of the Borrower as having been prepared in accordance with GAAP, consistently
applied, and setting forth in comparative form the respective financial
statements for the corresponding date and period in the previous fiscal year.
7.3.2 Annual Financial Statement.
As soon as available and in any event within ninety (90)
days after the end of each fiscal year, consolidated financial statements of the
Borrower consisting of consolidated balance sheets as of the end of such fiscal
year, and related consolidated statements of income, stockholders' equity and
cash flows for the fiscal year then ended, all in reasonable detail and setting
forth in comparative form the financial statements as of the end of and for the
preceding fiscal year, with the consolidated statements being certified by
independent certified public accountants of nationally recognized standing
satisfactory to the Agent. The certificate or report of accountants shall be
free of qualifications (other than any consistency qualification that may result
from a change in the method used to prepare the financial statements as to which
such accountants concur) and shall not indicate the occurrence or existence of
any event, condition or contingency which would materially impair the prospect
of payment or performance of any covenant, agreement or duty of the Borrower
under any of the Loan Documents, together with a letter of such accountants
substantially to the effect that, based upon their ordinary and customary
examination of the affairs of the Borrower, performed in connection with the
preparation of such consolidated financial statements, and in accordance with
generally accepted auditing standards, they are not aware of the existence of
any condition or event which constitutes an Event of Default or Potential
Default or, if they are aware of such condition or event, stating the nature
thereof and confirming the Borrower's calculations with respect to the
certificate to be delivered pursuant to Section 7.3.3 with respect to such
financial statements.
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7.3.3 Compliance Certificate.
Concurrently with the financial statements of the Borrower
furnished to the Agent and to the Banks pursuant to Sections 7.3.1 and 7.3.2, a
certificate of the Borrower signed by the Chief Executive Officer, President or
Chief Financial Officer of the Borrower, in the form of Exhibit 7.3.3, to the
effect that, except as described pursuant to Section 7.3.4, (i) the
representations and warranties of the Borrower contained in Article 5 are true
on and as of the date of such certificate with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which expressly relate solely to an earlier date
or time) and the Borrower has performed and complied with all covenants and
conditions hereof, (ii) no Event of Default or Potential Default exists and is
continuing on the date of such certificate and (iii) containing calculations in
sufficient detail to demonstrate compliance as of the date of the financial
statements with all financial covenants contained in Section 7.2 If an
acquisition permitted under Section 7.2.6(ii) occurred during the reporting
period covered by the compliance certificate and if the Borrower has provided
the Agent with audited historical financial statements on the acquired business,
the Borrower may also calculate the Section 7.2 financial covenants on a pro
forma basis to include the financial performance and condition of the acquired
business during the period; and the pro forma calculation of the Total
Indebtedness to EBITDA Ratio may be relied upon as a basis for a change in the
pricing level under the Pricing Grid.
7.3.4 Notice of Default.
Promptly after any officer of Borrower has learned of the
occurrence of an Event of Default or Potential Default, a certificate signed by
the Chief Executive Officer, President or Chief Financial Officer of Borrower
setting forth the details of such Event of Default or Potential Default and the
action which the Borrower proposes to take with respect thereto.
7.3.5 Notice of Litigation.
Promptly after the commencement thereof, notice of all
actions, suits, proceedings or investigations before or by any Official Body or
any other Person against the Borrower or Subsidiary of the Borrower which in the
good faith estimation of counsel for the Borrower involve a claim or series of
claims in excess of $750,000 or which if adversely determined would constitute a
Material Adverse Change with respect to the Borrower or Subsidiary of the
Borrower.
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7.3.6 Certain Events.
Written notice to the Agent:
(i) at least thirty (30) calendar days prior
thereto, with respect to any proposed sale or transfer of assets pursuant to
Section 7.2.7(v).
(ii) within the time limits set forth in
Section 7.2.14, the amendment to the charter affecting the capital structure of
the Borrower or any of its Subsidiaries.
7.3.7 Budgets, Forecasts, Other Reports and
Information.
Promptly upon their becoming available to the Borrower:
(i) the annual budget and any forecasts or
projections of the Borrower and its Subsidiaries, to be supplied at the request
of the Agent prior to commencement of the fiscal year to which any of the
foregoing may be applicable,
(ii) any reports including management letters
submitted to the Borrower by independent accountants in connection with any
annual, interim or special audit,
(iii) any reports, notices or proxy statements
generally distributed by the Borrower to its stockholders on a date no later
than the date supplied to the stockholders,
(iv) regular or periodic reports, including
Forms 10-K, 10-Q and 8-K, registration statements and prospectuses, filed by the
Borrower with the Securities and Exchange Commission,
(v) a copy of any order, issued by any
Official Body in any proceeding to which the Borrower or any of its Subsidiaries
is a party, and in which the amount in controversy exceeds $1,000,000,
(vi) such other reports and information as the
Banks may from time to time reasonably request. The Borrower shall also notify
the Banks promptly of the enactment or adoption of any Law which may result in a
Material Adverse Change with respect to the Borrower or any Subsidiary of the
Borrower, and
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(vii) within 60 days of closing on any
acquisition permitted under Section 7.2.6 in which the total consideration paid
by the Borrower or its Subsidiary exceeded $5,000,000, such financial
information as the Agent may reasonably request concerning the acquisition and
its effect on the financial condition and performance of the Borrower.
7.3.8 Notices Regarding Plans and Benefit
Arrangements.
7.3.8.1 Certain Events.
Promptly upon becoming aware of the occurrence
thereof, notice (including the nature of the event and, when known, any action
taken or threatened by the Internal Revenue Service or the PBGC with respect
thereto) of:
(i) any Reportable Event with respect to the
Borrower or any member of the ERISA Group for which reporting to the PBGC has
not been waived,
(ii) any Prohibited Transaction which could
subject the Borrower or any member of the ERISA Group to a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Internal Revenue Code in connection with any Plan, Benefit Arrangement or
any trust created thereunder,
(iii) any assertion of material withdrawal
liability with respect to any Multiemployer Plan,
(iv) any partial or complete withdrawal from a
Multiemployer Plan by the Borrower or any member of the ERISA Group under Title
IV of ERISA (or assertion thereof), where such withdrawal is likely to result in
material withdrawal liability,
(v) withdrawal by the Borrower or any member
of the ERISA Group from a Multiple Employer Plan,
(vi) a failure by the Borrower or any member
of the ERISA Group to make a payment to a Plan required to avoid imposition of a
lien under Section 302(f) of ERISA,
(vii) the adoption of an amendment to a Plan
requiring the provision of security to such Plan pursuant to Section 307 of
ERISA, or
(viii) any change in the actuarial assumptions
or funding
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methods used for any Plan (other than interest rate changes required
by Financial Standards Board Opinion No. 87), where the effect of such change is
to materially increase or materially reduce the unfunded benefit liability or
obligation to make periodic contributions.
7.3.8.2 Notices of Involuntary
Termination and Annual Reports.
Promptly after receipt thereof, copies of (a)
all notices received by the Borrower or any member of the ERISA Group of the
PBGC's intent to terminate any Plan administered or maintained by the Borrower
or any member of the ERISA Group, or to have a trustee appointed to administer
any such Plan; and (b) at the request of the Agent or any Bank each annual
report (IRS Form 5500 series) and all accompanying schedules, the most recent
actuarial reports, the most recent financial information concerning the
financial status of each Plan administered or maintained by the Borrower or any
member of the ERISA Group, and schedules showing the amounts contributed to each
such Plan by or on behalf of the Borrower or any member of the ERISA Group in
which any of their personnel participate or from which such personnel may derive
a benefit, and each Schedule B (Actuarial Information) to the annual report
filed by the Borrower or any member of the ERISA Group with the Internal Revenue
Service with respect to each such Plan.
