<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1999
REGISTRATION NO. 333-84903
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.*
(Exact name of registrant as specified in its charter)
------------------------
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DELAWARE 3714 13-3983670
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
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4508 IDS CENTER, MINNEAPOLIS, MINNESOTA 55402
TELEPHONE: (612) 332-2335
(Address, including zip code, and telephone number,
including area code, of Registrants' principal offices)
THOMAS C. DINOLFO
TREASURER AND CHIEF FINANCIAL OFFICER
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
3101 S. TAYLOR, P.O. BOX 1024, SHEBOYGAN, WI 53082
TELEPHONE: (920) 458-7724
(Address, including zip code, and telephone number, including area code, of
Agent for Service)
Copy to:
CARTER W. EMERSON, P.C.
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE, CHICAGO, IL 60601
TELEPHONE: (312) 861-2000
*The companies that are listed on the next page are also included in this Form
S-4 Registration Statement as additional Registrants.
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: The
exchange will occur as soon as practicable after the effective date of this
Registration Statement.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT BECOMES EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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JURISDICTION OF I.R.S. EMPLOYER
EXACT NAME OF ADDITIONAL REGISTRANTS* FORMATION IDENTIFICATION NO.
- ------------------------------------- --------------- ------------------
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French Holdings, Inc........................................ Delaware 39-1850518
J.L. French Corporation..................................... Wisconsin 39-1098901
Allotech International, Inc................................. Wisconsin 39-1595832
</TABLE>
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* The address for each of the additional Registrants is c/o J.L. French
Automotive Castings, Inc., 4508 IDS Center, Minneapolis, Minnesota 55402 and
the primary standard industrial classification code number for each of the
additional Registrants is 3714.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER , 1999
THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SEC
IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT AN OFFER TO BUY
THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
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PROSPECTUS [LOGO]
</TABLE>
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
EXCHANGE OFFER FOR
$175,000,000
11 1/2% SENIOR SUBORDINATED NOTES DUE 2009
- ------------------------------------------------------------
WE ARE OFFERING TO EXCHANGE:
UP TO $175,000,000 OF OUR NEW 11 1/2% SENIOR SUBORDINATED NOTES DUE 2009,
SERIES B
FOR
A LIKE AMOUNT OF OUR OUTSTANDING 11 1/2% SENIOR SUBORDINATED NOTES.
MATERIAL TERMS OF EXCHANGE OFFER
- - The terms of the notes to be issued in the exchange offer are substantially
identical to the outstanding notes, except that the transfer restrictions and
registration rights relating to the outstanding notes will not apply to the
exchange notes.
- - There is no existing public market for the outstanding notes or the exchange
notes. We do not intend to list the exchange notes on any securities exchange
or seek approval for quotation through any automated trading system.
- - Expires 5:00 p.m., New York City time, , 1999, unless extended.
- - The exchange of notes will not be a taxable event for U.S. federal income tax
purposes.
- - Not subject to any condition other than that the exchange offer not violate
applicable law or any applicable interpretation of the Staff of the SEC.
- - We will not receive any proceeds from the exchange offer.
- --------------------------------------------------------------------------------
FOR A DISCUSSION OF THE MATERIAL RISKS THAT YOU SHOULD CONSIDER BEFORE
PARTICIPATING IN THIS EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF
THIS PROSPECTUS.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE NOTES
OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
OCTOBER , 1999
<PAGE>
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS, ANY
SUPPLEMENT TO THIS PROSPECTUS AND THE INFORMATION SET FORTH IN THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS.
EXCEPT FOR OUR ONGOING OBLIGATIONS TO DISCLOSE MATERIAL INFORMATION AS REQUIRED
BY THE SECURITIES LAWS, WE DO NOT HAVE ANY OBLIGATION OR INTENTION TO RELEASE
PUBLICLY ANY REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED IN THIS
PROSPECTUS TO REFLECT EVENTS OR CIRCUMSTANCES IN THE FUTURE OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS.
------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary................... 1
Risk Factors......................... 10
Forward-Looking Statements May Prove
Inaccurate......................... 18
The Exchange Offer................... 19
Use of Proceeds...................... 27
Capitalization....................... 28
Selected Financial Data.............. 29
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................ 31
Business............................. 38
Management........................... 52
Security Ownership of Certain
Beneficial Owners and Management... 57
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Certain Relationships and Related
Transactions....................... 59
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PAGE
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Description of Senior Credit
Facility........................... 63
Description of Notes................. 65
United States Federal Tax
Considerations..................... 111
Plan of Distribution................. 114
Legal Matters........................ 115
Independent Public Accountants....... 115
Available Information................ 115
Unaudited Pro Forma Financial
Statements......................... 116
Index to Financial Statements........ F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY CONTAINS THE BASIC INFORMATION ABOUT OUR COMPANY AND
THIS EXCHANGE OFFER. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU IN DECIDING WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER. WE
ENCOURAGE YOU TO READ THIS PROSPECTUS IT ITS ENTIRETY.
SUMMARY OF THE EXCHANGE OFFER
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The Initial Offering of Outstanding
Notes................................... We sold the outstanding notes on May 25, 1999 to Banc of
America Securities LLC and Chase Securities Inc. We
collectively refer to these parties in this prospectus
as the initial purchasers. The initial purchasers
subsequently resold the outstanding notes to:
- qualified institutional buyers pursuant to Rule 144A
under the Securities Act and
- qualified buyers outside the United States in reliance
upon Regulation S under the Securities Act.
Registration Rights Agreement............. Simultaneously with the initial sale of the outstanding
notes, we entered into a registration rights agreement
for the exchange offer. In the registration rights
agreement, we agreed, among other things, to use our
reasonable best efforts to file a registration statement
with the SEC and to complete this exchange offer within
180 days of issuing the outstanding notes. The exchange
offer is intended to satisfy your rights under the
registration rights agreement. After the exchange offer
is complete, you will no longer be entitled to any
exchange or registration rights with respect to your
outstanding notes.
The Exchange Offer........................ We are offering to exchange the exchange notes, which
have been registered under the Securities Act, for your
outstanding notes, which were issued on May 25, 1999 in
the initial offering. In order to be exchanged, an
outstanding note must be properly tendered and accepted.
All outstanding notes that are validly tendered and not
validly withdrawn will be exchanged. We will issue
exchange notes promptly after the expiration of the
exchange offer.
Resales................................... We believe that the exchange notes issued in the
exchange offer may be offered for resale, resold and
otherwise transferred by you without compliance with the
registration and prospectus delivery provisions of the
Securities Act, provided that:
- the exchange notes are being acquired in the ordinary
course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or understanding
with any person to participate, in the distribution of
the exchange notes issued to you in the exchange
offer; and
- you are not an affiliate of ours.
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1
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If any of these conditions are not satisfied and you
transfer any exchange notes issued to you in the
exchange offer without delivering a prospectus meeting
the requirements of the Securities Act or without an
exemption from registration of your exchange notes from
such requirements, you may incur liability under the
Securities Act. We will not assume, nor will we
indemnify you against, any such liability.
Each broker-dealer that is issued exchange notes in the
exchange offer for its own account in exchange for
outstanding notes that were acquired by such
broker-dealer as a result of market-making or other
trading activities, must acknowledge that it will
deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of the
exchange notes. A broker-dealer may use this prospectus
for an offer to resell, resale or other retransfer of
the exchange notes issued to it in the exchange offer.
Record Date............................... We mailed this prospectus and the related exchange offer
documents to registered holders of outstanding notes on
, 1999.
Expiration Date........................... The exchange offer will expire at 5:00 p.m., New York
City time, on , 1999, unless we decide to
extend the expiration date.
Conditions to the Exchange Offer.......... The exchange offer is not subject to any condition other
than that the exchange offer not violate applicable law
or any applicable interpretation of the Staff of the
SEC.
Procedures for Tendering Outstanding
Notes................................... We issued the outstanding notes as global securities.
When the outstanding notes were issued, we deposited the
global notes representing the outstanding notes with
U.S. Bank Trust National Association, as book-entry
depositary. U.S. Bank issued a certificateless
depositary interest in each global note we deposited
with it, which represents a 100% interest in the notes,
to The Depositary Trust Company, known as DTC.
Beneficial interests in the outstanding notes, which are
held by direct or indirect participants in DTC through
the certificateless depositary interest, are shown on
records maintained in book-entry form by DTC.
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2
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You may tender your outstanding notes through book-entry
transfer in accordance with DTC's Automated Tender Offer
Program, known as ATOP. To tender your outstanding notes
by a means other than book-entry transfer, a letter of
transmittal must be completed and signed according to
the instructions contained in the letter. The letter of
transmittal and any other documents required by the
letter of transmittal must be delivered to the exchange
agent by mail, facsimile, hand delivery or overnight
carrier. In addition, you must deliver the outstanding
notes to the exchange agent or comply with the
procedures for guaranteed delivery. See "The Exchange
Offer--Procedures for Tendering Outstanding Notes" for
more information.
Do not send letters of transmittal and certificates
representing outstanding notes to us. Send these
documents only to the exchange agent. See "The Exchange
Offer--Exchange Agent" for more information.
Special Procedures for Beneficial
Owners.................................. If you are the beneficial owner of book-entry interests
and your name does not appear on a security position
listing of DTC as the holder of such book-entry
interests or if you are a beneficial owner of
outstanding notes that are registered in the name of a
broker, dealer, commercial bank, trust company or other
nominee and you wish to tender such book-entry interest
or outstanding notes in the exchange offer, you should
contact such person in whose name your book-entry
interests or outstanding notes are registered promptly
and instruct such person to tender on your behalf.
Withdrawal Rights......................... You may withdraw the tender of your outstanding notes at
any time prior to 5:00 p.m., New York City time on
, 1999.
Federal Income Tax Considerations......... The exchange of outstanding notes will not be a taxable
event for United States federal income tax purposes.
Use of Proceeds........................... We will not receive any proceeds from the issuance of
exchange notes pursuant to the exchange offer. We will
pay all of our expenses incident to the exchange offer.
Exchange Agent............................ U.S. Bank is serving as the exchange agent in connection
with the exchange offer.
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3
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SUMMARY OF TERMS OF THE EXCHANGE NOTES
THE FORM AND TERMS OF THE EXCHANGE NOTES ARE THE SAME AS THE FORM AND TERMS
OF THE OUTSTANDING NOTES, EXCEPT THAT THE EXCHANGE NOTES WILL BE REGISTERED
UNDER THE SECURITIES ACT. AS A RESULT, THE EXCHANGE NOTES WILL NOT BEAR THE
LEGENDS RESTRICTING THEIR TRANSFER AND WILL NOT CONTAIN THE REGISTRATION RIGHTS
AND LIQUIDATED DAMAGE PROVISIONS CONTAINED IN THE OUTSTANDING NOTES. THE
EXCHANGE NOTES REPRESENT THE SAME DEBT AS THE OUTSTANDING NOTES. BOTH THE
OUTSTANDING NOTES AND THE EXCHANGE NOTES ARE GOVERNED BY THE SAME INDENTURE. WE
USE THE TERM NOTES IN THIS PROSPECTUS TO REFER COLLECTIVELY TO THE OUTSTANDING
NOTES AND THE EXCHANGE NOTES.
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Issuer.................................... J.L. French Automotive Castings, Inc., a Delaware
corporation.
Securities................................ $175 million in principal amount of 11 1/2% senior
subordinated notes due 2009, series B.
Maturity.................................. June 1, 2009.
Interest.................................. Annual rate: 11 1/2%.
Payment frequency--every six months on June 1 and
December 1.
First payment December 1, 1999.
Ranking................................... The exchange notes are senior subordinated debt.
Accordingly, they will rank:
- behind all of our senior debt;
- equally with all of our existing and future
subordinated, unsecured debt that does not expressly
provide that it is subordinated to the exchange
notes;
- ahead of all of our future debt that expressly
provides that it is subordinated to the exchange notes;
and
- behind all of the liabilities of our foreign
subsidiaries.
As of June 30, 1999, on a pro forma basis giving effect
to additional borrowings in connection with the
acquisition of Nelson Metal, the exchange notes were
subordinated to approximately $396.5 million of our
senior debt and were effectively subordinated to an
additional $28.6 million of liabilities of our foreign
subsidiaries.
Guaranties................................ The exchange notes will be unconditionally guaranteed on
a senior subordinated basis by each of our existing and
certain of our future domestic subsidiaries. We refer to
these subsidiaries in this prospectus as the subsidiary
guarantors. The exchange notes will not be guaranteed by
any of our foreign subsidiaries.
Optional Redemption....................... On or after June 1, 2004, we may redeem some or all of
the exchange notes at any time at the redemption prices
described in the section "Description of Notes--Optional
Redemption."
Prior to June 1, 2002, we may redeem up to 35% of the
exchange notes with the proceeds of certain equity
offerings at the price listed in the section
"Description of Notes--Optional Redemption."
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4
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Mandatory Offer to Repurchase............. If we sell some types or amounts of assets or experience
specific kinds of changes in control, we must offer to
repurchase the exchange notes at the prices listed in
the section "Description of Notes--Repurchase at the
Option of Holders."
Basic Covenants of Indenture.............. The indenture under which the outstanding notes were
issued will govern the exchange notes. This indenture
contains restrictions which, among other things,
restrict our ability to:
- borrow money;
- pay dividends on stock or repurchase stock;
- make investments;
- use assets as security in other transactions; and
- sell some types and amounts assets or merge with or
into other companies.
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J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
We are one of the world's largest independent designers and manufacturers of
automotive aluminum die cast components and assemblies. Our principal products
are highly engineered, value-added assemblies, consisting of machined aluminum
die cast components and various fastened parts. Our primary product offerings
include engine and drivetrain components and assemblies such as:
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- - oil pans - ladderframes
- - engine front covers - timing chain housings
- - transmission cases - water pump housings
- - cam covers
</TABLE>
We primarily sell to original equipment manufacturers, who are known as
OEMs, with Ford and General Motors accounting for approximately 58% and 20% of
our 1998 sales, respectively. We are a supplier on more than 20 Ford models,
including many of its highest volume vehicles, such as the F-Series and Ranger
trucks, Explorer and Taurus/Sable. We are also a supplier on many of GM's
highest volume vehicles, such as the Silverado and S-10 trucks, Blazer,
Cavalier/Sunfire and Malibu/ Intrigue. In addition, we sell to other automotive
suppliers who sell directly to OEMs, known as Tier 1 suppliers, such as Robert
Bosch, Delphi Automotive Systems and LucasVarity.
We are one of only a few major suppliers of automotive aluminum die castings
with manufacturing operations in both North America and Europe. We established
our European operations, diversified our customer base and expanded our product
capabilities through our acquisitions of Morris Ashby in January 1998 and Ansola
in April 1998. Morris Ashby, headquartered in the U.K., designs and manufactures
aluminum die cast components and tooling for customers primarily in the U.K. and
Germany. Ansola, headquartered in Spain, designs and manufactures aluminum die
cast components for customers in Germany, Spain, Portugal, Hungary and France.
Both Morris Ashby and Ansola generally manufacture smaller aluminum die castings
than J.L. French, which manufactures medium to large aluminum die castings
ranging in weight from three to nearly 50 pounds.
COMPETITIVE STRENGTHS
We possess a number of competitive strengths that have enabled us to meet
the demands of OEMs for fewer, global suppliers and to benefit from aluminum's
continued replacement of other metals in vehicles.
5
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- LOW COST, VERTICALLY-INTEGRATED MANUFACTURER: We are the only independent
automotive aluminum die caster in North America with captive aluminum
smelting capabilities, and we have in-house tool and die making
capabilities which support our manufacturing operations.
- VALUE-ADDED MANUFACTURING SERVICES: We believe that we have the most
extensive machining and assembly capabilities among independent automotive
aluminum die casters.
- BROAD RANGE OF GLOBAL MANUFACTURING CAPABILITIES: The breadth of our
global manufacturing capabilities enables us to compete for virtually any
automotive aluminum die casting business in the world.
- ADVANCED PRODUCT DESIGN AND ENGINEERING CAPABILITIES: Our extensive design
and engineering capabilities have resulted in strong, collaborative
customer relationships.
- WELL POSITIONED ON HIGH VOLUME PRODUCT PLATFORMS: We are a supplier on
many of the highest volume product platforms, including the top three and
12 of the top 20 selling vehicles in the U.S. in 1998.
- INDUSTRY LEADING PRODUCT QUALITY: Our customers recognize us for our high
product quality and low levels of defective parts. We are a Ford Q1
supplier and a GM S.P.E.A.R.1 supplier.
- PROVEN MANAGEMENT TEAM: The 18 most senior members of our management
average over 20 years of experience in the automotive industry and our
chief executive officer, Charles M. Waldon, has over 30 years of
experience in the automotive aluminum die casting industry.
BUSINESS STRATEGY
Our strategic objective is to become the leading global supplier of aluminum
die castings to OEMs. With the acquisitions of Morris Ashby and Ansola, we have
the capability to globally manufacture a complete range of automotive aluminum
die cast engine and drivetrain components and assemblies. Key elements of our
strategy include the following:
- Continuing to increase our large aluminum casting business
- Maximizing the profitability of Morris Ashby and Ansola
- Pursuing continuous operating improvements
- Diversifying our customer base
- Designing and engineering high value-added assemblies
- Continuing to develop global supply capabilities by expanding into new
geographic markets
- Pursuing strategic acquisitions
Our principal executive offices are located at 4508 IDS Center, Minneapolis,
Minnesota 55402, and our telephone number is (612) 332-2335.
6
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RECENT DEVELOPMENTS
On October 15, 1999, we acquired all of the outstanding stock of Nelson
Metal Products Corporation for an aggregate purchase price of $179.8 million
including transaction costs. Nelson Metal is a full service supplier of medium
and large aluminum die castings for the automotive industry, with manufacturing
facilities in Grandview, Michigan and Glasgow, Kentucky. Nelson Metal's
customers include GM and Ford. In connection with the acquisition of Nelson
Metal we:
- amended and restated our senior credit facility to provide for additional
borrowings of $100.0 million;
- borrowed $30.0 million from Tower Automotive, Inc. in exchange for our
issuance of a 7.5% convertible subordinated promissory note; and
- issued 8,310 shares of our common stock, representing 15.9% of our
outstanding common stock to some of our existing stockholders, including
Onex and J2R, and to other persons who are affiliates or employees of
Onex.
For more information regarding the terms of our amended and restated senior
credit facility, see "Description of Senior Credit Facility" and for more
information regarding the terms of the promissory note issued to Tower
Automotive, see "Certain Relationships and Related Transactions."
On August 17, 1999, our newly formed subsidiary, J.L. French S. de R.L. de
C.V., acquired the business and assets of Inyecta Alum, S.A. de C.V., a Mexican
supplier of aluminum die castings to DaimlerChrysler and GM, as well as the
assets of Fundimex Pizzi, S.A. de C.V., an aluminum processor for Inyecta, for
an aggregate purchase price of $13.3 million. This acquisition was financed with
cash on hand and available borrowings under our senior credit facility.
THE RECAPITALIZATION
On April 21, 1999, we completed a recapitalization in which a group of
equity investors, including affiliates of Onex Corporation and J2R Corporation,
acquired approximately 87% of our common stock for $156.0 million in cash. Our
stockholders prior to the recapitalization retained approximately 13% of our
common stock and, together with holders of outstanding options, received an
aggregate of $370.3 million in cash in connection with our redemption of their
other equity interest, plus an additional $5.9 million based upon a post-closing
determination of our total working capital as of the closing date of the
recapitalization. As part of the recapitalization, we:
- borrowed $295.0 million under a new secured senior credit facility, which
we have recently amended in connection with the acquisition of Nelson
Metal;
- borrowed $130.0 million under a new senior subordinated credit facility,
which we subsequently repaid with a portion of the proceeds of the
original issuance of the outstanding notes;
- repaid $184.0 million of our existing indebtedness;
- paid $6.2 million in fees and expenses incurred in connection with the
recapitalization;
- retained approximately $10.9 million of borrowing proceeds for working
capital purposes; and
- recorded $21.2 million of recapitalization expenses during the second
quarter of 1999, representing payments made to option holders in excess of
the exercise price of their options.
We collectively refer to these transactions in this prospectus as the
recapitalization. See "Certain Relationships and Related Transactions--The
Recapitalization" for additional information.
THE EQUITY INVESTORS
Hidden Creek is a private industrial management company that provides
strategic, financial and acquisition functions for its affiliated companies.
Hidden Creek focuses exclusively on the automotive and heavy truck parts supply
industries. Hidden Creek is a partnership comprised of Onex and J2R Corporation
and is based in Minneapolis, Minnesota. Onex is a publicly owned holding company
based in Canada with annual revenues of approximately $6.0 billion. J2R Partners
III is a partnership formed by J2R Corporation and is comprised of members of
Hidden Creek's management. J2R Partners III owns approximately 17% of our
outstanding common stock and Onex owns approximately 40% of our outstanding
common stock. As a result of the terms of a stockholders agreement, Onex
currently controls 87% of the voting power of our outstanding common stock,
which includes the voting power of the shares held by J2R.
7
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SUMMARY HISTORICAL FINANCIAL DATA
We derived the following historical financial information from the
consolidated financial statements of French Automotive for the nine months ended
December 31, 1996 and for the years ended December 31, 1997 and 1998 and the six
months ended June 30, 1998 and 1999. The unaudited financial data at June 30,
1999, for the six months ended June 30, 1998 and 1999 include adjustments, all
of which are normal recurring adjustments, which our management considers
necessary for a fair presentation of our results for these unaudited periods.
The results of operations for the six months ended June 30, 1999 are not
necessarily indicative of the results of operations which we expect for the full
1999 calendar year.
You should read the following summary together with the "Management's
Discussion and Analysis of Results of Operations and Financial Condition" for
French Automotive and the audited and unaudited financial statements and the
related notes and the unaudited pro forma financial statements and related notes
contained elsewhere in this prospectus.
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<CAPTION>
NINE MONTHS YEAR ENDED SIX MONTHS ENDED
ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------- -------------------
1996 1997 1998(1) 1998(1) 1999
------------ -------- -------- -------- --------
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(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Sales........................................... $106,941 $169,510 $295,690 $145,563 $165,689
Cost of sales................................... 75,697 116,522 221,040 108,467 123,406
-------- -------- -------- -------- --------
Gross profit.................................. 31,244 52,988 74,650 37,096 42,283
Selling, general and administrative expenses.... 3,359 5,649 16,802 8,882 10,228
Recapitalization expenses....................... -- -- -- -- 21,151
Amortization of intangible assets............... 18,692 20,680 16,861 8,484 5,505
-------- -------- -------- -------- --------
Operating income.............................. 9,193 26,659 40,987 19,730 5,399
Interest expense................................ 11,973 13,981 20,533 8,844 13,823
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary loss.......................... (2,780) 12,678 20,454 10,886 (8,424)
Provision (benefit) for income taxes............ (1,126) 4,954 8,299 4,376 (3,369)
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss....... (1,654) 7,724 12,155 6,510 (5,055)
Extraordinary loss.............................. -- -- 805 805 8,112
-------- -------- -------- -------- --------
Net income (loss)............................... $ (1,654) $ 7,724 $ 11,350 $ 5,705 $(13,167)
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Depreciation.................................... $ 7,188 $ 10,357 $ 19,176 $ 9,051 $ 11,060
Amortization.................................... 18,692 20,680 16,861 8,484 5,505
Capital expenditures............................ 2,995 24,530 34,640 16,815 10,727
EBITDA(2)....................................... 35,073 57,696 77,024 37,265 21,964
EBITDA margin(3)................................ 32.8% 34.0% 26.0% 25.6% 13.3%
Net cash provided by (used in):
Operating activities.......................... 26,721 29,629 39,055 11,378 (8,927)
Investing activities.......................... (230,760) (24,530) (109,418) (88,555) (12,157)
Financing activities.......................... 225,665 (12,287) 59,871 70,971 43,296
Ratio of earnings to fixed charges(4)........... --(4) 1.8x 1.9x 2.1x --(4)
</TABLE>
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<TABLE>
<CAPTION>
AS OF
JUNE 30, 1999
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<S> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................................... $ 27,357
Working capital............................................. 74,643
Total assets................................................ 438,708
Total debt.................................................. 471,476
Total stockholders' deficit................................. (78,335)
</TABLE>
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(1) Includes the results of operations of (i) Morris Ashby from January 12, 1998
and (ii) Ansola from April 30, 1998, their respective dates of acquisition.
(2) EBITDA is operating income plus depreciation and amortization. EBITDA does
not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted accounting
principles, and our method of calculating EBITDA may not be comparable to
similarly titled measures reported by other companies. We believe that it is
widely accepted that EBITDA provides useful information regarding a
company's ability to service and/or incur indebtedness. This belief is
based, in part, on our negotiations with our lenders who have required that
the interest payable under our senior credit facility be based, in part, on
our ratio of consolidated senior funded indebtedness to EBITDA. EBITDA does
not take into account our working capital requirements, debt service
requirements and other commitments and, accordingly, is not necessarily
indicative of amounts that may be available for discretionary use.
(3) EBITDA margin is EBITDA divided by sales. We believe that it is widely
accepted that EBITDA margin is a useful period-to-period measure of a
company's ability to generate cash to service its indebtedness.
(4) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense, amortization of debt issuance costs and one-third of
rental expense, deemed representative of that portion of rental expense
estimated to be attributable to interest. The pro forma ratio of earnings to
fixed charges for the six months ended June 30, 1999 would have been 1.2x.
Earnings for the nine months ended December 31, 1996, the pro forma year
ended December 31, 1998 and the six months ended June 30, 1999 were
insufficient to cover fixed charges for such periods by approximately
$2.8 million, $36.2 million and $8.4 million, respectively.
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RISK FACTORS
YOU SHOULD READ AND CONSIDER CAREFULLY EACH OF THE FOLLOWING FACTORS, AS
WELL AS THE OTHER INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS, BEFORE MAKING A DECISION TO PARTICIPATE IN THE EXCHANGE OFFER.
RISKS ASSOCIATED WITH THE EXCHANGE OFFER
THERE IS NO PUBLIC MARKET FOR THE EXCHANGE NOTES--YOU MAY NOT BE ABLE TO SELL
YOUR EXCHANGE NOTES
The exchange notes will be registered under the Securities Act, but will
constitute a new issue of securities with no established trading market, and
there can be no assurance as to:
- the liquidity of any trading market that may develop;
- the ability of holders to sell their exchange notes; or
- the price at which the holders would be able to sell their exchange notes.
If a trading market were to develop, the exchange notes may trade at higher or
lower prices than their principal amount or purchase price, depending on many
factors, including prevailing interest rates, the market for similar debentures
and our financial performance.
We understand that the initial purchasers presently intend to make a market
in the notes. However, they are not obligated to do so, and may discontinue
making a market in the notes at any time without notice. In addition, this
market-making activity will be subject to the limits imposed by the Securities
Act and the Securities Exchange Act, and may be limited during the exchange
offer or the pendency of an applicable shelf registration statement. There can
be no assurance that an active trading market will exist for the exchange notes
or that any trading market that develops will be liquid.
RISKS RELATED TO THE NOTES
OUR BUSINESS MAY BE ADVERSELY IMPACTED AS A RESULT OF OUR SUBSTANTIAL LEVERAGE
We have a significant amount of indebtedness. As of June 30, 1999, on a pro
forma basis giving effect to the acquisition of Nelson Metal, we had
approximately $601.5 million of outstanding debt and approximately
$43.3 million of stockholders' deficit. In addition, we will be able to incur
substantial additional indebtedness in the future. The terms of the indenture do
not fully prohibit us from doing so. We are permitted to incur additional
borrowings of up to $33.5 million less outstanding letters of credit, subject to
certain financial covenants, under our amended senior credit facility.
Our indebtedness could have several important consequences for you,
including, but not limited to, the following:
- it may be difficult for us to satisfy our obligations under the notes;
- our ability to obtain additional financing in the future for working
capital, capital expenditures, potential acquisition opportunities,
general corporate purposes or other purposes may be impaired;
- a substantial portion of our cash flow from operations must be dedicated
to the payment of principal and interest on our indebtedness;
- we may be more vulnerable to economic downturns, may be limited in our
ability to withstand competitive pressures and may have reduced
flexibility in responding to changing business, regulatory and economic
conditions; and
- fluctuations in market interest rates will affect the cost of our
borrowings to the extent not covered by interest rate hedge agreements
because approximately $396.5 million of our
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indebtedness as of June 30, 1999, on a pro forma basis giving effect to
the acquisition of Nelson Metal, was payable at variable rates.
WE MAY BE UNABLE TO GENERATE SUFFICIENT CASH TO SERVICE OUR INDEBTEDNESS
Our ability to service our indebtedness will depend on our future
performance, which will be affected by prevailing economic conditions and
financial, business, regulatory and other factors. Some of these factors are
beyond our control. We believe that, based upon current levels of operations, we
will be able to meet our debt service obligations. However, because it is
difficult to predict our liquidity and capital requirements in the future, it is
not possible to predict whether we will be able to meet our debt service
obligations in the long term, I.E. beyond the next twelve months. Even with
respect to the short term, significant assumptions underlie our belief that we
will be able to meet our debt service obligation, including, among other things,
that we will continue to be successful in implementing our business strategy and
that there will be no material adverse developments in our business, liquidity
or capital requirements. During the six months ended June 30, 1999, our earnings
were insufficient to cover our fixed charges. If we were to continue to generate
insufficient cash flow from operations to service our indebtedness and to meet
our other obligations and commitments, we might be required to refinance our
debt or to dispose of assets to obtain funds for such purpose. There is no
assurance that refinancings or asset dispositions could be effected on a timely
basis or on satisfactory terms, if at all, or would be permitted by the terms of
the indenture or our senior credit facility. In the event that we are unable to
refinance our senior credit facility or raise funds through asset sales, sales
of equity or otherwise, our ability to pay principal of, and interest on, the
notes would be impaired.
WE ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS AND COVENANTS UNDER OUR SENIOR CREDIT
FACILITY
Our senior credit facility contains numerous restrictive covenants,
including, but not limited to, covenants that restrict our ability to incur
indebtedness, pay dividends, create liens, sell assets, engage in mergers and
acquisitions and refinance indebtedness. In addition, our senior credit facility
also requires us to maintain financial ratios. Our ability to comply with the
covenants and other terms of the senior credit facility, to satisfy our other
debt obligations and to make cash payments with respect to the notes will depend
on our future operating performance. In the event that we fail to comply with
the various covenants contained in our senior credit facility, we would be in
default under the service credit facility, and in any such case, the maturity of
substantially all of our long-term indebtedness could be accelerated.
A default under the indenture would also constitute an event of default
under our senior credit facility. In addition, the lenders under the senior
credit facility could elect to declare all amounts borrowed thereunder, together
with accrued interest, to be due and payable. If we were unable to repay such
borrowings, such lenders could proceed against our assets, which secure our
borrowings under the senior credit facility. If the indebtedness under the
senior credit facility were to be accelerated, there can be no assurance that
our assets would be sufficient to repay the indebtedness under the service
credit facility and the notes in full. The senior credit facility prohibits the
repayment, purchase, redemption, defeasance or other payment of any of the
principal of the notes at any time prior to their stated maturity. See
"Description of Senior Credit Facility" and "Description of Notes."
THE NOTES AND GUARANTIES ARE UNSECURED SUBORDINATED OBLIGATIONS
The indebtedness evidenced by the notes will be an unsecured obligation of
French Automotive, and the indebtedness evidenced by the subsidiary guaranties
will be unsecured obligations of the subsidiary guarantors. The payment of
principal of, premium, if any, and interest on the notes will be subordinated in
right of payment to all of our senior indebtedness, including the payment of the
senior credit facility, and the payment of the subsidiary guaranties will be
subordinated in right of payment to all senior indebtedness of the subsidiary
guarantors, including the subsidiary guarantors' respective
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guarantees of the senior credit facility. As of June 30, 1999, on a pro forma
basis giving effect to the acquisition of Nelson Metal, our senior indebtedness
was approximately $396.5 million.
By reason of the subordination provisions of the indenture, in the event of
insolvency, liquidation, reorganization, dissolution or other winding-up of
French Automotive, or any of the subsidiary guarantors, holders of our senior
indebtedness, or of any of the subsidiary guarantors, as the case may be, will
have to be paid in full before we make payments in respect of the notes or
before any of the subsidiary guarantors make payment in respect of the
subsidiary guaranties. In addition, no payment will be able to be made under the
notes during the continuance of a payment default on senior debt and may be
prohibited for up to 179 consecutive days in the event of some specified
non-payment defaults on senior debt. See "Description of Notes--Subordination."
WE CONDUCT ALL OF OUR OPERATIONS THROUGH SUBSIDIARIES AND NOT ALL OF OUR
SUBSIDIARIES ARE SUBSIDIARY GUARANTORS
We conduct all of our operations through subsidiaries. Distributions and
intercompany transfers from our subsidiaries to us may be restricted by
covenants contained in debt agreements and other agreements to which our
subsidiaries may be subject and may be restricted by other agreements entered
into in the future and by applicable law. There can be no assurance that the
operating results of our subsidiaries at any given time will be sufficient to
make distributions to us.
The subsidiary guarantors include only our existing and certain future
domestic subsidiaries. Therefore, the notes are effectively subordinated to all
existing and future liabilities, including trade payables, of our foreign
subsidiaries. As a result, our right, and consequently any right of the holders
of the notes, to participate in any distribution of assets of our foreign
subsidiaries upon the liquidation, reorganization or insolvency of any such
subsidiary will be subject to the prior claims of such subsidiaries' creditors.
For financial data regarding our non-guarantor subsidiaries, see footnote 14 to
our consolidated financial statements.
THERE IS NO ASSURANCE THAT WE WILL BE ABLE TO PURCHASE THE NOTES UPON A CHANGE
OF CONTROL
We will be required to offer to repurchase all notes that are outstanding at
a price equal to 101% of the notes' principal amount plus accrued and unpaid
interest upon the occurrence of the following change-of-control events:
- a person other than Onex or J2R and their affiliates gains 50% of the
voting power of our common stock;
- all or substantially all of our assets are sold to a person other than
Onex or J2R and their affiliates;
- we adopt a plan of liquidation or dissolution;
- the first date on which the members of our board of directors at the time
the indenture was adopted, and persons elected by such directors, cease to
constitute a majority of our board of directors; or
- a merger in which our common stock is converted into property other than
voting stock and the holders of our common stock immediately prior to the
merger cease to hold a majority of the common stock of the surviving
corporation.
We would fund any repurchase obligation with our available cash, cash generated
from other sources such as borrowings, sales of equity or funds provided by a
new controlling person. However, we cannot assure you that there will be
sufficient funds available for any required repurchases of the notes if a change
of control occurs.
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In addition, our senior credit facility prohibits us from repurchasing the
notes after a change of control until we first repay our debt under the senior
credit facility in full. As of June 30, 1999, on a pro forma basis giving effect
to the acquisition of Nelson Metal, there was approximately $361.4 million
outstanding under the senior credit facility. If we fail to repurchase the notes
in that circumstance, we will go into default under both the notes and the
senior credit facility. Any future debt that we incur may also contain
restrictions on repayment which come into effect upon a change of control. If a
change of control occurs, we cannot assure you that we will have sufficient
funds to satisfy all of our debt obligations. These buyback requirements may
also delay or make it harder for others to obtain control of French Automotive.
In addition, some important corporate events, such as leveraged
recapitalizations, that would increase the level of our indebtedness, would not
necessarily constitute a change of control under the indenture. See "Description
of Notes--Repurchase at the Option of Holders--Change of Control" for additional
information.
IF A COURT WERE TO FIND THAT THE ISSUANCE OF THE NOTES OR THE SUBSIDIARY
GUARANTIES CONSTITUTED A FRAUDULENT CONVEYANCE, A COURT COULD AVOID OUR
OBLIGATIONS UNDER THE NOTES OR THE SUBSIDIARY GUARANTORS' OBLIGATIONS UNDER
THE SUBSIDIARY GUARANTIES
Under federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, if a court found that either we or the subsidiary guarantors:
(1) issued the notes or assumed the obligations under the subsidiary
guaranties with the intent of hindering, delaying or defrauding current or
future creditors; or
(2) did not receive fair value for issuing the notes or assuming the
obligations under the subsidiary guaranties and
- were either insolvent at the time we issued the notes or incurred the
obligations under the subsidiary guaranties or rendered insolvent by doing
so;
- did not have sufficient assets to engage in the business in which we were
engaged; or
- intended to incur, or believed that we would incur, debts beyond our
ability to pay the debts as they matured,
then, a court could void all or a part of our or the subsidiary guarantors'
obligations or subordinate the notes and the subsidiary guaranties to all of our
or the subsidiary guarantors' other debts. As a result, other creditors would be
entitled to be paid in full before any payment could be made on the notes, and
the notes could possibly be invalidated. If this were to occur, we cannot assure
you that you would ever recover repayment on your notes.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a debtor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets; or
- if the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they became due.
We believe that we received fair market value for the indebtedness incurred
in connection with the recapitalization and for the notes. On the basis of
historical financial information, recent operating history and other factors, we
believe that, following the recapitalization and the initial offering of the
outstanding notes, we were not insolvent, had sufficient assets to engage in the
business in which we
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were engaged and did not incur debts beyond our ability to pay such debts as
they mature. There can be no assurance, however, as to what standard a court
would apply in making such determinations or that a court would agree with our
conclusions in this regard.
YOUR OUTSTANDING NOTES WILL NOT BE ACCEPTED FOR EXCHANGE IF YOU FAIL TO FOLLOW
THE EXCHANGE OFFER PROCEDURES
We will issue exchange notes pursuant to this exchange offer only after a
timely receipt of your outstanding notes, a properly completed and duly executed
letter of transmittal and all other required documents. Therefore, if you want
to tender your outstanding notes, please allow sufficient time to ensure timely
delivery. We are under no duty to give notification of defects or irregularities
with respect to the tenders of outstanding notes for exchange.
In addition, if you tender your outstanding notes in the exchange offer for
the purpose of participating in a distribution of the exchange notes, you may be
deemed to have received restricted securities, and if so, you will be required
to comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES, YOUR OUTSTANDING NOTES WILL
CONTINUE TO BE SUBJECT TO THE EXISTING TRANSFER RESTRICTIONS AND YOU MAY BE
UNABLE TO SELL YOUR OUTSTANDING NOTES
We did not register the outstanding notes, nor do we intend to do so
following the exchange offer. Outstanding notes that are not tendered will
therefore continue to be subject to the existing transfer restrictions and may
be transferred only in limited circumstances under the securities laws. If you
do not exchange your outstanding notes, you will lose your right to have your
outstanding notes registered under the federal securities laws. As a result, if
you hold outstanding notes after the exchange offer, you may be unable to sell
your outstanding notes.
RISKS RELATING TO FRENCH AUTOMOTIVE AND THE AUTOMOTIVE SUPPLY INDUSTRY
WE ARE DEPENDENT ON FORD AND GM AS OUR LARGEST CUSTOMERS
Our sales to Ford and GM represented approximately 58% and 20%,
respectively, of our 1998 sales. The loss of Ford or GM as a customer would have
a material adverse effect on us. The contracts we have entered into with many of
our customers provide for supplying the customers' requirements for a particular
platform, rather than for manufacturing a specific quantity of units. Such
contracts range from one year to the life of the platform, usually three to
seven years, and do not require the purchase by the customer of any minimum
number of units. Therefore, the loss of either GM or Ford as customers or a
significant decrease in demand for key platforms sold by either of these
customers could have a material adverse effect on us.
There is substantial and continuing pressure from OEMs to reduce costs,
including the cost of products purchased from outside suppliers such as French
Automotive. If we are unable to generate sufficient production cost savings in
the future to offset price reductions, our gross margin could be adversely
affected.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS
We generate a significant portion of our sales and incur a significant
portion of our expenses in currencies other than dollars. To the extent that we
are unable to match sales received in foreign currencies with costs paid in the
same currency, exchange rate fluctuations could have an adverse effect on our
financial results. There are additional risks inherent in international
operations, including the risks that:
- foreign customers may have longer payment cycles than customers in the
United States;
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- tax rates in some foreign countries may exceed those in the United States
and foreign earnings may be subject to withholding requirements or the
imposition of tariffs, exchange controls or other restrictions; and
- large organizations spread throughout various countries are more difficult
to manage.
As we continue to expand our business globally, our success will be
dependent, in part, on our ability to anticipate and effectively manage these
and other risks. We cannot assure you that these and other factors will not have
a material adverse effect on our international operations or our business as a
whole.
WE MAY BE ADVERSELY IMPACTED BY WORK STOPPAGES AND OTHER LABOR MATTERS
Approximately 280 of Nelson Metal's employees are unionized, representing
approximately 10% of our employees following our acquisition of Nelson Metal. We
cannot assure you that we will not encounter strikes, further unionization
efforts or other types of conflicts with labor unions or our employees. Any of
these factors may have an adverse effect on us or may limit our flexibility in
dealing with our workforce.
In addition, many OEMs and their suppliers have unionized work forces. Work
stoppages or slow-downs experienced by OEMs or their suppliers could result in
slow-downs or closures of assembly plants where our products are included in
assembled vehicles. For example, strikes by the United Auto Workers led to the
shut down of most of GM's North American assembly plants in June and July 1998.
We estimate that this work stoppage at GM's facilities had an unfavorable impact
of approximately $4.6 million and $1.4 million on our 1998 sales and EBITDA,
respectively. In the event that one or more of our customers experiences a
material work stoppage, the work stoppage could have a material adverse effect
on our business. In addition, although none of our North American employees and
few of our European employees are members of unions, we cannot assure you that
we will not encounter unionization efforts or other types of conflicts with our
employees in the future.
WE MAY BE ADVERSELY AFFECTED BY THE IMPACT OF ENVIRONMENTAL AND SAFETY
REGULATIONS TO WHICH WE ARE SUBJECT
We are subject to the requirements of federal, state, local and foreign
environmental and occupational health and safety laws and regulations. We cannot
assure you that we are at all times in complete compliance with all of these
requirements. We have made and will continue to make capital and other
expenditures to comply with environmental regulations. If a release of hazardous
substances occurs on or from one of our properties or any associated offsite
disposal location, or if contamination is discovered at any of our current or
former properties, we may be held liable, and the amount of this liability could
be material. We are currently addressing environmental contamination matters at
our Cheshunt, U.K. and San Andres de Echevarria, Spain facilities and at a
former facility in Grand Rapids, Michigan. See "Business--Environmental
Matters."
ONEX CURRENTLY CONTROLS ALL MATTERS SUBMITTED TO A STOCKHOLDER VOTE
As a result of the terms of a stockholders agreement, Onex currently
controls 87% of the voting power of our outstanding common stock. Therefore,
Onex is able to control the vote on all matters submitted to a stockholder vote,
including the election of directors, amendments to our certificate of
incorporation and our by-laws and approval of significant corporate mergers. See
"Certain Relationships and Related Transactions--Investor Stockholders
Agreement." Some decisions about our operations or financial structure may
present conflicts of interests between Onex and the holders of the notes. For
example, Onex may be willing to approve acquisitions, divestitures or
transactions undertaken by us that it believes could increase the value of its
equity investment in French Automotive. These kinds of transactions, however,
may increase the financial risk to note holders.
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CYCLICALITY AND SEASONALITY COULD ADVERSELY AFFECT US
The automotive market is highly cyclical and is dependent on consumer
spending. The most recent industry downturn was in the early 1990s. Economic
factors adversely affecting automotive production and consumer spending could
adversely impact us. In addition, our business is somewhat seasonal. We
typically experience decreased sales and operating income during the third
calendar quarter of each year due to the impact of scheduled OEM plant shutdowns
in July and August for vacations and new model changeovers.
WE OPERATE IN THE HIGHLY COMPETITIVE AUTOMOTIVE SUPPLY INDUSTRY
The automotive supply industry is highly competitive. Some of our
competitors are companies, or divisions or subsidiaries of companies, that are
larger and have greater financial and other resources than we do. In addition,
with respect to some of our products, our competitors are divisions of our OEM
customers. There can be no assurance that our products will be able to compete
successfully with the products of these other companies.
We principally compete for new business both at the beginning of the
development of new platforms and upon the redesign of existing platforms by our
major customers. New platform development generally begins two to five years
prior to the marketing of such platforms to the public. The failure to obtain
new business on new platforms or to retain or increase business on redesigned
existing platforms could adversely affect our business. In addition, as a result
of the relatively long lead times required for many of our complex castings, it
may be difficult in the short term for us to obtain new sales to replace any
unexpected decline in sales of existing products. We may incur significant
expense in preparing to meet anticipated customer requirements which may not be
recovered.
WE MAY EXPERIENCE DIFFICULTIES IN INTEGRATING ACQUIRED BUSINESSES
As part of our business strategy, we intend to pursue strategic acquisitions
and have recently signed a binding agreement to acquire Nelson Metals. However,
we cannot assure you that we will be successful in completing this acquisition
or any future acquisitions. Nor can we assure you that we will be successful in
integrating any acquired businesses or operating them profitably, including
Nelson Metals and the business of Inyecta. Acquisitions can present significant
challenges to management due to the increased time and resources required to
properly integrate management, employees, accounting controls, personnel and
administrative functions. We cannot assure you that we will not encounter any of
these difficulties or that we will be able to achieve the benefits we hope to
achieve from future acquisitions.
WE MAY BE ADVERSELY IMPACTED BY THE YEAR 2000 ISSUE
We are currently working to resolve the potential impact of the year 2000 on
the processing of time-sensitive information by our computerized information
systems. Any of our programs that have time-sensitive software may recognize
"00" as the year 1900 rather than the year 2000. This could result in
miscalculations, classification errors or system failures.
While our various operations are at different stages of Year 2000 readiness,
we have completed our global compliance review and, based on the information
available to date, we do not anticipate any significant readiness problems with
respect to our systems. The most reasonably likely worst case scenario that we
currently anticipate with respect to Year 2000 is the failure of some of our
suppliers, including utilities suppliers, to be ready. This could cause a
temporary interruption of materials or services that we need to make our
products, which could result in delayed shipments to customers and lost sales
and profits for us. We are in the process of completing our assessment of our
critical suppliers and have contacted all of our critical suppliers in this
respect. In addition, we have made plans to assure that we will have an adequate
supply of materials on hand to cover contingencies.
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The outcome of our Year 2000 program is subject to a number of risks and
uncertainties, some of which, such as the availability of qualified computer
personnel and the Year 2000 responses of third parties, are beyond our control.
Therefore, there can be no assurances that we will not incur material
remediation costs beyond the above anticipated future costs, or that our
business, financial condition or results of operations will not be significantly
impacted if Year 2000 problems with our systems, or with the products or systems
of other parties with whom we do business, are not resolved in a timely manner.
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FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This prospectus contains forward-looking statements that are subject to
risks and uncertainties. You should not place undue reliance on those statements
because they only speak as of the date of this prospectus. Forward-looking
statements include information concerning our possible or assumed future results
of operations, including descriptions of our business strategy. These statements
often include words such as "believe," "expect," "anticipate," "intend," "plan,"
"estimate" or similar expressions. These statements are based on assumptions
that we have made in light of our experience in the industry as well as our
perceptions of historical trends, current conditions, expected future
developments and other factors we believe are appropriate in the circumstances.
As you read and consider this prospectus, you should understand that these
statements are not guarantees of performance or results. They involve risks,
uncertainties and assumptions. Although we believe that these forward-looking
statements are based on reasonable assumptions, you should be aware that many
factors could affect our actual financial results or results of operations and
could cause actual results to differ materially from those in the
forward-looking statements. These factors include:
- general economic or business conditions affecting the automotive industry,
which is dependent on consumer spending, being less favorable than
expected;
- our failure to develop or successfully introduce new products;
- increased competition in the automotive components supply market;
- unforeseen problems associated with international sales, including gains
and losses from foreign currency exchange;
- implementation of or changes in the laws, regulations or policies
governing the automotive industry that could negatively affect the
automotive components supply industry;
- our failure to complete or successfully integrate additional strategic
acquisitions; and
- various other factors beyond our control.
All future written and oral forward-looking statements by us or persons
acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to above. Except for our ongoing obligations to
disclose material information as required by the federal securities laws, we do
not have any obligation or intention to release publicly any revisions to any
forward-looking statements to reflect events or circumstances in the future or
to reflect the occurrence of unanticipated events. YOU SHOULD ALSO READ
CAREFULLY THE FACTORS DESCRIBED IN THE "RISK FACTORS" SECTION OF THIS
PROSPECTUS.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We originally sold the outstanding notes on May 25, 1999 to the initial
purchasers pursuant to the purchase agreement. The initial purchasers
subsequently placed the outstanding notes with (1) qualified institutional
buyers in reliance on Rule 144A under the Securities Act and (2) qualified
buyers outside the United States in reliance upon Regulation S under the
Securities Act.
As a condition of the purchase agreement, we entered into the registration
rights agreement. The registration rights agreement provides that:
(1) we will file a registration statement relating to the exchange offer
(the "exchange offer registration statement") with the SEC on or prior to
90 days after the closing date of the initial offering of the outstanding
notes;
(2) we will use our best efforts to have the exchange offer registration
statement declared effective by the SEC on or prior to 180 days after the
closing date of the initial offering of the outstanding notes; and
(3) unless the exchange offer would not be permitted by applicable law or
SEC policy, we will commence the exchange offer and use our best
reasonable efforts to issue on or prior to 30 business days after the
date on which the exchange offer registration statement was declared
effective by the SEC, exchange notes in exchange for all outstanding
notes tendered in the exchange offer.
For each outstanding note surrendered to us in the exchange offer, the holder of
the outstanding note will receive an exchange note having a principal amount
equal to that of the surrendered note. Interest on each exchange note will
accrue from the last interest payment date on which interest was paid on the
outstanding note surrendered or, if no interest has been paid on the outstanding
note, from the date of its original issue. Interest on each exchange note will
accrue from the date of its original issue.
Under existing interpretations of the Staff of the SEC contained in several
no-action letters to third parties, the exchange notes will in general be freely
tradeable after the exchange offer without further registration under the
Securities Act. However, any purchaser of outstanding notes who is our affiliate
or who intends to participate in the exchange offer for the purpose of
distributing the exchange notes:
(1) will not be able to rely on the interpretation of the Staff of the SEC;
(2) will not be able to tender its outstanding notes in the exchange offer;
and
(3) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the
exchange notes, unless the sale or transfer is made pursuant to an
exemption from these requirements.
As contemplated by these no-action letters and the registration rights
agreement, each holder accepting the exchange offer is required to represent to
us in the letter of transmittal or agent's message that:
(1) the exchange notes are to be acquired by the holder or the person
receiving the exchange notes, whether or not this person is the holder,
in the ordinary course of business;
(2) the holder or any other person receiving the exchange notes, other than
a broker-dealer referred to in the next sentence, is not engaging and
does not intend to engage, in distribution of the exchange notes;
19
<PAGE>
(3) the holder or any other person receiving the exchange notes has no
arrangement or understanding with any person to participate in the
distribution of the exchange notes;
(4) neither the holder nor any other person receiving the exchange notes is
our affiliate within the meaning of Rule 405 under the Securities Act;
and
(5) the holder or any other person receiving the exchange notes acknowledges
that if the holder or any other person participates in the exchange offer
for the purpose of distributing the exchange notes it must comply with
the registration and prospectus delivery requirements of the Securities
Act in connection with any resale of the exchange notes and cannot rely
on those no-action letters.
As indicated above, each broker-dealer that receives an exchange note for its
own account in exchange for outstanding notes must acknowledge that it
(A) acquired the outstanding notes for its own account as a result of
market-making activities or other trading activities, (B) has not entered into
any arrangement or understanding with us or any of our affiliates within the
meaning of Rule 405 under the Securities Act to distribute the exchange notes to
be received in the exchange offer and (C) will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of the exchange
notes. For a description of the procedures for resales by these broker-dealers,
see "Plan of Distribution."
In the event that changes in the law or the applicable interpretations of
the Staff of the SEC do not permit us to effect an exchange offer, or if for any
other reason we do not meet the time periods set forth in the second paragraph
of this section, we will:
(1) file a shelf registration statement covering resales of the outstanding
notes;
(2) use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act; and
(3) use our reasonable best efforts to keep effective the shelf registration
statement until two years after the closing date of the initial offering.
We will, in the event of the filing of the shelf registration statement, provide
to each applicable holder of the outstanding notes copies of the prospectus that
is a part of the shelf registration statement, notify each applicable holder
when the shelf registration statement has become effective and take other
actions as are required to permit unrestricted resale of the outstanding notes.
A holder of the outstanding notes that sells the outstanding notes pursuant to
the shelf registration statement generally will be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to the civil liability provisions under the
Securities Act in connection with these sales and will be bound by the
provisions of the registration rights agreement that are applicable to the
holder, including any indemnification obligations. In addition, each holder of
the outstanding notes will be required to deliver information to be used in
connection with the shelf registration statement and to provide comments on the
shelf registration statement within the time periods set forth in the
registration rights agreement in order to have its outstanding notes included in
the shelf registration statement and to benefit from the provisions set forth in
the following paragraph.
If:
(1) we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for the
filing;
(2) any of the registration statements is not declared effective by the SEC
on or prior to the date specified for its effectiveness; or
(3) we fail to consummate the exchange offer within 30 business days after
the registration statement becomes effective; or
20
<PAGE>
(4) the shelf registration statement or the exchange offer registration
statement is declared effective but thereafter ceases to be effective or
usable in connection with resales of any notes that are subject to
transfer restrictions under the Securities Act during the periods
specified in the registration rights agreement (each of the events
referred to in clauses (a) through (d) above a "registration default"),
then we will pay additional interest, to each holder of notes, for the first
90-day period immediately following the occurrence of the first registration
default in an amount equal to $.05 per week per $1,000 principal amount of notes
held by each holder. The amount of the additional interest will increase by an
additional $.05 per week per $1,000 principal amount of notes for each
subsequent 90-day period until all registration defaults have been cured, up to
a maximum amount of additional interest, if any, for all registration defaults
of $.50 per week per $1,000 principal amount of notes. We will pay all accrued
additional interest on each interest payment date to the global note holder by
wire transfer of immediately available funds or by federal funds check and to
holders of certificated securities by wire transfer to the accounts specified by
them or by mailing checks to their registered addresses if no accounts have been
specified. Following the cure of all registration defaults, the accrual of
additional interest will cease.
Following the consummation of the exchange offer, holders of the outstanding
notes who were eligible to participate in the exchange offer but who did not
tender their outstanding notes will not have any further registration rights and
the outstanding notes will continue to be subject to restrictions on transfer
under the securities laws. Accordingly, the liquidity of the market for the
outstanding notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all outstanding notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer. We will issue $1,000 principal amount
of exchange notes in exchange for each $1,000 principal amount of outstanding
notes accepted in the exchange offer. Holders may tender some or all of their
outstanding notes pursuant to the exchange offer. However, outstanding notes may
be tendered only in integral multiples of $1,000.
The form and terms of the exchange notes are the same as the form and terms
of the outstanding notes except that:
(1) the exchange notes bear a Series B designation and a different CUSIP
Number from the outstanding notes;
(2) the exchange notes have been registered under the Securities Act and
hence will not bear legends restricting their transfer; and
(3) the holders of the exchange notes will not be entitled to the rights
under the registration rights agreement, including the provisions
providing for an increase in the interest rate on the outstanding notes
if we fail to meet the timing requirements of the exchange offer, all of
which rights will terminate when the exchange offer is terminated.
The exchange notes will evidence the same debt as the outstanding notes and will
be entitled to the benefits of the indenture.
As of the date of this prospectus, $175,000,000 aggregate principal amount
of the outstanding notes were outstanding. We have fixed the close of business
on , 1999 as the record date for the exchange offer for purposes of
determining the persons to whom this prospectus and the letter of transmittal
will be mailed initially.
21
<PAGE>
Holders of outstanding notes do not have any appraisal or dissenters' rights
under the General Corporation Law of Delaware or the indenture in connection
with the exchange offer. We intend to conduct the exchange offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder.
We will be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral or written notice thereof to the exchange agent.
The exchange agent will act as agent for the tendering holders for the purpose
of receiving the exchange notes from us.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of other events set forth in this prospectus
or otherwise, the certificates for any unaccepted outstanding notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the expiration of the exchange offer.
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes relating to the exchange of
outstanding notes pursuant to the exchange offer. We will pay all charges and
expenses, other than transfer taxes in some circumstances, in connection with
the exchange offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" will mean 5:00 p.m., New York City time, on
, 1999, unless we, in our sole discretion, extend the exchange offer,
in which case the term "expiration date" will mean the latest date and time to
which the exchange offer is extended.
In order to extend the exchange offer, we will file with the SEC a
post-effective amendment to the registration statement. We will also notify the
exchange agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
We reserve the right, in our sole discretion, (1) to delay accepting any
outstanding notes, to extend the exchange offer or to terminate the exchange
offer if any of the conditions set forth below under "--Conditions" will not
have been satisfied, by giving oral or written notice of any delay, extension or
termination to the exchange agent or (2) to amend the terms of the exchange
offer in any manner. Any delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from their date of issuance. Holders
of outstanding notes that are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the date of issuance of the
exchange notes. Interest will be paid with the first interest payment on the
exchange notes on December 1, 1999. Interest on the outstanding notes accepted
for exchange will cease to accrue upon issuance of the exchange notes.
Interest on the exchange notes is payable semi-annually on each June 1 and
December 1, commencing on December 1, 1999.
PROCEDURES FOR TENDERING
Only a holder of outstanding notes may tender its outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must complete, sign
and date the letter of transmittal, or a facsimile of the letter of transmittal,
have the signatures on the letter of transmittal guaranteed if required by the
letter of transmittal or cause The Depository Trust Company to transmit an
agent's
22
<PAGE>
message (as defined below) in connection with a book-entry transfer, and mail or
otherwise deliver the letter of transmittal or facsimile, together with the
outstanding notes and any other required documents, to the exchange agent prior
to 5:00 p.m., New York City time, on the expiration date. To be tendered
effectively, the outstanding notes, letter of transmittal or an agent's message
and other required documents must be completed and received by the exchange
agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m.,
New York City time, on the expiration date. Delivery of the outstanding notes
may be made by book-entry transfer in accordance with the procedures described
below. Confirmation of the book-entry transfer must be received by the exchange
agent prior to the expiration date.
The term "agent's message" means a message, transmitted by DTC to, and
received by, the exchange agent forming a part of a confirmation of a
book-entry, which states that DTC has received an express acknowledgment from
the participant in DTC tendering the outstanding notes that the participant has
received and agrees: (1) to participate in ATOP; (2) to be bound by the terms of
the letter of transmittal; and (3) that we may enforce the terms of the letter
of transmittal against the participant.
By executing the letter of transmittal, each holder will make to us the
representations set forth above in the third paragraph under the heading "--
Purpose and Effect of the Exchange Offer."
The tender by a holder and our acceptance thereof will constitute agreement
between the holder and us in accordance with the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal or
agent's message.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL OR
AGENT'S MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
TO US. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THEM.
Any beneficial owner whose outstanding notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on its behalf. See "Instructions to Registered
Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner"
included with the letter of transmittal.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of the Medallion System unless the
outstanding notes tendered pursuant to the letter of transmittal are tendered
(1) by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the letter of
transmittal or (2) for the account of an eligible institution. In the event that
signatures on a letter of transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, the guarantee must be by a member firm of the
Medallion System.
If the letter of transmittal is signed by a person other than the registered
holder of any outstanding notes listed in this prospectus, the outstanding notes
must be endorsed or accompanied by a properly completed bond power, signed by
the registered holder as the registered holder's name appears on the outstanding
notes with the signature on the outstanding notes guaranteed by an eligible
institution.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
offices of corporations or others acting in a
23
<PAGE>
fiduciary or representative capacity, these persons should so indicate when
signing, and evidence satisfactory to us of its authority to so act must be
submitted with the letter of transmittal.
We understand that the exchange agent will make a request promptly after the
date of this prospectus to establish accounts with respect to the outstanding
notes at DTC for the purpose of facilitating the exchange offer, and subject to
the establishment thereof, any financial institution that is a participant in
DTC may make book-entry delivery of outstanding notes by causing DTC to transfer
the outstanding notes into the exchange agent's account for the outstanding
notes in accordance with DTC's procedures for transfer. Although delivery of the
outstanding notes may be effected through book-entry transfer into the exchange
agent's account at DTC, unless an agent's message is received by the exchange
agent in compliance with ATOP, an appropriate letter of transmittal properly
completed and duly executed with any required signature guarantee and all other
required documents must in each case be transmitted to and received or confirmed
by the exchange agent at its address set forth below on or prior to the
expiration date, or, if the guaranteed delivery procedures described below are
complied with within the time period provided under these procedures. Delivery
of documents to DTC does not constitute delivery to the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered outstanding notes and withdrawal of tendered
outstanding notes will be determined by us in our sole discretion, which
determination will be final and binding. We reserve the absolute right to reject
any and all outstanding notes not properly tendered or any outstanding notes our
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right in our sole discretion to waive any defects, irregularities or
conditions of tender as to particular outstanding notes. Our interpretation of
the terms and conditions of the exchange offer, including the instructions in
the letter of transmittal will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of outstanding
notes must be cured within the time frame we determine. Although we intend to
notify holders of defects or irregularities in their to tenders of outstanding
notes, neither we, the exchange agent nor any other person will incur any
liability for failure to give any notification. Tenders of outstanding notes
will not be deemed to have been made until any defects or irregularities have
been cured or waived. Any outstanding notes received by the exchange agent that
are not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the exchange agent to the tendering
holders, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their outstanding notes and (1) whose outstanding
notes are not immediately available, (2) who cannot deliver their outstanding
notes, the letter of transmittal or any other required documents to the exchange
agent or (3) who cannot complete the procedures for book-entry transfer, prior
to the expiration date, may effect a tender if:
(A) the tender is made through a member firm of the Medallion System;
(B) prior to the expiration date, the exchange agent receives from a member
firm of the Medallion System a properly completed and duly executed
Notice of Guaranteed Delivery by facsimile transmission, mail or hand
delivery, setting forth the name and address of the holder, the
certificate number(s) of the outstanding notes and the principal amount
of outstanding notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange
trading days after the expiration date, the letter of transmittal or
facsimile of the letter of transmittal together with the certificate(s)
representing the outstanding notes or a confirmation of book-entry
transfer of the outstanding notes into the exchange agent's account at
DTC, and any other documents required by the letter of transmittal will
be deposited by the eligible institution with the exchange agent; and
24
<PAGE>
(C) properly completed and executed letter of transmittal or facsimile of
the letter of transmittal, as well as the certificate(s) representing all
tendered outstanding notes in proper form for transfer or a confirmation
of book-entry transfer of the outstanding notes into the exchange agent's
account at DTC, and all other documents required by the letter of
transmittal are received by the exchange agent upon five New York Stock
Exchange trading days after the expiration date.
Upon request to the exchange agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of outstanding
notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the expiration date.
To withdraw a tender of outstanding notes in the exchange offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received by
the exchange agent at its address set forth in this prospectus prior to
5:00 p.m., New York City time, on the expiration date. The notice of withdrawal
must:
(1) specify the name of the person who deposited the outstanding notes to be
withdrawn;
(2) identify the outstanding notes to be withdrawn, including the
certificate number(s) and principal amount of the outstanding notes, or,
in the case of outstanding notes transferred by book-entry transfer, the
name and number of the account at DTC to be credited;
(3) be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the outstanding notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the Trustee for the outstanding
notes register the transfer of the outstanding notes into the name of the
person withdrawing the tender; and
(4) specify the name in which any outstanding notes are to be registered, if
different from that of the person who deposited the outstanding notes to
be withdrawn.
All questions as to the validity, form and eligibility, including time of
receipt, of any notices will be determined by us and our determination will be
final and binding on all parties. Any outstanding notes so withdrawn will be
deemed not to have been validly tendered for purposes of the exchange offer and
no exchange notes will be issued with respect to these outstanding notes unless
the outstanding notes so withdrawn are validly retendered. Any outstanding notes
which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to the holder as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn outstanding notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time prior
to the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange notes for, any outstanding notes,
and may terminate or amend the exchange offer as provided in this prospectus
before the acceptance of the outstanding notes, if:
(1) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency relating to the exchange offer that, in
our sole judgment, might materially impair our ability to proceed with
the exchange offer or any material adverse development has occurred in
any existing action or proceeding relating to us or any of our
subsidiaries; or
25
<PAGE>
(2) any law, statute, rule, regulation or interpretation by the Staff of the
SEC is proposed, adopted or enacted, which, in our sole judgment, might
materially impair our ability to proceed with the exchange offer or
materially impair the contemplated benefits of the exchange offer to us;
or
(3) any governmental approval has not been obtained, which approval we will,
in our sole discretion, deem necessary for the consummation of the
exchange offer as contemplated hereby.
If we determine in our sole discretion that any of the conditions are not
satisfied, we may:
(1) refuse to accept any outstanding notes and return all tendered
outstanding notes to the tendering holders;
(2) extend the exchange offer and retain all outstanding notes tendered
prior to the expiration of the exchange offer, subject, however, to the
rights of holders to withdraw the outstanding notes (see "--Withdrawal of
Tenders"); or
(3) waive unsatisfied conditions and accept all properly tendered
outstanding notes which have not been withdrawn.
EXCHANGE AGENT
U.S. Bank Trust National Association has been appointed as exchange agent
for the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for Notice of Guaranteed Delivery should be directed to the exchange
agent addressed as follows:
U.S. BANK TRUST NATIONAL ASSOCIATION
180 EAST FIFTH STREET
ST. PAUL MINNESOTA 55101
ATTN: SPECIALIZED FINANCE DEPARTMENT
BY FACSIMILE:
(ELIGIBLE INSTITUTIONS ONLY)
(651) 244-1537
FOR INFORMATION OR CONFIRMATION BY TELEPHONE:
(651) 244-1572
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telecopy, telephone or in person our and our affiliates' officers and
regular employees.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
We will pay the cash expenses to be incurred in connection with the exchange
offer. These expenses include fees and expenses of the exchange agent and
trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
outstanding notes, which is face value, as reflected in our accounting records
on the date of exchange. Accordingly, we will not
26
<PAGE>
recognize any gain or loss for accounting purposes as a result of the exchange
offer. The expenses of the exchange offer will be deferred and charged to
expense over the term of the exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The outstanding notes that are not exchanged for exchange notes pursuant to
the exchange offer will remain restricted securities. Accordingly, outstanding
notes may be resold only:
(1) to us upon redemption of the outstanding notes or otherwise;
(2) so long as the outstanding notes are eligible for resale pursuant to
Rule 144A, to a person inside the United States whom the seller
reasonably believes is a qualified institutional buyer within the meaning
of Rule 144A under the Securities Act in a transaction meeting the
requirements of Rule 144A, in accordance with Rule 144 under the
Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act, which other exemption is based upon
an opinion of counsel reasonably acceptable to us;
(3) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act; or
(4) pursuant to an effective registration statement under the Securities
Act, in each case in accordance with any applicable securities laws of
any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of exchange notes, based on interpretations by the
Staff of the SEC set forth in no-action letters issued to third parties, we
believe that a holder or other person who receives exchange notes, whether or
not the person is the holder, other than a person that is our affiliate within
the meaning of Rule 405 under the Securities Act, in exchange for outstanding
notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the exchange notes, will be allowed to
resell the exchange notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the exchange notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires exchange notes in the exchange offer for the
purpose of distributing or participating in a distribution of the exchange
notes, the holder cannot rely on the position of the Staff of the SEC expressed
in these no-action letters or any similar interpretive letters, and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each broker-dealer that receives exchange notes
for its own account in exchange for outstanding notes, if the outstanding notes
were acquired by the broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes.
USE OF PROCEEDS
This exchange offer is intended to satisfy certain of our obligations under
the registration rights agreement. We will not receive any cash proceeds from
the issuance of the exchange notes. In consideration for issuing the exchange
notes, we will receive the outstanding notes, which have the same principal
amount and the same form and terms, except as otherwise described in this
prospectus.
We received approximately $169.6 million in net proceeds from the initial
sale of the outstanding notes. We used these proceeds together with
$0.4 million of cash on hand to repay the $130.0 million outstanding under the
subordinated financing facility and to repay approximately $2.5 million of the
tranche A term loan outstanding and approximately $37.5 million of the tranche B
term loan outstanding under our senior credit facility. See "Capitalization" and
"Description of Senior Credit Facility." Affiliates of the initial purchasers
were lenders under the subordinated financing facility and are lenders under the
senior credit facility.
27
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1999: (1) the actual
consolidated capitalization of French Automotive and (2) the consolidated
capitalization of French Automotive on a pro forma basis giving effect to the
acquisition of Nelson Metal. See "Recent Developments" for additional
information. This table should be read in conjunction with the financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
----------------------
ACTUAL PRO FORMA
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 27,357 $ 13,830
======== ========
Long-term debt, including current maturities:
Senior credit facility:
Revolving credit facility(1)............................ $ 7,231 $ 22,231
Tranche A term loan..................................... 102,059 187,059
Tranche B term loan..................................... 152,105 152,105
-------- --------
Total under senior credit facility.................. 261,395 361,395
-------- --------
Other senior indebtedness................................. 35,081 35,081
-------- --------
Total senior debt................................... 296,476 396,476
-------- --------
Notes..................................................... 175,000 175,000
Convertible subordinated note............................. -- 30,000
-------- --------
Total debt.......................................... 471,476 601,476
Total stockholders' deficit................................. (78,335) (43,335)
-------- --------
Total capitalization................................ $393,141 $558,141
======== ========
</TABLE>
- ------------------------------
(1) Our revolving credit facility provides for borrowings of up to $90 million
less outstanding letters of credit.
28
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data with respect to
French Automotive and its predecessor J.L. French Corporation for each of the
periods indicated. The selected historical financial data for French
Automotive's predecessor for the year ended December 31, 1994 have been derived
from its unaudited combined financial statements and, for the year ended
December 31, 1995, from its audited combined financial statements. The selected
historical financial data for French Automotive's predecessor for the three
months ended March 31, 1996 have been derived from its unaudited combined
financial statements. The selected historical financial data for French
Automotive for the nine months ended December 31, 1996 and for the years ended
December 31, 1997 and 1998 have been derived from French Automotive's audited
consolidated financial statements. The unaudited consolidated financial data at
June 30, 1999 and for the six months ended June 30, 1998 and 1999 include
adjustments, all of which are normal recurring adjustments, which our management
considers necessary for a fair presentation of our results for these unaudited
periods. The results of operations for the six months ended June 30, 1999 are
not necessarily indicative of the results of operations which we expect for the
full 1999 calendar year. The selected historical consolidated financial data
should be read in conjunction with "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and the consolidated financial
statements and notes thereto all included elsewhere in this prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR FRENCH AUTOMOTIVE
----------------------------------- --------------------------------------------------------
<CAPTION>
YEARS ENDED THREE MONTHS NINE MONTHS YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31, JUNE 30,
------------------- MARCH 31, DECEMBER 31, ------------------- -------------------
1994 1995 1996 1996 1997 1998(1) 1998(1) 1999
-------- -------- ------------- ------------ -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales............................ $114,087 $136,061 $36,062 $106,941 $169,510 $295,690 $145,563 $165,689
Cost of sales.................... 78,290 102,706 27,314 75,697 116,522 221,040 108,467 123,406
-------- -------- ------- -------- -------- -------- -------- --------
Gross profit................... 35,797 33,355 8,748 31,244 52,988 74,650 37,096 42,283
Selling, general and
administrative expenses........ 4,468 4,227 2,610 3,359 5,649 16,802 8,882 10,228
Recapitalization expenses........ -- -- -- -- -- -- -- 21,151
Amortization of intangible
assets......................... -- -- -- 18,692 20,680 16,861 8,484 5,505
-------- -------- ------- -------- -------- -------- -------- --------
Operating income............... 31,329 29,128 6,138 9,193 26,659 40,987 19,730 5,399
Interest expense................. 330 1,885 350 11,973 13,981 20,533 8,844 13,823
-------- -------- ------- -------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
item......................... 30,999 27,243 5,788 (2,780) 12,678 20,454 10,886 (8,424)
Provision (benefit) for income
taxes.......................... 73 108 27 (1,126) 4,954 8,299 4,376 (3,369)
-------- -------- ------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item........... 30,926 27,135 5,761 (1,654) 7,724 12,155 6,510 (5,055)
Extraordinary item............... -- -- -- -- -- 805 805 8,112
-------- -------- ------- -------- -------- -------- -------- --------
Net income (loss)................ $ 30,926 $ 27,135 $ 5,761 $ (1,654) $ 7,724 $ 11,350 $ 5,705 $(13,167)
======== ======== ======= ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Depreciation..................... $ 5,706 $ 8,231 $ 2,715 $ 7,188 $ 10,357 $ 19,176 $ 9,051 $ 11,060
Amortization..................... -- -- -- 18,692 20,680 16,861 8,484 5,505
Capital expenditures............. 18,424 13,114 3,615 2,995 24,530 34,640 16,815 10,727
EBITDA(2)........................ 37,035 37,359 8,853 35,073 57,696 77,024 37,265 21,964
Net cash provided by (used in):
Operating activities........... 21,502 39,533 12,726 26,721 29,629 39,055 11,378 (8,927)
Investing activities........... (18,424) (13,114) (3,615) (230,760) (24,530) (109,418) (88,555) (12,157)
Financing activities........... (4,553) (20,374) (12,089) 225,665 (12,287) 59,871 70,971 43,296
Ratio of earnings to fixed
charges(3)..................... 94.9x 15.5x 16.7x --(3) 1.8x 1.9x 2.1x --(3)
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents........ $ 1,430 $ 7,479 $ 4,494 $ 21,626 $ 14,438 $ 4,128 $ 5,146 $ 27,357
Working capital.................. 28,176 23,672 20,162 23,698 23,894 22,233 24,471 74,643
Total assets..................... 77,262 81,037 74,041 240,872 235,202 404,793 403,447 438,708
Total debt....................... 26,765 28,691 25,602 144,669 134,391 211,580 221,400 471,476
Total stockholders' investment
(deficit)...................... 36,956 40,259 37,755 72,640 76,807 124,688 119,155 (78,335)
</TABLE>
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- ------------------------------
(1) Includes the results of operations of (i) Morris Ashby from January 12, 1998
and (ii) Ansola from April 30, 1998.
(2) EBITDA is operating income plus depreciation and amortization. EBITDA does
not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted accounting
principles, and our method of calculating EBITDA may not be comparable to
similarly titled measures reported by other companies. We believe that it is
widely accepted that EBITDA provides useful information regarding a
company's ability to service and/or incur indebtedness. This belief is
based, in part, on our negotiations with our lenders who have required that
the interest payable under our senior credit facility be based, in part, on
our ratio of consolidated senior debt to EBITDA. EBITDA does not take into
account our working capital requirements, debt service requirements and
other commitments and, accordingly, is not necessarily indicative of amounts
that may be available for discretionary use.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense, amortization of debt issuance costs and one-third of
rental expense, deemed representative of that portion of rental expense
estimated to be attributable to interest. The pro forma ratio of earnings to
fixed charges for the six months ended June 30, 1999 would have been 1.2x.
Earnings for the nine months ended December 31, 1996, the pro forma year
ended December 31, 1998 and the six months ended June 30, 1999 were
insufficient to cover fixed charges for such periods by approximately
$2.8 million, $36.2 million and $8.4 million, respectively.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
We ordinarily begin working on products awarded for new or redesigned
platforms two to five years prior to initial vehicle production. During such
period, we incur (1) costs related to the design and engineering of such
products, (2) costs related to production of the tools and dies used to
manufacture the products and (3) start-up costs associated with the initial
production of such product. In general, design and engineering costs are
expensed in the period in which they are incurred. Costs incurred in the
production of the tools and dies are generally capitalized and reimbursed by the
customer prior to production. Start-up costs, which are generally incurred 30 to
60 days immediately prior to and immediately after production, are expensed as
incurred.
The contracts we enter into typically: (1) range from one year to the life
of the platform, (2) are on a sole-source basis, (3) do not require the purchase
by the customer of any minimum number of units, (4) are at fixed prices subject
to annual price reductions or renegotiation and (5) provide for price
adjustments related to changes in the cost of aluminum.
ACQUISITIONS
We acquired Morris Ashby in January 1998 and Ansola in April 1998. Both
acquisitions were accounted for using the purchase method of accounting and
their operating results have been included in our consolidated operating results
since their respective date of acquisition.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain items
to sales for French Automotive for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
NINE MONTHS YEAR ENDED ENDED
ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------------- ----------------------
1996 1997 1998 1998 1999
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................. 70.8 68.7 74.8 74.5 74.5
----- ----- ----- ----- -----
Gross profit................................. 29.2 31.3 25.2 25.5 25.5
Selling, general and administrative expenses... 3.1 3.3 5.7 6.1 6.2
Recapitalization expenses...................... -- -- -- -- 12.8
Amortization of intangible assets.............. 17.5 12.3 5.7 5.8 3.3
----- ----- ----- ----- -----
Operating income............................. 8.6 15.7 13.8 13.6 3.2
Interest expense............................... 11.2 8.2 6.9 6.1 8.3
----- ----- ----- ----- -----
Income (loss) before provision for income
taxes...................................... (2.6) 7.5 6.9 7.5 (5.1)
Provision (benefit) for income taxes........... (1.1) 2.9 2.8 3.0 (2.0)
----- ----- ----- ----- -----
Income (loss) before extraordinary item.... (1.5)% 4.6% 4.1% 4.5% (3.1)%
===== ===== ===== ===== =====
</TABLE>
Our gross margins declined from 1997 to 1998 primarily due to: (1) costs
associated with the accelerated launch of the Ford F-Series truck transmission
case; (2) the effects of the GM strike; and (3) the acquisitions of Morris Ashby
and Ansola. Launch costs associated with the F-Series truck transmission case
were approximately $7.1 million in 1998 and we estimate the GM strike reduced
gross profit by approximately $1.4 million during 1998. Morris Ashby and Ansola
have historically generated lower gross margins than J.L. French, primarily due
to their product mix and their non-automotive business. Major initiatives
currently underway at Morris Ashby and Ansola aimed at operating improvements
include: (1) improving cycle times to levels more consistent with J.L. French;
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<PAGE>
(2) increasing machining and assembly operations; and (3) manufacturing products
for new European business.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 TO SIX MONTHS ENDED JUNE 30,
1998
SALES. Sales for the first half of 1999 increased by $20.1 million, or
13.8%, to $165.7 million from $145.6 million for the prior period. Approximately
$6.7 million of the increase was the result of the acquisition of Ansola in
April 1998. The remaining increase was due to new business that began during
1998, principally transmission cases for Ford.
COST OF SALES. Cost of sales for the first half of 1999 increased by
$14.9 million, or 13.8%, to $123.4 million from $108.5 million for the prior
period. Cost of sales as a percentage of sales was 74.5% for both periods. While
gross margins for the first half of 1999 were positively affected by
(1) manufacturing process improvements, including increased productivity levels
and reduced scrap rates, and (2) lower launch costs in 1999 due to the timing of
the introduction of new products, these improvements were offset by (1) a
decline in the European economy and related automotive production,
(2) historically lower margins at Ansola and Morris Ashby which, were included
in the full six month results for 1999, and (3) a change in our product mix to
produce more parts with slightly lower margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.3 million to $10.2 million for the first
half of 1999 from $8.9 million for the prior period. The increase was due
primarily to selling, general and administrative expenses associated with the
expanded scope of operations, including expenses related to the acquisition of
Ansola, which was acquired in April 1998. As a percentage of sales, selling,
general and administrative expenses were 6.2% for the first half of 1999
compared to 6.1% for the prior period.
RECAPITALIZATION EXPENSES. The recapitalization expenses of $21.2 million
recorded during the second quarter of 1999 represent payments made to option
holders in excess of the exercise price. The options were repurchased in
connection with the recapitalization.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization expense decreased from
$8.5 million for the first half of 1998 to $5.5 million for the first half of
1999, as a result of reduced amortization of capitalized customer relationships,
partially offset by an increase in goodwill amortization from the acquisition of
Ansola and increased amortization of deferred debt costs related to borrowings
under our senior credit facility and the outstanding notes. Goodwill is being
amortized on a straight-line basis over 40 years.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 1999
was $13.8 million compared to $8.8 million for the same period in 1998. The
increase was due principally to borrowings incurred in connection with the
recapitalization.
PROVISION (BENEFIT) FOR INCOME TAXES. The effective income tax rate was
40.0% for the tax benefit arising in the six months ended June 30, 1999 compared
to 40.2% for the same period in 1998. The increase in the effective income tax
rate related primarily to higher state income taxes and the effect of non
deductible goodwill amortization.
EXTRAORDINARY LOSS. We recorded an extraordinary loss of $0.8 million and
$8.1 million for the six months ended June 30, 1998 and 1999, respectively.
These losses were the result of the write-off of deferred financing fees
associated with certain credit facilities that were repaid during such periods.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
SALES. Sales for 1998 increased by $126.2 million, or 74.4%, to
$295.7 million from $169.5 million for 1997. Approximately $87.7 million of the
increase in sales related to the acquisitions of Morris Ashby and Ansola.
Approximately $43.1 million of the increase was the result of new business,
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<PAGE>
principally transmission cases for Ford. These increases were partially offset
by the effects of the strike at GM in June and July 1998 which decreased sales
by approximately $4.6 million for 1998.
COST OF SALES. Cost of sales for 1998 increased by $104.5 million, or
89.7%, to $221.0 million from $116.5 million for 1997. Cost of sales as a
percentage of sales for 1998 was 74.8% compared to 68.7% for 1997. The decline
in gross margin was the result of non-recurring costs of approximately $7.1
million associated with the launch of the Ford transmission cases during 1998,
approximately $1.4 million related to the effects of the GM strike in June and
July 1998 and the lower gross margins at Morris Ashby and Ansola.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $11.2 million to $16.8 million for 1998
from $5.6 million for 1997. As a percentage of sales, selling, general and
administrative expenses were 5.7% for 1998 compared to 3.3% for 1997. The
increase in selling, general and administrative expenses is due primarily to
costs related to developing global engineering and design capabilities, such as
increased personnel and travel expenses, and non-capitalizable professional fees
related to the acquisitions of Morris Ashby and Ansola. In addition, Morris
Ashby's selling, general and administrative expenses as a percentage of sales
have historically been higher than J.L. French's because Morris Ashby supports
five independent manufacturing facilities and a larger number of customers and
operates in a higher cost environment.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization expense decreased from
$20.7 million for 1997 to $16.9 million for 1998, as a result of reduced
amortization on capitalized customer relationships, partially offset by
increases in goodwill amortization from the acquisitions of Morris Ashby and
Ansola.
INTEREST EXPENSE. Interest expense for 1998 was $20.5 million compared to
$14.0 million for 1997. The increase was due principally to borrowings incurred
related to the acquisitions of Morris Ashby and Ansola.
PROVISION FOR INCOME TAXES. The effective income tax rate was 40.6% for
1998 compared to 39.1% for 1997. The effective rates differed from the statutory
rates primarily as a result of higher foreign tax rates, state taxes and
non-deductible goodwill amortization associated with the Morris Ashby
acquisition.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO NINE MONTHS ENDED
DECEMBER 31, 1996
SALES. Sales for 1997 increased by 58.6% to $169.5 million from
$106.9 million for 1996. The increase is due to increased production on models
served by French Automotive, principally light trucks, new program awards,
including the Ford F-Series truck and GM S-10 truck, and the negative impact of
the GM strike on 1996 sales.
COST OF SALES. Cost of sales for 1997 increased by 53.9% to $116.5 million
from $75.7 million for 1996. As a percentage of sales, cost of sales decreased
to 68.7% for 1997 from 70.8% for 1996, resulting in an improved gross margin.
The higher margin in 1997 was a result of continued cost reduction efforts,
including manufacturing productivity improvements at our Gateway facility, and
the non-recurring, negative impact of the GM strike on 1996 gross margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 64.7% to $5.6 million for 1997 from
$3.4 million for 1996. As a percentage of sales, selling, general and
administrative expenses increased to 3.3% for 1997 from 3.1% for 1996. This
increase was due principally due to an increase in management and directors'
fees.
INTEREST EXPENSE. Interest expense for 1997 increased by 16.7% to
$14.0 million from $12.0 million for 1996. The increase was due principally to
borrowings incurred related to the acquisition of J.L. French by Windward.
33
<PAGE>
PROVISION (BENEFIT) FOR INCOME TAXES. The effective income tax rate for
1997 was 39.1% for 1997 compared to a tax benefit of 40.5% for 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the first half of 1999, we used cash from operations of
$8.9 million, compared to the cash flow generated of $11.4 million for the first
half of 1998. Cash generated from operations before changes in working capital
items was $14.1 million for the first half of 1999 compared to $25.0 million for
the same period in 1998. Increases in working capital used cash of
$23.0 million during the first half of 1999 compared to $13.6 million in the
same period in 1998. The increases in working capital are primarily the result
of the timing of cash receipts and cash payments.
Net cash used in investing activities was $12.2 million during the first
half of 1999 as compared to $88.6 million for the same period in 1998. Capital
expenditures totaled $12.2 million in the first half of 1999 and $16.8 million
in the first half of 1998 and were primarily for equipment and dedicated tooling
purchases related to new or replacement programs.
Net cash provided by financing activities totaled $43.3 million for the
first half of 1999 compared with $71.0 million for the same period in 1998. The
1999 financing activities represent cash provided through net borrowings. The
1998 financing activities represent $35.7 million of cash provided from the sale
of common stock to certain of the then existing stockholders and $14.3 million
of borrowings associated with the acquisition of Morris Ashby.
On April 21, 1999, we completed a recapitalization in which a group of
equity investors, including affiliates of Onex and J2R, acquired approximately
87% of our common stock for $156.0 million in cash. Stockholders prior to the
recapitalization retained approximately 13% of our common stock and, together
with holders of outstanding options, received an aggregate of $370.3 million in
cash in connection with our redemption of their other equity interest, plus an
additional $5.9 million based upon a post-closing determination of our total
working capital as of the closing date of the recapitalization.
In connection with the recapitalization, French Automotive and certain of
our direct and indirect subsidiaries entered into the senior credit facility. On
October 15, 1999, we amended and restated our senior credit facility in
connection with our acquisition of Nelson Metal to provide for an additional
$100.0 million of available borrowings. Following the repayment of a portion of
the indebtedness under the senior credit facility with the proceeds of the
initial offering of the outstanding notes and following its amendment, the
senior credit facility now consists of (a) approximately $187.5 million of term
loans, consisting of (1) a $155.0 million U.S. dollar-denominated term loan to
French Automotive, (2) a pound sterling-denominated term loan to French
Automotive in an amount equal to the pound sterling equivalent, determined as of
the date such loan was made, of U.S. $17.5 million and (3) a pound
sterling-denominated term loan to Morris Ashby in an amount equal to the pound
sterling equivalent, determined as of the date such loan was made, of
U.S. $17.5 million (collectively, the "tranche A term loan"); (b) a
$190.0 million tranche B term loan; and (c) a $90.0 million revolving credit
facility. The amendment increased the dollar-denominated portion of our
tranche A term loan from $70.0 million to $155.0 million and increased our
revolving credit facility from $75.0 million to $90.0 million. In connection
with the recapitalization, we borrowed $295.0 million under the senior credit
facility. In connection with the acquisition of Nelson Metal, we borrowed
$100.0 million under the senior credit facility. As of October 15, 1999, we had
available borrowings under the senior credit facility of approximately
$31.5 million.
As of June 30, 1999, rates on borrowings under the senior credit facility
varied from 7.5% to 7.9%. Borrowings under the tranche A term loan are due and
payable April 21, 2005 and borrowings under the tranche B term loan are due and
payable on October 21, 2006. The revolving credit facility is available until
April 21, 2005. The senior credit facility is secured by all of the assets of
and guaranteed by all of our material present and future subsidiaries, in each
case with exceptions for certain foreign
34
<PAGE>
subsidiaries and to the extent permitted by applicable law. We used
approximately $2.5 million of the proceeds of the offering to repay a portion of
the tranche A term loan and approximately $37.5 million of the net proceeds of
the offering to repay a portion of the tranche B term loan under the senior
credit facility. See "Use of Proceeds."
In addition, in connection with the acquisition of Nelson Metal, we borrowed
$30.0 million from Tower Automotive, Inc. in exchange for issuance of a 7.5%
convertible subordinated promissory note due October 14, 2009. Interest on this
promissory note is payable quarterly unless (1) the payment of interest would
cause us to breach any covenants in any agreement under which a financial
institution or pension fund has made loans to us in excess of $10.0 million or
(2) in the good faith judgment of our board of directors, we do not have funds
available to pay interest on the promissory note, in which case the unpaid
interest will accrue until paid. We may prepay this promissory note at any time,
subject to Tower Automotive's right to convert the promissory note into class A
common stock.