7.3.8.3 Notice of Voluntary Termination.
Promptly upon the filing thereof, copies of
any Form 5310, or any successor or equivalent form to Form 5310, filed with the
PBGC in connection with the termination of any Plan.
8. DEFAULT
8.1 Events of Default.
An Event of Default shall mean the occurrence or existence of any one
or more of the following events or conditions (whatever the reason therefor and
whether voluntary, involuntary or effected by operation of Law):
8.1.1 Payments Under Loan Documents.
The Borrower shall fail to pay when due any principal of any
Loan (including scheduled installments, mandatory prepayments or the payment due
at maturity) or shall fail to pay, for more than two Business Days after the due
date, any interest on any Loan or when due any other amount owing hereunder or
under the other Loan Documents;
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8.1.2 Breach of Warranty.
Any representation or warranty made at any time by the
Borrower herein or in any other Loan Document, or in any certificate, other
instrument or statement furnished pursuant to the provisions hereof or thereof,
shall prove to have been false or misleading in any material respect as of the
time it was made or furnished;
8.1.3 Refusal to Permit Inspections; Breach of
Negative Covenants.
The Borrower shall default in the observance or performance
of any covenant contained in Section 7.1.6 or Section 7.2;
8.1.4 Breach of Other Covenants.
The Borrower shall default in the observance or performance
of any other covenant, condition or provision hereof or of any other Loan
Document and such default shall continue unremedied for a period of ten (10)
Business Days after any officer of the Borrower becomes aware of the occurrence
thereof;
8.1.5 Defaults in Other Agreements or Indebtedness.
A default or event of default shall occur at any time under
the terms of any other agreement involving borrowed money or the extension of
credit or any other Indebtedness under which the Borrower or Subsidiary of the
Borrower may be obligated as a borrower or guarantor in excess of $750,000 in
the aggregate, and such breach, default or event of default consists of the
failure to pay (beyond any period of grace permitted with respect thereto,
whether waived or not) any indebtedness when due (whether at stated maturity, by
acceleration or otherwise) or if such breach or default permits or causes the
acceleration of any indebtedness (and such right shall not have been waived) or
the termination of any commitment to lend;
8.1.6 Final Judgments or Orders.
Any final judgments or orders for the payment of money in
excess of $750,000 in the aggregate shall be entered against the Borrower or any
Subsidiary of the Borrower by a court having jurisdiction in the premises, which
judgment is not discharged, vacated, bonded or stayed pending appeal within a
period of thirty (30) days from the date of entry;
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8.1.7 Loan Document Unenforceable.
Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against the party executing the same or such
party's successors and assigns (as permitted under the Loan Documents) in
accordance with the respective terms thereof or shall in any way be terminated
(except in accordance with its terms) or become or be declared ineffective or
inoperative or shall in any way be challenged or contested or cease to give or
provide the respective Liens, security interests, rights, titles, interests,
remedies, powers or privileges intended to be created thereby;
8.1.8 Uninsured Losses; Proceedings Against Assets.
There shall occur any material uninsured damage to or loss,
theft or destruction of the assets of the Borrower or any of its Subsidiaries in
excess of $1,000,000 or the assets of the Borrower or any of its Subsidiaries
are attached, seized, levied upon or subjected to a writ or distress warrant; or
such come within the possession of any receiver, trustee, custodian or assignee
for the benefit of creditors and the same is not cured within sixty (60) days
thereafter;
8.1.9 Notice of Lien or Assessment.
A notice of Lien or assessment in excess of $750,000 which
is not a Permitted Lien is filed of record with respect to all or any part of
the assets of the Borrower or any of its Subsidiaries by the United States, or
any department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, including the Pension Benefit Guaranty
Corporation, or if any taxes or debts owing at any time or times hereafter to
any one of these becomes payable and the same is not paid within thirty (30)
days after the same becomes payable (unless the Borrower or such Subsidiary is
contesting the obligation as provided in Section 7.1.2);
8.1.10 Insolvency.
The Borrower or any Subsidiary of the Borrower ceases to be
solvent or admits in writing its inability to pay its debts as they mature;
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8.1.11 Events Relating to Plans and Benefit
Arrangements.
Any of the following occurs: (i) any Reportable Event, which
the Agent determines in good-faith constitutes grounds for the termination of
any Plan by the PBGC or the appointment of a trustee to administer or liquidate
any Plan, shall have occurred and be continuing; (ii) proceedings shall have
been instituted or other action taken to terminate any Plan, or a termination
notice shall have been filed with respect to any Plan; (iii) a trustee shall be
appointed to administer or liquidate any Plan; (iv) the PBGC shall give notice
of its intent to institute proceedings to terminate any Plan or Plans or to
appoint a trustee to administer or liquidate any Plan; and, in the case of the
occurrence of (i), (ii), (iii) or (iv) above, the Agent determines in good-faith
that the amount of the Borrower's liability is likely to exceed 10% of its
Consolidated Tangible Net Worth; (v) the Borrower or any member of the ERISA
Group shall make any amendment to a Plan with respect to which security is
required under Section 307 of ERISA; (vi) the Borrower or any member of the
ERISA Group shall withdraw completely or partially from a Multiemployer Plan;
(vii) the Borrower or any member of the ERISA Group shall withdraw (or shall be
deemed under Section 4062(e) of ERISA to withdraw) from a Multiple Employer
Plan; or (viii) any applicable Law is adopted, changed or interpreted by any
Official Body with respect to or otherwise affecting one or more Plans,
Multiemployer Plans or Benefit Arrangements and, with respect to any of the
events specified in (v), (vi), (vii), or (viii), the Agent determines in
good-faith that any such occurrence is reasonably likely to materially and
adversely affect the total enterprise represented by the Borrower and the other
members of the ERISA Group;
8.1.12 Cessation of Business.
Except as otherwise permitted herein, the Borrower or any
Subsidiary of the Borrower ceases to conduct its business as contemplated or the
Borrower is enjoined, restrained or in any way prevented by court order from
conducting all or any material part of its business and such injunction,
restraint or other preventive order is not dismissed within thirty (30) days
after the entry thereof;
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8.1.13 Change of Control.
There occurs an event or series of events by which (i) any
"person" or "group" (as such terms are defined in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder), other than Citicorp Venture Capital and Affiliates, is
or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
such Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire without
condition, other than passage of time, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 20% of the total voting power of the then outstanding voting stock of the
Borrower, or (ii) (A) the Borrower consolidates with or merges into another
corporation or conveys, transfers or leases all or substantially all of its
properties and assets (determined on a consolidated basis for the Borrower and
its Subsidiaries taken as a whole) to any Person, or (B) any corporation
consolidates with or merges into the Borrower or a Subsidiary of the Borrower in
a transaction in which the outstanding voting stock of the Borrower is changed
into or exchanged for cash, securities or other property, other than a
transaction solely between the Borrower and a Subsidiary of the Borrower;
8.1.14 Involuntary Proceedings.
A proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in respect of
the Borrower or any of its Subsidiaries in an involuntary case under any
applicable bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect, or for the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator, conservator (or similar official) of the
Borrower or any of its Subsidiaries for any substantial part of its property, or
for the winding-up or liquidation of its affairs, and such proceeding shall
remain undismissed or unstayed and in effect for a period of sixty (60)
consecutive days or such court shall enter a decree or order granting any of the
relief sought in such proceeding; or
8.1.15 Voluntary Proceedings.
The Borrower or any of its Subsidiaries shall commence a
voluntary case under any applicable bankruptcy, insolvency, reorganization or
other similar law now or hereafter in effect, shall consent to the entry of an
order for relief in an involuntary case under any such law, or shall consent to
the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator, conservator (or other similar official) of
itself or for any substantial part of its property or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any action in furtherance of any of the
foregoing.