In connection with the recapitalization, we also entered into a subordinated
financing facility providing for borrowings of $130.0 million, which was fully
drawn in connection with the recapitalization. The subordinated financing
facility had a final maturity of October 21, 2008. We used approximately
$129.6 million of the net proceeds of the initial offering of the outstanding
notes plus $0.4 million of cash to fully repay the subordinated financing
facility.
Our principal source of liquidity is cash flow generated from operations and
borrowings under our $75.0 million revolving credit facility. Our principal use
of liquidity is to meet debt service requirements, finance our capital
expenditures and provide working capital. We expect that capital expenditures in
1999 will be approximately $26 million, of which approximately $8 million will
be used for maintenance purposes. The balance of the 1999 capital expenditures
will be used for equipment purchases and facility improvements to support new
business awards. Our debt service obligations could have important consequences
to you as a holder of the notes. See "Risk Factors--Our Business May Be
Adversely Impacted as a Result of Our Substantial Leverage."
Our ability to service our indebtedness will depend on our future
performance, which will be affected by prevailing economic conditions and
financial, business, regulatory and other factors. Some of these factors are
beyond our control. We believe that, based upon current levels of operations, we
will be able to meet our debt service obligations when due. However, because it
is difficult to predict our liquidity and capital requirements in the future, it
is not possible to predict whether we will be able to meet our debt service
obligations in the long term, i.e. beyond the next twelve months. Even with
respect to the short term, significant assumptions underlie our belief that we
will be able to meet our debt service obligations when due, including, among
other things, that we will continue to be successful in implementing our
business strategy and that there will be no material adverse developments in our
business, liquidity or capital requirements. During the six months ended
June 30, 1999, our earnings were insufficient to cover our fixed charges. If we
were to continue to generate insufficient cash flow from operations to service
our indebtedness and to meet our other obligations and commitments, we might be
required to refinance our debt or to dispose of assets to obtain funds for such
purpose. There is no assurance that refinancings or asset dispositions could be
effected on a timely basis or on satisfactory terms, if at all, or would be
permitted by the terms of the indenture or the senior credit facility. In the
event that we are unable to refinance the senior credit facility or raise funds
through asset sales, sales of equity or otherwise, our ability to pay principal
of, and interest on, the notes would be impaired.
SEASONALITY
French Automotive typically experiences decreased sales and operating income
during the third calendar quarter of each year due to production shutdowns at
OEMs for model changeovers and vacations.
35
<PAGE>
EFFECTS OF INFLATION
Inflation potentially affects us in two principal ways. First, a portion of
our debt is tied to prevailing short-term interest rates which may change as a
result of inflation rates, translating into changes in interest expense. Second,
general inflation can impact material purchases, labor and other costs. While
the contracts with our customers allow us to pass through increases in the price
of aluminum, we do not have the ability to pass through inflation-related cost
increases for labor and other costs. In the past few years, however, inflation
has not been a significant factor.
MARKET RISK
We are exposed to various market risks arising from adverse changes in
market rates and prices, such as foreign currency exchange and interest rates.
We do not enter into derivatives or other financial instruments for trading or
speculative purposes. Our strategy for management of currency risk relies
primarily upon conducting our operations in such countries' respective currency
and we may, from time to time, engage in hedging programs intended to reduce our
exposure to currency fluctuations. The counterparties are major financial
institutions.
We manage our interest rate risk by balancing the amount of our fixed and
variable debt. For fixed rate debt, interest rate changes affect the fair market
value of the debt but do not impact earnings or cash flows. Conversely for
variable rate debt, interest rate changes generally do not affect the fair
market value of the debt, but do impact future earnings and cash flows, assuming
other factors are held constant. At June 30, 1999, all of our debt other than
the outstanding notes was variable rate debt. Holding other variables constant
(such as foreign exchange rates and debt levels), a one percentage point
increase in interest rates would be expected to have an estimated impact on
pre-tax earnings and cash flows for the remainder of the year of approximately
$1.5 million.
FOREIGN CURRENCY TRANSACTIONS
A portion of our sales is derived from manufacturing operations in the U.K.
and Spain. The results of operations and the financial position of our
operations in these countries are principally measured in their respective
currency and translated into U.S. dollars. The effects of foreign currency
fluctuations in such countries are somewhat mitigated by the fact that expenses
are generally incurred in the same currencies in which sales are generated. The
reported income of these operations will be higher or lower depending on a
weakening or strengthening of the U.S. dollar against the respective foreign
currency.
Some of our assets are located in foreign countries and are translated into
U.S. dollars at currency exchange rates in effect as of the end of each period,
with the effect of such translation reflected as a separate component of
stockholders' investment. Accordingly, our consolidated stockholders' investment
will fluctuate depending upon the weakening or strengthening of the U.S. dollar
against the respective foreign currency.
YEAR 2000
We are currently working to resolve the potential impact of the year 2000 on
the processing of time-sensitive information by our computerized information
systems. Any of our programs that have time-sensitive software may recognize
"00" as the year 1900 rather than the year 2000. This could result in
miscalculations, classification errors or system failures.
Our facilities primarily use commercial, vendor-supported software and
hardware, which has been certified as year 2000 compliant. Because of our
substantial investments in computerized systems that are year 2000 compliant, we
do not anticipate any significant readiness problems with respect to our
systems. All of our facilities have completed the inventory and assessment and,
with the exception of Nelson Metal, any necessary remediation of their internal
information technology ("IT") and non-IT
36
<PAGE>
systems, including business, operating and factory floor systems. Nelson Metal
is in the process of conducting some remediation with respect to its materials
purchasing software and expects to complete this remediation by the end of
November. As of June 30, 1999, we had incurred costs of approximately $150,000
relating to year 2000 compliance and believe that future costs associated with
year 2000 compliance will be less than $100,000.
The most reasonably likely worst case scenario that we currently anticipate
with respect to year 2000 is the failure of some of our suppliers, including
utilities suppliers, to be ready. This could cause a temporary interruption of
materials or services that we need to make our products, which could result in
delayed shipments to customers and lost sales and profits to us. We are in the
process of completing our assessment of our critical suppliers and have
contacted all of our critical suppliers in this respect. Approximately 75% of
our critical suppliers responded to our initial survey. Of those suppliers who
responded to our survey, 43% were year 2000 compliant as of the fall of 1998 and
32% had not yet completed their assessment and remediation of any possible year
2000 issues. We recently sent a second survey to all of our critical suppliers
to determine their current status with respect to year 2000 compliance and
expect to receive responses to this survey by November 5, 1999. We have,
however, made plans to assure that we will have an adequate supply of materials
on hand to cover contingencies. For example, as part of our normal contingency
planning to support our delivery schedules, we have several weeks worth of raw
materials on hand. We will reassess the adequacy of these contingency plans
following the completion of our survey. We are also currently in the process of
evaluating the adequacy of Nelson Metal's contingency plans to ensure that there
will be an adequate supply of raw materials on hand to cover contingencies with
respect to its operations. Following this assessment, we will, if necessary,
contact Nelson Metal's suppliers to receive assurances as to their year 2000
compliance.
The outcome of our year 2000 program is subject to a number of risks and
uncertainties, some of which, such as the availability of qualified computer
personnel and the year 2000 responses of third parties, are beyond our control.
Therefore, there can be no assurances that we will not incur material
remediation costs beyond the above anticipated future costs, or that our
business, financial condition, or results of operations will not be
significantly impacted if year 2000 problems with our systems, or with the
products or systems of other parties with whom we do business, are not resolved
in a timely manner.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," becomes effective for years beginning after June 15, 2000. SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge criteria are met. Special accounting for qualifying hedges allow a
derivative's gains or losses to offset related results on the hedged item in the
income statement and requires that a company must formally document, designate
and assess the effectiveness of transactions that receive hedge accounting. We
have not yet quantified the impact of adopting SFAS No. 133 and have not yet
determined the timing or method of adoption.
37
<PAGE>
BUSINESS
GENERAL
We are one of the world's largest independent designers and manufacturers of
aluminum die cast components and assemblies for OEMs. Our principal products are
highly-engineered, value-added assemblies, consisting of machined aluminum die
cast components and various fastened parts. Our primary product offerings
include engine and drivetrain components and assemblies such as:
<TABLE>
<S> <C>
- - oil pans - ladderframes
- - engine front covers - timing chain housings
- - transmission cases - water pump housings
- - cam covers
</TABLE>
Our world-class design and manufacturing operations in the United States, the
U.K. and Spain and our sales and service offices throughout the world position
us as a premier full-service global supplier.
We primarily sell to OEMs, with Ford and GM accounting for approximately 58%
and 20% of our 1998 sales, respectively. We are a supplier on more than 20 Ford
models, including many of its highest volume vehicles, such as the F-Series and
Ranger trucks, Explorer and Taurus/Sable, its top four selling vehicles, and the
Expedition, Windstar and Contour/Mystique. We are also a supplier on many of
GM's highest volume vehicles, such as the Silverado and S-10 trucks, Blazer,
Cavalier/Sunfire and Malibu/ Intrigue. In addition, we sell to Tier 1 automotive
suppliers such as Robert Bosch, Delphi Automotive Systems and LucasVarity. We
supply substantially all of the products we sell to our automotive customers on
sole-source basis.
We believe that we are among the lowest cost, most efficient producers of
automotive aluminum die cast components and assemblies in the world. Our low
cost structure and high level of efficiency is driven by our investment in
highly customized equipment, our continuous focus on process improvements and
our vertically-integrated manufacturing operations. The majority of the products
we manufacture require annual volumes in excess of 100,000 units over production
lives as long as seven years. As a result, we are able to continuously modify
our equipment and production processes in order to increase efficiency, while
maintaining high quality standards. We believe that our productivity levels for
high volume castings are among the highest in our industry. In addition, we are
vertically-integrated, possessing the only captive aluminum smelting
capabilities among independent aluminum die casters in North America, which
reduces our material costs, increases our supply base and provides us greater
control over quality. We also possess a broad range of capabilities that include
design and engineering, tool and die making, precision machining, engineered
assembly and testing operations. We believe that we have the most extensive
machining capabilities among independent automotive aluminum die casters,
allowing us to supply highly-engineered, value-added assemblies.
INDUSTRY TRENDS
Our performance and growth is directly related to certain trends within the
automotive market, including increases in aluminum content per vehicle, the
growth of outsourcing, consolidation of the component supply industry and
increases in global sourcing.
INCREASING ALUMINUM CONTENT PER VEHICLE. The average aluminum content per
vehicle in North America increased from 97 pounds in 1977 to 224 pounds in 1998.
The increase in aluminum content per vehicle has created significant
opportunities for the automotive aluminum die casting industry. The factors
driving the growth in demand for cast aluminum parts in the automotive sector
include: (1) the light weight of aluminum; (2) favorable strength-to-weight
ratio of an aluminum cast versus ferrous cast or stamped metal parts; and
(3) aluminum's styling characteristics versus other materials, as seen in
products such as the aluminum wheels introduced over the last five years.
However, the primary driving
38
<PAGE>
force behind the growth in aluminum applications in the automotive sector is
vehicle weight reduction. OEMs are replacing ferrous metals, such as iron and
steel, with aluminum as a means of reducing vehicle weight and increasing fuel
efficiency in order to satisfy government mandated fuel economy standards.
OUTSOURCING. In order to improve the efficiency of their core operations of
vehicle assembly, marketing and distribution, OEMs are increasing the percentage
of outsourced components in their manufacturing processes. This outsourcing
trend is evident in the die casting area where the in-house die casting
operations of the OEMs are often inefficient and utilize outdated technology.
OEMs increasingly look to their suppliers to assume the production of parts that
were previously manufactured internally and to perform the additional machining
and assembly functions necessary to make these parts production-line-ready.
SUPPLIER CONSOLIDATION. During the 1990s, OEMs have continued to reduce
their supplier base in certain product segments, awarding sole-source contracts
to full-service suppliers. As a result, OEMs currently work with a smaller
number of full-service suppliers each of which supplies a greater proportion of
the total vehicle. Suppliers with sufficient size, geographic scope and
financial resources are best positioned to be these full service suppliers. For
full-service suppliers such as us, this environment provides an opportunity to
grow by obtaining business previously provided by non full-service suppliers and
by acquiring suppliers that further enhance product, manufacturing and service
capabilities. OEMs rigorously evaluate suppliers on the basis of product
quality, cost control, reliability of delivery, product design capability,
financial strength, new technology implementation, quality and condition of
facilities and overall management. Suppliers that obtain superior ratings are
considered for sourcing new business; while those that do not generally continue
their existing contracts, but normally do not receive additional business.
Although these factors have already resulted in consolidation of component
suppliers in certain segments, we believe that the aluminum die casting industry
is in the early stages of consolidation, providing opportunities for further
consolidation. This is particularly true of the aluminum die casting industry in
Europe, where there are many suppliers in this segment with relatively small
market shares.
GLOBAL SOURCING. Regions such as Asia, Latin America and Eastern Europe are
expected to experience significant growth in vehicle demand over the next ten
years. OEMs are positioning themselves to reach these emerging markets in a
cost-effective manner by seeking to design and produce "world cars" which can be
designed in one vehicle center but produced and sold in many different
geographic markets, thereby allowing OEMs to reduce design costs and take full
advantage of low-cost manufacturing locations. OEMs increasingly are requiring
their suppliers to have the capability to design and manufacture their products
in multiple geographic markets.
LARGE ALUMINUM CASTING CAPABILITY
In response to customer demand, we have expanded our capabilities to include
the production of large die cast components. In December 1996, we were awarded a
contract from Ford to manufacture transmission cases for its F-Series trucks,
the highest volume vehicle sold in North America. The transmission cases weigh
over 45 pounds and are the largest components we manufacture. In order to
produce these large castings, we invested approximately $40 million to expand
our Gateway facility in Sheboygan, Wisconsin by adding 120,000 square feet of
production space and purchasing six new 3,500 ton die casting machines.
We produced our first transmission case for the F-Series truck in
November 1997 and reached full production for this component in the second half
of 1998, meeting an accelerated launch schedule established by Ford. In 1998, we
produced approximately 308,000 transmission cases and in 1999 we expect to
produce approximately 580,000 units. As a result of our success with the
F-Series truck transmission case and available capacity at our Gateway facility,
Ford awarded us a contract to supply a
39
<PAGE>
portion of the transmission cases for the Ford Ranger truck and Explorer. We are
currently ramping up production for this component and expect to produce
approximately 180,000 units in 1999 and approximately 270,000 units in 2000.
Our demonstrated ability to manufacture large castings solidified our
position as a key supplier to Ford and positioned us for significant new
business with Ford and other OEMs in transmission cases and other large castings
such as engine blocks. We believe only four other independent manufacturers have
the capability to produce these large castings. To accommodate full production
of the Ford Ranger and Explorer transmission cases and other anticipated new
business from Ford and GM, we recently acquired three additional 3,500 ton die
casting machines.
COMPETITIVE STRENGTHS
We possess a number of competitive strengths that have enabled us to meet
the demands of OEMs for fewer, global suppliers and to benefit from aluminum's
continued replacement of other metals in vehicles.
- LOW COST, VERTICALLY-INTEGRATED MANUFACTURER: We believe that our
vertically-integrated operations and highly efficient manufacturing
processes make us the lowest cost manufacturer of high volume, long
production run automotive aluminum die cast components and assemblies in
North America. We are the only independent automotive aluminum die caster
in North America with captive aluminum smelting capabilities, reducing our
material costs. In addition, we have in-house tool and die making
capabilities which support our manufacturing operations. We work closely
with our equipment vendors to design robust, highly customized equipment,
which is specifically adapted to our manufacturing processes. Given our
focus on high volume, long production run products, we are able to
continuously enhance the efficiency of our equipment and improve our
manufacturing processes, which has resulted in industry leading
productivity, as measured by factors such as faster cycle times and
reduced scrap rates and equipment down time.
- VALUE-ADDED MANUFACTURING SERVICES: We believe that we have the most
extensive machining and assembly capabilities among independent automotive
aluminum die casters. These services increase the value-added content of
our products and allow us to deliver production-line-ready components and
assemblies, which are increasingly required by OEMs. We machined and
assembled approximately 80% of the products we manufactured in North
America in 1998. Since many of our competitors have limited machining and
assembly capabilities, our capabilities provide us with a competitive
advantage with respect to service and quality and enhance our
profitability.
- BROAD RANGE OF GLOBAL MANUFACTURING CAPABILITIES: The breadth of our
global manufacturing capabilities enables us to compete for virtually any
automotive aluminum die casting business in the world. We produce
components and assemblies ranging in weight from 0.5 to nearly 50 pounds
with aluminum die casting machines that range in size, as measured in
lock-up force, from 120 to 3,500 tons. With the acquisitions of Morris
Ashby and Ansola, we now have the capability to design, engineer and
manufacture in Europe as well as North America. Our global manufacturing
capabilities represent a competitive advantage, as only a few suppliers
can meet the full aluminum die casting requirements of OEMs and only one
other independent supplier can meet these requirements globally.
- ADVANCED PRODUCT DESIGN AND ENGINEERING CAPABILITIES: Our extensive design
and engineering capabilities have resulted in strong, collaborative
customer relationships that typically begin when we provide input on the
engineering of new or redesigned products. In 1997, Ford awarded us its
Full-Service Supplier Status, which acknowledged our contribution to
Ford's design and engineering process and solidified our continued
involvement in design-stage engineering
40
<PAGE>
projects. Our Full-Service Supplier Status contributed to our selection by
Ford to participate in the design process for the new I4/I5 world engine
platform for Ford and Mazda. Over the last five years, we have not lost a
production order relating to any product for which we were the design
source.
- WELL POSITIONED ON HIGH VOLUME PRODUCT PLATFORMS: We are a supplier on
many of the highest volume product platforms, including the top three and
12 of the top 20 selling vehicles in the U.S. in 1998. In addition, we
believe that approximately half of our 1998 North American sales were
derived from products manufactured for light vehicles. In recent years,
light vehicles have experienced greater sales growth than passenger cars.
High volume light vehicle platforms and models on which we have content
include the Ford F-Series and Ranger trucks, Explorer, Expedition and
Windstar and the GM Silverado and S-10 trucks and Blazer. We also supply
products for high volume passenger cars including Ford's Taurus/Sable and
Contour/Mystique and GM's Cavalier/Sunfire and Malibu/Intrigue.
- INDUSTRY LEADING PRODUCT QUALITY: Our customers recognize us for our high
product quality and low levels of defective parts. Quality control begins
during the smelting process with metallurgic analysis and continues
through the manufacturing, machining and assembly processes through visual
and automated quality inspections. Our facilities in the United States are
ISO 9001 and QS-9000 certified and our facilities in the U.K. and Spain
are ISO 9000 and QS-9000 certified. We are a Ford Q1 supplier and a GM
S.P.E.A.R.1 supplier.
- PROVEN MANAGEMENT TEAM: Our management has a proven track record of
achieving profitable growth and significant industry experience. Our sales
increased from $114.1 million in 1994 to $295.7 million in 1998,
representing a 26.9% compound annual growth rate. Over the same period, we
have consistently maintained EBITDA margins above 26%. The 18 most senior
members of our management average over 20 years of experience in the
automotive industry and our chief executive officer, Charles M. Waldon,
has over 30 years of experience in the automotive aluminum die casting
industry.
BUSINESS STRATEGY
Our strategic objective is to become the leading global supplier of aluminum
die castings to OEMs. With the acquisitions of Morris Ashby and Ansola, we have
the capability to globally manufacture a complete range of automotive aluminum
die cast engine and drivetrain components and assemblies. Key elements of our
strategy include the following:
- CONTINUE TO INCREASE LARGE ALUMINUM CASTING BUSINESS: We invested
approximately $40 million in our Gateway facility over the past two years
in order to meet Ford's need for a high quality, reliable supplier of
transmission cases for its F-Series trucks. As a result of our success in
meeting Ford's accelerated launch schedule for these transmission cases,
we were awarded transmission case business for the Ford Ranger and
Explorer. We believe that we are well positioned to meet the demands of
Ford, GM and other OEMs for larger aluminum castings, including additional
transmission cases and engine blocks.
- MAXIMIZE PROFITABILITY OF ACQUIRED OPERATIONS: We believe that significant
operating improvements remain to be realized at Morris Ashby and Ansola
and we have implemented several initiatives to maximize the profitability
of these operations. In order to concentrate on our core, higher margin
automotive business, we are phasing out the non-automotive aluminum die
castings manufactured at Morris Ashby and Ansola, which represented
approximately 6% of our 1998 sales. Other major initiatives currently
underway at Morris Ashby and Ansola include:
- Improving cycle times to levels currently experienced at J.L. French,
which would represent an estimated 30% improvement from current levels;
41
<PAGE>
- Increasing machining and assembly operations to levels currently
performed at J.L. French, which will increase the value-added content
of their products; and
- Manufacturing products for new European business, which historically
would have been produced at J.L. French, at Morris Ashby and Ansola,
which is expected to increase capacity utilization at their operations.
- PURSUE CONTINUOUS OPERATING IMPROVEMENTS: We continuously seek to enhance
our manufacturing equipment and processes to maximize throughput, product
quality and timeliness of delivery and to minimize scrap and equipment
down time. Utilizing the expertise of our manufacturing and engineering
personnel, we regularly upgrade our production equipment and processes
through substantial investments in both new equipment and modifications of
existing equipment. The machinery used throughout our manufacturing
processes is robust and highly customized and, in conjunction with our
maintenance program, allows us to operate with faster cycle times and to
reduce scrap rates and equipment down time. This operating philosophy has
allowed J.L. French to achieve productivity levels across all product
lines that we believe are significantly higher than those of our
competitors.
- ESTABLISH RELATIONSHIPS WITH NEW CUSTOMERS: We seek to diversify our
customer base and increase volume by selectively pursuing relationships
with new customers. Historically we have focused on strengthening our
relationships with Ford and GM. As we continue to expand globally and
increase the range of castings we produce, we actively pursue
relationships with other global OEMs. For example, we recently obtained
our first firm order from Audi.
- DESIGN AND ENGINEER HIGH VALUE-ADDED ASSEMBLIES: Our technical design and
engineering capabilities and our efficient manufacturing operations enable
us to secure sole-source relationships for large, highly-engineered
products, primarily assemblies that require machining and attachment of
various parts. These products typically represent higher dollar content
per vehicle and generate higher margins than non-machined or assembled
components.
- CONTINUE TO DEVELOP GLOBAL SUPPLY CAPABILITIES: In 1998, over 70% of total
worldwide passenger vehicle production occurred outside North America. To
meet OEMs' increasing preference for full-service suppliers with global
capabilities, we expanded our manufacturing operations into new geographic
markets through our strategic acquisitions of Morris Ashby and Ansola.
Continued global expansion is fundamental to our strategy of becoming the
leading supplier of aluminum die cast assemblies for OEMs world-wide. We
anticipate that our future international expansion will occur in Latin
America, the Asia-Pacific region and Europe.
- PURSUE STRATEGIC ACQUISITIONS: We compete in a growing, highly fragmented,
worldwide market that provides numerous potential acquisition
opportunities. Together with Hidden Creek, we have substantial experience
in completing and integrating acquisitions within the automotive supply
industry and believe that this experience helps us select and pursue
acquisition opportunities that meet our criteria of: (1) broadening our
geographic coverage and strengthening our ability to supply products on a
global basis; (2) adding new customers; (3) increasing both the number of
models for which we supply products and the content level on existing
models; and (4) providing additional and complementary product,
manufacturing and technical capabilities.
42
<PAGE>
PRODUCTS
The following table sets forth the percentage of sales derived from the sale
of certain products in 1998:
PERCENTAGE OF SALES BY PRODUCT CATEGORY
<TABLE>
<CAPTION>
YEAR ENDED
PRODUCT CATEGORY DECEMBER 31, 1998
- ---------------- -----------------
<S> <C>
Medium to Large Automotive Aluminum Die Castings
Oil Pans.................................................. 33%
Engine Front Covers....................................... 14%
Transmission Cases........................................ 8%
Ladderframes.............................................. 2%
Timing Chain Housings..................................... 2%
Cam Covers................................................ 2%
Water Pump Housings....................................... 1%
Small Automotive Aluminum Die Castings...................... 17%
Tooling..................................................... 15%
Other Products.............................................. 6%
----
Total..................................................... 100%
====
</TABLE>
Set forth below is a brief description of our principal products and their
applications:
OIL PANS. An aluminum oil pan is attached to the engine block for the
primary purpose of serving as a reservoir for oil used in the lubrication of
engine galleries and bearings. The oil pan is an example of a product that was
at one time inexpensively stamped from steel but has been converted to a higher
cost aluminum casting due to the multiple benefits provided by aluminum.
Aluminum oil pans offer several significant benefits which offset their higher
cost, including: (1) better sealing characteristics; (2) greater structural
integrity; (3) better harmonics resulting in reduced vibration and a quieter
engine; and (4) better heat dissipation characteristics. In 1998, we produced,
on average, over 14,000 oil pans per day. Oil pans range in weight from five to
12 pounds.
ENGINE FRONT COVERS. The engine front cover bolts over the crankshaft
snout, holding the oil seal at the front of the crankshaft in place. In 1998, we
produced, on average, over 9,500 engine front covers per day. Engine front
covers range in weight from four to eight pounds.
TRANSMISSION CASES. The transmission case houses the clutches, bands,
gearsets and inner ends of the transmission shafts. We began producing
transmission cases in November 1997 and reached our current level of production
in the second half of 1998. In 1999, we expect to produce, on average, over
2,000 transmission cases per day. Such transmission cases weigh over 45 pounds.
LADDERFRAMES. The ladderframe is an intermediate structure between the
engine block and a stamped-steel oil pan. It provides similar structural
integrity and harmonics characteristics as an aluminum oil pan. Its design
incorporates a windage baffle which protects the lubrication of the crankshaft,
replacing a stamped steel component. We began production of ladderframes in
1998. In 1998, we produced, on average, 500 ladderframes per day. Ladderframes
weigh approximately 11 pounds.
TIMING CHAIN HOUSINGS. The timing chain housing bolts over the crankshaft
snout, holding in place the oil seal at the front of the crankshaft. The timing
chain housing is similar to an engine front cover, except that it is used in
engines that have a gear or chain type crankshaft drive. In 1998, we
43
<PAGE>
produced, on average, over 1,000 timing chain housings per day. Timing chain
housings weigh approximately six pounds.
CAM COVERS. The cam cover is the overhead housing for the camshaft. In
1998, we produced, on average, over 500 units per day. Cam covers range in
weight from seven to eight pounds.
WATER PUMP HOUSINGS. The water pump housing forms the main body of the
water pump, a mechanism that forces water through the engine block, cylinder
head, intake manifold, hoses and radiator. In 1998, we produced, on average,
over 2,000 water pump housings per day. Water pump housings weigh approximately
three pounds.
SMALL AUTOMOTIVE ALUMINUM DIE CASTINGS. As a result of our acquisitions of
Morris Ashby and Ansola, we generated approximately 17% of our 1998 sales from
production of over 150 small automotive aluminum die cast components (generally
weighing less than three pounds).
TOOLING. We generated approximately 15% of our 1998 sales from aluminum die
cast tooling in connection with our sales of aluminum die castings.
OTHER PRODUCTS. Also as a result of our acquisitions of Morris Ashby and
Ansola, we generated approximately 6% of our 1998 sales from non-automotive
aluminum die cast components, primarily small home appliances and white goods
parts. We intend to phase-out all non-automotive product offerings over the next
two to three years.
CUSTOMERS AND MARKETING
The North American automotive market is dominated by GM, Ford and
DaimlerChrysler, with Japanese and other foreign manufacturers accounting for
approximately 20% of the market. Our principal customers include OEMs, Tier 1
automotive suppliers and, to a lesser extent, European white good manufacturers.
Approximately 78% of our 1998 sales were derived from OEMs, largely Ford and GM,
which we supply on a global basis. Our second largest category of customers is
Tier 1 automotive suppliers, such as ACD Trident, Boge, Robert Bosch, Breed
Technologies, Continental, Delphi Automotive Systems, Happich, LucasVarity,
Knorr Brense, Nastech and Phoenix. Sales to these customers are made principally
through our European operations and represented approximately 16% of our 1998
sales.
The following is a summary of our significant customers for each of our last
three years:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
CUSTOMER 1996 1997 1998
- -------- -------- -------- --------
<S> <C> <C> <C>
Ford....................................................... 58% 60% 58%
GM......................................................... 42% 39% 20%
Tier 1 Suppliers........................................... -- -- 16%
Other...................................................... -- 1% 6%
--- --- ---
Total.................................................... 100% 100% 100%
=== === ===
</TABLE>
44
<PAGE>
In 1998, more than 70% of total worldwide passenger vehicle production
occurred outside of North America. Largely as a result of our acquisitions of
Morris Ashby and Ansola, we derive a significant amount of our sales from
outside of North America. Set forth below is a summary of our 1998 sales to
customers located in the following geographic regions:
<TABLE>
<CAPTION>
YEAR ENDED
REGION DECEMBER 31, 1998
- ------ -----------------
<S> <C>
North America............................................... 63%
Europe...................................................... 36%
Other....................................................... 1%
---
Total..................................................... 100%
===
</TABLE>
Our customers award contracts for a particular car or truck platform, which
may include more than one model. Such contracts range from one year to the life
of the platform, which is generally three to seven years, and do not require the
purchase by the customer of any minimum number of units.
The following table presents an overview of the major models for which we
have orders to supply products on current vehicles:
<TABLE>
<CAPTION>
CUSTOMER COMPONENT OR ASSEMBLY VEHICLE
- -------- ------------------------- -------------------------
<S> <C> <C>
OEMS:
Ford.................. Oil Pan Escort/Tracer
2.5L Modular Oil Pan Contour/Mystique, Ranger,
Mazda
3.8/4.2L Oil Pan Mustang, F-Series,
Windstar
4.6L 4V Cam Cover Mustang, Continental
3.8/4.2L Front Cover Mustang, F-Series,
Windstar
3.0L Front Cover Taurus/Sable
3.8/4.2L Water Pump Mustang, F-Series,
Housing Windstar
3.0L Oil Pan Taurus/Sable
4.6/5.4/6.8L Front Cover Mustang, Town Car, Grand
Marquis/Crown Victoria,
F-Series
Transmission Case F-Series
Transmission Case Ranger/Explorer
Zeta Oil Pan Mondeo, Contour/
Mystique, Fiesta/Ka
Sigma Oil Pan Fiesta/Ka
1.3L HCS Oil Pan Escort, Fiesta/Ka
Zetec Ladderframe Mondeo, Contour/
Mystique, Fiesta/Ka
2.0/2.4/3.0L Cam Carrier Light truck diesel engine
Brackets Various
Bearing Caps Various
Ford (Hungary, Housing for 1.1-2.9 KW Various
Brazil)............. starter motors
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
CUSTOMER COMPONENT OR ASSEMBLY VEHICLE
- -------- ------------------------- -------------------------
<S> <C> <C>
Ford (Portugal)....... Housing for airbag Various
electronic control units
Ford (Spain).......... Bottom covers and Various
heatsinks for electronic
systems
Ford (Jaguar)......... Cam covers Various
Fascia panels (ashtrays) Various
GM.................... 3.1L Oil Pan Century, Regal, Skylark,
Lumina, Cutlass, Achieva,
Grand Prix, Grand Am,
Malibu, Monte Carlo,
Intrigue
2.4L Timing Chain Housing Cavalier, Achieva,
Skylark, Grand Am,
Sunfire
4.3L Oil Pan Van, Sports Van, Blazer,
Astro, GMT800, S-10, GMC
Jimmy, Vandura, Safari,
Bravada
3.8L Oil Pan Camaro, Firebird,
Riviera, Park Avenue,
Century, Regal
TIER 1 SUPPLIERS:
ACD Trident........... Motor subassembly Various
components
Boge.................. Vibration control cast Various
mounts for engines
Breed Technologies.... Self-return safety belt Various
spoolers
Delphi Automotive Steering system housings Various GM
Systems............. and engine covers
Happich............... Roof rack center brackets Various Opel and Mercedes
Knorr Brense.......... Braking systems Various heavy trucks
LucasVarity........... Housings Various
Nastech............... Steering column Various Volkswagen
components
Phoenix............... Drive-shaft control Various
mounts
Phoenix, Continental.. Vibration-control cast Opel Astra
mounts for engines and
gear boxes
Robert Bosch.......... Electronic circuit Various
housings (ABS, Airbag,
etc.)
</TABLE>
We typically pursue new business opportunities that have the three key
characteristics summarized below:
- HIGH VOLUME PRODUCTION, LONG PRODUCTION RUNS. Production runs for our
targeted parts typically last seven years with desired production ranging
from 16 to 24 hours a day, five to six days a week.
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<PAGE>
- HIGHLY-ENGINEERED COMPONENTS WITH EXTENSIVE MACHINING AND ASSEMBLY
REQUIREMENTS. Components requiring extensive machining operations and
engineered assembly provide the opportunity for enhanced profitability
because of the strength and efficiency of our machining and assembly
operations. Our ability to deliver production-line-ready components
enhances our role in the production process while increasing our
importance to OEMs.
- SOLE SOURCE SUPPLY RELATIONSHIPS. We typically do not pursue contracts
which involve more than one supplier or internal OEM competition.
DESIGN AND ENGINEERING SUPPORT
We work with our customers' engineering and development teams at the
beginning of the design process for new components and assemblies or the
redesign process for existing components and assemblies in order to maximize
production efficiency and quality. These processes may take place from one to
five years prior to the commencement of production. On average, development of a
new component takes 12 to 24 months during the design phase, while the
re-engineering of an existing part may take from one to six months, depending on
the extent of the redesign. Early design involvement can result in a product
that meets or exceeds the customer's design and performance requirements and is
more efficient to manufacture. In addition, our involvement enhances our
position for bidding on such business.
Consistent with our value-added engineering focus, we have developed strong
relationships with the engineering departments of our customers. These
relationships not only help identify new business opportunities, but also enable
us to compete based on the quality of our products and services, rather than
exclusively on price.
We are currently involved in the design stage of several products for our
customers and will begin production of these products in the years 2000 to 2002.
For example, we are presently working with engineers at Ford and Mazda to design
the new I4/I5 world engine platform. Following full ramp up, we expect our sales
from this engine platform to be nearly $20.0 million per year.
MANUFACTURING
The entire production process from aluminum scrap or ingot to
production-line-ready aluminum die cast product typically takes under four
hours, depending upon the amount of machining and assembly associated with the
particular component. Although our production facilities currently utilize
slightly different processes, we are establishing uniform processes to elevate
the efficiency of Morris Ashby and Ansola to that of J.L. French.
OPERATIONS MANAGEMENT. We are in the process of implementing operations
management systems at Morris Ashby and Ansola which will closely resemble the
systems utilized by our North American operations. J.L. French uses a system
which enables management to track its production and costs every two hours.
Inefficiencies in production are detected and remedied quickly. Similarly,
factory workers are highly incentivized to operate efficiently. Workers are
evaluated based on their production rate for completed salable components and
are monitored for inefficient production or the production of defective
components.
Morris Ashby and Ansola use cellular manufacturing techniques. This
product-specific method enables the operator to obtain timely information about
components being produced in the machine cell, leading to rapid responses to
problems. Production at Morris Ashby is controlled through the use of
proprietary software programs, which monitor each production operation. This
PC-based system monitors up to 25 critical parameters during each cycle,
compares the results to preset parameters and instructs the robotic extractor to
segregate any castings that are produced outside the process
47
<PAGE>
parameters for further analysis. Information on parameters is accumulated for
future use to correct problems, improve efficiency and implement process
designs.
ALUMINUM SMELTING. J.L. French's manufacturing process begins with the
smelting of aluminum. Smelting is the process of refining metal and altering its
chemical composition by adding or removing elements. By having this expertise
in-house, J.L. French is able to purchase lower grade, less expensive, scrap
aluminum and refine it to a level suitable for high quality aluminum die
castings. The potential financial benefit of adding secondary smelting
capabilities at Morris Ashby and Ansola is currently being reviewed. These
operations currently melt purchased 380 grade aluminum for use in manufacturing.
CASTING PROCESS. Once the aluminum has been melted and properly formulated,
die cast products are made primarily by using the high pressure die casting
process, which is most commonly used for high volume, thin-wall applications. In
this process, molten aluminum alloy is "shot" into a mold. Pressure of up to
20,000 pounds per square inch is applied to the aluminum within the die to
maximize consistency and to eliminate air pockets. The aluminum is then quickly
cooled and solidified. The casting is then removed from the die and the process
is repeated. This process from molten aluminum to solidified casting represents
one cycle.
Once the castings have cooled, excess aluminum is trimmed from the
component's edges and recycled for remelting and use in another casting. The
"cast and trimmed" component is then visually inspected. If the component passes
this test, it is ready for shot blasting, a process whereby the exterior
surfaces of the component are blasted with steel shot to remove any sharp edges.
Cast and trimmed components are gauged and leak tested prior to shipment. We
sell some cast and trimmed components, but generally seek to perform additional
machining and assembly to yield a higher profit margin.
The large casting operations at J.L. French and a significant portion of the
operations at Morris Ashby and Ansola use robotics. The benefits of robotics
include: (1) the ability to operate in a high temperature or otherwise inclement
environment; (2) the ability to handle larger castings without fatigue;
(3) consistency of performance; and (4) labor savings. Management selectively
determines which operations should incorporate robotics based on a cost/benefit
analysis.
MACHINING. We utilize a mix of specially designed dedicated machining
centers and computer numerically controlled ("CNC") machines in our machining
operations. Because of its concentration on high volume programs, J.L. French
uses mostly dedicated machining centers while Morris Ashby and Ansola use CNC
machines, some of which are dedicated to a specific product. Machining
capabilities differ by facility, but generally our machining capabilities
include: face milling; bore and ream; drill and ream; drill and tap; drill, ream
and burnish; hollow milling; contour milling; slit sawing; rotary grinding and
routing.
TESTING. Most of our machined parts are subjected to a pressurized leak
test and measured on a virtual condition gauge to determine functionality on key
features. On a sample basis, some parts undergo destructive testing to determine
mechanical strength at critical points.
ASSEMBLY. During 1998, we performed machining and assembly operations on
approximately 80% of our products manufactured in North America. In addition,
our European operations are increasingly performing assembly operations on
manufactured components. During the assembly process, purchased parts such as
drain plugs, screws, helicoils and gaskets are assembled onto the cast part.
Once assembled, all parts are again visually inspected. Part numbers and bar
codes are then applied before the part is shipped to the customer. Management
believes that our extensive and efficient machining and assembly capabilities
are a core competency which provides us with an advantage over our competitors,
many of which do not offer machining and assembly services.
48
<PAGE>
PRODUCT DELIVERY. As a Tier 1 supplier, we are responsible for
manufacturing our products on a just-in-time basis. Shipments are generally made
by common carrier, as arranged by the customer. To facilitate this delivery
system, we utilize direct computer links to our customers. This on-line, real
time capability enables us to meet just-in-time manufacturing requirements and
to minimize inventories, carrying costs and fixed costs for OEMs and ourselves.
QUALITY. We believe that we are one of the highest quality manufacturers in
the automotive aluminum die casting industry and that the number of defective
parts per million pieces shipped to our customers is among the lowest in the
industry. The strength of our overall design, production and delivery
capabilities is reflected in the supplier quality ratings received from our
major customers. J.L. French holds Ford's Q1 award and GM's S.P.E.A.R.1. Since
receiving these initial awards, we have successfully maintained our quality
ratings, which are subject to annual review, by meeting our customers' specific
standards and performance parameters, including maximum allowable defective
parts per million. Retention of Q1 and S.P.E.A.R.1 status is instrumental in
obtaining new business and maintaining existing programs with our customers. In
addition to customer quality recognition, each of our operations are ISO and QS
certified, which is required to be a Tier 1 supplier.
COMPETITION
The aluminum die casting industry is highly competitive and fragmented. We
principally compete for new business at the beginning of the development of new
models and upon the redesign of existing models. New model development generally
begins two to five years before marketing of such models to the public. Once a
producer has been designated to supply parts for a new program, an OEM usually
will continue to purchase those parts from the designated producer for the life
of the program. Competitive factors in the market for our products include
product quality and reliability, cost, timely delivery, technical expertise and
development capability, new product innovation and customer service. Our major
competitors are Ryobi Die Casting (USA), Inc., Global Technologies, Amcan,
Toralcast, Bocar/Auma and Ganton Technologies, as well as the internal aluminum
casting operations of GM and DaimlerChrysler.
RAW MATERIALS AND SUPPLIERS
Our principal raw material is aluminum. We deal with a number of aluminum
suppliers and brokers and limit our dealings to parties who have consistently
delivered aluminum which meets specified levels of quality and grade. As
commodities, aluminum scrap and ingot can be purchased from any of a number of
sources with relatively small differences in price between suppliers.
Due to its large production volume, J.L. French has the necessary scale to
economically operate a captive secondary aluminum processing operation at each
of its two plants. We purchase less costly scrap aluminum and off-grade aluminum
ingot and refine the metal to the required specifications. Unlike our
competitors who lack the ability to upgrade aluminum alloy, J.L. French's
secondary aluminum smelting capability enables it to lower raw material costs
and to control the quality of its processed aluminum. J.L. French has the
capacity to process and upgrade up to 110 million pounds of aluminum per year,
which currently exceeds its production requirements.
Our contracts with customers typically provide for price adjustments related
to changes in the cost of aluminum alloy, as quoted on the London Metals
Exchange. With respect to Ford and GM, these adjustments are made every two and
three months, respectively. As a result, we have limited exposure to aluminum
market price fluctuations. In late 1997, Ford implemented an initiative in the
United States whereby it seeks to reduce its exposure to aluminum price
volatility through forward purchases on behalf of its suppliers. Since
March 1998, J.L. French has sourced approximately half of its aluminum scrap
requirements for Ford at a fixed price from a source selected by Ford.
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<PAGE>
In the process of manufacturing production-line-ready parts, we must
purchase certain sub-components from manufacturers specified by our OEM
customers, including helicoils, drain plugs and gaskets. We seek competitive
bids on the parts we purchase if two potential Tier 2 manufacturers of the part
are each approved as a supplier to the OEM.
We employ just-in-time manufacturing and sourcing systems to meet customer
requirements for faster deliveries and to minimize our need to carry significant
inventory levels. We have not experienced any significant shortages of raw
materials and normally do not carry inventories of raw materials or finished
products in excess of those reasonably required to meet production and shipping
schedules.
EMPLOYEES
As of June 30, 1999, we had approximately 2,000 employees. Overall,
approximately 11% of our employees are salaried and the balance are hourly.
While none of the employees at our J.L. French operations are unionized, several
of Morris Ashby's and Ansola's operations either recognize a union or have
employees that are members of unions as individuals.
As a result of the acquisition of Nelson Metal, we now have approximately
815 additional employees, approximately 18% of which are salaried and the
balance are hourly. Nelson Metal is a party to a collective bargaining agreement
with the International Union, United Automobile, Aerospace and Agricultural
Workers of America, UAW and its local #19, which expires in August 2001.
PROPERTIES
Our corporate office is located in Minneapolis, Minnesota and our operating
headquarters is located at the Taylor Drive facility in Sheboygan, Wisconsin.
The following table provides information regarding our principal facilities:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FOOTAGE
LOCATION TYPE OR ACREAGE INTEREST
- -------- -------------------------------- -------------- --------
<S> <C> <C> <C>
Sheboygan, Wisconsin.................. Operating Headquarters/Die 260,000 sq.ft. Owned
Casting Plant (Taylor Drive)
Sheboygan, Wisconsin.................. Die Casting Plant (Gateway) 240,000 sq.ft. Owned
Grandville, Michigan.................. Die Casting Plant 37 acres Qwned
Warehouse 57,000 sq.ft. Leased
Glasgow, Kentucky..................... Die Casting Plant 13 acres Owned
Die Casting Plant 11 acres Leased
Warehouse 10,000 sq.ft. Leased
Warehouse 20,000 sq.ft. Leased
Witham, England....................... Administrative/Die Casting Plant 125,000 sq.ft. Leased
Presteigne, Wales..................... Die Casting Plant 55,000 sq.ft. Owned
Cheshunt, England..................... Die Casting Plant 45,000 sq.ft. Leased
Birmingham, England................... Die Casting Plant 8,000 sq.ft. Owned
Brighouse, England.................... Toolmaking Plant 4,000 sq.ft. Owned
San Andres de Echevarria, Spain....... Administrative/Die Casting Plant 54,000 sq.ft. Owned
</TABLE>
We also have sales and service offices located in Ashland, Ohio; Dearborn,
Michigan; Chihuahua and Ramos, Mexico; Sao Paulo, Brazil; Bridgend, England;
Valencia, Spain; Cologne and Dusseldorf, Germany; and Hiroshima, Japan.
We believe that substantially all of our property and equipment is in good
condition and that we have sufficient capacity to meet our current manufacturing
needs. Utilization of our facilities varies with North American and European
light vehicle production and general economic conditions in such
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<PAGE>
regions. All of our properties in the United States and the U.K. are pledged as
collateral to secure the repayment of our senior credit facility.
Our die casting facility in Glasgow, Kentucky is financed through
approximately $1.6 million of industrial revenue bonds, which we issued to
Glasgow/Barren Industrial Development Economic Authority. To secure repayment of
these bonds, we have transferred title of this facility to Glasgow/ Barren,
which leases back the facility to us. Upon our final lease payment on
November 1, 2006, we have the right to purchase this property from
Glasgow/Barren for $1.00.
LEGAL PROCEEDINGS
From time to time, we are involved in various disputes and litigation
matters that arise in the ordinary course of business. The litigation process is
inherently uncertain and it is possible that the resolution of these disputes
and lawsuits could have a material adverse effect on us. We believe, however,
that the ultimate resolution of any pending litigation, individually or in the
aggregate, will not have a material adverse effect on us.
ENVIRONMENTAL MATTERS
We are subject to the requirements of federal, state, local and foreign
environmental and occupational health and safety laws and regulations. We cannot
assure you that we are at all times in complete compliance with all such
requirements. Although we have made and will continue to make capital and other
expenditures to comply with environmental requirements, we do not expect to
incur material capital expenditures for environmental controls in 1999 or 2000.
Certain of our operations generate hazardous substances and wastes. If a release
of hazardous substances occurs on or from our properties or any associated
offsite disposal location, or if contamination is discovered at any of our
current or former properties, we may be held liable, and the amount of such
liability could be material.
We are studying how to upgrade the drainage systems at our Cheshunt, U.K.
facility and address petroleum contamination that may be associated with past
drainage. The cost of this matter is currently not expected to be material,
unless contamination is discovered that is much more extensive than has been
estimated by our environmental consultants.
As part of our acquisition of Ansola, the sellers of Ansola agreed to
indemnify us, subject to certain limitations, for environmental liabilities
resulting from the sellers' operation of Ansola, including a specific indemnity
for clean up of certain areas of contamination identified at the San Andres de
Echevarria, Spain facility during our due diligence. At the time we acquired
Ansola, we estimated these costs to be $120,000, based on testing conducted by
an internationally recognized environmental firm. An escrow was established in
the amount of 230 million pesetas (about $1.6 million) to secure the sellers'
environmental and other indemnification obligations. Actual clean up work was
completed in 1999 at a cost of approximately $80,000 and a claim for
indemnification was made. The escrow decreases in steps beginning in June 1999
and expires in July 2003, with 43% of the escrow, less our claims for
indemnification, having been released on June 30, 1999, 28% to be released on
April 30, 2000 and the remainder to be released on July 31, 2003.
In connection with the acquisition of Nelson Metal, we are obligated to
address contamination at a facility formerly operated by Nelson Metal located in
Grand Rapids, Michigan. An interim response groundwater recovery system is
operating at the facility, under the oversight of the Michigan Department of
Environmental Quality ("MDEQ"). MDEQ may require additional cleanup efforts. The
former stockholders of Nelson Metal agreed to indemnify us for losses arising
out of this matter, to the extent such losses exceed $400,000. In particular,
the stockholders are obligated to indemnify us for 85% of the next $3.0 million
of such losses. The indemnity expires on October 15, 2003, but does not expire
with respect to those losses that we have committed to pay before the expiration
date. We cannot assure you, however, that the former stockholders will be able
or willing to fulfill their indemnity obligations if we call upon them to do so.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to our
directors, executive officers and key employees as of September 30, 1999:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITION(S)
- ---- -------- ------------------------------------------
<S> <C> <C>
S. A. ("Tony") Johnson.................... 59 Chairman and Director
Charles M. Waldon......................... 50 President, Chief Executive Officer and
Director
Thomas C. Dinolfo......................... 49 Treasurer and Chief Financial Officer
Paul Buckley.............................. 54 Managing Director of Morris Ashby
Juan Manuel Orbea......................... 47 General Manager of Ansola
Donald W. Porritt......................... 50 Director of Corporate Business Development
Lowell Shoaf.............................. 55 Technical Director
Stephen Southern.......................... 52 Director of Worldwide Sales and Marketing
Dugald K. Campbell........................ 52 Director
A. Kipp Koester........................... 61 Director
John E. Lindahl........................... 54 Director
Carl E. Nelson............................ 39 Vice President, Secretary and Director
Eric J. Rosen............................. 38 Director
Karl F. Storrie........................... 61 Director
Douglas B. Trussler....................... 28 Director
</TABLE>
S. A. ("TONY") JOHNSON has served as Chairman and a Director of French
Automotive since the recapitalization. Mr. Johnson is the founder, Chief
Executive Officer and President of Hidden Creek. Mr. Johnson is also a general
partner of J2R Partners III. Prior to forming Hidden Creek, Mr. Johnson served
from 1985 to 1989 as Chief Operating Officer of Pentair, Inc., a diversified
industrial company. Mr. Johnson served as Chairman and a director of Automotive
Industries Holding, Inc., a supplier of interior trim components to the
automotive industry, from May 1990 to August 1995. Mr. Johnson is also Chairman
and a director of Tower Automotive, Inc., a leading designer and producer of
structural components and assemblies for the global automotive industry, and
Dura Automotive Systems, Inc., a manufacturer of driver control systems, window
systems and door systems for the global automotive industry.
CHARLES M. WALDON has served as President, Chief Executive Officer and a
Director of French Automotive since April 1996. Mr. Waldon joined J.L. French in
1983 and became Executive Vice President--Manufacturing in 1987. Prior to
joining J.L. French, Mr. Waldon was employed for 16 years by GM in its aluminum
die castings operations in Bedford, Indiana.
THOMAS C. DINOLFO has served as Treasurer and Chief Financial Officer of
French Automotive since April 1996. Before joining J.L. French, Mr. Dinolfo was
associated with Crucible Materials Corporation for ten years as Corporate
Controller and, prior to that time, was employed by KPMG Peat Marwick.
PAUL BUCKLEY has served as the Managing Director of Morris Ashby since 1996.
Mr. Buckley joined Morris Ashby in 1976 as an assistant to the General Manager.
Prior to joining Morris Ashby, Mr. Buckley was the service manager for USI
Engineering, a manufacturer of the Vertacast die casting machine. He has served
as National President of the Die Casting Society, and is currently serving as
the National Executive of the Light Metal Founders Association, the trade body
of die casting in the United Kingdom.
JUAN MANUEL ORBEA has served as the General Manager of Ansola since 1977.
From 1993 until 1998, Mr. Orbea served as Chairman of the Spanish Technical
Association for the Development of Pressure Casting.
52
<PAGE>
DONALD W. PORRITT has served as Director of Corporate Business Development
of French Automotive since October 1998. From 1993 through October 1998,
Mr. Porritt served as Vice President of Operations at Nelson Metal Products.
From 1984 through 1993, Mr. Porritt was Secondary Operations Manager at
J.L. French. Prior thereto, Mr. Porritt was employed for 10 years by GM in its
aluminum die castings operations in Bedford, Indiana.
LOWELL SHOAF has served as Technical Director of French Automotive since
June 1998. Before joining J.L. French, Mr. Shoaf was the International
Engineering Manager for Bocar S.A. de C.V., Mexico from 1991 to 1997. Prior to
that time, Mr. Shoaf served as Vice President of Engineering at J.L. French from
1989 to January 1991.
STEPHEN SOUTHERN has held the position of Director of Worldwide Sales and
Marketing of French Automotive since he joined J.L. French in 1986. Previously,
Mr. Southern worked for Madison-Kipp Corporation for four years, and for GM in
its aluminum die castings operations in Bedford, Indiana for 17 years.
DUGALD K. CAMPBELL has served as a Director of French Automotive since
May 1999. Mr. Campbell has also served as President, Chief Executive Officer and
a Director of Tower Automotive since December 1993. From 1991 to 1993,
Mr. Campbell served as a consultant to Hidden Creek. From 1988 to 1991, he
served as Vice President and General Manager of the Sensor Systems Division of
Siemens Automotive, a manufacturer of engine management systems and components.
From 1972 to 1988, Mr. Campbell held various executive, engineering and
marketing positions with Allied Automotive, a manufacturer of vehicle systems
and components and a subsidiary of AlliedSignal, Inc.
A. KIPP KOESTER has served as a Director of French Automotive since the
recapitalization. Mr. Koester has served as a Managing Director of Northwestern
Investment Management Company (a Northwestern Mutual Company) since January
1998. From July 1987 through December 1997, Mr. Koester was a vice president at
The Northwestern Mutual Life Insurance Company.
JOHN E. LINDAHL has served as a Director of French Automotive since the
recapitalization. Mr. Lindahl is the Managing General Partner of Norwest Equity
Partners. Prior to joining Norwest Equity Partners in 1984, Mr. Lindahl was with
Norwest Bank for 15 years, where he managed the bank's manufacturing and
electronics group, natural resources group and was a senior vice president in
charge of middle market lending activities.
CARL E. NELSON has served as a Director, Secretary and Vice President of
French Automotive since the recapitalization. Mr. Nelson has served as a Vice
President of Hidden Creek since 1995 and as the Controller of Hidden Creek since
June 1992. Mr. Nelson is also a general partner of J2R Partners III. From 1982
to 1992, Mr. Nelson was employed by Arthur Andersen LLP. Mr. Nelson is also a
Vice President of Tower Automotive, Inc. and Dura Automotive Systems, Inc.
ERIC J. ROSEN has served as a Director of French Automotive since the
recapitalization. Mr. Rosen is Managing Director of Onex Investment Corp., a
diversified industrial corporation and an affiliate of Onex, and served as a
Vice President of Onex Investment Corp. from 1989 to February 1994. Prior
thereto, Mr. Rosen was employed in the merchant banking group at Kidder,
Peabody & Co. Incorporated from 1987 to 1989. Mr. Rosen is also a director of
Tower Automotive, Inc. and Dura Automotive Systems, Inc.
KARL F. STORRIE has served as a Director of French Automotive since
May 1999. Mr. Storrie has also served as President, Chief Executive Officer and
a Director of Dura Automotive Systems, Inc. since March 1991. Prior to joining
Dura Automotive Systems, Inc. and from 1986, Mr. Storrie was Group President of
a number of aerospace manufacturing companies owned by Coltec Industries, a
multi-divisional public corporation. From 1981 to 1986 and prior to becoming a
Group President, Mr. Storrie was a Division President of two aerospace design
and manufacturing companies for Coltec Industries. During his thirty-five year
career, Mr. Storrie has held a variety of positions in technical and operations
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<PAGE>
management. Mr. Storrie is also a director of Argo-Tech Corporation, a
manufacturer of aircraft fuel, boost and transfer pumps.
DOUGLAS B. TRUSSLER has served as a director of French Automotive since
September 1999 and is currently a principal at Windward. Prior to joining
Windward in 1995, Mr. Trussler was with Credit Suisse First Boston, where he
worked as an analyst from June 1993 until May 1995. Mr. Trussler has a degree in
Business Administration from the University of Western Ontario.
Each director is elected to serve until the next annual meeting of
stockholders or until a successor is duly elected and qualified. Each of the
current directors was elected to the board pursuant to the terms of a
stockholders agreement. See "Certain Relationships and Related
Transactions--Investor Stockholders Agreement." Executive officers of French
Automotive are duly elected by the board to serve until their respective
successors are elected and qualified. There are no family relationships between
any of the directors or executive officers of French Automotive.
EXECUTIVE COMPENSATION
The following table sets forth compensation information for 1998 for French
Automotive's chief executive officer and the four other executive officers of
French Automotive who were its most highly compensated executive officers for
that year. We refer to these officers in this prospectus as the "named executive
officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------
<S> <C> <C> <C> <C>
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION ($)(1) ($)(1) ($)(2) ($)(3)
- -------------------------------------- -------- -------- -------- --------
Charles M. Waldon..................... $350,000 $350,000 $ 2,217 $ 1,768
President and Chief Executive
Officer
Thomas C. Dinolfo..................... 171,417 55,339 3,716 1,768
Treasurer and Chief Financial
Officer
Stephen Southern...................... 123,846 40,339 2,725 1,768
Director of Worldwide Sales and
Marketing
Paul Buckley.......................... 212,018 299,688 10,303 51,990
Managing Director of Morris Ashby
Juan Manuel Orbea..................... 179,876 33,333(4) 5,000 35,767
General Manager of Ansola
</TABLE>
- ------------------------------
(1) Includes amounts deferred by employees under French Automotive's 401(k)
employee savings plan, pursuant to Section 401(k) of the Internal Revenue
Code.
(2) Includes the value of personal benefits and perquisites.
(3) The amounts disclosed in this column include amounts contributed by French
Automotive to its 401(k) employees savings plan and profit sharing plan and
dollar value of premiums paid by French Automotive for term life insurance
on behalf of the Named Executive Officers.
(4) Mr. Orbea received a bonus of $33,333 in connection with the acquisition of
Ansola in April 1998.
OPTION GRANT TABLE
The following table shows all grants of stock options to the named executive
officers during the year ended December 31, 1998 under our former stock option
plan, which was terminated in
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<PAGE>
connection with the recapitalization. Each of the outstanding options was
terminated in exchange for an amount equal to the difference between the per
share price paid to the existing stockholders and the exercise price of each
such option. In connection therewith, Messrs. Waldon, Dinolfo, Southern, Buckley
and Orbea received $5.6 million, $1.6 million, $1.0 million, $0.3 million and
$0.2 million, respectively. See "Certain Relationships and Related
Transactions--The Recapitalization."
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE (PER
NAME GRANTED(#) FISCAL YEAR SHARE) EXPIRATION DATE
- ---- -------------------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Charles M. Waldon................. 180.645 48.6% $2,767.24 December 2008
1,350.000 1,000.00 April 2005
Thomas C. Dinolfo................. 54.334 1.7 2,767.24 December 2008
Stephen Southern.................. 39.923 1.3 2,767.24 December 2008
Paul Buckley...................... -- -- -- --
Juan Manuel Orbea................. -- -- -- --
</TABLE>
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table shows aggregate exercises of options in the year ended
December 31, 1998 by the named executive officers and the aggregate value of
unexercised options held by each named executive officer as of December 31,
1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES YEAR-END(#) YEAR-END($)
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE VALUE REALIZED ($) UNEXERCISABLE(1) UNEXERCISABLE(1)(2)
- ---- ----------- ------------------ ----------------- -------------------
<S> <C> <C> <C> <C>
Charles M. Waldon......... -- -- 108.387/1,783.548 $328,943/$5,332,727
Thomas C. Dinolfo......... -- -- 32.600/130.402 98,939/299,733
Stephen Southern.......... -- -- 23.954/79.846 72,697/197,163
Paul Buckley.............. -- -- --/-- --
Juan Manuel Orbea......... -- -- --/-- --
</TABLE>
- ------------------------
(1) All options became vested and were exercised in connection with the
recapitalization.
(2) Calculated based on the price paid for redemption of shares in the
recapitalization of $4,212 per share less the exercise price of the option.
EMPLOYMENT AGREEMENTS
We intend to enter into an employment agreement with Mr. Waldon pursuant to
which he will serve as President and Chief Executive Officer of French
Automotive and will devote his full business time and attention to the business
and affairs of French Automotive. The specific terms of the agreement are still
being negotiated between the parties. In the meantime, Mr. Waldon is continuing
to serve as President and Chief Executive Officer on the same basis as he did
prior to the recapitalization.
Mr. Buckley and Morris Ashby are parties to an employment agreement which
provides that Mr. Buckley shall serve as Chief Executive Officer of Morris Ashby
and shall devote his full time and attention to the affairs of Morris Ashby. The
agreement provides for an annual salary and an annual bonus, based on Morris
Ashby's financial performance. The agreement is terminable by either
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<PAGE>
Mr. Buckley or Morris Ashby upon two years' written notice. Morris Ashby may
terminate Mr. Buckley immediately without cause by paying Mr. Buckley an amount
equal to two years' salary. In the event Mr. Buckley is terminated because he
has (1) breached his employment agreement, (2) committed any act of gross
negligence or serious incompetence in the performance of his duties,
(3) committed a criminal act involving dishonesty, (4) become bankrupt,
(5) become of unsound mind or otherwise incapacitated or (6) become prohibited
by law from serving as a director of Morris Ashby, Mr. Buckley would not be
entitled to any compensation. Mr. Buckley has agreed that for a period of twelve
months following the termination of his employment he will not compete within
the United Kingdom or Northern Ireland with Morris Ashby or any of its
affiliates over which he has had supervisory or managerial control. The
agreement automatically terminates upon Mr. Buckley's 60th birthday.
Mr. Orbea is a party to employment agreements with each of Ansola and Ansola
Acquisition Corp., Ansola's parent company, which agreements provide that
Mr. Orbea shall serve as General Manager of both companies in exchange for an
annual salary and, in the case of Ansola, an annual bonus based on Ansola's
financial performance. The agreements are terminable by Ansola or Ansola
Acquisition Corp, as the case may be, with or without cause upon three months'
written notice. If Mr. Orbea's employment is terminated for any reason other
than death, disability or disciplinary reasons based on a serious breach of the
employment agreement, Mr. Orbea will be entitled to receive an amount equal to
his salary for twenty-one months. In addition, Mr. Orbea would be entitled to
such amount in the event that he terminates his employment on the ground that:
(1) there has been a substantial modification in his working conditions,
(2) there has been a serious breach by Ansola or Ansola Acquisition Corp. of
their respective obligations under the employment agreements, or (3) there has
been a significant change in the ownership of either of the companies and he
terminates his employment within three months thereafter. Mr. Orbea has agreed
that for two years from the date of the termination of his employment he will
not compete with Ansola and will receive in exchange a non-compete payment equal
to one year of his base salary under each of his employment agreements.
COMPENSATION OF DIRECTORS
French Automotive does not currently compensate directors for serving as a
director or on committees of the board or pay directors any fees for attendance
at meetings of the board, although French Automotive may elect to compensate
directors in the future. All directors are reimbursed for reasonable
out-of-pocket expenses incurred in connection with their attendance at board and
committee meetings.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Our authorized capital stock consists of six classes of common stock
designated as class A common stock, class B common stock, class C common stock,
class D-1 common stock, class D-2 common stock and class E common stock. As of
October 15, 1999, we had the following shares issued and outstanding (in each
case, rounded to the nearest share): 9,764 shares of class A common stock,
20,660 shares of class B common stock, 5,165 shares of class C common stock,
6,590 shares of class D-1 common stock, 6,817 shares of class D-2 common stock
and 3,352 shares of class E common stock. Our outstanding classes of common
stock generally differ with respect to dividend, liquidation preference and
voting rights. The holders of each of our outstanding classes of common stock
are entitled to receive distributions, whether as a dividend, liquidating
distribution or otherwise and whether in cash, property or securities, based on
the aggregate number of shares of such class outstanding as a percentage of the
total number of shares of common stock outstanding. These distributions will be
allocated between the various classes as set forth in our certificate of
incorporation. Each outstanding share of common stock (other than shares of
class D-2 common stock, which are non-voting) is entitled to one vote on all
matters submitted to a vote of stockholders. Except as otherwise required by our
certificate of incorporation or applicable law, all of our classes of voting
common stock (other than the class D-2 common stock) vote together as a single
class on all matters submitted to a vote of the stockholders, including the
election of directors.
The table below sets forth certain information regarding the equity
ownership of French Automotive as of October 15, 1999 by: (1) each person or
entity known by us to beneficially own five percent or more of a class of our
voting common stock, (2) each director and named executive officer and (3) all
of our directors and executive officers as a group. Unless otherwise stated,
each of the persons named in the table has sole voting and investment power with
respect to the securities beneficially owned by it or him as set forth opposite
its or his name. Beneficial ownership of the common stock listed in the table
has been determined in accordance with the applicable rules and regulations
promulgated under the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF PERCENT OF VOTING
DIRECTORS, OFFICERS AND 5% STOCKHOLDERS CLASS SHARES CLASS POWER(1)
- --------------------------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ONEX American Holdings LLC(2)(3)............................ Class B 20,660 100% 87%
J2R Partners III(4)......................................... Class C 5,165 100% (3)
Class E 3,352 100%
Windward Entities(5)........................................ Class A 5,679 58% 13%
The Northwestern Mutual Life Insurance Company(6)........... Class D-1 4,545 69% (3)
Robert W. Baird & Co. Entities(7)........................... Class D-1 1,818 28% (3)
Tower Automotive, Inc.(8)................................... Class A 5,088 34% (3)
S. A. Johnson(8)(9)......................................... Class A 660 7% (3)
Class C 5,165 100%
Class E 3,352 100%
Charles M. Waldon........................................... Class A 837 9% (3)
Thomas C. Dinolfo........................................... Class A 142 1% (3)
Stephen Southern............................................ Class A 95 * (3)
Paul Buckley................................................ Class A 200 2% (3)
Juan Manuel Orbea........................................... -- -- -- --
Dugald K. Campbell(9)(12)................................... Class A 112 1% (3)
Class C 5,165 100%
Class E 3,352 100%
A. Kipp Koester(10)......................................... Class D-1 4,545 69% (3)
John E. Lindahl(11)......................................... Class D-2 4,090 60% (3)
Carl E. Nelson(12).......................................... Class A 160 2% (3)
Class C 5,165 100%
Class E 3,352 100%
Eric J. Rosen(2)(3)(9)...................................... Class B 20,660 100% 87%
Karl F. Storrie(12)......................................... Class A 83 * (3)
Class C 5,165 100%
Class E 3,352 100%
Douglas B. Trussler......................................... -- -- -- --
All directors and officers as a group (13 persons).......... All 40,101 -- 87%
</TABLE>
- ------------------------------
* Denotes less than one percent.
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(1) Except as otherwise required by our certificate of incorporation or
applicable law, all of our classes of voting common stock vote together as
a single class on all matters submitted to a vote of the stockholders,
including the election of directors.
(2) ONEX American Holdings LLC ("ONEX AH LLC") has shared voting power over
39,852 shares of common stock (see footnote (3)). Mr. Rosen, a Director of
French Automotive, is Managing Director of Onex Investment Corp. and, as a
result, may be deemed to have beneficial ownership of the shares held by
ONEX AH LLC. Mr. Rosen disclaims beneficial ownership of all shares of
class B common stock owned by ONEX AH LLC. ONEX AH LLC and Onex Investment
Corp. are both wholly owned subsidiaries of Onex. The address for ONEX AH
LLC and Mr. Rosen is c/o Onex Investment Corp., 712 Fifth Avenue, 40th
Floor, New York, New York 10019.
(3) ONEX AH LLC, J2R Partners III, The Northwestern Mutual Life Insurance
Company, Robert W. Baird & Co. Entities (as defined below),
Messrs. Johnson, Waldon and Nelson and all of French Automotive's other
existing stockholders (other than the Windward Entities (as defined below))
have entered into a stockholders agreement pursuant to which such
stockholders agreed to vote their shares of common stock in the same manner
as ONEX AH LLC votes its shares on the election of Directors and, with the
exception of Northwestern Mutual Life, on all other matters presented to
French Automotive's stockholders for a vote and, to the extent permitted by
law, granted to ONEX AH LLC a proxy to effectuate such agreement. As a
result, ONEX AH LLC has voting control of approximately 87% of our common
stock.
(4) The general partners of J2R Partners III are S.A. Johnson, Dugald K.
Campbell, Karl F. Storrie, Scott D. Rued, Robert R. Hibbs, Carl E. Nelson,
David J. Huls, Mary L. Johnson, Judith A. Vijums and Daniel F. Moorse. The
address for J2R Partners III is c/o Hidden Creek, 4508 IDS Center,
Minneapolis, Minnesota 55402.
(5) Includes 444 shares of class A common stock owned by Windward/Metropolitan,
L.L.C. and 5,235 shares of class A common stock held by Windward/Park WACI,
L.L.C. (collectively, the "Windward Entities"). The Windward Entities, due
to their common control, may be deemed to beneficially own each other's
shares, but each disclaims such beneficial ownership. The address for each
of the Windward Entities is c/o Windward Capital Partners, L.P., 1177
Avenue of the Americas, 42nd Floor, New York, New York 10036.
(6) The address for Northwestern Mutual Life is 720 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202. NML indirectly owns 64% of the outstanding
capital stock of Robert W. Baird & Co. Incorporated.
(7) Includes 583 shares of class D-1 common stock owned by Robert W. Baird &
Co., 301 shares of class D-1 common stock owned by BCP Affiliates Fund L.P.
and 934 shares of class D-1 common stock owned by BCP II Limited
Partnership (collectively, the "Robert W. Baird & Co. Entities"). The
Robert W. Baird & Co. Entities, due to their common control, may be deemed
to beneficially own each other's shares, but each disclaims such beneficial
ownership. The address for the Robert W. Baird & Co. Entities is c/o Robert
W. Baird & Co., 277 W. Monroe St., Suite 2100, Chicago, Illinois 60606.
(8) Includes 5,088 shares of class A common stock obtainable by Tower
Automotive, Inc. upon its conversion of its 7.5% convertible subordinated
promissory note. The address for Tower is 6303 28th Street S.E., Grand
Rapids, Michigan 49546. Messrs. Campbell, Johnson and Rosen are members of
the board of directors of Tower. Each of Messrs. Campbell, Johnson and
Rosen disclaims beneficial ownership of the shares owned by Tower.
(9) Includes 5,165 shares of class C common stock and 3,352 shares of class E
common stock owned by J2R Partners III, of which Mr. Johnson is a general
partner, and 660 shares of class A common stock owned by Mr. Johnson. The
address for Mr. Johnson is c/o Hidden Creek, 4508 IDS Center, Minneapolis,
Minnesota 55402.
(10) Includes 4,545 shares of class D-1 common stock owned by Northwestern
Mutual Life, of which Mr. Koester is a Managing Director. Mr. Koester
disclaims beneficial ownership of the shares owned by Northwestern Mutual
Life. The address for Mr. Koester is c/o Northwestern Mutual Life, 720
East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
(11) Includes 4,090 shares of class D-2 common stock owned by Norwest Equity
Capital, L.L.C., an affiliate of Norwest Equity Partners, of which
Mr. Lindahl is Managing General Partner. The address for Mr. Lindahl is
c/o Norwest Equity Partners, 2800 Piper Jaffray Tower, 222 South Ninth
Street, Minneapolis, Minnesota 55402.
(12) Includes 5,165 shares of class C common stock and 3,352 shares of class E
common stock owned by J2R Partners III, of which Messrs. Nelson, Campbell
and Storrie are general partners. Each of Messrs. Nelson, Campbell and
Storrie disclaims beneficial ownership of the shares owned by J2R
Partners III. The address for each of them is c/o Hidden Creek, 4508 IDS
Center, Minneapolis, Minnesota 55402.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE RECAPITALIZATION
The recapitalization was completed on April 21, 1999 pursuant to a
recapitalization agreement dated March 29, 1999 by and among us, our
stockholders prior to the recapitalization, who are referred to in this
prospectus as the existing stockholders, and JLF Acquisition LLC, a newly formed
transitory investment entity. Subsequent to the date of the recapitalization
agreement, but prior to the date of the recapitalization, JLF Acquisition
assigned all of its rights and obligations under the recapitalization agreement
to Onex, J2R and the other equity investors.
Pursuant to the recapitalization agreement, we redeemed for $348.8 million
in cash 87% of our outstanding shares of common stock and all of our outstanding
shares of preferred stock and we paid $21.5 million in cash to the holders of
outstanding stock options in exchange for the cancellation of their options. In
addition, we made a payment of $5.9 million to those persons who were
stockholders prior to the recapitalization based on a post-closing determination
of the amount of our working capital as of the closing date of the
recapitalization. In connection with the recapitalization, the existing
stockholders converted all shares of class B common stock not redeemed into
shares of class A common stock. Included in this conversion was all of the
common stock owned by our chief executive officer, Charles M. Waldon. As a
result of the redemption and the conversion, these stockholders currently own
5,348 shares of class A common stock, representing approximately 13% of the
outstanding common stock.
As part of the recapitalization, we filed an amendment to our certificate of
incorporation, which amendment created our current capital structure, consisting
of six classes of common stock, as described under "Security Ownership of
Certain Beneficial Owners and Management." The equity investors then purchased
for an aggregate purchase price of $156.0 million an aggregate of 37,038 shares
of common stock from French Automotive. As a result of the recapitalization, the
equity investors own approximately 87% of our common stock, representing 85% of
the voting power.
As a result of the recapitalization, Windward received approximately
$348.8 million in cash in connection with the redemption of its shares of common
stock and preferred stock and $85.0 million in cash in connection with the
repayment of the old subordinated notes.
Pursuant to the recapitalization agreement, the existing stockholders have
agreed to indemnify us and the equity investors for all liabilities and other
losses arising from any breach by French Automotive or any of the existing
stockholders of certain representations and warranties contained in the
recapitalization agreement. These representations relate to the capitalization
of the French Automotive and to the share ownership of the existing
stockholders, which representations survive indefinitely, and to the amount of
our existing indebtedness, which representation survives until the fourth
anniversary of the recapitalization. The existing stockholders do not have an
obligation to indemnify us and the equity investors for any losses once the
aggregate of all indemnified losses exceeds the price paid by French Automotive
to redeem the existing stockholders' capital stock.
The foregoing summary of the material terms of the recapitalization
agreement and related matters does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all of the provisions of the
recapitalization agreement, including the related exhibits and schedules. You
may obtain a copy of the recapitalization agreement from us.
INVESTOR STOCKHOLDERS AGREEMENT
French Automotive and each of its stockholders are parties to an investor
stockholders agreement, dated as of April 21, 1999. Tower Automotive and Onex
Advisor LLC and the other employees and affiliates of Onex who purchased shares
of our class A common stock in connection with our financing of the acquisition
of Nelson Metal became parties to this stockholders agreement by executing
joinder
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and rights agreements dated as of October 15, 1999. The stockholders agreement
provides that our board of directors will be established at seven directors and
will be comprised of: (1) three representatives designated by J2R, two of whom
shall initially be S.A. Johnson and Carl E. Nelson, (2) two representatives
designated by Onex, which representatives shall initially be Eric J. Rosen and
Charles M. Waldon, (3) one representative designated by Windward, which
representative shall initially be Robert H. Barton III and (4) one
representative designated by Northwestern Mutual Life, which representative
shall initially be A. Kipp Koester. The parties to the stockholders agreement
subsequently voted to increase the size of our board of directors to nine
directors and have appointed Karl F. Storrie and Dugald K. Campbell to fill
these vacancies. Mr. Barton resigned effective August 31, 1999 and this vacancy
has been filled by Mr. Trussler, a representative designated by Windward. In
addition, each party to the stockholders agreement has agreed to consent to a
sale of French Automotive if such sale is approved by our board of directors.
Except for Windward, each of the parties to the stockholders agreement has
also agreed to vote their common stock as directed by Onex on the election of
directors and, with the exception of Northwestern Mutual Life, on all other
matters submitted to a vote of stockholders, and has granted the person who is
at any time the president of Onex a proxy to vote its common stock. The voting
provisions of the stockholders agreement automatically terminate upon the sale
by French Automotive of at least 20% of its common stock, on a fully diluted
basis, in a underwritten public offering.
The stockholders agreement generally restricts the transfer of any shares of
common stock held by the parties to the stockholders agreement by granting
certain parties thereto rights of first offer and participation rights in
connection with any proposed transfer by any other party, with certain
exceptions. In addition, we have agreed not to issue to any person at any time
prior to an initial public offering of equity securities, any shares of common
stock or any other securities entitled to participate in distributions or to
vote (or securities convertible or exercisable for any of the foregoing) unless
the parties to the stockholders agreement are given the opportunity to purchase
their pro rata share at the same price and on the same terms, subject to certain
exceptions.
REGISTRATION AGREEMENT
In connection with the recapitalization, each of our stockholders entered
into a registration agreement. Tower Automotive and Onex Advisor LLC and the
other employees and affiliates of Onex who purchased shares of our class A
common stock in connection with our financing of the acquisition of Nelson Metal
became parties to this registration agreement by executing joinder and rights
agreements dated as of October 15, 1999. Pursuant to the registration agreement,
the holders of a majority of (1) the shares of class B common stock issued
pursuant to the recapitalization, or issued or issuable in respect of such
securities, and (2) any other shares of common stock held by persons holding any
of the foregoing may request, at any time, up to five registrations of all or
any part of their common stock on Form S-1 or any similar long-form registration
statement or, if available, an unlimited number of registrations on Form S-2 or
S-3 or any similar short-form registration statement, each at our expense. At
present, ONEX AH LLC owns all of the outstanding class B common stock. In the
event that the holders of these securities make such a demand registration
request, all other parties to the registration agreement will be entitled to
participate in such registration. In the event that none of these securities are
outstanding, the holders of a majority of (1) the common stock issued pursuant
to the recapitalization, or issued or issuable with respect thereto, and
(2) any common stock held by persons holding any of the foregoing will be
entitled to exercise these demand registration rights. The registration
agreement also grants to the parties thereto piggyback registration rights with
respect to all other registrations by us and we will pay all expenses related to
such piggyback registrations.
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MANAGEMENT STOCKHOLDERS AGREEMENT
On July 16, 1999, we, Onex and members of our management who own shares of
our common stock, including Messrs. Waldon, Dinolfo, Buckley, Porritt, Shoaf and
Southern, entered into a management stockholders agreement. At the same time, we
sold to 32 of our managers 1,653 shares of our class A common stock,
representing approximately 3.8% of our outstanding common stock. The amount of
management stock held by each of our executive officers is as set forth in
"Security Ownership of Certain Beneficial Owners and Management." Each
management stockholder purchased such stock at a price of $4,212 per share,
which is the per share amount paid by the equity investors in connection with
the recapitalization. The agreement permits the management stockholders to
borrow up to half of the purchase price of their stock, with such stock being
pledged to secure repayment of the loan.
Pursuant to this agreement, each management stockholder granted a right of
first refusal to us, and, if we do not exercise such right, to Onex, to purchase
such management stockholder's stock. In the event neither we nor Onex exercises
our respective rights of first refusal, at any time after we have become a
public company, a management stockholder desiring to sell his stock may sell up
to 5% of his stock in the public market during any 90-day period, up to a
maximum of one-third of the stock acquired by the management stockholder prior
to such date.
We, Onex and each of the management stockholders have agreed that either we
or Onex will purchase at book value, and each management stockholder will sell,
the stock held by such management stockholder in the event such management
stockholder's employment is terminated for any reason at any time prior to our
initial public offering. After such time as we become a public company, a
management stockholder may sell his stock in the public market, provided that,
in the event the management stockholder's employment terminates due to: (1)
retirement, he can sell his stock so long as he does not sell more 75% of his
stock during the year following his termination; (2) his death or disability, he
may sell without restriction; and (3) in all other cases, he can sell his stock
so long as he does not sell more than half in the year following his
termination.
The agreement further provides that, in the event our board of directors
approves a sale of our company, we have a right to require each management
stockholder to sell such management stockholder's stock to the proposed
purchaser. In addition, in the event we effect a public offering, we have agreed
to include each management stockholder's stock in such offering, provided that
each management stockholder may not register a greater proportion of his stock
than the proportion of Onex's stock being registered by Onex in such offering.
The terms of the agreement govern all common stock owned or later acquired
by the management stockholders other than any stock purchased in the open market
at any time after we have consummated an initial public offering.
MANAGEMENT AGREEMENT WITH HIDDEN CREEK
Pursuant to the terms of a management agreement dated as of April 21, 1999,
Hidden Creek has agreed to provide strategic direction and management, financial
and administrative services to French Automotive. In exchange for such services,
we have agreed to pay Hidden Creek an annual management fee in the amount of
$500,000. This management agreement is for an initial term of five years, but
may be canceled by Hidden Creek upon 30 days' notice. The agreement is
automatically renewable after five years on a year-to-year basis unless we give
Hidden Creek 30 days' notice of our intent to terminate the agreement. The
agreement will terminate in any event upon a sale of French Automotive.
In addition, Hidden Creek received a fee upon consummation of the
recapitalization and the offering of the outstanding notes of an aggregate of
approximately $3.5 million for services provided in
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structuring, negotiating and financing these transactions. Upon consummation of
the acquisition of Nelson Metal, Hidden Creek received a fee of $1.75 million
for services provided in structuring, negotiating and financing the acquisition.
PROMISSORY NOTE TO TOWER AUTOMOTIVE, INC.
In connection with the financing of our acquisition of Nelson Metal, we
borrowed $30.0 million from Tower Automotive, Inc. in exchange for our issuance
of a 7.5% convertible subordinated promissory note, due October 14, 2009.
Messrs. Campbell, Johnson and Rosen are members of both our board of directors
and the board of directors of Tower Automotive. Mr. Campbell is the president
and chief executive officer of Tower Automotive. The promissory note is
subordinated in right of payment to the notes. This promissory note may be
converted in whole or in part, at Tower Automotive's option, into a number of
shares of our class A common stock equal to the principal amount of the
promissory note and any accrued interest on the promissory note divided by
$5,896.75. The principal amount of this promissory note is therefore convertible
into 5,088 shares of class A common stock or 11.6% of our outstanding stock.
Interest is payable on the promissory note quarterly unless (1) the payment of
interest would cause us to breach any covenants in any agreement under which a
financial institution or pension fund has made loans to us in excess of $10.0
million or (2) in the good faith judgment of our board of directors, we do not
have funds available to pay interest on the promissory note, in which case the
unpaid interest will accrue until paid. We may prepay the promissory note at any
time, subject to Tower Automotive's right to convert the promissory note into
class A common stock.
TRANSACTIONS WITH SIGNIFICANT STOCKHOLDERS
J.L. French Corporation, a wholly owned subsidiary of French Holdings, Inc.,
subleases its sales and service office in Dearborn, Michigan from American
Bumper & Mfg. Co., which is indirectly owned by Windward. Payments with respect
to this sublease aggregated approximately $68,000 in 1998.
In connection with the recapitalization, French Automotive paid Robert W.
Baird & Co. an advisory fee of $2.5 million.
Prior to the recapitalization, French Automotive made payments to Windward
for financial services in the amount of $325,000, $200,000 and $150,000 for
1998, 1997 and 1996, respectively.
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DESCRIPTION OF SENIOR CREDIT FACILITY
GENERAL. In connection with the recapitalization, we and various of our
direct and indirect wholly owned subsidiaries entered into a senior credit
facility with The Chase Manhattan Bank, Bank of America National Trust and
Savings Association, Chase Manhattan International Limited and certain other
lenders. The senior credit facility originally provided for aggregate borrowings
by us of approximately $330.0 million. We used the proceeds of the initial
offering of the outstanding notes to repay a portion of the indebtedness under
the senior credit facility. See "Use of Proceeds." In connection with our recent
acquisition of Nelson Metal, we amended and restated our senior credit facility
to provide for an additional $100.0 million of available borrowings.
Following its amendment and restatement, the senior credit facility consists
of (a) approximately $187.5 million of term loans, consisting of (1) a
$155.0 million U.S. dollar-denominated term loan to French Automotive, (2) a
pound sterling-denominated term loan to French Automotive in an amount equal to
the pound sterling equivalent (determined as of the date such loan was made) of
U.S. $17.5 million and (3) a pound sterling-denominated term loan to Morris
Ashby in an amount equal to the pound sterling equivalent (determined as of the
date such loan was made) of U.S. $17.5 million (collectively, the "tranche A
term loan"), (b) a $152.5 million tranche B term loan and (c) a $90.0 million
revolving credit facility. The amendment increased the dollar-denominated
portion of our tranche A term loan from $70.0 million to $155.0 million and
increased our revolving credit facility from $75.0 million to $90.0 million. Up
to $20.0 million of the revolving credit facility is available in British Pounds
Sterling, Euros and other foreign currencies for borrowings by us and certain of
our designated foreign subsidiaries.
INTEREST. Amounts outstanding under the senior credit facility bear
interest, at our option, at a rate per annum equal to either: (1) the
eurocurrency base rate (as defined in the senior credit agreement) or (2) the
base rate (as defined in the senior credit agreement), in each case, plus an
applicable margin. The applicable margin for the tranche A term loan and the
revolving credit facility is initially 2.50% for eurocurrency base rate loans
and 1.50% for base rate loans. The applicable margin for the tranche A term loan
and the revolving credit facility is subject to adjustment downward based on the
achievement of certain performance targets and provided that no event of default
has occurred and is continuing. The applicable margin for the tranche B term
loan is fixed at 2.75% for eurocurrency base rate loans and 1.75% for base rate
loans. As of June 30, 1999, our borrowings under the senior credit facility bore
interest at rates ranging from 7.5% to 7.9%.
MATURITY. Borrowings under the tranche A term loan are due and payable in
quarterly installments until April 21, 2005 and borrowings under the tranche B
term loan are due and payable in nominal quarterly installments until
September 30, 2006, with the final balance due on October 21, 2006. The
revolving credit facility is available until April 21, 2005.
SECURITY AND GUARANTIES. The senior credit facility is secured by a first
priority security interest in all of our existing and after-acquired tangible
and intangible assets, including those of our direct and indirect material
subsidiaries, with the exception of certain foreign subsidiaries, including,
without limitation, real property and all of the capital stock owned us and our
direct and indirect material subsidiaries, with the exception of certain foreign
subsidiaries and to the extent permitted by applicable law. All of our
obligations under the senior credit facility are fully and unconditionally
guaranteed by all of our present and future material domestic subsidiaries. In
addition, we and each of such guarantors shall guarantee any borrowings by any
designated foreign subsidiaries permitted to borrow amounts under the senior
credit facility.
COVENANTS. The senior credit facility requires us to meet certain financial
tests, including, without limitation, minimum interest coverage, minimum cash
retained earnings and maximum leverage tests. The senior credit facility
contains certain covenants which, among other things, limit the incurrence of
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additional indebtedness, investments, dividends, transactions with affiliates,
asset sales, acquisitions, mergers and consolidations, prepayments of other
indebtedness, including the notes, liens and encumbrances.
EVENTS OF DEFAULT. The senior credit facility contains customary events of
default, including, without limitation, payment defaults, breaches of
representations and warranties, covenant defaults, cross-defaults to certain
other indebtedness, including the notes, certain events of bankruptcy and
insolvency, judgment defaults, failure of any guaranty or security document
supporting the senior credit facility to be in full force and effect and a
change of control of French Automotive.
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DESCRIPTION OF NOTES
You can find the definitions of some of the terms used in this description
under the caption "--Certain Definitions."
We will issue the exchange notes under an indenture among French Automotive,
the subsidiary guarantors and U.S. Bank Trust National Association, as trustee.
The terms of the notes include those stated in the indenture and those made part
of the indenture by reference to the Trust Indenture Act of 1939, as amended.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as a holder of the notes. Copies of the indenture and the
registration rights agreement are available as set forth below under the caption
"--Additional Information." Certain defined terms used in this description but
not defined below under the caption "--Certain Definitions" have the meanings
assigned to them in the indenture.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTIES
THE NOTES
- are general unsecured obligations of French Automotive;
- are subordinated in right of payment to all existing and future senior
indebtedness of French Automotive;
- rank equally in right of payment with all existing and future unsecured
subordinated indebtedness of French Automotive that is not expressly
subordinated to the notes; and
- are unconditionally guarantied by the subsidiary guarantors.
THE GUARANTIES
The notes are guarantied by each domestic restricted subsidiary of French
Automotive.
Each subsidiary guaranty of the notes:
- is a general unsecured obligation of the subsidiary guarantor;
- is subordinated in right of payment to all existing and future senior debt
of the subsidiary guarantor; and
- ranks equally in right of payment with all existing and future unsecured
subordinated indebtedness of the subsidiary guarantor that is not
expressly subordinated to the subsidiary guaranty.
None of our foreign subsidiaries will guaranty the notes. In addition, under
the circumstances set forth below under the caption "--Certain
Covenants--Designation of Restricted and Unrestricted Subsidiaries," we will be
permitted to designate certain of our subsidiaries as "unrestricted
subsidiaries." Our unrestricted subsidiaries will not be subject to many of the
indenture's restrictive covenants and will not guaranty the notes.
We operate through our subsidiaries and, therefore, depend on the cash flow
of our subsidiaries to meet our obligations, including our obligations under the
notes. French Automotive's right to receive assets of any of our subsidiaries
upon the subsidiary's liquidation or reorganization, and the consequent right of
the holders of the notes to participate in those assets, will be effectively
subordinated to the claims of that subsidiary's creditors, except to the extent
that French Automotive is itself recognized as
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a creditor of the subsidiary, in which case French Automotive's claims would
still be subordinate in right of payment to any security in the assets of the
subsidiary and any indebtedness of the subsidiary senior to that held by French
Automotive. The notes will therefore be effectively subordinated in right of
payment to all indebtedness and other liabilities and commitments, including
trade payables and lease obligations, of our non-guarantor subsidiaries. In the
event of a bankruptcy, liquidation or reorganization of any of these
non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the
holders of their debts and their trade creditors before they will be able to
distribute any of their assets to us. The non-guarantor subsidiaries generated
29.3% of our consolidated sales in the period ending June 30, 1999 and held
36.5% of our consolidated assets and 17.0% of our consolidated liabilities as of
June 30, 1999. See "Risk Factors--We Conduct All of Our Operations Through
Subsidiaries and Not All of Our Subsidiaries Are Subsidiary Guarantors."
PRINCIPAL, MATURITY AND INTEREST
The indenture provides for the issuance by us of notes with a maximum
aggregate principal amount of $275.0 million, of which $175.0 million was issued
in the initial offering of the outstanding notes. We may issue additional notes
from time to time. Any offering of additional notes is subject to the covenant
described below under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock." The notes and any additional
notes subsequently issued under the indenture will be treated as a single class
for all purposes under the indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. We have issued notes in
denominations of $1,000 and integral multiples of $1,000. The notes will mature
on June 1, 2009.
Interest on the notes will accrue at the rate of 11 1/2% per annum and will
be payable semi-annually in arrears on June 1 and December 1, commencing on
December 1, 1999. We will make each interest payment to the holders of record on
the immediately preceding May 15 and November 15.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder has given wire transfer instructions to us, we will pay all
principal, interest and premium and liquidated damages, if any, on that holder's
notes in accordance with those instructions. All other payments on notes will be
made at the office or agency of the paying agent and registrar within the City
and State of New York unless we elect to make interest payments by check mailed
to the holders at their addresses set forth in the register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as paying agent and registrar. We may change
the paying agent or registrar without prior notice to the holders, and we or any
of our subsidiaries may act as paying agent or registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and we may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
We are not required to transfer or exchange any note selected for redemption.
Also, we are not required to transfer or exchange any note for a period of
15 days before a selection of notes to be redeemed.
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The registered holder of a note will be treated as the owner of it for all
purposes.
SUBSIDIARY GUARANTIES
The subsidiary guarantors will jointly and severally guaranty our
obligations under the notes. Each subsidiary guaranty will be subordinated to
the prior payment in full of all senior debt of that subsidiary guarantor. The
obligations of each subsidiary guarantor under its subsidiary guaranty will be
limited as necessary to prevent that subsidiary guaranty from constituting a
fraudulent conveyance under applicable law. See "Risk Factors--If a Court Were
to Find that the Issuance of the Notes or the Subsidiary Guaranties Constituted
a Fraudulent Conveyance, the Court Could Avoid Our Obligations under the Notes
or the Subsidiary Guarantors' Obligations under the Subsidiary Guaranties."
A subsidiary guarantor may not sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge with or into
another person, whether or not such subsidiary guarantor is the surviving
person, other than French Automotive or another subsidiary guarantor, unless:
(1) immediately after giving effect to that transaction, no default or event
of default exists; and
(2) either:
(a) the person acquiring the property in any such sale or disposition or
the person formed by or surviving any such consolidation or merger
assumes all the obligations of that subsidiary guarantor under the
indenture, its subsidiary guaranty and the registration rights
agreement pursuant to a supplemental indenture and appropriate
collateral documents satisfactory to the Trustee; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the "Asset Sale" provisions of the indenture.
The subsidiary guaranty of a subsidiary guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that subsidiary guarantor to a person that is not,
either before or after giving effect to such transaction, a restricted
subsidiary of French Automotive, if the subsidiary guarantor applies the
Net Proceeds of that sale or other disposition in accordance with the
"Asset Sale" provisions of the indenture;
(2) in connection with any sale of all of the capital stock of a subsidiary
guarantor to a person that is not, either before or after giving effect
to such transaction, a restricted subsidiary of French Automotive, if
French Automotive applies the Net Proceeds of that sale in accordance
with the "Asset Sale" provisions of the indenture, or
(3) if we properly designate any restricted subsidiary that is a subsidiary
guarantor as an unrestricted subsidiary.
See "--Repurchase at the Option of Holders--Asset Sales."
SUBORDINATION
The payment of principal, interest and premium and liquidated damages, if
any, on the notes, and any other Obligations relating to the notes, will be
subordinated to the prior payment in full in cash of all of our senior debt,
including senior debt incurred after the date of the indenture.
The holders of senior debt will be entitled to receive payment in full in
cash of all obligations due in respect of senior debt, including interest after
the commencement of any bankruptcy proceeding at the rate specified in the
applicable senior debt, whether or not such interest would be an allowed claim,
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before the holders of notes will be entitled to receive any payment under the
notes, in the event of any distribution to our creditors:
(1) in a liquidation or dissolution of French Automotive;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to French Automotive or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of French Automotive's assets and liabilities.
The holders of notes may, however, receive and retain Permitted Junior
Securities and payments made from the trust described under "--Legal Defeasance
and Covenant Defeasance" if the funding of the trust is permitted under the
defeasance section of the indenture.
We also may not make any payment, whether by purchase, redemption,
defeasance or otherwise, under the notes if:
(1) a payment default on Designated Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on any series of Designated
Senior Debt that permits holders of that series of Designated Senior Debt
to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from us or the holders of any
Designated Senior Debt.
We may however make payments under the notes in Permitted Junior Securities
or from the trust described under "--Legal Defeasance and Covenant Defeasance"
if the funding of the trust is permitted under the defeasance section of the
indenture.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received, unless the maturity
of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the delivery of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 90 consecutive days.
If the Trustee or any holder of the notes receives a payment under the notes
when the payment is prohibited by these subordination provisions, the Trustee or
the holder, as the case may be, shall hold the payment in trust for the benefit
of the holders of senior debt, unless the payment is in Permitted Junior
Securities in the circumstances permitted above or from the trust described
under "--Legal Defeasance and Covenant Defeasance" and the funding of the trust
is permitted under the defeasance section of the indenture. Upon the proper
written request of the holders of senior debt, the Trustee or the holder, as the
case may be, shall deliver the amounts in trust to the holders of senior debt or
their proper representative.
We must promptly notify holders of senior debt if payment of the notes is
accelerated because of an event of default.
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As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of French Automotive, holders of
notes may recover less ratably than our creditors who are holders of senior
debt. See "Risk Factors--The Notes and Subsidiary Guaranties are Unsecured
Subordinated Obligations."
"DESIGNATED SENIOR DEBT" means:
(1) any indebtedness outstanding under or in respect of the Credit
Agreement; and
(2) after payment in full of all Obligations under the Credit Agreement, any
other senior debt permitted under the indenture the principal amount of
which is $15.0 million or more and that has been designated by us as
"Designated Senior Debt."
"PERMITTED JUNIOR SECURITIES" means: (1) debt securities of French
Automotive as reorganized or readjusted, if applicable, and guaranteed by the
subsidiary guarantors, or debt securities of French Automotive, or any other
company, trust or organization provided for by a plan of reorganization or
readjustment succeeding to the assets and liabilities of French Automotive, and
guaranteed by the subsidiary guarantors, in each of the foregoing cases, which
securities and guarantees are subordinated, to at least the same extent as the
notes and the subsidiary guarantees, to the payment of all senior debt and
guaranties of senior debt that will be outstanding after giving effect to the
reorganization or readjustment, if applicable, so long as (a) the debt
securities are not entitled to the benefit of covenants or defaults more
beneficial to the holders of the debt securities than those in effect for the
notes or the senior debt, after giving effect to the reorganization or
readjustment, if applicable, and (b) the debt securities shall not provide for
amortization, including sinking fund and mandatory prepayment provisions,
commencing prior to the date which is one year after the final scheduled
maturity date of the senior debt, unless the mandatory prepayment is of the type
described under the caption "--Repurchase at the Option of Holders--Change of
Control", or (2) equity interests in French Automotive or any subsidiary
guarantor; PROVIDED THAT in each case with respect to clause (1) or (2) above,
if a new corporation results from the reorganization or readjustment, the
corporation assumes all senior debt that will be outstanding after giving effect
thereto and provided further that the rights of the holders of senior debt are
not impaired.
"SENIOR DEBT" means:
(1) all indebtedness of French Automotive or any subsidiary guarantor
outstanding under credit facilities and all Hedging Obligations with
respect thereto;
(2) any other indebtedness of French Automotive or any subsidiary guarantor
permitted to be incurred under the terms of the indenture, unless the
instrument under which such indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
notes or any subsidiary guaranty, as the case may be; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding paragraph, senior
debt will not include:
(1) any liability for federal, state, local or other taxes owed or owing by
French Automotive or the subsidiary guarantors;
(2) any indebtedness of French Automotive to any of its subsidiaries or
other affiliates;
(3) any trade payables; or
(4) any indebtedness that is incurred in violation of the indenture.
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OPTIONAL REDEMPTION
At any time prior to June 1, 2002, we may on any one or more occasions
redeem up to 35% of the aggregate principal amount of notes issued under the
indenture at a redemption price of 111.5% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages, if any, to the redemption
date, with the net cash proceeds of one or more equity offerings; PROVIDED that:
(1) at least 65% of the aggregate principal amount of notes issued under the
indenture remains outstanding immediately after the occurrence of each
redemption, excluding notes held by us and our subsidiaries; and
(2) the redemption must occur within 90 days of the date of the closing of
the equity offering.
Except pursuant to the preceding paragraph, the notes will not be redeemable
at our option prior to June 1, 2004. We are not prohibited, however, from
acquiring the notes by means other than a redemption, whether pursuant to an
issuer tender or otherwise, assuming the acquisition does not otherwise violate
the terms of the indenture.
On or after June 1, 2004, we may redeem all or a part of the notes upon not
less than 30 nor more than 60 days' notice, at the redemption prices, expressed
as percentages of principal amount, set forth below plus accrued and unpaid
interest and liquidated damages, if any, thereon, to the applicable redemption
date, if redeemed during the twelve-month period beginning on June 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004........................................................ 105.750%
2005........................................................ 103.833%
2006........................................................ 101.917%
2007 and thereafter......................................... 100.000%
</TABLE>
MANDATORY REDEMPTION
We are not required to make mandatory redemption or sinking fund payments
with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a change of control occurs and we have not previously issued an
irrevocable notice of redemption of all of the notes on the terms set forth
above under the heading "--Optional Redemption", each holder of notes will have
the right to require us to repurchase all or any part equal to $1,000 or an
integral multiple thereof of that holder's notes pursuant to a change of control
offer (as described herein) on the terms set forth in the indenture. In the
change of control offer, we will offer a change of control payment in cash equal
to 101% of the aggregate principal amount of notes repurchased plus accrued and
unpaid interest and liquidated damages, if any, to the date of purchase. Within
30 days following any change of control, we will mail a notice to each holder
describing the transaction or transactions that constitute the change of control
and offering to repurchase notes on the change of control payment date specified
in the notice, which date shall be no earlier than 30 days and no later than
60 days from the date the notice is mailed, pursuant to the procedures required
by the indenture and described in the notice. We will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the notes as a result of a
change of control. To the extent that the provisions of any securities laws or
regulations conflict with the change of control provisions of the indenture, we
will comply with the applicable securities laws and regulations and will not be
deemed to have breached our obligations under the change of control provisions
of the indenture by virtue of the conflict.
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On the change of control payment date, we will, to the extent lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the change of control offer;
(2) deposit with the paying agent an amount equal to the change of control
payment in respect of all notes or portions of notes so tendered; and
(3) deliver or cause to be delivered to the Trustee the notes we are
accepting, together with an officers' certificate stating the aggregate
principal amount of notes we are purchasing.
The paying agent will promptly mail to each holder of notes so tendered the
change of control payment for the notes, and the Trustee will promptly
authenticate and mail or cause to be transferred by book entry to each holder a
new note equal in principal to any unpurchased portion of the notes surrendered,
if any; provided that each new note will be in a principal amount of $1,000 or
an integral multiple thereof.
Prior to complying with any of the provisions of this "change of control"
covenant, but in any event within 90 days following a change of control, we will
either repay all outstanding senior debt or obtain the requisite consents, if
any, under all agreements governing outstanding senior debt to permit the
repurchase of notes required by this covenant. If we do not obtain such consents
or repay such borrowings, we will be prohibited from repurchasing the notes. We
will publicly announce the results of the change of control offer on or as soon
as practicable after the change of control payment date.
The provisions described above that require we make a change of control
offer following a change of control will be applicable regardless of whether any
other provisions of the indenture are applicable. Except as described above with
respect to a change of control, the indenture does not contain provisions that
permit the holders of the notes to require that we repurchase or redeem the
notes in the event of a takeover, recapitalization or similar transaction.
We will not be required to make a change of control offer upon a change of
control if a third party makes the change of control offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
indenture applicable to a change of control offer made by us and purchases all
notes validly tendered and not withdrawn under the change of control offer.
The definition of change of control includes a phrase relating to the direct
or indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of our properties or assets and of our subsidiaries taken as
a whole. Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
us to repurchase the notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of our assets and the assets of our
subsidiaries taken as a whole to another person or group may be uncertain.
ASSET SALES
We will not, and will not permit any of our restricted subsidiaries to,
consummate an Asset Sale unless:
(1) we or the restricted subsidiary, as the case may be, receives
consideration at the time of the Asset Sale at least equal to the fair
market value of the assets or equity interests issued or sold or
otherwise disposed of, as determined in good faith by us;
(2) the fair market value is determined by our board of directors and
evidenced by a resolution of the board of directors set forth in an
officers' certificate delivered to the Trustee; and
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(3) at least 75% of the consideration received by us or the restricted
subsidiary from the Asset Sale is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following shall
be deemed to be cash:
(a) any of our or our restricted subsidiaries' liabilities, as shown on
our or any restricted subsidiary's most recent balance sheet, other
than contingent liabilities and liabilities that are by their terms
subordinated to the notes or any subsidiary guaranty, that are
assumed by the transferee of any assets pursuant to a customary
novation agreement that releases us or the restricted subsidiary from
further liability;
(b) any securities, notes or other obligations received by us or any
restricted subsidiary from a transferee that are converted by us or
the restricted subsidiary into cash within 180 days after the
consummation of the Asset Sale, to the extent of the cash received in
that conversion; and
(c) any Designated Noncash Consideration received by us or any of our
restricted subsidiaries in an Asset Sale; PROVIDED that the aggregate
fair market value, as determined above, of the Designated Noncash
Consideration, taken together with the fair market value at the time
of receipt of all other Designated Noncash Consideration received
pursuant to this clause (c) less the amount of Net Proceeds
previously realized in cash from the earlier received Designated
Noncash Consideration is less than the greater of 5.0% of Total
Assets or $25.0 million at the time of the receipt of the Designated
Noncash Consideration, with the fair market value of each item of
Designated Noncash Consideration being measured at the time received
and without giving effect to subsequent changes in value.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale, we
may apply the Net Proceeds at our option:
(1) to repay senior debt and, if the senior debt repaid is revolving credit
indebtedness, to correspondingly reduce commitments with respect thereto;
(2) to acquire all or substantially all of the assets of, or a majority of
the voting stock of, another Permitted Business;
(3) to make a capital expenditure; and/or
(4) to acquire other long-term assets that are used or useful in a Permitted
Business.
Pending the final application of any Net Proceeds, we may temporarily reduce
revolving credit borrowings or otherwise invest the Net Proceeds in any manner
that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "excess proceeds." When the
aggregate amount of excess proceeds exceeds $10.0 million, we will make an offer
to all holders of notes and all holders of other indebtedness that ranks equally
with the notes containing provisions similar to those set forth in the indenture
with respect to offers to purchase or redeem with the proceeds of sales of
assets to purchase the maximum principal amount of notes and other indebtedness
that ranks equally with the notes that may be purchased out of the excess
proceeds, such offer being referred to in this prospectus as an "asset sale
offer." The offer price in any asset sale offer will be equal to 100% of
principal amount plus accrued and unpaid interest and liquidated damages, if
any, to the date of purchase, and will be payable in cash. If any excess
proceeds remain after consummation of an asset sale offer, we may use the excess
proceeds for any purpose not otherwise prohibited by the indenture. If the
aggregate principal amount of notes and other indebtedness as ranks equally with
the notes tendered into the asset sale offer exceeds the amount of excess
proceeds, the Trustee shall select the notes and other indebtedness as ranks
equally with the notes to be purchased on a pro rata basis based on the
principal amount of
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notes and other indebtedness as ranks equally with the notes that is tendered.
Upon completion of each asset sale offer, the amount of excess proceeds shall be
reset at zero.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations under the securities laws to the
extent such laws and regulations are applicable in connection with each
repurchase of notes pursuant to an asset sale offer. To the extent that the
provisions of any securities laws or regulations conflict with the asset sales
provisions of the indenture, we will comply with the applicable securities laws
and regulations and will not be deemed to have breached our obligations under
the asset sale provisions of the indenture by virtue of the conflict.
The agreements governing our outstanding senior debt currently prohibit us
from purchasing any notes, and also provide that certain change of control or
asset sale events would constitute a default under these agreements. Any future
credit agreements or other agreements relating to senior debt to which we become
a party may contain similar restrictions and provisions. In the event a change
of control or Asset Sale occurs at a time when we are prohibited from purchasing
notes, we could seek the consent of our senior lenders to the purchase of notes
or could attempt to refinance the borrowings that contain the prohibition on
purchasing the notes. If we do not obtain these consents or repay these
borrowings, we cannot purchase the notes. In such case, our failure to purchase
tendered notes would constitute an event of default under the indenture which
would, in turn, constitute a default under the senior debt. In these
circumstances, the subordination provisions in the indenture would likely
restrict payments to the holders of notes.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the Trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by any
method that the Trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the holder thereof upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
We will not, and will not permit any of our restricted subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on
account of our or any of our restricted subsidiaries' equity interests,
including, without limitation, any payment in connection with any merger
or consolidation involving us or any of our restricted subsidiaries, or
to the direct or indirect holders of our or any of our restricted
subsidiaries' equity interests in their capacity as such, other than
dividends or distributions payable in our equity interests, other than
Disqualified Stock, or to us or one of our restricted subsidiaries;
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(2) purchase, redeem or otherwise acquire or retire for value, including,
without limitation, in connection with any merger or consolidation
involving us, any of our equity interests or the equity interests of any
direct or indirect parent of us;
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any indebtedness that is by its
terms subordinated to the notes or the subsidiary guaranties, except a
payment of interest or principal at the stated maturity thereof; or
(4) make any Restricted Investment (all of these payments and other actions
set forth in clauses (1) through (4) above being collectively referred to
as "restricted payments"),
unless, at the time of and after giving effect to the restricted payment:
(1) no default or event of default shall have occurred and be continuing or
would occur as a consequence of the restricted payment; and
(2) we would, at the time of the restricted payment and after giving pro
forma effect to the restricted payment as if the restricted payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock;" and
(3) the restricted payment, together with the aggregate amount of all other
restricted payments made by us and our restricted subsidiaries after the
date of the indenture, excluding restricted payments permitted by clauses
(2), (3), (4), (5), (7) and (8) of the next succeeding paragraph, is less
than the sum, without duplication, of:
(a) 50% of our Consolidated Net Income for the period (taken as one
accounting period) from March 31, 1999 to the end of our most
recently ended fiscal quarter for which internal financial statements
are available at the time of the restricted payment, or, if the
Consolidated Net Income for the period is a deficit, less 100% of the
deficit, PLUS
(b) 100% of the aggregate net cash proceeds or fair market value of
Productive Assets received by us since the date of the indenture as a
contribution to our common equity capital or from the issue or sale
of our equity interests, other than Disqualified Stock or Designated
Preferred Stock, or from the issue or sale of convertible or
exchangeable Disqualified Stock or Designated Preferred Stock or
convertible or exchangeable debt securities that have been converted
into or exchanged for equity interests, other than equity interests
or Disqualified Stock or Designated Preferred Stock or debt
securities sold to one of our subsidiaries, PLUS
(c) 100% of the aggregate net cash proceeds or fair market value of
Productive Assets received from the disposition or sale of any
Restricted Investment that was made after the date of the indenture
less, in each case, the cost of the disposition or sale, PLUS
(d) 100% of the amount of any dividends paid in cash or the fair market
value, as determined above, of any Productive Assets received by us
or a restricted subsidiary after the date of the indenture from one
of our unrestricted subsidiaries, to the extent that the dividends
were not otherwise included in our Consolidated Net Income for the
period, PLUS
(e) to the extent that any of our unrestricted subsidiaries is
redesignated as a restricted subsidiary after the date of the
indenture, the fair market value of our Investment in the subsidiary
as of the date of the redesignation, PLUS
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(f) without duplication of any amounts included in clause (b) above, 100%
of the aggregate net cash proceeds or the fair market value of
Productive Assets received by us as equity contributions, other than
Disqualified Stock or Designated Preferred Stock, by a holder of our
equity interests, excluding any net cash proceeds from an equity
contribution which has been financed, directly or indirectly using
funds (1) borrowed from us or any of our subsidiaries, unless and
until and to the extent such borrowing is repaid or (2) contributed,
extended, guaranteed or advanced by us or by any of our subsidiaries.
So long as no payment default has occurred and is continuing or would be
caused thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration the payment would have complied
with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any of our or our restricted subsidiaries' subordinated indebtedness
or of our or our restricted subsidiaries' equity interests in exchange
for, or out of the net cash proceeds of the substantially concurrent
sale, other than to one of our subsidiaries, of our equity interests,
other than Disqualified Stock; PROVIDED that the amount of the net cash
proceeds that are utilized for the redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (3) (b) of
the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of our
subordinated indebtedness or the subordinated indebtedness of any
restricted subsidiary with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness;
(4) the payment of any dividend by one of our restricted subsidiaries to the
holders of its capital stock on a pro rata basis;
(5) the repurchase, redemption or other acquisition or retirement for value
of any of our or our restricted subsidiaries' equity interests held by
any of our or our restricted subsidiaries' current or former employees,
officers or directors pursuant to any management equity subscription
agreement, stock option agreement or other employee plan or agreement or
employment benefit plan; PROVIDED that the aggregate price paid for all
of the repurchased, redeemed, acquired or retired equity interests shall
not exceed (a) $2.5 million in any calendar year with this amount being
increased in any calendar year by the amount available for use, but not
used, under this clause (5) in the immediately preceding year and (b)
$10.0 million since the date of the indenture;
(6) the declaration and payment of dividends to holders of any class or
series of Designated Preferred Stock, other than Disqualified Capital
Stock, issued after the date of the indenture; PROVIDED that, at the time
of the issuance, we, after giving effect to the issuance on a pro forma
basis, would have had a Fixed Charge Coverage Ratio of at least 2.0 to
1.0;
(7) repurchases of capital stock deemed to occur upon the exercise of stock
options if the capital stock represents a portion of the exercise price
of the capital stock; and
(8) so long as no default or event of default shall have occurred and be
continuing or would occur as a consequence of the restricted payment,
other restricted payments in an aggregate amount not to exceed
$10.0 million since the date of the indenture.
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The amount of all restricted payments, other than cash, shall be the fair
market value on the date of the restricted payment of the asset(s) or securities
proposed to be transferred or issued to or by us or such restricted subsidiary,
as the case may be, pursuant to the restricted payment. The fair market value of
any assets or securities that are required to be valued by this covenant shall
be determined by the board of directors whose resolution with respect to
valuation shall be delivered to the Trustee. The board of directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds the greater of 3.0% of Total Assets or $5.0 million.
Not later than the date of making any restricted payment, we shall deliver to
the Trustee an officers' certificate stating that the restricted payment is
permitted and setting forth the basis upon which the calculations required by
this restricted payments covenant were computed, together with a copy of any
fairness opinion or appraisal required by the indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
We will not, and will not permit any of our subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any indebtedness, including Acquired Debt, and we will not issue any
Disqualified Stock and will not permit any of our restricted subsidiaries to
issue any shares of preferred stock; PROVIDED, HOWEVER, that we may incur
indebtedness, including Acquired Debt, or issue Disqualified Stock, and any
subsidiary guarantor may incur indebtedness, including Acquired Debt, or issue
preferred stock, if:
The Fixed Charge Coverage Ratio for our most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional indebtedness is incurred or such
Disqualified Stock or preferred stock is issued would have been at least 2.0 to
1.0, determined on a pro forma basis, including a pro forma application of the
net proceeds therefrom, as if the additional indebtedness had been incurred or
the preferred stock or Disqualified Stock had been issued, as the case may be,
at the beginning of the four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following items of indebtedness, which we collectively refer to in this
prospectus as Permitted Debt:
(1) the incurrence by us or any of our restricted subsidiaries of indebtedness
and letters of credit under credit facilities in an aggregate principal
amount at any one time outstanding, with letters of credit being deemed to
have a principal amount equal to the face amount of the letter of credit,
not to exceed the positive difference between (a) the greater of
(i) $330.0 million and (ii) the amount of the Borrowing Base and (b) the
sum of (i) all outstanding indebtedness incurred in Qualified
Securitization Transactions and (ii) the aggregate amount of all Net
Proceeds of Asset Sales applied by us or any of our subsidiaries to repay
any indebtedness under the credit facilities pursuant to the covenant
described above under the caption "--Repurchase at the Option of
Holders--Asset Sales";
(2) the incurrence by us and our restricted subsidiaries of the Existing
Indebtedness;
(3) the incurrence by us and the subsidiary guarantors of indebtedness
represented by the notes and the related subsidiary guaranties to be issued
on the date of the indenture and by the exchange notes and the related
subsidiary guaranties to be issued pursuant to the registration rights
agreement;
(4) the incurrence by us or any of our restricted subsidiaries of indebtedness
represented by Capital Lease Obligations, mortgage financings or purchase
money obligations, in each case, incurred for the purpose of financing all
or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in our business or the business of such
restricted subsidiary, in an aggregate principal amount, including all
Permitted Refinancing
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Indebtedness incurred to refund, refinance or replace any indebtedness
incurred pursuant to this clause (4), not to exceed 5.0% of Total Assets at
any time outstanding;
(5) the incurrence by us or any of our restricted subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to refund, refinance or replace indebtedness, other than intercompany
indebtedness, that was permitted by the indenture to be incurred under the
first paragraph of this covenant or clauses (2), (3), (4), (5), or (10) of
this paragraph;
(6) the incurrence by us or any of our restricted subsidiaries of intercompany
indebtedness between or among us and any of our restricted subsidiaries;
PROVIDED, HOWEVER, that:
(a) if we or any subsidiary guarantor is the obligor on the intercompany
indebtedness, the indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations under the notes, in our
case, or the subsidiary guaranty, in the case of a subsidiary guarantor;
and
(b) (i) any subsequent issuance or transfer of equity interests that results
in any intercompany indebtedness being held by a person other than us or
any of our restricted subsidiaries and (ii) any sale or other transfer of
any intercompany indebtedness to a person other than us or one of our
restricted subsidiaries; shall be deemed, in each case, to constitute an
incurrence of the indebtedness by us or the restricted subsidiary, as the
case may be, that was not permitted by this clause (6);
(7) the incurrence by us or any of our restricted subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging
(a) interest rate risk with respect to any floating rate indebtedness that
is permitted by the terms of this indenture to be outstanding or (b) the
value of foreign currencies or the cost of commodities purchased or
received by us or any of our restricted subsidiaries;
(8) (a) the guaranty by us or any of the subsidiary guarantors of indebtedness
of us or a subsidiary guarantor that was permitted to be incurred by
another provision of this covenant;
(b) the guaranty by any of our restricted subsidiaries that is not a
subsidiary guarantor of our indebtedness or the indebtedness of another
of our restricted subsidiaries that was permitted to be incurred by
another provision of this covenant;
(9) the accrual of interest, the accretion or amortization of original issue
discount, the payment of interest on any indebtedness in the form of
additional indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock; PROVIDED, in each case, that the amount thereof is
included in our Fixed Charges as accrued;
(10) the incurrence by us or any of our restricted subsidiaries of additional
indebtedness or Disqualified Stock in an aggregate principal amount or
accreted value, as applicable, at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any indebtedness incurred pursuant to this clause (10), not to
exceed $25.0 million;
(11) the incurrence by our unrestricted subsidiaries of Non-Recourse Debt or
the issuance of preferred stock, provided, however, that if any of this
indebtedness ceases to be Non-Recourse Debt of an unrestricted subsidiary,
this event shall be deemed to constitute an incurrence of indebtedness by
a restricted subsidiary that was not permitted by this clause (11);
(12) the incurrence of indebtedness owing to any insurance company in
connection with the financing of insurance premiums permitted by the
insurance company in the ordinary course of business;
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(13) the incurrence of indebtedness, including letters of credit, in respect of
workers' compensation claims, self-insurance obligations, performance,
surety, bid or similar bonds and completion guarantees provided by us or
one of our restricted subsidiaries in the ordinary course of business and
consistent with past practices;
(14) indebtedness arising from our agreements or the agreements of a restricted
subsidiary providing for indemnification, adjustment of purchase price,
earn out or other similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets or a restricted
subsidiary, other than guarantees of indebtedness incurred by any person
acquiring all or any portion of the business, assets or restricted
subsidiary for the purpose of financing the acquisition; PROVIDED that the
maximum assumable liability in respect of all of this indebtedness shall
at no time exceed the gross proceeds actually received by us and our
restricted subsidiaries in connection with the disposition;
(15) the incurrence by a Securitization Entity of indebtedness in a Qualified
Securitization Transaction that is Non-Recourse Debt, except for Standard
Securitization Undertakings, with respect to us and our other restricted
subsidiaries;
(16) indebtedness of French Automotive evidenced by promissory notes
subordinated to the notes issued to our current or former employees,
directors, officers or consultants or those of our subsidiaries in lieu of
cash payment for any of our equity interests being repurchased from these
persons; PROVIDED, that the aggregate amount of such indebtedness incurred
does not exceed (a) $2.5 million in any calendar year, provided that in
any calendar year such amount shall be increased by the amount available
for incurrence, but not incurred, under this clause (16) in any preceding
year, and (b) $10.0 million since the date of the indenture;
(17) guaranties of indebtedness of any other person incurred by us or a
restricted subsidiary in the ordinary course of business in an aggregate
principal amount not to exceed $5.0 million at any one time outstanding;
(18) indebtedness consisting of take-or-pay obligations contained in supply
agreements entered into by us or our subsidiaries in the ordinary course;
and
(19) the incurrence by any foreign subsidiary of indebtedness that is not
prohibited by the covenant described below under the caption "--Limitation
on Foreign Indebtedness."
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of proposed
indebtedness meets the criteria of more than one of the categories of permitted
debt described in clauses (1) through (19) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, we will be permitted to
classify the item of indebtedness on the date of its incurrence, or later
reclassify all or a portion of the item of indebtedness, in any manner that
complies with this covenant. Indebtedness under credit facilities outstanding on
the date on which the outstanding notes were first issued and authenticated
under the indenture shall be deemed to have been incurred on such date in
reliance on the exception provided by clause (1) of the definition of permitted
debt.
LIMITATION ON FOREIGN INDEBTEDNESS
We will not permit any of our restricted subsidiaries that are not
subsidiary guarantors to, directly or indirectly, incur any indebtedness,
including Acquired Indebtedness, other than indebtedness incurred pursuant to
clause (1) or (2) of the covenant described above under "--Incurrence of
Indebtedness and Issuance of Preferred Stock" unless:
(1) after giving effect to the incurrence of the indebtedness and the receipt of
the application of the proceeds thereof;
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(a) if, as a result of the incurrence of the indebtedness, such restricted
subsidiary will become subject to any restriction or limitation on the
payment of dividends or the making of other distributions,
(i) the Fixed Charge Coverage Ratio of restricted subsidiaries that are
not subsidiary guarantors is greater than 2.5 to 1, determined on a
pro forma basis for the last four fiscal quarters for which
financial statements are available at the date of determination; and
(ii) our Fixed Charge Coverage Ratio is greater than 2.0 to 1,
determined on a pro forma basis for our last four fiscal quarters
for which financial statements are available at the date of
determination; and
(b) in any other case, our Fixed Charge Coverage Ratio is greater than 2.0
to 1, determined on a pro forma basis for our last four fiscal quarters
for which financial statements are available at the date of
determination; and
(2) no default or event of default shall have occurred and be continuing at the
time or as a consequence of the incurrence of the indebtedness.
This covenant will not prohibit the incurrence of indebtedness by a
restricted subsidiary that is not a subsidiary guarantor in an amount at any one
time outstanding that does not exceed $5.0 million; provided, that neither we
nor any subsidiary guarantor shall be obligated, directly or indirectly, to pay
principal, premium, interest or other amounts on the indebtedness or in respect
of the indebtedness, including by way of net worth requirements, equity keep
wells or the like. In the event that any indebtedness incurred pursuant to
clause (1)(b) of the first paragraph of this covenant is proposed to be amended,
modified or otherwise supplemented such that the payment of dividends or the
making of other distributions becomes subject in any manner to any restriction
or limitation, we will not permit the restricted subsidiary to so amend, modify
or supplement the indebtedness unless such indebtedness could be incurred
pursuant to the terms of clause (1)(a) of the foregoing paragraph.
All calculations required under the prior two paragraphs hereof shall be
made in a manner consistent with the calculations required under the covenant
described under "--Incurrence of Indebtedness and Issuance of Preferred Stock."
NO SENIOR SUBORDINATED DEBT
We will not incur, create, issue, assume, guarantee or otherwise become
liable for any indebtedness that is subordinate or junior in right of payment to
any of our senior debt and senior in any respect in right of payment to the
notes. No subsidiary guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any indebtedness that is subordinate or junior in
right of payment to the senior debt of such subsidiary guarantor and senior in
any respect in right of payment to such subsidiary guarantor's subsidiary
guaranty.
LIENS
We will not, and will not permit any of our restricted subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any lien of any
kind on any asset now owned or hereafter acquired, except permitted liens, as
defined below.
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DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
We will not, and will not permit any of our restricted subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any restricted
subsidiary to:
(1) pay dividends or make any other distributions on its capital stock to us or
any of our restricted subsidiaries, or with respect to any other interest or
participation in, or measured by, its profits, or pay any indebtedness owed
to us or any of our restricted subsidiaries;
(2) make loans or advances to us or any of our restricted subsidiaries; or
(3) transfer any of its properties or assets to us or any of our restricted
subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the indenture;
(2) the indenture, the notes and the subsidiary guaranties;
(3) applicable law, regulation or order;
(4) indebtedness incurred by a restricted subsidiary that is not a subsidiary
guarantor in compliance with the provisions set forth under the caption
"--Limitation on Foreign Indebtedness."
(5) any instrument governing indebtedness or capital stock of a person acquired
by us or any of our restricted subsidiaries as in effect at the time of the
acquisition, except to the extent the indebtedness was incurred in
connection with or in contemplation of the acquisition, which encumbrance
or restriction is not applicable to any person, or the properties or assets
of any person, other than the person, or the property or assets of the
person, so acquired, PROVIDED that, in the case of indebtedness, the
indebtedness was permitted by the terms of the indenture to be incurred;
(6) customary non-assignment provisions in leases, licenses or similar
agreements entered into in the ordinary course of business and consistent
with past practices;
(7) purchase money obligations for property acquired in the ordinary course of
business that impose restrictions on the property so acquired of the nature
described in clause (3) of the preceding paragraph;
(8) any agreement for the sale or other disposition of a restricted subsidiary
that restricts distributions by that restricted subsidiary pending its sale
or other disposition;
(9) liens securing indebtedness that limit the right of the debtor to dispose
of the assets subject to such lien;
(10) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements, asset sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary
course of business;
(11) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business;
(12) any encumbrance or restriction on a Securitization Entity effected in
connection with a Qualified Securitization Transaction;
(13) indebtedness incurred after the date of the indenture in accordance with
the terms of the indenture; PROVIDED, that the restrictions contained in
the agreements governing such new indebtedness are, in the good faith
judgment of our board of directors, not materially less
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favorable, taken as a whole, to the holders of the notes than those
contained in the agreements governing indebtedness outstanding on the date
of the indenture;
(14) customary provisions in agreements with respect to Permitted Joint
Ventures; and
(15) any encumbrances or restrictions imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements
or refinancings of the contracts, instruments or obligations referred to
in clauses (1) through (14) above; PROVIDED that the amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of our board
of directors, no more restrictive with respect to the dividend and other
payment restrictions than those contained in the dividend or other payment
restrictions prior to the amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or refinancing.
MERGER, CONSOLIDATION OR SALE OF ASSETS
We may not, directly or indirectly, consolidate or merge with or into
another person, whether or not we are the surviving corporation, or sell,
assign, transfer, convey or otherwise dispose of all or substantially all of our
properties or assets and the properties and assets of our restricted
subsidiaries taken as a whole, in one or more related transactions, to another
person; unless:
(1) either: (a) we are the surviving corporation; or (b) the person formed by or
surviving the consolidation or merger, if other than us, or to which such
sale, assignment, transfer, conveyance or other disposition shall have been
made is a corporation, partnership, limited liability company or trust
organized or existing under the laws of the United States, any state of the
United States or the District of Columbia;
(2) the person formed by or surviving the consolidation or merger, if other than
us, or the person to which such sale, assignment, transfer, conveyance or
other disposition shall have been made assumes all our obligations of under
the notes, the indenture and the registration rights agreement pursuant to
agreements reasonably satisfactory to the Trustee;
(3) immediately after the transaction no default or event of default exists; and
(4) we or the person formed by or surviving the consolidation or merger, if
other than us, or to which such sale, assignment, transfer, conveyance or
other disposition shall have been made will, on the date of the transaction
after giving pro forma effect to the transaction and any related financing
transactions as if the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock."
In addition, we may not, directly or indirectly, lease all or substantially
all of our properties or assets, in one or more related transactions, to any
other person. This "Merger, Consolidation or Sale of Assets" covenant will not
apply to a sale, assignment, transfer, conveyance or other disposition of assets
between or among us and any of the subsidiary guarantors.
TRANSACTIONS WITH AFFILIATES
We will not, and will not permit any of our restricted subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
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advance or guarantee with, or for the benefit of, any affiliate, such
transactions being referred to in this prospectus as affiliate transactions,
unless:
(1) such affiliate transaction is on terms that are no less favorable to us or
the relevant restricted subsidiary than those that would have been obtained
in a comparable transaction by us or the restricted subsidiary with an
unrelated person; and
(2) we deliver to the Trustee:
(a) with respect to any affiliate transaction or series of related affiliate
transactions involving aggregate consideration in excess of
$2.5 million, a resolution of our board of directors set forth in an
officers' certificate certifying that the affiliate transaction complies
with this covenant and that the affiliate transaction has been approved
by a majority of the disinterested members of our board of directors.
(b) with respect to any affiliate transaction or series of related affiliate
transactions involving aggregate consideration in excess of
$7.5 million, an opinion issued by an accounting, appraisal or investment
banking firm of national standing that the affiliate transaction complies
with this covenant.
The following items shall not be deemed to be affiliate transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by us or any of our restricted
subsidiaries in the ordinary course of business and consistent with our
past practice or the past practice of the restricted subsidiary;
(2) transactions between or among us and/or our restricted subsidiaries;
(3) transactions with a person that is our affiliate solely because we own an
equity interest in the person;
(4) payment of reasonable directors fees to persons who are not otherwise our
affiliates;
(5) sales of equity interests, other than Disqualified Stock, to our
affiliates;
(6) restricted payments that are permitted by the provisions of the indenture
described above under the caption "--Restricted Payments."
(7) providing indemnity to current or former officers, directors, employees or
consultants or those of any of our subsidiaries as determined in good faith
by our board of directors;
(8) the payment of customary management, consulting and advisory fees and
related expenses to Hidden Creek or its affiliates consistent with Hidden
Creek's past practices, including, without limitation, in connection with
acquisitions, divestitures or financings by us or any of our restricted
subsidiaries;
(9) our performance of obligations or those of any of our restricted
subsidiaries under the terms of any agreement to which we or any restricted
subsidiary is a party as of the date of the indenture and which is
described above under the caption "Certain Relationships and Related
Transactions" and any similar agreements entered into after the date of the
indenture as these agreements may be amended or modified from time to time;
provided, however, that the existence of, or the performance by us or any
of our restricted subsidiaries of obligations under, any future amendment
to any such existing agreement or under any similar agreement entered into
after the date of the indenture shall be permitted by this clause to the
extent that the terms of the amendment or similar agreement are not more
disadvantageous to the holders in any material respect than the terms of
the agreements in place on the date of the indenture;
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(10) the grant of stock options, restricted stock or similar rights to our
employees, and directors and consultants pursuant to plans approved by our
board of directors;
(11) transactions effected as part of a Qualified Securitization Transaction;
(12) loans or advances to employees or consultants in the ordinary course of
business and consistent with past practices, which are approved by a
majority of our board of directors in good faith; and
(13) transactions with customers, joint venture partners, clients, suppliers,
or purchasers or sellers of goods or services, in each case in the
ordinary course of business and otherwise in compliance with the terms of
the indenture which are fair to us or our restricted subsidiaries, in the
reasonable determination of our board of directors.
ADDITIONAL SUBSIDIARY GUARANTIES
If we or any of our restricted subsidiaries acquires or creates another
domestic restricted subsidiary after the date of the indenture and the newly
acquired or created domestic restricted subsidiary becomes a guarantor of the
credit facilities, then that newly acquired or created domestic restricted
subsidiary must become a subsidiary guarantor and execute a supplemental
indenture and deliver an opinion of counsel to the Trustee within 10 business
days of the date on which it became a subsidiary guarantor under the credit
facilities.
We will not permit any restricted subsidiary that is not a subsidiary
guarantor, directly or indirectly, to guaranty or pledge any assets to secure
the payment of any of our other indebtedness or the indebtedness of any
subsidiary guarantor unless it simultaneously executes and delivers a
supplemental indenture providing for the guaranty of the payment of the notes by
such restricted subsidiary, which subsidiary guaranty shall be senior to or rank
equally with the restricted subsidiary's guaranty of or pledge to secure the
other indebtedness.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
Our board of directors may designate any restricted subsidiary to be an
unrestricted subsidiary if that designation would not cause a default. If a
restricted subsidiary is designated as an unrestricted subsidiary, the aggregate
fair market value of all outstanding Investments owned by us and our restricted
subsidiaries in the subsidiary so designated will be deemed to be an Investment
made as of the time of the designation and will either reduce the amount
available for restricted payments under the first paragraph of the covenant
described above under the caption "--Restricted Payments" or reduce the amount
available for future Investments under one or more clauses of the definition of
Permitted Investments, as we shall determine. That designation will only be
permitted if the Investment would be permitted at that time and if the
restricted subsidiary otherwise meets the definition of an unrestricted
subsidiary. Our board of directors may redesignate any unrestricted subsidiary
to be a restricted subsidiary if the redesignation would not cause a default.
BUSINESS ACTIVITIES
We and our restricted subsidiaries shall be at all times engaged primarily
in Permitted Businesses.
PAYMENTS FOR CONSENT
We will not, and will not permit any of our subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to or for the benefit of
any holder of notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the indenture or the notes unless such
consideration is offered to be paid and is paid to all holders of the notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to the consent, waiver or agreement.
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REPORTS
So long as any notes are outstanding, we will furnish to the holders of
notes, whether or not required by the SEC, on or before the fifth day following
the date on which such reports are or would be due under the SEC's rules and
regulations:
(1) all quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if we were
required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report on the annual financial statements
by our certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K if we were required to file current reports.
The quarterly and annual financial information required by the preceding
paragraphs shall separately include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereof, of the
financial condition and results of operations of our non-guarantor subsidiaries.
In addition, following the consummation of the exchange offer contemplated
by the registration rights agreement, whether or not required by the SEC, we
will file a copy of all of the information and reports referred to in clauses
(1) and (2) above with the SEC for public availability within the time periods
specified in the SEC's rules and regulations, unless the SEC will not accept the
filing, and make such information available to securities analysts and
prospective investors upon request. In addition, we and the subsidiary
guarantors have agreed that, for so long as any notes remain outstanding, we
will furnish to the holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an event of default:
(1) default for 30 days in the payment when due of interest on, or liquidated
damages with respect to, the notes whether or not prohibited by the
subordination provisions of the indenture;
(2) default in payment when due of the principal of, or premium, if any, on the
notes, whether or not prohibited by the subordination provisions of the
indenture;
(3) failure by us or any of our restricted subsidiaries to comply with the
provisions described under the caption "--Certain Covenants--Merger,
Consolidation or Sale of Assets;"
(4) failure by us or any of our restricted subsidiaries for 60 days after notice
from the Trustee or holders of at least 25% of the outstanding principal
balance of the notes to comply with any of the other agreements in the
indenture;
(5) default under any mortgage, indenture or instrument under which there is
issued and outstanding any indebtedness for money borrowed by us or any of
our restricted subsidiaries, or the payment of which is guaranteed by us or
any of our restricted subsidiaries, whether the indebtedness or guaranty now
exists or is created after the date of the indenture, if that default:
(a) is caused by a failure to pay principal of, or interest or premium, if
any, on the indebtedness prior to the expiration of the grace period
provided in the indebtedness on the date of the default, the default
being referred to in this prospectus as a payment default; or
(b) results in the acceleration of such indebtedness prior to its express
maturity,
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and, in each case, the principal amount of the indebtedness, together with the
principal amount of any other indebtedness under which there has been a payment
default or the maturity of which has been so accelerated, aggregates
$10.0 million or more;
(6) failure by us or any of our restricted subsidiaries to pay final judgments
aggregating in excess of $10.0 million, which judgments are not paid,
vacated, discharged, stayed or non-appealable for a period of 90 days, and
in the event the judgment is covered by insurance, an enforcement proceeding
has been commenced by any creditor upon such judgment or decree which is not
promptly stayed;
(7) except as permitted by the indenture, any subsidiary guaranty shall be held
in any judicial proceeding to be unenforceable or invalid or shall cease for
any reason to be in full force and effect or any subsidiary guarantor, or
any person acting on behalf of any subsidiary guarantor, shall deny or
disaffirm its obligations under its subsidiary guaranty; and
(8) certain events of bankruptcy or insolvency with respect to us or any
subsidiary or group of subsidiaries that, individually or in the aggregate,
would constitute a Significant Subsidiary.
In the case of an event of default arising from certain events of bankruptcy
or insolvency, with respect to us, any subsidiary that is a Significant
Subsidiary or any group of subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding notes will become due and payable
immediately without further action or notice. If any other event of default
occurs and is continuing, the Trustee or the holders of at least 25% in
principal amount of the then outstanding notes may declare all the notes to be
past due and payable immediately; provided, however, that so long as any
indebtedness permitted to be incurred under the indenture as part of the credit
facilities is outstanding, no such acceleration shall be effective until the
earlier of (i) five business days after the giving of written notice to us and
the administrative agent under the credit facilities of such acceleration or
(ii) acceleration of the indebtedness under the credit facilities.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
notes notice of any continuing default or event of default, except a default or
event of default relating to the payment of principal or interest or liquidated
damages, if it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
notes waive any existing default or event of default and its consequences under
the indenture except a continuing default or event of default in the payment of
interest or liquidated damages on, or the principal of, the notes.
We are required to deliver to the Trustee annually a statement regarding
compliance with the indenture. Upon becoming aware of any default or event of
default, we are required to deliver to the Trustee a statement specifying such
default or event of default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of us or any
subsidiary guarantor, as such, shall have any liability for any of our
obligations or of the subsidiary guarantors under the notes, the indenture or
the subsidiary guaranties or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of notes by accepting a note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have all of our obligations
discharged with respect to the outstanding notes and all obligations of the
subsidiary guarantors discharged with respect to their subsidiary guaranties,
such discharge being referred to in this prospectus as legal defeasance, except
for:
(1) the rights of holders of outstanding notes to receive payments in respect of
the principal of, or interest or premium and liquidated damages, if any, on
the notes when the payments are due from the trust referred to below;
(2) our obligations with respect to the notes concerning issuing temporary
notes, registration of notes, mutilated, destroyed, lost or stolen notes and
the maintenance of an office or agency for payment and money for security
payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and our
and the subsidiary guarantor's obligations in connection therewith; and
(4) the legal defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have our
obligations and the obligations of the subsidiary guarantors released with
respect to certain covenants that are described in the indenture, such release
being referred to in this prospectus as covenant defeasance and thereafter any
omission to comply with those covenants shall not constitute a default or event
of default with respect to the notes. In the event covenant defeasance occurs,
certain events, not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events, described under "Events of Default" will
no longer constitute an event of default with respect to the notes.
In order to exercise either legal defeasance or covenant defeasance:
(1) we must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, or interest and premium and liquidated
damages, if any, on the outstanding notes on the stated maturity or on the
applicable redemption date, as the case may be, and we must specify whether
the notes are being defeased to maturity or to a particular redemption date;
(2) in the case of legal defeasance, we shall have delivered to the Trustee an
opinion of counsel reasonably acceptable to the Trustee confirming that
(a) we have received from, or there has been published by, the Internal
Revenue Service a ruling or (b) since the date of the indenture, there has
been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm
that, the holders of the notes will not recognize income, gain or loss for
federal income tax purposes as a result of such legal defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such legal defeasance had not
occurred;
(3) in the case of covenant defeasance, we shall have delivered to the Trustee
an opinion of counsel reasonably acceptable to the Trustee confirming that
the holders of the notes will not recognize income, gain or loss for federal
income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such covenant defeasance had
not occurred;
(4) no default or event of default shall have occurred and be continuing either:
(a) on the date of such deposit (other than a default or event of default
resulting from the borrowing of funds to be applied to such deposit); or
(b) or insofar as events of default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of deposit;
(5) such legal defeasance or covenant defeasance will not result in a breach or
violation of, or constitute a default under any material agreement or
instrument, other than the indenture, to which we or any of our subsidiaries
is a party or by which we or any of our subsidiaries is bound;
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(6) we must have delivered to the Trustee an opinion of counsel to the effect
that, assuming no intervening bankruptcy of us or any subsidiary guarantor
between the date of deposit and the 91st day following the deposit and
assuming that no holder is an insider of the Issuer under applicable
bankruptcy law, after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(7) we must deliver to the Trustee an officers' certificate stating that the
deposit was not made by us with the intent of preferring the holders of
notes over our other creditors with the intent of defeating, hindering,
delaying or defrauding our creditors or others; and
(8) we must deliver to the Trustee an officers' certificate and an opinion of
counsel, each stating that all conditions precedent relating to the legal
defeasance or the covenant defeasance have been complied with.
Notwithstanding the foregoing, the opinion of counsel required by clauses
(2) or (3) above need not be delivered if, at such time, all notes have been
irrevocably called for redemption in accordance with the terms of the indenture.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the indenture or
the notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the notes then outstanding, including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, the notes, and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding notes, including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, the notes.
Without the consent of each holder affected, an amendment or waiver may not,
with respect to any notes held by a non-consenting holder:
(1) reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or alter
the provisions with respect to the redemption of the notes, other than
provisions relating to the covenants described above under the caption
"--Repurchase at the Option of holders";
(3) reduce the rate of or change the time for payment of interest on any note;
(4) waive a default or event of default in the payment of principal of, or
interest or premium, or liquidated damages, if any, on the notes, except a
rescission of acceleration of the notes by the holders of at least a
majority in aggregate principal amount of the notes and a waiver of the
payment default that resulted from such acceleration;
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers of
past defaults or the rights of holders of notes to receive payments of
principal of, or interest or premium or liquidated damages, if any, on the
notes;
(7) waive a redemption payment with respect to any note, other than a payment
required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders";
(8) release any subsidiary guarantor from any of its obligations under its
subsidiary guaranty or the indenture, except in accordance with the terms of
the indenture; or
(9) make any change in the preceding amendment and waiver provisions.
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In addition, any amendment to, or waiver of, the provisions of the indenture
relating to subordination that adversely affects the rights of the holders of
the notes will require the consent of the holders of at least 75% in aggregate
principal amount of notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of notes,
we, the subsidiary guarantors and the Trustee may amend or supplement the
indenture or the notes:
(1) to cure any ambiguity, defect, error or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of the issuer's, or any subsidiary
guarantor's, obligations to holders of notes in the case of a merger or
consolidation or sale of all or substantially all of our, or any subsidiary
guarantor's, as the case may be, assets;
(4) to make any change that would provide any additional rights or benefits to
the holders of notes, including providing for additional subsidiary
guaranties, or that does not adversely affect the legal rights under the
indenture of any such holder; or
(5) to comply with requirements of the SEC in order to effect or maintain the
qualification of the indenture under the Trust Indenture Act.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated have been delivered to the
Trustee for cancellation, except lost, stolen or destroyed notes that
have been replaced or paid and notes for whose payment money has been
deposited in trust and then repaid to us; or
(b) all notes that have not been delivered to the Trustee for cancellation
have become due and payable by reason of the making of a notice of
redemption or otherwise or will become due and payable within one year
and we or any subsidiary guarantor has irrevocably deposited or caused to
be deposited with the Trustee as trust funds in trust solely for the
benefit of the holders, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be
sufficient without consideration of any reinvestment of interest, to pay
and discharge the entire indebtedness on the notes not delivered to the
Trustee for cancellation for principal, premium and liquidated damages,
if any, and accrued interest to the date of maturity or redemption;
(2) no default or event of default shall have occurred and be continuing on the
date of such deposit or shall occur as a result of such deposit and such
deposit will not result in a breach or violation of, or constitute a default
under, any other instrument to which we or any subsidiary guarantor is a
party or by which we or any subsidiary guarantor is bound;
(3) we or any subsidiary guarantor has paid or caused to be paid all sums
payable by it under the indenture; and
(4) we have delivered irrevocable instructions to the Trustee under the
indenture to apply the deposited money toward the payment of the notes at
maturity or the redemption date, as the case may be.
In addition, we must deliver an officers' certificate to the Trustee stating
that all conditions precedent to satisfaction and discharge have been satisfied.
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CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of French Automotive or any subsidiary
guarantor, the indenture limits its right to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
the conflict within 90 days, apply to the SEC for permission to continue or
resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The indenture provides that in case an event of default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to these provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to J.L. French
Automotive Castings, Inc., 4508 IDS Center, Minneapolis, Minnesota 55402,
Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The notes sold to qualified institutional buyers, as defined in Rule 144A
under the Securities Act, which are known as QIBs, initially will be in the form
of one or more registered global notes without interest coupons (collectively,
the "144A global notes"). Upon issuance, the 144A global notes will be deposited
with the Trustee, as custodian for DTC and registered in the name of DTC or its
nominee, in each case for credit to the accounts of DTC's direct and indirect
participants. In addition, a registered global note without coupons will be
established to accommodate subsequent transfers to institutional accredited
investors, as defined in Rule 501(a)(1)(2)(3) or (7) of Regulation D under the
Securities Act (an "IAI note" and, together with the 144A global notes, the
"U.S. global notes"). The notes being offered and sold in offshore transactions
in reliance on Regulation S, if any, initially will be in the form of one or
more temporary, registered, global book entry notes without interest coupons
(the "Regulation S temporary global notes"). The Regulation S temporary global
notes will be deposited with the Trustee, as custodian for DTC, in New York, New
York, and registered in the name of a nominee of DTC for credit to the accounts
of indirect participants at the Euroclear System and Cedelbank. During the
40-day period commencing on the day after the later of the offering date and the
date of the indenture, beneficial interests in the Regulation S temporary global
notes may be held only through Euroclear or CEDEL, and, pursuant to DTC's
procedures, indirect participants that hold a beneficial interest in the
Regulation S temporary global notes will not be able to transfer such interest
to a person that takes delivery thereof in the form of an interest in the U.S.
global notes. Within a reasonable time after the expiration of the 40-day
restricted period, the Regulation S temporary global notes will be exchanged for
one or more permanent global notes (the "Regulation S permanent global notes,"
and collectively with the Regulation S temporary global notes, the
"Regulation S global notes") upon delivery to DTC of certification of compliance
with the transfer restrictions applicable to the notes and pursuant to
Regulation S as provided in the indenture. After the 40-day restricted period
(1) beneficial interests in the Regulation S permanent global notes may be
transferred to a person that takes delivery in the form of an interest in the
U.S. global notes and (2) beneficial interests in the U.S. global notes may be
transferred to a person that takes delivery in the form of an interest in the
Regulation S permanent global notes; provided, in each case, that the
certification requirements described below are complied with. See "--Exchanges
Between Regulation S
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Notes and Rule 144A Notes." All registered global notes are referred to herein
collectively as "global notes."
The global notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the global notes may be exchanged
for notes in certificated form in certain limited circumstances. See "--Exchange
of Global Notes for Certificated Notes."
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC, Euroclear
and CEDEL are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them. We take no responsibility for these
operations and procedures and urge investors to contact the system or their
participants directly to discuss these matters.
DTC is a limited-purpose trust company created to hold securities for its
participating organizations and to facilitate the clearance and settlement of
transactions in those securities between participants through electronic
book-entry changes in accounts of its participants. The participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly. Persons who are not participants may beneficially own securities
held by or on behalf of DTC only through the participants or the indirect
participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
participants and indirect participants.
Investors in the U.S. global notes who are participants in DTC's system may
hold their interests therein directly through DTC. Investors in the U.S. global
notes who are not participants may hold their interests therein indirectly
through organizations, including Euroclear and CEDEL, which are participants in
such system. Investors in the Regulation S global notes must initially hold
their interests therein through Euroclear or CEDEL, if they are participants in
these systems, or indirectly through organizations that are participants in
these systems. After the expiration of the 40-day restricted period, but not
earlier, investors may also hold interests in the Regulation S global notes
through participants in the DTC system other than Euroclear and CEDEL. Euroclear
and CEDEL will hold interests in the Regulation S global notes on behalf of
their participants through customers' securities accounts in their respective
names on the books of their respective depositories, which are Morgan Guaranty
Trust Company of New York, Brussels office, as operator of Euroclear, and
Citibank, N.A., as operator of CEDEL.
All interests in a global note, including those held through Euroclear or
CEDEL, may be subject to the procedures and requirements of DTC. Those interests
held through Euroclear or CEDEL may also be subject to the procedures and
requirements of these systems. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a global note to
persons in these states will be limited to that extent. Because DTC can act only
on behalf of participants, which in turn act on behalf of indirect participants,
the ability of a person having beneficial interests in a global note to pledge
its interests to persons that do not participate in the DTC system, or otherwise
take actions relating to its interests, may be affected by the lack of a
physical certificate evidencing an interest in a global note.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS OF THESE NOTES UNDER THE INDENTURE FOR ANY PURPOSE.
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Payments in respect of the principal of, and interest and premium and
liquidated damages, if any, on a global note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered holder
under the indenture. Under the terms of the indenture, we and the Trustee will
treat the persons in whose names the notes, including the global notes, are
registered as the owners thereof for the purpose of receiving payments and for
all other purposes. Consequently, neither we, the Trustee nor any of our
respective agents has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any participant's or indirect participant's
records relating to or payments made on account of beneficial ownership
interest in the global notes or for maintaining, supervising or reviewing
any of DTC's records or any participant's or indirect participant's records
relating to the beneficial ownership interests in the global notes; or
(2) any other matter relating to the actions and practices of DTC or any of its
participants or indirect participants.
DTC's current practice, upon receipt of any payment in respect of securities
such as the notes, including principal and interest, is to credit the accounts
of the relevant participants with the payment on the payment date unless DTC has
reason to believe it will not receive payment on such payment date. Each
relevant participant is credited with an amount proportionate to its beneficial
ownership of an interest in the principal amount of the relevant security as
shown on the records of DTC.
Payments by the participants and the indirect participants to the beneficial
owners of notes will be governed by standing instructions and customary
practices and will be the responsibility of the participants or the indirect
participants and will not be the responsibility of DTC, the Trustee or us.
Neither we nor the Trustee will be liable for any delay by DTC or any of its
participants in identifying the beneficial owners of the notes, and we and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and CEDEL participants, interest
in the global notes are expected to be eligible to trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants. See"--Same Day Settlement and
Payment."
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and CEDEL will be effected in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
outstanding notes described herein, cross-market transfers between the
participants in DTC, on the one hand, and Euroclear or CEDEL participants, on
the other hand, will be effected through DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL, as the case may be, by its respective depositary;
however, these cross-market transactions will require delivery of instructions
to Euroclear or CEDEL, as the case may be, by the counterparty in these systems
in accordance with the rules and procedures and within the established deadlines
(Brussels time) of these systems. Euroclear or CEDEL, as the case may be, will,
if the transaction meets its settlement requirements, deliver instructions to
its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global Note in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and CEDEL
participants may not deliver instructions directly to the depositories for
Euroclear or CEDEL.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more participants to whose
account DTC has credited the interests in the global
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notes and only in respect of the portion of the aggregate principal amount of
the notes as to which the participant or participants has or have given a
direction to DTC. However, if there is an event of default under the notes, DTC
reserves the right to exchange the global notes for legended notes in
certificated form, and to distribute the notes to its participants.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the U.S. global notes and the Regulation S
global notes among participants in DTC, Euroclear and CEDEL, they are under no
obligation to perform or to continue to perform these procedures, and may
discontinue these procedures at any time. Neither we nor the Trustee nor any of
our respective agents will have any responsibility for the performance by DTC,
Euroclear or CEDEL or their respective participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive notes in registered
certificated form if:
(1) DTC (a) notifies us that it is unwilling or unable to continue as depositary
for the global notes and we fail to appoint a successor depositary or
(b) has ceased to be a clearing agency registered under the Exchange Act;
(2) we, at our option, notify the Trustee in writing that we elect to cause the
issuance of the certificated notes; or
(3) there shall have occurred and be continuing a default or event of default
under the Notes.
In addition, beneficial interests in a global note may be exchanged for
certificated notes upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the indenture. In all cases, certificated notes
delivered in exchange for any global note or beneficial interests in global
notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary, in accordance with its customary
procedures.
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated notes may not be exchanged for beneficial interests in any
global note unless the transferor first delivers to the Trustee a written
certificate in the form provided in the indenture to the effect that the
transfer will comply with the appropriate transfer restrictions applicable to
the notes.
EXCHANGES BETWEEN REGULATION S NOTES AND RULE 144A NOTES
Prior to the expiration of the 40-day restricted period, beneficial
interests in the Regulation S global note may be exchanged for beneficial
interests in the Rule 144A global note only if:
(1) the exchange occurs in connection with a transfer of the notes pursuant to
Rule 144A; and
(2) the transferor first delivers to the Trustee a written certificate in the
form provided in the indenture to the effect that the notes are being
transferred to a Person:
(a) who the transferor reasonably believes to be a QIB;
(b) purchasing for its own account or the account of a QIB in a transaction
meeting the requirements of Rule 144A; and
(c) in accordance with all applicable securities laws of the states of the
United States and other jurisdictions.
Beneficial interest in a Rule 144A global note may be transferred to a
Person who takes delivery in the form of an interest in the Regulation S global
note, whether before or after the expiration of the
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40-day restricted period, only if the transferor first delivers to the Trustee a
written certificate in the form provided in the indenture to the effect that the
transfer is being made in accordance with Rule 903 or 904 of Regulation S or
Rule 144, if available, and that, if the transfer occurs prior to the expiration
of the 40-day restricted period, the interest transferred will be held
immediately after the transfer through Euroclear or CEDEL.
Transfers involving exchanges of beneficial interests between the
Regulation S global notes and the Rule 144A global notes will be effected in DTC
by means of an instruction originated by the Trustee through the DTC
Deposit/Withdraw at Custodian system. Accordingly, in connection with any such
transfer, appropriate adjustments will be made to reflect a decrease in the
principal amount of the Regulation S global note and a corresponding increase in
the principal amount of the Rule 144A global note or vice versa, as applicable.
Any beneficial interest in one of the global notes that is transferred to a
person who takes delivery in the form of an interest in the other global note
will, upon transfer, cease to be an interest in that global note and will become
an interest in the other global note and, accordingly, will then be subject to
all transfer restrictions and other procedures applicable to beneficial interest
in such other global note for so long as it remains such an interest. The
policies and practices of DTC may prohibit transfers of beneficial interests in
the Regulation S global note prior to the expiration of the 40-day restricted
period.
SAME DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the notes represented by
the global notes, including principal, premium, if any, interest and liquidated
damages, if any, be made by wire transfer of immediately available funds to the
accounts specified by the global note holder. We will make all payments of
principal, interest and premium and liquidated damages, if any, with respect to
certificated notes by wire transfer of immediately available funds to the
accounts specified by the holders thereof or, if no such account is specified,
by mailing a check to each holder's registered address. The notes represented by
the global notes are expected to be eligible to trade in the PORTAL market and
to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such notes will, therefore, be required by DTC to be
settled in immediately available funds. We expect that secondary trading in any
certificated notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
CEDEL participant purchasing an interest in a global note from a participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or CEDEL participant, during the securities settlement processing day,
which must be a business day for Euroclear and CEDEL, immediately following the
settlement date of DTC. DTC has advised us that cash received in Euroclear or
CEDEL as a result of sales of interests in a global note by or through a
Euroclear or CEDEL participant to a participant in DTC will be received with
value on the settlement date of DTC but will be available in the relevant
Euroclear or CEDEL cash account only as of the business day for Euroclear or
CEDEL following DTC's settlement date.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the registration rights agreement in its entirety
because it, and not this description, defines your registration rights as a
holder of these notes. See "--Additional Information."
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We, the subsidiary guarantors and the initial purchasers entered into the
registration rights agreement. Pursuant to the registration rights agreement, we
and the subsidiary guarantors agreed to file with the SEC the exchange offer
registration statement on the appropriate form under the Securities Act relating
to the exchange notes. Upon the effectiveness of the exchange offer registration
statement, we and the subsidiary guarantors will offer to the holders of
Transfer Restricted Securities, as defined below, pursuant to the exchange offer
who are able to make certain representations the opportunity to exchange their
outstanding notes for exchange notes.
If:
(1) we and the subsidiary guarantors are not
(a) required to file the exchange offer registration statement; or
(b) permitted to consummate the exchange offer because the exchange offer is
not permitted by applicable law or SEC policy; or
(2) any holder of transfer restricted securities, as defined below, notifies us
prior to the 20th day following consummation of the exchange offer that:
(a) it is prohibited by law or SEC policy from participating in the exchange
offer; or
(b) that it may not resell the exchange notes acquired by it in the exchange
offer to the public without delivering a prospectus and the prospectus
contained in the exchange offer registration statement is not appropriate
or available for resale to the public; or
(c) that it is a broker-dealer and owns notes acquired directly from us or
an affiliate of ours,
we and the subsidiary guarantors will file with the SEC a shelf registration
statement to cover resales of the notes by the holders of notes who satisfy
certain conditions relating to the provision of information in connection with
the shelf registration statement.
We and the subsidiary guarantors will use our reasonable best efforts to
cause the applicable registration statement to be declared effective as promptly
as possible by the SEC.
For purposes of the preceding, transfer restricted securities means each
note until:
(1) the date on which such note has been exchanged by a Person other than a
broker-dealer for an exchange note in the exchange offer;
(2) following the exchange by a broker-dealer in the exchange offer of a note
for an exchange note, the date on which the exchange note is sold to a
purchaser who receives from the broker-dealer on or prior to the date of the
sale a copy of the prospectus contained in the exchange offer registration
statement;
(3) the date on which the note has been effectively registered under the
Securities Act and disposed of in accordance with the shelf registration
statement; or
(4) the date on which the note is distributed to the public pursuant to
Rule 144 under the Securities Act.
The registration rights agreement provides:
(1) we and the subsidiary guarantors will use our reasonable best efforts to
file an exchange offer registration statement with the SEC on or prior to
90 days after the closing of initial offering of the outstanding notes;
(2) we and the subsidiary guarantors will use our reasonable best efforts to
have the exchange offer registration statement declared effective by the SEC
on or prior to 180 days after the closing of the initial offering of the
outstanding note;
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(3) unless the exchange offer would not be permitted by applicable law or SEC
policy, we and the subsidiary guarantors will
(a) commence the exchange offer; and
(b) use our reasonable best efforts to issue on or prior to 30 business
days, or longer, if required by the federal securities laws, after the
date on which the exchange offer registration statement was declared
effective by the SEC, exchange notes in exchange for all outstanding
notes tendered prior thereto in the exchange offer; and
(4) if obligated to file the shelf registration statement, we and the subsidiary
guarantors will use our reasonable best efforts to file the shelf
registration statement with the SEC on or prior to 30 days after such filing
obligation arises and to cause the shelf registration statement to be
declared effective by the SEC on or prior to 90 days after the filing is
made, but in no event earlier than the date on which our obligation with
respect to the exchange offer registration statement would have arisen.
If:
(1) we and the subsidiary guarantors fail to file any of the registration
statements required by the registration rights agreement on or before the
date specified for the filing; or
(2) any of the registration statements is not declared effective by the SEC on
or prior to the date specified for its effectiveness; or
(3) we and the subsidiary guarantors fail to consummate the exchange offer
within 30 business days of the date specified for the effectiveness of the
exchange offer registration statement; or
(4) the shelf registration statement or the exchange offer registration
statement is declared effective but thereafter ceases to be effective or
usable in connection with resales of transfer restricted securities during
the periods specified in the registration rights agreement, each such event
referred to in clauses (1) through (4) being referred to in this prospectus
as a registration default,
then we and the subsidiary guarantors will pay liquidated damages to each
holder of notes, with respect to the first 90-day period immediately following
the occurrence of the first registration default in an amount equal to $.05 per
week per $1,000 principal amount of notes held by each holder.
The amount of the liquidated damages will increase by an additional $.05 per
week per $1,000 principal amount of notes with respect to each subsequent 90-day
period until all registration defaults have been cured, up to a maximum amount
of liquidated damages for all registration defaults of $.50 per week per $1,000
principal amount of notes. All accrued liquidated damages will be paid by the us
the subsidiary guarantors on each Damages Payment Date to the global note holder
by wire transfer of immediately available funds or by federal funds check and to
holders of certificated notes by wire transfer to the accounts specified by them
or by mailing checks to their registered addresses if no accounts have been
specified. Following the cure of all registration defaults, the accrual of
liquidated damages will cease.
Holders of notes will be required to make certain representations to us, as
described in the registration rights agreement, in order to participate in the
exchange offer and will be required to deliver certain information to be used in
connection with the shelf registration statement and to provide comments on the
shelf registration statement within the time periods set forth in the
registration rights agreement in order to have their notes included in the shelf
registration statement and benefit from the provisions regarding liquidated
damages set forth above. By acquiring transfer restricted securities, a holder
will be deemed to have agreed to indemnify us and the subsidiary guarantors
against certain losses arising out of information furnished by the holder in
writing for inclusion in any shelf registration statement. Holders of notes will
also be required to suspend their use
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of the prospectus included in the shelf registration statement under certain
circumstances upon receipt of written notice to that effect from us.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used in this section for which no definition is
provided.
"ACQUIRED DEBT" means, with respect to any specified person:
(1) indebtedness of any other person existing at the time the other person
is merged with or into or became a subsidiary of the specified person,
whether or not the indebtedness is incurred in connection with, or in
contemplation of, the other person merging with or into, or becoming a
subsidiary of, the specified person; and
(2) indebtedness secured by a lien encumbering any asset acquired by the
specified person.
"AFFILIATE" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified person. For purposes of this definition, "control,"
as used with respect to any person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the person, whether through the ownership of voting securities, by
agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the
voting stock of a person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"ASSET SALE" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales or leases in the ordinary course of business
consistent with past practices; PROVIDED that the sale, conveyance or
other disposition of all or substantially all of our assets and the
assets of our restricted subsidiaries taken as a whole will be governed
by the provisions of the indenture described above under the caption
"--Repurchase at the Option of Holders--Change of Control" and/or the
provisions described above under the caption "--Certain Covenants--
Merger, Consolidation or Sale of Assets" and not by the provisions of the
Asset Sale covenant; and
(2) the issuance of equity interests by any of our restricted subsidiaries
or the sale of equity interests in any of our restricted subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of less than $2.5 million;
(2) a transfer of assets between or among us and our restricted
subsidiaries,
(3) an issuance of equity interests by a restricted subsidiary to us or to
another restricted subsidiary;
(4) the sale, lease or license of equipment, inventory, accounts receivable
or other assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a restricted payment or Permitted Investment that is permitted by the
covenant described above under the caption "--Certain
Covenants--Restricted Payments";
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(7) the licensing or sublicensing of intellectual property or other general
intangibles and licenses, leases or subleases of other property in the
ordinary course of business and which do not materially interfere with
our business and our subsidiaries' businesses;
(8) sales of receivables and related assets, including contract rights, of
the type specified in the definition of "QUALIFIED SECURITIZATION
TRANSACTION" to a Securitization Entity for the fair market value
thereof;
(9) an exchange or series of exchanges of long-term assets; provided
(i) that the long-term assets received by us or any of our restricted
subsidiaries have a fair market value, as determined by us, at least
equal to the fair market value of the assets for which they were
exchanged and are used or useful in a Permitted Business and (ii) that
the aggregate fair market value, as determined above, of such long-term
assets, taken together with the fair market value of all other long-term
assets received pursuant to this clause (9) less the amount of Net
Proceeds previously realized in cash from the disposition of such earlier
received long-term assets is, at the time of receipt of such long-term
assets, with the fair market value of each long-term asset being measured
at the time received and without giving effect to subsequent changes in
value, less than 10.0% of Total Assets; and
(10) any exchange of like property pursuant to 1031(g) of the Internal
Revenue Code of 1986, as amended, for use in a Permitted Business.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee for
net rental payments during the remaining term of the lease included in such sale
and leaseback transaction including any period for which the lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person," as that term is used in Section 13(d)(3)
of the Exchange Act, the "person" shall be deemed to have beneficial ownership
of all securities that the "person" has the right to acquire by conversion or
exercise of other securities, whether the right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"BORROWING BASE" means, as of any date, an amount equal to:
(1) 85% of the face amount of all accounts receivable owned by us and our
restricted subsidiaries as of the most recent month end for which this
information is available that were not more than 90 days past due; PLUS
(2) 50% of the book value of all inventory owned by us and our restricted
subsidiaries as of the most recent month end for which this information
is available.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents, however
designated, of corporate stock;
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(3) in the case of a partnership or limited liability company, partnership
or membership interests, whether general or limited; and
(4) any other interest or participation that confers on a person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing person.
"CASH EQUIVALENTS" means:
(1) with respect to United States dollars, (a) United States dollars,
(b) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed or insured by the United States
Government or any agency thereof, (c) certificates of deposit, time
deposits, overnight bank deposits, bankers acceptances and repurchase
agreements of any commercial bank which has, or whose obligations are
guaranteed by an affiliated commercial bank which has capital and surplus
in excess of $500,000,000 having maturities of one year or less from the
date of acquisition, (d) commercial paper of an issuer rated at least A-1
by Standard & Poor's Corporation or P-1 by Moody's Investors
Service, Inc., or carrying an equivalent rating by a nationally
recognized rating agency if both of the two named rating agencies cease
publishing ratings of investments, (e) money market accounts or funds
with or issued by Qualified Issuers, (f) repurchase obligations with a
term of not more than 90 days for underlying securities of the types
described in clause (b) above entered into with any bank meeting the
qualifications specified in clause (c) above, and (g) demand deposit
accounts maintained in the ordinary course of business with any Lender or
with any bank that is not a Lender not in excess of $100,000 in the
aggregate on deposit with any such bank; "QUALIFIED ISSUER" means any
commercial bank (a) which has, or whose obligations are guaranteed by an
affiliated commercial bank which has, capital and surplus in excess of
$500,000,000 and (b) the outstanding short-term debt securities of which
are rated at least A-1 by Standard & Poor's Corporation or at least P-1
by Moody's Investors Service, Inc., or carry an equivalent rating by a
nationally recognized rating agency if both of the two named rating
agencies cease publishing ratings of investments;
(2) with respect to pounds sterling, (a) pounds sterling, (b) any credit
balances, realizable within three (3) months, on any bank or other
deposit, savings or current account held in the United Kingdom or any
other jurisdiction from which cash is readily remittable to the United
Kingdom; (c) cash in hand; (d) gilt edged securities; (e) Sterling
commercial paper maturing not more than twelve (12) months from the date
of issue and rated A-1 by Standard & Poor's Corporation or P-1 by Moody's
Investors Service, Inc.; (f) any deposit with or acceptance maturing not
more than one (1) year after issue accepted by an institution authorized
under the Banking Act 1987 or a Bank; and (g) Sterling denominated debt
securities having not more than one (1) year until final maturity and
listed on a recognized stock exchange and rated at least AA by
Standard & Poor's Corporation or Aa by Moody's Investors Service, Inc.;
and
(3) with respect to currencies of nations in which we or our restricted
subsidiaries do business, (a) the currency of such nations and (b) any
credit balances realizable within three (3) months, on any bank or other
deposit, savings or current account held in such nations or any other
jurisdiction from which cash is readily remittable to such nation.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition,
other than by way of merger or consolidation, in one or a series of
related transactions, of all or substantially all of our properties or
assets and the properties and assets of our restricted subsidiaries taken
as a whole to any "person", as that term is used in Section 13(d)(3) of
the Exchange Act, other than a Principal or a Related Party of a
Principal;
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(2) the adoption by us of a plan relating to the liquidation or dissolution;
(3) the consummation of any transaction, including, without limitation, any
merger or consolidation, the result of which is that any "person," as
defined above, other than the Principals and their Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 50% of
our voting stock, measured by voting power rather than number of shares;
(4) the first day on which a majority of the members of our board of
directors are not Continuing Directors; or
(5) we consolidate with, or merge with or into, any person, or any person
consolidates with, or merges with or into, us, in any such event pursuant
to a transaction in which any of our outstanding voting stock or such
other person is converted into or exchanged for cash, securities or other
property, other than any transaction where our voting stock outstanding
immediately prior to the transaction is converted into or exchanged for
voting stock, other than Disqualified Stock, of the surviving or
transferee person constituting a majority of the outstanding shares of
the voting stock of the surviving or transferee person, immediately after
giving effect to the issuance.
"CONSOLIDATED CASH FLOW" means, with respect to any specified person for any
period, the Consolidated Net Income of the person for the period PLUS:
(1) an amount equal to any extraordinary loss plus any net loss realized by
the person or any of its restricted subsidiaries in connection with an
Asset Sale, to the extent the losses were deducted in computing such
Consolidated Net Income; PLUS
(2) provision for taxes based on income or profits of such person and its
restricted subsidiaries for such period, to the extent that the provision
for taxes was deducted in computing such Consolidated Net Income; PLUS
(3) consolidated interest expense of the person and its restricted
subsidiaries for the period, whether paid or accrued and whether or not
capitalized, including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Obligations, to the extent
that the expense was deducted in computing the Consolidated Net Income;
PLUS
(4) depreciation, amortization, including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period, and other non-cash expenses, excluding any such
non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period, of the person and
its restricted subsidiaries for the period to the extent that the
depreciation, amortization and other non-cash expenses were deducted in
computing Consolidated Net Income; MINUS
(5) non-cash items increasing Consolidated Net Income for the period, other
than the accrual of revenue in the ordinary course of business, in each
case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash expenses
of, any of our restricted subsidiaries shall be added to Consolidated Net Income
to compute our Consolidated Cash Flow only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to us by
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such restricted subsidiary without prior governmental approval that has not been
obtained, and without direct or indirect restriction pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that restricted
subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any specified person for
any period, the aggregate of the Net Income of such person and its restricted
subsidiaries for the period, on a consolidated basis, determined in accordance
with GAAP; PROVIDED that:
(1) the Net Income, but not loss, of any person that is not a restricted
subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified person or a wholly owned
restricted subsidiary thereof;
(2) the Net Income of any restricted subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that restricted subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval that has not been obtained or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that restricted subsidiary or its stockholders;
(3) the Net Income of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded;
(5) any fees, expenses and costs relating to the recapitalization, including
any fees and expenses incurred in connection with the subordinated credit
facility, any compensation expense incurred in connection with the
cancellation of stock options and expenses related to early
extinguishment of debt, shall be excluded; and
(6) the Net Income, but not loss, of any unrestricted subsidiary shall be
excluded, whether or not distributed to the specified person or one of
its subsidiaries.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
our board of directors who:
(1) was a member of our board of directors on the date of the indenture; or
(2) was nominated for election or elected to our board of directors with the
approval of a majority of the Continuing Directors who were members of
the board at the time of the nomination or election.
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of
April 21, 1999, by and among French Automotive, Automotive Components
Investments Limited, Morris Ashby Limited, Bank of America National Trust and
Savings Association, as syndication agent, Chase Manhattan International Limited
and The Chase Manhattan Bank, as administrative agent, and the other lenders
signatory thereto, providing for up to $370 million of revolving credit
borrowings and term loans, including any related notes, guaranties, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced, in
whole or in part, or increased, provided that such increase in borrowings is
permitted by the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock", from time to time.
"CREDIT FACILITIES" means, one or more debt facilities, including, without
limitation, the Credit Agreement, or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing, including through the sale of
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receivables to lenders or to special purpose entities formed to borrow from
lenders against these receivables, or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an event of default.
"DESIGNATED NONCASH CONSIDERATION" means any non-cash consideration, other
than non-cash consideration that would constitute a Restricted Investment,
received by us or one of our restricted subsidiaries in connection with an Asset
Disposition that is designated as Designated Noncash Consideration pursuant to
an officers' certificate executed by our principal executive officer and our
principal financial officer or such restricted subsidiary principal executive
officer and principal financial officer. Such officers' certificate shall state
the basis of such valuation, which shall be a report of a nationally recognized
investment banking firm with respect to the receipt in one or a series of
related transactions of Designated Noncash Consideration with a fair market
value in excess of $5.0 million.
"DESIGNATED PREFERRED STOCK" means preferred stock that is designated as
Designated Preferred Stock, pursuant to an officers' certificate executed by our
principal executive officer and principal financial officer on the issuance date
thereof, the cash proceeds of which are excluded from the calculation set forth
in clause 3(b) of the first paragraph of the covenant described under the
caption "--Restricted Payments."
"DISQUALIFIED STOCK" means any capital stock that, by its terms, or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof, or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the notes mature. Notwithstanding the preceding sentence, any
capital stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require us to repurchase such capital stock
upon the occurrence of a change of control or an asset sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the we may
not repurchase or redeem any such capital stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption "--Certain Covenants--restricted Payments."
"DOMESTIC RESTRICTED SUBSIDIARY" means any domestic subsidiary that is a
restricted subsidiary.
"EQUITY INTERESTS" means capital stock and all warrants, options or other
rights to acquire capital stock, but excluding any debt security that is
convertible into, or exchangeable for, capital stock.
"EQUITY OFFERING" means an offering by us of shares of our common stock,
however designated and whether voting or non-voting and any and all rights,
warrants or options to acquire such common stock.
"EXISTING INDEBTEDNESS" means our indebtedness and the indebtedness of our
restricted subsidiaries, other than Indebtedness under the Credit Agreement, in
existence on the date of the indenture, until such amounts are repaid.
"FIXED CHARGES" means, with respect to any specified person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such person and its restricted
subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net of the effect
of all payments made or received pursuant to Hedging Obligations; PLUS
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(2) the consolidated interest of the person and its restricted subsidiaries
that was capitalized during the period; PLUS
(3) any interest expense on indebtedness of another person that is
guaranteed by the person or any of its restricted subsidiaries or secured
by a lien on assets of the person or any of its restricted subsidiaries,
whether or not the guaranty or lien is called upon; PLUS
(4) the product of (a) all dividends, whether paid or accrued and whether or
not in cash, on any series of preferred stock of the person or any of its
restricted subsidiaries, other than dividends on equity interests payable
solely in equity interests of French Automotive, other than Disqualified
Stock, or to French Automotive or a restricted subsidiary of French
Automotive, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal,
state and local statutory tax rate of the person, expressed as a decimal,
in each case, on a consolidated basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any specified person for
any period, the ratio of the Consolidated Cash Flow of the person for the period
to the Fixed Charges of the person for the period. In the event that the
specified person or any of its restricted subsidiaries incurs, assumes,
guarantees, repays, repurchases or redeems any indebtedness, other than ordinary
working capital borrowings, or issues, repurchases or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated and on or prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guaranty, repayment,
repurchase or redemption of indebtedness, or the issuance, repurchase or
redemption of preferred stock, and the use of the proceeds therefrom as if the
same had occurred at the beginning of the applicable four-quarter reference
period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified person or any of its
restricted subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to the reference period and on or prior to
the Calculation Date shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for the reference period shall be calculated on a
pro forma basis in accordance with Regulation S-X under the Securities
Act, giving effect to any Pro Forma Cost Savings, but without giving
effect to clause (3) of the proviso set forth in the definition of
Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior
to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to the Fixed Charges will not be obligations
of the specified person or any of its restricted subsidiaries following
the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in any other statements by any other
entities that have been approved by a significant segment of the accounting
profession, which are in effect as of the date of this indenture.
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"GUARANTY" means a guaranty other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect of
any of these instruments or letters of credit, of all or any part of any
indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any specified person, the
obligations of the person under:
(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements and foreign exchange hedge agreements; and
(2) other agreements or arrangements designed to protect the person against
fluctuations in interest rates and foreign exchange rates.
"INDEBTEDNESS" means, with respect to any specified person, any indebtedness
of the person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit or reimbursement agreements in respect of any of these
instruments or letters of credit;
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property,
except any balance that constitutes an accrued expense or trade payable;
or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items, other than letters of credit
and Hedging Obligations, would appear as a liability upon a balance sheet of the
specified person prepared in accordance with GAAP. In addition, the term
indebtedness includes all indebtedness of others secured by a lien on any asset
of the specified person, whether or not the indebtedness is assumed by the
specified person, and, to the extent not otherwise included, the guaranty by the
specified person of any indebtedness of any other person.
The amount of any indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any indebtedness issued with
original issue discount; and
(2) the principal amount thereof, together with any interest thereon that is
more than 30 days past due, in the case of any other indebtedness.
"INVESTMENTS" means, with respect to any person, all direct or indirect
investments by such person in other persons, including affiliates, in the forms
of loans, including guaranties or other obligations, advances or capital
contributions, excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business, purchases or other
acquisitions for consideration of indebtedness, equity interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If we or any of
our restricted subsidiaries sell or otherwise dispose of any equity interests of
any of our direct or indirect restricted subsidiaries such that, after giving
effect to any such sale or disposition, such person is no longer one of our
restricted subsidiaries, we shall be deemed to have made an Investment on the
date of the sale or disposition equal to the fair market value of the equity
interests of the restricted subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "--Certain Covenants--Restricted Payments."
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"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code or equivalent statutes of any jurisdiction.
"LIQUIDATED DAMAGES" means all liquidated damages owing pursuant to the
registration rights agreement.
"NET INCOME" means, with respect to any specified person, the net income or
loss of the person, determined in accordance with GAAP and before any reduction
in respect of preferred stock dividends, excluding, however:
(1) any gain or loss, together with any related provision for taxes on such
gain or loss, realized in connection with: (a) any Asset Sale; or
(b) the disposition of any securities by the person or any of its
restricted subsidiaries or the extinguishment of any Indebtedness of the
person or any of its restricted subsidiaries; and
(2) any extraordinary gain or loss, together with any related provision for
taxes on the extraordinary gain or loss.
"NET PROCEEDS" means the aggregate cash proceeds received by us or any of
our restricted subsidiaries in respect of any Asset Sale, including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale, net of the direct costs relating to
the Asset Sale, including, without limitation, legal, accounting and investment
banking fees, sales commissions, any relocation expenses incurred as a result of
the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each
case, after taking into account any available tax credits or deductions and any
tax sharing arrangements, and amounts required to be applied to the repayment of
indebtedness, other than our Credit Agreement, secured by a lien on the asset or
assets that were the subject of such Asset Sale in each case and any reserves
for adjustment in respect of the sale price of the asset or assets or for any
indemnification obligations assumed in connection with the sale of the asset or
assets, established in accordance with GAAP; provided, however, that the
reversal of any reserve shall be deemed a receipt of Net Proceeds by us in the
amount and on the date of the reversal.