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8.2 Consequences of Event of Default.
8.2.1 Events of Default Other Than Bankruptcy,
Insolvency or Reorganization Proceedings.
If an Event of Default specified under subsections 8.1.1
through 8.1.13 of Section 8.1 shall occur and be continuing, the Banks and the
Agent shall be under no further obligation to make Loans or issue Letters of
Credit, as the case may be, and the Agent may, and upon the request of the
Required Banks, shall (i) by written notice to the Borrower, declare the unpaid
principal amount of the Notes then outstanding and all interest accrued thereon,
any unpaid fees and all other Indebtedness of the Borrower to the Banks
hereunder and thereunder to be forthwith due and payable, and the same shall
thereupon become and be immediately due and payable to the Agent for the benefit
of each Bank without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived, and (ii) require the Borrower
to, and the Borrower shall thereupon, deposit in a non-interest bearing account
with the Agent, as cash collateral for its Obligations under the Loan Documents,
an amount equal to the maximum amount currently or at any time thereafter
available to be drawn on all outstanding Letters of Credit, and the Borrower
hereby pledges to the Agent and the Banks, and grant to the Agent and the Banks
a security interest in, all such cash as security for such Obligations. Upon the
curing of all existing Events of Default to the satisfaction of the Required
Banks, the Agent shall return such cash collateral to the Borrower; and
8.2.2 Bankruptcy, Insolvency or Reorganization
Proceedings.
If an Event of Default specified under subsections 8.1.14 or
8.1.15 of Section 8.1 shall occur, the Banks shall be under no further
obligations to make Loans hereunder and the unpaid principal amount of the Notes
then outstanding and all interest accrued thereon, any unpaid fees and all other
Indebtedness of the Borrower to the Banks hereunder and thereunder shall be
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived; and
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8.2.3 Set-off.
If an Event of Default shall occur and be continuing, any
Bank to whom any Obligation is owed by the Borrower hereunder or under any other
Loan Document or any participant of such Bank which has agreed in writing to be
bound by the provisions of Section 3.2 and 9.13 and any branch, Subsidiary or
Affiliate of such Bank or participant anywhere in the world shall have the
right, in addition to all other rights and remedies available to it, without
notice to the Borrower, to set-off against and apply to the then unpaid balance
of all the Loans and all other Obligations of the Borrower hereunder or under
any other Loan Document any debt owing to, and any other funds held in any
manner for the account of, the Borrower by such Bank or participant or by such
branch, Subsidiary or Affiliate, including all funds in all deposit accounts
(whether time or demand, general or special, provisionally credited or finally
credited, or otherwise) now or hereafter maintained by the Borrower for its own
account (but not including funds held in custodian or trust accounts) with such
Bank or participant or such branch, Subsidiary or Affiliate. Such right shall
exist whether or not any Bank or the Agent shall have made any demand under this
Agreement or any other Loan Document, whether or not such debt owing to or funds
held for the account of the Borrower is or are matured or unmatured and
regardless of the existence or adequacy of any Guaranty or any other security,
right or remedy available to any Bank or the Agent; and
8.2.4 Suits, Actions, Proceedings.
If an Event of Default shall occur and be continuing, and
whether or not the Agent shall have accelerated the maturity of Loans to the
Borrower pursuant to any of the foregoing provisions of this Section 8.2, the
Agent or any Bank, if owed any amount with respect to the Notes, may proceed to
protect and enforce its rights by suit in equity, action at law and/or other
appropriate proceeding, whether for the specific performance of any covenant or
agreement contained in this Agreement or the Notes, including as permitted by
applicable Law the obtaining of the ex parte appointment of a receiver, and, if
such amount shall have become due, by declaration or otherwise, proceed to
enforce the payment thereof or any other legal or equitable right of the Agent
or such Bank; and
8.2.5 Application of Proceeds.
From and after the date on which the Agent has taken any
action pursuant to this Section 8.2 and until all Obligations of the Borrower
has been paid in full, any and all proceeds received by the Agent from the
exercise of any other remedy by the Agent, shall be applied as follows:
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(i) first, to reimburse the Agent and the
Banks for out-of-pocket costs, expenses and disbursements, including reasonable
attorneys' and paralegals' fees and legal expenses, incurred by the Agent or the
Banks in connection with collection of any Obligations of the Borrower under any
of the Loan Documents;
(ii) second, to the repayment of all
Indebtedness then due and unpaid of the Borrower to the Banks incurred under
this Agreement or any of the Loan Documents, whether of principal, interest,
fees, expenses or otherwise, in such manner as the Agent may determine in its
discretion; and
(iii) the balance, if any, to Borrower or as
required by Law.
9. THE AGENT
9.1 Appointment.
Each Bank hereby irrevocably designates, appoints and authorizes PNC
Bank to act as Agent for such Bank under this Agreement to execute and deliver
or accept on behalf of each of the Banks the other Loan Documents. Each Bank
hereby irrevocably authorizes, and each holder of any Note by the acceptance of
a Note shall be deemed irrevocably to authorize, the Agent to take such action
on its behalf under the provisions of this Agreement and the other Loan
Documents and any other instruments and agreements referred to herein, and to
exercise such powers and to perform such duties hereunder as are specifically
delegated to or required of the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto. PNC Bank agrees to act as the Agent
on behalf of the Banks to the extent provided in this Agreement.
9.2 Delegation of Duties.
The Agent may perform any of its duties hereunder by or through agents
or employees (provided such delegation does not constitute a relinquishment of
its duties as Agent) and, subject to Sections 9.5 and 9.6, shall be entitled to
engage and pay for the advice or services of any attorneys, accountants or other
experts concerning all matters pertaining to its duties hereunder and to rely
upon any advice so obtained.
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9.3 Nature of Duties; Independent Credit Investigation.
The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and no implied covenants, functions,
responsibilities, duties, obligations, or liabilities shall be read into this
Agreement or otherwise exist. The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of this Agreement a
fiduciary or trust relationship in respect of any Bank; and nothing in this
Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement except as
expressly set forth herein. Each Bank expressly acknowledges (i) that the Agent
has not made any representations or warranties to it and that no act by the
Agent hereafter taken, including any review of the affairs of the Borrower,
shall be deemed to constitute any representation or warranty by the Agent to any
Bank; (ii) that it has made and will continue to make, without reliance upon the
Agent, its own independent investigation of the financial condition and affairs
and its own appraisal of the creditworthiness of the Borrower in connection with
this Agreement and the making and continuance of the Loans hereunder; and (iii)
except as expressly provided herein, that the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Bank
with any credit or other information with respect thereto, whether coming into
its possession before the making of any Loan or at any time or times thereafter.
9.4 Actions in Discretion of Agent; Instructions from the Banks.
The Agent agrees, upon the written request of the Required Banks, to
take or refrain from taking any action of the type specified as being within the
Agent's rights, powers or discretion herein, provided that the Agent shall not
be required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or any other Loan Document or applicable
Law. In the absence of a request by the Required Banks, the Agent shall have
authority, in its sole discretion, to take or not to take any such action,
unless this Agreement specifically requires the consent of the Required Banks or
all of the Banks. Any action taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject to Section
9.6. Subject to the provisions of Section 9.6, no Bank shall have any right of
action whatsoever against the Agent as a result of the Agent acting or
refraining from acting hereunder in accordance with the instructions of the
Required Banks, or in the absence of such instructions, in the absolute
discretion of the Agent.
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9.5 Reimbursement and Indemnification of Agent by the Borrower.
Subject to the limitations set forth in the letter agreement dated July
3, 1996 between the Agent and the Borrower, the Borrower unconditionally agrees
to pay or reimburse the Agent and save the Agent harmless against (a) liability
for the payment of all reasonable and actual out-of-pocket costs, expenses and
disbursements, including fees and expenses of counsel, appraisers and
environmental consultants, incurred by the Agent (i) in connection with the
development, negotiation, preparation, printing, execution, administration,
syndication, interpretation and performance of this Agreement and the other Loan
Documents, (ii) relating to any requested amendments, waivers or consents
pursuant to the provisions hereof, (iii) in connection with the enforcement of
this Agreement or any other Loan Document or collection of amounts due hereunder
or thereunder or the proof and allowability of any claim arising under this
Agreement or any other Loan Document, whether in bankruptcy or receivership
proceedings or otherwise, and (iv) in any workout, restructuring or in
connection with the protection, preservation, exercise or enforcement of any of
the terms hereof or of any rights hereunder or under any other Loan Document or
in connection with any foreclosure, collection or bankruptcy proceedings, and
(b) all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the Agent,
in its capacity as such, in any way relating to or arising out of this Agreement
or any other Loan Documents or any action taken or omitted by the Agent
hereunder or thereunder, provided that the Borrower shall not be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements if the same results from the
Agent's gross negligence or willful misconduct, or if the Borrower was not given
notice of the subject claim and the opportunity to participate in the defense
thereof, at its expense (except that the Borrower shall remain liable to the
extent such failure to give notice does not result in a loss to the Borrower),
or if the same results from a compromise or settlement agreement entered into
without the consent of the Borrower, which shall not be unreasonably withheld.
In addition, the Borrower agrees to reimburse and pay all reasonable
out-of-pocket expenses of the Agent's regular employees and agents engaged
periodically to perform audits of the Borrower's books, records and business
properties, provided that, before an Event of Default, the Borrower shall not be
obligated to pay for more than one such audit per year.
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9.6 Exculpatory Provisions.
Neither the Agent nor any of its directors, officers, employees,
agents, attorneys or Affiliates shall (a) be liable to any Bank for any action
taken or omitted to be taken by it or them hereunder, or in connection herewith
including pursuant to any Loan Document, unless caused by its or their own gross
negligence or willful misconduct, (b) be responsible in any manner to any of the
Banks for the effectiveness, enforceability, genuineness, validity or the due
execution of this Agreement or any other Loan Documents or for any recital,
representation, warranty, document, certificate, report or statement herein or
made or furnished under or in connection with this Agreement or any other Loan
Documents, or (c) be under any obligation to any of the Banks to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions hereof or thereof on the part of the Borrower, or the financial
condition of the Borrower, or the existence or possible existence of any Event
of Default or Potential Default. Neither the Agent nor any Bank nor any of their
respective directors, officers, employees, agents, or Affiliates shall be liable
to the Borrower for consequential damages resulting from any breach of contract
in connection with the negotiation, documentation, administration or collection
of the Loans or any of the Loan Documents.
9.7 Reimbursement and Indemnification of Agent by Banks.
Each Bank agrees to reimburse and indemnify the Agent (to the extent
not reimbursed by the Borrower and without limiting the Obligation of the
Borrower to do so) in proportion to its Ratable Share from and against all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent, in its capacity as such,
in any way relating to or arising out of this Agreement or any other Loan
Documents or any action taken or omitted by the Agent hereunder or thereunder,
provided that no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements (a) if the same results from the Agent's gross
negligence or willful misconduct, or (b) if such Bank was not given notice of
the subject claim and the opportunity to participate in the defense thereof, at
its expense (except that such Bank shall remain liable to the extent such
failure to give notice does not result in a loss to the Bank), or (c) if the
same results from a compromise and settlement agreement entered into without the
consent of such Bank, which shall not be unreasonably withheld. In addition,
each Bank agrees promptly upon demand to reimburse the Agent (to the extent not
reimbursed by the Borrower and without limiting the Obligation of the Borrower
to do so) in proportion to its Ratable Share for all amounts due and payable by
the Borrower to the Agent in connection with the Agent's periodic audit of the
Borrower's books, records and business properties.
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9.8 Reliance by Agent.
The Agent shall be entitled to rely upon any writing, telegram, telex
or teletype message, resolution, notice, consent, certificate, letter,
cablegram, statement, order or other document or conversation by telephone or
otherwise believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person or Persons, and upon the advice and opinions of
counsel and other professional advisers selected by the Agent. The Agent shall
be fully justified in failing or refusing to take any action hereunder unless it
shall first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
9.9 Notice of Default.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Potential Default or Event of Default unless the Agent has
received written notice from a Bank or the Borrower referring to this Agreement,
describing such Potential Default or Event of Default and stating that such
notice is a "notice of default."
9.10 Notices.
The Agent shall promptly send to each Bank a copy of all notices
received from the Borrower pursuant to the provisions of this Agreement or the
other Loan Documents promptly upon receipt thereof. The Agent shall promptly
notify the Borrower and the other Banks of each change in the Base Rate and the
effective date thereof.
9.11 Banks in Their Individual Capacities.
With respect to its Revolving Credit Commitments, the Revolving Credit
Loans made by it, the Agent shall have the same rights and powers hereunder as
any other Bank and may exercise the same as though it were not the Agent, and
the term "Banks" shall, unless the context otherwise indicates, include the
Agent in its individual capacity. PNC Bank and its Affiliates and each of the
Banks and their respective Affiliates may, without liability to account, except
as prohibited herein, make loans to, accept deposits from, discount drafts for,
act as trustee under indentures of, and generally engage in any kind of banking
or trust business with, the Borrower and its Affiliates, in the case of the
Agent, as though it were not acting as Agent hereunder and in the case of each
Bank, as though such Bank were not a Bank hereunder.
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9.12 Holders of Notes.
The Agent may deem and treat any payee of any Note as the owner thereof
for all purposes hereof unless and until written notice of the assignment or
transfer thereof shall have been filed with the Agent. Any request, authority or
consent of any Person who at the time of making such request or giving such
authority or consent is the holder of any Note shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Note or of any Note or
Notes issued in exchange therefor.