"NON-RECOURSE DEBT" means indebtedness:
(1) as to which neither we nor any of our restricted subsidiaries
(a) provides credit support of any kind, including any undertaking,
agreement or instrument that would constitute indebtedness, (b) is
directly or indirectly liable as a guarantor or otherwise, or
(c) constitutes the lender;
(2) no default with respect to which, including any rights that the holders
thereof may have to take enforcement action against an unrestricted
subsidiary, would permit upon notice, lapse of time or both any holder of
any of our other indebtedness or of any of our restricted subsidiaries'
other indebtedness to declare a default on the other indebtedness or
cause the payment of the other indebtedness to be accelerated or payable
prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to our stock or assets or to the stock or assets of any
of our restricted subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any indebtedness.
"PERMITTED BUSINESS" means the business conducted by us and our restricted
subsidiaries on the date of the indenture and businesses reasonably related to
this business or supportive of this business.
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"PERMITTED INVESTMENTS" means:
(1) any Investment in us or in one of our restricted subsidiaries;
(2) any Investment in Cash Equivalents;
(3) any Investment by us or any of our subsidiaries in a person, if as a
result of the Investment:
(a) the person becomes a restricted subsidiary of French Automotive; or
(b) the person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, French Automotive or a restricted subsidiary of
French Automotive;
(4) any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "--Repurchase at the Option
of Holders--Asset Sales";
(5) any acquisition of assets to the extent acquired in exchange for the
issuance of our equity interests, other than Disqualified Stock;
(6) Hedging Obligations;
(7) other Investments in any person having an aggregate fair market value,
measured on the date the Investment was made and without giving effect
to subsequent changes in value, when taken together with all other
Investments made pursuant to this clause (7) that are at the time
outstanding not to exceed the greater of (a) $35.0 million and (b) 5% of
Total Assets;
(8) Investments existing on the date of the indenture and any amendment,
modification, restatement, supplement, extension, renewal, refunding,
replacement, refinancing, in whole or in part, of these Investments;
(9) Investments in Permitted Joint Ventures in an amount at any one time
outstanding not to exceed the greater of 3% of Total Assets or
$10.0 million;
(10) Investments in unrestricted subsidiaries in an amount at any one time
outstanding not to exceed the greater of 3% of Total Assets or
$10.0 million;
(11) Investments in securities of trade creditors or customers received
pursuant to a plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of a trade creditor or customer;
(12) any Investment by us or one of our subsidiaries in a Securitization
Entity or any Investment by a Securitization Entity in any other person
in connection with a Qualified Securitization Transaction; PROVIDED that
any Investment in a Securitization Entity is in the form of a purchase
money note or any equity interest;
(13) extensions of trade credit in the ordinary course of business; and
(14) loans or advances to employees or consultants in the ordinary course of
business and consistent with past practices that are approved by the
majority of our board of directors in good faith.
"PERMITTED JOINT VENTURE" means an entity characterized as a joint venture,
however structured, engaged in a Permitted Business and in which we or a
restricted subsidiary (a) owns at least 25% of the ownership interest or
(b) has the right to receive at least 25% of the profits or distributions;
provided that the joint venture is not a subsidiary.
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"PERMITTED LIENS" means:
(1) liens of French Automotive and any subsidiary guarantor securing
indebtedness and other Obligations under credit facilities that were
senior debt that was permitted by the terms of the indenture to be
incurred;
(2) liens in favor of French Automotive or the subsidiary guarantors;
(3) liens on property of a person existing at the time the person is merged
with or into or consolidated with French Automotive or any subsidiary of
French Automotive; PROVIDED that the liens were in existence prior to
the contemplation of the merger or consolidation and do not extend to
any assets other than those of the person merged into or consolidated
with French Automotive or the subsidiary;
(4) liens on property existing at the time of acquisition of the property by
French Automotive or any subsidiary of French Automotive, PROVIDED that
the liens were in existence prior to the contemplation of the
acquisition;
(5) liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) liens to secure indebtedness, including Capital Lease Obligations,
permitted by clause (4) of the second paragraph of the covenant
described under "--Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with the indebtedness;
(7) liens existing on the date of the indenture;
(8) liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
PROVIDED that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) liens not otherwise permitted under the indenture with respect to
obligations that do not exceed $10.0 million at any one time
outstanding;
(10) liens on assets of unrestricted subsidiaries that secure Non-Recourse
Debt of unrestricted subsidiaries;
(11) liens on assets of a restricted subsidiary that is not a subsidiary
guarantor that secure indebtedness, including Acquired Indebtedness,
incurred in compliance with the covenant described under "--Limitation
on Foreign Indebtedness" or indebtedness incurred in compliance with
clauses (1) or (2) of the covenant described under "--Incurrence of
Indebtedness and Issuance of Preferred Stock;"
(12) judgment liens not giving rise to an event of default;
(13) liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of French
Automotive or any of our restricted subsidiaries, including rights of
offset and set-off;
(14) liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of customer duties in connection with the
importation of goods;
(15) leases or subleases granted to others that do not materially interfere
with the ordinary course of our business and the business of our
restricted subsidiaries;
(16) liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, including any lien securing letters of credit
issued in the ordinary course of business consistent with past practice
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in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations, exclusive of obligations for the payment of borrowed money;
(17) liens imposed by law, such as carriers', warehouseman's and mechanics'
liens in each case for sums not yet due or being contested in good
faith;
(18) liens securing indebtedness or other obligations of a restricted
subsidiary owing to us or any subsidiary guarantor to the extent the
indebtedness is permitted to be incurred in accordance with the covenant
described under "--Incurrence of Indebtedness and Issuance of Preferred
Stock";
(19) liens securing Hedging Obligations as long as the related indebtedness
is, and is permitted to be under the indentures to be secured by a lien
on the same property securing the Hedging Obligations;
(20) liens on specific items of inventory or other goods and proceeds of any
person securing the person's obligations with respect of bankers'
acceptances issued or created for the account of the person to
facilitate the purchase, shipment or storage of the inventory or other
goods;
(21) liens arising from Uniform Commercial Code financing statement filings
regarding operating leases entered into by us and our restricted
subsidiaries in the ordinary course of business; and
(22) liens on assets transferred to a Securitization Entity or on assets of a
Securitization Entity, in either case incurred in connection with a
Qualified Securitization Transaction.
"PERMITTED REFINANCING INDEBTEDNESS" means any of our indebtedness or any
indebtedness of our restricted subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other indebtedness of us or any of our restricted subsidiaries, other
than intercompany indebtedness; PROVIDED that:
(1) the principal amount or accreted value, if applicable, of such Permitted
Refinancing Indebtedness does not exceed the principal amount or accreted
value, if applicable, of the indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded plus all accrued interest thereon
and the amount of all expenses and premiums incurred in connection
therewith;
(2) the Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment
to, the notes on terms at least as favorable to the holders of notes as
those contained in the documentation governing the indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) if such refinanced indebtedness was indebtedness of French Automotive or
a subsidiary guarantor, the indebtedness is incurred either by French
Automotive or by a subsidiary guarantor.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
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"PRINCIPALS" means Onex DHC LLC and J2R Corporation.
"PRO FORMA COST SAVINGS" means, with respect to any period, the reduction in
costs that occurred during the four-quarter period or after the end of the
four-quarter period and on or prior to the Transaction Date that were
(i) directly attributable to an asset acquisition and calculated on a basis that
is consistent with Article 11 of Regulation S-X under the Securities Act as in
effect on the date of the indenture or (ii) implemented by the business that was
the subject of any such asset acquisition within six months of the date of the
asset acquisition, that are supportable and quantifiable by the underlying
accounting records of such business, and are described, as provided below, in an
officer's certificate, as if, in the case of each of clause (i) and (ii), all
such reductions in costs had been effected as of the beginning of such period.
Pro Forma Cost Savings described in clause (ii) above shall be set forth in
reasonable specificity in a certificate delivered to the Trustee from our chief
financial officer and, in the case of Pro Forma Cost Savings in excess of
$5.0 million per four-quarter period, such certificate shall be accompanied by a
supporting opinion from an accounting firm of national standing.
"PRODUCTIVE ASSETS" means assets that are used or useful in, or capital
stock of any person engaged in, a Permitted Business.
"QUALIFIED SECURITIZATION TRANSACTION" means any transaction or series of
transactions pursuant to which we or any of our restricted subsidiaries may
sell, convey or otherwise transfer to (a) a Securitization Entity, in the case
of a transfer by us or any of our restricted subsidiaries, and (b) any other
person, in case of a transfer by a Securitization Entity, or may grant a
security interest in, any accounts receivable whether now existing or arising or
acquired in the future, of us or any of our restricted subsidiaries, and any
assets related thereto including, without limitation, all collateral securing
the accounts receivable and other assets, including contract rights, and all
guarantees or other obligations in respect of the accounts receivable, proceeds
of the accounts receivable and other assets, including contract rights, which
are customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable all of the foregoing for the purpose of providing
working capital financing on terms that are more favorable to us and our
restricted subsidiary than would otherwise be available at that time.
"RELATED PARTY" means:
(1) any controlling stockholder, 80% or more owned subsidiary, or, in the
case of an individual, immediate family member, of any Principal; or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or persons beneficially holding an 80% or
more controlling interest of which consist of any one or more Principals
and/or other persons referred to in the immediately preceding
clause (1).
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a person means any subsidiary of the referent
person that is not an unrestricted subsidiary.
"SECURITIZATION ENTITY" means a wholly owned subsidiary of French
Automotive, or another person in which French Automotive or any subsidiary of
French Automotive makes an Investment and to which French Automotive or any
subsidiary of French Automotive transfers accounts receivable or equipment and
related assets, that engages in no activities other than in connection with the
financing of accounts receivable and that is designated by our board of
directors, as provided below, as a Securitization Entity (a) no portion of the
indebtedness or any other obligations, contingent or otherwise, of which (i) is
guaranteed by the French Automotive or any other restricted subsidiary,
excluding guarantees of Obligations other than the principal of, and interest
on, indebtedness pursuant to Standard Securitization Undertakings, (ii) is
recourse to or obligates French Automotive or any
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restricted subsidiary in any way other than pursuant to Standard Securitization
Undertakings, (b) with which neither French Automotive nor any restricted
subsidiary has any material contract, agreement, arrangement or understanding
other than on terms no less favorable to French Automotive or the restricted
subsidiary than those that might be obtained at the time from persons that are
not our affiliates, other than fees payable in the ordinary course of business
in connection with servicing receivables of the entity, and (c) to which neither
French Automotive nor any restricted subsidiary has any obligation to maintain
or preserve the entity's financial condition or cause the entity to achieve
certain levels of operating results. Any designation by our board of directors
shall be evidenced to each of the Trustees by filing with the Trustees a
certified copy of the resolution of the board of directors giving effect to the
designation and an officers' certificate certifying that the designation
complied with the foregoing conditions.
"SIGNIFICANT SUBSIDIARY" means any subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as this Regulation is in effect on the date
hereof.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties,
covenants and indemnities entered into by us or any of our subsidiaries that are
reasonably customary in an accounts receivable securitization transaction.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing the indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBORDINATED CREDIT FACILITY" means the Bridge Loan Agreement dated as of
April 21, 1999 by and among us, the subsidiary guarantors, the lenders named in
the Bridge Loan Agreement, NationsBanc Montgomery Securities LLC and Chase
Securities Inc., as arrangers, NationsBridge L.L.C. and The Chase Manhattan
Bank, as co-agents, and NationsBridge L.L.C., as administrative agent.
"SUBSIDIARY" means, with respect to any specified person:
(1) any corporation, association or other business entity of which more than
50% of the total voting power of shares of capital stock entitled to vote
in the election of directors, managers or trustees of the entity, without
regard to the occurrence of any contingency, is at the time owned or
controlled, directly or indirectly, by the person or one or more of the
other subsidiaries of that person; and
(2) any partnership (a) the sole general partner or the managing general
partner of which is the person or a subsidiary of the person or (b) the
only general partners of which are the person or one or more subsidiaries
of the person.
"SUBSIDIARY GUARANTORS" means:
(1) each of our domestic subsidiaries existing on the date of the indenture;
and
(2) any other subsidiary that executes a subsidiary guaranty in accordance
with the provisions of the indenture;
and their respective successors and assigns.
"TOTAL ASSETS" means the total assets of us and our restricted subsidiaries
on a consolidated basis determined in accordance with GAAP, as shown on the most
recently available consolidated balance sheet of us and our restricted
subsidiaries.
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"UNRESTRICTED SUBSIDIARY" means any subsidiaries that is designated by our
board of directors as an unrestricted subsidiaries pursuant to a board
resolution, but only to the extent that the subsidiary:
(1) has no indebtedness other than Non-Recourse Debt:
(2) is not party to any agreement, contract, arrangement or understanding
with us or any of our restricted subsidiaries unless the terms of the
agreement, contract, arrangement or understanding are no less favorable
to us or such restricted subsidiary than those that might be obtained at
the time from persons who are not our affiliates;
(3) is a person with respect to which neither we nor any of our restricted
subsidiaries has any direct or indirect obligation (a) to subscribe for
additional equity interests or (b) to maintain or preserve the person's
financial condition or to cause such person to achieve any specified
levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any of our indebtedness or any indebtedness of any of our
restricted subsidiaries.
Any designation of subsidiaries as an unrestricted subsidiary shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
board resolution giving effect to the designation and an officers' certificate
certifying that the designation complied with the preceding conditions and was
permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments." If, at any time, any unrestricted subsidiary
would fail to meet the preceding requirements as an unrestricted subsidiary, it
shall thereafter cease to be an unrestricted subsidiary for purposes of the
indenture and any indebtedness of the subsidiary shall be deemed to be incurred
by one of our restricted subsidiaries as of such date and, if such indebtedness
is not permitted to be incurred as of such date under the covenant described
under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," we shall be in default of such covenant. Our board of
directors may at any time designate any unrestricted subsidiary to be a
restricted subsidiary; PROVIDED that the designation shall be deemed to be an
incurrence of indebtedness by a restricted subsidiary of any outstanding
indebtedness of the unrestricted subsidiary and the designation shall only be
permitted if (1) such indebtedness is permitted under the covenant described
under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," calculated on a pro forma basis as if the designation had
occurred at the beginning of the four-quarter reference period; and (2) no
default or event of default would be in existence following the designation.
"VOTING STOCK" of any person as of any date means the capital stock of the
person that is at the time entitled to vote in the election of the board of
directors of the person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years, calculated to the nearest
one-twelfth, that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of the indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any specified person means a
restricted subsidiary of the person all of the outstanding capital stock or
other ownership interests of which, other than directors' qualifying shares,
shall at the time be owned by the person and/or by one or more wholly owned
restricted subsidiaries of the person.
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UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a discussion of the material U.S. Federal income tax
consequences of the acquisition, ownership and disposition of the notes. Unless
otherwise stated, this discussion is limited to the tax consequences to those
persons who are original owners of the notes and who hold such notes as capital
assets. The discussion does not purport to address specific tax consequences
that may be relevant to particular persons, including, for example, financial
institutions, broker-dealers, insurance companies, tax-exempt organizations and
persons in special situations, such as those who hold notes as part of a
straddle, hedge, conversion transaction or other integrated investment. In
addition, this discussion does not address U.S. federal alternative minimum tax
consequences or any aspect of state, local or foreign taxation. This discussion
is based upon the Internal Revenue Code of 1986, as amended, the Treasury
Department regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change, possibly with
retroactive effect. We will treat the notes as indebtedness for federal income
tax purposes, and the following discussion assumes that such treatment is
correct.
For purposes of this discussion, a "U.S. holder" is a holder of a note who
is a United States citizen or resident, a corporation or partnership created or
organized in or under the laws of the United States or any state, an estate the
income of which is subject to U.S. federal income taxation regardless of its
source, or a trust if a United States court exercises primary supervision over
its administration and one or more United States persons have the authority to
control all of its substantial decisions. A "non-U.S. holder" is a holder of a
note who is not a U.S. holder.
PROSPECTIVE PURCHASERS OF THE NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS
CONCERNING THE UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO THEM
OF ACQUIRING, OWNING AND DISPOSING OF THE NOTES, AS WELL AS THE APPLICATION OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
TAX CONSEQUENCES TO U.S. HOLDERS
EXCHANGE OFFER
Kirkland & Ellis, special counsel to French Automotive, has advised us that
in its opinion, the exchange of the outstanding notes for the exchange notes
will not be treated as a taxable "exchange" for federal income tax purposes
because the exchange notes do not differ materially in kind or extent from the
existing notes. Rather, the exchange notes received by a holder will be treated
as a continuation of the existing notes in the hands of that holder. As a
result, there will be no federal income tax consequence to you if you exchange
your outstanding notes in the exchange offer.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Upon the sale, exchange or retirement of the notes, a U.S. holder will
recognize gain or loss equal to the difference between (1) the amount realized
upon the sale, exchange or retirement, less a portion allocable to any accrued
and unpaid interest, which will be taxable as ordinary income and (2) the U.S.
holder's adjusted tax basis in the notes. A U.S. holder's adjusted tax basis in
the notes generally will be the U.S. holder's cost therefor, less any principal
payments received by such holder.
Gain or loss recognized by a U.S. holder on the sale, exchange or retirement
of the notes will be capital gain or loss. The gain or loss will be long-term
capital gain or loss if the notes have been held by the U.S. holder for more
than twelve months. Long-term capital gain is subject to a maximum federal tax
rate of 20%. The deductibility of capital losses by U.S. holders is subject to
limitation.
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TAXATION OF INTEREST
Interest paid on the notes will be includible in the income of a U.S. holder
in accordance with the U.S. holder's regular method of tax accounting. A U.S.
holder may be entitled to treat interest income on the notes as investment
income for purposes of computing certain limitations concerning the
deductibility of investment interest expense.
In the event of a change of control, a holder of a note will have the right
to require us to purchase such note at a price equal to 101% of the principal
amount thereof. The Treasury Regulations provide that the right of a holder of a
note to require redemption of such note upon the occurrence of a change of
control will not affect the yield or maturity date of the note if, based on all
the facts and circumstances as of the issue date, it is significantly more
likely than not that a change of control giving rise to the redemption right
will not occur. We believe that the redemption provisions of the notes will not
affect the computation of the yield to maturity of the notes and intend to
report in a manner consistent with this belief.
We may redeem the notes at any time on or after June 1, 2004, and in certain
circumstances, may redeem a portion of the notes at any time prior to June 1,
2002. Under the Treasury Regulations, we are deemed to exercise any option to
redeem if the exercise of such option would lower the yield of the debt
instrument. We believe that it will not be treated as having exercised an option
to redeem under these rules and intend to report in a manner consistent with
this belief.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Any capital gain a non-U.S. holder recognizes on the sale, exchange,
retirement or other taxable disposition of a note will be exempt from U.S.
federal income and withholding tax, provided that (1) the gain is not
effectively connected with the non-U.S. holder's conduct of a trade or business
within the United States, and (2) in the case of a non-U.S. holder that is an
individual, the non-U.S. holder is not present in the United States for
183 days or more during the taxable year.
TAXATION OF INTEREST
A non-U.S. holder generally will not be subject to U.S. federal income or
withholding tax on interest paid on the notes so long as such interest is not
effectively connected with the non-U.S. holder's conduct of a trade or business
within the United States, and the non-U.S. holder (1) does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of French Automotive, (2) is not a "controlled foreign corporation"
with respect to which French Automotive is a "related person" within the meaning
of the Code, and (3) satisfies the requirements of Sections 871(h) or 881(c) of
the Code, as set forth below under "OWNER STATEMENT REQUIREMENT." If the
foregoing conditions (1) - (3) are not satisfied, then interest paid on the
notes will be subject to U.S. withholding tax at a rate of 30%, unless such rate
is reduced or eliminated pursuant to an applicable tax treaty.
EFFECTIVELY CONNECTED INCOME
If the interest, gain or other income a non-U.S. holder recognized on a note
is effectively connected with the non-U.S. holder's conduct of a trade or
business within the United States, the non-U.S. holder generally will be subject
to U.S. federal income tax on the interest, gain or other income at regular
federal income tax rates. In addition, if the non-U.S. holder is a corporation,
it may be subject to a branch profits tax equal to 30% of its effectively
connected earnings and profits, as adjusted for certain items, unless it
qualifies for a lower rate under an applicable tax treaty.
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<PAGE>
FEDERAL ESTATE TAXES
A note held by an individual who at the time of death is not a citizen or
resident of the United States will not be subject to United States federal
estate tax as a result of such individual's death, provided that the individual
does not actually or constructively own 10% or more of the total combined voting
power of all classes of our stock entitled to vote and that the interest accrued
on such notes was not effectively connected with the non-U.S. holder's conduct
of a trade or business within the United States.
OWNER STATEMENT REQUIREMENT
Sections 871(h) and 881(c) of the Code require that either the beneficial
owner of a note or a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business and that holds a note on behalf of such owner files a statement with
us or our agent to the effect that the beneficial owner is not a United States
person in order to avoid withholding of United States federal income tax. Under
current regulations, this requirement will be satisfied if we or our agent
receives (1) a statement (an "Owner Statement") from the beneficial owner of a
note in which such owner certifies, under penalties of perjury, that such owner
is not a United States person and provides such owner's name and address, or
(2) a statement from the financial institution holding the note on behalf of the
beneficial owner in which the financial institution certifies, under penalties
of perjury, that it has received the Owner Statement together with a copy of the
Owner Statement. The beneficial owner must inform us, our agent or, in the case
of a statement described in clause (2) of the immediately preceding sentence,
the financial institution within 30 days of any change in information on the
Owner Statement. The Internal Revenue Service has amended the transition period
relating to recently issued Treasury Regulations governing backup withholding
and information reporting requirements. Withholding certificates or statements
that are valid on December 31, 1999, may be treated as valid until the earlier
of their expiration or December 31, 2000. Certificates or statements received
under the currently effective rules will fail to be effective after
December 31, 2000.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We will, where required, report to the holders of notes and the Internal
Revenue Service the amount of any interest paid on the notes in each calendar
year and the amounts of tax withheld, if any, with respect to such payments. A
noncorporate U.S. holder may be subject to information reporting and to backup
withholding at a rate of 31% with respect to payments of principal and interest
made on a note, or on proceeds of the disposition of a note before maturity,
unless such U.S. holder provides a correct taxpayer identification number or
proof of an applicable exemption, and otherwise complies with applicable
requirements of the information reporting and backup withholding rules.
In the case of payments of interest to non-U.S. holders, current Treasury
Regulations provide that the 31% backup withholding tax and certain information
reporting requirements will not apply to such payments with respect to which
either the requisite certification, as described above, has been received or an
exemption has otherwise been established, provided that neither we nor our
payment agent has actual knowledge that the holder is a United States person or
that the conditions of any other exemption are not in fact satisfied. Under
current Treasury Regulations, these information reporting and backup withholding
requirements will apply, however, to the gross proceeds paid to a non-U.S.
holder on the disposition of the notes by or through a United States office of a
United States or foreign broker, unless the non-U.S. holder otherwise
establishes an exemption. Information reporting requirements, but not backup
withholding, will also apply to payment of the proceeds of a disposition of the
notes by or through a foreign office of a United States broker or foreign
brokers with certain types of relationships to the United States unless such
broker has documentary evidence in its file that the holder of the notes is not
a United States person and such broker has no actual knowledge to the
113
<PAGE>
contrary, or the holder establishes an exemption. Neither information reporting
nor backup withholding generally will apply to payment of the proceeds of a
disposition of the notes by or through a foreign office of a foreign broker not
subject to the preceding sentence.
The Treasury Department has released new Treasury Regulations governing the
backup withholding and information reporting requirements. The new regulations
would not generally alter the treatment of a non-U.S. holder who furnishes an
Owner Statement to the payor. The new regulations may change certain procedures
applicable to the foreign office of a United States broker or foreign brokers
with certain types of relationships to the United States. The new regulations
are generally effective for payments made after December 31, 2000. Non U.S.
holders should consult their own tax advisors with respect to the impact, if
any, of the new final regulations.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the holder's United
States federal income tax liability, provided that the required information is
furnished to the Internal Revenue Service.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by such broker-dealers in
connection with resales of exchange notes received in exchange for outstanding
notes where such outstanding notes were acquired as a result of market-making
activities or other trading activities. We have agreed that for a period of one
year after the expiration date, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
We will not receive any proceeds from any sales of the exchange notes by
such broker-dealers. Exchange notes received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells the exchange notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
underwriter within the meaning of the Securities Act and any profit on any such
resale of exchange notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the Securities Act.
For a period of one year after the expiration date of the exchange offer we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal.
Prior to the exchange offer, there has not been any public market for the
outstanding notes. The outstanding notes have not been registered under the
Securities Act and will be subject to restrictions on transferability to the
extent that they are not exchanged for exchange notes by holders who are
entitled to participate in this exchange offer. The holders of outstanding
notes, other than any such holder that is an affiliate of ours within the
meaning of Rule 405 under the Securities Act, who are not eligible to
participate in the exchange offer are entitled to certain registration rights,
and we are required to file a shelf registration statement with respect to such
outstanding notes. The exchange
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<PAGE>
notes will constitute a new issue of securities with no established trading
market. We do not intend to list the exchange notes on any national securities
exchange or to seek the admission thereof to trading in the National Association
of Securities Dealers Automated Quotation System. In addition, such market
making activity will be subject to the limits imposed by the Securities Act and
the Exchange Act and may be limited during the exchange offer and the pendency
of the shelf registration statement. Accordingly, no assurance can be given that
an active public or other market will develop for the exchange notes or as to
the liquidity of the trading market for the exchange notes. If a trading market
does not develop or is not maintained, holders of the exchange notes may
experience difficulty in reselling the exchange notes or may be unable to sell
them at all. If a market for the exchange notes develops, any such market may be
discontinued at any time.
LEGAL MATTERS
The validity of the exchange notes and the subsidiary guaranties and other
legal matters, including the tax-free nature of the exchange, will be passed
upon on behalf of French Automotive by Kirkland & Ellis, a partnership that
includes professional corporations, Chicago, Illinois. Some of the partners of
Kirkland & Ellis are partners in Randolph Street Partners II, which owns 227
shares of class D-1 common stock. Legal matters concerning J.L. French
Corporation and Allotech International, Inc. will be passed upon by Olsen,
Kloet, Gunderson & Conway. Kirkland & Ellis will rely on the opinion of Olsen,
Kloet, Gunderson & Conway in passing upon the validity of the subsidiary
guaranties of J.L. French Corporation and Allotech International.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, have audited French
Automotive's consolidated financial statements, as indicated in Arthur Andersen
LLP's audit report that is included with those financial statements in this
prospectus. The consolidated financial statements of French Automotive are
included in this prospectus in reliance on Arthur Andersen LLP's report, which
is given on their authority as an expert in accounting and auditing.
The consolidated financial statements of Morris Ashby plc as of March 31,
1997 and 1996 and for each of the two years in the period ended March 31, 1997
are included in this prospectus in reliance on the report of
PricewaterhouseCoopers, independent accountants, which is given in the authority
as an expert in auditing and accounting.
AVAILABLE INFORMATION
French Automotive has filed with the SEC a registration statement on
Form S-4 pursuant to the Securities Act and the rules and regulations
promulgated under the securities laws covering the exchange offer contemplated
by this prospectus. This prospectus does not contain all the information set
forth in the registration statement. For further information with respect to
French Automotive and the exchange offer, see the registration statement.
We are not currently subject to the periodic reporting and other
informational requirements of the Exchange Act. We have agreed that, whether or
not it is required to do so by the rules and regulations of the SEC, for so long
as any of the notes remain outstanding, it will furnish to the holders of the
notes and file with the SEC, copies of the financial and other information that
would be contained in the annual reports and quarterly reports that we would be
required to file with the SEC if we were subject to the requirements of the
Exchange Act. We will also make these reports available to prospective
purchasers of the exchange notes, and to securities analysts and broker-dealers
upon their request.
115
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The Unaudited Pro Forma Statements of Operations for the year ended
December 31, 1998 and the six months ended June 30, 1999 give effect to:
(1) the recapitalization and the related financing transactions, including
borrowings under the senior credit facility and subordinated financing facility,
(2) the acquisition of Nelson Metal and (3) the initial offering of the
outstanding notes and the application of the net proceeds therefrom, as if such
transactions had occurred at the beginning of the period.
The Unaudited Pro Forma Balance Sheet as of June 30, 1999 gives effect to
the acquisition of Nelson Metal, including related financing, as if such
transaction had occurred on such date.
The unaudited pro forma financial data presented in this prospectus are
based on the assumptions and adjustments described in the accompanying notes.
The Unaudited Pro Forma Statements of Operations do not purport to represent
what our results of operations actually would have been if the events described
above had occurred as of the dates indicated or what our results will be for any
future periods. The Unaudited Pro Forma Financial Statements are based upon
assumptions and adjustments that we believe are reasonable. You should read the
Unaudited Pro Forma Financial Statements and the accompanying notes in
conjunction with the historical financial statements, including the related
notes, included elsewhere in this prospectus.
116
<PAGE>
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
NELSON PRO FORMA
ACTUAL(1) METAL(2) ADJUSTMENTS PRO FORMA
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Sales......................................... $295,690 $139,756 $ -- $435,446
Cost of sales................................. 221,040 157,262 (2,998)(3) 375,304
-------- -------- -------- --------
Gross profit................................ 74,650 (17,506) 2,998 60,142
Selling, general and administrative
expenses.................................... 16,802 4,977 -- 21,779
Amortization of intangible assets............. 16,861 -- 4,613 (4) 21,474
-------- -------- -------- --------
Operating income............................ 40,987 (22,483) (1,615) 16,889
Interest expense.............................. 20,533 5,884 26,636 (5) 53,053
-------- -------- -------- --------
Income (loss) before income taxes........... 20,454 (28,367) (28,251) (36,164)
Provision (benefit) for income taxes.......... 8,299 -- (22,765)(6) (14,466)
-------- -------- -------- --------
Income (loss) from continuing operations.... $ 12,155 $(28,367) $ (5,486) $(21,698)
======== ======== ======== ========
</TABLE>
117
<PAGE>
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands)
<TABLE>
<CAPTION>
NELSON PRO FORMA
ACTUAL METAL ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Sales........................................ $165,689 $105,225 $ -- $270,914
Cost of sales................................ 123,406 95,562 (1,499)(3) 217,469
-------- -------- -------- --------
Gross profit............................... 42,283 9,663 1,499 53,445
Selling, general and administrative
expenses................................... 10,228 4,036 -- 14,264
Recapitalization expenses.................... 21,151 -- (21,151)(7) --
Amortization of intangible assets............ 5,505 -- 2,112 (4) 7,617
-------- -------- -------- --------
Operating income........................... 5,399 5,627 20,538 31,564
Interest expense............................. 13,823 3,382 9,322 (5) 26,527
-------- -------- -------- --------
Income (loss) before income taxes.......... (8,424) 2,245 11,216 5,037
Provision (benefit) for income taxes......... (3,369) -- 5,384 (6) 2,015
-------- -------- -------- --------
Income (loss) from continuing operations... $ (5,055) $ 2,245 $ 5,832 $ 3,022
======== ======== ======== ========
</TABLE>
118
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(In thousands)
(1) Represents the results of operations of French Automotive for the year ended
December 31, 1998, including the results of operations of Morris Ashby and
Ansola from their respective dates of acquisition. The results of operations
of Morris Ashby and Ansola prior to their respective dates of acquisition
have not been included because such results are not material to French
Automotive's results of operations taken as a whole.
(2) Represents the results of operations of Nelson Metal for the year ended
December 31, 1998.
(3) Reflects the elimination of certain payroll and related costs arising from
the acquisition of Nelson Metal.
(4) Represents the net increase in amortization of other intangible assets
arising from amortization of fees related to the senior credit facility,
costs associated with the initial offering of the outstanding notes, net of
amortization of debt issue costs related to the former credit facility, and
amortization of goodwill arising from the acquisition of Nelson Metal:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1998 1999
------------ --------------
<S> <C> <C>
Senior credit facility........................... $1,424 $ 528
Initial offering of the outstanding notes........ 720 240
Debt issue costs related to former credit
facility....................................... (657) (219)
Goodwill amortization related to Nelson Metal.... 3,126 1,563
------ ------
Net increase................................... $4,613 $2,112
====== ======
</TABLE>
(5) Represents the change in interest expense arising from:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1998 1999
------------ --------------
<S> <C> <C>
Interest expense on tranche A term loan............ $ 8,138 $ 4,069
Interest expense on tranche B term loan............ 12,000 6,000
Interest expense on notes offered hereby........... 20,125 10,063
Interest expense on other senior indebtedness...... 2,540 1,270
Interest expense on debt arising from the
acquisition of Nelson Metal...................... 10,250 5,125
-------- --------
53,053 26,527
Net interest expense previously recorded........... (26,417) (17,205)
-------- --------
Net increase..................................... $ 26,636 $ 9,322
======== ========
</TABLE>
If the assumed interest rate was to change by 1/4 of 1%, interest expense
would change by approximately $750 and net income would change by
approximately $450 for the six months ended June 30, 1999.
(6) Adjusts income taxes on a pro forma basis to reflect French Automotive's
estimated effective tax rate.
(7) Represents an elimination of non-recurring expenses incurred pursuant to the
recapitalization.
119
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1999
(in thousands)
<TABLE>
<CAPTION>
NELSON PRO FORMA
ACTUAL METAL ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 27,357 $ 1,279 $(14,806)(1) $ 13,830
Accounts receivable, net....................... 65,860 30,579 (240)(3) 96,199
Inventories.................................... 15,805 11,704 -- 27,509
Other current assets........................... 19,132 3,973 -- 23,105
-------- -------- -------- --------
Total current assets......................... 128,154 47,535 (15,046) 160,643
-------- -------- -------- --------
Property, plant & equipment, net................. 144,087 80,069 -- 224,156
Intangible and other assets, net................. 166,467 5,564 91,236 (1) 297,432
34,185 (2)
(20)(3)
-------- -------- -------- --------
$438,708 $133,168 $110,355 $682,231
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT (DEFICIT)
Current liabilities:
Accounts payable............................... $ 24,985 $ 31,214 $ -- $ 56,199
Accrued liabilities............................ 17,128 14,864 (260)(3) 31,732
Current portion of long-term debt.............. 11,398 6,642 10,700 (1) 22,098
(6,642)(1)
-------- -------- -------- --------
Total current liabilities.................... 53,511 52,720 3,798 110,029
-------- -------- -------- --------
Long-term debt, excluding current portion........ 285,078 81,928 89,300 (1) 374,378
(81,928)(1)
Senior subordinated notes........................ 175,000 -- -- 175,000
Convertible subordinated debt.................... -- -- 30,000 (1) 30,000
Other noncurrent liabilities..................... 3,454 32,705 -- 36,159
-------- -------- -------- --------
Total liabilities............................ 517,043 167,353 41,170 725,566
-------- -------- -------- --------
Stockholders' investment (deficit):
Common stock................................... -- 12 (12)(2) --
Additional paid-in-capital..................... -- 799 35,000 (1) 35,000
(799)(2)
Stock subscriptions............................ -- (221) 221 (2) --
Treasury stock................................. -- (1,640) 1,640 (2) --
Retained earnings.............................. (77,031) (33,135) 33,135 (2) (77,031)
Accumulated other comprehensive loss........... (1,304) -- -- (1,304)
-------- -------- -------- --------
Total stockholders' investment (deficit)..... (78,335) (34,185) 69,185 (43,335)
-------- -------- -------- --------
$438,708 $133,168 $110,355 $682,231
======== ======== ======== ========
</TABLE>
120
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(in thousands)
(1) To reflect the financing transactions related to the acquisition of Nelson
Metal. French Automotive financed this acquisition with cash on hand,
borrowings under the senior credit facility, issuance of common stock and
the issuance of convertible subordinated debt. The following is a summary of
the sources and uses of funds in connection with this acquisition:
<TABLE>
<CAPTION>
SOURCES OF FUNDS: USES OF FUNDS:
- ----------------- --------------
<S> <C> <C> <C>
Cash to Nelson Metal
Senior credit facility-- stockholders................. $ 86,430
Current portion.............. $ 10,700 Transaction expenses........... 2,928
Long-term debt............... 89,300 Financing fees................. 1,878
-------- --------
100,000
Convertible subordinated Refinance Nelson Metal current
debt......................... 30,000 maturities..................... 6,642
Issuance of common stock....... 35,000 Refinance Nelson Metal
Cash on hand................... 14,806 long-term debt................. 81,928
-------- --------
Total........................ $179,806 Total.......................... $179,806
======== ========
</TABLE>
(2) To eliminate Nelson Metal's historical stockholders' deficit.
(3) To adjust for assets excluded and liabilities not assumed in connection with
the acquisition of Nelson Metal.
121
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997.................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997 and for the Nine Months Ended
December 31, 1996....................................... F-4
Consolidated Statements of Stockholders' Investment and
Comprehensive Income for the Years Ended December 31,
1998 and 1997 and for the Nine Months Ended
December 31, 1996....................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 and for the Nine Months Ended
December 31, 1996....................................... F-6
Notes to Consolidated Financial Statements................ F-7
Condensed Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998....................... F-30
Condensed Consolidated Statements of Operations for the
Six Months Ended June 30, 1999 and 1998 (unaudited)..... F-31
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998 (unaudited)..... F-32
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................. F-33
MORRIS ASHBY PLC
Auditors' Report.......................................... F-41
Consolidated Profit and Loss Account for the Years Ended
March 31, 1997 and 1996................................. F-42
Balance Sheets as at March 31, 1997 and 1996.............. F-43
Cash Flow Statement for the Years Ended March 31, 1997 and
1996.................................................... F-44
Notes to the Accounts..................................... F-45
NELSON METAL PRODUCTS CORPORATION
Report of Independent Public Accountants.................. F-64
Balance Sheets as of December 31, 1998 and 1997........... F-65
Statements of Operations for the Years Ended December 31,
1998 and 1997, for the Five Months Ended December 31,
1996 and for the Year Ended July 31, 1996............... F-66
Statements of Stockholders' Investment for the Years Ended
December 31, 1998 and 1997, for the Five Months Ended
December 31, 1996 and for the Year Ended July 31,
1996.................................................... F-67
Statements of Cash Flows for the Years Ended December 31,
1998 and 1997, for the Five Months Ended December 31,
1996 and for the Year Ended July 31, 1996............... F-68
Notes to Financial Statements............................. F-69
Condensed Balance Sheets as of June 30, 1999 (unaudited)
and December 31, 1998................................... F-83
Condensed Statements of Operations for the Six Months
Ended June 30, 1999 and 1998 (unaudited)................ F-84
Condensed Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 (unaudited)................ F-85
Notes to Condensed Financial Statements (unaudited)....... F-86
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To J. L. French Automotive Castings, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of J. L. French
Automotive Castings, Inc. and Subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of operations, stockholders' investment and
comprehensive income and cash flows for the years ended December 31, 1998 and
1997 and for the nine months ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of J. L. French
Automotive Castings, Inc. and Subsidiaries as of December 31, 1998 and 1997 and
the results of their operations and their cash flows for the years ended
December 31, 1998 and 1997 and for the nine months ended December 31, 1996 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
April 30, 1999 (except with respect to
the matter discussed in Note 13,
as to which the date is October 15, 1999)
F-2
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,128 $ 14,438
Accounts receivable, less reserve for doubtful accounts of
$1,353 and $553......................................... 55,242 18,529
Inventories............................................... 17,077 7,422
Customer tooling-in-progress.............................. 8,013 5,992
Other current assets...................................... 2,029 1,713
-------- --------
Total current assets.................................... 86,489 48,094
PROPERTY, PLANT AND EQUIPMENT, net.......................... 147,505 66,371
INTANGIBLE AND OTHER ASSETS, net of accumulated amortization
of $56,233 and $39,372.................................... 170,799 120,737
-------- --------
Total assets............................................ $404,793 $235,202
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 27,814 $ 5,131
Accrued liabilities....................................... 23,329 6,899
Current portion of long-term debt......................... 13,113 12,170
-------- --------
Total current liabilities............................... 64,256 24,200
LONG-TERM DEBT, excluding current portion................... 198,467 122,221
OTHER NONCURRENT LIABILITIES................................ 5,165 --
-------- --------
Total liabilities....................................... 267,888 146,421
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
CONVERTIBLE REDEEMABLE SERIES A PREFERRED STOCK............. 12,217 11,974
CONVERTIBLE REDEEMABLE SERIES B PREFERRED STOCK............. -- --
STOCKHOLDERS' INVESTMENT:
Common stock, Class A; par value $0.0001; 300,000 shares
authorized; 60,492.73 and 66,960.34 shares issued and
outstanding............................................. -- --
Common stock, Class B; par value $0.0001; 75,000 shares
authorized; 16,016.36 and 2,326.86 shares issued and
outstanding............................................. -- --
Common stock, Class C; par value $0.0001; 50,000 shares
authorized; 2,651.05 and 258.54 shares issued and
outstanding............................................. -- --
Common stock, Class D; par value $0.0001; 25,000 shares
authorized; 294.56 and 0 shares issued and
outstanding............................................. -- --
Additional paid-in capital................................ 109,034 72,640
Retained earnings......................................... 14,224 4,167
Accumulated other comprehensive income--foreign currency
translation adjustment.................................. 1,430 --
-------- --------
Total stockholders' investment.......................... 124,688 76,807
-------- --------
Total liabilities and stockholders' investment.......... $404,793 $235,202
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31 NINE MONTHS
------------------- ENDED
1998 1997 DECEMBER 31, 1996
-------- -------- ------------------
<S> <C> <C> <C>
SALES................................................... $295,690 $169,510 $106,941
COST OF SALES........................................... 221,040 116,522 75,697
-------- -------- --------
Gross profit........................................ 74,650 52,988 31,244
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............ 16,802 5,649 3,359
AMORTIZATION OF INTANGIBLE ASSETS....................... 16,861 20,680 18,692
-------- -------- --------
Operating income.................................... 40,987 26,659 9,193
INTEREST EXPENSE, net................................... 20,533 13,981 11,973
-------- -------- --------
Income (loss) before income taxes and extraordinary
loss.............................................. 20,454 12,678 (2,780)
PROVISION (BENEFIT) FOR INCOME TAXES.................... 8,299 4,954 (1,126)
-------- -------- --------
Income (loss) before extraordinary loss............. 12,155 7,724 (1,654)
EXTRAORDINARY LOSS--WRITE-OFF OF UNAMORTIZED DEBT
ISSUANCE COSTS, net of income tax benefit of $515..... 805 -- --
-------- -------- --------
NET INCOME (LOSS)....................................... $ 11,350 $ 7,724 $ (1,654)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCKS
---------------------------------------------------------------------------
CLASS A CLASS B CLASS C
------------------------ ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION:
Issuance of common stock....... 64,960.34 $ -- 2,326.86 $ -- 258.54 $ --
Capital component of
convertible redeemable
Series A preferred stock..... -- -- -- -- -- --
---------- ----------- --------- ----------- -------- -----------
64,960.34 -- 2,326.86 -- 258.54 --
Sale of Class A common stock,
$1,000 per share............. 2,000 -- -- -- -- --
Accretion of convertible
redeemable Series A preferred
stock to redemption value.... -- -- -- -- -- --
Dividends declared for
convertible redeemable
Series A preferred stock,
$523 per share............... -- -- -- -- -- --
Comprehensive income--
Net loss..................... -- -- -- -- -- --
---------- ----------- --------- ----------- -------- -----------
BALANCE, December 31, 1996....... 66,960.34 -- 2,326.86 -- 258.54 --
Comprehensive income--
Net income................... -- -- -- -- -- --
Accretion of convertible
redeemable Series A preferred
stock to redemption value.... -- -- -- -- -- --
Dividends declared for
convertible redeemable
Series A preferred stock,
$700 per share............... -- -- -- -- -- --
---------- ----------- --------- ----------- -------- -----------
BALANCE, December 31, 1997....... 66,960.34 -- 2,326.86 -- 258.54 --
Comprehensive income--
Net income................... -- -- -- -- -- --
Foreign currency translation
adjustment................. -- -- -- -- -- --
Total comprehensive income...
Accretion of convertible
redeemable Series A preferred
stock to redemption value.... -- -- -- -- -- --
Dividends declared for
convertible redeemable
Series A preferred stock,
$700 per share............... -- -- -- -- -- --
Conversion of Class A to
Class B...................... (13,944.85) -- 13,944.85 -- -- --
Conversion of Class B to
Class C...................... -- -- (2,326.86) -- 2,326.86 --
Conversion of Class C to
Class D...................... -- -- -- -- (258.54) --
Sale of common stocks at
$3,672.89 per share.......... 7,477.24 -- 2,071.51 -- 324.19 --
---------- ----------- --------- ----------- -------- -----------
BALANCE, December 31, 1998....... 60,492.73 $ -- 16,016.36 $ -- 2,651.05 $ --
========== =========== ========= =========== ======== ===========
<CAPTION>
COMMON STOCKS
---------------------- ACCUMULATED
CLASS D ADDITIONAL OTHER
---------------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME TOTAL
-------- ----------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION:
Issuance of common stock....... -- $ -- $ 67,546 $ -- $ -- $ 67,546
Capital component of
convertible redeemable
Series A preferred stock..... -- -- 3,396 -- -- 3,396
------ ----------- -------- ------- ------ --------
-- -- 70,942 -- -- 70,942
Sale of Class A common stock,
$1,000 per share............. -- -- 2,000 -- -- 2,000
Accretion of convertible
redeemable Series A preferred
stock to redemption value.... -- -- -- (152) -- (152)
Dividends declared for
convertible redeemable
Series A preferred stock,
$523 per share............... -- -- (302) (483) -- (785)
Comprehensive income--
Net loss..................... -- -- -- (1,654) -- (1,654)
------ ----------- -------- ------- ------ --------
BALANCE, December 31, 1996....... -- -- 72,640 (2,289) -- 70,351
Comprehensive income--
Net income................... -- -- -- 7,724 -- 7,724
Accretion of convertible
redeemable Series A preferred
stock to redemption value.... -- -- -- (218) -- (218)
Dividends declared for
convertible redeemable
Series A preferred stock,
$700 per share............... -- -- -- (1,050) -- (1,050)
------ ----------- -------- ------- ------ --------
BALANCE, December 31, 1997....... -- -- 72,640 4,167 -- 76,807
Comprehensive income--
Net income................... -- -- -- 11,350
Foreign currency translation
adjustment................. -- -- -- -- 1,430
Total comprehensive income... 12,780
Accretion of convertible
redeemable Series A preferred
stock to redemption value.... -- -- -- (243) -- (243)
Dividends declared for
convertible redeemable
Series A preferred stock,
$700 per share............... -- -- -- (1,050) -- (1,050)
Conversion of Class A to
Class B...................... -- -- -- -- -- --
Conversion of Class B to
Class C...................... -- -- -- -- -- --
Conversion of Class C to
Class D...................... 258.54 -- -- -- -- --
Sale of common stocks at
$3,672.89 per share.......... 36.02 -- 36,394 -- -- 36,394
------ ----------- -------- ------- ------ --------
BALANCE, December 31, 1998....... 294.56 $ -- $109,034 $14,224 $1,430 $124,688
====== =========== ======== ======= ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31 NINE MONTHS
-------------------- ENDED
1998 1997 DECEMBER 31, 1996
--------- -------- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)..................................... $ 11,350 $ 7,724 $ (1,654)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities--
Depreciation and amortization....................... 36,037 31,037 25,880
Subordinated notes discount accretion............... 469 437 250
Deferred income taxes............................... 1,100 (610) (3,743)
Extraordinary loss.................................. 805 -- --
Change in other operating items:
Accounts receivable............................... (12,197) (1,485) 3,446
Inventories and customer tooling-in-progress...... (3,398) (6,210) 2,451
Accounts payable and accrued liabilities.......... 5,662 (420) 420
Other, net........................................ (773) (844) (329)
--------- -------- ---------
Net cash provided by operating activities....... 39,055 29,629 26,721
--------- -------- ---------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.................... (74,778) -- (227,765)
Capital expenditures.................................. (34,640) (24,530) (2,995)
--------- -------- ---------
Net cash used for investing activities.......... (109,418) (24,530) (230,760)
--------- -------- ---------
FINANCING ACTIVITIES:
Borrowings under revolving credit facilities.......... 197,273 -- --
Repayments under revolving credit facilities.......... (179,870) -- --
Long-term borrowings.................................. 74,474 -- 152,454
Repayment of long-term borrowings..................... (64,157) (10,715) (8,035)
Debt issuance costs................................... (3,193) -- (3,300)
Proceeds from sale of common stock.................... 36,394 -- 69,546
Proceeds from sale of convertible redeemable Series A
preferred stock..................................... -- -- 15,000
Dividends paid on convertible redeemable Series A
preferred stock..................................... (1,050) (1,572) --
--------- -------- ---------
Net cash provided by (used in) financing
activities.................................... 59,871 (12,287) 225,665
--------- -------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS........................................... 182 -- --
--------- -------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS................. (10,310) (7,188) 21,626
CASH AND CASH EQUIVALENTS, beginning of period.......... 14,438 21,626 --
--------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period................ $ 4,128 $ 14,438 $ 21,626
========= ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for--
Interest............................................ $ 20,289 $ 15,107 $ 10,216
========= ======== =========
Income taxes........................................ $ 6,200 $ 6,245 $ 2,781
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. ORGANIZATION AND BASIS OF PRESENTATION:
DESCRIPTION OF BUSINESS
J. L. French Automotive Castings, Inc. (French) is an international
independent designer and manufacturer of aluminum die cast components and
assemblies for the global automotive industry. French consists of three primary
operating subsidiaries: French Holdings, Inc. and Subsidiaries (FHI) initially
capitalized in April 1996, located primarily in Wisconsin; Morris Ashby Ltd. and
Subsidiaries (Morris Ashby) acquired in January 1998, located in the United
Kingdom; and Fundiciones Viuda De Ansola, S.A. (Ansola) acquired in April 1998,
located in Spain.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the financial statements of
French and its wholly owned subsidiaries (collectively referred to as the
Company). All significant intercompany balances and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with an
original maturity of three months or less. Cash equivalents consist primarily of
short-term money market investments with Spanish financial institutions in 1998,
and overnight investments collateralized by U.S. government securities and
premium rated commercial paper in 1997. Cash equivalents are stated at cost
which approximates fair value.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) or average cost methods, which approximate
current cost. Market is determined by the quoted price for comparable raw
materials.
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Raw materials.............................................. $ 4,094 $2,313
Components................................................. 2,815 1,841
Work-in-process............................................ 5,045 887
Finished goods............................................. 4,573 1,860
Supplies................................................... 550 521
------- ------
$17,077 $7,422
======= ======
</TABLE>
CUSTOMER TOOLING
Excess of cost over billings on uncompleted tooling projects represents
costs incurred by the Company in the production of customer-owned tooling to be
used by the Company in the manufacture
F-7
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
of its products. The Company receives a specific purchase order for this tooling
and is reimbursed by the customer for the cost of such tooling. Costs are
deferred until reimbursed by the customer. Forecasted losses on incomplete
projects are recognized currently.
PROPERTY, PLANT AND EQUIPMENT
Property plant and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Land and improvements................................... $ 3,218 $ 1,239
Buildings............................................... 30,044 15,537
Machinery and equipment................................. 138,908 59,673
Furniture, fixtures and other........................... 2,390 757
Construction in progress................................ 9,455 6,663
-------- --------
184,015 83,869
Less- Accumulated depreciation.......................... (36,510) (17,498)
-------- --------
Net property, plant and equipment....................... $147,505 $ 66,371
======== ========
</TABLE>
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is calculated on the straight-line method over the following estimated
useful lives:
<TABLE>
<S> <C>
Buildings and land improvements............................. 15 to 39 years
Machinery and equipment..................................... 5 to 13 years
Furniture and fixtures...................................... 3 to 10 years
</TABLE>
The Company capitalizes interest cost as a component of the cost of
construction in progress. Interest costs of $210,000 and $384,000 were
capitalized for the years ended December 31, 1998 and 1997. There were no costs
capitalized for the period ended December 31, 1996.
Maintenance and repairs are charged to expense as incurred. Major
betterments and improvements which extend the useful life of the item are
capitalized and depreciated. The cost and accumulated depreciation of property,
plant and equipment retired or otherwise disposed of are removed from the
related accounts, and any residual values are charged or credited to income.
F-8
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTANGIBLE AND OTHER ASSETS
Intangibles and other assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Goodwill................................................ $169,793 $ 98,779
Customer relationships.................................. 52,946 52,946
Debt issuance costs and other........................... 4,293 8,384
-------- --------
227,032 160,109
Accumulated amortization................................ (56,233) (39,372)
-------- --------
$170,799 $120,737
======== ========
</TABLE>
Goodwill represents the excess of the purchase price over fair value of net
assets acquired arising from the initial capitalization in April 1996 and the
Morris Ashby and Ansola transactions described in Note 3. Goodwill is amortized
on a straight-line basis over 40 years. Amortization for the customer
relationships is calculated using an accelerated method, reflecting the nature
of the relationship, over 5 years. Debt financing costs are amortized over the
term of the applicable agreement.
The Company periodically evaluates whether events and circumstances have
occurred which may affect the estimated useful life or the recoverability of the
remaining balance of its goodwill and other long-lived assets. If such events or
circumstances were to indicate that the carrying amount of these assets would
not be recoverable, the Company would estimate the future cash flows expected to
result from the use of the assets and their eventual disposition. If the sum of
the expected future cash flows (undiscounted and without interest charges) were
less than the carrying amount of goodwill and other long-lived assets, the
Company would recognize an impairment loss.
ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Compensation and benefits.................................. $10,026 $4,121
Income taxes............................................... 2,361 128
Tooling advances........................................... 4,896 --
Interest................................................... 2,084 1,742
Other...................................................... 3,962 908
------- ------
$23,329 $6,899
======= ======
</TABLE>
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax
F-9
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using currently
enacted tax rates.
REVENUE RECOGNITION AND SALES COMMITMENTS
The Company recognizes revenue as its products are shipped to its customers.
The Company enters into agreements to produce products for its customers at the
beginning of a given vehicle's life. Once such agreements are entered into by
the Company, fulfillment of the customer's purchasing requirements is the
obligation of the Company for the entire production life of the vehicle, with
terms averaging seven years. The Company has no provisions to terminate such
contracts.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated into U.S.
dollars using the year-end rates of exchange. Results of operations are
translated at average rates prevailing throughout the period. Translation gains
and losses are accumulated as a separate component of other comprehensive
income--foreign currency translation adjustments in stockholders' investment.
Gains and losses resulting from foreign currency transactions are included in
net income. Such gains or losses and related hedges are reported in the same
manner as translation adjustments.
STOCK OPTION PLANS
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," as permitted by Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Under APB
Opinion No. 25, compensation expense is recorded only if the current market
price of the underlying stock exceeds the exercise price of the stock option.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income, " which established standards for
reporting and display of comprehensive income and its components. Comprehensive
income reflects the change in equity of a business enterprise during a period
from transactions and other events and circumstances from nonowner sources. For
the Company, comprehensive income represents net income adjusted for foreign
currency translation adjustments. In accordance with SFAS No. 130, the Company
has chosen to disclose comprehensive income in the accompanying consolidated
statements of stockholders' investment and comprehensive income. Net income
(loss) for periods prior to 1998 was the same as comprehensive income.
SEGMENT REPORTING
In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
replacing the "industry segment" approach with the "management" approach. The
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as
F-10
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the source of the Company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas and major customers.
The adoption affected only the disclosure of segment information (see Note 8).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," becomes effective for the years beginning after June 15, 2000. SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge criteria are met. Special accounting for qualifying hedges allow a
derivative's gains or losses to offset related results on the hedged item in the
income statement and requires that a company must formally document, designate
and assess the effectiveness of transactions that receive hedge accounting. The
Company has not yet quantified the impact of adopting SFAS No. 133 and has not
yet determined the timing of adoption.
During 1998, the Company adopted Financial Accounting Standards Board
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-up
Activities." SOP 98-5 requires that start-up activities be expensed as incurred,
versus capitalizing and expensing them over a period of time. The adoption of
SOP 98-5 did not affect the Company's consolidated results of operations or the
financial position of the Company.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of changes in net assets available for
benefits during the reporting period. Ultimate results could differ from those
estimates.
RECLASSIFICATIONS
Certain amounts previously reported in the 1997 and 1996 consolidated
financial statements have been reclassified to conform to the 1998 presentation.
These reclassifications had no effect on previously reported net income (loss)
or stockholders' investment.
3. MERGER AND ACQUISITIONS:
MORRIS ASHBY AND ANSOLA
On January 12, 1998, the Company effectively acquired 100% of the
outstanding common stock of Morris Ashby for approximately $54.0 million in
cash, including certain transaction costs, plus unsecured sterling loan notes
issued to certain electing shareholders in the amount of $26.4 million. On
April 30, 1998, the Company acquired 100% of the outstanding common stock of
Ansola for approximately $20.8 million in cash, including certain transaction
costs.
F-11
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
3. MERGER AND ACQUISITIONS: (CONTINUED)
The acquisitions of Morris Ashby and Ansola have been accounted for using
the purchase method of accounting and, accordingly, the assets acquired and
liabilities assumed have been recorded at their fair value as of the respective
dates of acquisition. The excess of the purchase price over the fair value of
the assets acquired and liabilities assumed have been recorded as goodwill.
The assets acquired and liabilities assumed have been recorded based upon
preliminary estimates of fair value as of the dates of acquisition. The Company
does not believe the final allocation of purchase price will be materially
different from preliminary allocations. Any changes to the preliminary estimates
will be reflected as adjustments to goodwill. Results of operations for these
acquisitions have been included in the accompanying consolidated financial
statements since the respective dates of the acquisition.
The following unaudited consolidated pro forma results of operations for the
years ended December 31, 1998 and 1997 give effect to the acquisitions of Morris
Ashby and Ansola as if such transactions had occurred at the beginning of the
period (in thousands):
<TABLE>
<CAPTION>
PRO FORMA FOR YEARS
ENDED DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Sales................................................... $303,899 $269,480
Operating income........................................ 41,910 38,222
Net income before extraordinary item.................... 12,264 14,696
</TABLE>
The unaudited pro forma consolidated financial information does not purport
to represent what the Company's financial position or results of operations
would actually have been if these transactions had occurred at such dates or to
project the Company's future results of operations.
F-12
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
4. LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
1998 senior credit facility:
U.S. term loan........................................ $ 41,625 $ --
Sterling term loan.................................... 24,215 --
U.S. revolving credit facility........................ 15,000 --
Sterling revolving credit facility.................... 14,204 --
1996 senior credit facility--U.S. term loan............. -- 56,250
Unsecured sterling loan notes........................... 27,303 --
Peseta term loans....................................... 5,303 --
Obligations under capital leases (Note 10).............. 5,320 --
Subordinated notes at face amount....................... 85,000 85,000
Less- Subordinated notes original issue discount........ (6,390) (6,859)
-------- --------
211,580 134,391
Less- Current portion................................... 13,113 12,170
-------- --------
$198,467 $122,221
======== ========
</TABLE>
1998 SENIOR CREDIT FACILITY
On March 16, 1998, the Company entered into a new global senior credit
facility (the Agreement) with a group of banks providing for a U.S. term loan
and revolving credit facility of $45.0 million and $75.0 million, respectively,
and a sterling term loan and revolving credit facility of L33.6 million and
L16.4 million, respectively. The proceeds from the new senior credit facility
were used to finance the acquisitions of Morris Ashby and Ansola and retire
amounts outstanding under the 1996 senior credit facility discussed below.
Each of the revolving credit facilities and term loans provide for an annual
interest rate, at the option of the Company, equal to either the Eurocurrency
loan rate plus an applicable margin of 0.5% to 1.25%, or the base rate, as
defined, plus an applicable margin of up to 0.25%. The applicable interest rate
at December 31, 1998 was 6.6% for the U.S. term loan and revolving credit
facility and 6.5% for the Sterling term loan and revolving credit facility. The
Eurocurrency loan rate reflects the London Interbank Offered Rate (LIBOR) plus
an additional margin as determined by the Lender's agent. The base rate is equal
to the greater of 1) the publicly announced prime rate, 2) the federal funds
rate plus 0.5% to 1.0%, or 3) the base certificate of deposit rate plus 1.0%.
The applicable margin is based on the Company's leverage ratio as defined in the
Agreement. A commitment fee ranging from 0.2% to 0.375%, depending on the
Company's leverage ratio, is charged on the unused portion of the revolving
credit facilities.
The dollar and sterling term loans call for quarterly principal payments
totaling $1.1 million and L395,000 respectively, from June 30, 1998 to
March 31, 1999.
F-13
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
4. LONG-TERM DEBT: (CONTINUED)
The Agreement contains covenants which restrict the Company with regard to
capital expenditures, asset sales, additional debt and distributions to
stockholders, while permitting regularly scheduled dividends or redemption of
Series A and B preferred stock. The Company is also subject to the maintenance
of certain financial covenants. The Company was in compliance with all covenants
as of December 31, 1998.
The Agreement was terminated in April 1999 in connection with the
transaction described in Note 13.
1996 SENIOR CREDIT FACILITY
In 1997, the U.S. term loan represented advances under a $100.0 million Loan
and Security Agreement with a group of banks entered into in conjunction with
the 1996 Acquisition. The term loan was payable in quarterly principal
installments of $2.7 million with a final payment of $21.4 million due on
April 2, 2001. Interest on the term loan was based on the prime rate plus 5% or,
alternatively at the option of the Company, on the LIBOR plus .75% (6.7% at
December 31, 1997).
The Loan and Security Agreement also provided for a U.S. revolving credit
facility. There were no borrowings outstanding as of December 31, 1997 under the
revolving credit facility.
In connection with the repayment of the 1996 Senior Credit Facility, the
Company wrote off as an extraordinary loss $1.3 million ($805,000 after income
tax benefit) of unamortized debt issuance costs.
PESETA TERM LOANS
Upon the acquisition of Ansola, the Company assumed peseta term loans under
agreements with a number of Spanish banks. The loans were used by Ansola to
finance capital expenditures and generally have restrictions that require
approval prior to the disposal of assets. The loans have various payment terms
and maturity dates from 2000 through 2005. The effective interest rate in 1998
was approximately 5.2%.
SUBORDINATED NOTES
The subordinated notes (the Notes) bear interest at 12% and are due
March 31, 2006. In conjunction with the acquisition and merger with FHI as
discussed in Note 3, the Notes were amended and the Company assumed all
obligations and rights of FHI under the Notes. The Notes are subordinated to the
obligations under the Agreement. The Notes were originally issued by FHI in
April 1996 at a face value of $85.0 million, with a discounted yield of 13.65%.
Interest is payable semiannually. The original issue discount is being accreted
under the interest method over the term of the Notes.
The Notes were retired in April 1999 in connection with the transaction
described in Note 13.
F-14
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
4. LONG-TERM DEBT: (CONTINUED)
AGGREGATE MATURITIES
The aggregate maturities of long-term debt, including obligations under
capital leases, for each of the five years subsequent to December 31, 1998 are
as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
1999........................................................ $ 13,113
2000........................................................ 13,542
2001........................................................ 13,499
2002........................................................ 13,177
2003........................................................ 77,984
2004 and thereafter......................................... 80,265
--------
$211,580
========
</TABLE>
5. REDEEMABLE PREFERRED STOCKS:
The Company has 1,500 shares of convertible redeemable 7% Series A preferred
stock with a redemption value of $15.0 million issued and outstanding as of
December 31, 1998. The Series A preferred stock has a par value of $.0001 per
share. Holders of Series A preferred stock are entitled to cumulative cash
dividends, payable quarterly on the first business day of the succeeding
quarter, at an annual rate of $700 per share.
Each share of Series A preferred stock is convertible at any time at the
option of the holder into (i) 2.26372 shares of Class A common stock, or if such
share of Series A preferred stock is held by a Regulated Holder, 2.26372 shares
of Class B common stock; and (ii) one share of Series B preferred stock. The
conversion rate is subject to adjustment under certain circumstances pursuant to
antidilution provisions. The Series A preferred stock carries a redemption price
of $10,000 per share plus accrued, but unpaid, cash dividends.
The shares of Series A preferred stock are nonvoting, except in certain
circumstances. Such shares rank in parity with shares of Series B preferred
stock with respect to dividend rights and rights of liquidation and dissolution
and are senior to all other equity securities of the Company, including all
preferred stock used subsequent to March 16, 1998.
The Series A preferred stock was stated at estimated fair value at the
original date of issuance, net of $3.4 million, the estimated fair value
attributed to the conversion into shares of Class A common stock. The Company is
recording the accretion to increase the carrying value of the Series A preferred
stock to the redemption value of $15.0 million as a reduction to retained
earnings.
The Company has 1,500 shares of authorized redeemable 7% Series B preferred
stock with a par value of $.0001 per share that are available for issue only in
the event of the conversion of the Series A preferred stock. Shares of the
Series B preferred stock are not convertible, but have the same rights as the
Series A preferred stock with respect to dividends, liquidation, dissolution,
voting and seniority with respect to all other equity securities of the Company.
F-15
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
5. REDEEMABLE PREFERRED STOCKS: (CONTINUED)
Any outstanding shares of Series B preferred stock may be redeemed at the
option of the Company at any time at $10,000 per share plus accrued, but unpaid,
cash dividends.
In April 1999, in connection with transaction described in Note 13, each
share of Series A preferred stock was converted into 2.26372 shares of Class A
common stock and 1 share of Series B preferred stock. Certain shares of the
Class A common stock and all of the Series B preferred stock were redeemed by
the Company.
6. COMMON STOCKS:
In connection with the March 1998 merger, the Class A common stock was
converted into 53,015.49 shares of Class A and 13,944.85 shares of Class B
common stock. Class B common stock was converted in Class C common stock and
Class C common stock was converted into Class D common stock. The
transferability of common stock is restricted by a shareholders' agreement.
Each share of Class A and Class B common stock is entitled to one vote.
Shares of Class C common stock are nonvoting except in certain circumstances and
shares of Class D common stock are entitled to ten votes per share. Under
certain circumstances, including an initial public offering or the sale of the
Company, each share of Class C common stock will convert into one share of
Class A or, if owned by a "Regulated Holder," into one share of Class A or
Class B common stock. Concurrent with any conversion of a share of Class C
common stock, one-ninth of a share of Class D common stock will automatically
convert into one-ninth of a share of Class A or Class B common stock. In other
references, each class of common stock generally shares the same powers.
In April 1999, in connection with the transaction described in Note 13,
certain shares of common stock were redeemed by the Company.
7. INCOME TAXES:
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31 ENDED
------------------- DECEMBER 31,
1998 1997 1996
-------- -------- ------------
<S> <C> <C> <C>
Current....................................... $ 7,199 $ 5,564 $ 2,617
Deferred...................................... 1,100 (610) (3,743)
------- ------- -------
Total..................................... $ 8,299 $ 4,954 $(1,126)
======= ======= =======
</TABLE>
F-16
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
7. INCOME TAXES: (CONTINUED)
A summary of deferred income tax assets and liabilities is as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable..................................... $ 456 $ 210
Inventories............................................. 212 218
Vacation accruals....................................... 138 95
Employee benefit plans.................................. 512 --
Amortization of intangible assets....................... 9,212 5,885
State tax credit and net operating loss carryforwards... 584 244
------- -------
Total deferred tax assets........................... 11,114 6,652
Deferred tax liabilities--depreciation.................... 13,288 3,961
------- -------
Net deferred tax assets (liabilities)............... $(2,174) $ 2,691
======= =======
</TABLE>
Management believes it more likely than not that the results of future
operations will generate sufficient taxable income to realize the deferred tax
assets. Accordingly, no valuation allowance is recorded.
A reconciliation of income taxes computed at the statutory rates to the
reported income tax provisions is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31 ENDED
------------------- DECEMBER 31,
1998 1997 1996
-------- -------- ------------
<S> <C> <C> <C>
Federal provision at statutory rates............ 35.0% 35.0% (35.0)%
State income taxes, net of federal benefit...... 5.4 4.4 (2.0)
Other, net...................................... 0.2 (0.3) (3.5)
---- ---- -----
40.6% 39.1% (40.5)%
==== ==== =====
</TABLE>
The Company has approximately $305,000 of state tax credit carryforwards
which expire in 2013, and $1.8 million of Wisconsin net operating loss
carryforwards which expire in 2011 and 2012, and $900,000 of foreign net
operating loss carryforwards which expire in 2013.
8. GEOGRAPHIC AND PRODUCT LINE INFORMATION:
The Company designs and manufactures aluminum die cast components and
assemblies for the global automotive industry and operates in a single
reportable business segment, automotive products. The Company internally
evaluates its business principally based upon critical performance measures
established by the Company; because of similar economic characteristics of the
operations, including the nature of products, production process and customers,
those operations have been aggregated following the provisions of SFAS No. 131
for segment reporting purposes.
F-17
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
8. GEOGRAPHIC AND PRODUCT LINE INFORMATION: (CONTINUED)
The following is a summary of sales, based on location of production, and
long-lived assets by geographic location (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------
1998 1997
------------------- -------------------
LONG- LONG-
LIVED LIVED
SALES ASSETS SALES ASSETS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
North America........................ $208,000 $ 79,703 $169,510 $66,371
Europe............................... 87,690 67,802 -- --
-------- -------- -------- -------
$295,690 $147,505 $169,510 $66,371
======== ======== ======== =======
</TABLE>
Sales to customers in various geographic locations were as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
North America........................................... $186,328 $143,753
Europe.................................................. 106,608 23,812
Other foreign locations................................. 2,754 1,945
-------- --------
$295,690 $169,510
======== ========
</TABLE>
The Company sells its products primarily directly to automobile
manufacturers. Customers that accounted for a significant portion of
consolidated sales for the years ended December 31, 1998 and 1997 and for the
nine months ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31 ENDED
------------------- DECEMBER 31,
1998 1997 1996
-------- -------- -------------
<S> <C> <C> <C>
Ford............................................... 58% 60% 58%
GM................................................. 20% 39% 42%
</TABLE>
As of December 31, 1998 and 1997, receivables from these customers
represented 68% and 100% of total accounts receivable, respectively.
9. EMPLOYEE BENEFIT PLANS:
The Company has a noncontributory defined contribution retirement plan
covering substantially all U.S. employees after one year of service. Under the
terms of the plan, contributions made by the Company are based on the number of
hours worked by each participant. The Company's contribution for 1997 was at the
rate of 70 cents per hour of qualified service, which increased to 85 cents in
1998, and increases to $1.00 in 1999. The expense for the years ended
December 31, 1998 and 1997 was $1.2 million and $926,000, respectively.
F-18
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
9. EMPLOYEE BENEFIT PLANS: (CONTINUED)
The Company also sponsors a 401(k) savings plan covering substantially all
U.S. employees. Company contributions are not provided under the 401(k) plan.
The Company sponsors a defined benefit pension plan covering certain
employee groups at Morris Ashby. The change in benefit obligation and plan
assets consisted of the following as of December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
CHANGE IN BENEFIT OBLIGATION
- ----------------------------
<S> <C>
Benefit obligation at January 12, 1998...................... $25,402
Service cost................................................ 1,827
Interest cost............................................... 1,983
Actuarial loss.............................................. 4,557
Plan participants' contributions............................ 627
Benefits paid............................................... (1,520)
-------
Benefit obligation at the end of the year................... $32,876
=======
CHANGE IN PLAN ASSETS
- ------------------------------------------------------------
Fair value of plan assets at January 12, 1998............... $21,711
Actual return on plan assets................................ 2,532
Employer contributions...................................... 1,505
Plan participants' contributions............................ 592
Benefits paid............................................... (1,585)
-------
Fair value of plan assets at the end of the year............ $24,755
=======
</TABLE>
The Company's plan has benefits in excess of the plan assets. The funded
status of the Company's plan is as follows as of December 31, 1998 (amounts in
thousands):
<TABLE>
<S> <C>
Funded status............................................... $(8,120)
Unrecognized actuarial loss................................. 6,132
-------
Accrued benefit cost........................................ $ 1,988
=======
</TABLE>
The following assumptions were used to account for the plan assets for the
year ended December 31, 1998 (in thousands):
<TABLE>
<S> <C>
Discount rate............................................... 5.5%
Expected return on plan assets.............................. 9.0%
Rate of compensation increase............................... 4.0%
</TABLE>
F-19
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
9. EMPLOYEE BENEFIT PLANS: (CONTINUED)
The components of net periodic benefit costs are as follows for the year
ended December 31, 1998 (in thousands):
<TABLE>
<S> <C>
Service cost................................................ $ 1,827
Interest cost............................................... 1,983
Expected return on plan assets.............................. (1,976)
-------
Net periodic benefit costs.................................. $ 1,834
=======
</TABLE>
The Company became obligated under this plan upon the acquisition of Morris
Ashby (see Note 3).
On March 16, 1998, the Company adopted the 1998 Stock Option Plan (the
Option Plan) and the 1998 Performance Stock Option Plan (the Performance Plan)
pursuant to which the Company's board of directors may grant stock options to
key officers and employees. Both plans constitute a continuation and restatement
of the 1996 Stock Option Plan and 1996 Performance Stock Option Plan,
respectively.
The Option Plan authorizes grants of options to purchase up to 4,516 shares
of authorized, but unissued Class A common stock. Stock options are granted with
an exercise price equal to the stock's fair market value at the date of grant.
All stock options have 10-year terms, vest at a rate of 20% per year and become
fully exercisable after five years from the date of grant. Vesting accelerates
upon a change of control, as defined, or optionee termination due to death,
disability or retirement after age 65 with 15 or more years of service.
The Performance Plan authorizes grants of options to purchase up to 4,516
shares of Class A common stock. Stock options are granted with an exercise price
of $1,000 per share. All stock options vest from the date of the Performance
Plan through April 2005 and become exercisable when certain financial hurdles
are achieved. In December 1998, 2,250 options were granted under the Performance
Plan.
A summary of stock option information under the Option Plan as of
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE
DATE OF GRANT OUTSTANDING EXERCISE PRICE PRICE
- ------------- ----------- -------------- --------
<S> <C> <C> <C>
Option Plan:
August 1996............................................ 1,222 $ 1,000
June 1997.............................................. 822 1,531
February 1998.......................................... 900 2,767
Performance Plan:
December 1998.......................................... 2,250 1,000
----- --------------
Options outstanding as of December 31, 1998.............. 5,194 $1,000-$2,767 $1,390
===== ============== ======
Options exercisable as of December 31, 1998.............. 653 $1,000-$1,531 $1,135
===== ============== ======
</TABLE>
There are 3,838 shares of Class A common stock available for grant as of
December 31, 1998.
The pro forma effect on net income for the years ended December 31, 1998 and
1997 using the fair value based method of accounting for employee stock options
under SFAS No. 123 was not significant.
F-20
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
9. EMPLOYEE BENEFIT PLANS: (CONTINUED)
In April 1999, all outstanding options were redeemed by the Company in
connection with the transaction described in Note 13.
F-21
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
10. LEASES:
The Company is obligated at December 31, 1998 under various capital leases
for certain machinery and equipment, including vehicles, that expire at various
dates through 2004. There were no capital lease obligations at December 31,
1997. Amortization of assets held under capital leases is included with
depreciation expense.
The Company also leases buildings, vehicles, machinery and equipment under
noncancelable operating leases expiring on various dates through 2013. Total
rent expense from operating leases, including month-to-month leases, was
$852,000 and $252,000 for the years ended December 31, 1998 and 1997,
respectively.
Aggregate future minimum lease payments as of December 31, 1998 relating to
capital leases and noncancelable operating leases with an initial term in excess
of one year are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1999...................................................... $1,700 $ 711
2000...................................................... 1,491 584
2001...................................................... 1,200 512
2002...................................................... 834 502
2003...................................................... 715 452
Thereafter................................................ 213 1,991
------ ------
Total minimum lease payments...................... $6,153 $4,752
====== ======
Less- Amount representing interest (at rates ranging from
6.2% to 11.8%).......................................... 833
------
Present value of net minimum capital lease
payments........................................ 5,320
Less- Current installments of obligations under capital
leases.................................................. 1,380
------
Obligations under capital leases, excluding
current installments............................ $3,940
======
</TABLE>
11. RELATED-PARTY TRANSACTIONS:
The Company paid $325,000, $200,000 and $150,000 of financial advisory fees
to Windward Capital Partners, L.P., an entity affiliated through common
ownership, in the years ended December 31, 1998 and 1997 and during the period
ended December 31, 1996. The Company pays the outside members of the board of
directors fees based on meeting attendance and services provided. Director fees
paid were $440,000, $370,000 and $156,000 in the years ended December 31, 1998
and 1997 and during the period ended December 31, 1996. In connection with the
transaction discussed in Note 13, the Company entered into a management
agreement with Hidden Creek Industries which requires annual payment of
$500,000.
In 1997, prior to its equity investment of capital into the Company,
Windward Capital Partners, L.P. advanced the Company $1.2 million for costs
incurred to obtain financing commitments in connection with the acquisition of
Morris Ashby. As of December 31, 1997, this advance remained
F-22
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
11. RELATED-PARTY TRANSACTIONS: (CONTINUED)
unpaid and is included in accounts payable in the 1997 consolidated balance
sheet. The advance was repaid in January 1998.
12. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, accrued liabilities and the revolving credit facilities
approximate fair value, because of the short maturity of these instruments. The
fair value of long-term debt is based on quoted market prices for the same or
similar issues or on the current rates offered to the Company for a term equal
to the same remaining maturities. As of December 31, 1998 and 1997, the fair
value of the Company's long-term debt was determined to be the same as the
carrying amount. It is not practicable to estimate the fair value of the
redeemable convertible preferred stock due to the unique terms and conditions of
this security.
The Company uses derivative financial instruments for the purpose of
reducing its exposure to adverse fluctuations in foreign exchange rates and does
not use them for trading purposes. Off-balance-sheet derivative financial
instruments as of December 31, 1998 consist of foreign currency forward
contracts to sell pesetas with a notional value of approximately $19.1 million
and a fair value of approximately $70,000. The fair value is based on quoted
market prices. The Company did not have any off-balance-sheet derivative
financial instruments as of December 31, 1997. The Company enters into foreign
currency forward contracts to eliminate foreign exchange risk on long-term
intercompany loans. These contracts serve as a hedge of the Company's net
investment in the foreign operations and, accordingly, gains and losses on such
contracts are recorded as a component of accumulated other comprehensive
income--foreign currency translation adjustment in the accompanying consolidated
statement of stockholders' investment and comprehensive income.
13. EVENTS SUBSEQUENT TO DECEMBER 31, 1998:
RECAPITALIZATION
On April 21, 1999, the Company completed a recapitalization transaction (the
Recapitalization). Pursuant to the Recapitalization Agreement, immediately prior
to the Recapitalization, each share of Class B, Class C and Class D common stock
was converted into one share of Class A common stock. In addition, each share of
Convertible Redeemable 7% Series A preferred stock was converted into one share
of Series B preferred stock and 2.26372 shares of Class A common stock, and the
Company restated its Articles of Incorporation to authorize 20,000 shares of
Class A common stock, 30,000 shares of Class B common stock, 2,000 shares of
Class C common stock, 15,000 shares of Class D-1 common stock, 7,500 shares of
nonvoting Class D-2 common stock and 1,000 shares of Class E common stock.
Concurrently with the above transactions, new investors acquired 1,650.06 shares
of Class A common stock, 17,099.89 shares of Class B common stock, 4,274.97
shares of Class C common stock, 5,509.97 shares of Class D-1 common stock,
5,699.96 shares of Class D-2 common stock and 2,802.48 shares of Class E common
stock for total consideration of $156.0 million. In addition, the Company
borrowed $295.0 million pursuant to a new Senior Credit Facility and
$130.0 million pursuant to a Subordinated Financing Facility.
The proceeds from the equity investment, the Senior Credit Facility and the
Subordinated Financing Facility were used to retire $184.0 million of existing
indebtedness, $12.3 million to redeem
F-23
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
13. EVENTS SUBSEQUENT TO DECEMBER 31, 1998: (CONTINUED)
the outstanding Series B preferred stock, $336.5 million to repurchase certain
shares of Class A common stock and $21.5 million to redeem all outstanding
options and $6.2 million of transaction fees. As a result of the
Recapitalization, approximately 87% of all classes of the combined capital stock
of the Company were acquired which represented 85% of the voting control. The
prior owners retained a carry-over interest of 13% of all classes of combined
capital stock. This redemption of stock options was recorded as compensation
expense at the date of the Recapitalization. A subsequent additional payment of
$5.9 million was made to those persons who were stockholders prior to the
Recapitalization based on a post-closing determination of working capital as of
the closing date of the Recapitalization.
The Company's Senior Credit Facility provides for total borrowings of up to
$370.0 million, including (a) $105.0 million of term loans consisting of a
$70.0 million U.S. dollar-denominated term loan and a pound sterling-denominated
term loan in an amount equal to the pound sterling equivalent (determined as of
the date such loan was made) of U.S. $17.5 million, which are available to
French, and a pound sterling-denominated term loan in an amount equal to the
pound sterling equivalent (determined as of the date such loan was made) of U.S.
$17.5 million, which is available to Morris Ashby (collectively, the tranche A
term loan), (b) a $190.0 million tranche B term loan, and (c) a $75.0 million
revolving credit facility. Initial interest rates as of April 30, 1999 on
borrowings under the Senior Credit Facility ranged from 7.375% to 8.078%. The
Senior Credit Facility requires the Company to maintain certain financial tests
including minimum interest coverage, minimum net worth and maximum leverage
tests.
Borrowings under the tranche A term loan are due and payable April 21, 2005
and borrowings under the Tranche B term loan are due and payable October 21,
2006. The revolving credit facility is available until April 21, 2005. The
Senior Credit Facility is secured by all of the assets and by all present and
future subsidiaries of French in each case, with exceptions for certain foreign
subsidiaries.
The Company's Subordinated Financing Facility provides for total borrowings
of $130.0 million. The Subordinated Financing Facility has a final maturity of
October 21, 2008. As of April 30, 1999 borrowings under the Subordinated
Financing Facility were at 11.35%.
Pursuant to the Recapitalization, the historical basis of all assets and
liabilities will be retained for financial reporting purposes, and the
repurchase of the existing common stock and issuance of new common stock will be
accounted for as an equity transaction. In addition, the Company incurred
approximately $6.9 million of fees and expenses to complete the
Recapitalization. These costs will be included in stockholders investment as a
cost of the Recapitalization.
On May 25, 1999, the Company completed an offering of $175 million of
11 1/2% Senior Subordinated Notes due 2009 (Subordinated Notes). Net proceeds of
the offering, approximately $169.6 million, combined with $0.4 million of cash
were used to retire the $130 million Subordinated Financing facility and
$40 million of the tranche B term loan. In conjunction with the recapitalization
and offering, the Company recorded an extraordinary loss, net of tax, of $8,112.
The loss includes the write off of unamortized debt issuance costs and original
issue discount related to indebtedness that was retired.
F-24
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
13. EVENTS SUBSEQUENT TO DECEMBER 31, 1998: (CONTINUED)
MEXICAN ACQUISITION
In August 1999, the Company acquired a Mexican supplier of aluminum die
castings to DaimlerChrysler and GM for approximately $13 million. This
acquisition was financed with available borrowings under the Company's revolving
credit facility.
NELSON METALS ACQUISITION
On October 15, 1999, the Company acquired all of the outstanding stock of
Nelson Metal Products Corporation (Nelson) for an aggregate purchase price of
$179.8 million including transaction costs. Nelson is a full service supplier of
medium and large aluminum die castings for the automotive industry, with
manufacturing facilities in Grandview, Michigan and Glasgow, Kentucky. Nelson's
customers include GM and Ford. In connection with the acquisition of Nelson, the
Company (i) amended and restated its senior credit facility to provide for
additional borrowings of $100.0 million; (ii) borrowed $30.0 million from Tower
Automotive, Inc. in exchange for the issuance of a 7.5% convertible subordinated
promissory note; and (iii) issued 8,310 shares of its common stock, representing
15.9% of its outstanding common stock to some of its existing stockholders.
14. CONSOLIDATING GUARANTOR AND NON-GUARANTOR INFORMATION:
The following consolidating financial information presents balance sheet,
statement of operations and cash flow information related to the Company's
business. Each Guarantor is a direct wholly owned domestic subsidiary of the
Company and has fully and unconditionally guaranteed the 11 1/2% senior
subordinated notes issued by J.L. French Automotive Casting, Inc., on a joint
and several basis. The Non-Guarantor Companies are the Company's foreign
subsidiaries, which include Morris Ashby and Ansola. Separate financial
statements and other disclosures concerning the Guarantors have not been
presented because management believes that such information is not material. As
all subsidiaries of the Company are guarantors for 1997 and 1996, separate
consolidating guarantor and non-guarantor financial statements have not been
presented for such periods.