9.13 Equalization of Banks.
The Banks and the holders of any participations in any Notes agree
among themselves that, with respect to all amounts received by any Bank or any
such holder for application on any Obligation hereunder or under any Note or
under any such participation, whether received by voluntary payment, by
realization upon security, by the exercise of the right of set-off or banker's
lien, by counterclaim or by any other non-pro rata source, equitable adjustment
will be made in the manner stated in the following sentence so that, in effect,
all such excess amounts will be shared ratably among the Banks and such holders
in proportion to their interests in payments under the Notes, except as
otherwise provided in Sections 3.4.2, 4.4.2, or 4.6.1. The Banks or any such
holder receiving any such amount shall purchase for cash from each of the other
Banks an interest in such Bank's Loans in such amount as shall result in a
ratable participation by the Banks and each such holder in the aggregate unpaid
amount under the Notes, provided that if all or any portion of such excess
amount is thereafter recovered from the Bank or the holder making such purchase,
such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, together with interest or other amounts, if any, required by
law (including court order) to be paid by the Bank or the holder making such
purchase.
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<PAGE>
9.14 Successor Agent.
The Agent may resign as Agent by giving not less than thirty (30) days'
prior written notice to the Borrower. If the Agent shall resign under this
Agreement, then either (a) the Required Banks shall appoint from among the Banks
a successor agent for the Banks, subject to the consent of the Borrower, such
consent not to be unreasonably withheld, or (b) if a successor agent shall not
be so appointed and approved within the thirty (30) day period following the
Agent's notice to the Banks of its resignation, then the Agent shall appoint,
with the consent of the Borrower, such consent not to be unreasonably withheld,
a successor agent who shall serve as Agent until such time as the Required Banks
appoint and the Borrower consent to the appointment of a successor agent. Upon
its appointment pursuant to either clause (a) or (b) above, such successor agent
shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall mean such successor agent, effective upon its appointment, and the
former Agent's rights, powers and duties as Agent shall be terminated without
any other or further act or deed on the part of such former Agent or any of the
parties to this Agreement. After the resignation of any Agent hereunder, the
provisions of this Article 0 shall inure to the benefit of such former Agent and
such former Agent shall not by reason of such resignation be deemed to be
released from liability for any actions taken or not taken by it while it was an
Agent under this Agreement.
9.15 Agent's Fee.
The Borrower shall pay to the Agent a nonrefundable fee (the "Agent's
Fee") under the terms of a letter (the "Agent's Letter") between the Borrower
and Agent, as amended from time to time.
9.16 Availability of Funds.
Unless the Agent shall have been notified by a Bank prior to the date
upon which a Loan is to be made that such Bank does not intend to make available
to the Agent such Bank's portion of such Loan, the Agent may assume that such
Bank has made or will make such proceeds available to the Agent on such date and
the Agent may, in reliance upon such assumption (but shall not be required to),
make available to the Borrower a corresponding amount. If such corresponding
amount is not in fact made available to the Agent by such Bank, the Agent shall
be entitled to recover such amount on demand from such Bank (or, if such Bank
fails to pay such amount forthwith upon such demand from the Borrower) together
with interest thereon, in respect of each day during the period commencing on
the date such amount was made available to the Borrower and ending on the date
the Agent recovers such amount, at a rate per annum equal to the applicable
interest rate in respect of the Loan.
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<PAGE>
9.17 Calculations.
In the absence of gross negligence or willful misconduct, the Agent
shall not be liable for any error in computing the amount payable to any Bank
whether in respect of the Loans, fees or any other amounts due to the Banks
under this Agreement. In the event an error in computing any amount payable to
any Bank is made, the Agent, the Borrower and each affected Bank shall,
forthwith upon discovery of such error, make such adjustments as shall be
required to correct such error, and any compensation therefor will be calculated
at the Federal Funds Effective Rate.
9.18 Beneficiaries.
Except as expressly provided herein, the provisions of this Article 9
are solely for the benefit of the Agent and the Banks, and the Borrower shall
not have any rights to rely on or enforce any of the provisions hereof. In
performing its functions and duties under this Agreement, the Agent shall act
solely as agent of the Banks and does not assume and shall not be deemed to have
assumed any obligation toward or relationship of agency or trust with or for the
Borrower.
10. MISCELLANEOUS
10.1 Modifications, Amendments or Waivers.
With the written consent of the Required Banks, the Agent, acting on
behalf of all the Banks, and the Borrower may from time to time enter into
written agreements amending or changing any provision of this Agreement or any
other Loan Document or the rights of the Banks or the Borrower hereunder or
thereunder, or may grant written waivers or consents to a departure from the due
performance of the Obligations of the Borrower hereunder or thereunder. Any such
agreement, waiver or consent made with such written consent shall be effective
to bind all the Banks and the Borrower; provided, that, without the written
consent of all the Banks, no such agreement, waiver or consent may be made which
will:
10.1.1 Increase of Commitment; Extension or
Expiration Date.
Increase the amount of the Revolving Credit Commitment of
any Bank hereunder or extend the Expiration Date;
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10.1.2 Extension of Payment; Reduction of Principal
Interest or Fees; Modification of Terms of Payment.
Whether or not any Loans are outstanding, extend the time
for payment of principal or interest of any Loan, the Commitment Fee or any
other fee payable to any Bank, or reduce the principal amount of or the rate of
interest borne by any Loan or reduce the Commitment Fee or any other fee payable
to any Bank, or otherwise affect the terms of payment of the principal of or
interest of any Loan, the Commitment Fee or any other fee payable to any Bank;
10.1.3 Miscellaneous
Amend Sections 4.2 [Pro Rata Treatment of Banks], 9.6
[Exculpatory Provisions], 9.13 [Equalization of Banks] or this Section 10.1,
alter any provision regarding the pro rata treatment of the Banks, change the
definition of Required Banks, or change any requirement providing for the Banks
or the Required Banks to authorize the taking of any action hereunder provided
further, that no agreement, waiver or consent which would modify the interests,
rights or obligations of the Agent in its capacity as Agent or as the issuer of
Letters of Credit shall be effective without the written consent of the Agent.
10.2 No Implied Waivers; Cumulative Remedies; Writing Required.
No course of dealing and no delay or failure of the Agent or any Bank
in exercising any right, power, remedy or privilege under this Agreement or any
other Loan Document shall affect any other or future exercise thereof or operate
as a waiver thereof, nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right, power, remedy or
privilege preclude any further exercise thereof or of any other right, power,
remedy or privilege. The rights and remedies of the Agent and the Banks under
this Agreement and any other Loan Documents are cumulative and not exclusive of
any rights or remedies which they would otherwise have. Any waiver, permit,
consent or approval of any kind or character on the part of any Bank of any
breach or default under this Agreement or any such waiver of any provision or
condition of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing.
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<PAGE>
10.3 Reimbursement and Indemnification of Banks by the Borrower;
Taxes.