F-25
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
14. CONSOLIDATING GUARANTOR AND NON-GUARANTOR INFORMATION: (CONTINUED)
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
J.L. FRENCH NON-
AUTOMOTIVE GUARANTOR GUARANTOR
CASTINGS, INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
-------------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................. $ -- $208,000 $87,690 $ -- $295,690
Cost of sales........................ -- 152,440 68,600 -- 221,040
------- -------- ------- -------- --------
Gross profit....................... -- 55,560 19,090 -- 74,650
Selling, general and administrative
expenses........................... 193 6,817 9,792 -- 16,802
Amortization of intangible assets.... 20 15,234 1,607 -- 16,861
------- -------- ------- -------- --------
Operating income................... (213) 33,509 7,691 -- 40,987
Interest expense..................... (32) 13,896 6,669 -- 20,533
------- -------- ------- -------- --------
Income before income taxes, equity
in earnings (losses) of
subsidiaries and extraordinary
loss............................. (181) 19,613 1,022 -- 20,454
Provision (benefit) for income
taxes.............................. (65) 7,649 715 -- 8,299
Equity in earnings (losses) of
subsidiaries....................... 11,466 -- -- (11,466) --
------- -------- ------- -------- --------
Income before extraordinary loss... 11,350 11,964 307 (11,466) 12,155
Extraordinary loss................... -- 805 -- -- 805
------- -------- ------- -------- --------
Net income (loss).................. $11,350 $ 11,159 $ 307 $(11,466) $ 11,350
======= ======== ======= ======== ========
</TABLE>
F-26
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
14. CONSOLIDATING GUARANTOR AND NON-GUARANTOR INFORMATION: (CONTINUED)
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
J.L. FRENCH NON-
AUTOMOTIVE GUARANTOR GUARANTOR
CASTINGS, INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
-------------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................. $ 11,350 $ 11,159 $ 307 $(11,466) $ 11,350
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities--
Depreciation and amortization... 20 27,933 8,084 -- 36,037
Other non-cash.................. 104 1,527 743 -- 2,374
Earnings of subsidiaries........ (11,466) -- -- 11,466 --
Change in other operating
activities.................... 6,743 (29,055) 11,392 214 (10,706)
-------- -------- --------- -------- ---------
Net cash provided by operating
activities.................. 6,751 11,564 20,526 214 39,055
-------- -------- --------- -------- ---------
INVESTING ACTIVITIES:
Acquisitions, net................. (38,965) -- (74,085) 38,272 (74,778)
Capital expenditures, net......... -- (26,033) (8,607) -- (34,640)
-------- -------- --------- -------- ---------
Net cash provided by (used
for) investing activities... (38,965) (26,033) (82,692) 38,272 (109,418)
-------- -------- --------- -------- ---------
FINANCING ACTIVITIES:
Borrowings on revolving credit
facilities...................... -- 56,300 140,973 -- 197,273
Repayments on revolving credit
facilities...................... -- (41,300) (138,570) -- (179,870)
Long-term borrowings.............. -- 45,000 29,474 -- 74,474
Repayment of long-term
borrowings...................... -- (59,625) (4,532) -- (64,157)
Other financing activities........ (4,243) -- -- -- (4,243)
Capital investment................ 36,395 -- 38,018 (38,019) 36,394
-------- -------- --------- -------- ---------
Net cash provided by (used
for) financing activities... 32,152 375 65,363 (38,019) 59,871
-------- -------- --------- -------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS......... -- -- 649 (467) 182
-------- -------- --------- -------- ---------
NET CHANGE IN CASH AND CASH
EQUIVALENTS....................... (62) (14,094) 3,846 -- (10,310)
CASH AND CASH EQUIVALENTS, beginning
of period......................... 84 14,354 -- -- 14,438
-------- -------- --------- -------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................ $ 22 $ 260 $ 3,846 $ -- $ 4,128
======== ======== ========= ======== =========
</TABLE>
F-27
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
14. CONSOLIDATING GUARANTOR AND NON-GUARANTOR INFORMATION: (CONTINUED)
J.L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
J.L. FRENCH NON-
AUTOMOTIVE GUARANTOR GUARANTOR
CASTINGS, INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
-------------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 22 $ 260 $ 3,846 $ -- $ 4,128
Accounts receivable, net........... -- 34,897 20,345 -- 55,242
Inventories........................ -- 9,712 7,365 -- 17,077
Customer tooling-in-progress....... -- 2,335 5,678 -- 8,013
Other current assets............... -- 1,470 559 -- 2,029
-------- -------- -------- --------- --------
Total current assets............. 22 48,674 37,793 -- 86,489
-------- -------- -------- --------- --------
Property, Plant & Equipment, net..... -- 79,703 67,802 147,505
Investment in Subsidiaries........... 138,003 -- -- (138,003) --
Intangible and Other Assets.......... 3,226 99,469 68,104 -- 170,799
-------- -------- -------- --------- --------
$141,251 $227,846 $173,699 $(138,003) $404,793
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable................... $ -- $ 11,257 $ 16,557 $ -- $ 27,814
Accrued liabilities................ 498 8,792 14,039 -- 23,329
Current portion of long-term
debt............................. -- 6,000 7,113 -- 13,113
-------- -------- -------- --------- --------
Total current liabilities........ 498 26,049 37,709 -- 64,256
-------- -------- -------- --------- --------
Long-Term Debt....................... -- 129,234 69,233 -- 198,467
Other Current Liabilities............ 104 (3,090) 8,151 -- 5,165
Inter-Company........................ 5,174 (24,025) 18,644 207 --
-------- -------- -------- --------- --------
Total liabilities................ 5,776 128,168 133,737 207 267,888
-------- -------- -------- --------- --------
Convertible Redeemable Series A
Preferred Stock.................... 12,217 -- -- -- 12,217
Common Stock......................... -- -- -- -- --
Additional Paid-In-Capital........... 109,034 84,857 38,018 (122,875) 109,034
Retained Earnings.................... 14,224 14,821 307 (15,128) 14,224
Accumulated and Other Comprehensive
Income............................. -- -- 1,637 (207) 1,430
-------- -------- -------- --------- --------
Total stockholders' investment... 123,258 99,678 39,962 (138,210) 124,688
-------- -------- -------- --------- --------
$141,251 $227,846 $173,699 $(138,003) $404,793
======== ======== ======== ========= ========
</TABLE>
F-28
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a condensed summary of actual quarterly results of
operations for 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
GROSS OPERATING NET
REVENUES PROFIT INCOME INCOME
-------- -------- --------- --------
<S> <C> <C> <C> <C>
1997:
First................................ $ 40,911 $12,839 $ 6,264 $ 1,621
Second............................... 44,956 14,613 8,172 2,817
Third................................ 42,317 12,598 6,108 1,661
Fourth............................... 41,326 12,938 6,115 1,625
-------- ------- ------- -------
$169,510 $52,988 $26,659 $ 7,724
======== ======= ======= =======
1998:
First................................ $ 67,687 $16,416 $ 7,536 $ 1,299
Second............................... 77,876 20,680 12,194 4,406
Third................................ 72,905 14,716 6,375 (130)
Fourth............................... 77,222 22,838 14,882 5,775
-------- ------- ------- -------
$295,690 $74,650 $40,987 $11,350
======== ======= ======= =======
</TABLE>
F-29
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 27,357 $ 4,128
Accounts receivable, net.................................. 65,860 55,242
Inventories............................................... 15,805 17,077
Other current assets...................................... 19,132 10,042
-------- --------
Total current assets.................................... 128,154 86,489
PROPERTY, PLANT AND EQUIPMENT, net.......................... 144,087 147,505
INTANGIBLE AND OTHER ASSETS, net............................ 166,467 170,799
-------- --------
Total assets............................................ $438,708 $404,793
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 24,985 $ 27,814
Accrued liabilities....................................... 17,128 23,329
Current portion of long-term debt......................... 11,398 13,113
-------- --------
Total current liabilities............................... 53,511 64,256
LONG-TERM DEBT, excluding current portion................... 460,078 198,467
OTHER NONCURRENT LIABILITIES................................ 3,454 5,165
-------- --------
Total liabilities....................................... 517,043 267,888
CONVERTIBLE REDEEMABLE SERIES A PREFERRED STOCK............. -- 12,217
-------- --------
STOCKHOLDERS' INVESTMENT (DEFICIT):
Common stock.............................................. -- --
Additional paid-in capital................................ -- 109,034
Retained earnings (deficit)............................... (77,031) 14,224
Accumulated other comprehensive income--foreign currency
translation adjustment.................................. (1,304) 1,430
-------- --------
Total stockholders' investment (deficit).............. (78,335) 124,688
-------- --------
Total liabilities and stockholders' investment
(deficit)........................................... $438,708 $404,793
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
F-30
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Sales....................................................... $165,689 $145,563
Cost of sales............................................... 123,406 108,467
-------- --------
Gross profit.............................................. 42,283 37,096
Selling, general and administrative expenses................ 10,228 8,882
Recapitalization expenses................................... 21,151 --
Amortization expense........................................ 5,505 8,484
-------- --------
Operating income.......................................... 5,399 19,730
Interest expense, net....................................... 13,823 8,844
-------- --------
Income (loss) before provision (benefit) for income
taxes................................................... (8,424) 10,886
Provision (benefit) for income taxes........................ (3,369) 4,376
-------- --------
Income (loss) before extraordinary item................... (5,055) 6,510
Extraordinary loss on early extinguishment of debt, net of
income taxes.............................................. 8,112 805
-------- --------
Net income (loss)......................................... $(13,167) $ 5,705
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-31
<PAGE>
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------
-------------------
1998
--------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $(13,167) $ 5,705
Adjustments to reconcile net income to net cash provided
by (used for) operating activities--
Depreciation and amortization........................... 16,565 17,535
Extraordinary loss...................................... 8,112 805
Other noncash items..................................... 2,543 969
Changes in operating items.............................. (22,980) (13,636)
-------- --------
Net cash provided by (used for) operating
activities.......................................... (8,927) 11,378
-------- --------
INVESTING ACTIVITIES:
Acquisitions, net......................................... -- (71,740)
Capital expenditures, net................................. (12,157) (16,815)
-------- --------
Net cash used for investing activities................ (12,157) (88,555)
-------- --------
FINANCING ACTIVITIES:
Borrowings (repayments) on revolving credit facilities.... (21,435) 27,745
Long-term borrowings...................................... 600,933 71,824
Repayment of long-term borrowings......................... (321,695) (58,142)
Recapitalization.......................................... (355,009) --
Capital investment........................................ 156,000 34,383
Other..................................................... (15,498) (4,839)
-------- --------
Net cash provided by (used for) financing
activities.......................................... 43,296 70,971
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... 1,017 (3,086)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 23,229 (9,292)
CASH AND CASH EQUIVALENTS, beginning of period.............. 4,128 14,438
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 27,357 $ 5,146
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-32
<PAGE>
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying condensed consolidated financial statements of J. L. French
Automotive Castings, Inc. and its wholly owned subsidiaries (collectively,
French or the Company) have been prepared by French without audit. The
information furnished in the condensed consolidated financial statements
includes normal recurring adjustments and reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of such financial
statements. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Although French believes that the
disclosures are adequate to make the information presented not misleading, it is
suggested that these condensed consolidated financial statements be read in
conjunction with the audited financial statements and the notes thereto included
in this offering memorandum.
Sales and operating results for the six months ended June 30, 1999 and 1998
are not necessarily indicative of the results to be expected for the full year.
2. COMPREHENSIVE INCOME:
The table below presents comprehensive income, defined as changes in the
equity of the Company for the six month periods ended June 30, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net income (loss)........................................ $(13,167) $ 5,705
Change in translation adjustment......................... (2,734) 1,430
-------- -------
Comprehensive income..................................... $(15,901) $ 7,135
======== =======
</TABLE>
3. RECAPITALIZATION TRANSACTION:
On April 21, 1999, the Company completed a recapitalization transaction (the
Recapitalization). Pursuant to the Recapitalization Agreement, immediately prior
to the Recapitalization, each share of Class B, Class C and Class D common stock
was converted into one share of Class A common stock. In addition, each share of
Convertible Redeemable 7% Series A preferred stock was converted into one share
of Series B preferred stock and 2.26372 shares of Class A common stock, and the
Company restated its Articles of Incorporation to authorize 20,000 shares of
Class A common stock, 30,000 shares of Class B common stock, 2,000 shares of
Class C common stock, 15,000 shares of Class D-1 common stock, 7,500 shares of
nonvoting Class D-2 common stock and 1,000 shares of Class E common stock.
Concurrently with the above transactions, new investors acquired 1,650.06 shares
of Class A common stock, 17,099.89 shares of Class B common stock, 4,274.97
shares of Class C common stock, 5,509.97 shares of Class D-1 common stock,
5,699.96 shares of Class D-2 common stock and 2,802.48 shares of Class E common
stock for total consideration of $156.0 million. In addition, the Company
borrowed $295.0 million pursuant to a new Senior Credit Facility and
$130.0 million pursuant to a Subordinated Financing Facility.
The proceeds from the equity investment, the Senior Credit Facility and the
Subordinated Financing Facility were used to retire $184.0 million of existing
indebtedness, $12.3 million to redeem the outstanding Series B preferred stock,
$336.5 million to repurchase certain shares of Class A
F-33
<PAGE>
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. RECAPITALIZATION TRANSACTION: (CONTINUED)
common stock, $21.5 million to redeem all outstanding options and approximately
$6.2 million of fees associated with the transaction. This redemption of stock
options was recorded as compensation expense at the date of the
Recapitalization. As a result of the Recapitalization, approximately 87% of all
classes of the combined capital stock of the Company were acquired which
represented 85% of the voting control. Subsequent to June 30, 1999, an
additional payment of $5.9 million was made to those persons who were
stockholders prior to the Recapitalization based on a post-closing determination
of working capital as of the closing date of the Recapitalization.
The Recapitalization, along with other recurring changes in retained
earnings, was included in stockholders' deficit during the six months ended
June 30, 1999. The following is a rollforward of stockholders' deficit for such
period (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Beginning balance as of January 1, 1999..................... $124,688
Equity investment........................................... 156,000
Recapitalization............................................ (342,792)
Net loss.................................................... (13,167)
Other changes............................................... (3,064)
--------
Ending balance as of June 30, 1999.......................... $(78,335)
========
</TABLE>
The Company's Senior Credit Facility provides for total borrowings of up to
$370.0 million, including (a) a $105.0 million of term loans consisting of a
$70.0 million U.S. dollar-denominated term loan and a pound sterling-denominated
term loan in an amount equal to the pound sterling equivalent (determined as of
the date such loan was made) of U.S. $17.5 million, which are available to
French, and a pound sterling-denominated term loan in an amount equal to the
pound sterling equivalent (determined as of the date such loan was made) of U.S.
$17.5 million, which is available to Morris Ashby (collectively, the tranche A
term loan), (b) a $190.0 million tranche B term loan, and (c) a $75.0 million
revolving credit facility. Initial interest rates as of April 30, 1999 on
borrowings under the Senior Credit Facility ranged from 7.375% to 8.078%. The
Senior Credit Facility requires the Company to maintain certain financial tests
including minimum interest coverage, minimum net worth and maximum leverage
tests. The debt is guaranteed only by our domestic subsidiaries (guarantors).
Borrowings under the tranche A term loan are due and payable April 21, 2005
and borrowings under the Tranche B term loan are due and payable October 21,
2006. The revolving credit facility is available until April 21, 2005. The
Senior Credit Facility is secured by all of the assets and by all present and
future subsidiaries of French in each case, with exceptions for certain foreign
subsidiaries.
The Company's Subordinated Financing Facility provides for total borrowings
of $130.0 million. The Subordinated Financing Facility has a final maturity of
October 21, 2008.
Pursuant to the Recapitalization, the historical basis of all assets and
liabilities will be retained for financial reporting purposes, and the
repurchase of the existing common stock and issuance of new common stock will be
accounted for as an equity transaction. In addition, the Company incurred
approximately $6.2 million of fees and expenses to finance the Recapitalization.
These costs were included in stockholders' investment as a cost of the
Recapitalization.
F-34
<PAGE>
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. RECAPITALIZATION TRANSACTION: (CONTINUED)
On May 25, 1999, the Company completed an offering of $175.0 million of
11 1/2% Senior Subordinated Notes due 2009 (Subordinated Notes). Net proceeds of
the offering, approximately $169.6 million, combined with $.4 million of cash
were used to retire the $130.0 million Subordinated Financing Facility,
$2.5 million of the tranche A term loan and $37.5 million of the tranche B term
loan. The Subordinated Notes are guaranteed by French and its domestic
subsidiaries. The Subordinated Notes contain certain restrictive covenants, and
the Company was in compliance with all such covenants at June 30, 1999.
In conjunction with the Recapitalization, offering and the resulting debt
repayments, the Company recorded an extraordinary loss, net of tax, of $8,112
during the second quarter of 1999. The loss includes the write-off of
unamortized debt issuance costs and original issue discount related to
indebtedness that was repaid.
4. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
The following consolidating financial information presents balance sheet,
statement of operations and cash flow information related to the Company's
businesses. Each Guarantor is a direct wholly owned subsidiary of the Company
and has fully and unconditionally guaranteed the 11.5% senior subordinated notes
issued by J.L. French Automotive Casting, Inc, on a joint and several basis. The
Non-Guarantor Companies are the Company's foreign subsidiaries, which include
Morris Ashby and Ansola. Separate financial statements and other disclosures
concerning the Guarantors have not been presented because management believes
that such information is not material.
F-35
<PAGE>
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (CONTINUED)
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
J.L. FRENCH NON-
AUTOMOTIVE GUARANTOR GUARANTOR
CASTINGS, INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................. $ -- $102,286 $43,277 $ -- $145,563
Cost of sales........................ -- 75,399 33,068 -- 108,467
------ -------- ------- ------- --------
Gross profit....................... -- 26,887 10,209 -- 37,096
Selling, general and administrative
expenses........................... 75 2,802 6,005 -- 8,882
Amortization of intangible assets.... -- 7,548 936 -- 8,484
------ -------- ------- ------- --------
Operating income (loss)............ (75) 16,537 3,268 -- 19,730
Interest expense (income)............ (24) 7,149 1,719 -- 8,844
------ -------- ------- ------- --------
Income (loss) before income taxes,
equity in earnings (losses) of
subsidiaries and extraordinary
loss............................. (51) 9,388 1,549 -- 10,886
Provision (benefit) for income
taxes.............................. -- 3,756 620 -- 4,376
Equity in earnings (losses) of
subsidiaries....................... 5,756 -- -- (5,756) --
------ -------- ------- ------- --------
Income before extraordinary loss... 5,705 5,632 929 (5,756) 6,510
Extraordinary loss................... -- 805 -- -- 805
------ -------- ------- ------- --------
Net income (loss).................. $5,705 $ 4,827 $ 929 $(5,756) $ 5,705
====== ======== ======= ======= ========
</TABLE>
F-36
<PAGE>
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (CONTINUED)
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR SIX MONTHS ENDED JUNE 30,
1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
J.L. FRENCH NON-
AUTOMOTIVE GUARANTOR GUARANTOR
CASTINGS, INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)...................... $ 5,705 $ 4,827 $ 929 $ (5,756) $ 5,705
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities--
Depreciation and amortization........ -- 13,719 3,816 -- 17,535
Other non-cash....................... -- 2,074 (300) -- 1,774
(Income)/loss from investment in
subsidiaries....................... (5,756) -- -- 5,756 --
Change in other operating
activities......................... 6,288 (33,442) 10,155 3,363 (13,636)
-------- -------- -------- -------- -------
Net cash provided by (used for)
operating activities............. 6,237 (12,822) 14,600 3,363 11,378
-------- -------- -------- -------- -------
INVESTING ACTIVITIES:
Acquisitions, net...................... (38,658) -- (73,032) 39,950 (71,740)
Capital expenditures, net.............. -- (13,969) (2,846) -- (16,815)
-------- -------- -------- -------- -------
Net cash provided by (used for)
investing activities............... (38,658) (13,969) (75,878) 39,950 (88,555)
-------- -------- -------- -------- -------
FINANCING ACTIVITIES:
Borrowings on revolving credit
facilities, net...................... -- 26,107 1,638 -- 27,745
Long-term borrowings................... -- 45,000 26,824 -- 71,824
Repayment of long-term borrowings...... -- (57,482) (660) -- (58,142)
Capital investment..................... 36,194 -- 38,139 (38,950) 34,383
Other.................................. (3,855) (210) (774) -- (4,839)
-------- -------- -------- -------- -------
Net cash provided by (used for)
financing activities............... 32,339 13,415 65,167 (39,950) 70,971
-------- -------- -------- -------- -------
EFFECT OF EXCHANGE RATES ON CASH AND CASH
EQUIVALENTS............................ -- -- 277 (3,363) (3,086)
-------- -------- -------- -------- -------
NET CHANGE IN CASH AND CASH
EQUIVALENTS............................ (82) (13,376) 4,166 -- (9,292)
CASH AND CASH EQUIVALENTS, beginning of
period................................. 84 14,354 -- -- 14,438
-------- -------- -------- -------- -------
CASH AND CASH EQUIVALENTS, end of
period................................. $ 2 $ 978 $ 4,166 $ -- $ 5,146
======== ======== ======== ======== =======
</TABLE>
F-37
<PAGE>
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (CONTINUED)
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF JUNE 30, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
J.L. FRENCH NON-
AUTOMOTIVE GUARANTOR GUARANTOR
CASTINGS, INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 7,733 $ 15,403 $ 4,221 $ -- $ 27,357
Accounts receivable, net........... 3,612 43,876 18,372 -- 65,860
Inventories........................ -- 7,338 8,467 -- 15,805
Other current assets............... 1,407 14,181 3,544 -- 19,132
--------- -------- -------- --------- ---------
Total current assets............. 12,752 80,798 34,604 -- 128,154
--------- -------- -------- --------- ---------
Property, Plant & Equipment, net..... -- 80,685 63,402 -- 144,087
Investment in Subsidiaries........... 133,814 -- -- (133,814) --
Intangible and Other Assets.......... 7,571 96,624 62,272 -- 166,467
--------- -------- -------- --------- ---------
$ 154,137 $258,107 $160,278 $(133,814) $ 438,708
========= ======== ======== ========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT (DEFICIT)
Current Liabilities:
Accounts payable................... $ -- $ 10,715 $ 14,270 $ -- $ 24,985
Accrued liabilities................ 1,822 7,529 7,777 -- 17,128
Current portion of long-term
debt............................. 7,320 -- 4,078 -- 11,398
--------- -------- -------- --------- ---------
Total current liabilities........ 9,142 18,244 26,125 -- 53,511
--------- -------- -------- --------- ---------
Long-Term Debt....................... 404,762 -- 55,316 -- 460,078
Other Noncurrent Liabilities......... (3,090) -- 6,544 -- 3,454
Inter-Company........................ (179,646) 143,818 35,828 -- --
--------- -------- -------- --------- ---------
Total liabilities................ 231,168 162,062 123,813 -- 517,043
--------- -------- -------- --------- ---------
Common Stock......................... -- -- -- -- --
Additional Paid-In-Capital........... -- 84,857 38,018 (122,875) --
Accumulated Deficit.................. (77,031) 11,188 (249) (10,939) (77,031)
Accumulated and Other Comprehensive
Income............................. -- -- (1,304) -- (1,304)
--------- -------- -------- --------- ---------
Total stockholders' investment
(deficit)........................ (77,031) 96,045 36,465 (133,814) (78,335)
--------- -------- -------- --------- ---------
$ 154,137 $258,107 $160,278 $(133,814) $ 438,708
========= ======== ======== ========= =========
</TABLE>
F-38
<PAGE>
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (CONTINUED)
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
J.L. FRENCH NON-
AUTOMOTIVE GUARANTOR GUARANTOR
CASTINGS, INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................. $ -- $117,169 $ 48,520 $ -- $ 165,689
Cost of sales........................ -- 84,299 39,107 -- 123,406
--------- -------- -------- --------- ---------
Gross profit....................... -- 32,870 9,413 -- 42,283
Selling, general and administrative
expenses........................... 88 4,584 5,556 -- 10,228
Recapitalization expenses............ 5,411 15,740 -- -- 21,151
Amortization of intangible assets.... 4 4,647 854 -- 5,505
--------- -------- -------- --------- ---------
Operating income (loss)............ (5,503) 7,899 3,003 -- 5,399
Interest expense..................... 3,527 7,360 2,936 -- 13,823
--------- -------- -------- --------- ---------
Income (loss) before income taxes,
equity in earnings (losses) of
subsidiaries and extraordinary
loss............................. (9,030) 539 67 -- (8,424)
Provision (benefit) for income
taxes.............................. (3,612) 216 27 -- (3,369)
Equity in earnings (losses) of
subsidiaries....................... (3,663) -- -- 3,663 --
--------- -------- -------- --------- ---------
Income before extraordinary loss... (9,081) 323 40 3,663 (5,505)
Extraordinary loss................... 4,086 4,026 -- -- 8,112
--------- -------- -------- --------- ---------
Net income (loss).................. $ (13,167) $ (3,703) $ 40 $ 3,663 $ (13,167)
========= ======== ======== ========= =========
</TABLE>
F-39
<PAGE>
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (CONTINUED)
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR SIX MONTHS ENDED JUNE 30,
1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
J.L. FRENCH NON-
AUTOMOTIVE GUARANTOR GUARANTOR
CASTINGS, INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................. $ (13,167) $ (3,703) $ 40 $ 3,663 $ (13,167)
Adjustments to reconcile net
income (loss) to net cash
provided by (used for) operating
activities--
Depreciation and amortization..... 4 11,684 4,877 -- 16,565
Other non-cash.................... 4,086 6,569 -- -- 10,655
Income (loss) in subsidiary....... 3,663 -- -- (3,663) --
Change in other operating
activities...................... (43,560) 8,613 11,465 502 (22,980)
--------- --------- -------- ------- ---------
Net cash provided by (used for)
operating activities.......... (48,974) 23,163 16,382 502 (8,927)
--------- --------- -------- ------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net......... -- (8,020) (4,137) -- (12,157)
--------- --------- -------- ------- ---------
Net cash used for investing
activities.................... -- (8,020) (4,137) -- (12,157)
--------- --------- -------- ------- ---------
FINANCING ACTIVITIES:
Repayments on revolving credit
facilities...................... -- (15,000) (6,435) -- (21,435)
Long-term borrowings.............. 582,491 -- 18,442 -- 600,933
Repayment of long-term
borrowings...................... (170,000) (126,625) (25,070) -- (321,695)
Recapitalization.................. (199,009) -- -- -- (199,009)
Other............................. (157,123) 141,625 -- -- (15,498)
--------- --------- -------- ------- ---------
Net cash provided by (used for)
financing activities.......... 56,359 -- (13,063) -- 43,296
--------- --------- -------- ------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS....... 326 -- 1,193 (502) 1,017
--------- --------- -------- ------- ---------
NET CHANGES IN CASH AND CASH
EQUIVALENTS....................... 7,711 15,143 375 -- 23,229
CASH AND CASH EQUIVALENTS, beginning
of period......................... 22 260 3,846 -- 4,128
--------- --------- -------- ------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................ $ 7,733 $ 15,403 $ 4,221 $ -- $ 27,357
========= ========= ======== ======= =========
</TABLE>
F-40
<PAGE>
MORRIS ASHBY PLC
Report of Independent Accountants
To the Board of Directors and Shareholders of Morris Ashby plc
- --------------------------------------------------------------------------------
In our opinion, the accompanying consolidated balance sheets and the related
consolidated profit and loss accounts and statements of cash flows present
fairly, in all material respects, the financial position of Morris Ashby plc and
its subsidiaries ("the Company") at 31 March 1997 and 1996, and the results of
their operations and their cash flows for each of the two years in the period
ended 31 March 1997, in conformity with accounting principles generally accepted
in the United Kingdom. These consolidated financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United Kingdom which do not differ in any material
respect from auditing standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
consolidated net income expressed in pounds sterling for each of the two years
in the period ended 31 March 1997 and the determination of consolidated
shareholders' equity also expressed in pounds sterling at 31 March 1997 and
31 March 1996 to the extent summarised in Note 23 to the consolidated financial
statements.
PRICEWATERHOUSECOOPERS LLP
Birmingham, England
8 July 1997, except for note 23 which is as of 9 August 1999
- --------------------------------------------------------------------------------
F-41
<PAGE>
MORRIS ASHBY PLC
Consolidated Profit and Loss Account
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
NOTES L'000 L'000
<S> <C> <C> <C>
TURNOVER 2 39,805 36,255
Cost of sales (30,284) (28,414)
------- -------
GROSS PROFIT 9,521 7,841
Distribution costs (678) (660)
Administrative expenses (5,012) (4,031)
------- -------
OPERATING PROFIT 3,831 3,150
Interest receivable and similar income 4 17
Interest payable and similar charges (339) (145)
------- -------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 3 3,496 3,022
Tax on profit on ordinary activities 4 (796) (684)
------- -------
PROFIT ON ORDINARY ACTIVITIES
AFTER TAXATION FOR THE FINANCIAL YEAR 2,700 2,338
Dividends 5 (1,024) (896)
------- -------
RETAINED PROFITS 16 1,676 1,442
------- -------
EARNINGS PER SHARE 6 22.5P 19.6p
------- -------
</TABLE>
The above amounts arise solely from continuing activities.
The profit for the financial year includes all recognised gains and losses in
the year. The historical cost profit on ordinary activities before taxation is
not materially different from the above figures.
- --------------------------------------------------------------------------------
F-42
<PAGE>
MORRIS ASHBY PLC
Balance Sheets
As at 31 March 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Group Company
NOTES 1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets 7 22,925 17,978 21,862 17,082
Investments in group undertakings 9 - - 2,355 2,355
------- ------- ------- -------
22,925 17,978 24,217 19,437
CURRENT ASSETS
Stocks 10 3,298 2,381 3,230 2,287
Debtors 11 7,604 8,141 7,965 8,563
Cash at bank and in hand 1,120 - 1,119 -
------- ------- ------- -------
12,022 10,522 12,314 10,850
CREDITORS (amounts falling due within one
year) 12 (15,192) (12,156) (19,595) (16,554)
------- ------- ------- -------
NET CURRENT LIABILITIES (3,170) (1,634) (7,281) (5,704)
------- ------- ------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 19,755 16,344 16,936 13,733
CREDITORS (amounts falling due
after more than one year) 13 (3,645) (1,877) (4,077) (2,321)
PROVISIONS FOR LIABILITIES AND CHARGES 14 (437) (571) (401) (498)
------- ------- ------- -------
15,673 13,896 12,458 10,914
------- ------- ------- -------
CAPITAL AND RESERVES - EQUITY INTERESTS
Share capital 15 1,205 1,198 1,205 1,198
Share premium 16 5,803 5,709 5,803 5,709
Revaluation reserve 16 130 131 130 131
Capital reserve 16 376 376 364 364
Profit and loss account 16 8,159 6,482 4,956 3,512
------- ------- ------- -------
SHAREHOLDERS' FUNDS 21 15,673 13,896 12,458 10,914
------- ------- ------- -------
</TABLE>
Approved by the Board on 8 July 1997
N J Gardner
DIRECTOR
- --------------------------------------------------------------------------------
F-43
<PAGE>
MORRIS ASHBY PLC
Cash Flow Statement
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
NOTES L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES 22(1) 7,593 5,071
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 4 17
Interest paid (206) (40)
Interest element of finance lease rental payments (150) (98)
------ ------
(352) (121)
TAXATION
UK Corporation tax paid (724) (741)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (6,511) (4,472)
Sale of tangible fixed assets 76 89
------ ------
(6,435) (4,383)
------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings - (117)
Net overdraft acquired with subsidiary - (379)
------ ------
- (496)
EQUITY DIVIDENDS PAID (918) (831)
------ ------
NET CASH OUTFLOW BEFORE FINANCING (836) (1,501)
FINANCING
Issue of ordinary share capital 101 15
Debt due within one year:
Increase in loans 22(2) 200 -
Debt due beyond a year:
Increase in loans 22(2) 650
Repayment of loan notes 22(2) (285) -
Capital element of finance lease rental payments 22(2) (533) (349)
Amounts received under finance lease arrangements 22(2) 2,160 -
------ ------
NET CASH INFLOW/(OUTFLOW) FROM FINANCING 2,293 (334)
------ ------
INCREASE/(DECREASE) IN CASH 22(3) 1,457 (1,835)
------ ------
</TABLE>
The notes to the cash flow statement are shown in note 22 to the financial
statements.
The group have adopted the revised FRS1 "Cash Flow Statements" and accordingly
certain comparative figures have been reanalysed.
- --------------------------------------------------------------------------------
F-44
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
1 ACCOUNTING POLICIES
BASIS OF CONSOLIDATION AND ACCOUNTING
The consolidated financial statements incorporate the financial statements of
the company and its subsidiaries made up to 31 March year end. The financial
statements have been prepared under the historical cost convention as modified
by the revaluation of certain fixed assets, and comply with applicable
Accounting Standards.
DEPRECIATION OF FIXED ASSETS
Depreciation is provided on a straight line basis to write off the cost or
valuation of fixed assets over their expected useful lives at the following
annual rates:
<TABLE>
<S> <C>
Freehold property - at a rate of 2% (no depreciation on land)
Leasehold property - by equal annual instalments over the lease period
Plant and machinery - at rates varying from 10 per cent to 33 1/3 per cent.
</TABLE>
No depreciation is charged on assets in the course of construction.
GOODWILL
Goodwill on acquisition, representing the amount by which the acquisition cost
exceeds the fair value of the net assets acquired, is written off to reserves in
the year of acquisition.
GOVERNMENT GRANTS
Government grants are treated as a deferred creditor and are credited to the
profit and loss account over the lives of the fixed assets to which they relate.
LEASED ASSETS
Amounts due under finance leases are disclosed as a debtor and the interest
element of the finance charge is credited to the profit and loss account over
the primary hire period in respect of assets held for leasing to third parties.
Fixed assets acquired under hire purchase agreements and finance lease
agreements are recorded in the balance sheet as fixed tangible assets at their
equivalent capital value and depreciated over the useful life of the asset. The
corresponding liability is recorded as a creditor and the interest element of
the finance charge is charged to the profit and loss account over the primary
lease period.
STOCKS
Stocks have been valued at the lower of cost and net realisable value. Cost
includes raw materials, labour and, where applicable, a proportion of direct
overheads.
Tooling stocks are valued as costs to date net of payments on account and any
anticipated losses. Profit recognition is deferred until the tool is complete.
TURNOVER
Turnover represents the invoiced value of sales excluding sales within the group
and value added tax.
DEFERRED TAXATION
Provision is only made for deferred taxation to the extent that it is considered
that a liability will crystallise in the foreseeable future.
RESEARCH AND DEVELOPMENT
Expenditure on research and development is charged to revenue in the year in
which it is incurred.
- --------------------------------------------------------------------------------
F-45
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
1 ACCOUNTING POLICIES (CONTINUED)
PENSION COSTS
Contributions to the group's defined benefit pension scheme are charged to the
profit and loss account so as to spread the cost of pensions over the service
lives of employees in the scheme. Variations from the regular cost are spread
over the expected remaining service lives of current employees in the scheme.
The pension cost is assessed in accordance with the advice of qualified
actuaries. Differences between the charge and the contributions paid to the
pension scheme are included in provisions for liabilities and charges.
Contributions are also paid into a defined contribution pension scheme. These
costs are charged to the profit and loss account on an accruals basis.
FOREIGN CURRENCIES
Assets and liabilities denominated in foreign currencies are translated into
sterling or the rates of exchange ruling at the end of the financial year.
Foreign currency transactions during the year are translated into sterling at
the rate of exchange ruling on the date of the transaction. All profit and
losses on exchange realised during the year are dealt with through the profit
and loss account.
2 SEGMENT INFORMATION
<TABLE>
<CAPTION>
The geographical analysis of the group's turnover by destination is as follows: 1997 1996
L'000 L'000
<S> <C> <C>
UK 31,859 29,574
Other European countries 6,434 6,245
Other 1,512 436
------ ------
39,805 36,255
------ ------
</TABLE>
The group operates a single class of business from the United Kingdom.
- --------------------------------------------------------------------------------
F-46
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
3 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION IS STATED AFTER
CHARGING/(CREDITING):
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Staff costs:
Wages and salaries 11,672 10,616
Social security costs 1,070 983
Other pension costs (Note 17) 742 592
------ ------
13,484 12,191
------ ------
Details of directors' emoluments and share options are
included in the Report of the Remuneration Committee on
pages F-48 to F-49.
Depreciation of tangible fixed assets - leased (plant and
machinery) 345 263
- owned 1,853 1,458
Research and development 134 168
Fees paid to Price Waterhouse:
Audit fees (including L45,000 in respect of the company
(1996 - L'45,000)) 50 48
Non-audit fees 45 53
Interest payable:
Bank loans and overdrafts 159 27
Loan notes 47 13
Finance lease charges 133 105
Operating lease rentals for land and buildings (expiring
after five years) 120 120
Income from government grants (18) (17)
------ ------
</TABLE>
<TABLE>
<CAPTION>
4 TAX ON PROFIT ON ORDINARY ACTIVITIES 1997 1996
L'000 L'000
<S> <C> <C>
Corporation tax:
On profit for the year at 33% (1996 - 33%) 879 687
Adjustment in respect of prior year 85 (21)
Deferred tax (Note 14) (168) 18
------ ------
796 684
------ ------
</TABLE>
<TABLE>
<CAPTION>
5 DIVIDENDS 1997 1996
L'000 L'000
<S> <C> <C>
Interim paid 2.6p (1996 - 2.45p) per 10p Ordinary share 313 291
Final proposed 5.9p (1996 - 5.05p) per 10p Ordinary share 711 605
------ ------
1,024 896
------ ------
</TABLE>
6 EARNINGS PER SHARE
Earnings per share are based on the profit on ordinary activities after taxation
for the year amounting to L2,700,000 (1996 - L2,338,000) divided by the average
number of 12,025,648 (1996 - 11,910,264) Ordinary shares in issue during the
year.
- --------------------------------------------------------------------------------
F-47
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
7 FIXED ASSETS
<TABLE>
<CAPTION>
Long Short Assets
Freehold leasehold leasehold Plant in the
land and land and land and and course of
buildings buildings buildings machinery construction Total
L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
GROUP
Cost or valuation:
At 31 March 1996 2,165 3,060 - 21,309 924 27,458
Transfers - (52) 282 703 (933) -
Additions 22 - - 4,340 2,837 7,199
Disposals - - - (245) - (245)
--------- --------- ----- ------- ------ -------
At 31 March 1997 2,187 3,008 282 26,107 2,828 34,412
--------- --------- ----- ------- ------ -------
Depreciation:
At 31 March 1996 73 172 - 9,235 - 9,480
Transfers - (11) 11 - - -
Charge for the year 35 34 15 2,114 - 2,198
On disposals - - - (191) - (191)
--------- --------- ----- ------- ------ -------
At 31 March 1997 108 195 26 11,158 - 11,487
--------- --------- ----- ------- ------ -------
Net book amount:
At 31 March 1997 2,079 2,813 256 14,949 2,828 22,925
--------- --------- ----- ------- ------ -------
At 31 March 1996 2,092 2,888 - 12,074 924 17,978
--------- --------- ----- ------- ------ -------
</TABLE>
Included within the plant and machinery are assets purchased under finance
leases with original cost of L4,392,000 (1996 - L2,521,000) and accumulated
depreciation of L867,000 (1996 - L733,000).
- --------------------------------------------------------------------------------
F-48
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Long Short Assets
Freehold leasehold leasehold Plant in the
land and land and land and and course of
buildings buildings buildings machinery construction Total
L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
COMPANY
Cost or valuation:
At 31 March 1996 1,767 3,060 - 20,176 924 25,927
Transfers - (52) 282 703 (933) -
Additions 22 - - 4,048 2,837 6,907
Disposals - - - (232) - (232)
--------- --------- --------- --------- ------------ -------
At 31 March 1997 1,789 3,008 282 24,695 2,828 32,602
--------- --------- --------- --------- ------------ -------
Depreciation:
At 31 March 1996 34 172 - 8,639 - 8,845
Transfers - (11) 11 - - -
Charge for the year 30 34 15 1,994 - 2,073
On disposals - - - (178) - (178)
--------- --------- --------- --------- ------------ -------
At 31 March 1997 64 195 26 10,455 - 10,740
--------- --------- --------- --------- ------------ -------
Net book amount:
At 31 March 1997 1,725 2,813 256 14,240 2,828 21,862
--------- --------- --------- --------- ------------ -------
At 31 March 1996 1,733 2,888 - 11,537 924 17,082
--------- --------- --------- --------- ------------ -------
</TABLE>
Group and company long leasehold land and buildings include assets valued on an
open market existing use basis as at 31 March 1987 at L525,000 (1996 -
L525,000). The historic cost of these assets was L416,000 (1996 - L416,000) and
the historic cost depreciation charge L1,000 (1996 - L1,000).
Included within the company plant and machinery are assets purchased under
finance leases with original cost of L6,175,000 (1996 - L4,167,000) and
accumulated depreciation of L1,841,000 (1996 - L1,633,000).
- --------------------------------------------------------------------------------
F-49
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
8 CAPITAL COMMITMENTS
<TABLE>
<CAPTION>
Group Company
1996 1996
1997 1997
L'000
L'000
L'000
L'000
<S> <C> <C> <C> <C>
Future capital expenditure authorised and contracted for 7,579 1,645 7,579 1,645
------ ------ ------ ------
</TABLE>
9 INVESTMENTS IN GROUP UNDERTAKINGS
<TABLE>
<CAPTION>
Company
1996
1997
L'000
L'000
<S> <C> <C> <C> <C>
Shares at cost 2,101 2,101
Long term loan to group undertaking 254 254
------ ------
2,355 2,355
------ ------
</TABLE>
The subsidiary undertakings, all of which are included in the consolidated
accounts, are as follows:
<TABLE>
<CAPTION>
Principal country Percentage
Business of operation held
<S> <C> <C> <C>
Wilson & Royston Limited Tool Manufacturers United Kingdom 100%
MAC Leasing Limited Leasing United Kingdom 100%
Morris Ashby Castings Limited High Pressure Diecasting United Kingdom 100%
Kaye (Presteigne) Limited Gravity and HIgh Pressure Diecasting United Kingdom 100%
Burdon and Miles Limited High Pressure Diecasting United Kingdom 100%
UJP Tools Limited Tooling Manufacturers United Kingdom 100%
Marketing computer prediction
Foundry Computational Services Limited software United Kingdom 51%
</TABLE>
All the shares are ordinary shares. The voting rights held in respect of each
subsidary are in the same proportion as the shares held.
Morris Ashby Castings, Kaye (Presteigne), Burdon and Miles and UJP Tools are
dormant companies which trade as agents of Morris Ashby plc.
- --------------------------------------------------------------------------------
F-50
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
10 STOCKS
<TABLE>
<CAPTION>
Company
Group
1996 1996
1997 1997
L'000
L'000
L'000
L'000
<S> <C> <C> <C> <C>
Raw materials and consumables 703 553 703 553
Work in progress:
- - Castings 1,344 688 1,344 688
- - Tooling 1,050 841 982 747
Finished goods and goods for resale 201 299 201 299
------ ------ ------ ------
3,298 2,381 3,230 2,287
------ ------ ------ ------
</TABLE>
Tooling stocks are disclosed net of L2,453,000 of payments on account (1996 -
L1,182,000).
The estimated replacement cost of stocks does not materially exceed the balance
sheet amount.
11 DEBTORS
<TABLE>
<CAPTION>
Company
Group
1996 1996
1997 1997
L'000
L'000
L'000
L'000
<S> <C> <C> <C> <C>
Trade debtors 7,184 7,880 7,046 7,543
Amounts owed by group undertakings - - 498 699
Other debtors 83 158 65 127
Prepayments and accrued income 214 103 178 97
Advance corporation tax recoverable 123 - 178 97
------ ------ ------ ------
7,604 8,141 7,965 8,563
------ ------ ------ ------
</TABLE>
Group other debtors includes L9,000 (1996 - L9,000) due under finance leases due
within a year and L9,000 (1996 - L18,000) due after more than one year.
- --------------------------------------------------------------------------------
F-51
<PAGE>
MORRIS ASHBY plc
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
12 CREDITORS (AMOUNTS FALLING DUE WITHIN ONE YEAR)
<TABLE>
<CAPTION>
Group Company
---------------------- ----------------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Bank loans and overdrafts 232 369 200 303
Payments on account 906 657 795 515
Trade creditors 7,714 5,516 7,268 5,466
Amounts owed to group undertakings - - 5,107 4,828
Amounts owed to group undertakings under finance leases - - 92 88
Other creditors 64 240 63 224
Corporation tax payable 715 477 666 458
Advance corporation tax payable 256 227 256 227
Taxation and social security 2,319 1,805 2,266 1,737
Accruals and deferred income 1,538 1,807 1,514 1,762
Lease obligations 737 453 657 341
Proposed dividends 711 605 711 605
------ ------ ------ ------
15,192 12,156 19,595 16,554
------ ------ ------ ------
</TABLE>
13 CREDITORS (AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR)
<TABLE>
<CAPTION>
Group Company
---------------------- ----------------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Bank loan (between 2 and 5 years) 650 - 650 -
Amounts owed to group undertakings under finance leases - - 432 524
Accruals and deferred income 42 60 42 60
Lease obligations (between 2 and 5 years) 1,910 1,087 1,910 1,007
Lease obligations (due after 5 years) 598 - 598 -
Loan notes (between 2 and 5 years) 445 730 445 730
------ ------ ------ ------
3,645 1,877 4,077 2,321
------ ------ ------ ------
</TABLE>
Accruals and deferred income relate to grants received for capital expenditure
incurred. The grants are being amortised over 10 years.
The loan notes, issued as part consideration for the acquisition of Wilson &
Royston, are secured by a guarantee from Barclays Bank plc.
- --------------------------------------------------------------------------------
F-52
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
14 PROVISION FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
Group Company
---------------------------------- ----------------------------------
Pensions Pensions
Deferred and similar Deferred and similar
taxation obligations Total taxation obligations Total
<S> <C> <C> <C> <C> <C> <C>
At 31 March 1996 108 463 571 35 463 498
Current year charge/(utilisation) (168) (62) (230) (89) (62) (151)
ACT set-off 96 - 96 54 - 54
----- --- ----- --- --- -----
At 31 March 1997 36 401 437 - 401 401
----- --- ----- --- --- -----
</TABLE>
The full potential amount of deferred taxation calculated at 31% (1996 - 33%),
compared to the actual, are as follows:
<TABLE>
<CAPTION>
Group
------------------------------------------------------------
Partial Provision Full Provision
--------------------------- ---------------------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Accelerated capital allowances 107 492 1,936 1,783
Potential capital gain on revaluation surplus - - 110 117
Short-term timing differences (16) (233) (144) (213)
Advance corporation tax recoverable (55) (151) - -
--- ---- ----- -----
36 108 1,902 1,687
--- ---- ----- -----
</TABLE>
<TABLE>
<CAPTION>
Company
------------------------------------------------------------
Partial Provision Full Provision
--------------------------- ---------------------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Accelerated capital allowances - 304 1,714 1,545
Potential capital gain on revaluation surplus - - 110 117
Short-term timing differences - (215) (129) (195)
Advance corporation tax recoverable - (54) - -
--- ---- ----- -----
- 35 1,695 1,467
--- ---- ----- -----
</TABLE>
- --------------------------------------------------------------------------------
F-53
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
15 SHARE CAPITAL
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Authorised:
Ordinary shares of 10p each 1,550 1,550
----- -----
Allotted and fully paid:
Ordinary shares of 10p each 1,205 1,198
----- -----
</TABLE>
During the year, 69,880 shares were issued through the exercise of share
options. 64,200 of these were to directors as disclosed in the Report of the
Remuneration Committee, 5,300 were issued at 90p each and the remaining 380 at
167p.
At 31 March 1997 the total number of Ordinary shares under the Employee Share
Option Scheme was 14,100 (1996 - 83,600):
<TABLE>
<CAPTION>
Ordinary shares
-----------------------------------
31 March 31 March Price per
Date of grant Period exercisable 1997 1996 share
<S> <C> <C> <C> <C>
11 April 1988 11 April 1991 to 11 April 1998 14,100 25,400 90p
8 July 1993 8 July 1996 to 8 July 2003 - 58,200 156p
--------- ---------
14,100 83,600
--------- ---------
</TABLE>
At 31 March 1997 the total number of Ordinary shares under the Savings Related
Share Option Scheme 1996 was 409,353 (1996 - 409,733):
<TABLE>
<CAPTION>
Ordinary shares
-----------------------------------
31 March 31 March Price per
Date of grant Period exercisable 1997 1996 share
<S> <C> <C> <C> <C>
1 December 1994 1 December 1999 to 1 June 2000 281,973 282,353 167p
1 December 1994 12 December 2001 to 1 June 2002 127,380 127,380 167p
--------- ---------
409,353 409,733
--------- ---------
</TABLE>
- --------------------------------------------------------------------------------
F-54
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
16 RESERVES
<TABLE>
<CAPTION>
Group
---------------------------------------------------------------------
Share premium Revaluation Capital Profit and
account reserve reserve loss account Total
L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
At 31 March 1996 5,709 131 376 6,482 12,698
Premium on share issues 94 - - - 94
Transfers - (1) - 1 -
Retained earnings - - - 1,676 1,676
--------------- ------------ -------- ------------- ------
At 31 March 1997 5,803 130 376 8,159 14,468
--------------- ------------ -------- ------------- ------
</TABLE>
The cumulative goodwill written off against the profit and loss reserve on
acquisitions in L1,125,000 (1996 - L1,125,000).
<TABLE>
<CAPTION>
Company
---------------------------------------------------------------------
Share premium Revaluation Capital Profit and
account reserve reserve loss account Total
L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
At 31 March 1996 5,709 131 364 3,512 9,716
Premium on share issues 94 - - - 94
Transfers (1) - 1 -
Retained earnings - - - 1,443 1,443
--------------- ------------ -------- ------------- ------
At 31 March 1997 5,803 130 364 4,956 11,253
--------------- ------------ -------- ------------- ------
</TABLE>
As permitted by Section 230 of the Companies Act 1985 the company has not
presented its own profit and loss account. The amount of the profit for the
financial year dealt within the accounts of the holding company is L2,467,000
(1996 - L2,275,000).
17 PENSION COSTS
The group operates a funded defined benefits pension scheme known as the Morris
Ashby plc Pension Scheme. The assets of this scheme are held in a separate
trustee administered fund. The latest actuarial valuation of this scheme was
carried out by independent actuaries as at 6 April 1996 using the projected unit
method. The principal assumptions adopted were that the long term annual rate of
return on investments would be 9.0%, that salary increases would average 7.0%
per annum and that pensions in payment guaranteed to increase at 5.0% per annum
have been assumed to increase at 5.0% per annum, pensions increasing in line
with Limited Price Indexation have been assumed to increase at 4.25% per annum.
In addition the actuary has also taken into account changes which have been
agreed with the Trustee and relevant members. These are that pension increases
for directors will be restricted to 5.0% per annum and the inclusion of a cap on
pensionable earnings for existing directors.
At the date of the latest actuarial valuation, the market value of the assets of
the scheme was L9.6 million. The actuarial value of those assets was sufficient
to cover 91% of the value of the projected benefits to which members will be
entitled for their membership up to the valuation date allowing for expected
future increases in earnings. The deficiency on a current funding level basis
was L851,000. On the recommendations of the actuary, company contributions will
be paid at the rate of 14.0% of pensionable salaries so as to eliminate the
deficit over a 10 year period.
- --------------------------------------------------------------------------------
F-55
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
17 PENSION COSTS (CONTINUED)
The SSAP 24 pension charge for the year was L717,000 (1996 - L585,000) which is
after charging an additional L35,000 as a result of the actuarial deficit (1996
- - L28,000).
Actual contributions during the year at the annual rate of 14.7% of pensionable
salaries, were L62,000 above the SSAP 24 pension charge. Hence the reduced
pension provision - see Note 14.
The group also operates a funded defined contribution pension scheme. The assets
of the scheme are held seperately from those of the company in an independently
administered fund. The pension cost charge represents contributions payable by
the company to the fund and amounted to L25,000 (1996 - L8,000).
18 EMPLOYEES
The average number of persons employed by the group during the year was:
<TABLE>
<CAPTION>
1997
1996
<S> <C> <C>
Witham 246 207
Presteigne 236 255
Cheshunt 150 152
Birmingham 21 21
Brighouse 11 9
-------- --------
664 644
-------- --------
</TABLE>
19 CONTINGENT LIABILITIES
The company has guaranteed the liabilities of its subsidiaries to Barclays Bank
Plc. As at year end, the subsidiaries had no liabilities owing to Barclays Bank
plc (1996 - LNil).
20 OPERATING LEASES
At March 31, 1997, there were annual lease commitments under operating leases
which expire as follows:
<TABLE>
<CAPTION>
1997
1996
Land and
LAND AND Buildings Other
BUILDINGS OTHER
L'000 L'000
L'000 L'000
<S> <C> <C> <C> <C>
Within 1 year - 1 - 11
Between 2 and 5 years - 54 - 31
More than 5 years 120 - 120 -
---------- ------ ---------- ------
120 55 120 42
---------- ------ ---------- ------
</TABLE>
- --------------------------------------------------------------------------------
F-56
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
21 MOVEMENT IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Group Company
1996 1996
1997 1997
L'000
L'000
L'000
L'000
<S> <C> <C> <C> <C>
Profit for the financial year 2,700 2,338 2,467 2,275
Dividends (1,024) (896) (1,024) (896)
------ ------ ------ ------
1,676 1,442 1,443 1,379
Share capital subscribed (net of expenses) 7 247 7 247
Share options exercised 94 15 94 15
Goodwill written off - (789) - -
------ ------ ------ ------
Net addition to Shareholders' funds 1,777 915 1,544 1,641
Opening Shareholders' funds 13,896 12,981 10,914 9,273
------ ------ ------ ------
Closing Shareholders' funds 15,673 13,896 12,458 10,914
------ ------ ------ ------
</TABLE>
22 CASH FLOW STATEMENT
(1) Reconciliation of operating profit to net cash inflow
from operating activities
<TABLE>
<CAPTION>
1996
1997
L'000
L'000
<S> <C> <C>
Operating profit 3,831 3,150
Depreciation 2,198 1,721
Profit on disposal of fixed assets (22) (29)
Movement in pension provision (62) (70)
Amortization of Government Grants (18) (17)
-------- ------
5,927 4,755
Working capital movements:
(Increase)/decrease in stocks (917) 444
Decrease/(increase) in debtors 677 (513)
Increase in creditors 1,906 385
-------- ------
Net cash inflow from continuing operating activities 7,593 5,071
-------- ------
</TABLE>
- --------------------------------------------------------------------------------
F-57
<PAGE>
MORRIS ASHBY plc
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
22 CASH FLOW STATEMENT (CONTINUED)
(2) Analysis of net debt
<TABLE>
<CAPTION>
AT
At Cash Other 31 MARCH 1997
31 March 1996 flow movements
L'000 L'000 L'000
L'000
<S> <C> <C> <C> <C>
Cash at bank and in hand - 1,120 - 1,120
Overdrafts (369) 337 - (32)
------
1,457
Debt due within one year - (200) - (200)
Debt due beyond a year (730) (365) - (1,095)
Finance leases (1,540) (1,627) (78) (3,245)
------
(2,192)
-------------- ------ --------- ---------------
(2,639) (735) (78) (3,452)
-------------- ------ --------- ---------------
</TABLE>
Cash flows relating to finance leases are composed of cash inflows of L2,160,000
from assets sold and leased back and cash outflows of L533,000 from capital
elements of finance lease rental payments.
Other movements represent new finance lease arrangements in respect of assets
with a capital value at the inception of the lease of L78,000.
(3) Movement in Group net debt
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Increase/(decrease) in cash 1,457 (1,835)
Cash (inflow)/outflow from increase in debt and lease
financing (2,192) 349
------ ------
Movement in debt resulting from cash flows (735) (1,486)
Finance leases acquired with subsidiary - (185)
New finance leases (78) (252)
Loan notes issued on aquisition - (730)
------ ------
Movement in net debt (813) (2,653)
Net debt at 31 March 1996 (2,639) 14
------ ------
Net debt at 31 March 1997 (3,452) (2,639)
------ ------
</TABLE>
23 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United Kingdom
("UK GAAP"), which differ in certain material respects from generally accepted
accounting principles in the United States ("US GAAP"). Such differences involve
methods for measuring the amounts shown in the financial statements, as well as
additional disclosures required by US GAAP.
- --------------------------------------------------------------------------------
F-58
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
23 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
The following is a summary of the material adjustments to profit on ordinary
activities after taxation and shareholders' funds that would have been required
in applying the significant differences between UK and US GAAP.
RECONCILIATION OF CONSOLIDATED PROFIT AND LOSS ACCOUNTS
IN (L000'S)
<TABLE>
<CAPTION>
Year ended Year ended
March 31, March 31,
Notes 1997 1996
<S> <C> <C> <C>
Profit on ordinary activities after taxation as reported
under UK GAAP............................................. 2,700 2,338
US GAAP adjustments:
Goodwill.................................................. (a) (28) (28)
Pensions.................................................. (b) 112 (57)
Capitalized interest...................................... (c) (3) 85
Fixed asset revaluation................................... (d) 1 --
Deferred taxation......................................... (e) (215) (464)
Stock compensation........................................ (g) (37) (55)
------ ------
Net US GAAP adjustments..................................... (170) (519)
Tax effect of net US GAAP adjustments................... (111) (103)
------ ------
Net income under US GAAP.................................... 2,419 1,716
====== ======
</TABLE>
RECONCILIATION OF CONSOLIDATED SHAREHOLDERS' FUNDS
(IN L000'S)
<TABLE>
<CAPTION>
Year ended Year ended
March 31, March 31,
Notes 1997 1996
<S> <C> <C> <C>
Total shareholders' funds as reported under UK GAAP......... 15,673 13,896
US GAAP adjustments:
Goodwill.................................................. (a) 1,049 1,077
Pensions.................................................. (b) 32 (41)
Capitalized interest...................................... (c) 197 200
Fixed asset revaluation................................... (d) (130) (131)
Deferred taxation......................................... (e) (1,866) (1,579)
Dividends................................................. (f) 711 605
------ ------
Net US GAAP adjustments..................................... (7) 131
------ ------
Shareholders' equity under US GAAP.......................... 15,666 14,027
====== ======
</TABLE>
- --------------------------------------------------------------------------------
F-59
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
23 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
MOVEMENTS IN SHAREHOLDERS' EQUITY IN ACCORDANCE WITH US GAAP
(IN L000'S)
<TABLE>
<CAPTION>
Year ended Year ended
March 31, March 31,
1997 1996
<S> <C> <C> <C>
Balance, beginning of year.................................. 14,027 12,826
Net income.................................................. 2,419 1,716
New share capital issued.................................... 7 247
Share options exercised..................................... 94 15
Stock based compensation.................................... 37 55
Dividends paid.............................................. (918) (832)
------ ------
Balance, end of year........................................ 15,666 14,027
====== ======
</TABLE>
A summary of the principal differences and additional disclosures applicable to
the Company are set out below:
(A) GOODWILL
Both UK GAAP and US GAAP require purchase consideration to be allocated to the
net assets acquired at their fair value on the date of acquisition, with the
difference between the consideration and the fair value of the identifiable net
assets recorded as goodwill.
Under UK GAAP, goodwill arising on acquisitions made on or before March 31, 1997
has been written off directly to reserves in the year of acquisition.
Under US GAAP, goodwill arising on acquisitions has been capitalized as an
intangible asset and amortized over a period of 40 years.
(B) PENSIONS
Under UK GAAP, the cost of providing pension benefits has been expensed over the
average expected service lives of eligible employees in accordance with the
provisions of SSAP 24, ACCOUNTING FOR PENSION COSTS. SSAP 24 aims to produce an
estimate of cost based on long-term actuarial assumptions. Variations from the
regular pension cost arising from, for example, experience deficiencies or
surpluses, are charged or credited to the profit and loss account over the
expected average remaining service lives of current employees in the schemes.
Under US GAAP, the annual pension cost comprises the estimated cost of benefits
accruing in the period as determined in accordance with the Statement of
Financial Accounting Standards (SFAS) No. 87, EMPLOYERS' ACCOUNTING FOR
PENSIONS, which requires readjustment of the significant actuarial assumptions
annually to reflect current market and economic conditions. Under SFAS No. 87, a
pension liability representing the excess benefit obligations over plan assets
has been accrued in the balance sheet. The pension benefit obligation is
calculated by using a projected unit credit method. Actuarial gains or losses
within a 10% "corridor" have not been recognised. In addition, in cases where
the accumulated benefit obligation exceeded the unamortized prior service cost,
the company has recorded the excess as a separate component of shareholders'
equity.
- --------------------------------------------------------------------------------
F-60
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
23 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
The net periodic pension cost under US GAAP for the Company's defined benefit
pension plan is as follows:
COMPONENTS OF NET PERIODIC PENSION COST
(IN L000'S)
<TABLE>
<CAPTION>
Year ended Year ended
March 31, 1997 March 31, 1996
--------------- ---------------
<S> <C> <C>
Service cost................................................ 576 484
Interest cost............................................... 862 757
Actual return on plan assets................................ (806) (1,702)
Other....................................................... (2) 1,110
---- ------
Net periodic pension cost................................... 630 649
==== ======
</TABLE>
The funded status under US GAAP for the Company's defined benefit pension plan
is as follows:
FUNDED STATUS
(IN L000'S)
<TABLE>
<CAPTION>
Year ended Year ended
March 31, 1997 March 31, 1996
--------------- ---------------
<S> <C> <C>
Accumulated benefit obligation.............................. 10,652 8,960
Effect of expected future compensation increases............ 903 788
------ -----
Projected benefit obligation................................ 11,555 9,748
Fair value of plan assets................................... 11,136 9,574
------ -----
Funded status............................................... (419) (174)
Unrecognised net (gain) loss................................ 179 (18)
Unrecognised transition (asset) obligation.................. 609 696
Unrecognised prior service cost............................. -- --
------ -----
Net amount recognised....................................... 369 504
====== =====
</TABLE>
- --------------------------------------------------------------------------------
F-61
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
The assumptions used to determine pension cost for the Company's defined benefit
pension plan were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
March 31, 1997 March 31, 1996
--------------- ---------------
<S> <C> <C>
Discount rate............................................... 8.5% 9.0%
Expected rate of return on plan assets...................... 9.0% 9.0%
Expected rate of compensation increase...................... 6.5% 7.0%
</TABLE>
(C) CAPITALIZED INTEREST
Under UK GAAP, companies are permitted, but not required, to capitalize interest
costs incurred during the period of construction of an asset to be capitalized.
For UK GAAP purposes, the Company has elected not to capitalize these interest
costs. Under US GAAP, such interest must be capitalized.
The adjustment to net income under US GAAP reflects the decrease in interest
expense for the period as well as the increase in depreciation expense on the
constructed assets. The adjustment to shareholders' equity under US GAAP
reflects the amount of interest capitalized on constructed assets, net of
depreciation.
(D) FIXED ASSET REVALUATION
Under UK GAAP, companies are permitted to perform revaluations of properties on
a periodic basis and adjust the carrying values of properties to market value.
Under US GAAP, tangible fixed assets are carried at cost. However, Statement of
Financial Accounting Standard No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, requires that
companies undertake an evaluation for permanent impairment when management has
reason to believe that a permanent impairment has occurred. Furthermore, unless
an analysis of the gross, undiscounted cash flows attributable to the asset over
the remaining useful life is less than the carrying value of the asset, no
permanent impairment is recognized.
The adjustment to net income under US GAAP reflects the effect of disposals of
revalued fixed assets. The adjustment to shareholders' equity under US GAAP
reflects the elimination of the fixed asset revaluation.
(E) DEFERRED TAXATION
Under UK GAAP, a provision is recorded for deferred taxation under the partial
provision method to the extent that such taxation is expected to crystallise
within the reasonable future. This means that the full potential liability is
not necessarily provided. Additionally, deferred tax assets are recognised only
when they are expected to be recoverable within the foreseeable future.
Under US GAAP, deferred tax is provided for on a full liability basis. Under the
full liability method, deferred tax assets or liabilities are recognised for
differences between the financial and tax basis of assets and liabilities and
for tax loss carry forwards at the statutory rate at each reporting date. A
valuation allowance is established when it is more likely than not that some
portion or all of the deferred tax assets will not be realised.
(F) DIVIDENDS
Under UK GAAP, ordinary dividends are provided for in the year in respect of
which they are proposed by the Board of Directors. Under US GAAP, such dividends
are provided for in the period they are declared by the Board of Directors.
(G) STOCK COMPENSATION
Under UK GAAP, the Company does not recognize compensation expense under either
the Employee Share Option Scheme or the Savings Related Share Option Scheme.
Under US GAAP, following Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES, the compensation expense associated with shares
issued through these schemes, in consideration for services received, is
recognized as the
- --------------------------------------------------------------------------------
F-62
<PAGE>
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
difference between the market price of the stock, at the measurement date, and
the exercise price of the option. The measurement date is defined as the
earliest date on which both the number of shares that an employee is entitled to
receive and the option or purchase price are known. Compensation costs, as
determined above, are charged to expense over the participants' vesting period.
(H) OTHER DISCLOSURES REQUIRED BY US GAAP
CASH FLOW INFORMATION
Under UK GAAP, the Company's cash flow statements are presented in accordance
with Financial Reporting Standard No. 1, as revised. These statements present
substantially the same information as is required under Statement of Financial
Accounting Standards No. 95, STATEMENT OF CASH FLOWS, in accordance with US
GAAP.
Under UK GAAP, the Company's cash balances are comprised of cash in hand and at
bank. Cash and cash equivalents are defined differently under US GAAP. For
purposes of presenting cash flow information in accordance with US GAAP, cash
equivalents are regarded as highly liquid investments with maturities of three
months or less.
Under UK GAAP, cash flows are presented for operating activities, returns on
investments and servicing of finance; taxation; capital expenditure and
financial investment; acquisitions and disposals; equity dividends paid; and
management of liquid resources and financing. US GAAP requires the
classification of cash flows resulting from operating, investing and financing
activities.
Cash flows under UK GAAP in respect of interest received, interest paid,
investment income and taxation are included within operating activities under
US GAAP. Capital expenditure and financial investment and cash flows from
acquisitions and disposals are included within investing activities. Equity
dividends paid and management of liquid resources are included within financing
activities.
A summary of the Company's operating, investing and financing activities,
classified in accordance with US GAAP, utilising the amounts shown in the
UK GAAP Company's cash flow statement, are as follows:
<TABLE>
<CAPTION>
Year ended Year ended
March 31, 1997 March 31, 1996
--------------- ---------------
<S> <C> <C>
Net cash provided by (used in) operating activities......... 8,677 4,209
Net cash provided by (used in) investing activities......... (6,435) (4,879)
Net cash provided by (used in) financing activities......... (1,122) (827)
------ ------
Net increase (decrease) in cash and cash equivalents........ 1,120 (1,497)
Cash and cash equivalents under US GAAP, beginning of
year...................................................... -- 1,497
------ ------
Cash and cash equivalents under US GAAP, end of year........ 1,120 --
====== ======
</TABLE>
- --------------------------------------------------------------------------------
F-63
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nelson Metal Products Corporation:
We have audited the accompanying balance sheets of Nelson Metal Products
Corporation (a Delaware corporation) as of December 31, 1998 and 1997, and the
related statements of operations, stockholders' investment and cash flows for
the years then ended, the five months ended December 31, 1996 and the year ended
July 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nelson Metal Products
Corporation as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended, the five months ended December 31,
1996 and the year ended July 31, 1996, in conformity with generally accepted
accounting principles.
As explained in Note 5 to the financial statements, effective August 1,
1995, the Company changed its method of accounting for postretirement benefits
to adopt the provisions of Statement of Financial Accounting Standards No. 106,
"Employer's Accounting for Postretirement Benefits Other Than Pensions."
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
October 26, 1999
F-64
<PAGE>
NELSON METAL PRODUCTS CORPORATION
BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash..................................................................................... $ 74 $ 1,574
Accounts receivable, net of allowance of $197 and $168................................... 23,450 17,091
Inventories.............................................................................. 10,916 8,272
Reimbursable tooling..................................................................... 4,024 5,834
Other current assets..................................................................... 872 1,706
---------- ---------
Total current assets................................................................. 39,336 34,477
---------- ---------
PROPERTY, PLANT AND EQUIPMENT, net......................................................... 81,644 53,774
OTHER ASSETS............................................................................... 4,993 4,071
---------- ---------
$ 125,973 $ 92,322
========== =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current portion of long-term debt........................................................ $ 126 $ 107
Cash overdraft........................................................................... 4,363 --
Accounts payable......................................................................... 28,170 13,004
Accrued liabilities...................................................................... 11,238 8,406
---------- ---------
Total current liabilities............................................................ 43,897 21,517
---------- ---------
LONG-TERM DEBT, less current portion....................................................... 80,237 60,324
POSTRETIREMENT PENSION AND HEALTH BENEFITS................................................. 5,234 4,896
OTHER LONG-TERM LIABILITIES................................................................ 29,836 8,619
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' INVESTMENT:
Common stock, $0.01 par value, 1,200,000 shares authorized, 1,131,200 and 1,044,400
shares issued and outstanding.......................................................... 11 10
Additional paid-in capital............................................................... 799 444
Stock subscriptions receivable........................................................... (221) --
Treasury stock, at cost, 275,000 and 260,000 shares...................................... (1,640) (1,404)
Accumulated deficit...................................................................... (32,180) (2,084)
---------- ---------
Total stockholders' investment....................................................... (33,231) (3,034)
---------- ---------
Total liability and stockholders' investment......................................... $ 125,973 $ 92,322
========== =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-65
<PAGE>
NELSON METAL PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER FIVE MONTHS
31, ENDED YEAR ENDED
---------------------- DECEMBER 31, JULY 31,
1998 1997 1996 1996
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
NET SALES................................................... $ 139,756 $ 119,729 $ 34,774 $ 93,651
COST OF SALES............................................... 157,262 103,203 31,246 101,740
---------- ---------- ---------- ---------
Gross profit (loss)..................................... (17,506) 16,526 3,528 (8,089)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 4,977 5,978 1,753 5,083
---------- ---------- ---------- ---------
Income (loss) from operations........................... (22,483) 10,548 1,775 (13,172)
OTHER EXPENSES:
Interest expense.......................................... 5,670 4,705 1,542 3,650
Other, net................................................ 214 108 (31) 47
---------- ---------- ---------- ---------
5,884 4,813 1,512 3,697
---------- ---------- ---------- ---------
Income (loss) before provision (benefit) for income
taxes and cumulative effect of change in accounting
principle............................................. (28,367) 5,735 263 (16,869)
PROVISION (BENEFIT) FOR INCOME TAXES........................ -- -- 3,942 (3,909)
---------- ---------- ---------- ---------
Income (loss) before cumulative effect of change in
accounting principle.................................. (28,367) 5,735 (3,679) (12,960)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE FOR
POSTEMPLOYMENT BENEFITS, NET OF INCOME TAX BENEFIT OF
$1,449.................................................... -- -- -- (2,814)
---------- ---------- ---------- ---------
Net income (loss)....................................... $ (28,367) $ 5,735 $ (3,679) $ (15,774)
========== ========== ========== =========
UNAUDITED PRO FORMA NET INCOME (LOSS)(Note 6):
Income (loss) before provision for income taxes........... $ (28,367) $ 5,735 $ 263
Pro forma income tax provision (benefit).................. (11,346) 2,294 105
---------- ---------- ----------
Pro forma net income (loss)............................. $ (17,021) $ 3,441 $ 158
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
NELSON METAL PRODUCTS CORPORATION
STATEMENTS OF STOCKHOLDERS' INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
COMPREHENSIVE ------------------------ PREFERRED PAID-IN
INCOME (LOSS) SHARES AMOUNT STOCK CAPITAL
-------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, July 31, 1995.......................... $ -- 1,044 $ 10 $ 562 $ 444
Sale of Hadley................................ -- -- -- -- --
Redemption of preferred stock................. -- -- -- (562) --
Net loss...................................... (15,774) -- -- -- --
Minimum pension liability..................... (442) -- -- -- --
----------
Comprehensive loss........................ $ (16,216) -- -- -- --
========== --------- --------- --------- ---------
BALANCE, July 31, 1996.......................... 1,044 10 -- 444
Net loss...................................... $ (3,679) -- -- -- --
Minimum pension liability..................... 182 -- -- -- --
----------
Comprehensive loss........................ $ (3,497) -- -- -- --
========== --------- --------- --------- ---------
BALANCE, December 31, 1996...................... 1,044 10 -- 444
Dividends..................................... -- -- -- -- --
Net income.................................... $ 5,735 -- -- -- --
Minimum pension liability adjustment.......... 260 -- -- -- --
----------
Comprehensive income...................... $ 5,995 -- -- -- --
========== --------- --------- --------- ---------
BALANCE, December 31, 1997...................... 1,044 10 -- 444
Dividends..................................... -- -- -- --
Issuance of common stock...................... 87 1 -- 355
Redemption of common stock.................... -- -- -- --
Net loss...................................... $ (28,367) -- -- -- --
----------
Comprehensive loss........................ $ (28,367) -- -- -- --
========== --------- --------- --------- ---------
BALANCE, December 31, 1998...................... 1,131 $ 11 $ -- $ 799
========= ========= ========= =========
<CAPTION>
CUMULATIVE
STOCK OTHER TOTAL
SUBSCRIPTIONS TREASURY RETAINED COMPREHENSIVE STOCKHOLDERS'
RECEIVABLE STOCK EARNINGS INCOME INVESTMENT
--------------- ----------- --------- --------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, July 31, 1995.......................... $ -- $ (1,404) $ 12,166 $ -- $ 11,778
Sale of Hadley................................ -- -- (118) -- (118)
Redemption of preferred stock................. -- -- -- -- (562)
Net loss...................................... -- -- (15,774) -- (15,774)
Minimum pension liability..................... -- -- -- (442) (442)
Comprehensive loss........................ -- -- -- -- --
--------- --------- --------- --------- ----------
BALANCE, July 31, 1996.......................... -- (1,404) (3,726) (442) (5,118)
Net loss...................................... -- -- (3,679) -- (3,679)
Minimum pension liability..................... -- -- -- 182 182
Comprehensive loss........................ -- -- -- -- --
--------- --------- --------- --------- ----------
BALANCE, December 31, 1996...................... -- (1,404) (7,405) (260) (8,615)
Dividends..................................... -- -- (414) -- (414)
Net income.................................... -- -- 5,735 -- 5,735
Minimum pension liability adjustment.......... -- -- -- 260 260
Comprehensive income...................... -- -- -- -- --
--------- --------- --------- --------- ----------
BALANCE, December 31, 1997...................... -- (1,404) (2,084) -- (3,034)
Dividends..................................... -- -- (1,729) -- (1,729)
Issuance of common stock...................... (356) -- -- -- --
Redemption of common stock.................... 135 (236) -- -- (101)
Net loss...................................... -- -- (28,367) -- (28,367)
Comprehensive loss........................ -- -- -- -- --
--------- --------- --------- --------- ----------
BALANCE, December 31, 1998...................... $ (221) $ (1,640) $ (32,180) $ -- $ (33,231)
========= ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
NELSON METAL PRODUCTS CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31 FIVE MONTHS ENDED YEAR ENDED
-------------------- DECEMBER 31, JULY 31,
1998 1997 1996 1996
--------- --------- ------------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ (28,367) $ 5,735 $ (3,679) $ (15,774)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities-
Depreciation and amortization.......................... 12,281 9,391 3,802 7,615
Loss on disposal of assets............................. 35 34 118 --
Deferred taxes......................................... -- -- 3,859 14
Other.................................................. 20,400 (3,348) (1,253) 12,902
Change in operating assets and liabilities:
Accounts receivable.................................. (6,358) (7,700) (3,017) 2,867
Inventories.......................................... (2,644) (1,541) (817) 1,839
Reimbursable tooling................................. 1,866 (2,584) (3,007) 2,649
Prepaid expenses and other........................... 54 512 941 189
Accounts payable..................................... 19,529 1,734 971 (3,340)
Accrued liabilities.................................. 3,660 1,424 (245) (401)
Postretirement benefits.............................. 228 109 (341) 4,550
--------- --------- --------- ----------
Net cash provided by (used for) operating
activities....................................... 20,684 3,766 (2,668) 13,110
--------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................ (39,804) (10,545) (8,712) (17,992)
Increase in other assets................................. (482) (40) (806) (262)
--------- --------- --------- ----------
Net cash used for investing activities............. (40,286) (10,585) (9,518) (18,254)
--------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in revolving credit facility.................... 5,045 -- 6,840 2,605
Decrease in revolving credit facility.................... -- (6,675) -- --
Long-term debt borrowings................................ 15,000 50,045 6,550 10,000
Long-term debt payments.................................. (113) (34,823) (1,387) (6,943)
Dividends paid........................................... (1,729) (414) -- --
Redemption of common stock............................... (101) -- -- --
Redemption of preferred stock............................ -- -- -- (562)
Other.................................................... -- 260 183 --
--------- --------- --------- ----------
Net cash provided by financing activities.......... 18,102 8,393 12,186 5,100
--------- --------- --------- ----------
NET INCREASE (DECREASE) IN CASH............................ (1,500) 1,574 -- (44)
Cash, beginning of year.................................. 1,574 -- -- 44
--------- --------- --------- ----------
Cash, end of year........................................ $ 74 $ 1,574 $ -- $ --
========= ========= ========= ==========
SUPPLEMENTAL CASH FLOW DATA:
Cash paid for interest................................... $ 6,008 $ 4,574 $ 1,544 $ 3,646
========= ========= ========= ==========
Cash paid for taxes...................................... $ -- $ -- $ -- $ 450
========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
DESCRIPTION OF BUSINESS
Nelson Metal Products Corporation (the Company or Nelson) designs and
manufactures custom die castings as an original equipment supplier to the
automotive industry. The Company has operations in Michigan and Kentucky.
Effective August 1, 1996, the Company converted from a C Corporation to an S
Corporation (see Note 6).
The financial statements include the accounts of Nelson Metal Products
Corporation including its Hadley Products Division through May 31, 1996. As of
May 31, 1996, Nelson sold the net assets of its Hadley Products Division to
Hadley Products Corporation (Hadley), which is solely owned by individuals who
are also shareholders of the Company (see Note 10).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES
Inventories are valued at the lower of cost or market on the first-in,
first-out basis and include costs relating to materials, direct labor and
manufacturing overhead. Inventories consisted of the following at December 31
(in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Raw materials............................................................ $ 2,133 $ 2,345
Work in process.......................................................... 7,219 4,318
Finished goods........................................................... 1,564 1,609
--------- ---------
$ 10,916 $ 8,272
========= =========
</TABLE>
CUSTOMER TOOLING
Reimbursable tooling represents costs incurred by the Company in the
production of customer-owned tooling to be used by the Company in the
manufacture of its products. The Company receives a specific order for this
tooling and is reimbursed by the customer for the cost of such tooling. Costs
are deferred until reimbursed by the customer. Projected losses on incomplete
projects are recognized currently.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land and improvements................................................. $ 422 $ 422
Building and improvements............................................. 18,233 16,348
Machinery and equipment............................................... 95,692 71,211
Construction-in-process............................................... 17,421 4,398
---------- ----------
131,768 92,379
Less-accumulated depreciation......................................... (50,124) (38,605)
---------- ----------
$ 81,644 $ 53,774
========== ==========
</TABLE>
F-69
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Property, plant and equipment are stated at cost. Depreciation of property,
plant and equipment is calculated on the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Building and improvements......................................... 20 years
Machinery and equipment........................................... 7 years
Furniture and fixtures............................................ 3 years
</TABLE>
The Company capitalizes interest as a component of the cost of construction
in process. Capitalized interest was immaterial for the years ended
December 31, 1998 and 1997, the five months ended December 31, 1996 and the year
ended July 31, 1996.
Accelerated depreciation methods are used for tax reporting purposes.
Maintenance and repairs are charged to expense as incurred. Major betterments
and improvements which extend the useful life of the item are capitalized and
depreciated.
OTHER ASSETS
Other assets primarily include deferred financing costs, which are being
amortized on a straight-line basis over their estimated useful lives.
The Company periodically evaluates whether events and circumstances have
occurred which may affect the estimated useful life or the recoverability of the
remaining balance of its long-lived assets. If such events or circumstances were
to indicate that the carrying amount of these assets would not be recoverable,
the Company would estimate the future cash flows expected to result from the use
of assets and their eventual disposition. If the sum of the expected future cash
flows (undiscounted and without interest charges) were less than the carrying
amount of goodwill and other long-lived assets, the Company would recognize an
impairment loss.
ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred revenue......................................................... $ 3,621 $ --
Compensation costs....................................................... 3,869 2,680
Loss contracts........................................................... 2,576 3,352
Other.................................................................... 1,172 2,374
--------- ---------
$ 11,238 $ 8,406
========= =========
</TABLE>
SELF-INSURANCE
The Company is generally self-insured for workers' compensation claims. The
Company has recorded the estimated cost of claims which have been incurred but
not yet reported. Changes in assumptions for such matters as legal actions,
claim costs and changes in actual experience could cause these estimates to
change.
F-70
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FINANCIAL INSTRUMENTS
In December 1997, the Company entered into an interest rate swap agreement
through December 2000 in order to manage its interest rate related to its
long-term debt. The agreement hedged notional amounts of $40,000,000 and
$30,000,000 of the Company's variable rate term loan during the years ended
December 31, 1998 and 1997, respectively. The notional amounts are hedged at an
average fixed rate of approximately 6%. Amounts to be paid or received under the
interest rate swap agreement are accrued as interest rates change and are
recognized quarterly over the life of the swap agreement as adjustments to
interest expense. In the case of early termination of an interest rate swap,
gains or losses resulting from the early termination are deferred and amortized
as an adjustment to the yield of the related debt instrument over the remaining
period originally covered by the terminated swap. The agreement is accounted for
as a hedge and as of December 31, 1998 and 1997, had an associated unrealized
loss of approximately $831,000 and $157,000, respectively. The Company does not
hold or issue financial instruments for trading purposes. The Company is exposed
to credit-related losses in the event of nonperformance by the counterparty to
the financial instrument, but it does not expect the counterparty to fail to
meet its obligation given its high credit rating.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and revolving credit facilities approximates fair value because
of the short maturity of these instruments. The carrying amount of the Company's
long-term debt approximates fair value because of the variability of the
interest cost associated with these instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Ultimate results could differ from those estimates.
RECLASSIFICATION
Certain amounts in the 1997 and 1996 financial statements have been
reclassified to conform to the 1998 presentation. These reclassifications had no
effect on previously reported net income (loss) or stockholders' investment.
REVENUE RECOGNITION AND SALES COMMITMENTS
The Company recognizes revenue as its products are shipped to its customers.
The Company enters into agreements to produce products for its customers at the
beginning of a given vehicle's production cycle. Once such agreements are
entered into by the Company, fulfillment of the customer's purchasing
requirements is the obligation of the Company for the entire production cycle of
the vehicle, with terms averaging seven years. The Company has no intention to
terminate such contracts. In certain instances, the Company is committed under
existing agreements to supply products to its customers at selling prices which
are not sufficient to cover the direct cost to produce such product. In
F-71
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
such situations, the Company records a liability for the estimated future amount
of losses. Such losses are recognized at the time that the loss is probable and
reasonably estimatable and is recorded at the minimum amount necessary to
fulfill the Company's obligation to the customer. Losses are estimated based
upon information available at the time of the estimate, including future
production volume estimates, length of the program and selling price and product
information. The provision, included as a component of cost of sales, recorded
for such obligations was approximately $27.8 million for the year ended
December 31, 1998 and $17.8 million for the year ended July 31, 1996. The
remaining long term liability was approximately $29.2 million and $8.0 million
as of December 31, 1998 and 1997. These amounts are included in other long term
liabilities on the accompanying balance sheets.
STOCK OPTION PLANS
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," as permitted by Statement of Financial Accounting
Standards (SFAS) No. 123 "Accounting for Stock-Based Compensation." Under APB
Opinion No. 25, compensation expense is recorded only if the current market
price of the underlying stock exceeds the exercise price of the stock option.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income," which established standards for
reporting and display of comprehensive income and its components. Comprehensive
income reflects the change in equity of a business enterprise during a period
from transactions and other events and circumstances from nonowner sources.
Comprehensive income represents net income adjusted for foreign currency
translation adjustments. In accordance with SFAS No. 130, the Company has chosen
to disclose comprehensive income in the accompanying statements of stockholders'
investment.
SEGMENT REPORTING
In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
replacing the "industry segment" approach with the "management" approach. The
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of the Company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas and major customers.
The adoption affected only the disclosure of segment information (see Note 7).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," becomes effective for the years beginning after June 15, 2000. SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge criteria are met. Special accounting for qualifying hedges allow a
derivative's gains or losses to offset related results on the hedged item in the
income statement and
F-72
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. The Company has not
yet quantified the impact of adopting SFAS No. 133 and has not yet determined
the timing of adoption.
During 1999, the Company adopted Financial Accounting Standards Board
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-up
Activities." SOP No. 98-5 requires that start-up activities be expensed as
incurred, versus capitalizing and expensing them over a period of time. The
Company recorded a charge of approximately $3.2 million in the first quarter of
1999 related to the write off of such costs.
3. STOCK OPTION PLANS:
The Company has a nonqualified stock option plan and an incentive option
plan for issuance of options to certain employees at the discretion of the
Company's board of directors. Options are granted at a price not less than the
stock's estimated fair value at the date of grant, as provided for in the plan
document. The options vest and become exercisable within limits specified at the
time of grant. As of December 31, 1998, the exercise price of outstanding stock
options ranged from $17.26 to $18.00 with a weighted average remaining
contractual life of eight years. The outstanding stock options granted in 1997
have a remaining contractual life of seven years.
A summary of the stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE EXERCISE PRICE
--------- ----------------- ----------------
<S> <C> <C> <C>
Outstanding at July 31, 1995....................................... $ 164,300 $ 2.00 $1.16 - 12.86
Granted.......................................................... 320,281 18.00 18.00
Canceled......................................................... (40,700) 1.16 1.16
---------
Outstanding at July 31, 1996....................................... 443,881 7.41 1.16 - 18.00
Granted.......................................................... 7,500 18.00 18.00
---------
Outstanding at December 31, 1996................................... 451,381 7.59 1.16 - 18.00
Granted.......................................................... -- -- --
---------
Outstanding at December 31, 1997................................... 451,381 7.59 1.16 - 18.00
Granted.......................................................... 29,600 17.26 17.26
Exercised........................................................ (86,800) 4.10 1.16 - 12.86
Forfeited........................................................ (5,000) 17.26 17.26
---------
Outstanding at December 31, 1998................................... 389,181 $ 17.66 $17.26 - 18.00
=========
Exercisable at December 31, 1998 323,681 $ 17.66 $17.26 - 18.00
=========
</TABLE>
Approximately 320,000 of the options have certain associated put and call
rights. The non-cash compensation expense recognized related to such put and
call rights was approximately $640,000 for the years ended December 31, 1998 and
1997 and $267,000 for the five months ended December 31, 1996 and for the year
ended July 31, 1996. The Company has elected to continue to account for these
plans under APB No. 25.
F-73
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. STOCK OPTION PLANS: (CONTINUED)
The pro forma impact on net income (loss) for compensation expense under
SFAS 123 related to the employee options was not significant in any year.
During 1999, the Company granted an additional 17,000 options at $17.26 per
share. All outstanding options were repurchased in connection with transaction
described in Note 12.
4. DEBT:
Debt consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Term loan................................................................................... $ 50,000 $ 50,000
Revolving credit loan....................................................................... 14,000 8,955
Capital expenditure loan.................................................................... 15,000 --
Capital lease agreement, payable in monthly installments of $19,625 through November 2006
including interest at prime (7.75% at December 31, 1998), secured by certain real
property.................................................................................. 1,363 1,476
--------- ---------
80,363 60,431
Less--Current portion of long-term debt..................................................... (126) (107)
--------- ---------
$ 80,237 $ 60,324
========= =========
</TABLE>
Annual maturities of long-term debt subsequent to December 31, 1998, were as
follows:
<TABLE>
<S> <C>
1999............................................................................... $ 126
2000............................................................................... 27,137
2001............................................................................... 13,149
2002............................................................................... 13,162
2003............................................................................... 13,176
Thereafter......................................................................... 13,613
---------
$ 80,363
=========
</TABLE>
The Company entered into a comprehensive credit agreement (the Agreement),
with a bank, to refinance its previous bank debt on December 19, 1997. This
Agreement provided for a term loan, revolving credit loan, and a capital
expenditure loan.
Borrowings on the term loan bear interest, payable quarterly, at the LIBOR
rate plus an applicable margin based on the ratio of debt to cashflow, as
defined in the agreement (8.0% at December 31, 1998).
Borrowings on the revolving credit loan bear interest, payable quarterly, at
the lower of the LIBOR rate plus an applicable margin based on the ratio of debt
to cash flow, as defined in the agreement, or at the lender's prime rate of
interest (8.3% at December 31, 1998). The revolving credit loan's terms extend
through December 2000, with annual renewal provisions subject to the lender's
approval. The balance outstanding has been classified as long-term debt on the
accompanying balance sheets.
F-74
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DEBT: (CONTINUED)
Borrowings on the capital expenditure loan bear interest, payable quarterly,
at the lower of the LIBOR rate plus an applicable margin based on the ratio of
debt to cash flow, as defined in the agreement, or at the lender's prime rate of
interest (8.3% at December 31, 1998). The Agreement provides for borrowings up
to $20 million, subject to certain limitations, which are secured by
substantially all of the Company's assets. At December 31, 1998, the Company had
approximately $6 million of funds available for borrowings under the Agreement.
Quarterly principal payments of $750,000 begin in 2000 and the loan matures in
October 2004. Borrowings are limited to 70% of all budgeted capital expenditures
and are secured by substantially all the assets of the Company. The Company is
also required to pay a quarterly commitment fee, as defined in the agreement, on
the unused portion of the capital expenditure loan.
All borrowings under the Agreement were repaid in October 1999 in connection
with the transaction described in Note 12.
5. EMPLOYEE BENEFIT PLANS:
PENSION PLAN AND POSTRETIREMENT BENEFITS
The Company sponsors a defined benefit pension plan which covers
substantially all hourly and union employees. The Company's policy is to fund
the amounts which are actuarially determined and as required by applicable law.
In addition, the Company has a postretirement medical benefit plan for certain
employee groups and has recorded a liability for its estimated obligation under
that plan. The Company has the right to modify or terminate certain of these
benefits in the future.
Effective August 1, 1995, Nelson adopted Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." This statement requires the accrual of the cost of
providing postretirement benefits for medical dental and life insurance coverage
over the active service period of the employee. Nelson elected to immediately
recognize the accumulated liability, measured as of August 1, 1995, which
totaled approximately $2,814,000 after tax.
F-75
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. EMPLOYEE BENEFIT PLANS: (CONTINUED)
The change in benefit obligation and plan assets consisted of the following
(in thousands):
<TABLE>
<CAPTION>
POSTRETIREMENT
BENEFITS
OTHER THAN PENSIONS
PENSION BENEFITS AS AS OF
OF DECEMBER 31 DECEMBER 31
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, beginning of year...................................... $ 5,098 $ 4,327 $ 4,238 $ 3,846
Service cost............................................................. 136 130 225 181
Interest cost............................................................ 337 336 329 313
Amendments............................................................... 243 -- -- --
Actuarial (gain) loss.................................................... (317) 555 322 119
Benefits paid............................................................ (259) (250) (216) (221)
--------- --------- --------- ---------
Benefit obligation, end of year............................................ $ 5,238 $ 5,098 $ 4,898 $ 4,238
========= ========= ========= =========
CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of year............................... $ 5,393 $ 4,210 $ -- $ --
Actual return on plan assets............................................. (76) 1,138 -- --
Employer contributions................................................... 185 295 216 221
Plan participants' contributions
Benefits paid............................................................ (259) (250) (216) (221)
--------- --------- --------- ---------
Fair value of plan assets, end of year..................................... $ 5,243 $ 5,393 $ -- $ --
========= ========= ========= =========
</TABLE>
The funded status of the Company's plans is as follows (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS AS OF POSTRETIREMENT BENEFITS
OTHER THAN PENSIONS AS
DECEMBER 31 OF DECEMBER 31
---------------------- ------------------------
1998 1997 1998 1997
--------- ----------- --------- -------------
<S> <C> <C> <C> <C>
Funded status..................................................... $ 5 $ 296 $ (4,898) $ (4,238)
Unrecognized transition amount.................................... (163) (189) -- --
Unrecognized prior service cost................................... 534 322 -- --
Unrecognized net actuarial (gain) loss............................ 382 225 (336) (658)
--------- ----------- --------- -------------
Prepaid (accrued) benefit cost................................ $ 758 $ 654 $ (5,234) $ (4,896)
========= =========== ========= =============
</TABLE>
F-76
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. EMPLOYEE BENEFIT PLANS: (CONTINUED)
The following weighted-average assumptions were used to account for the
plans:
<TABLE>
<CAPTION>
POSTRETIREMENT BENEFITS
PENSION BENEFITS AS OF OTHER THAN PENSIONS AS
DECEMBER 31 OF DECEMBER 31
------------------------ ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Discount rate............................................................. 7.0 7.0 7.0 7.0
Expected return on plan assets............................................ 8.0 8.0 -- --
</TABLE>
For measurement purposes, a 7% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1998. The rate was assumed
to decrease 5% in 1999 and remain level thereafter.