The Borrower agrees unconditionally upon demand to pay or reimburse to
each Bank (other than the Agent, as to which the Borrower's Obligations are set
forth in Section 9.5) and to save such Bank harmless against (i) liability for
the payment of all reasonable and actual out-of-pocket costs, expenses and
disbursements (including fees and expenses of outside counsel for each Bank
except with respect to (a) and (b) below), incurred by such Bank (a) in
connection with the administration and interpretation of this Agreement, and
other instruments and documents to be delivered hereunder, (b) relating to any
amendments, waivers or consents pursuant to the provisions hereof, (c) in
connection with the enforcement of this Agreement or any other Loan Document, or
collection of amounts due hereunder or thereunder or the proof and allowability
of any claim arising under this Agreement or any other Loan Document, whether in
bankruptcy or receivership proceedings or otherwise, and (d) in any workout,
restructuring or in connection with the protection, preservation, exercise or
enforcement of any of the terms hereof or of any rights hereunder or under any
other Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings, or (ii) all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against such Bank, in its capacity as such, in any way relating to or arising
out of this Agreement or any other Loan Documents or any action taken or omitted
by such Bank hereunder or thereunder, provided that the Borrower shall not be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements (A) if
the same results from such Bank's gross negligence or willful misconduct, or (B)
if the Borrower was not given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense (except that the Borrower
shall remain liable to the extent such failure to give notice does not result in
a loss to the Borrower), or (C) if the same results from a compromise or
settlement agreement entered into without the consent of the Borrower, which
shall not be unreasonably withheld. The Banks will attempt to minimize the fees
and expenses of legal counsel for the Banks which are subject to reimbursement
by the Borrower hereunder by considering the usage of one law firm to represent
the Banks and the Agent if appropriate under the circumstances. The Borrower
agrees unconditionally to pay all stamp, document, transfer, recording or filing
taxes or fees and similar impositions now or hereafter determined by the Agent
or any Bank to be payable in connection with this Agreement or any other Loan
Document, and the Borrower agrees unconditionally to save the Agent and the
Banks harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or
delay in paying any such taxes, fees or impositions.
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<PAGE>
10.4 Holidays.
Whenever payment of a Loan to be made or taken hereunder shall be due
on a day which is not a Business Day such payment shall be due on the next
Business Day and such extension of time shall be included in computing interest
and fee, except that the Loans shall be due on the Business Day preceding the
Expiration Date if the Expiration Date is not a Business Day. Whenever any
payment or action to be made or taken hereunder (other than payment of the
Loans) shall be stated to be due on a day which is not a business Day, such
payment or action shall be made or taken on the next following Business Day
(except as provided in Section 3.2 with respect to Interest Periods under the
Euro-Rate Option), and such extension of time shall not be included in computing
interest or fees, if any, in connection with such payment or action.
10.5 Funding by Branch, Subsidiary or Affiliate.
10.5.1 Notional Funding.
Each Bank shall have the right from time to time, without
notice to the Borrower, to deem any branch, Subsidiary or Affiliate (which for
the purposes of this Section 10.5 shall mean any corporation or association
which is directly or indirectly controlled by or is under direct or indirect
common control with any corporation or association which directly or indirectly
controls such Bank) of such Bank to have made, maintained or funded any Loan to
which the Euro-Rate Option applies at any time, provided that immediately
following (on the assumption that a payment were then due from the Borrower to
such other office), and as a result of such change, the Borrower would not be
under any greater financial obligation pursuant to Section 4.6 than they would
have been in the absence of such change. Notional funding offices may be
selected by each Bank without regard to the Bank's actual methods of making,
maintaining or funding the Loans or any sources of funding actually used by or
available to such Bank.
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<PAGE>
10.5.2 Actual Funding.
Each Bank shall have the right from time to time to make or
maintain any Loan by arranging for a branch, Subsidiary or Affiliate of such
Bank to make or maintain such Loan subject to the last sentence of this Section
10.5.2. If any Bank causes a branch, Subsidiary or Affiliate to make or maintain
any part of the Loans hereunder, all terms and conditions of this Agreement
shall, except where the context clearly requires otherwise, be applicable to
such part of the Loans to the same extent as if such Loans were made or
maintained by such Bank, but in no event shall any Bank's use of such a branch,
Subsidiary or Affiliate to make or maintain any part of the Loans hereunder
cause such Bank or such branch, Subsidiary or Affiliate to incur any cost or
expenses payable by the Borrower hereunder or require the Borrower to pay any
other compensation to any Bank (including any expenses incurred or payable
pursuant to Section 5.6 which would otherwise not be incurred).
10.6 Notices.
All notices, requests, demands, directions and other communications (as
used in this Section 0, collectively referred to as "notices") given to or made
upon any party hereto under the provisions of this Agreement shall be by
telephone or in writing (including telex or facsimile communication) unless
otherwise expressly permitted hereunder and shall be delivered or sent by telex
or facsimile to the respective parties at the addresses and numbers set forth
under their respective names on the signature pages hereof or in accordance with
any subsequent unrevoked written direction from any party to the others. All
notices shall, except as otherwise expressly herein provided, be effective (a)
in the case of telex or facsimile, when received, (b) in the case of
hand-delivered notice, when hand-delivered, (c) in the case of telephone, when
telephoned, provided, however, that in order to be effective, telephonic notices
must be confirmed in writing no later than the next day by letter, facsimile or
telex, (d) if given by mail, four (4) days after such communication is deposited
in the mail with first-class postage prepaid, return receipt requested, and (e)
if given by any other means (including by air courier), when delivered;
provided, that notices to the Agent shall not be effective until received. Any
Bank giving any notice to the Borrower shall simultaneously send a copy thereof
to the Agent, and the Agent shall promptly notify the other Banks of the receipt
by it of any such notice.
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<PAGE>
10.7 Severability.
The provisions of this Agreement are intended to be severable. If any
provision of this Agreement shall be held invalid or unenforceable in whole or
in part in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.
10.8 Governing Law.
Each Letter of Credit and Section 0 shall be subject to the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500, as the same may be revised or amended
from time to time, and to the extent not inconsistent therewith, the internal
laws of the Commonwealth of Pennsylvania without regard to its conflict of laws
principles and the balance of this Agreement shall be deemed to be a contract
under the Laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the internal laws of
the Commonwealth of Pennsylvania without regard to its conflict of laws
principles.
10.9 Prior Understanding.
This Agreement and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto and thereto relating to the transactions provided for herein and therein,
including any prior confidentiality agreements and commitments.
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<PAGE>
10.10 Duration; Survival.
All representations and warranties of the Borrower contained herein or
made in connection herewith shall survive the making of Loans and issuance of
Letters of Credit and shall not be waived by the execution and delivery of this
Agreement, any investigation by the Agent or the Banks, the making of Loans,
issuance of Letters of Credit, or payment in full of the Loans. All covenants
and agreements of the Borrower contained in Sections 7.1, 7.2 and 7.3 herein
shall continue in full force and effect from and after the date hereof so long
as the Borrower may borrow or request Letters of Credit hereunder and until
termination of the Revolving Credit Commitments and payment in full of the Loans
and expiration or termination of all Letters of Credit. All covenants and
agreements of the Borrower contained herein relating to the payment of
additional compensation or expenses and indemnification, including those set
forth in the Notes, Article 4 and Sections 9.5, 9.7 and 10.3, shall survive
payment in full of the Loans, expiration or termination of the Letters of Credit
and termination of the Revolving Credit Commitments.