The components of net periodic benefit costs are as follows (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS
--------------------------------------------------
FOR THE YEARS ENDED
FOR THE FIVE FOR THE
DECEMBER 31 MONTHS ENDED YEAR ENDED
-------------------- DECEMBER 31, JULY 31,
1998 1997 1996 1996
--------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Service cost....................................................... $ 136 $ 130 $ 50 $ 147
Interest cost...................................................... 337 336 140 311
Expected return on plan assets..................................... (398) (336) (120) (298)
Amortization of prior service cost................................. 32 32 13 32
Amortization of transition obligation.............................. (26) (26) (11) (26)
Recognized actuarial (gain) loss................................... -- 3 13 18
--------- --------- --------- ---------
Net periodic benefit cost...................................... $ 81 $ 139 $ 85 $ 184
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
----------------------------------------------------
FOR THE YEARS ENDED
FOR THE FIVE FOR THE
DECEMBER 31 MONTHS ENDED YEAR ENDED
-------------------- DECEMBER 31, JULY 31,
1998 1997 1996 1996
--------- --------- --------------- -------------
<S> <C> <C> <C> <C>
Service cost.......................................................... $ 225 $ 181 $ 73 $ 182
Interest cost......................................................... 329 313 126 326
Recognized actuarial (gain) loss...................................... -- (48) (21) --
--------- --------- --------- ---------
Net periodic benefit cost......................................... $ 554 $ 446 $ 178 $ 508
========= ========= ========= =========
</TABLE>
F-77
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. EMPLOYEE BENEFIT PLANS: (CONTINUED)
Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement medical benefit plans. A one percentage
point change in assumed health care cost trend rates would have the following
effects (in thousands):
<TABLE>
<CAPTION>
ONE PERCENTAGE ONE PERCENTAGE
POINT INCREASE POINT DECREASE
----------------- -----------------
<S> <C> <C>
Effect on total of service and interest cost components................ $ 65 $ (55)
========= =========
Effect on the postretirement benefit obligation........................ $ 62 $ (51)
========= =========
</TABLE>
RETIREMENT SAVINGS PLANS
The Company sponsors two employee retirement savings plans which allow
qualified employees to provide for their retirement on a tax-deferred basis. The
Company may make discretionary contributions to one of these plans. Such
employer contributions totaled $200,000 during fiscal 1997. There were no
contributions for the year ended December 31, 1998, the five-month period ended
December 31, 1996 or the year ended July 3, 1996.
6. INCOME TAXES:
Effective August 1, 1996, the Company applied for, and was granted, status
under Subchapter S of the Internal Revenue Code. As an S Corporation, the
Company is not liable as an entity for federal income taxes. In conjunction with
the S Corporation election, approximately $3.9 million of Nelson's deferred tax
assets and liabilities were eliminated and charged to the provision for income
taxes in the accompanying statement of operations for the period ended
December 31, 1996. The transaction described in Note 12 triggered a
built-in-gains tax which approximated $5.0 million.
Prior to August 1, 1996, Nelson recognized deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements. Under this method, deferred tax assets and
liabilities were determined based on the difference between the financial
statement and the tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
The benefit for income taxes consisted of the following for the year ended
July 31, 1996 (in thousands):
<TABLE>
<S> <C>
Current............................................................ $ (5,735)
Deferred........................................................... 1,826
---------
Total.......................................................... $ (3,909)
=========
</TABLE>
F-78
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES: (CONTINUED)
A reconciliation of the benefit for income taxes at the statutory rates to
the reported income tax benefit is as follows for the year ended July 31, 1996
(in thousands):
<TABLE>
<S> <C>
Federal benefit at statutory rates................................. $ (5,735)
State taxes, net of federal benefit................................ (760)
Other, net......................................................... 2,586
---------
Total.......................................................... $ (3,909)
=========
</TABLE>
The Company has presented an unaudited pro forma income tax provision for
each period that it has been an S Corporation. The Company has estimated its
effective income tax rate for those periods would have been 40%.
7. GEOGRAPHIC AND PRODUCT LINE INFORMATION:
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company manufactures aluminum die cast
components for the global automotive industry and operates in a single
reportable segment, automotive products. The Company internally evaluates its
business principally by product category; however, because of similar economic
characteristics of the operations, including the nature of the products,
production process and customers, those operations have been aggregated
following the provisions of SFAS No. 131 for segment reporting purposes.
The Company sells its products directly to automobile manufacturers.
Customers that accounted for a significant portion of consolidated revenues were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
------------------------ FIVE MONTHS YEAR ENDED
1998 1997 ENDED DECEMBER 31, 1996 JULY 31, 1996
----------- ----------- ----------------------- ---------------
<S> <C> <C> <C> <C>
Ford......................................... 55% 71% 65% 72%
GM........................................... 44 29 27 19
</TABLE>
As of December 31, 1998 and 1997, receivables from these customers
represented 94% and 98% of total accounts receivable.
8. TECHNOLOGY LICENSE ARRANGEMENT:
In November 1998, the Company entered into an agreement to grant an
exclusive non-contingent license of certain technology to a vendor in exchange
for $1.5 million. The agreement also entitles the Company to royalties on future
revenues, as defined in the agreement. The Company has recognized the
$1.5 million fee as revenue in the accompanying 1998 statement of operations.
9. COMMITMENTS AND CONTINGENCIES:
PURCHASE OBLIGATIONS
As of December 31, 1998, the Company had various purchase commitments
totaling approximately $10.6 million to purchase various raw materials,
machinery and equipment, and tooling.
F-79
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
LEASE COMMITMENTS
The Company leases certain facilities and vehicles under operating lease
agreements. Future minimum rental payments at December 31, 1998, under
noncancellable operating leases with initial or remaining terms of one year or
more, are as follows:
<TABLE>
<S> <C>
1999.............................................. $ 641,000
2000.............................................. 540,000
2001.............................................. 540,000
2002.............................................. 540,000
2003.............................................. 540,000
</TABLE>
Rental expense related to operating leases totaled approximately $205,000
and $211,000 for the years ended December 31, 1998 and 1997, respectively.
PERFORMANCE BONUS OBLIGATIONS
During 1999, the Company entered into performance agreements with certain
key employees. These agreements require the Company to make payments to such
employees based on the achievement of predetermined operating results. If no
such payments are made based on operating performance, the Company is required
to make minimum payments to employees during 2001. All such agreements were
cancelled in connection with the transaction described in Note 12.
ENVIRONMENTAL MATTER
In connection with the closure and subsequent sale of its chrome plating
operation, the Company discovered environmental contamination at the facility
which has been reported to the appropriate state environmental agency.
Management has developed an estimate of probable costs for the site cleanup
of approximately $400,000 which is reflected as a liability in the accompanying
balance sheets. Management's cost estimate and period for the cleanup of the
site have been reviewed with environmental consultants who agree with the
reasonableness of the estimate. The Company obtained tentative approval from the
state environmental agency for its remediation plan.
While it is impossible at this time to determine the ultimate outcome of
this environmental matter, it is management's opinion, based in part on advice
of legal counsel and the estimates of remediation costs from environmental
consultants, that the ultimate outcome will not have a material adverse effect
on the financial position or operating results of the Company.
LITIGATION
Various other claims and legal proceedings are pending against the Company
arising from its normal operations. At this time, management does not expect
these matters to have a material adverse effect on the Company's financial
position or operating results. However, the outcome of these matters is not
subject to prediction with certainty.
F-80
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. RELATED-PARTY TRANSACTIONS:
In connection with the sale of the net assets of Hadley Products Division to
related parties in May 1996, the Company received a note of $3,300,000. The note
bears interest at 9%. The balances outstanding under the agreement were
$2,392,500 and $2,722,500 at December 31, 1998 and 1997, respectively, with
quarterly payments of $82,500. The note matures in July 2006. Due to the related
party nature of the transaction, the recognition of the gain on the sale of
$788,980 has been deferred. The deferred gain is offset against the balance of
the note in the accompanying balance sheets.
During August 1999, the Company received full payment on the note receivable
from Hadley and recognized the deferred gain as a contribution to stockholders'
investment.
The Company also engages in certain other transactions with Hadley. Related
party activity is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Interest income....................................................... $ 234,000 $ 294,000
Corporate expense reimbursements...................................... 379,000 408,000
</TABLE>
The Company has historically funded certain cash flows for Hadley. Amounts
receivable of approximately $238,000 and $1,018,000 at December 31, 1998 and
1997, respectively, are reflected in accounts receivable in the accompanying
balance sheets.
In 1998, in conjunction with the purchase of common stock through the
exercise of options by certain members of management, the Company entered into
recourse notes receivable which have been classified as stock subscriptions
receivable in the accompanying 1998 balance sheet. These notes bear interest at
8% and were repaid on October 15, 1999 in connection with the transaction
described in Note 12.
11. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a condensed summary of actual quarterly results of
operations for 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
GROSS INCOME
PROFIT (LOSS) FROM NET INCOME
SALES (LOSS) OPERATIONS (LOSS)
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
1998:
First.................................. $ 32,068 $ (12,291) $ (13,460) $ (14,801)
Second................................. 32,227 (11,730) (12,936) (14,466)
Third.................................. 33,709 1,821 696 (921)
Fourth................................. 41,752 4,694 3,217 1,821
---------- --------- ---------- ---------
$ 139,756 $ (17,506) $ (22,483) $ (28,367)
========== ========= ========== =========
1997:
First.................................. $ 27,317 $ 4,198 $ 2,739 $ 1,522
Second................................. 33,064 5,416 3,415 2,108
Third.................................. 33,450 4,667 2,915 1,777
Fourth................................. 25,898 2,245 1,479 328
---------- --------- ---------- ---------
$ 119,729 $ 16,526 $ 10,548 $ 5,735
========== ========= ========== =========
</TABLE>
F-81
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENT:
On October 15, 1999, all of the Company's outstanding stock was acquired by
J.L. French Automotive Castings, Inc. (French). In connection with the
acquisition, all outstanding indebtedness of the Company was repaid, all stock
subscriptions receivable were collected and all outstanding stock options were
repurchased. The stockholders received aggregate cash consideration of
approximately $77.3 million. Upon the completion of this transaction, Nelson
became a wholly owned subsidiary of French.
F-82
<PAGE>
NELSON METAL PRODUCTS CORPORATION
CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 1,279 $ 74
Accounts receivable, net............................................................ 30,579 23,450
Inventories......................................................................... 11,704 10,916
Other current assets................................................................ 3,973 4,896
--------- ----------
Total current assets.............................................................. 47,535 39,336
Property, plant and equipment, net.................................................... 80,069 81,644
Intangible and other assets, net...................................................... 5,564 4,993
--------- ----------
$ 133,168 $ 125,973
========= ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt................................................ $ 6,642 $ 126
Accounts payable.................................................................... 31,214 28,170
Accrued liabilities................................................................. 14,864 15,601
--------- ----------
Total current liabilities......................................................... 52,720 43,897
Long-term debt, net of current maturities............................................. 81,928 80,237
Other noncurrent liabilities.......................................................... 32,705 35,070
--------- ----------
Total liabilities................................................................. 167,353 159,204
Stockholders' investment:
Common stock........................................................................ 12 11
Additional paid-in capital.......................................................... 799 799
Treasury stock...................................................................... (1,640) (1,640)
Stock subscriptions................................................................. (221) (221)
Accumulated deficit................................................................. (33,135) (32,180)
--------- ----------
Total stockholders' investment.................................................... (34,185) (33,231)
--------- ----------
$ 133,168 $ 125,973
========= ==========
</TABLE>
The accompanying notes are an integral part of these condensed balance sheets.
F-83
<PAGE>
NELSON METAL PRODUCTS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS--UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Sales..................................................................................... $ 105,225 $ 64,295
Cost of sales............................................................................. 95,562 88,316
---------- ----------
Gross profit (loss)................................................................... 9,663 (24,021)
Selling, general and administrative expenses.............................................. 4,036 2,375
---------- ----------
Operating income (loss)............................................................... 5,627 (26,396)
Interest expense and other, net........................................................... 3,382 2,871
---------- ----------
Income (loss) before cumulative effect of change in accounting principle.............. 2,245 (29,267)
Cumulative effect of change in accounting principle....................................... 3,200 --
---------- ----------
Net loss.............................................................................. $ (955) $ (29,267)
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed statements.
F-84
<PAGE>
NELSON METAL PRODUCTS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS--UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1999 1998
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................................................ $ (955) $ (29,267)
Adjustments to reconcile net loss to net cash provided by operating activities--
Depreciation and amortization......................................................... 8,226 6,454
Other non-cash items.................................................................. (2,520) 22,541
Cumulative effect of change in accounting principle................................... 3,200 --
Changes in other operating items...................................................... (5,484) 2,254
--------- ----------
Net cash provided by operating activities............................................. 2,467 1,982
--------- ----------
INVESTING ACTIVITIES:
Capital expenditures, net............................................................... (9,469) (10,653)
--------- ----------
Net cash used for investing activities................................................ (9,469) (10,653)
--------- ----------
FINANCING ACTIVITIES:
Long-term borrowings.................................................................... 8,207 10,190
Other, net.............................................................................. -- (1,387)
--------- ----------
Net cash provided by financing activities............................................. 8,207 8,803
--------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS................................................... 1,205 132
CASH AND CASH EQUIVALENTS:
Beginning of period..................................................................... 74 1,574
--------- ----------
End of period........................................................................... $ 1,279 $ 1,706
========= ==========
</TABLE>
The accompanying notes are an integral part of these condensed statements.
F-85
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying condensed financial statements have been prepared by Nelson
Metal Products Corporation (the "Company"), without audit. The information
furnished in the condensed financial statements includes normal recurring
adjustments and reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of such financial statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Although the Company believes that the disclosures are adequate
to make the information presented not misleading, it is suggested that these
condensed financial statements be read in conjunction with the Company's
audited financial statements for the year ended December 31, 1998.
Revenues and operating results for the six months ended June 30, 1999 are
not necessarily indicative of the results to be expected for the full year.
2. Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1999 1998
--------- ---------
<S> <C> <C>
Raw materials................................................. $ 1,948 $ 2,133
Work in process............................................... 8,412 7,219
Finished goods................................................ 1,344 1,564
--------- ---------
$ 11,704 $ 10,916
========= =========
</TABLE>
3. Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Term loan.................................................. $ 50,000 $ 50,000
Revolving credit facility.................................. 22,250 14,000
Capital expenditure loan................................... 15,000 15,000
Capital lease.............................................. 1,320 1,363
--------- ----------
88,570 80,363
Less-current maturities.................................... (6,642) (126)
--------- ----------
Total long-term debt..................................... $ 81,928 $ 80,237
========= ==========
</TABLE>
4. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," effective
for the years beginning after June 15, 2000. SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at
its fair value. SFAS No. 133 requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge criteria are
met. Special accounting for qualifying hedges allow a derivative's gains or
losses to offset related results on the hedged item in the income statement
and requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. The Company has
not yet quantified the impact of adopting SFAS No. 133.
F-86
<PAGE>
NELSON METAL PRODUCTS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
During 1999, the Company adopted Financial Accounting Standards Board
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-up
Activities." SOP No. 98-5 requires that start-up activities be expensed as
incurred, versus capitalizing and expensing them over a period of time. The
Company recorded a charge of approximately $3.2 million in the first quarter
of 1999 related to the write off of such costs.
5. On October 15, 1999, all of the Company's outstanding stock was acquired by
J.L. French Automotive Castings, Inc. (French). In connection with the
acquisition, all outstanding indebtedness of the Company was repaid, all
stock subscriptions receivable were collected and all outstanding stock
options were repurchased. The stockholders received aggregate cash
consideration of approximately $77.3 million. Upon completion of this
transaction, Nelson became a wholly owned subsidiary of French.
F-87
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
$175,000,000
11 1/2% SENIOR SUBORDINATED NOTES DUE 2009
---------------------
PROSPECTUS
---------------------
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE THE
EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY
BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN
ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20: INDEMNIFICATION OF DIRECTORS AND OFFICERS.
French Automotive is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware (the "DGCL")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of the
fact that such person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any persons who are, or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
Article Six of the Restated Certificate of Incorporation of French
Automotive provides that no director of the corporation shall be personally
liable to French Automotive or its stockholders for monetary damages arising
from a breach of fiduciary duty owed to French Automotive or its stockholders,
except for liability (1) for any breach of the director's duty of loyalty to
French Automotive or its stockholders, (2) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(3) pursuant to Section 174 of the DGCL or (4) for any transaction from which
the director derived an improper personal benefit.
Article V of French Automotive's Amended and Restated By-laws provides that
each person who was or is made a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter "a proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer, of French Automotive or is or was serving at
the request of French Automotive as a director, officer, employee, fiduciary, or
agent of another corporation or of a partnership, joint venture, trust, or other
enterprise, shall be indemnified and held harmless by French Automotive to the
fullest extent which it is empowered to do so unless prohibited from doing so by
the DGCL against all expense, liability and loss (including attorney's fees
actually and reasonably incurred by such person in connection with such
proceeding) and such indemnification shall inure to the benefit of his or her
heirs, executors, administrators; provided, however, that French Automotive
shall indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the board of directors of French Automotive. The right to indemnification
conferred by French Automotive's By-Laws is a contract right and includes the
right to be paid by French Automotive the expenses incurred defending any such
proceeding in advance of its final disposition. French Automotive may, by action
of its board of directors, provide indemnification to
II-1
<PAGE>
employees and agents of French Automotive with the same scope and effect as the
indemnification of its directors and officers.
Article V of French Automotive's By-laws further provides that the rights to
indemnification and to the advancement of expenses conferred in Article V are
not exclusive of any other right which any person has under French Automotive's
Amended and Restated Certificate of Incorporation or under any statute, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 145 of the DGCL further authorizes a corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him and incurred by him in
any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
All of the directors and officers of French Automotive are covered by insurance
policies maintained and held in effect by French Automotive against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act.
French Holdings, Inc. is also incorporated under the laws of the State of
Delaware. Under French Holdings, Inc.'s Restated Certificate of Incorporation,
it is required to indemnify its directors and officers to the fullest extent
authorized by the DGCL. French Holdings' Restated Certificate provides that its
directors shall not be personally liable to French Holdings or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to French
Holdings or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) under
Section 174 of the DGCL, or (4) for any transaction from which the director
derived any improper personal benefit.
J.L. French Corporation and Allotech International, Inc. are both
incorporated under the laws of the State of Wisconsin, and as such, are
obligated to indemnify their officers and directors in accordance with Wisconsin
Corporation Law. Sections 180.0850 to 180.0859 of the Wisconsin Corporate
Statutes require a corporation to indemnify any director or officer who is a
party to any threatened, pending or completed civil, criminal, administrative or
investigative action, suit, arbitration or other proceeding, whether formal or
informal, which involves foreign, federal, state or local law and which is
brought by or in the right of the corporation or by any other person. A
corporation's obligation to indemnify any such person includes the obligation to
pay any judgment, settlement, penalty, assessment, forfeiture or fine, including
any excise tax assessed with respect to an employee benefit plan, and all
reasonable expenses including fees, costs, charges, disbursements, attorney's
and other expenses except in those cases in which liability was incurred as a
result of the breach or failure to perform a duty which the director or officer
owes to the corporation and the breach or failure to perform constitutes: (1) a
willful failure to deal fairly with the corporation or its shareholders in
connection with a matter in which the director or officer has a material
conflict of interest; (2) a violation of criminal law, unless the person has
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful; (3) a transaction from which the person
derived an improper personal profit; or (4) willful misconduct.
II-2
<PAGE>
ITEM 21. EXHIBITS.
(a) The following exhibits are filed as part of this Registration Statement or
incorporated by reference herein:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
1.1 Purchase Agreement, dated May 25, 1999, among J.L. French
Automotive Castings, Inc., and French Holdings, Inc., J.L.
French Corporation and Allotech International, Inc.
(collectively, the "SUBSIDIARY GUARANTORS") and Banc of
America Securities LLC and Chase Securities Inc.
(collectively, the "INITIAL PURCHASERS").*
2.1 Recapitalization Agreement, dated March 29, 1999, by and
among J.L. French Automotive Castings, Inc., the
stockholders listed on the signature pages thereto and JLF
Acquisition LLC.*
2.2 Amendment No. 1 to Recapitalization Agreement, dated
April 21, 1999, by and among J.L. French Automotive
Castings, Inc., JLF Acquisition LLC and Windward Capital
Partners, L.P.*
2.3 Stock Purchase Agreement, dated September 10, 1999, among
J.L. French Automotive Castings, Inc. and the stockholders
and option holders of Nelson Metal Products Corporation
identified on the signature pages thereto.
3.1 Restated Certificate of Incorporation of J.L. French
Automotive Castings, Inc.
3.2 By-laws of J.L. French Automotive Castings, Inc.*
3.3 Restated Certificate of Incorporation of French
Holdings, Inc.*
3.4 Amended and Restated By-laws of French Holdings, Inc.*
3.5 Articles of Incorporation of J.L. French Corporation*
3.6 By-laws of J.L. French Corporation*
3.7 Articles of Incorporation of Allotech International, Inc.*
3.8 By-laws of Allotech International, Inc.*
4.1 Indenture, dated May 28, 1999, by and among J.L. French
Automotive Castings, Inc., the Subsidiary Guarantors and
U.S. Bank Trust National Association, as trustee.*
4.2 Registration Rights Agreement, dated May 28, 1999, by and
among J.L. French Automotive Castings, Inc., the Subsidiary
Guarantors and the Initial Purchasers.*
5.1 Opinion of Kirkland & Ellis regarding the validity of the
securities offered hereby.
5.2 Opinion of Olsen, Kloet, Gunderson & Conway.
8.1 Opinion of Kirkland & Ellis regarding federal income tax
considerations.
10.1 Amended and Restated Credit Agreement, dated October 15,
1999, among J.L. French Automotive Castings, Inc.,
Automotive Components Investments Limited, Morris Ashby
Limited, the several banks and other financial institutions
from time to time parties to the agreement (the "LENDERS"),
Bank of America NT&SA, as syndication agent for the Lenders,
Chase Manhattan International Limited, as administrative
agent for the English Lenders, and the Chase Manhattan Bank,
as administrative agent for the Lenders.
10.2 Investor Stockholders Agreement, dated April 21, 1999, by
and among J.L. French Automotive Castings, Inc., Onex
American Holdings LLC, J2R Partners III and the stockholders
listed on the signature pages thereto (the "STOCKHOLDERS
AGREEMENT").*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10.3 Registration Agreement, dated April 21, 1999, by and among
J.L. French Automotive Castings, Inc. and the investors
listed on the signature pages thereto (the "REGISTRATION
AGREEMENT").*
10.4 Management Agreement, dated April 21, 1999, by and between
J.L. French Automotive Castings, Inc. and Hidden Creek
Industries*
10.5 Joinder and Rights Agreement, dated October 15, 1999, by and
between J.L. French Automotive Castings, Inc., Onex Advisor
LLC and each of the other persons listed on the signature
pages thereto, relating to the Stockholders Agreement and
the Registration Agreement.
10.6 Joinder and Rights Agreement, dated October 15, 1999, by and
between J.L. French Automotive Castings, Inc. and Tower
Automotive, Inc., relating to the Stockholders Agreement and
the Registration Agreement.
10.7 Sublease Agreement, dated March 25, 1998, by and between
J.L. French Corporation and American Bumper & Mfg. Co.*
10.8 Employment Agreement, dated April 1, 1997, by and between
Morris Ashby plc and Paul A. Buckley.*
10.9 Employment Agreement, dated April 30, 1998, by and between
Fundiciones Viuda de Ansola S.A. and Juan Manuel Orbea
Soroa.*
10.10 Employment Agreement, dated April 30, 1998, by and between
Ansola Acquisition Corporation, S.R.L. and Juan Manuel
Orbea.*
10.11 Management Stockholders Agreement dated July 16, 1999, by
and between J.L. French Automotive Castings, Inc., Onex
American Holdings LLC and the individuals named on
Schedule I thereto.*
10.12 Form of Stock Subscription Agreement by and between J.L.
French Automotive Castings, Inc. and certain members of
management purchasing common stock (including a schedule
identifying Subscription Agreements executed by Charles M.
Waldon, Paul A. Buckley, Thomas C. Dinolfo, Donald W.
Porritt, Lowell E. Shoaf and Stephen R. Southern).*
10.13 7.50% Convertible Subordinated Promissory Note issued
October 14, 1999 by J.L. French Automotive Castings, Inc. to
Tower Automotive, Inc.
10.14 Stock Purchase Agreement, dated October 14, 1999, by and
among J.L. French Automotive Castings, Inc., Onex American
Holdings LLC, J2R Partners III and the persons set forth on
Schedule A attached thereto.
12.1 Statement Regarding Computation of Earnings to Fixed Charges
and Pro Forma Earnings to Fixed Charges.*
21.1 Subsidiaries of J.L. French Automotive Castings, Inc.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP, Birmingham, United
Kingdom.
23.6 Consents of Kirkland & Ellis (included in Exhibits 5.1 and
8.1).
23.7 Consent of Olsen, Kloet, Gunderson & Conway (included in
Exhibit 5.2).
24.1 Power of Attorney.*
25.1 Statement of Eligibility of Trustee on Form T-1 under the
Trust Indenture Act of 1939 of U.S. Bank Trust National
Association.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
27.1 Financial data schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
</TABLE>
- ------------------------
* Previously filed.
(b) No financial statement schedules are required to be filed herewith pursuant
to this Item.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bonafide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(4) The undersigned registrants hereby undertake as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(5) The registrants undertake that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions described in
II-5
<PAGE>
Item 20, or otherwise, the registrants have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrants of expenses incurred or paid by a directors,
officer or controlling person of the registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue
(c) The undersigned hereby undertake to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the date of the registration statement through the date of
responding to the request.
(d) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, J.L. French
Automotive Castings, Inc. duly caused this Amendment No. 2 to the Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in City of Sheboygan, State of Wisconsin, on the 29(th) day of
October, 1999.
<TABLE>
<S> <C> <C>
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
By: *
-----------------------------------------
Charles M. Waldon
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated on the 29(th) day of October, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
*
-------------------------------------- Chairman and Director
S.A. Johnson
*
-------------------------------------- President, Chief Executive Officer (Principal
Charles M. Waldon Executive Officer) and Director
*
-------------------------------------- Treasurer and Chief Financial Officer
Thomas C. Dinolfo (Principal Financial and Accounting Officer)
/s/ CARL E. NELSON
-------------------------------------- Director
Carl E. Nelson
/s/ DOUGLAS B. TRUSSLER
-------------------------------------- Director
Douglas B. Trussler
*
-------------------------------------- Director
Dugald K. Campbell
*
-------------------------------------- Director
A. Kipp Koester
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
*
-------------------------------------- Director
John E. Lindahl
*
-------------------------------------- Director
Eric J. Rosen
*
-------------------------------------- Director
Karl F. Storrie
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ CARL E. NELSON
---------------------------------
Carl E. Nelson
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, French
Holdings, Inc. duly caused this Amendment No. 2 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in City of Sheboygan, State of Wisconsin, on the 29(th) day of
October, 1999.
<TABLE>
<S> <C> <C>
FRENCH HOLDINGS, INC
By: *
-----------------------------------------
Charles M. Waldon
PRESIDENT AND DIRECTOR
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated on the 29(th) day of October, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
*
-------------------------------------- President, Chief Executive Officer
Charles M. Waldon (Principal Executive Officer) and Director
*
-------------------------------------- Chief Financial Officer and Director
Thomas C. Dinolfo
/s/ CARL E. NELSON
-------------------------------------- Director
Carl E. Nelson
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ CARL E. NELSON
---------------------------------
Carl E. Nelson
ATTORNEY-IN-FACT
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, J.L. French
Corporation duly caused this Amendment No. 2 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in City of Sheboygan, State of Wisconsin, on the 29(th) day of
October, 1999.
<TABLE>
<S> <C> <C>
J.L. FRENCH CORPORATION
By: *
-----------------------------------------
Charles M. Waldon
PRESIDENT AND DIRECTOR
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated on the 29(th) day of October, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
*
-------------------------------------- President, Chief Executive Officer
Charles M. Waldon (Principal Executive Officer) and Director
*
-------------------------------------- Chief Financial Officer and Director
Thomas C. Dinolfo
/s/ CARL E. NELSON
-------------------------------------- Director
Carl E. Nelson
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ CARL E. NELSON
---------------------------------
Carl E. Nelson
ATTORNEY-IN-FACT
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Allotech
International, Inc. duly caused this Amendment No. 2 to the Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in City of Sheboygan, State of Wisconsin, on the 29(th) day of
October, 1999.
<TABLE>
<S> <C> <C>
ALLOTECH INTERNATIONAL, INC.
By: *
-----------------------------------------
Charles M. Waldon
PRESIDENT AND DIRECTOR
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated on the 29(th) day of October, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
*
-------------------------------------- President, Chief Executive Officer
Charles M. Waldon (Principal Executive Officer) and Director
*
-------------------------------------- Chief Financial Officer and Director
Thomas C. Dinolfo
/s/ CARL E. NELSON
-------------------------------------- Director
Carl E. Nelson
*
-------------------------------------- Director
Daniel F. Moorse
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ CARL E. NELSON
---------------------------------
Carl E. Nelson
ATTORNEY-IN-FACT
</TABLE>
II-11
<PAGE>
STOCK PURCHASE AGREEMENT
AMONG
J. L. FRENCH AUTOMOTIVE CASTINGS, INC.
AND
THE STOCKHOLDERS OF
NELSON METAL PRODUCTS CORPORATION
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the
10th day of September, 1999, among J. L. French Automotive Castings, Inc., a
Delaware corporation ("Buyer"), and the stockholders and option holders of
Nelson Metal Products Corporation who are identified on the signature pages
attached hereto (collectively "Sellers" and individually a "Seller"). Buyer and
each Seller are sometimes referred to collectively herein as the "Parties" and
each as a "Party."
PRELIMINARY STATEMENTS:
A. Sellers own beneficially and of record all issued and
outstanding shares of capital stock of Nelson Metal Products Corporation, a
Delaware corporation (the "Company"), and all of the options exercisable into
shares of capital stock of the Company.
B. This Agreement contemplates a transaction in which Buyer will
purchase from Sellers, and Sellers will sell to Buyer, all of the shares of
capital stock of the Company, including shares issuable upon the exercise of
options (the "Shares"), in return for the cash consideration and other
obligations set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings indicated:
"AFFILIATE" means any Person that directly or indirectly controls,
is controlled by, or is in common control with, any other Person. For purposes
of the preceding sentence, "control" means possession, directly or indirectly,
of the power to direct or cause direction of management and policies through
ownership of voting securities, contract, voting trust or otherwise.
"AGGREGATE EXERCISE AMOUNT" means the aggregate amount payable upon
exercise of all of the Options in accordance with the Option Plan and the
applicable option agreement.
"AGGREGATE PURCHASE PRICE" means an aggregate purchase price in US
Dollars equal to the following: Enterprise Value minus Debt plus Cash plus the
Aggregate Exercise Amount plus Seller Debt, as adjusted pursuant to Section 2.3
below.
"AGREEMENT" is defined in the preamble hereto.
<PAGE>
"APPLICABLE LAWS" is defined in Section 4.15.
"AUDITOR" is defined in Section 2.3(d).
"BUYER" is defined in the preamble hereto.
"BUYER DEBT FINANCING" is defined in Section 3.2(g).
"BUYER'S INDEMNIFIABLE CLAIMS" is defined in Section 8.2.
"CALLED OPTIONS" is defined in Section 5.10.
"CASH" means the aggregate amount of cash of the Company as of the
close of business on the Closing Date, as set forth on the Closing Balance
Sheet.
"CLOSING" is defined in Section 6.1.
"CLOSING BALANCE SHEET" is defined in Section 2.3(b).
"CLOSING CERTIFICATE" is defined in Section 6.2(e).
"CLOSING DATE" is defined in Section 6.1.
"COBRA" means Comprehensive Omnibus Budget Reconciliation Act of
1985, as amended.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" is defined in the preamble hereto.
"DAMAGES" is defined in Section 8.2.
"DEBT" means, without duplication, (i) all indebtedness or other
obligation of the Company for borrowed money, whether current, short-term, or
long-term, secured or unsecured, (ii) all indebtedness of the Company for the
deferred purchase price for purchases of property outside the ordinary course
which is not evidenced by trade payables, (iii) all lease obligations of the
Company under leases which are capital leases in accordance with GAAP, if any,
(iv) any off-balance sheet financing of the Company including, without
limitation, synthetic leases and project financing, (v) any payment of
obligations of the Company in respect of banker's acceptances or letters of
credit (other than stand-by letters of credit in support of ordinary course
trade payables), (vi) any liability of the Company with respect to interest rate
swaps, collars, caps and similar hedging obligations, (vii) any liability of the
Company under (x) the Phantom Stock Agreement, dated August 16, 1996, between
the Company and Robert F. Dubsky and (y) the Note Purchase Agreement, dated as
of August 4, 1999, between the Company and The Peninsula Fund L.P. (the "Note
Agreement"), and the Senior Subordinated Notes issued by the Company thereunder,
including without limitation, the Success Fee (as defined therein), (viii) any
indebtedness referred
2
<PAGE>
to in clauses (i) through (vii) above of any person or entity other than the
Company which is either guaranteed by, or secured by a Security Interest upon
any property owned by, the Company and (ix) accrued and unpaid interest of, and
prepayment premiums, penalties or similar contractual charges arising as a
result of the discharge at Closing of, any such foregoing obligation; provided,
however, that Debt pursuant to the Loan Agreement, dated July 19, 1996, between
the Company and Nelson Financing shall be deemed to be zero if 100% of the
equity interests of Nelson Financing is transferred to Buyer on or prior to
Closing pursuant to Section 5.15.
"DOJ" is defined in Section 5.4.
"ENTERPRISE VALUE" means $175,000,000.
"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other statutes (including rules
and regulations thereunder) of federal, state and local governments (and all
agencies thereof) and common law concerning pollution or protection of the
environment, public health and safety, or employee health and safety, including
laws relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous or toxic materials
or wastes into ambient air, surface water, ground water or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, or chemical,
industrial, hazardous or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ESTIMATED CLOSING BALANCE SHEET" is defined in Section 2.3(a).
"ESTIMATED CLOSING WORKING CAPITAL" is defined in Section 2.3(a).
"FIXED ASSETS" is defined in Section 4.13.
"FTC" is defined in Section 5.4.
"GAAP" means generally accepted accounting principles, as in effect
in the United States from time to time and applied on a consistent basis.
"HAZARDOUS MATERIAL" means any substance defined as a "hazardous
material," "hazardous substance," "pollutant," "contaminant" or "toxic
substance" defined by another term of similar meaning and regulatory effect in
any of the Environmental, Health, and Safety Laws.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INDEMNIFIABLE CLAIMS" is defined in Section 8.5(a).
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"INDEMNIFIED PARTY" and "INDEMNIFYING PARTY" are defined in Section
8.4(b).
"KNOWLEDGE" means (i) as it relates to each Seller, the actual
knowledge of that Seller and the officers and directors of the Company, and (ii)
as it relates to Buyer, the actual knowledge of the officers and directors of
Buyer.
"LEASED REAL PROPERTY" is defined in Section 4.12.
"MAJORITY SELLERS" is defined in Section 12.14.
"MATERIAL ADVERSE EFFECT" means (i) with respect to the Company, a
material adverse effect on the business, operations, assets or financial
condition or operating results of the Company and its subsidiaries, taken as a
whole; provided, however, that to the extent any effect arises from or is
attributable to the announcement of the transaction contemplated herein,
including, without limitation, adverse reactions from customers, such effect
shall not be deemed a "Material Adverse Effect," and provided further, that any
work stoppages or other labor disputes at one or more customer's facilities
shall not be deemed a "Material Adverse Effect" and (ii) with respect to the
Company, Seller or Buyer, a material adverse effect on the ability of the
Company, Seller or Buyer, respectively, to consummate the transactions
contemplated hereby or to perform its obligations set forth herein.
"MATERIAL CONTRACTS" and "MATERIAL CONTRACT" are defined in Section
4.18.
"MOST RECENT FINANCIAL STATEMENTS" is defined in Section 4.6.
"MOST RECENT FISCAL PERIOD END" is defined in Section 4.6.
"NEGOTIATORS" is defined in Section 10.2.
"NET PURCHASE PRICE" means the Aggregate Purchase Price minus the
Aggregate Exercise Amount minus Seller Debt.
"OPTION PLAN" is defined in Section 5.11.
"OPTION SHARES" means the Shares that are issuable upon exercise of
the Options, and "OPTION SHARE" means each such Share.
"OPTIONS" means all outstanding options, warrants or other
convertible securities granted under any employee stock option or compensation
plan or arrangement of the Company, other than Called Options to the extent such
Options have been canceled.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"OWNED REAL PROPERTY" is defined in Section 4.11.
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"PERMITS" is defined in Section 4.14.
"PERMITTED EXCEPTIONS" is defined in Section 4.11.
"PERSON" means a natural person, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity (or any
department, agency or political subdivision thereof).
"PLAN" or "PLANS" is defined in Section 4.17(a).
"POLICY" is defined in Section 7.1(l)(i)(a).
"PROPRIETARY RIGHTS" is defined in Section 4.9(a)(ii).
"PURCHASE PRICE PER SHARE" means an amount determined by dividing
the Aggregate Purchase Price by the aggregate number of Shares outstanding as of
the Closing Date, assuming all Options have been exercised.
"REAL ESTATE LEASES" is defined in Section 4.12.
"SEC" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"SECTION 338(h)(10) ELECTION" is defined in Section 11.3.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge or other security interest, other than (i) mechanics' and similar liens
not yet due and payable, (ii) liens for any Tax not yet due and payable or for
any Tax that the taxpayer is contesting in good faith through appropriate
proceedings, (iii) purchase money liens and liens securing rental payments under
capital lease arrangements, and (iv) other immaterial liens arising in the
Ordinary Course of Business and not incurred in connection with the borrowing of
money.
"SELLER" and "SELLERS" is defined in the preamble hereto.
"SELLER AFFIDAVIT" is defined in Section 6.2(h).
"SELLER DEBT" means the aggregate amount of debt owed by Sellers to
the Company that has not been repaid prior to the Closing.
"SELLERS' EXPENSES" is defined in Section 12.6.
"SELLERS' INDEMNIFIABLE CLAIMS" is defined in Section 8.3(a).
"SHARES" is defined in the preamble hereto.
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"SUBSIDIARY" of any entity means a corporation of which that entity
owns directly or indirectly more than 50% of the outstanding securities entitled
generally to vote for the election of directors.
"TAX" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security, unemployment disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum or other tax (including the Michigan Single
Business Tax) of any kind whatsoever, including any interest, penalty or
addition thereto.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to any Tax, including any
schedule or attachment thereto, and including any amendment thereof.
"UPDATED DISCLOSURE SCHEDULE" is defined in Section 5.6.
ARTICLE II
SALE AND PURCHASE
2.1 TRANSFER OF SHARES. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing, each Seller shall sell,
assign, transfer and deliver to Buyer free and clear of all liens, pledges,
encumbrances and similar security interests, and Buyer shall purchase from each
Seller, the number of Shares set forth opposite that Seller's name on Exhibit A
for the consideration specified in Section 2.2.
2.2 PURCHASE PRICE. In consideration of the delivery to Buyer in
accordance with this Agreement of certificates representing the Shares and of
the other obligations of Sellers set forth herein, at the Closing, Buyer shall
pay to Sellers an aggregate amount equal to the Net Purchase Price. Each Seller
shall receive (i) with respect to each Option Share, the Purchase Price Per
Share less the exercise price for such Option Share and (ii) with respect to all
other Shares, the Purchase Price Per Share less the portion of Seller Debt owing
by such Seller (which shall constitute payment in full of the Seller Debt).
Exhibit A sets forth the percentage of the Aggregate Purchase Price to be
received by each Seller at the Closing.
2.3 DETERMINATION OF CERTAIN PURCHASE PRICE ADJUSTMENTS.
(a) Within five business days prior to the Closing Date, Buyer and
the Company shall in good faith jointly prepare an estimate of the Closing
Balance Sheet (as defined in subsection (b) below) (the "ESTIMATED CLOSING
BALANCE SHEET") based on the Company's books and records and other information
then available, to determine Estimated Closing Working Capital. For purposes
hereof, "ESTIMATED CLOSING WORKING CAPITAL" means the book value of the
Company's total current assets (other than Cash and other than the current
portion of the Shore Line Industry promissory
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notes referred to in Section 5.13) LESS the Company's total current liabilities
(other than the current portion of Debt and other than accounts payable
attributable to capital expenditures) (which amount may be a negative number),
determined from the Estimated Closing Balance Sheet as of the Closing Date;
provided, however, that if Buyer and the Company are unable to agree on any item
of the Estimated Closing Working Capital, such disputed item shall be determined
based on the amount of such item set forth on the Company's balance sheet as of
the month-ending immediately prior to the Closing Date. At the Closing, the
Aggregate Purchase Price will be either (A) reduced by the amount by which
$17,000,000 exceeds the Estimated Closing Working Capital or (B) increased by
the amount by which Estimated Closing Working Capital exceeds $17,000,000.
(b) As promptly as practicable after the Closing Date, Buyer will
prepare a balance sheet of the Company as of the close of business on the
Closing Date (the "CLOSING BALANCE SHEET") for the purpose of establishing the
Actual Closing Working Capital. For purposes hereof, "ACTUAL CLOSING WORKING
CAPITAL" means the book value of the Company's total current assets (other than
Cash and other than the current portion of the Shore Line Industry promissory
notes referred to in Section 5.13) LESS the Company's total current liabilities
(other than the current portion of any Debt and other than accounts payable
attributable to capital expenditures) (which amount may be a negative number),
determined from the Closing Balance Sheet. The Closing Balance Sheet and the
Estimated Closing Balance Sheet shall (i) be prepared in accordance with GAAP
(regardless of whether GAAP was applied in prior periods), and (ii) reflect all
items and adjustments regardless of materiality. Within 60 days after the
Closing Date, Buyer shall deliver to Sellers the Closing Balance Sheet.
(c) If Actual Closing Working Capital exceeds Estimated Closing
Working Capital, Buyer shall within three business days pay to Sellers the
amount of such excess. If Actual Closing Working Capital is less than Estimated
Closing Working Capital, Sellers shall within three business days pay to Buyer
in immediately available funds the amount of such shortfall. All amounts owed
pursuant to this subsection (c) shall include interest, from the Closing Date to
the date of payment, at 8.5% annual interest, calculated on the basis of a
365-day year.
(d) If Sellers disagree with any item on the Closing Balance
Sheet, Sellers shall notify Buyer in writing of such disagreement within 30
business days after Sellers' receipt thereof (such notice setting forth in
reasonable detail the basis for such disagreement). Buyer shall permit Sellers
access to such work papers relating to the preparation of the Closing Balance
Sheet as may be reasonably necessary to permit Sellers to review in detail the
manner in which the Closing Balance Sheet was prepared. Buyer and Sellers shall
thereafter negotiate in good faith to resolve any such disagreements; PROVIDED,
HOWEVER, that Sellers or Buyer, as the case may be, shall within three business
days pay to Buyer or Sellers, as the case may be, the amount determined pursuant
to subsection (c) above which is not subject to dispute, if any. If Buyer and
Sellers are unable to resolve any such disagreements within 30 days, Buyer and
Sellers shall jointly retain Deloitte & Touche (the "AUDITOR") to resolve any
remaining disagreements in accordance with subsection (e) below.
(e) Buyer and Sellers shall direct the Auditor to render a
determination within 25
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days of its retention and Buyer and Sellers shall use their best efforts to
cause the Auditor to resolve all disagreements over individual line items as
soon as possible. The Auditor shall consider only those items and amounts in
the Closing Balance Sheet that Buyer and Sellers are unable to resolve. The
determination of the Auditor shall be conclusive and binding upon Buyer and
Sellers. The fees and expenses of the Auditor shall be borne one-half by Buyer
and one-half by Sellers.
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION
3.1 REPRESENTATIONS AND WARRANTIES OF SELLERS. Each Seller
represents and warrants to Buyer that the statements contained in this Section
3.1 with respect to that Seller are true and correct as of the date of this
Agreement and will be true and correct with respect to that Seller as of the
Closing Date as though made again as of the Closing Date, except as set forth in
the disclosure schedule delivered by Sellers to Buyer on the date hereof, a copy
of which is attached hereto and acknowledged by the Parties (the "Disclosure
Schedule").
(a) CAPACITY AND AUTHORIZATION OF SELLERS. Seller is a natural
person with the legal capacity to enter into this Agreement, to perform his
obligations hereunder and to consummate the transactions contemplated hereby.
Assuming the due execution and delivery of this Agreement by the other Sellers
and Buyer, this Agreement is a legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, subject to general
principles of equity and applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws of general application affecting the enforcement
of creditors' rights generally.
(b) NONCONTRAVENTION. Neither the execution and delivery of this
Agreement by Seller nor the consummation by Seller of the transactions
contemplated hereby will (i) conflict with or result in a breach of any
provision of the articles or certificate of incorporation or bylaws of the
Company; (ii) violate, conflict with or result in a breach of any provision of,
or constitute a default (or an event which, with the giving of notice, the
passage of time or otherwise, would constitute a default) under, or entitle any
party (with the giving of notice, the passage of time or otherwise) to
terminate, accelerate or cause a default under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Seller under any agreement, indenture, instrument, order, judgment or
decree binding on Seller or on his properties or assets, except for such
violations, conflicts, breaches, defaults, terminations, accelerations, liens,
security interests, charges or encumbrances that would not separately or in the
aggregate have a Material Adverse Effect on Seller; (iii) violate any statute,
rule, regulation, ordinance or other law or any judgment, order, decree,
stipulation, injunction or charge of any court, administrative agency or
commission or other governmental authority or instrumentality by which Seller is
bound, except for such violations that would not separately or in the aggregate
have a Material Adverse Effect on Seller; or (iv) require any consent, approval,
declaration, order or authorization of, or registration or filing with, any
third party, court or governmental body or other agency, instrumentality or
authority by or with respect to Seller in connection with the execution and
delivery of this Agreement or the consummation of
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the transactions contemplated hereby, other than the filing of a premerger
notification report by Seller under the HSR Act, except if the failure to obtain
any such consent, approval, declaration, order or authorization or to make any
such registration or filing would not have a Material Adverse Effect on Seller.
(c) BROKERS' FEES. Except for the fees payable to Ernst & Young
LLP listed in Section 3.1(c) of the Disclosure Schedule, which Sellers will
cause the Company to pay on or before the Closing Date, neither Seller nor the
Company shall have any liability or obligation to pay any finder's fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which Buyer could become liable or obligated.
(d) SHARES. Seller holds of record and owns beneficially the
number of Shares and Options exercisable for the number of Option Shares set
forth opposite his name on Exhibit A, free and clear of any liens, security
interests, encumbrances, pledges, charges, claims, voting trusts and
restrictions on transfer of any nature whatsoever, except as set forth in
Section 3.1(d) of the Disclosure Schedule and except for restrictions on
transfer imposed by or pursuant to the securities laws of the United States and
of any state that has jurisdiction over such transfer. Seller is not a party to
any option, warrant, purchase right or other contract or commitment that could
require Seller to sell, transfer or otherwise dispose of any capital stock or
any options, warrants of other convertible securities of the Company (other than
this Agreement).
(e) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except as
described in Section 3.1(e) of the Disclosure Schedule, neither Seller nor its
Affiliates is or has been involved in any material business arrangement or
relationship with the Company within the past 12 months and neither Seller nor
their Affiliates (other than the Company) owns any material asset, tangible or
intangible, that is used in the business of the Company.
(f) CONSENTS AND APPROVALS. No consent, approval, order or
authorization of, or registration, declaration or filing with, any governmental
authority is required in connection with Seller's execution and delivery of this
Agreement or his performance of the terms hereof, other than the filing of a
pre-merger notification report by Seller under the HSR Act.
(g) LITIGATION. There is no claim, litigation, action, suit,
proceeding, investigation or inquiry, administrative or judicial, pending or, to
the Knowledge of Seller, threatened against Seller, at law or in equity, before
any federal, state or local court or regulatory agency, or other governmental
authority, that, separately or in the aggregate, is reasonably likely to have a
Material Adverse Effect on Seller.
3.2 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Sellers that the statements contained in this Section 3.2 are true
and correct as of the date of this Agreement and will be true and correct as of
the Closing Date as though made again as of the Closing Date.
(a) CORPORATE ORGANIZATION. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate
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power and authority to own, lease and operate its property and conduct its
business as presently conducted. Buyer is duly qualified to do business and is
in good standing in each jurisdiction in which Buyer owns or leases real
property, maintains an office or has employees residing. Neither the nature of
the business conducted by Buyer nor the property Buyer owns, leases or operates
requires it to qualify to do business as a foreign corporation in any other
jurisdiction except where the failure to be so qualified would not have a
Material Adverse Effect on Buyer. Buyer has delivered to Sellers true, correct
and complete copies of the articles or certificate of incorporation and bylaws
of Buyer.
(b) AUTHORIZATION. Buyer has all requisite corporate power and
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. All necessary corporate
action has been taken by Buyer with respect to the execution, delivery and
performance by Buyer of this Agreement and the consummation of the transactions
contemplated hereby. Assuming the due execution and delivery of this Agreement
by Sellers, this Agreement is a legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, subject to general
principles of equity and applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws of general application affecting the enforcement
of creditors' rights generally.
(c) CONSENTS AND APPROVALS. No consent, approval, order or
authorization of, or registration, declaration or filing with, any governmental
authority is required in connection with Buyer's execution and delivery of this
Agreement or its performance of the terms hereof, other than the filing of a
pre-merger notification report by Buyer under the HSR Act.
(d) INVESTMENT INTENT. Buyer is acquiring the Shares for the
purpose of investment only and not with a view to, or for sale in connection
with, any distribution thereof within the meaning of the Securities Act.
(e) LITIGATION. There is no claim, litigation, action, suit,
proceeding, investigation or inquiry, administrative or judicial, pending or, to
the Knowledge of Buyer, threatened against Buyer, at law or in equity, before
any federal, state or local court or regulatory agency, or other governmental
authority, that, separately or in the aggregate, is reasonably likely to have a
Material Adverse Effect on Buyer.
(f) NO CONFLICTS. Neither the execution and delivery of this
Agreement by Buyer nor the consummation by Buyer of the transactions
contemplated hereby will (i) conflict with or result in a breach of any
provision of the articles or certificate of incorporation or bylaws of Buyer;
(ii) violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with the giving of notice, the passage
of time or otherwise, would constitute a default) under, or entitle any party
(with the giving of notice, the passage of time or otherwise) to terminate,
accelerate or cause a default under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Buyer under any agreement, indenture, instrument, order, judgment or decree
binding on Buyer or on its properties or assets, except for such violations,
conflicts, breaches, defaults, terminations, accelerations, liens, security
interests, charges
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or encumbrances that would not separately or in the aggregate have a Material
Adverse Effect on Buyer; (iii) violate any statute, rule, regulation, ordinance
or other law or any judgment, order, decree, stipulation, injunction or charge
of any court, administrative agency or commission or other governmental
authority or instrumentality by which Buyer is bound, except for such violations
that would not separately or in the aggregate have a Material Adverse Effect on
Buyer; or (iv) require any consent, approval, declaration, order or
authorization of, or registration or filing with, any third party, court or
governmental body or other agency, instrumentality or authority by or with
respect to Buyer in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, other than the
filing of a premerger notification report by Buyer under the HSR Act, except if
the failure to obtain any such consent, approval, declaration, order or
authorization or to make any such registration or filing would not have a
Material Adverse Effect on Buyer.
(g) TRANSACTION FINANCING. Buyer has delivered to the Company a
financing commitment letter that represents commitments of Chase Securities,
Inc., the Chase Manhattan Bank, Banc of America Securities LLC, and Bank of
America NT & SA to provide Buyer with cash and cash equivalents (the "Buyer Debt
Financing") in an amount, taken together with the equity proceeds referred to in
such commitment letter, sufficient to enable it to purchase the Shares as
provided in Section 2.2 without violating any solvency requirements currently
applicable to Buyer.
(h) BROKERS' FEES. Buyer has no liability or obligation to pay
any finder's fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
Each Seller, jointly and severally, represents and warrants to Buyer
that the statements in this Article IV are true and correct as of the date of
this Agreement and will be true and correct as of the Closing Date as though
made again as of the Closing Date, except as set forth in the Disclosure
Schedule.
4.1 CORPORATE ORGANIZATION; AUTHORITY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has all requisite power and authority (corporate
and other) to own, lease and operate its property and conduct its business as
presently conducted. The Company is duly qualified to do business and is in
good standing in each jurisdiction in which the Company owns or leases real
property, maintains an office or has employees residing. Neither the nature of
the business conducted by the Company nor the property the Company owns, leases
or operates requires it to qualify to do business as a foreign corporation in
any other jurisdiction except where the failure to be so qualified would not
have a Material Adverse Effect on the Company. The Company has all requisite
power and authority (corporate and other) to enter into this Agreement, to
perform its obligations hereunder and
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to consummate the transactions contemplated hereby. Sellers have delivered to
Buyer true, correct and complete copies of the Certificate of Incorporation and
the Bylaws of the Company.
4.2 SUBSIDIARIES, ETC. Except as set forth in Section 4.2 of the
Disclosure Schedule, the Company has no Subsidiary and the Company holds no
direct or indirect beneficial interest in any other corporation, partnership,
joint venture, limited liability company, or other entity or enterprise.
4.3 CAPITALIZATION AND SECURITY HOLDERS. The authorized capital
shares of the Company consist solely of 1,200,000 common shares, $.01 par value,
of which 856,200 are issued and outstanding as set forth in Exhibit A hereof and
500,000 preferred shares, without par value, of which none are issued and
outstanding. All outstanding common shares of the Company have been validly
issued and are fully paid and nonassessable and are not subject to, nor were
they issued in violation of, any preemptive rights. Except as set forth in
Section 4.3 of the Disclosure Schedule, (i) there are no outstanding
subscriptions, options, warrants, puts, calls, agreements, understandings, or
other commitments or rights of any type relating to the issuance, sale or
transfer by the Company of any securities of the Company, (ii) there are no
outstanding securities that are convertible into or exchangeable for any capital
shares of the Company, (iii) the Company has no obligation of any kind to issue
any additional securities, and (iv) there are no voting trusts, proxies or any
other agreements or understandings with respect to voting of the capital stock
of the Company. The Company has not, within the last six months, redeemed or
otherwise purchased any of its capital stock.
4.4 LITIGATION. Except as set forth in Section 4.4 of the
Disclosure Schedule, there is no claim, litigation, action, suit, proceeding,
grievance, charge, investigation or inquiry, administrative or judicial, pending
or, to the Knowledge of each Seller, threatened against the Company, at law or
in equity, before any foreign, federal, state or local court or regulatory
agency, or other governmental authority or any arbitrator, that is reasonably
likely to have a Material Adverse Effect on the Company.
4.5 NO CONFLICTS. Except as set forth in Section 4.5 of the
Disclosure Schedule, to the Knowledge of each Seller, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) conflict with or result in a breach of any provision of the
Certificate of Incorporation or Bylaws of the Company; (ii) violate, conflict
with or result in a breach of any provision of, or constitute a default (or an
event that, with the giving of notice, the passage of time or otherwise, would
constitute a default) under, or entitle any party (with the giving of notice,
the passage of time or otherwise) to terminate, accelerate or cause a default
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company under any
agreement, indenture, instrument, order, judgment or decree binding on the
Company or Sellers or on their respective properties or assets, except for such
violations, conflicts, breaches, defaults, terminations, accelerations, liens,
security interests, charges or encumbrances that would not separately or in the
aggregate have a Material Adverse Effect on the Company; (iii) violate any
statute, rule, regulation, ordinance or other law or any judgment, order,
decree, stipulation, injunction or charge of any court, administrative agency or
commission or other governmental authority or instrumentality by the Company or
assets of the
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Company are bound, except for such violations that would not separately or in
the aggregate have a Material Adverse Effect on the Company; or (iv) require any
consent, approval, declaration, order or authorization of, or registration or
filing with, any third party, court or governmental body or other agency,
instrumentality or authority by or with respect to the Company in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, other than the filing of a premerger
notification report by Sellers under the HSR Act, except if the failure to
obtain any such consent, approval, declaration, order or authorization or to
make any such registration or filing would not have a Material Adverse Effect on
the Company.
4.6 FINANCIAL STATEMENTS. Attached hereto as Section 4.6 of the
Disclosure Schedule are the following financial statements of the Company
(collectively, the "Financial Statements"): (i) audited balance sheets and
statements of operations, statements of stockholders' equity and statements of
cash flows as of and for the fiscal years ended December 31, 1998, 1997, and
1996, and (ii) an unaudited balance sheet, income statement, statement of
shareholders' equity and cash flow statement (the "Most Recent Financial
Statements") as of and for the fiscal period ended May 31, 1999 (the "Most
Recent Fiscal Period End"). Except as set forth in Section 4.6 of the
Disclosure Schedule, the Financial Statements have been prepared from the books
and records of the Company and are in accordance with GAAP, and fairly present
in all material respects the financial condition of the Company as of the dates
stated and the results of operations of the Company for the periods then ended,
except that normal recurring year-end adjustments have not been made with
respect to interim financial statements.
4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 4.7 of the Disclosure Schedule and except for such changes and events
that would not have a Material Adverse Effect on the Company, since the Most
Recent Fiscal Period End, there has not been:
(a) Any material adverse change in business, operations, assets,
financial conditions or operating results of the Company or any occurrence,
circumstance, or combination thereof that reasonably could be expected to result
in any such material adverse change;
(b) Any transaction entered into or carried out by the Company
other than in the Ordinary Course of Business;
(c) Any material borrowing or agreement to borrow funds by the
Company, other than pursuant to the Company's existing revolver facility in the
Ordinary Course of Business; any incurring by the Company of any other material
obligation or liability (contingent or otherwise), except liabilities incurred
in the Ordinary Course of Business; or any endorsement, assumption or guarantee
of payment or performance of any material loan or obligation of any other
individual, firm, corporation or other entity by the Company;
(d) Any material change in the Company's method of doing business
or any change in its accounting principles or practices or its method of
application of such principles or practices;
(e) Any material mortgage, pledge, lien, security interest,
hypothecation, charge
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or other encumbrance imposed or agreed to be imposed on or with respect to the
property or assets of the Company, other than in the Ordinary Course of
Business;
(f) Any material lien, mortgage, security interest, pledge,
hypothecation, charge or other encumbrance of the Company discharged or
satisfied, or any obligation or liability (absolute or contingent) paid, other
than in the Ordinary Course of Business;
(g) Any sale, lease or other disposition of, or any agreement to
sell, lease or otherwise dispose of, any of the properties or assets of the
Company in excess, individually or in the aggregate, of $250,000, other than
sales in the Ordinary Course of Business;
(h) Any loan or advance made by the Company to any individual,
firm, corporation or other entity;
(i) Any direct or indirect redemption or repurchase of any shares
of its capital stock or any payment or declaration of a dividend or other
distribution in respect of any shares of its capital stock;
(j) Any issuance, sale or transfer of any notes, bonds or other
debt securities or any equity securities, securities convertible, exchangeable
or exercisable into equity securities, or warrants, options or other rights to
acquire equity securities, of the Company;
(k) Any theft, damage, destruction or loss in excess of $250,000,
to its tangible assets, whether or not covered by insurance or suffered any
substantial destruction of the Company's books and records;
(l) Any acquisition or any arrangement to make an acquisition
(whether by merger, acquisition of stock or assets, or otherwise) of any
business or product line;
(m) Any lease, contract, agreement, commitment, or any other
transaction in excess of $50,000 entered into, amended or terminated other than
in the Ordinary Course of Business, or any transaction with any Affiliate
entered into;
(n) Any bonus or any wage, salary or compensation increase in
excess of $25,000 per year made or granted to any employee or sales
representative, group of employees or consultants or made or granted any
increase in any employee benefit plan or arrangement, or amended or terminated
any existing employee benefit plan or arrangement or adopted any new employee
benefit plan or arrangement; or
(o) Any labor strikes or other material labor disputes with the
employees of the Company.
4.8 TAXES. Except as set forth on Section 4.8 of the Disclosure
Schedule, (i) the Company has duly filed all federal, state, local and foreign
Tax Returns required to be filed by it and each such Tax Return has been
prepared in compliance with all applicable laws and regulations and
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is true and correct except to the extent that any failure to so file or failure
to comply or be true and correct would not have a Material Adverse Effect on the
Company; (ii) all Taxes that have become due and payable by the Company have
been paid; (iii) there are no tax liens (other than for Taxes not yet due and
payable) on the assets of the Company and the Company has received no notice
that any deficiency or proposed adjustment that has not been settled or
otherwise resolved has been or is being proposed, asserted or assessed against
the Company with respect to any Taxes; (iv) there are no outstanding agreements
or waivers extending the statutory period of limitation to any Tax Returns
required to be filed by or on behalf of the Company; (v) there is no action,
suit, taxing authority proceeding or audit with respect to Taxes now in
progress, pending or, to the Knowledge of each Seller, threatened against or
with respect to the Company; (vi) no written claim has ever been received by the
Company from a taxing authority in a jurisdiction where the Company does not
file Tax Returns that the Company is or may be subject to Taxes assessed by such
jurisdiction; (vii) the Company has not been a member of any affiliated,
consolidated, combined, unitary or aggregate group for purposes of filing Tax
Returns or paying Taxes and has no liability under Treasury Regulation 1.1502-6
or any comparable provision of state or local law for the Taxes of another
member of such a group, (viii) the Company has been a validly electing S
corporation within the meaning of Sections 1361 and 1362 of the Code at all
times since August 1, 1996; and (ix) at all times since August 1, 1996, the
Company has held no equity interest in any corporation other than stock of a
corporation that was a "qualified subchapter S subsidiary" within the meaning of
Section 1361(b)(3)(B) of the Code.
4.9 PROPRIETARY RIGHTS.
(a) Section 4.9 of the Disclosure Schedule sets forth:
(i) All patents, trade names, trademarks, service marks, Internet
domain names, copyrights, logos, inventions, designs, trade secrets,
confidential information, computer software and franchises and all
licenses, sublicenses or agreements in respect thereof or applications
therefor, that the Company owns or has the right to use or to which the
Company is a party; and
(ii) All filings, registrations or issuances of any of the
foregoing with or by any federal, state, local or foreign regulatory,
administrative or governmental office or offices ((i) and (ii)
collectively, the "Proprietary Rights").
(b) Except as set forth in Section 4.9 of the Disclosure Schedule,
the Proprietary Rights comprise all intellectual property owned or necessary for
the operation of the Company's business and the Company is the sole and
exclusive owner of all right, title and interest in and to all Proprietary
Rights, free and clear of all liens, claims, charges, equities, rights of use,
encumbrances and restrictions whatsoever, except where the failure to own such
right, title and interest would not have a Material Adverse Effect on the
Company.
(c) To the Knowledge of each Seller, the business of the Company
is not conducted in contravention of any patent, trademark, copyright or other
intellectual property of any
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third party.
(d) To the Knowledge of each Seller, none of the computer
software, computer firmware, computer hardware (whether general or special
purpose) or other similar or related items of automated, computerized or
software systems that are used or relied on by the Company in the conduct of its
business will malfunction, will cease to function, will generate incorrect data
or will produce incorrect results when processing, providing or receiving (i)
data from, into and between the twentieth and twenty-first centuries or (ii)
data in connection with any valid date in the twentieth and twenty-first
centuries.
4.10 INSURANCE. The Company is insured by financially sound and
reputable insurers, unaffiliated with the Company, with respect to its
properties and the conduct of its business in such amounts and against such
risks as are sufficient for compliance with law and as are adequate to protect
the properties and business of the Company in accordance with normal industry
practice.
4.11 REAL PROPERTIES. Section 4.11 of the Disclosure Schedule sets
forth the address and a true, correct and complete legal description of all of
the real property owned by the Company (the "Owned Real Property"). Except as
set forth in Section 4.11 of the Disclosure Schedule (such exceptions, the
"Permitted Exceptions"), the Company has good, valid and marketable title, in
fee simple absolute, to all of the Owned Real Property. Except as set forth in
Section 4.11 of the Disclosure Schedule, the Owned Real Property is held by the
Company free and clear of all mortgages, pledges, liens, security interests,
encumbrances and restrictions of any nature whatsoever, except mortgages and
liens securing debt that is reflected in the Financial Statements or the
Disclosure Schedule which mortgages and liens shall be released at or prior to
the Closing. Section 4.11 of the Disclosure Schedule contains a true and
complete description of each parcel of Owned Real Property.
4.12 REAL ESTATE LEASES. Set forth in Section 4.12 of the
Disclosure Schedule is a list of all leases and subleases of real property,
including all amendments, modifications and supplements thereto (the "Real
Estate Leases"), to which the Company is a party. With respect to each Real
Estate Lease, (i) such Real Estate Lease is in full force and effect and the
Company holds a valid and existing leasehold or subleasehold interest and (ii)
the Real Estate Lease is fully assignable to Buyer. Set forth in Section 4.12
of the Disclosure Schedule is a list of all other material agreements between
the Company and any lessor or sublessor under any of the Real Estate Leases, any
mortgagee of any of the premises covered by the Real Estate Leases (the "Leased
Real Property") or any assignor of any of the Real Estate Leases.
4.13 FIXED ASSETS. Except as set forth in Section 4.13 of the
Disclosure Schedule, the Company has marketable title to all furniture,
fixtures, equipment, machinery and leasehold improvements (the "Fixed Assets")
owned or used by the Company in the conduct of its business or located at the
Owned Real Property or the Leased Real Property as of the date hereof. Except
as set forth in Section 4.13 of the Disclosure Schedule and except for defects
that do not materially detract from the value thereof or adversely affect the
use thereof, the Company has good and
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sufficient title to all Fixed Assets (other than those Fixed Assets that in the
aggregate are not material to the business of the Company) reflected in the
Financial Statements (other than property that has been disposed of in the
Ordinary Course of Business). Except as set forth in Section 4.13 of the
Disclosure Schedule, all the Fixed Assets are in good operating condition,
normal wear and tear excepted, and held free and clear of all Security
Interests. With respect to all buildings (and all components thereof) located
on the Owned Real Property and Leased Real Property, such buildings are in good
condition and repair in light of their age and adequate to operate such
facilities in the manner in which they are being operated.
4.14 PERMITS. Set forth in Section 4.14 of the Disclosure Schedule
is a list of all material permits, variances, licenses, registrations,
certificates and other governmental authorizations ("Permits") held by the
Company and used in the conduct of the Company's business. The Permits
constitute all permits, variances, licenses, registrations, certificates and
other governmental authorizations necessary for the Company to conduct its
business as presently conducted, except when the failure to possess any such
permit, variance, license, registration, certificate or other governmental
authorization would not have a Material Adverse Effect on the Company.
4.15 COMPLIANCE WITH LAWS. Except as set forth in Section 4.15 of
the Disclosure Schedule, the Company has complied, and is in compliance, with
all applicable laws, statutes, orders, rules, regulations, policies or
guidelines promulgated, or judgments, decisions or orders entered, by any
foreign, federal, state or local court or governmental authority applicable to
the Company, its business or its properties (collectively, the "Applicable
Laws"), except for any such noncompliance that would not have a Material Adverse
Effect on the Company.
4.16 ENVIRONMENT, HEALTH AND SAFETY. Except as set forth in
Section 4.16 of the Disclosure Schedule:
(a) No action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand or notice has been filed or commenced against the
Company alleging (i) a failure to comply with or liability arising under
Environmental, Health and Safety Laws, (ii) a requirement to clean up, remove or
take remedial or other response action due to the disposal, depositing,
discharge, leaking or other release of any Hazardous Materials with respect to
the Owned Real Property or the Leased Real Property, or (iii) a requirement to
pay all or a portion of the cost of any past, present or future clean up,
removal or remedial or other response action that arises out of or is related to
the disposal, depositing, discharge, leaking or other release of any Hazardous
Materials by the Company; and
(b) The Company has no liability or obligation (i) for damage to
or contamination of any site, property, location or body of water (surface or
subsurface or groundwater), (ii) for any illness of or personal injury to any
employee or other Person under any of the Environmental, Health and Safety Laws,
or (iii) otherwise relating to or arising under Environmental, Health and Safety
Laws.
(c) The Company has provided to Buyer true and correct copies of
all material
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environmental assessments, reports, and audits, relating to and in the
possession or control of the Company, including, without limitation, those
relating to its current or former properties, operations or facilities.
4.17 EMPLOYEE BENEFIT PLANS.
(a) Section 4.17 of the Disclosure Schedule lists each employee
benefit plan, fund or program that, as of the date of this Agreement, is being
directly or indirectly maintained or contributed to by the Company or any Seller
for the benefit of the current or former employees of the Company, including,
without limitation, any and all "employee benefit plans" (as defined in Section
3(3) of ERISA) (individually, a "Plan" and collectively the "Plans").
(b) Other than the Plans, no Seller nor the Company directly or
indirectly maintains or contributes to (or has any obligation or liability with
respect to) any plan, fund or program (whether domestic or foreign) that
provides medical, health, hospitalization, life, disability or other insurance,
vacation, deferred compensation, pension, bonus, stock options, stock purchase
rights, or other employee benefits with respect to present or former employees
of the Company.
(c) Except as set forth in Section 4.17 of the Disclosure
Schedule, each Plan (and each related trust or insurance contract) complies in
form and in operation in all material respects with all Applicable Laws,
including ERISA, the Code and COBRA, and the Company has made all contributions
and premium payments due thereunder on or before the date of this Agreement.
(d) Except as set forth in Section 4.17 of the Disclosure
Schedule, no material charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand with respect to any Plan (other than routine
claims for benefits) is pending or, to the Knowledge of each Seller and the
Company, has been threatened.
(e) Except as set forth in Section 4.17 of the Disclosure
Schedule, Sellers have made available to Buyer correct and complete copies of
(i) the plan documents and summary plan description, (ii) the most recent Form
5500 Annual Report, and (iii) all trust agreements, insurance contracts and
other funding agreements with respect to each Plan.
(f) Except as set forth in Section 4.17 of the Disclosure
Schedule, the Company has never contributed to, or been under any obligation to
contribute to, any multiemployer plan (as defined in Section 3(37) of ERISA).
(g) Except as set forth in Section 4.17 of the Disclosure
Schedule, no Plan provides for medical or life insurance benefits to retired or
former employees of the Company or any Subsidiary (other than as required under
Code Section 4980B, or similar state law).
(h) The Company has not incurred and has no reason to expect any
liability to the Pension Benefit Guaranty Corporation (other than premium
payments) or otherwise under Title IV of ERISA (including any withdrawal
liability) or under the Code with respect to any employee pension benefit plan
that the Company or any other entity, that together with the Company is treated
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as a single employer under Code Section 414, maintains or ever has maintained or
to which any of them contributes, ever has contributed, or ever has been
required to contribute.
4.18 CONTRACTS. Section 4.18 of the Disclosure Schedule lists the
following contracts and other agreements (other than those of a type disclosed
in another Section to the Disclosure Schedule) to which the Company is a party
(collectively, the "Material Contracts" and each a "Material Contract"):
(a) each sales agency, dealer, representative, distributorship or
brokerage agreement or franchise;
(b) each contract or group of related contracts with the same
party providing for the purchase of goods or services by the Company and under
which the undelivered balance of such goods or services has a purchase price in
excess of $500,000;
(c) each contract or group of related contracts with the same
party providing for the sale of goods or services by the Company and under which
the undelivered balance of such goods or services has a purchase price in excess
of $500,000;
(d) any material agreement for the lease of personal property to
or from any Person providing for lease payments in excess of $100,000 per annum;
(e) each partnership, joint venture, joint operating or similar
agreement;
(f) indebtedness for borrowed money, or any capitalized lease
obligation, in excess of $500,000 or under which it has imposed a Security
Interest on any of its assets, tangible or intangible;
(g) any agreement involving consideration in excess or $100,000 or
any other material agreement with any Seller or an Affiliate of any Seller;
(h) any deferred compensation, severance or other plan or
arrangement for the benefit of its current or former directors, officers and
employees;
(i) any collective bargaining agreement or employment or
consulting agreement;
(j) any agreement under which the Company has advanced or loaned
money to directors, officers or employees outside the Ordinary Course of
Business.
(k) any agreement that prohibits it from freely engaging in
business anywhere in the world; or
(l) any agreement pursuant to which the Company subcontracts work
to third parties.
Sellers have previously delivered to Buyer true, correct and
complete copies of all
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written Material Contracts. Each Material Contract is legally valid and binding
against the Company, in full force and effect and enforceable against the
Company in accordance with its terms, except as disclosed in Section 4.18 of the
Disclosure Schedule and except when the invalidity or nonbinding nature of that
Material Contract would not have a Material Adverse Effect on the Company. The
Company is not in breach or default of any Material Contract and has no
Knowledge of any cancellation, breach or anticipated breach by any other party
to a Material Contract in any material respect.
4.19 INVENTORY. The inventory reflected in the Financial
Statements as of the Most Recent Fiscal Period End is valued on a basis
consistent with past practices. Except as disclosed in Section 4.19 of the
Disclosure Schedule or as reserved in such Financial Statements, substantially
all such inventories are good and merchantable in the Ordinary Course of
Business and of a quality and quantity presently usable. In the aggregate,
management believes adequate reserves have been established on the Company's
books of account with respect to obsolescent and slow moving inventory.
4.20 DIRECTORS, OFFICERS, EMPLOYEES AND COMPENSATION. The Company
has previously provided to Buyer a true and correct list of the officers and
directors of the Company and all employees whose total current salary and bonus
exceeds $75,000 per annum and the total salary, fee and bonus payments received
in the calendar year ended December 31, 1998, by each such officer, director and
employee. The provisions for wages, salaries and bonuses accrued on the
Financial Statements as of the Most Recent Fiscal Period End are adequate for
salaries and wages, including accrued vacation pay, for the period through the
date thereof, and the Company has accrued on its books and records all
obligations for wages and salaries and other compensation to its employees,
including, without limitation, vacation pay and sick pay, and all commissions
and other fees payable to agents, salesmen and representatives.
4.21 LABOR RELATIONS. Except as set forth in Section 4.21 of the
Disclosure Schedule, there is no unfair labor practice, charge or complaint
against the Company pending before any governmental authority. Except as set
forth in Section 4.21 of the Disclosure Schedule, there is no labor strike, or
any material dispute, slowdown, grievance, or stoppage, or any union-organizing
or decertification effort or campaign, actively pending against or involving the
Company or its employees. Except as set forth in Section 4.21 of the Disclosure
Schedule, the Company is not a party to a collective bargaining agreement, and
no collective bargaining agreement is currently being negotiated by the Company
and no union or collective bargaining unit represents any of the employees of
the Company. No layoff of employees has been implemented that could implicate
the Worker Adjustment and Retraining Notification (WARN) Act of 1988.
4.22 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. Except as set forth
in Section 4.22 of the Disclosure Schedule, all accounts receivable of the
Company represent sales actually made in the Ordinary Course of Business and all
accounts payable have been incurred in the Ordinary Course of Business.
4.23 DEBT. The amount of Debt that is included in the determination of
the Aggregate
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Purchase Price represents all the Debt obligations of the Company.
4.24 PRODUCT WARRANTY AND LIABILITY. All products designed,
manufactured, merchandised, serviced, distributed, sold or delivered by the
Company at any time prior to the Closing Date have been in conformity with all
applicable contractual commitments and all express or implied warranties other
than the routine satisfaction of warranty claims consistent with past practice.
No liability exists for recall or replacement thereof or other damages in
connection with such sales or deliveries at any time prior to the Closing Date.
No products heretofore sold by the Company are now subject to any guarantee or
warranty other than the Company's standard terms and conditions of sale other
than in the Ordinary Course of Business or in accordance with industry practice.
The Company has no liabilities (and, to the Knowledge of each Seller, there is
no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against the Company giving
rise to any liability) arising out of any injury to individuals or property as a
result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by the Company.
ARTICLE V
COVENANTS
5.1 GENERAL. Each of the Parties will use reasonable best efforts
to take all action and to do all things necessary to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Article
VII).
5.2 CONDUCT OF BUSINESS OF THE COMPANY PRIOR TO THE CLOSING.
(a) Sellers will not cause or permit the Company to engage in any
practice, take any action of enter into any transaction (i) outside the Ordinary
Course of Business or (ii) that would have required disclosure (if such
practice, action or transaction had occurred prior to the date hereof) under
Section 4.7 of this Agreement.
(b) Prior to the Closing, unless Buyer agrees otherwise in
writing, Sellers will cause the Company to, and Sellers will:
(i) conduct the Company's business and operations only in the
usual and Ordinary Course of Business, including, without limitation, with
respect to maintenance of working capital balances, collection of accounts
receivable, payment of accounts payable, repairs and maintenance, capital
expenditures and cash management practices generally;
(ii) use their reasonable best efforts to cause the Company's
current insurance (or reinsurance) policies not to be canceled or
terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse, replacement
policies providing coverage equal to or greater than the coverage under
the canceled,
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terminated or lapsed policies for substantially similar premiums are in
full force and effect;
(iii) keep in full force and effect their respective corporate
existence and all rights, franchises and intellectual property relating or
pertaining to their businesses;
(iv) use their reasonable best efforts to carry on the business of
the Company in the same manner as presently conducted and to keep the
Company's business organizations and properties intact, including their
present business operations, physical facilities, working conditions and
employees and their present relationships with lessors, licensors,
suppliers and customers and others having business relations with them;
(v) maintain the assets of the Company in normal repair, order and
condition consistent with current needs, replace inoperable, worn out or
obsolete assets with assets of good quality consistent with prudent
practices and current needs;
(vi) promptly (once the Company or Sellers have Knowledge thereof)
inform Buyer in writing of any variances from the representations and
warranties contained in Article 3.1 or Article IV hereof or any breach of
any covenant hereunder by Sellers or the Company.
5.3 ACCESS TO RECORDS. Upon not less than three days' written
notice received by Sellers, Sellers will cause the Company to permit
representatives of Buyer to have reasonable access during normal business hours,
but only in a manner so as not to interfere with the normal business operations
of the Company, to the premises, properties, personnel, books, records,
contracts and documents of or pertaining to the Company; provided, however, that
such access to the premises shall not be provided unless reasonably necessary to
accomplish a legitimate business purpose of Buyer, and provided further, that
Buyer shall be required to be accompanied by Sellers or a representative of
Sellers or the Company at all times upon the Company's premises. Buyer shall
hold in confidence all information so obtained and shall use such information
only for the purpose of implementing the transactions contemplated hereby.
Buyer further covenants and agrees that, prior to the consummation of the
transactions contemplated herein, it shall not at any time, and shall cause its
agents, affiliates, employees and representatives not to at any time, without
the prior written consent of each Seller, disclose any confidential information
regarding the operations of the Company or any Seller to any third party. If
the transactions contemplated hereby are not consummated, Buyer shall return all
data and other information to Sellers and continue to honor the foregoing
confidentiality and nondisclosure covenants. Buyer's obligations under this
Section 5.3 do not extend to any (i) information that is shown to be or to have
been generally known to others engaged in the same trade or business as the
Company; (ii) information that is or becomes public knowledge through no act or
omission by Buyer or any of its directors, officers, employees, professional
advisors, or other representatives; (iii) information that is rightfully
obtained by Buyer from a third party that is under no contractual or other
obligation of confidentiality with respect to such information; or (iv)
information that is required to be disclosed pursuant to judicial or
governmental requirements.
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5.4 HSR ACT FILINGS. Buyer and Sellers shall, as promptly as
practicable but in no event later than five business days following the
execution and delivery of this Agreement, file with the United States Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice (the "DOJ") the notification and report form, if any,
required for the transactions contemplated hereby and any supplemental
information requested in connection therewith pursuant to the HSR Act. Any such
notification and report form and supplemental information shall be in
substantial compliance with the requirements of the HSR Act. Each Party shall
furnish to the other such necessary information and reasonable assistance as the
other may request in connection with its preparation of any filing or submission
that is necessary under the HSR Act. The Parties shall keep each other apprised
of the status of any communications with, and inquiries or requests for
additional information from, the FTC and the DOJ and shall comply promptly with
any such inquiry or request. Buyer shall pay all fees and expenses incurred by
any Party in connection with that preparation and filing.
5.5 LITIGATION SUPPORT. If and for so long as any Party is
actively contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection with (i) any
transaction contemplated by this Agreement, or (ii) any fact, situation,
circumstance, status, condition, activity, practice plan, occurrence, event,
incident, action, failure to act or transaction on or prior to the Closing Date
involving the Company, each of the other Parties shall cooperate with such Party
and such Party's counsel in the defense or contest, make available its
personnel, and provide such testimony and access to its books and records as
shall be necessary in connection with the defense or contest, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Article VIII).
5.6 UPDATED DISCLOSURE SCHEDULE. Immediately prior to the
Closing, Sellers shall prepare and deliver to Buyer an updated Disclosure
Schedule (the "Updated Disclosure Schedule") that updates the information
contained in the Disclosure Schedule as of the Closing Date. Buyer shall accept
and acknowledge the Updated Disclosure Schedule if the Closing occurs, provided
it meets the standard set forth in Section 7.1(i) or Section 5.16, as
applicable. Upon such acceptance and acknowledgment by Buyer, for all purposes
under this Agreement such Updated Disclosure Schedule shall be deemed to
supersede and amend the original Disclosure Schedule dated as of the date of
this Agreement.
5.7 INDEMNIFICATION. Buyer shall cause the Company to keep in
effect provisions in its certificate of incorporation and bylaws with respect to
indemnification no less favorable to directors and officers than those contained
therein on the date hereof, which provisions shall not be amended, repealed or
otherwise modified for a period of at least six years from the Closing in any
manner that would adversely affect the rights thereunder of individuals who at
any time prior to the Closing were directors or officers of the Company in
respect of actions or omissions at or prior to the Closing (including the
transactions contemplated by this Agreement), except as required by applicable
law or except to make changes permitted by law that would not materially
diminish such rights of indemnification.
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5.8 EXCLUSIVITY. None of Sellers will (and Sellers will not cause
or permit the Company to) (a) solicit, initiate or encourage the submission of
any proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of the Company (including any
acquisition structured as a merger, consolidation or share exchange), or (b)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. Sellers will not vote the Shares in favor of any such acquisition
structured as a merger, consolidation or share exchange. Sellers shall notify
Buyer immediately if any Person makes any proposal, offer or inquiry with
respect to the foregoing.
5.9 S CORPORATION DISTRIBUTION. Prior to the Closing, Sellers
shall cause the Company to make certain payments to such Persons, and in such
amounts, as set forth on Section 5.9 of the Disclosure Schedule. The making of
such payments by the Company shall not be deemed a breach of any representation,
warranty or covenant of Sellers otherwise contained in this Agreement.
5.10 CALL OF OPTIONS. Prior to the Closing, Sellers shall cause
the Company to cancel the options identified on Section 5.10 of the Disclosure
Schedule (the "Called Options") by paying to the holder of each such option
$10.00 per share for each share subject to purchase pursuant to such option.
5.11 EXERCISE OF OPTIONS. Prior to the Closing, the Sellers shall
cause the Company to take such actions as are necessary, including, if
necessary, amending the Company's Non-Qualified Stock Option Plan (the "Option
Plan"), so that (a) all outstanding Options granted under the Plan automatically
will vest immediately prior to the Closing and (b) such Options automatically
will be canceled upon payment by Buyer to each holder thereof of an amount in
cash equal to the difference between the Purchase Price Per Share and the
exercise price per share for that holder's respective Options for each share
subject to that holder's respective Options. The amendment of the Option Plan
provided for in this Section 5.11 shall be conditioned upon the consummation of
the transactions contemplated by this Agreement so that, in the event the
transactions are not consummated and this Agreement is terminated, the Options
shall in all respects revert to the terms in effect prior to the amendment.
5.12 PERFORMANCE BONUS AMENDMENT. Prior to the Closing, the
Sellers shall use all reasonable efforts to cause the Company to enter into an
amendment to the Performance Bonus and Noncompete Agreement with each of Messrs.
Myers, Fischer, Rotondo and Doran that clarifies that the change in control
payments to be made to such individuals as a result of the transactions
contemplated by this Agreement represent satisfaction in full of all obligations
arising under such agreements.
5.13 PROMISSORY NOTES FROM SHORE LINE INDUSTRIES, INC. If and when
Buyer receives principal and interest payments under the two promissory notes
dated July 1, 1998, issued by Shore Line Industries, Inc. in favor of the
Company, Buyer shall, within five days after such receipt, pay to James A.
Humphrey for distribution to Sellers the amount of such payments in
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immediately available funds.
5.14 RELEASE OF GUARANTY. If and when the Company is released
from its obligations to guaranty indebtedness of Shore Line Industries, Inc.,
Buyer shall, within five days after such release, pay to James A. Humphrey for
distribution to Sellers, in immediately available funds, an amount equal to the
principal amount of the indebtedness guaranteed, but only to the extent such
principal amount was included in Debt for purposes of determining the Aggregate
Purchase Price.
5.15 NELSON FINANCING. At the Closing, James Humphrey, the sole
stockholder of Nelson Metal Financing Corporation ("Nelson Financing"), will
transfer to Buyer all of the equity interests of Nelson Financing for no
additional consideration, free and clear of all liens and encumbrances. Sellers
represent and warrant that James A. Humphrey is the sole stockholder of Nelson
Financing, and Nelson Financing has no liabilities or obligations other than
those related to the financing arrangement reflected in the Loan Agreement dated
July 31, 1996 between Nelson Financing and the Company.
5.16 COMPLIANCE AUDIT. The Company has retained an environmental
consultant to perform a so-called "compliance audit" of the Company's facilities
and operations. If such audit identifies liabilities or potential liabilities
that could reasonably be expected to exceed $1 million, Buyer shall have the
right, for a period of 7 business days after receipt of the compliance audit, to
terminate this Agreement. Nothing in this Section shall limit the ability of
Sellers to amend the Disclosure Schedule pursuant to Section 5.6 (with the same
level of specificity as the current Disclosure Schedule).
ARTICLE VI
CLOSING
6.1 THE CLOSING. The transactions contemplated by this Agreement
shall be closed (the "Closing"), and all deliveries to be made at such time in
connection therewith shall take place, at the offices of Baker & Hostetler LLP,
3200 National City Center, Cleveland, Ohio, commencing at 10:00 a.m., Cleveland
time, on October 15, 1999 (the "Closing Date"), or such other date mutually
satisfactory to the Parties after the satisfaction or waiver of all of the
conditions set forth in Article VII.
6.2 DELIVERIES OF SELLERS AT CLOSING. At the Closing, Sellers
will deliver or cause to be delivered to Buyer the following:
(a) Certificates representing the Shares, which shall be
registered in the name of Buyer, or duly endorsed for transfer to Buyer or
accompanied by duly executed stock powers as set forth in Section 7.1(g);
(b) The certificate referred to in Section 7.1(f) of this
Agreement;
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(c) A Certificate of the Secretary of State of Delaware as to the
legal existence and good standing of the Company, together with the Company's
Certificate of Incorporation, certified by the Secretary of State of Delaware;
(d) All minute books, stock transfer books, stock certificate
books and all corporate seals and financial and accounting books and records of
the Company;
(e) A certificate setting forth the amount of Debt and Cash (the
"Closing Certificate");
(f) Copies of third party and governmental consents, if any,
listed on Schedule 6.2;
(g) A duly executed Section 338(h)(10) Election; and
(h) An affidavit dated as of the Closing Date and sworn under
penalty of perjury setting forth the names, addresses and federal tax
identification numbers of each Seller stating that such Seller is not a "foreign
person" within the meaning of Section 1445 of the Code (the "Seller Affidavit").