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<PAGE>
10.11 Successors and Assigns.
This Agreement shall be binding upon and shall inure to the benefit of
the Banks, the Agent, the Borrower and their respective successors and assigns,
except that the Borrower may not assign or transfer any of its rights and
Obligations hereunder or any interest herein. Each Bank may, at its own cost,
make assignments of or sell participations in all or any part of its Revolving
Credit Commitment and the Loans made by it to one or more banks or other
financial institutions, subject to the consent of the Borrower and the Agent
with respect to any assignee, such consent not to be unreasonably withheld, and
provided that assignments may not be made in amounts less than $5,000,000. In
the case of an assignment, upon receipt by the Agent of the Assignment and
Assumption Agreement, the assignee shall have, to the extent of such assignment
(unless otherwise provided therein), the same rights, benefits and obligations
as it would have if it had been a signatory Bank hereunder, the Commitments in
Section 2.1 shall be adjusted accordingly, and upon surrender of any Note
subject to such assignment, the Borrower shall execute and deliver a new Note to
the assignee in an amount equal to the amount of the Revolving Credit Commitment
assumed by it and a new Revolving Credit Note to the assigning Bank in an amount
equal to the Revolving Credit Commitment retained by it hereunder. The assigning
Bank shall pay to the Agent a service fee in the amount of $3,500 for each
assignment. In the case of a participation, the selling Bank shall notify the
Borrower and the Agent of the participants identity, and the participant shall
only have the rights specified in Section 8.2.3 (the participant's rights
against such Bank in respect of such participation to be those set forth in the
agreement executed by such Bank in favor of the participant relating thereto and
not to include any voting rights except with respect to changes of the type
referenced in clauses 10.1.1., 10.1.2. or 10.1.3 under Section 10.1), all of
such Bank's obligations under this Agreement or any other Loan Document shall
remain unchanged, and all amounts payable by the Borrower hereunder or
thereunder shall be determined as if such Bank had not sold such participation.
Any assignee or participant which is not incorporated under the Laws of the
United States of America or a state thereof shall deliver to the Borrower and
the Agent the form of certificate described in Section 10.17 relating to federal
income tax withholding. Each Bank may furnish any publicly available information
concerning the Borrower or its Subsidiaries and any other information concerning
the Borrower or its Subsidiaries in the possession of such Bank from time to
time to assignees and participants (including prospective assignees or
participants), provided that such assignees and participants agree to be bound
by the provisions of Section 10.12.
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10.12 Confidentiality.
The Agent and the Banks each agree to keep confidential all information
obtained from the Borrower or its Subsidiaries which is nonpublic and
confidential or proprietary in nature (including any information the Borrower
specifically designates as confidential), except as provided below, and to use
such information only in connection with their respective capacities under this
Agreement and for the purposes contemplated hereby. The Agent and the Banks
shall be permitted to disclose such information (i) to outside legal counsel,
accountants and other professional advisors who need to know such information in
connection with the administration and enforcement of this Agreement, subject to
agreement of such Persons to maintain the confidentiality, (ii) to assignees and
participants as contemplated by Section 10.11, (iii) to the extent requested by
any bank regulatory authority or, with notice to the Borrower, as otherwise
required by applicable Law or by any subpoena or similar legal process, or in
connection with any investigation or proceeding arising out of the transactions
contemplated by this Agreement, (iv) if it becomes publicly available other than
as a result of a breach of this Agreement or becomes available from a source not
subject to confidentiality restrictions, or (v) if the Borrower shall have
consented to such disclosure.
10.13 Counterparts.
This Agreement may be executed by different parties hereto on any
number of separate counterparts, each of which, when so executed and delivered,
shall be an original, and all such counterparts shall together constitute one
and the same instrument.
10.14 Agent's or Bank's Consent.
Whenever the Agent's or any Bank's consent is required to be obtained
under this Agreement or any of the other Loan Documents as a condition to any
action, inaction, condition or event, the Agent and each Bank shall be
authorized to give or withhold such consent in its sole and absolute discretion
and to condition its consent upon the giving of additional collateral, the
payment of money or any other matter.
10.15 Exceptions.
The representations, warranties and covenants contained herein shall be
independent of each other, and no exception to any representation, warranty or
covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exceptions be deemed to permit any action or omission that would be in
contravention of applicable Law.
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<PAGE>
10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF THE COURT OF COMMON PLEAS OF CHESTER COUNTY AND THE UNITED
STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, AND WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO THE
BORROWER AT THE ADDRESSES PROVIDED FOR IN SECTION 10.6 AND SERVICE SO MADE SHALL
BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. THE BORROWER WAIVES ANY
OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS
PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE. THE BORROWER, THE AGENT AND THE BANKS HEREBY WAIVE TRIAL
BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT
OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO
THE FULL EXTENT PERMITTED BY LAW.
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<PAGE>
10.17 Tax Withholding Clause.
Each Bank or assignee or participant of a Bank that is not incorporated
under the Laws of the United States of America or a state thereof agrees that it
will deliver to each of the Borrower and the Agent two (2) duly completed copies
of the following: (i) Internal Revenue Service Form W-9, 4224 or 1001, or other
applicable form prescribed by the Internal Revenue Service, certifying that such
Bank, assignee or participant is entitled to receive payments under this
Agreement and the other Loan Documents without deduction or withholding of any
United States federal income taxes, or is subject to such tax at a reduced rate
under an applicable tax treaty, or (ii) Internal Revenue Service Form W-8 or
other applicable form or a certificate of the Bank, assignee or participant
indicating that no such exemption or reduced rate is allowable with respect to
such payments. Each Bank, assignee or participant required to deliver to the
Borrower and the Agent a form or certificate pursuant to the preceding sentence
shall deliver such form or certificate as follows: (A) each Bank which is a
party hereto on the Closing Date shall deliver such form or certificate at least
five (5) Business Days prior to the first date on which any interest or fees are
payable by the Borrower hereunder for the account of each Bank; (B) each
assignee or participant shall deliver such form or certificate at least five (5)
Business Days before the effective date of such assignment or participation
(unless the Agent in its sole discretion shall permit such assignee or
participant to deliver such form or certificate less than five (5) Business Days
before such date in which case it shall be due on the date specified by the
Agent). Each Bank, assignee or participant which so delivers a Form W-8, W-9,
4224 or 1001 further undertakes to deliver to each of the Borrower and the Agent
two (2) additional copies of such form (or a successor form) on or before the
date that such form expires or becomes obsolete or after the occurrence of any
event requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Agent, either certifying that such Bank,
assignee or participant is entitled to receive payments under this Agreement and
the other Loan Documents without deduction or withholding of any United States
federal income taxes or is subject to such tax at a reduced rate under an
applicable tax treaty or stating that no such exemption or reduced rate is
allowable. The Agent shall be entitled to withhold United States federal income
taxes at the full withholding rate unless the Bank, assignee or participant
establishes an exemption or that it is subject to a reduced rate as established
pursuant to the above provisions.
10.18 Public Filings. The Agent agrees to use reasonable efforts to
provide to the Borrower this Agreement, any other Loan Document and any
amendments or supplements hereto or thereto in a computer readable format if so
requested by the Borrower in connection with public filings.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
ATTEST: TRIUMPH GROUP, INC.
- ----------------------------- By:
Name: Richard M. Eisenstaedt -----------------------------
Name: John R. Bartholdson
Title: Secretary Title: Senior Vice President
Address for Notices:
Four Glenhardie Corporate Center
1255 Drummers Lane, Suite 200
Wayne, PA 19087-1565
Telecopier No. (610) 975-0563
Attention: John R. Bartholdson
Telephone No. (610) 975-0420
PNC BANK, NATIONAL
ASSOCIATION, individually and as Agent
By:
------------------------------------
Title:
------------------------------------
Address for Notices:
1000 Westlakes Drive, Suite 200
Berwyn, PA 19312
Telecopier No. (610) 725-5799
Attention: Warren C. Engle
Telephone No. (610) 725-5740
and
One PNC Plaza, 22nd Floor
245 Fifth Avenue
Pittsburgh, PA 15222-2707
Attention: Arlene Ohler
Telephone No. (412) 762-3627
Telecopier No. (412) 762-8672
-85-
<PAGE>
MELLON BANK, N.A.