6.3 DELIVERIES OF BUYER AT CLOSING. At the Closing, Buyer will
deliver or cause to be delivered to Sellers the following:
(a) The Net Purchase Price in the form specified in Section 2.2 of
this Agreement payable pursuant to the directions of Sellers delivered at least
three business days before the Closing;
(b) The certificate referred to in Section 7.2(e) of this
Agreement; and
(c) A Certificate of the Secretary of State of Delaware as to the
legal existence and good standing of Buyer, together with a copy of Buyer's
articles or certificate of incorporation, certified by the Secretary of State of
Delaware.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
7.1 CONDITIONS TO OBLIGATIONS OF BUYER. Each and every obligation
of Buyer to be performed under this Agreement is subject to the satisfaction at
or prior to the Closing of each of the following conditions (unless waived in
writing by Buyer):
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Section 3.1 and Article IV of this Agreement
(disregarding for purposes hereof any materiality or Material Adverse Effect
qualifications set forth therein) shall have been true and correct when made and
shall be true and correct at and as of the Closing as though such
representations and
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warranties were made as of the Closing (without taking into account any
disclosures made by Sellers to Buyer pursuant to Section 5.6 or 5.2(b)(vi)),
except for such inaccuracies that in the aggregate have not had and would not
reasonably be expected to have, in the reasonably foreseeable future, a Material
Adverse Effect on the Company.
(b) PERFORMANCE OF AGREEMENT. All covenants, conditions and other
obligations under this Agreement that are to be performed or complied with by
each Seller shall have been performed and complied with in all material respects
on or prior to the Closing, including, without limitation, all deliveries to be
made pursuant to Section 6.2 of this Agreement and all covenants to be performed
prior to the Closing pursuant to Article V of this Agreement.
(c) CONSENTS. All applicable governmental approvals, premerger
filing requirements and waiting periods, including, without limitation, those
under the HSR Act, shall have been received or satisfied.
(d) NO ADVERSE CHANGE. There shall not have been any change since
the date of this Agreement that has had, or would reasonably be expected to
have, a Material Adverse Effect on the Company.
(e) NO ADVERSE PROCEEDING. There shall not be pending or
threatened any claim, action, litigation or proceeding (judicial or
administrative) or governmental investigation against Buyer, any Seller or the
Company for the purpose of enjoining or preventing the consummation of this
Agreement, or otherwise claiming that this Agreement or the consummation of the
transactions contemplated hereby is illegal.
(f) CERTIFICATE. Sellers shall have delivered to Buyer at the
Closing a certificate, dated the date of Closing, to the effect that the
conditions set forth in subsections (a) through (d) and, to the Knowledge of
each Seller, (e), of this Section 7.1 have been satisfied.
(g) SHARES. There shall have been delivered to Buyer certificates
representing the Shares, which shall be registered in the name of Buyer, or duly
endorsed for transfer to Buyer or accompanied by duly executed stock powers.
(h) RESIGNATION OF DIRECTORS AND OFFICERS. Each of the directors
and each of the officers (specified by Buyer) of the Company shall have tendered
their resignations effective as of the Closing Date.
(i) UPDATED DISCLOSURE SCHEDULE. Sellers shall have delivered to
Buyer the Updated Disclosure Schedule, which Updated Disclosure Schedule shall
not contain, in the reasonable opinion of Buyer, any new or updated items of
information that reflect, individually or in the aggregate, a change that has
had a Material Adverse Effect on the Company.
(j) LEGAL OPINION. Buyer shall have received from counsel to
Sellers and the Company a closing legal opinion in substantially the form of
Exhibit B, addressed to Buyer and dated as of the Closing Date.
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(k) RECEIPT OF FINANCING PROCEEDS. Buyer shall have obtained the
proceeds of the Buyer Debt Financing.
(l) TITLE COMMITMENT; SURVEY. (i) With respect to each parcel of
Owned Real Property, Buyer shall receive:
(a) upon Buyer's payment of the applicable premium
therefor, a title insurance policy or an irrevocable and
unconditional commitment to issue a title insurance policy (the
"Policy"), based on a title commitment for an ALTA Owners Policy of
Title Insurance issued by Buyer's title insurer, insuring Buyer's
interest in the Owned Real Property subject only to the Permitted
Exceptions and matters corrected by Sellers pursuant to subsection
(iii). The Policy shall contain such endorsements as reasonably
requested by Buyer or Buyer's lender; and
(b) current surveys prepared by Buyer's surveyor, which
surveys (1) shall conform to 1997 ALTA/ACSM Minimum Detail
Requirements for Urban Title Surveys and (2) shall not disclose any
survey defect or encroachment or a violation of a covenant,
condition or restriction that affects the Owned Real Property,
including, without limitation, the Permitted Exceptions, from or
onto any of the Owned Real Property that materially adversely
effects the conduct of the business of the Company on that
respective parcel of Owned Real Property or the value of such
parcel.
(ii) With respect to Leased Real Property, Buyer shall
receive an estoppel letter from the Landlords, lessors and sublessors for
such property (which shall contain, if required by the applicable lease or
sublease, the consent of the respective Landlord, lessor or sublessor to
the transactions contemplated herein) in form and substance reasonably
satisfactory to Buyer.
(iii) No liens or encumbrances affecting the Owned Real
Property that are not Permitted Exceptions shall be grounds for rejecting
title, provided Sellers cause Buyer's title insurer without cost to
Buyer, to insure over such lien or encumbrance.
(m) SELLER AFFIDAVIT. Buyer shall have received from each Seller
the Seller Affidavit.
7.2 CONDITIONS TO OBLIGATIONS OF SELLERS. Each and every
obligation of Sellers to be performed under this Agreement shall be subject to
the satisfaction at or prior to the Closing of the following conditions (unless
waived in writing by each Seller):
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer set forth in Section 3.2 of this Agreement shall have been
true and correct when made, and shall be true and correct at and as of the
Closing as though such representations and warranties were made as of the
Closing, except for such inaccuracies that have not had and would not reasonably
be
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expected to have, in the reasonably foreseeable future, a Material Adverse
Effect on Buyer.
(b) PERFORMANCE OF AGREEMENT. All covenants, conditions and other
obligations under this Agreement that are to be performed or complied with by
Buyer shall have been performed and complied with in all material respects on or
prior to the Closing, including, without limitation, all deliveries to be made
pursuant to Section 6.3 of this Agreement.
(c) CONSENTS. All applicable governmental approvals, premerger
filing requirements and waiting periods, including, without limitation, those
under the HSR Act, shall have been received or satisfied.
(d) NO ADVERSE PROCEEDING. There shall not be pending or
threatened any claim, action, litigation or proceeding (judicial or
administrative) or governmental investigation against Buyer, any Seller or the
Company for the purpose of enjoining or preventing the consummation of this
Agreement, or otherwise claiming that this Agreement or the consummation of the
transactions contemplated hereby is illegal.
(e) CERTIFICATE. Buyer shall have delivered to Sellers at the
Closing a certificate signed on its behalf by its President or Vice President
and Secretary or Assistant Secretary, dated the date of Closing, to the effect
that the conditions set forth in subsections (a) through (c) and, to the
Knowledge of such officers, (d), of this Section 7.2 have been satisfied.
(f) PURCHASE PRICE. Buyer shall have paid the Net Purchase Price
at the Closing in accordance with Section 2.2 hereof.
(g) LEGAL OPINION. Sellers shall have received from counsel to
Buyer a closing legal opinion in substantially the form of Exhibit C, addressed
to Buyer and dated as of the Closing Date.
ARTICLE VIII
INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Subject to the limitations set forth in Sections 8.4 and 8.7 of this Agreement
and notwithstanding any investigation conducted at any time with regard thereto
by or on behalf of the Parties, all representations and warranties in this
Agreement of Sellers and Buyer shall survive execution and delivery of this
Agreement for a period of 15 months from the Closing Date, except for the
representations and warranties contained in Sections 3.1(a), 3.1(c), 3.1(d),
3.2(a), 3.2(b), 4.1 and 4.3 which shall survive execution and delivery of this
Agreement indefinitely, and Section 4.8, which shall survive execution and
delivery of this Agreement until 60 days after the expiration of the applicable
statute of limitations.
8.2 INDEMNIFICATION BY SELLERS.
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(a) Subject to the limitations set forth in Sections 8.4 and 8.7
of this Agreement, Sellers, jointly and severally, hereby covenant and agree to
indemnify and hold harmless Buyer from and against any and all losses,
liabilities, damages, demands, claims, suits, actions, judgments or causes of
action, assessments, costs and expenses, including, without limitation,
interest, penalties, attorneys' fees, any and all expenses incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation (collectively, "Damages"), asserted against,
resulting to, imposed on or incurred or suffered by Buyer, directly or
indirectly, as a result of or arising from the following (collectively, "Buyer's
Indemnifiable Claims"):
(i) Any inaccuracy in or breach of any of the representations or
warranties (disregarding for purposes hereof, any materiality and Material
Adverse Effect qualifications set forth in such representations and
warranties) made by Sellers in this Agreement; or
(ii) Any breach or nonperformance of any covenant, certificate or
obligation to be performed or delivered by Sellers pursuant to this
Agreement.
(iii) Any liability arising under Environmental Health and Safety
Laws relating to or arising from the Brite Metals facility located at 1100
Godfrey Street S.W., Grand Rapids, Michigan.
(iv) All Taxes that are not accrued or reserved for in the Closing
Balance Sheet (A) of the Company with respect to taxable periods (or
portions thereof) ending on or before the Closing Date (other than the
Section 338(h)(10) Taxes) and (B) of any other person for which the
Company is liable (I) as a result of such person being a member of a
consolidated, combined or unitary group that included the Company for any
taxable period (or portion thereof) ending on or before the Closing Date,
(II) as a successor, or (III) by contract entered into on or before the
Closing Date.
(b) For purposes of this Article, all Damages shall be computed
net of any insurance coverage proceeds received by the Company with respect
thereto, or any corresponding tax benefit when and as received by or realized by
such Party, that reduces the Damages that would otherwise be sustained.
(c) Buyer shall be considered to have suffered Damages arising out
of or resulting from the matters referred to in subsection (a) above if the same
shall be suffered by any parent, subsidiary or Affiliate of Buyer, including,
without limitation, the Company.
8.3 INDEMNIFICATION BY BUYER.
(a) Subject to the limitations set forth in Sections 8.4 and 8.7
of this Agreement, Buyer hereby covenants and agrees to indemnify and hold
harmless each Seller from and against any and all Damages asserted against,
resulting to, imposed on or incurred or suffered by that Seller, directly or
indirectly, as a result of or arising from the following (collectively,
"Sellers' Indemnifiable Claims"):
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(i) Any inaccuracy in or breach of any of the representations or
warranties made by Buyer in this Agreement (disregarding for purposes
hereof, any materiality and Material Adverse Effect qualifiers set forth
in such representations and warranties);
(ii) Any breach or nonperformance of any covenant or obligation to
be performed by Buyer pursuant to this Agreement; or
(iii) All (A) Taxes of the Company that are accrued or reserved for
in the Closing Balance Sheet or with respect to taxable periods (or
portions thereof) beginning after the Closing Date, (B) the Section
338(h)(10) Taxes and (C) Taxes of any other person for which the Company
is liable (I) as a result of such person being a member of a consolidated,
combined or unitary group that is created after the Closing Date and that
includes the Company with respect to any taxable period (or portion
thereof) beginning after the Closing Date or (II) by contract entered into
after the Closing Date.
(b) For purposes of this Article, all Damages shall be computed
net of any insurance coverage proceeds received by the Sellers with respect
thereto, or any corresponding tax benefit when and as received by or realized by
such Party, that reduces the Damages that would otherwise be sustained.
8.4 LIMITATIONS ON RECOVERY. Rights to indemnification hereunder
are subject to the following limitations:
(a) Subject to Section 12.13 below, the obligation of indemnity
provided herein constitutes the sole remedy of each Party with respect to any
claim arising under this Agreement, other than a claim arising under Section 9.2
or a claim based on intentional misrepresentation or willful misconduct, and
terminates after the fifteenth month after the Closing Date, other than in
connection with a claim arising as a result of a breach of the representations
and warranties contained in Section 3.1(a), 3.1(c), 3.1(d), 3.2(a), 3.2(b), 4.1,
4.3 or 4.8.
(b) The foregoing provisions of this Section notwithstanding, if,
prior to the termination of any obligation to indemnify as provided for herein,
written notice of a claimed breach specifying the Section of this Agreement with
respect to which the claimed breach arose and setting forth in reasonable detail
the facts constituting the claimed breach is given by a Party seeking
indemnification (the "Indemnified Party") to the Party from whom indemnification
is sought (the "Indemnifying Party"), or a suit or action based upon a claimed
breach is commenced against the Indemnifying Party, the Indemnified Party shall
not be precluded from pursuing such claimed breach or suit or action, or from
recovering from the Indemnifying Party (whether through the courts or otherwise)
on the claim, suit or action, by reason of the termination otherwise provided
for above.
(c) Sellers' obligation to indemnify Buyer under this Article VIII
shall be joint and several. Except with respect to any breach of the
representations and warranties contained in Section 3.1(a), 3.1(c), 3.1(d),
3.2(a), 3.2(b), 4.1, 4.3, 4.8, 4.23 or 5.15, Sellers' and Buyer's obligation to
indemnify the other Party under Section 8.2(a)(i) and 8.3(a)(i), respectively,
shall be applicable only after and to the extent that the aggregate amount of
all Damages asserted under
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Buyer's Indemnifiable Claims or Sellers' Indemnifiable Claims relating to such
Sections 8.2(a)(i) or 8.3(a)(i), as applicable, exceeds an amount equal to .75%
of the Enterprise Value (the "Basket"); provided, however, that (1) neither
Buyer nor Sellers shall have any obligation to indemnify the other party for any
single course of conduct, related set of circumstances, occurrence or event,
unless the Damages arising therefrom exceed $50,000; and (2) no Damages arising
from any single course of conduct, related set of circumstances, occurrence or
event shall be included in calculating whether the Basket has been exceeded
unless the Damages arising therefrom exceed $50,000.
(d) Except with respect to any breach of the representations and
warranties contained in Section 3.1(a), 3.1(c), 3.1(d), 3.2(a), 3.2(b), 4.1,
4.3, 4.8 or 4.23, the maximum aggregate liability of Sellers to Buyer under
Section 8.2(a)(i) for Damages under Buyer's Indemnifiable Claims and of Buyer to
Sellers under Section 8.3(a)(i) for Damages under Sellers' Indemnifiable Claims
shall be an amount equal to 10% of the Enterprise Value.
(e) Notwithstanding anything to the contrary contained herein,
Sellers' obligation to indemnify Buyer under Section 8.2(a)(iii) shall be
applicable only after and to the extent that the aggregate amount of all Damages
asserted under such Section exceeds the amount of $400,000. To the extent that
the amount of Damages for all Buyers' Indemnifiable Claims under Section
8.2(a)(iii) exceeds $400,000, the next $3,000,000 of Damages for Buyers'
Indemnifiable Claims under Section 8.2(a)(iii) shall be shared 15% by Buyer and
85% by Sellers. The maximum aggregate liability of Sellers to Buyer under
Section 8.2(a)(iii) shall be $2,550,000. Sellers' obligation to indemnify Buyer
under Section 8.2(a)(iii) shall expire on the fourth anniversary of the date
hereof; provided, however, that Sellers' obligation to indemnify Buyer under
Section 8.2(a)(iii) shall include Damages which have been committed to be paid
by Buyer on or before the fourth anniversary of the date hereof. Buyer shall
have the right to control the actions for which indemnification may be sought
under Section 8.2(a)(iii). Sellers shall have the right, at their sole cost and
expense and through a designated representative, to reasonably participate in
the management of any action for which Buyer seeks indemnification under Section
8.2(a)(iii). Such right of participation shall include the right to: (i)
receive copies of documents Buyer receives from or submits to governmental
authorities; (ii) receive advance notices of material meetings between Buyer and
third parties or governmental authorities and attend and participate in such
meetings; and (iii) reasonably confer with Buyer with respect to the management
of such action. No Damages incurred by Buyer in connection with the Brite
Metals facility, including in connection with the remediation thereof, shall be
indemnifiable by Sellers hereunder, unless such Damages relate to or arise from
payments, actions or obligations that are reasonably necessary to comply with
Environmental Health and Safety Laws; comply with or respond to a judgment,
order, claim or request of a governmental authority; respond to a third-party
claim; address conditions that would reasonably be expected to present a risk to
human health or the environment; or limit the liability of the Company to third
parties or the Michigan Department of Environmental Quality.
(f) Notwithstanding anything to the contrary contained herein, (i)
no Party shall be liable to or otherwise responsible to any other Party or any
of its successors and assigns for consequential or punitive damages (other than
punitive damages, awarded to third parties) or for lost profits with respect to
Indemnifiable Claims, and (ii) with respect to any breach of the
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representations and warranties contained in Section 3.1(a), 3.1(c) or 3.1(d),
each Seller's obligation to indemnify Buyer shall be several and not joint, and
each Seller shall be obligated to indemnify Buyer only with respect to breaches
of the representations and warranties made by that Seller.
8.5 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD-PARTY
CLAIMS.
(a) If the Indemnified Party determines to seek indemnification
under this Article with respect to any Sellers' Indemnifiable Claims or Buyer's
Indemnifiable Claims, as applicable ("Indemnifiable Claims"), resulting from the
assertion of liability by third parties, it shall give notice to the
Indemnifying Party within 60 days of the Indemnified Party's becoming aware of
such Indemnifiable Claim; provided, however, that the failure to give timely
notice hereunder shall not relieve the Indemnifying Party of its obligations
hereunder, except to the extent such party is materially prejudiced thereby.
The notice shall identify the Section of this Agreement with respect to which
the claimed breach arose and shall set forth such information with respect
thereto as is then reasonably available to the Indemnified Party, including the
facts constituting the claimed breach. If any such liability is asserted
against the Indemnified Party, and the Indemnified Party notifies the
Indemnifying Party thereof, the Indemnifying Party will be entitled, if it so
elects by written notice delivered to the Indemnified Party within 20 days after
receiving the Indemnified Party's notice, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. Notwithstanding the
foregoing, (i) the Indemnified Party shall also have the right to employ its own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of the Indemnified Party (as long as the Indemnifying Party
continues to defend such matter); and (ii) the rights of the Indemnified Party
to be indemnified hereunder in respect of Indemnifiable Claims shall be
considered forfeited by its failure to give notice pursuant to the foregoing
only to the extent that the Indemnifying Party is materially prejudiced by such
failure to give notice. With respect to any assertion of liability by a third
party that results in an Indemnifiable Claim, the Parties shall make reasonably
available to each other all relevant information in their possession material to
any such assertion.
(b) If the Indemnifying Party, within 20 days after receipt of the
aforesaid notice of an Indemnifiable Claim, fails to assume the defense of the
Indemnified Party against such Indemnifiable Claim, the Indemnified Party shall
have the right to undertake the defense and to compromise or settle such action
on behalf of and for the account and risk of the Indemnifying Party.
(c) Notwithstanding anything in this Section to the contrary, the
Indemnifying Party shall not, without the Indemnified Party's written consent,
settle or compromise any Indemnifiable Claim or consent to entry of any judgment
in respect thereof. If the Indemnifying Party can settle such Indemnifiable
Claim with a complete release of the Indemnified Party and all Affiliates of the
Indemnified Party for monetary damages only, but the Indemnified Party refuses
such settlement, the Indemnifying Party shall not be liable for Damages in
excess of the monetary damages of such proposed settlement.
8.6 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO NON-THIRD-PARTY
CLAIMS. If the Indemnified Party asserts the existence of an Indemnifiable
Claim giving rise to Damages (other
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than claims resulting from the assertion of liability by third parties), it
shall give written notice to the Indemnifying Party identifying the Section of
this Agreement with respect to which the claim arose, setting forth, in
reasonable detail, the facts constituting the claim and specifying the nature
and amount of the claim. If the Indemnifying Party, within 20 days after the
mailing of notice by the Indemnified Party, shall not give written notice to the
Indemnified Party announcing its intent to contest the assertion of the
Indemnified Party, the assertion by the Indemnified Party shall be considered
accepted and agreed to by the Indemnifying Party. If, however, the Indemnifying
Party contests the assertion of a claim by giving that written notice to the
Indemnified Party within that period, then the Parties shall resolve such claim
in accordance with the procedures set forth in Article X. Each Party shall pay
its own legal, auditing and other fees in connection with such a contest;
provided, however, that the fees of any mediator and expenses incurred by the
mediator shall be borne one-half by Buyer and one-half by Sellers.
8.7 EXCEPTIONS. Notwithstanding anything to the contrary
contained in this Agreement, if a Party receives written notice from the other
Party that, at the time of Closing, there exists (A) a default in any covenant,
agreement or obligation to be performed by such other Party under this Agreement
or (B) any breach of or inaccuracy of any representation or warranty of such
Party made in this Agreement, and the Party receiving such notice nonetheless
elects to proceed to the Closing, then, upon the consummation of the Closing,
the Party receiving such notice shall be considered to have waived any such
default and breach and shall have no claim against such other Party with respect
thereto.
ARTICLE IX
TERMINATION
9.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at
any time prior to the Closing:
(a) by the mutual written consent of Buyer and each Seller;
(b) by Buyer if any Seller remains in breach of any representation
or warranty contained herein for 15 days after the date on which Buyer has
notified each Seller in writing of that breach;
(c) by any Seller if Buyer remains in breach of any representation
or warranty contained herein for 15 days after the date on which a Seller has
notified Buyer in writing of that breach;
(d) by Buyer if any obligation, term or condition to be performed,
kept or observed by any Seller has not been performed, kept or observed in any
material respect at or prior to the time specified in this Agreement and such
failure continues for 15 days after the date on which Buyer has notified each
Seller in writing of such failure;
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(e) by any Seller if any obligation, term or condition to be
performed, kept or observed by Buyer has not been performed, kept or observed in
any material respect at or prior to the time specified in this Agreement and
such failure continues for 15 days after the date on which a Seller has notified
Buyer in writing of such failure;
(f) by Buyer or any Seller if any permanent injunction or other
order of a court or other competent authority preventing the consummation of the
transactions contemplated by this Agreement shall have become final and
nonappealable; or
(g) by Buyer or any Seller, if not then in material breach of any
of its obligations hereunder, if the Closing has not occurred by November 15,
1999; or
(h) by Buyer under the circumstances described in Section 5.16.
9.2 EFFECT OF TERMINATION. A termination under this Article IX
does not prejudice any claims which any Party may have under this Agreement, in
law or in equity, as a consequence of any failure or default under this
Agreement by another Party hereto. If Buyer or Sellers terminate this Agreement
because the condition in Section 7.1(k) is not satisfied, Buyer shall pay to the
Company the amount of $5,000,000, by wire transfer of immediately available
funds, within two business days of such termination, such amount to serve as
liquidated damages (and not as a penalty); provided that any termination
resulting from the failure of any other condition set forth in Section 7.1
(which may also have resulted in a failure of Section 7.1(k)) shall not result
in any obligation to make such liquidated damage payment.
ARTICLE X
DISPUTE RESOLUTION
10.1 EXCLUSIVE PROCEDURE FOR DISPUTE RESOLUTION. Any dispute
arising out of or relating to this Agreement, other than pursuant to Section
9.2, including claims for indemnification pursuant to Article VIII, shall be
resolved in accordance with the procedures specified in this Article X, which
shall be sole and exclusive procedures for the resolution of any such disputes.
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10.2 NEGOTIATION BETWEEN EXECUTIVES.
(a) The Parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation between
Sellers or their appointed representatives and executives of Buyer who, if
possible, shall be at a higher management level than the individuals with direct
responsibility for administration of this Agreement (the "Negotiators"). Any
Party may give the other Parties written notice of any dispute not resolved in
the normal course of business. Within 15 days after delivery of the notice
(five days if the notice is delivered prior to a Closing hereunder), the
receiving Party shall submit to the other Parties a written response. The
notice and response shall include (i) a statement of each Party's position and a
summary of arguments supporting that position, and (ii) the name and title of
the Negotiators and of any other Person who will accompany them. Within 30 days
after delivery of the disputing Party's notice (five days if the disputing
Party's notice is delivered prior to a Closing hereunder), the Negotiators shall
meet at a mutually acceptable time and place, and thereafter as often as they
reasonably deem necessary, to attempt to resolve the dispute. All reasonable
requests for information made by one Party to the other Parties will be honored.
(b) If the matter has not been resolved by these Persons within 60
days of the disputing Party's notice (10 days if the disputing Party's notice is
delivered prior to a Closing hereunder), or if the Parties fail to meet within
30 days (five days if the disputing Party's notice is delivered prior to a
Closing hereunder), any Party may initiate mediation as provided below.
(c) All negotiations pursuant to this clause are confidential and
shall be treated as compromise and settlement negotiations for purposes of the
Federal Rules of Evidence and state rules of evidence.
10.3 MEDIATION. If the dispute has not been resolved by
negotiation as provided above, the Parties shall endeavor to settle the dispute
by mediation under the then current Center for Public Resources (CPR) Model
Procedure for Mediation of Business Disputes. The neutral third party will be
selected from the CPR Panels of Neutrals, with the assistance of CPR, unless the
Parties agree otherwise.
10.4 LITIGATION. If the dispute has not been resolved by
non-binding means as provided herein within 90 days of the initiation of such
procedure, any Party may initiate litigation (upon 30 days' written notice to
the other Party); provided, however, that if one Party has requested the others
to participate in a non-binding procedure and the others have failed to
participate, the requesting Party may initiate litigation before expiration of
such period.
10.5 PROVISIONAL REMEDIES. The procedures specified in this
Article X shall be the sole and exclusive procedures for the resolution of
disputes between the Parties arising out of or relating to this Agreement;
provided, however, that a Party, without prejudice to the above procedures, may
file a complaint (for statute of limitations or venue reasons) or to seek
preliminary injunction or other provisional judicial relief, if in its
reasonable judgment such action is necessary to avoid irreparable damage or to
preserve the status quo. Despite such action the Parties will
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<PAGE>
continue to participate in good faith in following the dispute resolution
procedures specified in this Article X.
10.6 TOLLING, STATUTES OF LIMITATION. All applicable statutes of
limitation and defenses based upon the passage of time shall be tolled while the
procedures specified in this Article X are pending. The Parties will take such
action, if any, reasonably required to effectuate such tolling.
10.7 PERFORMANCE TO CONTINUE. Each Party shall continue to perform
his or its obligations under this Agreement pending final resolution of any
dispute arising out of or relating thereto.
ARTICLE XI
AGREEMENTS CONCERNING CERTAIN TAX MATTERS
11.1 MUTUAL COOPERATION. Sellers and Buyer shall provide each
other with such assistance as may reasonably be requested by any of them in
connection with the preparation and execution of any Tax Return, any audit or
other examination by any taxing authority, or any judicial or administrative
proceedings relating to liability for Taxes, and each will retain and, not later
than 30 days from the written request of any other Party, provide such other
Party with any records or information that may be relevant to such return,
audit, examination or proceedings. Such assistance shall include making
employees or other representatives available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder and shall include providing copies of any relevant Tax Returns (or
portions thereof) and supporting work schedules. The Party requesting such
assistance hereunder shall reimburse the others for reasonable out-of-pocket
expenses incurred by the others in providing such assistance.
11.2 CERTAIN TAX MATTERS. Sellers, with reasonable assistance of
the Company (which reasonable assistance will be at no cost to Sellers), shall
prepare and file on behalf of the Company in a manner consistent with past
practices all income, franchise and single business Tax Returns for the periods
ending on or before the Closing Date and shall pay all Taxes due with respect to
such periods that are not accrued or reserved for in the Closing Balance Sheet
(other than the Section 338(h)(10) Taxes). Sellers shall provide a copy of each
such Tax Return to Buyer for Buyer's review and approval (which approval shall
only be required with respect to items that impact the amount of any Section
338(h)(10) Taxes or reflect the allocation referred to in Section 11.4 hereof)
at least 15 days prior to the date such Tax Return is filed. Buyer shall be
responsible for filing any Tax Returns that include periods commencing on or
prior to the Closing Date and ending subsequent to the Closing Date and the
payment of all Taxes imposed upon the Company with respect thereto; provided
that Sellers shall promptly reimburse Buyer for the amount of such Taxes that is
attributable to the portion of any such period that ended on the Closing Date
and that is not accrued or reserved for in the Closing Balance Sheet (other than
the Section 338(h)(10) Taxes). Buyer shall also be responsible for filing all
Tax Returns relating to the Company, and the payment
37
<PAGE>
of all Taxes with respect thereto, for all periods beginning after the Closing
Date.
11.3 SECTION 338(h)(10) ELECTION. At Buyer's option, Buyer and
each of the Sellers will join with Buyer in making an election under Section
338(h)(10) of the Code (and any election corresponding to Section 338(h)(10) or
Section 338(g) of the Code under state, local, and foreign tax law to the extent
necessary to achieve Tax basis step-up in the Company's assets) with respect to
the purchase and sale of the stock of the Company hereunder (a "Section
338(h)(10) Election"). Buyer will be responsible for (i) any Tax imposed under
Section 1374 of the Code as a result of the Section 338(h)(10) Election and (ii)
any state, local or foreign Tax imposed on the Company as a result of the
Section 338(h)(10) Election (together, the Taxes described in clauses (i) and
(ii) constitute the "Section 338(h)(10) Taxes" for purposes of this Agreement),
and Buyer shall indemnify Sellers against any adverse consequences arising out
of any failure to pay any such Taxes. In addition, Buyer shall reimburse Sellers
for (i) the additional amount of income Taxes, if any, required to be paid by
Sellers solely as a result of the Section 338(h)(10) Election and (ii) the
additional amount of income Taxes required to be paid by Sellers as a result of
the amount paid to Sellers pursuant to this sentence. For avoidance of doubt,
the purpose of the reimbursement described in the preceding sentence is to cause
Sellers to realize, from the transactions contemplated by this Agreement, the
same amount after payment of all required income Taxes, that Sellers would have
realized if the Section 338(h)(10) Election were not made with respect to the
sale of the Shares.
11.4 ALLOCATION OF PURCHASE PRICE. Buyer and Sellers agree that
the Purchase Price and the liabilities of the Company (plus other relevant
items) will be allocated in a manner consistent with the fair market values of
the assets of the Company as reasonably determined by Buyer. Within 180 days
after the Closing Date, Buyer shall prepare, or cause to be prepared, a schedule
setting forth such allocation and shall deliver a copy of such schedule to
Sellers. Buyer, the Company and Sellers will file all Tax Returns (including,
without limitation, supporting schedules, amended returns, claims for refunds
and information returns) in a manner consistent with the values set forth on
such schedule.
11.5 S CORPORATION STATUS. Sellers will not, and Sellers will not
permit the Company to, revoke the Company's election to be taxed as an S
corporation within the meaning of Section 1361 and 1362 of the Code. Sellers
will not, and Sellers will not permit the Company to, take or allow any action
other than the sale of the Company's stock pursuant to this Agreement that would
result in the termination of the Company's status as a validly electing S
corporation within the meaning of Section 1361 and 1362 of the Code.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 NOTICE. All notices, requests, demands and other
communications required or permitted under this Agreement, including, without
limitation, all notices required pursuant to Article VIII of this Agreement,
shall be considered to have been duly given and made if in writing
38
<PAGE>
and served either by personal delivery (which shall include delivery by Federal
Express or similar services) to the Party for whom it is intended or by being
deposited postage prepaid, certified or registered mail, return receipt
requested (or such form of mail as may be substituted therefor by postal
authorities), in the United States mail, bearing the address shown in this
Agreement for, or such other address as may be designated in writing hereafter
by, such Party:
If to Sellers: To the address set forth under
each Seller's name on Exhibit A
With a copy to: Baker & Hostetler LLP
3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114-3485
Attention: John M. Gherlein, Esq.
If to Buyer: J. L. French Automotive Castings, Inc.
3101 S. Taylor Dr.
P.O. Box 1024
Sheboygan, Wisconsin 53081
Attention: President
With a copy to: Kirkland & Ellis
200 E. Randolph
Chicago, Illinois 60601
Attention: John A. Schoenfeld
12.2 ENTIRE AGREEMENT. This Agreement, the Disclosure Schedule and
the Exhibit hereto and the Additional Documents embody the entire agreement and
understanding of the Parties with respect to the subject matter hereof, and
supersede all prior and contemporaneous agreements and understanding relative to
that subject matter.
12.3 BINDING EFFECT; ASSIGNMENT. This Agreement and the various
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon Buyer, its representatives, successors and assigns, and Sellers,
their respective representatives, successors and assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
transferred or assigned (by operation of law or otherwise) by any Party without
the prior written consent of the other Parties (which consent shall not be
unreasonably withheld), except that Buyer shall have the right to assign its
rights hereunder to its lender for collateral security purposes or to a wholly
owned subsidiary of Buyer and to transfer and assign ownership of the Company or
its assets and properties to a subsidiary or Affiliate of Buyer. No such
transfer by Buyer shall operate in any way to modify or discharge any of the
obligations of Buyer contemplated by this Agreement.
12.4 NO THIRD-PARTY BENEFICIARIES. Subject to Section 12.3 hereof,
nothing herein,
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<PAGE>
express or implied, is intended or shall be construed to confer upon or give to
any person, firm, corporation or legal entity, other than the Parties, any
rights, remedies or other benefits under or by reason of this Agreement.
12.5 COUNTERPARTS. This Agreement may be executed simultaneously
in multiple counterparts, each of which shall be considered an original, but all
of which taken together shall constitute one and the same instrument.
12.6 EXPENSES AND TRANSACTIONS. Buyer shall bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. Except as otherwise
specifically set forth in this Agreement, the Sellers shall bear all of Sellers'
and the Company's costs and expenses (including all legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby (including, without limitation, any income Tax on any gain resulting from
the deemed liquidation of the Company pursuant to the Section 338(h)(10)
Election) (the "Sellers' Expenses"). Sellers shall pay such Sellers' Expenses
prior to the Closing Date or accrue such Sellers' Expenses on the Closing
Balance Sheet. To the extent such Sellers' Expenses are not paid or accrued on
the Closing Balance Sheet, Sellers shall indemnify Buyer for such Sellers'
Expenses.
12.7 WAIVER; CONSENT. This Agreement may not be changed, amended,
terminated, augmented, rescinded or discharged (other than in accordance with
its terms), in whole or in part, except by a writing executed by the Parties,
and no waiver of any of the provisions or conditions of this Agreement or any of
the rights of a Party shall be effective or binding unless such waiver shall be
in writing and signed by the Party claimed to have given or consented thereto.
12.8 OTHER AND FURTHER COVENANTS. The Parties shall, in good
faith, execute such other and further instruments, assignments or documents as
may be necessary for the consummation of the transactions contemplated by this
Agreement, and shall assist and cooperate with each other in connection with
these activities.
12.9 GENDER. Whenever the context requires, words used in the
singular shall be construed to mean or include the plural and vice versa, and
pronouns of any gender shall be considered to include and designate the
masculine, feminine or neuter gender.
12.10 GOVERNING LAW. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Delaware,
without regard to any such laws relating to choice or conflict of laws.
12.11 PUBLIC ANNOUNCEMENTS. Neither Buyer nor any Seller shall,
without the prior written consent of the other, make any public announcement or
any release to trade publications or to the press or make any statement to any
competitor, customer or any other third party with respect to the transactions
contemplated herein, except such announcement, release or statement necessary in
the opinion of its counsel to comply with applicable requirements of federal or
state law, the content of which is mutually agreed to by the Parties.
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<PAGE>
12.12 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement.
12.13 SPECIFIC PERFORMANCE. Sellers acknowledge that the Company's
business is unique and recognize and affirm that in the event of a breach of
this Agreement by Sellers, money damages may be inadequate and Buyer may have no
adequate remedy at law. Accordingly, Sellers agree that Buyer shall have the
right, in addition to any other rights and remedies existing in its favor, to
enforce its rights and Sellers' obligations hereunder not only by an action or
actions for damages but also by an action or actions for specific performance,
injunctive and/or other equitable relief.
12.14 NON-COMPETITION; NON-SOLICITATION. In consideration of
Buyer's agreement to enter into this Agreement, and as a condition thereto, John
W. Humphrey and James A. Humphrey (the "Majority Sellers") covenant and agree as
follows:
(a) For a period of five years from and after the Closing Date,
the Majority Sellers will not engage directly or indirectly in the design,
manufacture or sale of any products which the Company designs, manufacturers or
sells as of the Closing Date anywhere in North America; PROVIDED, HOWEVER, that
ownership of less than 5% of the outstanding stock of any publicly traded
corporation shall not be deemed to be engaging solely by reason thereof in any
of its businesses.
(b) Each Majority Seller agrees that, for a period of five years
from the Closing Date, such Majority Seller (i) will not directly or indirectly
contact or solicit for the purpose of offering employment to or hiring (whether
as an employee, consultant, agent, independent contractor or otherwise) or
actually hire any person employed by the Company at any time during the one-year
periods preceding and following the Closing Date, without the prior written
consent of the Company and (ii) will not induce or attempt to induce any
customer or other business relation of the Company into any business
relationship with might materially harm the Company.
(c) If the final judgment of a court of competent jurisdiction
declares that any term or provision of this subsection is invalid or
unenforceable, the parties hereto agree that the court making the determination
of invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
(d) The Majority Sellers acknowledge and agree that in the event
of a breach by the Majority Sellers of any of the provisions of this Section
12.14, monetary damages will not constitute a sufficient remedy. Consequently,
in the event of any such breach, the Company, Buyer
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<PAGE>
and/or their respective successors or assigns may, in addition to other rights
and remedies existing in their favor, apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof,
in each case without the requirement of posting a bond or proving actual
damages.
[Signature pages follow.]
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<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed as of the date first set forth above.
BUYER:
J. L. FRENCH AUTOMOTIVE CASTINGS, INC.
By: /s/ Carl E.Nelson
----------------------------------------
Title: Vice President
-------------------------------------
SELLERS:
- ------------------------------- -------------------------------
/s/ James A. Humphrey /s/ Melvin Baskin
- ------------------------------- -------------------------------
/s/ John W. Humphrey /s/ James Green
- ------------------------------- -------------------------------
/s/ John W. Humphrey, Trustee of the James /s/ Frank Gary
A. Humphrey Children's Trust dated
May 7, 1999
- ------------------------------- -------------------------------
/s/ James A. Humphrey, Co-Trustee of the /s/ James Fitzell
Trust F/B/O Victoria E. Atkinson
Humphrey Trust dated May 17, 1999
- ------------------------------- -------------------------------
/s/ Donald P. Ricklefs, Co-Trustee of the /s/ Dennis Shimmell
Trust F/B/O Victoria E. Atkinson Humphrey
Trust dated May 17, 1999
43
<PAGE>
- ------------------------------- -------------------------------
/s/ Nancy Gibson, Co-Trustee of the Trust /s/ Steve Moore
F/B/O Victoria E. Atkinson Humphrey
Trust dated May 17, 1999
- ------------------------------- -------------------------------
/s/ James A. Humphrey, Co-Trustee of the /s/ Raimund Zipf
Trust F/B/O Joanna A. Avalo
Humphrey Trust dated May 17, 1999
- ------------------------------- -------------------------------
/s/ Donald P. Ricklefs, Co-Trustee of the /s/ Tim Gilliland
Trust F/B/O Joanna A. Avalo Humphrey
Trust dated May 17, 1999
- ------------------------------- -------------------------------
/s/ Nancy Gibson, Co-Trustee of the /s/ John Huber
Trust F/B/O Joanna A. Avalo Humphrey
Trust dated May 17, 1999
- ------------------------------- -------------------------------
/s/ James A. Humphrey, Co-Trustee of the /s/ Paul Hollenbeck
Trust F/B/O Caroline E. Sewell
Humphrey Trust dated May 17, 1999
- ------------------------------- -------------------------------
/s/ Donald P. Ricklefs, Co-Trustee of the /s/ Nancy Gibson, Co-Trustee of
Trust F/B/O Caroline E. Sewell Humphrey the Trust F/B/O Pamela Humphrey
Trust dated May 17, 1999 Trust dated May 17, 1999
- ------------------------------- -------------------------------
/s/ Nancy Gibson, Co-Trustee of the /s/ Donald P. Ricklefs, Co-
Trust F/B/O Caroline E. Sewell Humphrey Trustee of the Trust F/B/O
Trust dated May 17, 1999 Pamela Humphrey Trust dated
May 17, 1999
44
<PAGE>
- -------------------------------
/s/ James A. Humphrey, Co-Trustee of the
Trust F/B/O Pamela Humphrey Trust
dated May 17, 1999
45
<PAGE>
DISCLOSURE SCHEDULE
Reference is made to the Stock Purchase Agreement (the "Agreement"),
dated as of September 9, 1999, by and among J. L. French Automotive Castings,
Inc. and the stockholders of Nelson Metal Products Corporation, a Delaware
corporation (the "Company"). Capitalized terms used and not otherwise defined
herein shall have the meanings ascribed to them in the Agreement.
This Disclosure Schedule is qualified in its entirety by reference
to specific provisions of the Agreement, and is not intended to constitute, and
shall not be construed as constituting, any representations or warranties of
Sellers except as and to the extent provided in the Agreement, subject to the
limitations therein. Certain of the information contained in this Disclosure
Schedule may not be required to be disclosed pursuant to the Agreement. Such
information is included solely for informational purposes, and disclosure of
such information shall not be deemed to enlarge or enhance any of the
representations or warranties in the Agreement or otherwise alter in any way the
terms of the Agreement. Inclusion of information herein shall not be construed
as an admission that such information is material to the business, assets,
liabilities, financial position, operations or results of operations of the
Company.
Facts disclosed in one part or section of the Disclosure Schedule
shall be deemed to be disclosed on each other part or section of the Disclosure
Schedule where the facts disclosed would put a reasonable person on notice of
their applicability to such other parts or sections of the Disclosure Schedule.
Headings have been inserted on the sections of the Disclosure Schedule for
convenience of reference only and shall not have the effect of amending or
changing the express description of any sections set forth in the Agreement.
<PAGE>
LIST OF SECTIONS REFERRED TO IN DISCLOSURE SCHEDULE
<TABLE>
<S> <C>
Section 3.1(c) Brokers' Fees
Section 3.1(d) Share Ownership and Authority
Section 3.1(e) Certain Business Relationships
Section 4.2 Subsidiaries
Section 4.3 Capitalization and Security Holders
Section 4.4 Litigation
Section 4.5 Conflicts
Section 4.6 Financial Statements
Section 4.7 Absence of Certain Changes or Events
Section 4.8 Taxes
Section 4.9 Proprietary Rights
Section 4.11 Real Properties
Section 4.12 Real Estate Leases
Section 4.13 Fixed Assets
Section 4.14 Permits
Section 4.15 Compliance with Laws
Section 4.16 Environment, Health & Safety
Section 4.17 Employee Benefit Plans
Section 4.18 Contracts
Section 4.19 Inventory
Section 4.20 Directors, Officers, Employees and Compensation
Section 4.21 Labor Relations
Section 4.22 Accounts and Notes Receivable
Section 5.9 S Corporation Distribution
Section 5.10 Called Options
Section 6.2 Third Party and Governmental Consents
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A List of Sellers
Exhibit B Legal Opinion of Sellers' Counsel
Exhibit C Legal Opinion of Buyer's Counsel
<PAGE>
Exhibit 3.1
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "WINDWARD AUTOMOTIVE COMPONENTS INTERNATIONAL, INC.", CHANGING
ITS NAME FROM "WINDWARD AUTOMOTIVE COMPONENTS INTERNATIONAL, INC." TO "J. L
FRENCH AUTOMOTIVE CASTINGS, INC.", FILED IN THIS OFFICE ON THE SIXTEENTH DAY OF
MARCH, A.D. 1998, AT 11:15 O'CLOCK A.M.
/s/ Edward Freel
--------------------------------
EDWARD FREEL, SECRETARY OF STATE
2819248 8100 AUTHENTICATION: 9765829
991208568 DATE: 05-25-99
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WINDWARD AUTOMOTIVE COMPONENTS INTERNATIONAL, INC.
WINDWARD AUTOMOTIVE COMPONENTS INTERNATIONAL, INC., a Delaware
corporation (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is WINDWARD AUTOMOTIVE COMPONENTS
INTERNATIONAL, INC. The original Certificate of Incorpora tion of the
Corporation was filed with the Secretary of State of the State of Delaware on
November 10, 1997 under the name Windward Automotive Components International,
Inc. and was amended and restated on January 12,1998.
2. This Amended and Restated Certificate of Incorporation of
WINDWARD AUTOMOTIVE COMPONENTS INTERNATIONAL, INC. further amends and restates
the provisions of the Amended and Restated Certificate of Incorporation of the
Corporation and was duly adopted in accordance with Sections 242 and 245 of the
General Corporation Law of the State of Delaware and by unanimous written
consent of the Stockholders in accordance with Section 228 of the General
Corporation Law of the State of Delaware.
3. The text of the Amended and Restated Certificate of
Incorporation is to read in its entirety as follows:
FIRST: The name of the corporation is J. L. FRENCH AUTOMOTIVE
CASTINGS, INC.
SECOND: The registered office of the Corporation in the State of
Delaware is located at: 1209 Orange Street, in the City of Wilmington, County of
New Castle. The registered agent of the Corporation at that address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "DGCL").
FOURTH: The following provisions are inserted regarding the capital
stock of the Corporation:
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A. AUTHORIZED SHARES. The total number of shares which the
Corporation is authorized to issue is 453,000 shares. 450,000 shares shall be
designated Common Stock, par value $0.000 1 per share (the "COMMON STOCK"), of
which 300,000 shares shall be designated Class A Common Stock (the "CLASS A
COMMON STOCK"), 75,000 shares shall be designated Class B Common Stock (the
"CLASS B COMMON STOCK"), 50,000 shares shall be designated Class C Common Stock
(the "CLASS C COMMON STOCK") and 25,000 shares shall be designated Class D
Common Stock (the "CLASS D COMMON STOCK"). 3,000 shall be designated Preferred
Stock, par value $.0001 per share (the "Preferred Stock"), of which 1,500 shares
shall be designated Series A Convertible Preferred Stock (the "SERIES A
PREFERRED STOCK"), and 1,500 shares shall be designated Series B Redeemable
Preferred Stock (the "Series B Preferred Stock").
The terms, limitations and relative rights and preferences of the
classes and certain series of Common Stock and Preferred Stock of the
Corporation are as hereinafter set forth.
B. POWERS, PREFERENCES AND RIGHTS OF THE COMMON STOCK. The powers,
preferences and rights of the Class A Common Stock, the Class B Common Stock,
the Class C Common Stock and the Class D Common Stock and the qualifications,
limitations or restrictions thereof are as follows:
1. VOTING.
(a) CLASS A COMMON STOCK. Each share of Class A
Common Stock shall entitle the holder thereof to one (1) vote.
(b) CLASS B COMMON STOCK. Each share of Class B
Common Stock shall entitle the holder thereof to one (1) vote.
(c) CLASS C COMMON STOCK. The shares of Class C
Common Stock shall be non-voting shares except to the extent that a class vote
is required under the DGCL and except that the consent of the holders of at
least a majority of the shares of Class C Common Stock then outstanding shall be
necessary to permit, effect or validate (x) the issuance of any series of
capital stock of the Corporation, other than the Class A Common Stock, the Class
B Common Stock, the Class C Common Stock, the Class D Common Stock, the Series A
Preferred Stock or the Series B Preferred Stock which is on a parity with or
senior as to liquidation to the Class C Common Stock; or (y) the repeal,
amendment or other change in this Amended and Restated Certificate of
Incorporation in a manner which would increase or decrease the aggregate number
of authorized shares of Class C Common Stock, increase or decrease the par value
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<PAGE>
per share of the Class C Common Stock, or alter or change the powers,
preferences or rights of the Class C Common Stock in any adverse respect.
(d) CLASS D COMMON STOCK. Each share of Class D
Common Stock shall entitle the holder thereof to ten (10) votes.
2. CONVERSION OF SHARES.
(a) CONVERSION OF CLASS B COMMON STOCK.
(i) Except as provided in Section 13.2(b) of this
Article FOURTH, upon the TRANSFER of any shares of Class B Common Stock
to any holder who is subject to, or whose Affiliates (as defined in
Regulation Y of the Board of Governors of the Federal Reserve System (12
C.F.R. 225) or any successor to such regulation ("REGULATION T") are
subject to the limitation of the Rank Holding Company Act of 1956, as
amended, or the International Banking Act of 1978, as amended, (together,
the "BANKING REGULATIONS") (such holder shall be hereinafter referred to
as a "REGULATED HOLDER"), such Regulated Holder of the Class B Common
Stock so transferred shall have the right, but not the obligation, to
convert such shares of Class B Common Stock to shares of Class C Common
Stock on a one share for one share basis by providing written notice to
the Corporation (the "CONVERSION TO NON-VOTING") and each such conversion
shall be deemed to have been effected as of the close of business on the
date on which such notice has been received.
(ii) Upon the Conversion to Non-Voting of the shares of
Class B Common Stock pursuant to Section B.2 (a)(i) of this Article
FOURTH, (such number of shares so converted are hereinafter referred to
as the "Conversion Number") a number of shares of Class B Common Stock,
equal to the lesser of (x) the number of outstanding shares of Class B
Common Stock held by persons who are not Regulated Holders or (y) the
quotient obtained by dividing the Conversion Number by 9 (nine), shall be
converted into shares of Class D Common Stock as described in the
following sentences. The holder of the shares subject to the Conversion
to Non-Voting shall specify in writing to the Corporation the names (and
amounts) of any affiliate of such holder (which designated affiliate is
permitted by the Banking Regulations to own such shares of Class D Common
Stock) whose shares of Class B Common Stock are to be converted into
Class D Common Stock pursuant to this clause (ii) which specification
shall be approved by each holder of Class B Common Stock specified
therein; provided that
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<PAGE>
if such specification is not made or approved, the shares of Class B
Common Stock to be converted into Class D Common Stock pursuant to this
Section B.2(a)(ii) shall be allocated among all of the holders of Class B
Common Stock, other than to any holder of Class B Common Stock who is a
Regulated Holder and would be in violation of the Banking Regulations,
pro-rata based on their relative ownership of Class B Common Stock.
(b) CONVERSION OF CLASS C COMMON STOCK. In connection with the
occurrence (or the expected occurrence, as described herein) of any of the
following events (each such event shall be hereinafter referred to as a
"CONVERSION EVENT"):
(i) any registered underwritten public offering of
common equity securities of the Corporation; or
(ii) any sale of securities of the Corporation to a
person or group of related persons (such sale being within the meaning of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) if,
after such sale, such person or group of persons in the aggregate would
own or control securities of the Corporation (excluding any shares of
Class C Common Stock being converted and disposed of in connection with
such Conversion Event) which possess in the aggregate, the ordinary
voting power to elect a majority of the Corporation's directors; or
(iii) any sale of securities of the Corporation to a
person or group of persons(such sale being within the meaning of the
Exchange Act) if, after such sale, such person or group of persons would
not in the aggregate, own, control or have the right to acquire more than
two percent (2%) of the outstanding securities of any class of voting
securities of the Corporation; or
(iv) a merger, consolidation or similar transaction
involving the Corporation if, after such transaction, a person or group
of persons in the aggregate would own or control securities of the
Corporation which possess in the aggregate the ordinary voting power to
elect a majority of the Corporation's directors (provided that the
transaction has been approved by the Board of Directors of the
Corporation or a committee thereof and by the holders of a majority of
the Common Stock then outstanding (excluding all shares of Class C Common
Stock), provided, further, that if such transaction is approved in
accordance with the provisions of this Section B.2(b)(iv) of this
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Article FOURTH, then the holders of the Class C Common Stock acknowledge
that such transaction will not alter or change the powers, preferences or
rights of Class C Common Stock in any adverse manner);
each holder of shares of Class C Common Stock shall be entitled at any time and
from time to time to convert into an equal number of shares of Class A Common
Stock any of such holder's Class C Common Stock which are being (or are expected
to be) distributed, disposed of or sold in connection with such Conversion
Event. Each holder of shares of Class C Common Stock shall be entitled to
convert its shares of Class C Common Stock in connection with any Conversion
Event if such holder reasonably believes that such Conversion Event shall be
consummated. A written request for conversion from any holder of Class C Common
Stock to the Corporation stating such holder's reasonable belief that a
Conversion Event shall occur shall be a conclusive determination thereof and
shall obligate the Corporation to effect such conversion in a timely manner so
as to enable each such holder to participate in such Conversion Event. If any
shares of Class C Common Stack are converted into shares of Class A Common Stock
in connection with a Conversion Event and such shares of Class A Common Stock
are not actually distributed, disposed of or sold pursuant to such Conversion
Event, such shares of Class A Common Stock shall be promptly converted back into
the same number of shares of Class C Common Stock. To the extent that the
percentage of Class A Common Stock or Class B Common Stock held by a Regulated
Holder is reduced solely as a result of the issuance of additional capital stock
of the Corporation, any shares of Class C Common Stock held by such Regulated
Holder after giving effect to such issuance may be converted into shares of
Class A Common Stock or Class B Common Stock, on a one share for one share
basis, provided that the resulting percentage of Class A Common Stock or Class B
Common Stock, respectively, held by such Regulated Holder after such issuance
and conversion does not exceed the percentage of Class A Common Stock or Class B
Common Stock, respectively, held by such Regulated Holder prior to such issuance
and conversion. In addition, if, due to a change of law or regulation, a holder
of Class C Common Stock is no longer deemed to be a Regulated Holder, any shares
of Class C Common Stock held by such holder may be converted into shares of
Class A Common Stock or Class B Common Stock on a one share for one share basis.
(c) CONVERSION OF CLASS D COMMON STOCK. One-ninth of an outstanding
share of Class D Common Stock shall automatically, without any further act or
deed on the part of the Corporation or any other person, be converted into one
ninth of a share of Class A Common Stock or Class B Common Stock respectively,
on a one share for one share basis, immediately upon, and concurrently with, the
conversion of each share of Class C Common
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Stock into a share of Class A Common Stock, pursuant to Section B.2(b) of this
Article FOURTH or in accordance with the last sentence thereof, into Class A
Common Stock or Class B Common Stock, as the case may be. If, however, any
shares or fraction of a share of Class A Common Stock are converted back into
the same number of shares or fraction of a share of Class C Stock because such
shares or fraction of a share of Class A Common Stock were not actually
distributed, disposed of or sold pursuant to a Conversion Event as provided in
Section B.2(b) of this Article FOURTH, then any shares or fraction of a share of
Class D Common Stock which converted into shares or fraction of a share of Class
A Common Stock pursuant to this Section B.2(c) shall be promptly converted back
into the same number of shares or fraction of a share of Class D Common Stock.
Unless otherwise specified in a writing delivered by the holder of the shares or
fraction of a share of Class C Common Stock being converted pursuant to Section
B.2(b) of this Article FOURTH, the number of shares or fraction of a share of
Class D Common Stock of each holder of Class D Common Stock which shall be
converted into a share or fraction of a share of Class A Common Stock or Class B
Common Stock pursuant to this Section B.2(c) shall be determined by multiplying
the aggregate number of shares or fractions of a share of Class D Common Stock
to be converted pursuant to this Section B.2(c) times a fraction, the numerator
of which is the number of shares of Class D Common Stock held by such holder,
and the denominator of which is the total number of shares of Class D Common
Stock outstanding. In addition, shares of Class D Common Stock may be converted
into shares of Class A Common Stock, at the option of the holder thereof, at any
time or from time to time, on a one share for one share basis.
(d) CONVERSION OF CLASS B COMMON STOCK. Shares of Class B Common
Stock may be converted into shares of Class A Common Stock, at the option of the
holder thereof, at any time or from time to time, on a one share for one share
basis.
(e) CONVERSION PROCEDURE ISSUANCE OF CERTIFICATES
(i) Unless otherwise provided for in connection with a
Conversion Event, each conversion of shares of Class C Common Stock into
shares of Class A Common Stock or Class B Common Stock pursuant to
Section B.2(b) and each conversion of Class B Common Stock into shares of
Class A Common Stock pursuant to B.2(d) shall be effected by the
surrender of the certificates representing the shares to be converted at
the principal office of the Corporation (or such other office or agency
of the Corporation as the Corporation may designate by notice in writing
to the holders of the Class C Common Stock and Class B Common Stock) at
any time during normal business hours, together
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with a written notice by the holder of such shares of Class C Common
Stock or Class B Common Stock stating that such holder desires to convert
such shares. Such notice shall also state the name or names (with
addresses) and denominations in which the certificate or certificates for
such shares of Class A Common Stock or Class B Common Stock are to be
issued and shall include instructions for reasonable delivery thereof.
Each conversion of Class B Common Stock to Class A Common Stock and,
unless otherwise provided for in connection with a Conversion Event, each
conversion of Class C Common Stock to Class A Common Stock or Class B
Common Stock shall be deemed to have been effected as of the close of
business on the date on which such certificates representing such Class B
Common Stock or Class C Common Stock have been surrendered and such
notice has been received. At such time, the rights of the holder of the
surrendered shares of Class B Common Stock or Class C Common Stock as
such holder shall cease, and the person in whose name the certificates
for the shares of Class A Common Stock or Class B Common Stock will be
issued upon such conversion shall be deemed to have become the holder of
record of the shares of Class A Common Stock or Class B Common Stock
represented thereby. Promptly after the surrender of the certificates and
the receipt of written notice, the Corporation shall issue and deliver in
accordance with the surrendering holder's instructions, the certificates
for the shares of Class A Common Stock or Class B Common Stock issuable
upon such conversion, and certificates representing any surrendered
shares of Class B Common Stock or Class C Common Stock which were
delivered to the Corporation in connection with such conversion but which
were not requested to be converted and, therefore, were not converted.
(ii) Each conversion of shares of Class B Common Stock
into shares of Class C Common Stock or Class D Common Stock pursuant to
Section B.2(a) of this Article FOURTH shall be effected by the surrender
of the certificates representing the shares of Class B Common Stock to be
converted at the principal office of the Corporation (or such other
office or agency of the Corporation as the Corporation may designate by
notice in writing to the holders of the Class B Common Stock) at any time
during normal business hours, together, in the case of the conversion of
Class B Common Stock into Class C Common Stock pursuant to Section
B.2(a)(i), with a written notice by the holder of such shares of Class B
Common Stock stating that such holder desires to convert such shares;
PROVIDED, that the conversion of shares of Common Stock from one class to
another pursuant to Section B.2(a) of this Article FOURTH shall be deemed
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effective as provided in Section B.2(a)(i) of this Article FOURTH whether
or not the certificates representing such shares indicate the proper
class designation.
(iii) Each holder of any shares of Class D Common Stock
which are automatically converted into shares of Class A Common Stock
pursuant to Section B.2(c) of this Article FOURTH shall tender
certificates representing such shares to the Corporation promptly for
reissuance with the post-conversion class designation; PROVIDED, that the
conversion of Class D Common Stock into Class A Common Stock pursuant to
Section B.2(c) of this Article FOURTH shall occur automatically and be
effective whether or not the certificates, representing such shares
indicate the proper class designation.
(iv) The issuance of certificates for any class of
Common Stock upon conversion from any other class of Common Stock shall
be made without charge to the holders of such Common Stock for any
documentary, stamp or similar issue or transfer tax due on the issue of
Common Stock upon the conversion. The holder, however, shall pay to the
Corporation the amount of any tax which is due (or shall establish to the
satisfaction of the Corporation the payment thereof or that no such
payment is due) if the shares are to be issued in the name other than the
name of such holder.
(v) The Corporation shall reserve and at all times
shall have reserved out of its authorized but unissued Common Stock
solely for the purpose of issuance upon the conversion of any shares of
Common Stock in accordance with this Section B.2, such number of shares
of Class A Common Stock, Class B Common Stock, Class C Common Stock and
Class D Common Stock respectively, as may be issuable upon such
conversion. All shares of Common Stock issuable upon any conversion
pursuant to this Section B.2 shall, when issued, constitute duly and
validly issued, fully paid and nonassessable shares of Common Stock. The
Corporation shall use its reasonable best effort to assure that all such
shares of Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Common Stock of the
relevant class may be listed (except for official notice of issuance
which shall be immediately transmitted by the Corporation upon issuance).
(vi) The Corporation shall not close its books against
the transfer of Common Stock in any manner which would interfere
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with the timely conversion of any Common Stock pursuant to this Section
B.2. The Corporation shall assist and cooperate with any holder of shares
of Common Stock required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of
Common Stock hereunder (including, without limitation, making any filings
required to be made by the Corporation).
3. DIVIDENDS. Subject to the rights of the holders of
Preferred Stock or any other class or series of stock having a preference as to
dividends over the Common Stock then outstanding, the holders of Common Stock
will be entitled pursuant to receive, to the extent permitted by law, and to
share equally and ratably, share for share, to the exclusion of the holders of
any and all series of Preferred Stock, such dividends as may be declared from
time to time by the Board of Directors. No dividends shall be paid on the Class
A Common Stock, the Class B Common Stock, the Class C Common Stock or the Class
D Common Stock, whether in cash, property or shares of stock of the Corporation,
unless the same dividend shall be payable on each share of Class A Common Stock,
Class B Common Stock, Class C Common Stock and Class D Common Stock; PROVIDED
that if dividends so declared are payable in shares of Common Stock, dividends
will be declared which are payable at the same rate on all series of Common
Stock, and the dividends on the Class A Common Stock will be paid in Class A
Common Stock, the dividends on the Class B Common Stock will be paid in Class B
Common Stock, the Dividends on the Class C Common Stock will be paid in Class C
Common Stock and the Dividends on the Class D Common Stock will be paid in Class
D Common Stock.
4. OTHER POWERS, PREFERENCES AND RIGHTS.
(a) The Class A Common Stock, the Class B Common
Stock, the Class C Common Stock and the Class D Common Stock are subject to all
the powers, preferences and rights of the Preferred Stock as may be stated in
this Amended and Restated Certificate of Incorporation of the Corporation.
(b) Except as otherwise required by law or expressly
provided for in this Amended and Restated Certificate of Incorporation, the
powers, preferences and rights of the Class A Common Stock, the Class B Common
Stock, the Class C Common Stock, and the Class D Common Stock and the
qualifications, limitations or restrictions thereof, shall in all respects be
identical.
5. STOCK ADJUSTMENTS. The Corporation shall not be a party to
or effect any merger, consolidation, reorganization, reclassification or
recapitalization pursuant to which any Regulated Holder would be required to
receive, or which would result in such Regulated Holder owning or controlling
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any of the following if, and to the extent, it would constitute a violation cf
the Banking Regulations: (a) any voting securities which would cause such holder
to hold more than 4.999% (or 24.999% in the case of Windward/Merchant, L.P.
either alone or in the aggregate with Windward/Merban, L.P. and CS First Boston
Merchant Investments 1995/96, L.P.) of the outstanding shares of any Class of
voting securities, (b) any securities convertible into voting securities which
if such conversion took place would cause such holder to hold more than 4.999%
(or 24 999% in the case of Windward/Merchant, L.P. either alone or in the
aggregate with Windward/Merban, L.P. and CS First Boston Merchant Investments
1995/96, L.P.) of the outstanding shares of any Class of voting securities other
than securities which are specifically provided to be convertible only in the
event that such conversion may occur without any violation of Regulation Y or
(c) with Windward/Merchant L.P., Windward/Merban, L.P. and CS First Boston
Merchant Investments 1995/96, L.P. in the aggregate more than 24.999% of the
total outstanding shares of Common Stock. The term "Class" shall have the
meaning determined by reference to Regulation Y and all authoritative
interpretations of Regulation Y. In the event of any merger, consolidation,
reorganization, reclassification or recapitalization, effective provision shall
be made in the certificate of incorporation of the resulting or surviving
corporation or otherwise for the protection of the conversion rights of the
Class A Common Stock, Class B Common Stock, Class C Common Stock and Class D
Common Stock that shall be applicable, as nearly as reasonably may be, to any
such other shares of stock and other securities and property deliverable upon
conversion of Class A Common Stock, Class B Common Stock, Class C Common Stock
or Class D Common Stock, respectively. In case securities or property other than
Class A Common Stock, Class B Common Stock, Class C Common Stock or Class D
Common Stock shall be issuable or deliverable upon conversion as aforesaid, then
all references in this Section B.5 shall be deemed to apply, so far as
appropriate and as nearly as may be, to such other securities or property.
Subject to the foregoing, the Corporation will not be a party to or effect any
merger, consolidation, reorganization, reclassification or recapitalization
which the holders of any class of Common Stock or any Regulated Holder of shares
of any class of Common Stock is treated adversely relative to the other holders
of Common Stock.
6. LIQUIDATION. In the event of any liquidation, dissolution
or winding up of the affairs of the Corporation, whether voluntary or otherwise,
after payment shall have been made to the holders of any Preferred Stock, the
holders of Class A Common Stock, Class B Common Stock, Class C Common Stock and
Class D Common Stock shall be entitled to share ratably according to the number
of shares of Class A Common Stock, Class B Common Stock, Class C Common Stock
and Class D Common Stock held by them in the remaining assets of the Corporation
available for distribution to its stockholders.
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7. DESIGNATION OF ADDITIONAL SHARES OF CLASS A COMMON STOCK,
CLASS B COMMON STOCK, CLASS C COMMON STOCK AND CLASS D COMMON STOCK.
(a) The Board of Directors of the Corporation is
expressly authorized at any time, and from time to time, to provide for the
issuance of Class A Common Stock, Class B Common Stock, Class C Common Stock or
Class D Common Stock, at any time, and from time to time, from shares of Common
Stock not previously designated as to class as shall be stated and expressed in
the resolution or resolutions providing for the issue thereof adopted by the
Board of Directors.
(b) Each share of Common Stock is issued by the
Corporation, if reacquired by the Corporation (whether by repurchase or other
means, including conversion by the holder thereof), shall, except to the extent
prohibited by the DGCL, upon such reacquisition resume the status of authorized
and unissued shares of Common Stock, undesignated as to class and available for
designation and issuance by the Corporation in accordance with paragraph (a) of
this Section B.7.
C. POWERS, PREFERENCES AND RIGHTS OF THE SERIES A PREFERRED STOCK.
The powers, preferences and rights of the Series A Preferred Stock, and the
qualifications, limitations or restrictions thereof, are as follows:
1. RANK. The Series A Preferred Stock shall, with respect to
dividend rights and rights of liquidation, winding up and dissolution, rank (i)
on a party with the Series B Preferred Stock and (ii) senior to all other equity
securities of the Corporation, including all classes of the Corporation's Common
Stock and all subsequently issued preferred stock of the Corporation (all of
such equity securities of the Corporation to which the Series A Preferred Stock
and the Series B Preferred Stock rank senior, including, without limitation, the
Common Stock, are collectively referred to herein as the "JUNIOR SECURITIES").
2. DIVIDENDS.
(a) The holders of shares of Series A Preferred Stock
will be entitled to receive dividends at the per share rate of $700.00 per annum
per share. Such dividends shall be cumulative from the date commencing on the
day after the last Dividend Payment Date (as defined below) with respect to the
Series A Preferred Stock of French Holdings, Inc. on which dividends were paid
prior to the effective time (the "Effective Time") of the merger between French
Acquisition Corp. and French Holdings, Inc. (the "Last Dividend Payment Date"),
and shall be payable, when, as and if declared by the Board of Directors out of
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funds of the Corporation legally available therefor, in cash, at the per share
rate of $700.00 per annum, or $175 .00 per quarter for each of the quarterly
periods ending on the last day of March, June, September and December of each
year (each a "Dividend Payment Date"), and no more, payable in arrears on each
succeeding April 1, July 1, October I and January 1, respectively; PROVIDED
that: (i) if any such payment date is not a Business Day then such dividend
shall be payable on the next Business Day, and (ii) accumulated and unpaid
dividends for any prior quarterly period may be paid at any time. The term
"BUSINESS DAY" whenever used herein with reference to the Preferred Stock means
a day other than a Saturday, Sunday or day on which banking institutions in New
York or Wisconsin are authorized or required to remain closed. Such dividends
shall accrue and be cumulative from the Last Dividend Payment Date, whether or
not there are funds legally available for the payment of dividends on any
Dividend Payment Date. Each such dividend shall be paid to the holders of record
of the shares of Series A Preferred Stock as they appear on the share register
of the Corporation on such record date, not more than 60 days nor less than 10
days preceding the Dividend Payment Date, as shall be fixed by the Board of
Directors or a duly authorized committee thereof.
(b) If dividends are not paid in full, or declared in
full and sums set apart for the payment thereof, upon the shares of Series A
Preferred Stock and Series B Preferred Stock, all dividends declared upon shares
of Series A Preferred Stock and shares of Series B Preferred Stock shall be paid
or declared pro rata so that in all cases the amount of dividends paid or
declared per share on the Series A Preferred Stock and the Series B Preferred
Stock shall bear to each other the same ratio that unpaid accumulated dividends
per share, including dividends accrued or in arrears, if any, on the shares of
Series A Preferred Stock and the shares of Series B Preferred Stock bear to each
other. Unless and until full cumulative dividends on the shares of Series A
Preferred Stock in respect of all past quarterly dividend periods have been
paid, and the full amount of dividends on the shares of Series A Preferred Stock
in respect of the then current quarterly dividend period shall have been or are
contemporaneously declared in full and sums set aside for the payment thereof,
(i) no dividends shall be paid or declared and set aside for payment or other
distribution made upon any of the Junior Securities, other than in shares of, or
warrants or rights to acquire, Junior Securities; and (ii) no shares of Junior
Securities or Series B Preferred Stock shall be redeemed, retired, purchased or
otherwise acquired for any consideration (or any payment made to or available
for a sinking fund for the redemption of any such shares) by the Corporation or
any subsidiary of the Corporation (except by conversion into or exchange for
shares of Junior Securities or pursuant to a Management Repurchase Note
delivered in accordance with the provisions of the Stockholders Agreement or an
Outside Director/Employee Stockholder Agreement). Holders of shares of Series A
Preferred Stock shall not be entitled to
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any dividends, whether payable in cash, property or shares of capital stock, in
excess of full accrued and cumulative dividends as herein provided. No interest
or sum of Money in lieu of interest shall be payable in respect of any dividend
payment or payments on the shares of Series A Preferred Stock, that may be in
arrears.
The terms "accrued dividends," "dividends accrued" and "dividends
arrears," whenever used herein with reference to shares of Preferred Stock shall
be deemed to mean an amount which shall be equal to dividends thereon at the
annual dividend rates per share for the respective series from the date or dates
on which such dividends commence to accrue to the end of the then current
quarterly dividend period for such Preferred Stock (or, in the case of
redemption, to the date of redemption), whether or not earned or declared and
whether or not assets for the Corporation are legally available therefor, less
the amount of all such dividends paid, or declared in full and sums set aside
for the payment thereof, upon such shares of Preferred Stock.
(c) Dividends payable on the shares of Series A
Preferred Stock for any period less than a full quarterly dividend period shall
be computed on the basis of a 360-day year of twelve 30-day months and the
actual number of days elapsed in the period for which payable.
3. OPTIONAL REDEMPTION AND MANDATORY REDEMPTION.
(a) The shares of Series A Preferred Stock are
redeemable in cash at the option of the Corporation by resolution of its Board
of Directors, in whole or from time to time in part:
(i) at any time upon giving notice as provided in
Section C.3(e) of this Article FOURTH, provided that the holders of a
majority of the outstanding shares of Series A Preferred Stock consent to
such redemption, at a redemption price equal to the sum of (A) $10,000
for each share of Series A Preferred Stock called for redemption plus (B)
all dividends accrued and unpaid on the shares of Series A Preferred
Stock up to the date fixed for redemption, (such price, plus such
dividends accrued and unpaid, shall be hereinafter referred to as the
"SERIES A PREFERRED REDEMPTION PRICE"); or
(ii) at any time on or after April 2, 2001 at the
Series A Preferred Redemption Price, upon giving notice as provided in
Section C.3(e) of this Article FOURTH.
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(b) To the extent any shares of Series A Preferred
Stock have not been redeemed pursuant to Section C.3(a) of this Article FOURTH
by April 2,2006 (the "SERIES A PREFERRED MANDATORY REDEMPTION DATE"), the
Corporation shall, on the Series A Preferred Mandatory Redemption Date, redeem
all shares of Series A Preferred Stock then outstanding at the Series A
Preferred Redemption Price. The Series A Preferred Redemption Price shall be
payable in cash.
(c) If, for any reason, the Corporation shall fail to
discharge its mandatory redemption obligations pursuant to Section C.3(b) of
this Article FOURTH, such purchase obligations shall be discharged as soon as
the Corporation is able to discharge such obligations. If and so long as any
mandatory redemption obligations with respect to the shares of the Series A
Preferred Stock shall not be fully discharged, the Corporation shall not,
directly or indirectly:
(i) declare or pay any dividend on any Junior
Securities or make any payment on account of, or set apart money for, a
sinking or other analogous fund for the purchase, redemption or other
retirement of, or purchase, redeem or retire, any Junior Securities, make
any distribution in respect of Junior Securities, either directly or
indirectly and whether in cash or property or in obligations or shares of
the Corporation (other than in Junior Securities); or
(ii) purchase or redeem (except in either case for
consideration payable in Junior Securities) any Junior Securities then
outstanding.
Dividends shall continue to accrue on a cumulative basis with
respect to any shares of Series A Preferred Stock subject to a mandatory
redemption obligation that has not been discharged by the Corporation pursuant
to Section C.3(b) of this Article FOURTH.
(d) If less than all of the outstanding shares of
Series A Preferred Stock are to be redeemed, the number of shares to be redeemed
shall be determined by the Board of Directors, and the shares to be redeemed
shall be determined pro rata or by lot or in such other manner and subject to
such regulations as the Board of Directors in its sole discretion shall
prescribe.
(e) At least 10 days but not more than 60 days prior to
the date fixed for any optional redemption of shares of Series A Preferred Stock
pursuant to Section C.3(a) of this Article FOURTH or the Series A Preferred
Mandatory Redemption Date (such date for optional redemption together with the
Series A Preferred Mandatory Redemption Date shall be hereinafter referred to as
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the "SERIES A PREFERRED REDEMPTION DATE"), a written notice shall be mailed to
each holder of record of shares of Series A Preferred Stock to be redeemed in a
postage prepaid envelope addressed to such holder at such holder's post office
address as shown on the records of the Corporation, notifying such holder of the
Series A Preferred Mandatory Redemption Date or the election of the Corporation
to redeem such shares, stating the date fixed for redemption thereof, specifying
the Series A Preferred Redemption Price and the then effective conversion rate,
and calling upon such holder to surrender to the Corporation on the Series A
Preferred Redemption Date at the place designated in such notice and the
certificate or certificates representing the number of shares specified in such
notice of redemption. On or after the Series A Preferred Redemption Date, each
holder of shares of Series A Preferred Stock to be redeemed shall surrender the
certificate or certificates for such shares to the Corporation at the place
designated in such notice, and against such surrender the Series A Preferred
Redemption Price of such shares shall be paid to or on the order of the person
whose name appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be canceled. In case less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(f) If a notice of redemption has been given pursuant
to Section C.3(e) of this Article FOURTH and any holder of shares of Series A
Preferred Stock shall, prior to the close of business on the last Business Day
preceding the Series A Preferred Redemption Date, give written notice to the
Corporation pursuant to Section C.6 of this Article FOURTH of the conversion of
any or all of the shares to be redeemed held by such holder (accompanied by a
certificate or certificates for such shares, a duly executed notice of election
to convert and instruments of transfer and such taxes, stamps, funds or other
evidence of payment, as required by Section C.6 of this Article FOURTH), then
such redemption shall not become effective as to such shares to be converted,
such conversion shall become effective as provided in Section C.6 of this
Article FOURTH and any monies deposited or set aside by the Corporation for the
redemption of such shares of converted Series A Preferred Stock shall revert to
the general funds of the Corporation.
(g) From and after the Series A Preferred Redemption
Date (unless default shall be made by the Corporation in payment in full of the
Series A Preferred Redemption Price), all dividends on the shares of Series A
Preferred Stock designated for redemption in such notice shall cease to accrue,
and all rights of the holders thereof as stockholders of the Corporation, except
the right to receive the Series A Preferred Redemption Price of such shares
(including all accrued and unpaid dividends up to the Series A Preferred
Redemption Date) upon the surrender of certificates representing the same, shall
cease and terminate
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and such shares shall not thereafter be transferred (except with the consent of
the Corporation) on the books of the Corporation and shall not be deemed to be
outstanding for any purpose whatsoever.
(h) Shares of Series A Preferred Stock redeemed,
repurchased or retired pursuant to the provisions of this Section C.3 or
surrendered to the Corporation upon conversion shall thereupon be retired and
may not be reissued.
4. VOTING RIGHTS. Except as otherwise provided in Section C.7
of this Article FOURTH or as required under the DGCL, the holders of shares of
Series A Preferred Stock shall not be entitled to vote on any matter submitted
to a vote of stockholders of the Corporation. Any vote expressly required by
Section C.7 of this Article FOURTH or by the DGCL may be given in person or by
proxy, either in writing without a meeting or by vote at any meeting called for
such purpose.
5. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or otherwise,
the holders of shares of Series A Preferred Stock shall be entitled to receive,
out of the assets of the Corporation available for distribution to its
stockholders, in cash, the amount of $10,000 for each share of Series A
Preferred Stock, plus an amount equal to all dividends accrued and unpaid on
each such share up to the date fixed for distribution, before any distribution
shall be made to the holders of shares of Junior Securities. If upon any
liquidation, dissolution or winding up of the Corporation, the assets
distributable among the holders of shares of Series A Preferred Stock and the
shares of Series B Preferred Stock are insufficient to permit the payment in
full to the holders of all such shares of all preferential amounts payable to
such holders, then the entire assets of the Corporation so distributable shall
be distributed ratably among the holders of the shares of Series A Preferred
Stock and the shares of Series B Preferred Stock in proportion to the respective
amounts that would be payable per share if such assets were sufficient to permit
payment in full.
(b) The holder of any shares of Series A Preferred
Stock shall not be entitled to receive any payment owed for such shares under
this Section C.5 until such holder shall cause to be delivered to the
Corporation (i) the certificate(s) such shares and (ii) transfer instrument(s)
satisfactory to the Corporation and sufficient to surrender such shares to the
Corporation free of any adverse interest.
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(c) After the payment of the full preferential amounts
provided for herein to the holders of shares of Series A Preferred Stock such
holders shall not be entitled to any other or further participation in the
distribution of the assets of the Corporation.
6. CONVERSION.
(a) OPTIONAL CONVERSION. Each share of Series A
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share into: (i) 2.26372 fully paid
and nonassessable shares of Class A Common Stock, or, if such share of Series A
Preferred Stock is held by a Regulated Holder, 2.26372 fully paid and
nonassessable shares of Class 13 Common Stock, as the case may be (in each case,
the "Common Stock Conversion Shares"), and (ii) one fully paid and nonassessable
share of Series B Preferred Stock (the "Series B Conversion Shares"). However,
the Common Stock Conversion Shares and the Series B Conversion Shares shall be
subject to adjustment from time to time in accordance with Section C.6(d) of
this Article FOURTH.
(b) AUTOMATIC CONVERSION. Each share of Series A
Preferred Stock shall automatically convert into shares of fully paid and
nonassessable Class A Common Stock or Class B Common Stock, as applicable,
and Series B Preferred Stock, without any further action required on the part
of the holder thereof, either:
(i) immediately prior to the closing of the
Corporation's initial underwritten public offering pursuant to a
Registration Statement filed with and declared effective by the
Securities Exchange Commission under the Securities Act of 1933 (the
"Securities Act"), which is an IPO Event; or
(ii) any consolidation or merger to which the
Corporation is a party other than a merger in which the Corporation is
the continuing corporation and which does not result in any
reclassification of, or change (other than a change in name, or par
value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination) in, outstanding
shares of Common Stock or Series A Preferred Stock; or(
(iii) any sale or conveyance of all or substantially
all of the property or business of the Corporation as an entirety
(including, in the case of any of the foregoing events, any statutory
exchange of securities with another corporation.
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The number of shares of Class A Common Stock or Class B Common
Stock, as applicable, issuable upon such automatic conversion of a share of
Series A Preferred Stock shall be equal to the Common Stock Conversion Shares as
in effect at such time and the number of shares of Series B Preferred Stock
shall be equal to the Series B Conversion Shares as in effect at such time.
(c) MECHANICS OF CONVERSION. Before any holder of
Series A Preferred Stock shall be entitled to convert the same into shares of
Class A Common Stock or Class B Common Stock, as applicable, and Series B
Preferred Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for Series A Preferred Stock and shall give written notice by mail,
postage prepaid, to the Corporation at its principal corporate off ice of the
election to convert the same, and shall state therein the name or names in which
the certificate or certificates for shares of Class A Common Stock or Class B
Common Stock, as applicable, and Series B Preferred Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificate for the number of shares of Class A
Common Stock or Class B Common Stock, as the case may be, and Series B Preferred
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series A Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Class A
Common Stock or Class B Common Stock, as applicable, and Series B Preferred
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Class A Common Stock or Class B
Common Stock, as applicable, and Series B Preferred Stock as of such date. If
the conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act, the conversion may, at the option of
any holder tendering Series A Preferred Stock for conversion, be conditioned
upon the closing with the underwriter of the sale of securities pursuant to such
offering, in which event the person converting such Series A Preferred Stock
shall not be deemed to have converted such Series A Preferred Stock until
immediately prior to the closing of such sale of securities and the person(s)
entitled to receive the Class A Common Stock or Class B Common Stock, as
applicable, and Series B Preferred Stock issuable upon such conversion of Series
A Preferred Stock shall not be deemed to be record holders of such Class A
Common Stock or Class B Common Stock and Series B Preferred Stock until
immediately prior to the closing of such sale of securities. No payment or
adjustment shall be made on conversion for any dividends payable on the Class A
Common Stock or Class B Common Stock, as the case may be, delivered on
conversion. Effective as of any conversion, the Corporation shall be
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excused from paying any dividends on the shares converted, except for any
dividends accrued and unpaid through the day of conversion.
(d) ANTIDILUTION PROVISIONS. The Common Stock
Conversion Shares and the Series B Conversion Shares shall be subject to
adjustment from time to time as follows:
(i) STOCK DIVIDENDS; STOCK SPLITS; REVERSE STOCK
SPLITS; RECLASSIFICATIONS. In case the Corporation shall (A) pay a
dividend or make any other distribution with respect to its Class A
Common Stock or Class B Common Stock in shares of its capital stock, (B)
subdivide its outstanding Class A Common Stock or Class B Common Stock,
(C) combine its outstanding Class A Common Stock or Class B Common Stock
into a smaller number of shares, or (D) issue any shares of its capital
stock in a reclassification of the Class A Common Stock or Class B Common
Stock (including any such reclassification in connection with a merger
consolidation or other business combination in which the Corporation is
the continuing corporation) then the Common Stock Conversion Shares
issuable upon conversion of a share of Series A Preferred Stock
immediately prior to the record date for such dividend or distribution or
the effective date of such subdivision or combination shall be adjusted
so that the holder of a share of Series A Preferred Stock shall
thereafter be entitled to receive the kind and number of shares of Class
A Common Stock or Class B Common Stock, as applicable, or other
securities of the Corporation that shareholder would have owned or have
been entitled to receive after the happening of any of the events
described above, had such share of Series A Preferred Stock been
converted immediately prior to the happening of such event or any record
date with respect thereto. An adjustment made pursuant to this Section
C.6 (d)(i) shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
(ii) RIGHTS; OPTIONS; WARRANTS.
(A) In case the Corporation shall issue rights,
options, warrants or convertible or exchangeable securities (other than a
convertible or exchangeable security subject to Section C.6(d)(i) of this
Article FOURTH) to all holders of its Common Stock, entitling them to
subscribe for or purchase shares of Common Stock at a price per share of
Common Stock that is lower (at the close of business on the Business Day
immediately prior to the record date for such issuance) than the Current
Market Value per share of Class A Common Stock or
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Class B Common Stock, as applicable, then the Common Stock Conversion
Shares thereafter issuable upon the conversion of a share of Series A
Preferred Stock shall be determined by multiplying the Common Stock
Conversion Shares theretofore issuable upon the conversion of a share of
Series A Preferred Stock by a fraction, of which the numerator shall be
the number of shares of Common Stock Outstanding on a Fully Diluted Basis
on the date of issuance of such rights, options, warrants or convertible
or exchangeable securities, plus the number of additional shares of
Common Stock to be issued upon exercise, conversion or exchange of such
rights, options, warrants or convertible or exchangeable securities and
of which the denominator shall be the number of shares of Common Stock
Outstanding on a Fully Diluted Basis on the date of issuance of such
rights, options, warrants or convertible or exchangeable securities, plus
the number of shares of Common Stock which the aggregate consideration to
be received by the Corporation in connection with such issuance would
purchase at the then Current Market Value per share of Class A Common
Stock or Class B Common Stock, as applicable.
(B) For purposes of this Section C.6(d)(ii), the
consideration received by the Corporation in connection with the issuance
of rights, options, warrants or convertible or exchangeable securities
shall be deemed to be the consideration received by the Corporation for
such rights, options, warrants or convertible or exchangeable securities,
plus the consideration or premiums stated in such rights, options,
warrants or convertible or exchangeable securities to be paid for the
shares of Common Stock covered thereby.
(C) Any adjustment pursuant to this Section C.6(d)(ii)
shall be made whenever any such rights, options, warrants or convertible
or exchangeable securities are issued, but shall also become effective
retroactively in respect of conversions made between the record dates for
the determination of stockholders entitled to receive such rights,
options, warrants or convertible or exchangeable securities and the date
such rights, options, warrants or convertible or exchangeable securities
are issued.
(D) For purposes of adjustments under this Section
C.6(d)(ii), if the Corporation shall issue rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe
for or purchase shares of Common Stock for a consideration consisting, in
whole or in part, of property other than cash or its equivalent, then in
determining the "price per share of Class A Common Stock or Class B
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Common Stock" and the "consideration" receivable by or payable to the
Corporation for purposes of the first sentence of this Section
C.6(d)(ii), the Board of Directors of the Corporation shall determine, in
good faith, the fair value of such property. In case the Corporation
shall issue rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of
Common Stock, together with one or more other securities as part of a
unit at a price per unit, then in determining the "price per share of
Class A Common Stock or Class B Common Stock", as applicable, and the
"consideration" receivable by or payable to the Corporation for purposes
of the first sentence of this Section C.6(d)(ii), the Board of Directors
of the Corporation shall determine, in good faith., the fair value of the
right, options, warrants or convertible or exchangeable securities then
being sold as pan of such unit.
(iii) ISSUANCE OF COMMON STOCK AT LOWER VALUES.
(A) In case the Corporation shall, in a transaction in
which Section C.6(d)(ii) of this Article FOURTH is inapplicable, issue or
sell shares of Common Stock or rights, options (other than options issued
pursuant to the J. L. French Automotive Castings, Inc. 1998 Performance
Stock Option Plan, the J. L. French Automotive Castings, Inc. 1998 Stock
Option Plan and any other option plan adopted by the Board of Directors
after the date hereof for employees), warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase
shares of Common Stock at a price per share of Common Stock that is lower
than the then Current Market Value per share of the Class A Common Stock
or Class B Common Stock, as the case may be, in effect immediately prior
to such sale or issuance, then the Common Stock Conversion Shares
thereafter issuable upon the conversion of a share of Series A Preferred
Stock shall be determined by multiplying the Common Stock Conversion
Shares theretofore issuable upon the conversion of a share of Series A
Preferred Stock by a fraction, of which the numerator shall be the number
of shares of Common Stock Outstanding on a Fully Diluted Basis on the
date of issuance of such shares of Common Stock or rights, options,
warrants or convertible or exchangeable securities, plus the number of
additional shares of Common Stock offered for subscription or purchase or
to be issued upon exercise, conversion or exchange of such rights,
options, warrants or convertible or exchangeable securities and of which
the denominator shall be the number of shares of Common Stock Outstanding
on a Fully Diluted Basis on the date of issuance of such shares of Common
Stock or rights, options, warrants or convertible or
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exchangeable securities, plus the number of shares of Common Stock which
the aggregate consideration to be received by the Corporation in
connection with such issuance would purchase at the then Current Market
Value per share of Class A Common Stock or Class B Common Stock, as
applicable.