By:
------------------------------------
Title:
------------------------------------
Address for Notices:
1735 Market Street, Room 1930750
Philadelphia, PA 19103
Telephone No.: 215-553-2199
Facsimile No.: 215-553-4899
Attn: Gilbert Mateer
and
Loan Administration Address:
Three Mellon Bank Center, 23rd Floor
Pittsburgh, PA 15859
Telephone No.: 412-234-1867
Facsimile No.: 412-234-5049
Attn: Mary Brant
-86-
<PAGE>
FIRST UNION NATIONAL BANK
By:
------------------------------------
Title:
------------------------------------
Address for Notices:
123 South Broad Street
Philadelphia, PA 19109
Telephone No.: 215-985-8487
Facsimile No.: 215-985-3719
Attn: Kenneth Wood
and
Loan Administration Address:
123 South Broad Street
Philadelphia, PA 19109
Telephone No.: 215-985-8904
Facsimile No.: 215-985-3719
Attn: Maureen McHugh
-87-
<PAGE>
Exhibit 21.1
Subsidiaries of Triumph Group, Inc.
Triumph Group Holdings, Inc.
The Triumph Group Operations, Inc.
Advanced Materials Technologies, Inc.
Aerospace Technologies, Inc.
Kilroy Steel, Inc.
Kilroy Structural Steel Co.
Frisby Aerospace, Inc.
Special Processes of Arizona, Inc.
Triumph/JDC Company
Triumph Controls, Inc.
Triumph Group Foreign Sales Corporation
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-36957) pertaining to the Triumph Group, Inc. 1996 Stock Option Plan
of our report dated April 17, 1998, with respect to the consolidated financial
statements and schedule of Triumph Group, Inc. included in the Annual Report
(Form 10-K) for the year ended March 31, 1998.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
June 16, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRIUMPH GROUP, INC. FOR THE YEAR ENDED MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001021162
<NAME> TRIUMPH GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 4,642
<SECURITIES> 0
<RECEIVABLES> 65,273
<ALLOWANCES> 1,840
<INVENTORY> 77,103
<CURRENT-ASSETS> 149,239
<PP&E> 94,728
<DEPRECIATION> 15,899
<TOTAL-ASSETS> 301,445
<CURRENT-LIABILITIES> 57,068
<BONDS> 33,823
0
0
<COMMON> 12
<OTHER-SE> 182,867
<TOTAL-LIABILITY-AND-EQUITY> 301,445
<SALES> 329,458
<TOTAL-REVENUES> 329,458
<CGS> 233,311
<TOTAL-COSTS> 285,932
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 173
<INTEREST-EXPENSE> 3,963
<INCOME-PRETAX> 39,563
<INCOME-TAX> 15,561
<INCOME-CONTINUING> 24,002
<DISCONTINUED> 0
<EXTRAORDINARY> 610
<CHANGES> 0
<NET-INCOME> 24,612
<EPS-PRIMARY> 2.35
<EPS-DILUTED> 2.19
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRIUMPH GROUP, INC. FOR THE TWELVE, THREE, SIX AND NINE
MONTHS ENDED MARCH 31, 1996, JUNE 30, 1996, SEPTEMBER 30, 1996 AND DECEMBER 31,
1996, RESPECTIVELY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0001021162
<NAME> TRIUMPH GROUP, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1997 MAR-31-1997 MAR-31-1997
<PERIOD-START> APR-01-1995 APR-01-1996 APR-01-1996 APR-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 539 430 618 897
<SECURITIES> 0 0 0 0
<RECEIVABLES> 30,653 33,097 41,940 38,900
<ALLOWANCES> 973 1,011 1,585 1,386
<INVENTORY> 45,098 48,295 52,449 55,833
<CURRENT-ASSETS> 105,282 86,646 97,864 99,773
<PP&E> 43,270 44,146 53,269 56,703
<DEPRECIATION> 6,718 7,705 8,838 9,963
<TOTAL-ASSETS> 161,406 142,297 168,862 172,601
<CURRENT-LIABILITIES> 44,903 37,038 42,499 36,765
<BONDS> 89,963 76,261 90,798 32,687
2,652 2,854 3,062 0
0 0 0 0
<COMMON> 6 6 6 10
<OTHER-SE> 15,059 16,661 18,456 87,011
<TOTAL-LIABILITY-AND-EQUITY> 161,406 142,297 168,862 172,601
<SALES> 186,774 55,184 119,100 183,791
<TOTAL-REVENUES> 186,774 55,184 119,100 183,791
<CGS> 139,740 39,146 84,686 128,413
<TOTAL-COSTS> 170,563 49,837 107,252 164,355
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 279 304
<INTEREST-EXPENSE> 7,318 2,286 4,404 5,740
<INCOME-PRETAX> 8,893 3,061 7,444 13,696
<INCOME-TAX> 3,699 1,252 3,005 5,533
<INCOME-CONTINUING> 5,194 1,809 4,439 8,163
<DISCONTINUED> 4,496 0 0 0
<EXTRAORDINARY> 0 0 (1,478) (1,478)
<CHANGES> 0 0 0 0
<NET-INCOME> 9,690 1,809 2,961 6,685
<EPS-PRIMARY> 1.53 0.28 0.44 0.67
<EPS-DILUTED> 1.37 0.25 0.39 0.61
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRIUMPH GROUP, INC. FOR THE TWELVE, THREE AND SIX MONTHS
ENDED MARCH 31, 1997, JUNE 30, 1997 AND SEPTEMBER 30, 1997, RESPECTIVELY, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0001021162
<NAME> TRIUMPH GROUP, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1998 MAR-31-1998
<PERIOD-START> APR-01-1996 APR-01-1997 APR-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 993 945 5,458
<SECURITIES> 0 0 0
<RECEIVABLES> 40,839 44,447 48,101
<ALLOWANCES> 1,619 1,478 1,488
<INVENTORY> 54,310 62,282 68,607
<CURRENT-ASSETS> 97,354 108,994 127,739
<PP&E> 59,453 63,719 79,361
<DEPRECIATION> 11,104 12,409 13,509
<TOTAL-ASSETS> 171,315 189,036 241,521
<CURRENT-LIABILITIES> 41,066 39,810 46,446
<BONDS> 23,993 35,512 66,405
0 0 0
0 0 0
<COMMON> 10 10 10
<OTHER-SE> 91,403 95,895 102,200
<TOTAL-LIABILITY-AND-EQUITY> 171,315 189,036 241,521
<SALES> 250,478 71,856 147,002
<TOTAL-REVENUES> 250,478 71,856 147,002
<CGS> 176,050 50,757 103,770
<TOTAL-COSTS> 222,871 63,656 128,423
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 17
<INTEREST-EXPENSE> 6,591 836 1,879
<INCOME-PRETAX> 21,016 7,364 16,700
<INCOME-TAX> 8,461 2,872 6,513
<INCOME-CONTINUING> 12,555 4,492 10,187
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> (1,478) 0 610
<CHANGES> 0 0 0
<NET-INCOME> 11,077 4,492 10,797
<EPS-PRIMARY> 1.19 0.46 1.11
<EPS-DILUTED> 1.09 0.43 1.03
</TABLE>