(B) For purposes of such adjustments under this Section
C.6(d)(ii), the shares of Common Stock which the holder of any such
rights, options, warrant or convertible or exchangeable securities shall
be entitled to subscribe for or purchase shall be deemed to be issued and
outstanding as of the date of the sale and issuance of the rights,
warrants or convertible or exchangeable securities and the consideration
received by the Corporation therefor shall be deemed to be the
consideration received by the Corporation for such rights, options,
warrants or convertible or exchangeable securities, plus the
consideration or premiums stated in such rights, options, warrants or
convertible or exchangeable securities to be paid for the shares of
Common Stock covered thereby.
(C) In case the Corporation shall issue and sell shares
of Common Stock or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase
shares of Common Stock for a consideration consisting, in whole or in
part, of property other than cash or its equivalent, then in determining
the "price per share of Class A Common Stock or Class B Common Stock", as
applicable, and the "consideration" receivable by or payable to the
Corporation for purposes of the first sentence, of this Section
C.6(d)(iii), the Board of Directors of the Corporation shall determine,
in good faith, the fair value of such property. In case the Corporation
shall issue and sell rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase
shares of Common Stock, together with one or more other securities as
part of a unit at a price per unit, then in determining the "price per
share of Class A Common Stock or Class B Common Stock", as applicable,
and the "consideration" receivable by or payable to the Corporation for
purposes of the first sentence of this Section C.6(d)(iii), the Board of
Directors of the Corporation shall determine, in good faith, the fair
value of the rights, options, warrants or convertible or exchangeable
securities then being sold as part of such unit.
(iv) DISTRIBUTIONS OF CASH, DEBT ASSETS, SUBSCRIPTION
RIGHTS OR CONVERTIBLE SECURITIES.
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(A) In case the Corporation shall fix a record date for
the making of a distribution to all holders of shares of its Common Stock
of cash, evidences of indebtedness of the Corporation, assets or
securities (excluding those referred to in Section C.6(d)(ii) of this
Article FOURTH and excluding cash dividends which are not Extraordinary
Dividends) (any such cash, evidences of indebtedness, assets or
securities, the "Assets or Securities"), then, at the election of the
Corporation, either (I) the Common Stock Conversion Shares theretofore
issuable after such record date upon conversion of a share of Series A
Preferred Stock shall be adjusted by multiplying the Common Stock
Conversion Shares theretofore issuable upon the conversion of a share of
Series A Preferred Stock immediately prior to such record date by a
fraction, the numerator of which shall be the then Current Market Value
per share of Class A Common Stock or Class B Common Stock, as applicable,
at the close of business on the Business Day immediately prior to the
record date for such distribution and the denominator of which shall be
the then Current Market Value per share of Class A Common Stock or Class
B Common Stock, as applicable, at the close of business on the Business
Day immediately prior to the record date for such distribution less an
amount equal to the then fair value (as determined by the Board of
Directors of the Corporation acting in good faith) of the Assets or
Securities applicable to one share of Class A Common Stock or Class B
Common Stock, as applicable, or (II) adequate provision shall be made so
that in the event of a conversion of a share of Series A Preferred Stock
the Holder of the Series A Preferred Stock shall have the right to
receive, in addition to Common Stock Conversion Shares, at the election
of the Corporation, either (A) the Assets or Securities to which such
holder would have been entitled as a holder of Class A Common Stock or
Class B Common Stock, as applicable, if such holder had converted such
holder's share of Series A Preferred Stock immediately prior to the
record date for such distribution or (B) the cash equivalent of such
Assets or Securities.
(B) If the Corporation elects to adjust the number of
Common Stock Conversion Shares issuable upon the conversion of a share of
Series A Preferred Stock pursuant to Section C.6(d)(iv)(A)(I) of this
Article FOURTH, such adjustment shall be made whenever any such
distribution is made, and shall become effective on the date of
distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution; PROVIDED that the
Corporation shall deliver to any holder that converts a share of Series A
Preferred Stock after any such record date, but prior to the related
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distribution, a due bill or other appropriate instrument evidencing such
holder's right to receive such distribution upon its occurrence.
(C) Notwithstanding the foregoing, the Corporation
shall not elect the adjustment provided for in Section C.6(d)(iv)(A)(I)
of this Article FOURTH if the then fair value (as determined by the Board
of Directors of the Corporation acting in good faith) of the Assets or
Securities applicable to one share of Common Stock is equal to or greater
than the then Current Market Value per share of Class A Common Stock or
Class B Common Stock, as applicable, at the close of business on the
Business Day immediately prior to the record date for such distribution.
(v) EXPIRATION OF RIGHTS, OPTIONS AND CONVERSION
PRIVILEGES. Upon the expiration of any rights, options, warrants or
conversion or exchange privileges that have previously resulted in an
adjustment hereunder, if any thereof shall not have been exercised, the
Common Stock Conversion Shares issuable upon the conversion of a share of
Series A Preferred Stock shall, upon such expiration, be readjusted and
shall thereafter, upon any future conversion, be such as they would have
been had they been originally adjusted (or had the original adjustment
not been required, as the case maybe) as if (A) the only shares of Common
Stock so issued were the shares of Common Stock, if any, actually issued
or sold upon the exercise of such rights, options, warrants or conversion
or exchange rights and (B) such shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Corporation
upon such exercise plus the consideration, if any, actually received by
the Corporation for issuance, sale or grant of all such rights, options,
warrants or conversion or exchange rights whether or not exercised;
PROVIDED that no such readjustment shall have the effect of decreasing
the Common Stock Conversion Shares by a number, in excess of the number
of the adjustment initially made in respect to the issuance, sale or
grant of such rights, options, warrants or conversion or exchange rights.
(vi) NO ADJUSTMENT FOR ORDINARY DIVIDENDS. Except as
otherwise provided in this Section C.6(d), no adjustment in respect of
any ordinary dividends declared and paid on Common Stock, or on any other
capital stock of the Corporation, shall be made to the Common Stock
Conversion Shares.
(vii) DE MINIMIS ADJUSTMENTS. Except as provided in
Section C.6(d)(iii) of this Article FOURTH with reference to
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adjustments required by such Section C.6(d)(iii) of this Article FOURTH,
no adjustment in the shares of Common Stock Conversion Shares issuable
hereunder shall be required unless cumulative adjustments would require
an increase or decrease of at least one percent (1%) in the number of
shares of Class A Common Stock or Class B Common Stock, as applicable,
issuable upon the conversion of a share of Series A Preferred Stock;
PROVIDED that any adjustments which by reason of this Section C.6(d)(vii)
are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations shall be made and
rounded to the nearest one-thousandth of a share (with calculations of
five ten-thousandth and above rounded up, and calculations less than five
ten-thousandth rounded down).
(viii) OTHER ADJUSTMENTS. In the event that at any
time, as a result of an adjustment made pursuant to this Section C.6(d),
the registered holders of the Series A Preferred Stock shall become
entitled to receive any securities of the Corporation other than shares
of Class A Common Stock or Class B Common Stock, as applicable,
thereafter the number of such other securities so receivable upon the
conversion of a share of Series A Preferred Stock shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the shares of
Class A Common Stock or Class B Common Stock, as applicable, contained in
this Section C.6(d).
(ix) OTHER DILUTIVE EVENTS. In case any event shall
occur as to which the other provisions of this Section C.6(d) are not
strictly applicable but the failure to make any adjustment would not
fairly protect the conversion rights of the Series A Preferred Stock in
accordance with the essential intent and principles of this Section
C.6(d), then, in each such case, the Corporation shall appoint a firm of
independent certified public accountants of recognized national standing
(which may be the regular auditors of the Corporation),which shall give
their opinion upon the adjustment, if any, on a basis consis tent with
the essential intent and principles established in this Section C.6(d),
necessary to preserve, without dilution, the conversion rights of this
Section C.6(d). Upon receipt of such opinion, the Corporation will
promptly mail a copy thereof to each record holder of Series A Preferred
Stock and shall make the adjustments described therein.
(e) NO IMPAIRMENT. Corporation will not, by amendment
of its Amended and Restated Certificate of Incorporation or through any
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reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation but will at all times in good faith assist in the
carrying out of all the provisions of this Section C.6 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Series A Preferred Stock against impairment.
(f) FRACTIONAL SHARES, CERTIFICATES AS TO ADJUSTMENTS.
Prior to an IPO Event, fractional shares of Class A Common Stock or Class B
Common Stock, as applicable, and Series B Preferred Stock may be issued upon
conversion of shares of Series A Preferred Stock. After an IPO Event, no
fractional shares shall be issued upon conversion of shares of Series A
Preferred Stock. After an IPO Event, if one or more shares of Series A Preferred
Stock shall be presented for conversion at the same time by the same
stockholder, the number of full shares of Class A Common Stock or Class B Common
Stock, as applicable, and Series B Preferred Stock which shall be issuable upon
the conversion thereof shall be computed on the basis of the aggregate number of
shares of Class A Common Stock or Class B Common Stock, as applicable, and
Series B Preferred Stock to be issued upon conversion of the Series A Preferred
Stock so presented. If any fraction of shares of Class A Common Stock or Class B
Common Stock, as applicable, or Series B Preferred Stock would, except for the
provisions of this Section C.6(f), be issuable on the conversion of shares of
Series A Preferred Stock, the Corporation shall pay an amount in cash equal to
the Current Market Value of one share of the Class A Common Stock or Class B
Common Stock, as applicable, or one share of Series B Preferred Stock, as the
case may be, on the Business Day immediately preceding the date the share of
Series A Preferred Stock is presented for conversion multiplied by such
fraction. Upon the occurrence of each adjustment or readjustment of the Common
Stock Conversion Shares pursuant to this Section C.6, the Corporation at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of shares of Series A Preferred
Stock a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
A Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Common Stock Conversion Shares and Preferred Stock Conversion Shares at the time
in effect, and (iii) the number of shares of Class A Common Stock or Class B
Common Stock, as applicable, and Series B Preferred Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of shares of Series A Preferred Stock.
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(g) NOTICES OF RECORD DATE. In the event that the
Corporation shall propose at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether or not a regular cash dividend and whether or not
out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holder
of any class or series of its stock any additional shares of stock of any
class or series or other rights;
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in
the Common Stock;
(iv) to merge or consolidate with or into any other
corporation or other entity or person, or sell, lease or convey all or
substantially all its property or business, or to liquidate, dissolve or
wind up; or
(v) any firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offer and sale of Class A Common Stock for the account of
the Corporation;
then, in connection with each such event, the Corporation shall send to the
holder of Series A Preferred Stock:
(A) at least twenty days' prior written notice of the
date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of
Common Stock shall be entitled thereto) or for determining rights to vote
in respect of the matters referred to in (iii) and (iv) above; and
(B) in the case of the matters referred to in (iii),
(iv) and (v) above, at least twenty days' prior written notice of the
date when the same shall take place (and specifying the date on which the
holders of Common Stock shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon the
occurrence of such event).
Each written notice shall be delivered personally or given by
United States mail, return receipt requested, postage prepaid, addressed to the
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holders of Series A Preferred Stock at the address for each such holder as shown
on the books of the Corporation.
(h) TRANSFER TAXES. If a holder converts shares of
Series A Preferred Stock, the Corporation shall pay any documentary, stamp or
similar issue or transfer tax due on the issue of Class A Common Stock or Class
B Common Stock, as applicable, and Series B Preferred Stock upon the conversion.
The holder, however, shall pay to the Corporation the amount of any tax which is
due (or shall establish to the satisfaction of the Corporation the payment
thereof or that no such payment is due) if the shares are to be issued in a name
other than the name of such holder.
(i) RESERVATION OF SHARES. The Corporation shall
reserve and shall at all times have reserved out of its authorized but unissued
shares of Class A Common Stock, Class D Common Stock and Series B Preferred
Stock, solely for the purpose of effecting the conversion of Series A Preferred
Stock, enough shares of Class A Common Stock, Class B Common Stock and Series B
Preferred Stock to permit the conversion of the then outstanding shares of
Series A Preferred Stock. All shares of Class A Common Stock or Class B Common
Stock, as applicable, and Series B Preferred Stock which may be issued upon
conversion of shares of Series A Preferred Stock shall be validly issued, fully
paid and nonassessable. The Corporation shall from time to time, in accordance
with the laws of the State of Delaware, increase the authorized number of shares
of Class A Common Stock, Class B Common Stock or Series B Preferred Stock if at
any time the number of shares of Class A Common Stock, Class B Common Stock or
Series B Preferred Stock, as the case may be, authorized but not outstanding
shall not be sufficient to permit conversion of all then-outstanding shares of
Series A Preferred Stock. In order that the Corporation may issue shares of
Class A Common Stock or Class B Common Stock, as applicable, and Series B
Preferred Stock upon conversion of shares of Series A Preferred Stock, the
Corporation shall use its reasonable best effort to assure that all such shares
of Class A Common Stock, Class B Common Stock and Series B Preferred Stock may
be so issued without violation of any applicable law or governmental regulations
or any requirements of any domestic securities exchange upon which shares of
Common Stock or Preferred Stock of the relevant series may be listed (except for
official notice of issuance which shall be immediately transmitted by the
corporation upon issuance).
(j) In the event that as a result of an adjustment made
pursuant to Section C.6(c)(viii) of this Article FOURTH, the holder of any
shares of Series A Preferred Stock thereafter surrendered for conversion shall
become entitled to receive any shares of capital stock of the Corporation other
than shares of Class A Common Stock or Class B Common Stock, thereafter the
number of
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such other shares so receivable upon conversion of any shares of Series A
Preferred Stock shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Class A Common Stock and Class B Common Stock contained in this Section C.6.
(k) In the event that there are any stock dividends,
stock splits, reverse stock splits, reclassifications or similar transactions to
the Series B Preferred Stock, the Series B Conversion Shares shall be
appropriately adjusted to reflect such stock dividend, stock split, reverse
stock split reclassification or similar transaction.
7. LIMITATIONS. In addition to any other rights provided by
applicable law, so long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote, or the
written consent as provided by law, of the holders of at least two-thirds of the
outstanding shares of Series A Preferred Stock, voting separately as a class,
(a) create, authorize or issue any class or series of
Preferred Stock or any other class of capital stock ranking either as to payment
of dividends or distribution of assets upon liquidation, dissolution or winding
up of the affairs of the Corporation on a parity with, or having preference or
priority over, the Series A Preferred Stock (other than the Series B Preferred
Stock), or
(b) change the powers, preferences or rights with
respect to the Series A Preferred Stock so as to affect the Series A Preferred
Stock adversely; PROVIDED, HOWEVER, any vote which would adversely affect the
amount or timing of the payment of dividends on the Series A Preferred Stock,
the amount or timing of the payment of the Series A Redemption Price, any
amounts paid pursuant to Section C.5 of this Article FOURTH, the computation of
the Series A Conversion Shares or the computation of the Series B Conversion
Shares would require the affirmative vote of the holders of all of the
outstanding shares of Series A Preferred Stock; and PROVIDED, FURTHER, (except
as otherwise required by applicable law) nothing herein contained shall require
such a vote or consent in connection with (i) any increase in the total number
of authorized shares of Common Stock, or (ii) the authorization or increase of
any class or series of shares ranking, as to dividends and in liquidation,
dissolution or winding up of the affairs of the Corporation, junior to the
Series A Preferred Stock; PROVIDED that no such vote or written consent of the
holders of the shares of Series A Preferred Stock shall be required if, at or
prior to the time when the issuance of any such shares ranking on
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a parity with, or having preference or priority over, the Series A Preferred
Stock is to be made or any such change is to take effect, as the case may be,
provision is made for the redemption of all the then outstanding shares of
Series A Preferred Stock.
8. DIVIDEND RECEIVED DEDUCTION. For federal income tax
purposes, the Corporation shall report distributions on the Series A Preferred
Stock as dividends, to the extent of the Corporation's current and accumulated
earnings and profits (as determined for federal income tax purposes). In
addition, the Corporation covenants not to take any action voluntarily which
could reasonably be expected to cause dividends on the Series A Preferred Stock
to fail to be eligible for the dividend received deduction pursuant to Section
243 of the Internal Revenue Code of 1986, as amended from time to time (the
"Code").
9. CERTAIN DEFINITIONS. The following terms shall have the
meanings ascribed to them below:
"BUSINESS DAY" means any day other than a Saturday or a Sunday or a
day on which commercial banking institutions in New York or Wisconsin are
authorized or required by law to remain closed. Any reference to "days" (unless
Business Days are specified) shall mean calendar days.
"CURRENT MARKET VALUE" means on any date specified herein, the
amount per share of the Class A Common Stock or Class B Common Stock, as
applicable, equal to (a) the last sale price of such Class A Common Stock or
Class B Common Stock, regular way, on such date or, if no such sale takes place
on such date, the average of the closing bid and asked prices thereof on such
date, in each case as officially reported on the principal national securities
exchange on which such Class A Common Stock or Class B Common Stock, as
applicable, is then listed or admitted to trading or (b) if such Class A Common
Stock or Class B Common Stock, as applicable, is not then listed or admitted to
trading on any national securities exchange but is designated as a national
market system security by the NASD, the last trading price of the Common Stock
on such date, or (c) if there shall have been no trading on such date or if the
Class A Common Stock or B Common Stock, as applicable, is not so designated, the
average of the closing bid and asked price of the Class A Common Stock or Class
B Common Stock as applicable, on such date as shown by the NASD automated
quotation system, or (d) if such Class A Common Stock or Class B Common Stock,
as applicable, is not then listed or admitted to trading on any national
exchange or quoted in the over-the-counter market, the Fair Market Value (as
defined in the Stockholders Agreement). Any determination made in good faith by
the Corporation's Board of Directors as to the Current Market Value of the Class
A Common Stock or Class E Common Stock shall be binding on the Corporation and
all Holders.
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"OUTSIDE DIRECTOR/EMPLOYEE STOCKHOLDER AGREEMENT" has the meaning
specified in the Stockholders Agreement.
"EXTRAORDINARY DIVIDEND" means any dividend or other distribution
of cash or other property (other than Common Stock) made with respect to Common
Stock which the Board of Directors declare generally to be other than an
ordinary dividend.
"IPO EVENT" has the meaning specified in the Stockholders
Agreement.
"MANAGEMENT REPURCHASE NOTE" has the meaning specified in the
Stockholders Agreement.
"NASD" means The National Association of Securities Dealers.
"OUTSTANDING ON A FULLY DILUTED BASIS" means an amount equal to the
total outstanding number of shares of Common Stock assuming the conversion or
exchange of all outstanding shares of securities convertible or exchangeable
into Common Stock of the Corporation and the exercise of all warrants, options
and other rights (including, without limitation, employee stock options (other
than options issued pursuant to the J. L. French Automotive Castings, Inc. 1998
Performance Stock Option Plan)) to purchase shares of Common Stock of the
Corporation.
"STOCKHOLDERS AGREEMENT" means the Amended and Restated
Stockholders Agreement, dated as of March 16, 1998, among the Corporation,
Windward Capital Associates, LP. ("Windward"), Windward/Park WACI, L.L.C.,
Windward/Park JLF LLC, Windward/Merchant, L.P., Windward/Merban, L.P.,
Windward/Northwest, L.P, Windward/Badger WACI, L.L.C., Windward/Badger JLF LLC,
CS First Boston Merchant Investments 1995/96, L.P., Charles M. WaIdon and such
other persons or entities who or which become parties to such Stockholders
Agreement pursuant to the terms thereof, as such agreement may be amended,
supplemented or otherwise modified from time to time after the date hereof.
"WINDWARD GROUP" has the meaning specified in the Stockholders
Agreement.
D. POWERS, PREFERENCES AND RIGHTS OF THE SERIES B PREFERRED STOCK.
No shares of Series B Preferred Stock shall be issued except pursuant to the
conversion of the Series A Preferred Stock. The powers, preferences and rights
of the Series B Preferred Stock, and the qualifications, limitations, or
restrictions thereof, are as follows:
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1. RANK. The Series B Preferred Stock shall, with respect to
dividend rights and rights of liquidation, winding up and dissolution, rank (i)
on a parity with the Series A Preferred Stock and (ii) senior to any of the
Junior Securities.
2. DIVIDENDS.
(a) The holders of shares of Series B Preferred Stock
will be entitled to receive, when, as and if declared by the Board of Directors
out of funds of the Corporation legally available therefor, cumulative cash
dividends at the per share rate of $700 per annum, or $175 per quarter for each
of the quarterly periods ending on the last day of March, June, September and
December of each year, and no more, payable in arrears on each succeeding April
1, July 1, October 1 and January 1, respectively, commencing on the first
dividend payment date after the date of original issue; PROVIDED that: (i) if
any such payment date is not a Business Day then such dividend shall be payable
on the next Business Day, and (ii) accumulated and unpaid dividends for any
prior quarterly period may be paid at any time. Such dividends shall accrue and
be cumulative from the date of original issue of each share of Series B
Preferred Stock, whether or not there are funds legally available for the
payment of dividends on any payment date. Each such dividend shall be paid to
the holders of record of the shares of Series B Preferred Stock as they appear
on the share register of the Corporation on such record date, not more than 60
days nor less than 10 days preceding the dividend payment date, as shall be
fixed by the Board of Directors or a duly authorized committee thereof.
(b) If dividends are not paid in full, or declared in
full and sums set apart for the payment thereof, upon the shares of Series B
Preferred Stock and Series A Preferred Stock, all dividends declared upon shares
of Series B Preferred Stock and shares of Series A Preferred Stock shall be paid
or declared pro rata so that in all cases the amount of dividends paid or
declared per share on the Series B Preferred Stock and the Series A Preferred
Stock shall bear to each other the same ratio that unpaid accumulated dividends
per share, including dividends, accrued or in arrears, if any, on the shares of
Series B Preferred Stock and the shares of Series A Preferred Stock bear to each
other. Unless and until full cumulative dividends on the shares of Series B
Preferred Stock in respect of all past quarterly dividend periods have been
paid, and the full amount of dividends on the shares of Series B Preferred Stock
in respect of the then current quarterly dividend period shall have been or are
contemporaneously declared in full and sums set aside for the payment thereof,
(i) no dividends shall be paid or declared and set aside for payment or other
distribution made upon any of the Junior Securities, other than in shares of, or
warrants or rights to acquire, Junior
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Securities; and (ii) no shares of Junior Securities or shares of Series A
Preferred Stock shall be redeemed, retired, purchased or otherwise acquired for
any consideration (or any payment made to or available for a sinking fund for
the redemption of any such shares) by the Corporation or any subsidiary of the
Corporation (except by conversion into or exchange for shares of Junior
Securities or pursuant to a Management Repurchase Note delivered in accordance
with the provisions of the Stockholders Agreement or an Outside
Director/Employee Stockholder Agreement). Holders of shares of Series B
Preferred Stock shall not be entitled to any dividends, whether payable in cash,
property or shares of capital stock, in excess of full accrued and cumulative
dividends as herein provided. No interest or sum of money in lieu of interest
shall be payable in respect of any dividend payment or payments on the shares of
series B Preferred Stock that may be in arrears.
(c) Dividends payable on the shares of Series B
Preferred Stock for any period less than a full quarterly dividend period shall
be computed on the basis of a 360-day year of twelve 30-day months and the
actual number of days elapsed in the period for which payable.
3. OPTIONAL REDEMPTION AND MANDATORY REDEMPTION.
(a) The shares of Series B Preferred Stock are
redeemable at the option of the Corporation by resolution of its Board of
Directors, in whole or from time to time in part, at any time upon giving notice
as provided in Section D.3(f) of this Article FOURTH at a redemption price in
cash equal to the sum of (A) $10,000 for each share of Series B Preferred Stock
called for redemption plus (B) all dividends accrued and unpaid thereon up to
the date fixed for redemption, (such price, plus such dividends accrued and
unpaid, shall be hereinafter referred to as the"Series B Preferred Redemption
Price").
(b) The shares of Series B Preferred Stock shall be
redeemed in cash at the Series B Preferred Redemption Price if any of the
following events shall occur (such events shall be hereinafter referred to as
the "MANDATORY EVENT REDEMPTION DATE"):
(i) in the event of the closing of a firm commitment,
underwritten public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale of shares
of Common Stock for the account of the Corporation which is an IPO Event;
or
(ii) any consolidation or merger to which the
Corporation is a party other than a merger in which the Corporation is
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the continuing corporation and which does not result in any
reclassification of, or change (other than a change in name, or par
value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination) in, outstanding
shares of Common Stock or Series B Preferred Stock, or
(iii) any sale or conveyance of all or substantially
all of the property or business of the Corporation as an entirety
(including, in the case of any of the foregoing events, any statutory
exchange of securities with another corporation).
(c) If a redemption pursuant to this Section D.3(a) or
(b) of this Article FOURTH has not occurred by March 31, 2006 (the "SERIES B
PREFERRED MANDATORY REDEMPTION DATE"), the Corporation shall, on the Series B
Preferred Mandatory Redemption Date, redeem all shares, of Series B Preferred
Stock outstanding at the Series B Preferred Redemption Price. The Series B
Preferred Redemption Price shall be payable in cash.
(d) If, for any reason, the Corporation shall fail to
discharge its mandatory redemption obligations pursuant to Section D.3(b) or (c)
of this Article FOURTH, such purchase obligations shall be discharged as soon as
the Corporation is able to discharge such obligations. If and so long as any
mandatory redemption obligations with respect to the shares of the Series B
Preferred Stock shall not be fully discharged, the Corporation shall not,
directly or indirectly:
(i) declare or pay any dividend on any Junior
Securities or make any payment on account of, or set apart money for, a
sinking or other analogous fund for the purchase, redemption or other
Retirement of, or purchase, redeem or retire, any Junior Securities, make
any distribution in respect of Junior Securities, either directly or
indirectly and whether in cash or property or in obligations or shares of
the Corporation (other than in Junior Securities);or
(ii) purchase or redeem (except in either case for
consideration payable in Junior Securities) any Junior Securities then
outstanding (other than pursuant to a Management Repurchase Note
delivered in accordance with the provisions of the Stockholders Agreement
or an Outside Director/Employee Stockholder Agreement).
Dividends shall continue to accrue on a cumulative basis with
respect to any shares of Series B Preferred Stock subject to a mandatory
redemption obligation that has not been discharged by the Corporation pursuant
to Section D.3(b) or (c) of this Article FOURTH.
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(e) If less than all of the outstanding shares of
Series B Preferred Stock are to be redeemed, the number of shares to be redeemed
shall be determined by the Board of Directors, and the shares to be redeemed
shall be determined pro rata or by lot or in such other manner and subject to
such regulations as the Board of Directors in its sole discretion shall
prescribe.
(f) At least 10 days but not more than 60 days prior to
a Mandatory Event Redemption Date, the Series B Preferred Mandatory Redemption
Date or the date fixed for any optional redemption of shares of Series B
Preferred Stock (such date for optional redemption together with the Mandatory
Event Redemption Date and the Series B Preferred Mandatory Redemption Date,
shall be hereinafter referred to as the "SERIES B PREFERRED REDEMPTION DATE"), a
written notice shall be mailed to each holder of record of shares of Series B
Preferred Stock to be redeemed and each holder of record of shares of Series A
Preferred Stock which such shares have automatically been converted into shares
of Series B Preferred Stock but which such shares have not yet been issued, in a
postage prepaid envelope addressed to such holder at such holder's post office
address as shown on the records of the Corporation, notifying such holder of the
Mandatory Event Redemption Date, the Series B Preferred Mandatory Redemption
Date or the election of the Corporation to redeem such shares, stating the date
fixed for redemption thereof, specifying the Series B Preferred Redemption
Price, and calling upon such holder to surrender to the Corporation on the
Series B Preferred Redemption Date at the place designated in such notice and
the certificate or certificates representing the number of shares specified in
such notice of redemption. On or after the Series B Preferred Redemption Date,
each holder of shares of Series B Preferred Stock to be redeemed and each holder
of record of shares of Series A Preferred Stock which such shares have
automatically been converted into shares of Series B Preferred Stock, but which
such shares have not yet been issued, shall surrender the certificate or
certificates for such shares to the Corporation at the place designated in such
notice, and against such surrender the Series B Preferred Redemption Price of
such shares shall be paid to or on the order of the person whose name appears on
such certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled. In case less than all the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(g) From and after the Series B Preferred Redemption
Date (unless default shall be made by the Corporation in payment in full of the
Series B Preferred Redemption Price), all dividends on the shares of Series B
Preferred Stock designated for redemption in such notice shall cease to accrue,
and all rights of the holders thereof as stockholders of the Corporation, except
the right to receive the Series B Preferred Redemption Price of such shares
(including all
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accrued and unpaid dividends up to the Series B Preferred Redemption Date) upon
the surrender of certificates representing the same, shall cease and terminate,
and such shares shall not thereafter be transferred (except with the consent of
the Corporation) on the books of the Corporation and shall not be deemed to be
outstanding for any purpose whatsoever.
(h) Shares of Series B Preferred Stock redeemed,
repurchased or retired pursuant to the provisions of this Section D.3 or
surrendered to the Corporation upon conversion shall thereupon be retired and
may not be reissued.
4. VOTING RIGHTS. Except as otherwise provided in Section D.
7 of this Article FOURTH or as required under the DGCL, the holders of shares of
Series B Preferred Stock shall not be entitled to vote on any matter submitted
to a vote of stockholders of the Corporation. Any vote expressly required by
Section D.7 of this Article FOURTH or by the DGCL may be given in person or by
proxy, either in writing without a meeting or by vote at any meeting called for
such purpose.
5. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or otherwise,
the holders of shares of Series B Preferred Stock shall be entitled to receive,
out of the assets of the Corporation available for distribution to its
stockholders, in cash, the amount of $10,000 for each share of Series B
Preferred Stock, plus an amount equal to all dividends accrued and unpaid on
each such share up to the date fixed for distribution, before any distribution
shall be made to the holders of shares of Junior Securities. If upon any
liquidation, dissolution or winding up of the Corporation, the assets
distributable among the holders of shares of Series B Preferred Stock and shares
of Series A Preferred Stock are insufficient to permit the payment in full to
the holders of all such shares of all preferential amounts payable to such
holders, then the entire assets of the Corporation so distributable shall be
distributed ratably among the holders of the shares of Series B Preferred Stock
and the shares of Series A Preferred Stock in proportion to the respective
amounts that would be payable per share if such assets were sufficient to permit
payment in full.
(b) The holder of any shares of Series B Preferred
Stock shall not be entitled to receive any payment for such shares under this
Section D.5 until such holder shall cause to be delivered to the Corporation (i)
the certificate(s) representing such shares and (ii) transfer instrument(s)
satisfactory to
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the Corporation and sufficient to surrender such shares to the Corporation free
of any adverse interest.
(c) After the payment of the full preferential amounts
provided for herein to the holders of shares of Series B Preferred Stock, such
holders shall be entitled to no other or further participation in the
distribution of the assets of the Corporation.
6. The holders of shares of Series B Preferred Stock shall
have no right to convert any such shares into shares of Common Stock or any
other securities of the Corporation.
7. LIMITATIONS. In addition to any other rights provided by
applicable law, so long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote, or the
written consent as provided by law, of the holders of at least two-thirds of the
outstanding shares of Series B Preferred Stock, voting separately as a class:
(a) create, authorize or issue any class or series of
Preferred Stock or any other class of capital stock ranking either as to payment
of dividends or distribution of assets upon liquidation, dissolution or winding
up of the affairs of the Corporation on a parity with, or having preference or
priority over, the Series B Preferred Stock (other than the Series A Preferred
Stock); or
(b) change the powers, preferences or rights with
respect to the Series B Preferred Stock so as to affect the Series B Preferred
Stock adversely; PROVIDED, HOWEVER, any vote which would adversely affect the
amount or timing of the payment of the dividends on the Series B Preferred
Stock, the amount or timing of the payment of the Series B Redemption Price or
any amounts paid pursuant to Section D-5 of this Article FOURTH would require
the affirmative vote of the holders of all of the outstanding shares of Series B
Preferred Stock; and PROVIDED, FURTHER, (except as otherwise required by
applicable law) nothing herein contained shall require such a vote or consent in
connection with (i) any increase in the total number of authorized shares of
Common Stock, or (ii) the authorization or increase of any class or series of
shares ranking, as to dividends and in liquidation, dissolution or winding up of
the affairs of the Corporation, junior to the Series B Preferred Stock; PROVIDED
that no such vote or written consent of the holders of the shares of Series B
Preferred Stock shall be required if, at or prior to the time when the issuance
of any such shares ranking on a parity with, or having preference or priority
over, the Series B Preferred Stock is to be made or any such change is to take
effect, as the case may be, provision is made for the redemption of all the then
outstanding shares of Series B Preferred Stock.
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8. DIVIDEND RECEIVED DEDUCTION. For federal income tax
purposes, the Corporation shall report distributions on the Series B Preferred
Stock as dividends, to the extent of the Corporation's current and accumulated
earnings and profits (as determined for federal income tax purposes). In
addition, the Corporation covenants not to take any action voluntarily which
could reasonably be expected to cause dividends on the Series B Preferred Stock
to fail to be eligible for the dividend received deduction pursuant to Section
243 of the Code.
FIFTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation, and of
its directors and stockholders:
A. MANAGEMENT OF CORPORATION. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the DGCL, this
Amended and Restated Certificate of Incorporation, and any By-Laws adopted by
the stockholders; PROVIDED that no By-Laws hereafter adopted by the stockholders
shall invalidate any prior act of the directors which would have been valid if
such By-Laws had not been adopted.
B. NUMBER AND ELECTION OF DIRECTORS. The number of directors of the
Corporation shall be as from time to time fixed by, or in the manner provided
in, the By-Laws of the Corporation. Election of directors need not be by written
ballot unless the By-Laws so provide.
C. SPECIAL VOTING REQUIREMENTS OF BOARD OF DIRECTORS AND COMMITTEE
OF THE BOARD OF DIRECTORS. In addition to any requirement under the DGCL, except
as specifically provided for in the Stockholders Agreement the approval of the
members of the Board of Directors (or any committee of the Board of Directors)
that are Windward Nominees (as such term is defined in the Stockholders
Agreement) acting by majority vote (or by written consent) is required in order
for the Board of Directors (or any committee of the Board of Directors) to take
any action or for the Company to take any action for which Board of Directors
approval is required. Any committee of the Board of Directors shall include, as
a majority of its members, Windward Nominees, unless Windward consents
otherwise.
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D. AMENDMENT, ETC. OF THIS AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
E. AMENDMENT OF THE BY-LAWS. In furtherance and not in limitation
of the power conferred by statute, the Board of Directors is expressly
authorized to make, alter, amend, change, add to or repeal the By-Laws of the
Corporation, subject to any specific limitation on such power contained in any
By-Laws adopted by the stockholders.
F. ACTION BY WRITTEN CONSENT. Any action required or permitted to
be taken by the stockholders of the Corporation must be effected at an annual or
special meeting of the stockholders of the Corporation; PROVIDED, THAT, the
stockholders of the Corporation may take action, without prior notice (except as
provided below) and without a vote, by written consent in lieu of a meeting, to
the extent that any such written consent (a) is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take the action at a meeting at which all shares
entitled to vote on the action were present and voted (the "Consenting Holders"
and each a "Consenting Holder"), if Windward or its Permitted Transferees (as
defined in the Stockholders Agreement) (but only if such signing party is at
such time a stockholder of the Corporation entitled to vote on such matter) is a
Consenting Holder and (b) is otherwise permitted pursuant to the provisions of
the DGCL; PROVIDED, FURTHER, that (i) notice of such action must be given by the
Consenting Holder to the other stockholders of the Corporation at least one
business day prior to the approval of any such action, and (ii) any such action
taken by stockholders by written consent as provided herein shall have the
effect as if it had been effected at an annual or special meeting.
G. MEETINGS OF STOCKHOLDERS; BOOKS OF THE CORPORATION. Meetings of
stockholders may be held within or without the State of Delaware, as the By-Laws
may provide. The books of the Corporation may be kept (subject to any provision
contained in the DGCL) outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the By-Laws
of the Corporation.
SIXTH: No director shall be personally liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholder, (ii) for acts or omissions not in
good faith or which
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involve intentional misconduct or a knowing violation of law, (iii) pursuant to
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. Any repeal or modification of the
foregoing provision of this Article SIXTH shall not adversely affect any right
or protection of a director of the Corporation in respect of any act or omission
occurring prior to the time of such repeal or modification. The provisions of
this Article SIXTH shall not be deemed to limit or preclude indemnification of a
director by the Corporation for any liability as a director that has not been
eliminated by the provisions of this Article SIXTH.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation is executed this 16th day of March, 1998.
WINDWARD AUTOMOTIVE COMPONENTS
INTERNATIONAL INC.
By: /s/ James D. Abstrom
---------------------------
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CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
J. L. FRENCH AUTOMOTIVE CASTINGS, INC.
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
-----------------------------------------------------
J. L. French Automotive Castings, Inc., a Delaware corporation
(hereinafter called the "Corporation"), does hereby certify as follows:
FIRST: Article Four of the Corporation's Certificate of
Incorporation is hereby amended to read in its entirety as set forth below:
ARTICLE FOUR
The total number of shares of stock which the Corporation has
authority to issue is 75,500, consisting of:
(i) 20,000 shares of Class A Common Stock, par value $0.01 per
share (the "CLASS A COMMON");
(ii) 30,000 shares of Class B common Stock, par value $0.01 per
share (the "CLASS B COMMON");
(iii) 2,000 shares of Class C Common Stock, par value $0.01 per
share (the "CLASS C COMMON");
(iv) 15,000 shares of Class D-1 Common Stock, par value $0.01
per share (the "CLASS D-1 COMMON");
(v) 7,500 shares of Class D-2 Non-Voting Common Stock, par
value $0.01 per share (the "CLASS D-2" COMMON"); and
(vi) 1,000 shares of Class E Common Stock, par value $0.01 per
share (the "CLASS E COMMON").
The Class D-1 Common and Class D-2 Common are referred to
collectively as the "CLASS D COMMON," and the Class A Common, Class B Common,
Class C Common, Class D Common and Class E Common and any other common stock
issued hereafter are referred to collectively as the "COMMON STOCK." Capitalized
terms used but not otherwise defined in this Article Four are defined in Section
II.
<PAGE>
I. TERMS APPLICABLE TO THE COMMON STOCK.
Except as otherwise provided in this Section I or as otherwise
required by applicable law, all shares of Class A Common, Class B Common, and
Class C Common, Class D Common and Class E Common shall be identical in all
respects and shall entitle the holders thereof to the same rights and
privileges, subject to the same qualifications, limitations and restrictions.
Part 1. VOTING RIGHTS.
Except as otherwise provided in this Section I or as otherwise
required by applicable law, all holders of Class A Common, Class B Common,
Class C Common, Class D-1 Common and Class E Common shall be entitled to one
vote per share on all matters to be voted on by the Corporation's
stockholders and the holders of Class D-2 Common shall not be entitled to
vote on such matters. The holders of Class A Common, Class B Common, Class C
Common, Class D-1 Common and Class E Common shall vote together as a single
class.
Part 2. DISTRIBUTIONS.
2A. CLASS A COMMON. The holders of Class A Common shall be
entitled to receive, as a group, a percentage of all Distributions made to
holders of Common Stock, such percentage to be determined by dividing (i) the
number of shares of Class A Common outstanding on the record date for the
applicable Distribution, by (ii) the number of shares of Common Stock
outstanding on the record date for the applicable Distribution. The
Distributions to the holders of Class A Common shall be distributed ratably
among holders of Class A Common on a per share basis.
2B. CLASS B COMMON AND CLASS C COMMON. At the same time as
Distributions are made pursuant to paragraph 2A above, the holders of Class B
Common and Class C Common shall be entitled to receive, as a group, a percentage
of all Distributions made to holders of Common Stock, such percentage to be
determined by dividing (i) the number of outstanding shares of Class B Common
and Class C Common on the record date for the applicable Distribution, by (ii)
the number of shares of Common Stock outstanding on the record date for the
applicable Distribution (the "B/C DISTRIBUTIONS"). The B/C Distributions shall
be distributed to the holders of Class B Common and Class C Common in the
following priority:
(i) The holders of Class B Common shall be entitled to receive
all B/C Distributions, ratably based upon the aggregate Unreturned Original Cost
and Unpaid Yield of the Class B Common held by each such holder, until such time
as the holders of Class B Common, as a class, receive Distributions equal to the
sum of (A) the aggregate Unreturned Original Cost of the Class B Common and (B)
the aggregate Unpaid Yield on the Class B Common. The Distributions made
pursuant to this paragraph 2B(i) to holders of the Class B
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Common shall first be designated as a payment of Yield on and then as a return
of Original Cost of the Class B Common.
(ii) Following the Distributions described in paragraph 2B(i)
above, the holders of Class C Common shall be entitled to receive all B/C
Distributions, ratably based upon the aggregate Unreturned Original Cost and
Unpaid Yield of the Class C Common held by each such holder, until such time as
the holders of Class C Common, as a class, receive Distributions equal to the
sum of (A) the aggregate Unreturned Original Cost of the Class C Common and (B)
the aggregate Unpaid Yield on the Class C Common. The Distributions made
pursuant to this paragraph 2B(ii) to holders of the Class C Common shall first
be designated as a payment of Yield on and then as a return of Original Cost of
the Class C Common.
(iii) Following the Distributions described in paragraph 2B(ii)
above, and at the same time as Distributions in paragraph 2B(iv) below, the
holders of Class B Common shall be entitled to receive, as a class, a percentage
of all B/C Distributions, such percentage to be determined by dividing (A) the
sum of (x) the aggregate Unreturned Original Cost of Onex Loss Investment Stock
and (y) the aggregate Unpaid Yield on Onex Loss Investment Stock, by (B) the sum
of (x) the aggregate Unreturned Original Cost of Loss Investment Stock and (y)
the aggregate Unpaid Yield on Loss Investment Stock, until such time an the
holders of Class B Common receive, as a class, Distributions equal to the excess
of (C) the sum of (x) the aggregate Unreturned Original Cost of Onex Loss
Investment Stock and (y) the aggregate Unpaid Yield on Onex Loss Investment
Stock over (D) the aggregate Disposition Value of Onex Loss Investment Stock.
The Distributions made pursuant to this paragraph 2B(iii) to holders of the
Class B Common shall be distributed ratably, based upon the number of
outstanding shares of Class B Common held by each such holder, and shall be
designated first as payment of Yield on and then as a return of Original Cost of
the Onex Loss Investment Stock.
(iv) Following the Distributions described in paragraph 2B(ii)
above, and at the same time as Distributions in paragraph 2B(iii) above, the
holders of Class C Common shall be entitled to receive, as a class, a percentage
of all B/C Distributions, such percentage to be determined by dividing (A) the
sum of (x) the aggregate Unreturned Original Cost of J2R Loss Investment Stock
and (y) the aggregate Unpaid Yield on J2R Loss Investment Stock, by (B) the sum
of (x) the aggregate Unreturned Original Cost of Loss Investment Stock and (y)
the aggregate Unpaid Yield on Loss Investment Stock, until such time as the
holders of Class C Common receive, as a class, Distributions equal to the excess
of (C) the sum of (x) the aggregate Unreturned Original Cost of J2R Loss
Investment Stock and (y) the aggregate Unpaid Yield on J2R Loss Investment Stock
over (D) the aggregate Disposition Value of J2R Loss Investment Stock. The
Distributions made pursuant to this paragraph 2B(iv) to holders of Class C
Common shall be distributed ratably, based upon the number of outstanding shares
of Class C Common held by each such holder, and shall be designated first as
payment of Yield on and then as a return of Original Cost of the J2R Loss
Investment Stock.
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(v) Following the Distributions described in paragraph 2B(iii)
and 2B(iv) above, the holders of Class C Common shall be entitled to receive all
B/C Distributions, ratably based upon the number of shares of Class C Common
held by each such holder, until such time as the holders of Class C Common
receive, as a class, Distributions equal to 25% of all Distributions made by all
Portfolio Companies that were designated (according to the distributing
Portfolio Company's Certificate of Incorporation) as payment of Yield on the
Class B Common.
(vi) Following the Distributions described in paragraph 2B(v)
above, and at the same time as Distributions in paragraph 2B(vii) below, the
holders of Class B Common shall be entitled to receive, as a class, a percentage
of all B/C Distributions, such percentage to be determined by dividing (A) the
sum of (x) the aggregate Unreturned Original Cost of Onex PLI Stock and (y) the
aggregate Unpaid Yield on Onex PLI Stock, by (B) the sum of (x) the aggregate
Unreturned Original Cost of PLI Stock and (y) the aggregate Unpaid Yield on PLI
Stock, until such time as the holders of Class B Common and Class C Common, as a
group, receive Distributions equal to the Shortfall. The Distributions made
pursuant to this paragraph 2B(vi) to holders of the Class B Common shall be
distributed ratably, based upon the number of outstanding shares of Class B
Common held by each such holder, and shall be designated first as a payment of
Yield on and then as a return of Original Cost of the Onex PLI Stock.
(vii) Following the Distributions described in paragraph 2B(v)
above, and at the same time as distributions in paragraph 2B(vi) above, the
holders of Class C Common shall be entitled to receive, as a class, a percentage
of all B/C Distributions, such percentage to be determined by dividing (A) the
sum of (x) the aggregate Unreturned Original Cost of J2R PLI Stock and (y) the
aggregate Unpaid Yield on J2R PLI Stock, by (B) the sum of (x) the aggregate
Unreturned Original Cost of PLI Stock and (y) the aggregate Unpaid Yield on PLI
Stock, until such time as the holders of Class B Common and Class C Common, as a
group, receive Distributions equal to the Shortfall. The Distributions made
pursuant to this paragraph 2B(vii) to holders of the Class C Common shall be
distributed ratably, based upon the number of outstanding shares of Class C
Common held by each such holder, and shall be designated first as a payment of
Yield on and then as a return of Original Cost of the J2R PLI Stock.
(viii) Following the Distributions described in paragraphs 2B(vi)
and 2B(vii) above, (A) the holders of Class B Common shall be entitled to
receive 80% of the B/C Distributions ratably, based upon the number of
outstanding shares of Class B Common held by each such holder and (B) the
holders of Class C Common shall be entitled to receive 20% of the B/C
Distributions ratably, based upon the number of outstanding shares of Class C
Common held by each such holder.
2C. CLASS D COMMON AND CLASS E COMMON. At the same time as
Distributions are made pursuant to paragraph 2A and 2B above, the holders of
Class D Common and Class E Common shall be entitled to receive, as a group, a
percentage of all Distributions made to holders of Common Stock, such percentage
to be determined by dividing (i) the number
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of outstanding shares of Class D Common and Class E Common on the record date
for the applicable Distribution, by (ii) the number of shares of Common Stock
outstanding on the record date for the applicable Distribution (the "D/E
DISTRIBUTIONS"). The D/E Distributions shall be distributed to the holders of
Class D Common and Class E Common in the following priority:
(i) The holders of Class D Common shall be entitled to receive
all D/E Distributions, ratably based upon the aggregate Unpaid Class D/E Yield
of the Class D Common held by such holder, until such time as the holders of
Class D Common receive, as a group, Distributions equal to the Unpaid Class D/E
Yield on Class D Common. The Distributions made pursuant to this paragraph 2C(i)
to holders of Class D Common shall be designated as a payment of Class D/E
Yield.
(ii) Following the Distributions described in paragraph 2C(i)
above, the holders of Class E Common shall be entitled to receive all D/E
Distributions, ratably based upon the aggregate Unpaid Class D/E Yield of the
Class E Common held by such holder, until such time as the holders of Class E
Common receive, as a class, Distributions equal to the Unpaid Class D/E Yield on
Class E Common. The Distributions made pursuant to this paragraph 2C(ii) to
holders of Class E Common shall be designated as a payment of class D/E Yield.
(iii) Following the Distributions described in paragraph 2C(ii)
above, the holders of Class D Common shall be entitled to receive all D/E
Distributions, ratably based upon the aggregate Unreturned Original D/E Cost of
the Class D Common held by such holder, until such time as the holders of Class
D Common, as a group, receive Distributions equal to the aggregate Unreturned
Original D/E Cost of the Class D Common. The Distributions made pursuant to this
paragraph 2C(iii) to holders of the Class D Common shall be designated as a
return of Original D/E Cost of the Class D Common.
(iv) Following the Distributions described in paragraph 2C(iii)
above, the holders of Class E Common shall be entitled to receive all D/E
Distributions, ratably based upon the aggregate Unreturned Original D/E Cost of
the Class E Common held by such holder, until such time as the holders of Class
E Common, as a class, receive Distributions equal to the aggregate Unreturned
Original D/E Cost of the Class E Common. The Distributions made pursuant to this
paragraph 2C(iv) to holders of the Class E Common shall be designated as a
return of Original D/E Cost of the Class E Common.
(v) Following the Distributions described in paragraph
2C(iv) above, the holders of Class E Common shall be entitled to receive all
D/E Distributions, ratably based upon the number of shares of Class E Common
held by each such holder, until such time as the holders of Class E Common
receive, as a class, Distributions equal to 25% of all Distributions that
were designated as payment of Class D/E Yield on the Class D Common.
(vi) Following the Distributions described in paragraph 2C(v)
above, (A) the holders of Class D Common shall be entitled to receive 80% of the
D/E Distributions ratably,
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based upon the number of outstanding shares of Class D Common held by each such
holder and (B) the holders of Class E Common shall be entitled to receive 20% of
the D/E Distributions ratably, based upon the number of outstanding shares of
Class E Common held by each such holder.
Part 3. CONVERSION.
3A. CONVERSION OF CLASS D-2 COMMON.
(i) In connection with the occurrence (or the expected
occurrence as described in (iii) below) of any Conversion Event, each holder of
Class D-2 Common shall be entitled to convert into an equal number of shares of
Class D-1 Common any or all of the shares of such holder's Class D-2 Common
being (or expected to be) distributed, disposed of or sold in connection with
such Conversion Event.
(ii) For purposes of this paragraph 3A, a "Conversion Event"
shall mean (a) any public offering or public sale of securities of the
Corporation (including a public offering registered under the Securities Act of
1933 and a public sale pursuant to Rule 144 of the Securities and Exchange
Commission or any similar rule then in force), (b) any sale of securities of the
Corporation to a person or group of persons (within the meaning of the
Securities Exchange Act of 1934, as amended (the "1934 Act")) if, after such
sale, such person or group of persons in the aggregate would own or control
securities which possess in the aggregate the ordinary voting power to elect a
majority of the Corporation's directors (provided that such sale has been
approved by the Corporation's Board of Directors or a committee thereof), (c)
any sale of securities of the Corporation to a person or group of persons
(within the meaning of the 1934 Act) if, after such sale, such person or group
of persons in the aggregate would own or control securities of the Corporation
(excluding any Class D-2 Common being converted and disposed or in connection
with such Conversion Event) which possess in the aggregate the ordinary voting
power to elect a majority of the Corporation's directors, (d) any sale of
securities of the Corporation to a person or group of persons (within the
meaning of the 1934 Act) if, after such sale, such person or group of persons
would not, in the aggregate, own, control or have the right to acquire more than
two percent (2%) of the outstanding securities of any class of voting securities
of the Corporation, and (e) a merger, consolidation or similar transaction
involving the Corporation if, after such transaction, a person or group of
persons (within the meaning of the 1934 Act) in the aggregate would own or
control securities which possess in the aggregate the ordinary voting power to
elect a majority of the surviving corporation's directors (provided that the
transaction has been approved by the Corporation's Board of Directors or a
committee thereof). For purposes of this paragraph 3A, a "person" shall include
any natural person and any corporation, partnership, joint venture, trust,
unincorporated organization and any other entity or organization.
(iii) Each holder of Class D-2 Common shall be entitled to
convert shares of Class D-2 Common in connection with any Conversion Event if
such holder reasonably believes
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that such Conversion Event shall be consummated, and a written request for
conversion from any holder of Class D-2 Common to the Corporation stating such
holder's reasonable belief that a Conversion Event shall occur shall be
conclusive and shall obligate the Corporation to effect such conversion in a
timely manner so as to enable each such holder to participate in such Conversion
Event. The Corporation shall not cancel the shares of Class D-2 Common so
converted before the tenth day following such Conversion Event and shall reserve
such shares until such tenth day for reissuance in compliance with the next
sentence. If any shares of Class D-2 Common are converted into shares of Class
D-1 Common in connection with a Conversion Event and such shares of Class D-1
Common are not actually distributed, disposed of or sold pursuant to such
Conversion Event, such shares of Class D-1 Common shall be promptly converted
back into the same number of shares of Class D-2 Common.
3B. CONVERSION PROCEDURE.
(i) Each conversion of shares of Class D-2 Common into
shares of Class D-1 Common will be effected by the surrender of the
certificate or certificates representing the shares to be converted at the
principal executive office of the Corporation (or such other office or agency
of the Corporation as the Corporation may designate by notice in writing to
the holders of the Class D-2 Common) at any time during normal business
hours, together with a written notice by the holder of the shares represented
by such certificate or certificates starting that such holder desires to
convert such shares, or a stated number of such shares, into shares of Class
D-1 Common and that upon such conversion such holder and its Affiliates will
not directly or indirectly own, control or have the power to vote a greater
quantity of securities of any kind issued by the Corporation than such holder
and its Affiliates are permitted to own, control or have the power to vote
under any applicable law, regulation, rule or other requirement of any
governmental authority (and such statement will obligate the Corporation to
issue such shares of Class D-1 Common). Such conversion will be deemed to
have been effected as of the close of business on the date on which such
certificate or certificates have been surrendered and such written notice has
been received, and at such time the rights of the holder of the converted
shares of Class D-2 Common as such holder will cease and the person or
persons in whose name or names the certificate or certificates for shares of
Class D-1 Common are to be issued upon such conversion will be deemed to have
become the holder or holders of record of the shares of Class D-1 Common
represented thereby.
(ii) Promptly after such surrender and the receipt of such
written notice, the Corporation will issue and deliver in accordance with the
surrendering holder's instructions (i) the certificate or certificates for the
shares of Class D-1 Common issuable upon such conversion and (ii) a certificate
representing any shares of Class D-2 Common which were represented by the
certificate or certificates delivered to the Corporation in connection with such
conversion but which were not converted.
(iii) The Corporation will at all times reserve and keep
available out of its authorized but unissued shares of Class D-1 Common, solely
for the purpose of issue upon the
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conversion of the Class D-2 Common as provided in this Part 3, such number of
shares as shall be issuable upon the conversion of all then outstanding shares
of Class D-2 Common (assuming that all such shares are held by persons entitled
to convert such shares into shares of Class D-1 Common).
(iv) The issuance of certificates for shares of Class D-1 Common
upon conversion of shares of Class D-2 Common will be made without charge to the
holders of such shares for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and issuance. The
Corporation will not close its books against the transfer of its Common Stock in
any manner which would interfere with the timely conversion of the Class D-2
Common.
Part 4. STOCK SPLITS AND STOCK DIVIDENDS.
The Corporation shall not in any manner subdivide (by stock split,
stock dividend or otherwise), or combine (by stock split, stock dividend or
otherwise) the outstanding Common Stock of one class unless the outstanding
Common Stock of the other classes shall be proportionately subdivided or
combined. All such subdivisions and combinations shall be payable only in Class
A Common to the holders of Class A Common, in Class B Common to the holders of
Class B Common, in Class C Common to the holders of Class C Common, in Class D-1
Common to the holders of Class D-1 Common, in Class D-2 Common to the holders of
Class D-2 Common and in Class E Common to the holders of Class E Common. In no
event shall a stock split or stock dividend be designated as a payment of Yield,
a payment of Class D/E Yield, a return of Original Cost or a return of Original
D/E Cost.
Part 5. REGISTRATION OF TRANSFER.
The Corporation shall keep at its principal office (or such
other place as the Corporation reasonably designates) a register for the
registration of shares of Common Stock. Upon the surrender of any certificate
representing shares of any class of Common Stock at such place, the
Corporation shall, at the request of the registered holder of such
certificate, execute and deliver a new certificate or certificates in
exchange therefor representing in the aggregate the number of shares of such
class represented by the surrendered certificate, and the Corporation
forthwith shall cancel such surrendered certificate. Each such new
certificate will be registered in such name and will represent such number of
shares of such class as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate. The issuance of new certificates shall be made without charge to
the holders of the surrendered certificates for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
issuance.
Part 6. REPLACEMENT.
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Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder will be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing one or more shares of any class of Common Stock, and in the case of
any such lose, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor its own agreement will be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Part 7. NOTICES.
All notices referred to herein shall be in writing, shall be
delivered personally, sent by telecopy or mailed by first class mail, postage
prepaid, and shall be deemed to have been given when so delivered, sent or
mailed to the Corporation at its principal executive offices and to any
stockholder at such holder's address as it appears in the stock records of the
Corporation (unless otherwise specified in a written notice to the Corporation
by such holder).
Part 8. AMENDMENT AND WAIVER.
No amendment or waiver of any provision of this Section I shall
be effective without the prior written consent of the holders of a majority
of the then outstanding shares of the Class A Common, Class B Common, Class C
Common, Class D Common and Class E Common each voting as a separate class;
provided that any provisions of part 2B of this Section I and any definitions
in Section II applicable thereto may be amended or waived with the prior
consent of both the holders of a majority of the then outstanding shares of
Class B Common and the holders of a majority of the then outstanding shares
of Class C Common each voting as a separate class and that any provisions of
part 2C of this Section I; provided, further, that any provisions of Part 2C
of this Section I and any definitions in Section II applicable thereto may be
amended or waived with the prior consent of both the holders of a majority of
the then outstanding shares of Class D Common and the holders of a majority
of the then outstanding shares of Class E Common each voting as a separate
class.
II. DEFINITIONS.
"AFFILIATE" means, with respect to any Person, any individual,
corporation, partnership or other entity which, directly or indirectly,
controls, or is controlled by or is under common control with such Person or any
of its Subsidiaries.
"CLASS D/E YIELD" means a yield on each share of Class D Common
and Class E Common that will accrue and accumulate at the rate of 20.0% per
annum of the Unreturned Original D/E Cost thereof, which yield shall accumulate
and compound if not paid at least
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annually. In computing the amount of Class D/E Yield accrued in respect of a
fractional year, such amount shall be computed on the basis of a 365 day year
and actual number of days elapsed.
"CO-INVESTMENT AGREEMENT" means that certain Co-Investment
Agreement, dated as of March 30, 1990, between Onex TMB Investments Inc., an
Ontario corporation (and together with its affiliates (as defined in the
Co-Investment Agreement) and successors, "Onex"), and J2R Corporation, a
Delaware corporation (and together with its affiliates (as defined in the
Co-Investment Agreement) and successors, "J2R"), as amended from time to time.
"DISPOSITION VALUE" of any share of any Loss Investment means an
amount equal to (a) the amount realized on disposition of such share in
connection with the disposition by Onex of the Onex Loss Investment Stock of the
issuer of such share or (b) if no amount is realized on such share in connection
with such disposition, the fair market value (as determined in good faith by the
Board of Directors of the Corporation) of such share on its Loss Investment
Date. The Disposition Value of any share shall not exceed its Unpaid Yield and
Unreturned Original Cost.
"DISTRIBUTION" means each distribution made by the Corporation
to holders of Common Stock, whether in cash, property, or securities of the
Corporation and whether by dividend, liquidating distributions or otherwise;
provided that neither of the following shall be a Distribution: (a) any
redemption or repurchase by the Corporation of any shares of Common Stock for
any reason or (b) any recapitalization or exchange of any shares of Common
Stock, or any subdivision (by stock split, stock dividend or otherwise) or
any combination (by stock split, stock dividend or otherwise) of any
outstanding shares of Common Stock.
"J2R LOSS INVESTMENT STOCK" means any common stock originally
issued by any Loss Investment to J2R or its Affiliates that has rights and
preferences substantially similar to those of the Class C Common.
"J2R PLI STOCK" means any common stock originally issued by any
Potential Loss Investment to J2R or its Affiliates that has rights and
preferences substantially similar to those of the Class C Common.
"LOSS INVESTMENT" means any Portfolio Company designated as a Loss
Investment by Onex in accordance with the terms set forth in the Co-Investment
Agreement.
"LOSS INVESTMENT DATE" as to any share of common stock means the
date on which the issuer of such share is designated as a Loss investment by
Onex, in accordance with the terms set forth in the Co-Investment Agreement.
"LOSS INVESTMENT STOCK" means any Onex Loss Investment Stock or
J2R Loss Investment Stock.
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"ONEX LOSS INVESTMENT STOCK" means any common stock originally
issued by any Loss Investment to Onex or its Affiliates that has rights and
preferences substantially similar to those of the Class B Common.
"ONEX PLI STOCK" means any common stock originally issued by any
Potential Loss Investment to Onex or its Affiliates that has rights and
preferences substantially similar to those of the Class B Common.
"ORIGINAL COST" of any share of any class of common stock of any
Portfolio Company as of any particular date will be equal to the amount of cash
originally paid for such shares when they were issued.
"ORIGINAL D/E COST" of any share of the Class D Common and the
Class E Common of the Corporation as of any particular date will be equal to the
amount of cash originally paid for such shares when they were issued.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, a limited liability company and a governmental entity or any
department, agency or political subdivision thereof.
"PORTFOLIO COMPANY" means a Person that has issued Securities that
were originally owned by Onex or its Affiliates and J2R or its Affiliates
pursuant to the Co-Investment Agreement.
"POTENTIAL LOSS INVESTMENT" means any Portfolio Company designated
as a Potential Loss Investment by Onex in accordance with the terms set forth in
the Co-Investment Agreement.
"PLI STOCK" means any Onex PLI Stock or J2R PLI Stock.
"SECURITIES" shall mean "securities" as defined in section 2(1) of
the Securities Act of 1933, as amended.
"SHORTFALL" means an amount equal to the excess, if any of (a) the
sum of (i) the Unreturned Original Cost of such stock and (ii) the Unpaid Yield
on such stock over (b) the aggregate fair market value of PLI Stock as
determined in accordance with the Co-Investment Agreement.
"SUBSIDIARY" shall mean with respect to any Person, any
corporation of which the shares of stock having a majority of the general voting
power in electing the board of directors are, at the time as of which any
determination in being made, owned by such Person either directly or indirectly
through Subsidiaries.
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"UNPAID CLASS D/E YIELD" of any share of Class D Common and Class
E Common means an amount equal to the excess, if any, of (a) the aggregate Class
D/E Yield accrued and accumulated on such share over (b) the aggregate amount of
Distributions made by the Corporation that are designated as payment of Class
D/E Yield on such share.
"UNPAID YIELD" of any share of common stock of any Portfolio
Company means an amount equal to the excess, if any, of (a) the aggregate Yield
accrued and accumulated on such share over (b) the aggregate amount of
distributions made by all Portfolio Companies that are designated (according to
the distributing Portfolio Company's Certificate of Incorporation) as payment of
Yield on such share. In no event shall any amount paid to a stockholder in
exchange for or with respect to the stock of a Portfolio Company be treated as
payment of Unpaid Yield (other than a distribution made by such Portfolio
Company or a distribution made by another Portfolio Company with respect to the
stock of such Portfolio Company).
"UNRETURNED ORIGINAL COST" of any share of common stock of any
Portfolio Company means an amount equal to the excess, if any, of (a) the
Original Cost of such share over (b) the aggregate amount of distributions
made by all Portfolio Companies that are designated (according to the
distributing Portfolio Company's Certificate of Incorporation) as a return of
Original Cost of such share. In no event shall any amount paid to a
stockholder in exchange for or with respect to the stock of a Portfolio
Company be treated as payment of Unreturned Original Cost (other than a
distribution made by such Portfolio Company or by another Portfolio Company
with respect to the stock of such Portfolio Company).
"UNRETURNED ORIGINAL D/E COST" of any share of Class D Common and
Class E Common means an amount equal to the excess, if any, of (a) the Original
D/E Cost of such share over (b) the aggregate amount of Distributions made by
the Corporation that are designated as a return of Original D/E Cost of such
share.
"YIELD" means a yield on each share of common stock of any
Portfolio Company that will accrue and accumulate at the rate of 20.0% per annum
of the Unreturned Original Cost thereof, which yield shall accumulate and
compound if not paid at least annually; provided however, that the Yield on any
share shall cease accruing, accumulating and compounding on the Loss Investment
Date of such share. In computing the amount of Yield accrued in respect of a
fractional year, such amount shall be computed on the basis of a 365 day year
and actual number of days elapsed.
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SECOND: The foregoing amendment was duly adopted in accordance
with Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, J. L. French Automotive Castings, Inc. has
caused this Certificate to be duly executed in its corporate name this 21st day
of April, 1999.
J. L. French Automotive Castings, Inc.
By: /s/ Thomas C. Dinolfo
---------------------------------
Name: Thomas C. Dinolfo
Title: Treasurer & CFO
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CERTIFICATE OF CORRECTION FILED TO CORRECT
A CERTAIN ERROR IN THE CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF
INCORPORATION OF
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE
ON APRIL 21, 1999
J.L. French Automotive Castings, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
1. The name of the corporation is J.L. French Automotive Castings,
Inc.
2. That a Certificate of Amendment to the Certificate of
Incorporation was filed by the Secretary of State of Delaware on
April 21, 1999 and that said Certificate requires correction as
permitted by Section 103 of the General Corporation Law of the
State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected is as
follows:
a. The total number of shares of stock which the Corporation
has authority to issue was incorrectly listed in the first
sentence of Article Four. The total number of shares of
stock which the Corporation has authority to issue should
be listed as 82,500.
b. The amount of authorized Class C Common Stock and Class E
Common Stock was incorrectly listed in the first sentence
of Article Four. The amount of authorized Class C Common
Stock should be listed as 6,000 shares and the amount of
authorized Class E Common Stock should be listed as 4,000
shares.
4. The first sentence of Article Four of the Certificate of Amendment
to the Certificate of Incorporation is corrected to read as
follows:
ARTICLE FOUR
The total number of shares of stock which the Corporation has
authority to issue is 82,500, consisting of:
-1-
<PAGE>
(i) 20,000 shares of Class A Common Stock, par value $0.01 per
share (the "CLASS A COMMON");
(ii) 30,000 shares of Class B Common Stock, par value $0.01 per
share (the "CLASS B COMMON");
(iii) 6,000 shares of Class C Common Stock, par value $0.01 per
share (the "CLASS C COMMON");
(iv) 15,000 shares of Class D-1 Common Stock, par value $0.01
per share (the "CLASS D-1 COMMON");
(v) 7,500 shares of Class D-2 Non-Voting Common Stock, par
value $0.01 per share (the "CLASS D-2 COMMON"); and
(vi) 4,000 shares of Class E Common Stock, par value $0.01 per
share (the "CLASS E COMMON").
* * * * *
-2-
<PAGE>
IN WITNESS WHEREOF, said Carl E. Nelson, its Vice President and
Secretary, has executed this Certificate of Correction on this 20th day of May,
1999.
J.L. French Automotive Castings, Inc.
By
------------------------------------
/s/ Carl E. Nelson, Vice President &
Secretary
-3-
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
* * * *
ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF Section 242 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
* * * *
Charles Waldon, being the President of J.L. French Automotive
Castings, Inc., a corporation duly organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY as follows:
FIRST: The Board of Directors of the Corporation adopted the
resolution set forth below proposing an amendment to the Certificate of
Incorporation of the Corporation (the "Amendment") and directed that the
Amendment be submitted to the holders of the issued and outstanding shares of
Common Stock of the Corporation entitled to vote thereon for their consideration
and approval:
RESOLVED, that the Certificate of Incorporation of the Corporation
be, and hereby is, amended in accordance with Section 242 of the General
Corporation Law of the State of Delaware by replacing the first two
paragraphs of ARTICLE FOUR in respect of the authorized capital stock of
the Corporation and substituting therefor the paragraphs as set forth on
EXHIBIT A attached hereto and made a part hereof; it being understood
that Sections I and II of ARTICLE FOUR shall be unaffected by this
amendment.
SECOND: The Amendment was duly adopted in accordance with Section
228 and Section 242 of the General Corporation Law of the State of Delaware by
the sole holders of the issued and outstanding shares of the Common Stock of the
Corporation entitled to vote thereon.
-1-
<PAGE>
IN WITNESS WHEREOF, the undersigned does hereby certify under
penalties of perjury that this Certificate of Amendment to the Certificate of
Incorporation of the Corporation is the act and deed of the undersigned and the
facts stated herein are true and accordingly has hereunto set his hand this 14th
day of October, 1999.
J.L. FRENCH AUTOMOTIVE
CASTINGS INC.,a Delaware corporation
By:
-----------------------------
/s/ Charles Waldon
President
-2-
<PAGE>
EXHIBIT A
ARTICLE FOUR
The total number of shares of stock which the Corporation
has authority to issue is 120,000 consisting of:
(i) 20,000 shares of Class A Common Stock, par value $0.01 per
share (the "CLASS A- COMMON");
(ii) 30,000 shares of Class B Common Stock, par value $0.01 per
share (the "CLASS B COMMON");
(iii) 20,000 shares of Class C Common Stock, par value $0.01 per
share (the "CLASS C COMMON");
(iv) 15,000 shares of Class D-1 Common Stock, par value $0.01
per share (the "CLASS D-1 COMMON");
(v) 15,000 shares of Class D-2 Common Stock, par value $0.01
per share (the "CLASS D-2 COMMON"); and
(vi) 20,000 shares of Class E Common Stock, par value $0.01 per
share (the "CLASS E COMMON").
The Class D-1 Common and Class D-2 Common are referred to
collectively as the "CLASS D COMMON" and the Class A Common, Class B Common,
Class C Common, the Class D Common and Class E Common and any other common stock
issued hereafter are referred to collectively as the "Common Stock." Capitalized
terms used but not otherwise defined in this Article Four are defined in Section
II.
-3-
<PAGE>
[LETTERHEAD]
October 29, 1999
J.L. French Automotive Castings, Inc.
French Holdings, Inc.
J.L. French Corporation
Allotech International, Inc.
3101 S. Taylor
P.O. Box 1024
Sheboyghan, WI 53082
Re: REGISTRATION STATEMENT ON FORM S-4, REGISTRATION NO. 333-84903
Ladies and Gentlemen:
We are issuing this opinion letter in our capacity as special legal counsel
to J.L. French Automotive Castings, Inc., a Delaware corporation (the "Issuer"),
and French Holdings, Inc., a Delaware corporation ("French Holdings"), J.L.
French Corporation, a Wisconsin corporation ("J.L. French"), and Allotech
International, Inc. ("Allotech, and together with French Holdings and J.L.
French, the "Guarantors," and together with the Issuer, the "Registrants"), in
connection with the proposed registration by the Issuer of up to $175,000,000 in
aggregate principal amount of the Issuer's 11-1/2% Senior Subordinated Notes due
2009 (the "Exchange Notes"), pursuant to a Registration Statement on Form S-4
(Registration No. 333-84903) originally filed with the Securities and Exchange
Commission (the "Commission") on August 10, 1999, under the Securities Act of
1933, as amended (the "Act") (such Registration Statement, as amended or
supplemented, is hereinafter referred to as the "Registration Statement"). The
obligations of the Issuer under the Exchange Notes will be guaranteed by the
Guarantors (the "Guarantees"). The Exchange Notes and the Guarantees are to be
issued pursuant to the Indenture (as supplemented, the "Indenture"), dated as of
May 28, 1999, among the Issuer, the Guarantors and U.S. Bank Trust National
Association, as trustee. The Exchange Notes and the Guarantees are to be issued
in exchange for and in replacement of the Issuer's outstanding 11-1/2% Senior
Subordinated Notes due 2009 (the "Old Notes"), of which $115,000,000 in
aggregate principal amount is outstanding.
<PAGE>
Page 2
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the Certificate of Incorporation, Articles of
Incorporation and By-Laws of the Registrants, (ii) minutes and records of the
corporate proceedings of the Registrants with respect to the issuance of the
Exchange Notes and the Guarantees, (iii) the Indenture, dated as of May 28, 1999
(the "Indenture"), among the Registrants and U.S. Bank Trust National
Association, as trustee, (iv) the Notation of Guaranty executed by the
Guarantors, as contemplated by Section 11.04 of the Indenture, (v) the
Registration Rights Agreement, dated as of May 28, 1999, among the Registrants,
Banc of America Securities LLC and Chase Securities Inc., and (vi) the
Registration Statement.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of
the signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Registrants and the due authorization, execution
and delivery of all documents by the parties thereto other than the Registrants.
As to any facts material to the opinions expressed herein which we have not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Registrants and
others. In rendering the opinion below regarding J.L. French and Allotech, we
have relied on the opinion of Olsen, Kloet, Gunderson & Conway, which is filed
as Exhibit 5.2 to the Registration Statement.
Our opinion expressed below is subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), (iii)
public policy considerations which may limit the rights of parties to obtain
certain remedies and (iv) any laws except the laws of
<PAGE>
Page 3
the State of New York, the General Corporation Law of the State of Delaware and
the Delaware case law decided thereunder and the federal laws of the United
States of America.
Based upon and subject to the assumptions, qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that when (i) the Registration Statement becomes effective, (ii) the Indenture
has been duly qualified under the Trust Indenture Act of 1939, as amended, and
(iii) the Exchange Notes have been duly executed and authenticated in accordance
with the provisions of the Indenture and duly delivered to the purchasers
thereof in exchange for the Old Notes, the Exchange Notes and the Guarantees
will be validly issued and binding obligations of the Registrants.
We hereby consent to the filing of this opinion with the commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the States of New York or Delaware or the federal law of the United
States be changed by legislative action, judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Sincerely,
/s/ Kirkland & Ellis
Kirkland & Ellis
<PAGE>
Exhibit 5.2
[Letterhead of Olsen, Kloet, Gunderson & Conway]
October 29, 1999
J. L. French Corporation
Allotech International, Inc.
3101 South Taylor
P. O. Box 1024
Sheboygan, WI 53082
RE: REGISTRATION STATEMENT ON FORM S-4, REGISTRATION NO. 333-84903
Ladies and Gentlemen:
We are issuing this opinion letter in our capacity as special legal counsel
to J. L. French Corporation, a Wisconsin corporation, and Allotech
International, Inc., a Wisconsin corporation, (together, the "Guarantors"), in
connection with the Guarantors proposed guarantee of up to $175,000,000 in
aggregate principal amount of 11 1/2% Senior Subordinated Notes, due 2009 (the
"Exchange Notes"). The Exchange Notes are to be issued by J. L. French
Automotive Castings, Inc., a Delaware corporation (the "Issuer"), pursuant to
Registration Statement on Form S-4 (Registration No. 333-84903), originally
filed with the Securities and Exchange Commission (the "Commission") on August
10, 1999, under the Securities Act of 1933, as amended (the "Act")(such
Registration Statement, as supplemented or amended, is hereinafter referred to
as the "Registration Statement"). The obligations of the Issuer under the
Exchange Notes will be guaranteed by the Guarantors (the "Guarantees"). The
Exchange Notes and the Guarantees are to be issued pursuant to the Indenture (as
supplemented, the "Indenture"), dated as of May 28, 1999, among the Issuer, the
Guarantors, French Holdings, Inc. and U. S. Bank Trust National Association, as
trustee.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other
<PAGE>
Page #2
instruments as we have deemed necessary for the purposes of this opinion,
including (i) the Articles of Incorporation and By-Laws of the Guarantors, (ii)
minutes and records of the corporate proceedings of the Guarantors with respect
to the issuance of the Guarantees, (iii) the Registration Statement, (iv) the
Indenture and (v) the Notation of Guaranty executed by the Guarantor as
contemplated under Section 11.04 of the Indenture (the "Notation", together with
the Indenture, the "Guarantee Documents").
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of
the signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Guarantors and the due authorization, execution
and delivery of all documents by the parties thereto other than the Guarantors.
As to any facts material to the opinions expressed herein which we have not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Guarantors and
others.
Our opinion expressed below is subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or law), (iii)
public policy considerations which may limit the rights of parties to obtain
certain remedies and (iv) any laws except the laws of the State of Wisconsin and
the Wisconsin case law decided thereunder and the federal laws of the United
States of America.
Based upon and subject to the assumptions, qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that:
1. Each of the Guarantors is duly incorporated, validly existing and in
good standing under the laws of the State of Wisconsin.
2. Each of the Guarantors has the requisite corporate power and authority
to
<PAGE>
Page #3
execute and deliver the Guarantee Documents and to perform its
obligations thereunder.
3. The execution and delivery of the Guarantee Documents by each of the
Guarantors, and the performance of its obligations thereunder, has
been duly authorized by each such Guarantor.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.2 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of Wisconsin or the federal law of the United States be
changed by legislative action, judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose, except that Kirkland & Ellis may rely upon
this opinion to the same extent as if it were an addressee hereof.
Sincerely,
OLSEN, KLOET, GUNDERSON & CONWAY
/s/ James O. Conway
James O. Conway
JOC/jl
<PAGE>
Exhibit 8.1
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
200 East Randolph Drive
Chicago, Illinois 60601
To Call Writer Directly: (312) 861-2000 Facsimile:
(312) 861-2000 (312) 861-2200
October 29, 1999
J.L. French Automotive Castings, Inc.
3101 S. Taylor
P.O. Box 1024
Sheboyghan, WI 53082
Re: J.L. French Automotive Castings, Inc.
Registration Statement on Form S-4
Registration No. 333-84903
-------------------------------------
Ladies and Gentlemen:
We are issuing this opinion letter in our capacity as special
legal counsel to J.L. French Automotive Castings, Inc., a Delaware corporation
(the "Issuer"), in connection with the proposed offer by the Issuer (the
"Exchange Offer") of up to $175,000,000 in aggregate principal amount of the
Issuer's 11 1/2% Series B Senior Subordinated Notes due 2009 (the "Exchange
Notes") in exchange for and in replacement of the Issuer's outstanding 11 1/2%
Senior Subordinated Notes due 2009 (the "Old Notes"), pursuant to a Registration
Statement on Form S-4 (Registration No. 333-84903) originally filed with the
Securities and Exchange Commission (the "Commission") on August 10, 1999, under
the Securities Act of 1933, as amended (the "Act") (such Registration Statement,
as amended or supplemented, is hereinafter referred to as the "Registration
Statement").
You have requested our opinion as to certain United States
federal income tax consequences of the Exchange Offer. In preparing our opinion,
we have reviewed and relied upon the Issuer's Registration Statement and such
other documents as we have deemed necessary.
<PAGE>
J.L. French Automotive Castings, Inc.
October 29, 1999
Page 2
On the basis of the foregoing, it is our opinion that the
exchange of the Old Notes for the Exchange Notes pursuant to the Exchange Offer
will not be treated as a taxable "exchange" for United States federal income tax
purposes because the Exchange Notes do not differ materially in kind or
extent from the Old Notes. The Exchange Notes received by a holder of Old
Notes will be treated as a continuation of the Old Notes in the hands of such
holder and, as a result, there will be no federal income tax consequences to
such holder as a result of such holder's exchange of Old Notes for Exchange
Notes.
The opinion set forth above is based upon the applicable
provisions of the Internal Revenue Code of 1986, as amended, the Treasury
Regulations promulgated or proposed thereunder, current positions of the
Internal Revenue Service (the "IRS") contained in published revenue rulings,
revenue procedures and announcements, existing judicial decisions and other
applicable authorities. No tax ruling has been sought from the IRS with respect
to any of the matters discussed herein. Unlike a ruling from the IRS, an opinion
of counsel is not binding on the IRS. Hence, no assurance can be given that the
opinion stated in this letter will not be successfully challenged by the IRS or
by a court. We express no opinion concerning any tax consequences of the
Exchange Offer except as expressly set forth above.
We hereby consent to the filing of this opinion as Exhibit 8.1
to the Registration Statement. We also consent to the reference to our firm
under the heading "United States Federal Income Tax Consequences." In giving
this consent, we do not hereby admit that we are in the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission promulgated thereunder.
Sincerely,
/s/ KIRKLAND & ELLIS
Kirkland & Ellis
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of October 15, 1999,
among J.L. FRENCH AUTOMOTIVE CASTINGS, INC., a Delaware corporation (the "US
BORROWER"), AUTOMOTIVE COMPONENTS INVESTMENTS LIMITED, a private limited company
incorporated under the laws of England and Wales ("ENGLISH BIDCO"), MORRIS ASHBY
LIMITED, a private limited company incorporated under the laws of England and
Wales (in its capacity as the borrower of Pounds Sterling hereunder, the
"ENGLISH BORROWER" and in its capacity as the borrower of euro hereunder, the
"EURO BORROWER"), the several banks and other financial institutions from time
to time parties to this agreement (the "LENDERS"), BANK OF AMERICA NA, as
syndication agent for the Lenders (in such capacity, the "SYNDICATION AGENT"),
CHASE MANHATTAN INTERNATIONAL LIMITED, as administrative agent for the English
Lenders (in such capacity, the "ENGLISH AGENT") and as administrative agent for
the Euro Lenders (in such capacity, the "EURO AGENT") and THE CHASE MANHATTAN
BANK, a New York banking corporation ("CHASE"), as administrative agent for the
Lenders (in such capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, dated as of April 21, 1999
(as amended, supplemented or otherwise modified from time to time prior to the
date hereof the "EXISTING CREDIT AGREEMENT"), certain of the Lenders (the
"EXISTING LENDERS") have extended term loans and made available revolving credit
commitments to the Borrowers on the terms set forth in the Existing Credit
Agreement, the proceeds of which were used in part to finance the
recapitalization (the "RECAPITALIZATION") of the US Borrower by JLF Acquisition
LLC and its assignees;
WHEREAS, pursuant to the Stock Purchase Agreement, dated as of
September 10, 1999 (the "ACQUISITION AGREEMENT") among the US Borrower and the
stockholders of Nelson Metal Products Corporation ("NELSON" or the "TARGET"),
the US Borrower has agreed to acquire (the "NELSON ACQUISITION") all of the
outstanding capital stock of Nelson;
WHEREAS, the Borrowers have requested that the Agents and the Existing
Lenders amend and restate the Existing Credit Agreement to, among other things,
provide (i) additional US Tranche A Term Loans in an aggregate principal amount
of $85,000,000 (the "ADDITIONAL US TRANCHE A TERM LOANS") and (ii) additional US
Revolving Credit Commitments in an aggregate principal amount of $15,000,000
(the "ADDITIONAL US REVOLVING CREDIT COMMITMENTS") in order to (a) finance the
Nelson Acquisition (the Nelson Acquisition and the other transactions in
connection therewith, the (the "TRANSACTIONS"), (b) pay certain fees and
expenses related to the Transactions and (c) finance the working capital needs
and other general corporate purposes (including Permitted Acquisitions) of the
Borrowers and their respective Subsidiaries (including Nelson) on the terms
herein; and
WHEREAS, the parties hereto wish to amend and restate the Existing
Credit Agreement, but only upon the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Existing Credit Agreement is hereby amended and
restated in its entirety as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings:
<PAGE>
2
"ACCOMMODATIONS": the collective reference to the Letters of Credit
(including, without limitation, the Bank Guarantee Letters of Credit) and
bankers acceptances issued or created for the accounts of the Specified
Borrowers by the Specified Agents in accordance with the terms hereof
pursuant to the Accommodation Commitments.
"ACCOMMODATION COMMITMENT": (a) as to any Specified Issuing Lender,
its obligation to issue or accept Accommodations for the account of the
Specified Borrower as identified in the Administrative Schedule and (b) as
to any Specified Participating Lender, its unconditional obligation to
participate in Accommodations of such Specified Borrower.
"ACCOMMODATION OBLIGATION": in respect of any Specified Borrower, the
obligation of such Specified Borrower to reimburse the Specified Issuing
Lender in accordance with the terms of this Agreement and any related
Letter of Credit Application for any payment made or honored by such
Specified Issuing Lender under any Accommodation.
"ACCOMMODATION OUTSTANDINGS": as to any Specified Borrower, at any
date, the sum of (a) the aggregate amount then available to be drawn or the
amount issued under all outstanding Specified Accommodations and (b) the
aggregate amount of drawings or payments under Specified Accommodations
which have not then been reimbursed pursuant to subsection 3.5.
"ACCOMMODATION PARTICIPATING INTEREST": with respect to any
Accommodation, (a) in the case of the Specified Issuing Lender with respect
thereto, its interest in such Accommodation after giving effect to the
granting of participating interests therein, if any, pursuant hereto and
(b) in the case of each Specified Participating Lender, its undivided
participating interest in such Accommodation relating thereto.
"ACQUISITION AGREEMENT": as defined in the recitals hereto.
"ADDITIONAL US REVOLVING CREDIT COMMITMENTS": as defined in the
recitals hereto.
"ADDITIONAL US TRANCHE A TERM LOANS": as defined in the recitals
hereto.
"ADMINISTRATIVE AGENT": as defined in the preamble hereto.
"ADMINISTRATIVE SCHEDULE": the Administrative Schedule attached
hereto, as amended, supplemented or otherwise modified from time to time.
"AFFECTED EUROCURRENCY LOANS": as defined in subsection 2.9(h).
"AFFILIATE": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person. For purposes of this
definition, "control" of a Person means the power, directly or indirectly,
to direct or cause the direction of the management and policies of such
Person, whether by contract or otherwise.
"AGENTS": the collective reference to the Administrative Agent, the
Collateral Agent, the Syndication Agent, the English Agent and the Euro
Agent.
"AGREEMENT": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"APPLICABLE MARGIN": for each Type of Loan and for purposes of
subsection 2.3, the rate per annum set forth under the relevant column
heading below:
<PAGE>
3
<TABLE>
<CAPTION>
BASE RATE LOANS
Types Applicable Margin
----- -----------------
<S> <C>
US Tranche A Term Loans 1.50%
US Tranche B Term Loans 1.75%
English Term Loans and US Sterling Term Loans 1.50%
Revolving Credit Loans 1.50%
(including Swing Line Loans)
<CAPTION>
EUROCURRENCY LOANS AND B/AS
Type Applicable Margin
---- -----------------
<S> <C>
US Tranche A Term Loans 2.50%
US Tranche B Term Loans 2.75%
English Term Loans and US Sterling Term Loans 2.50%
Revolving Credit Loans 2.50%
(including Letters of Credit and
Accommodations)
<CAPTION>
Commitment Fee Applicable Margin
-------------- -----------------
<S> <C>
0.50%
</TABLE>
; PROVIDED that (i) in the event that the Leverage Ratio, as most recently
determined in accordance with subsection 8.1(b), is as set forth in the
relevant column heading below for any quarterly period and so long as no
Event of Default has occurred and is then continuing, any such Applicable
Margin with respect to US Tranche A Term Loans, English Term Loans, US
Sterling Term Loans and Revolving Credit Loans (including Swing Line Loans)
and Commitment Fee shall be as provided in the relevant column heading
below:
<PAGE>
4
<TABLE>
<CAPTION>
Applicable
Margin For Applicable Applicable
Eurocurrency Margin for Margin for
Leverage Ratio Loans or B/As Base Rate Loans Commitment Fee
- -------------- ------------ --------------- --------------
<S> <C> <C> <C>
greater than 4.50 to 1.00 2.50% 1.50% 0.50%
less than or equal to 4.50 to 2.25% 1.25% 0.50%
1.00, but greater than 4.00 to
1.00
less than or equal to 4.00 to 2.00% 1.00% 0.50%
1.00, but greater than 3.50 to
1.00
less than or equal to 3.50 to 1.75% 0.75% 0.375%
1.00, but greater than 3.00 to
1.00
less than or equal to 3.00 to 1.50% 0.50% 0.30%
1.00
</TABLE>
if and in the event the financial statements required to be delivered
pursuant to subsection 7.1(a) or 7.1(b), as applicable, and the related
compliance certificate required to be delivered pursuant to subsection
7.2(b), are delivered on or prior to the date when due (or, in the case of
the fourth quarterly period of each fiscal year of the US Borrower, if
financial statements which satisfy the requirements of, and are delivered
within the time period specified in, subsection 7.l(b) and a related
compliance certificate which satisfies the requirements of, and is
delivered within the time period specified in, subsection 7.2(b), with
respect to any such quarterly period are so delivered within such time
periods), then the Applicable Margin in respect of the Revolving Credit
Loans, the English Term Loans, the US Sterling Term Loans and the US
Tranche A Term Loans and the Commitment Fee during the period from the date
upon which such financial statements were delivered shall be the Applicable
Margin as set forth in the relevant column heading above; PROVIDED,
HOWEVER, that in the event that the financial statements delivered pursuant
to subsection 7.1(a) or 7.1(b), as applicable, and the related compliance
certificate required to be delivered pursuant to subsection 7.2(b), are not
delivered when due, then:
(a) if such financial statements and certificate are delivered
after the date such financial statements and certificate were required
to be delivered (without giving effect to any applicable cure period)
and the Applicable Margin increases from that previously in effect as
a result of the delivery of such financial statements, then the
Applicable Margin in respect of Revolving Credit Loans (including in
the case of Base Rate Loans, Swing Line Loans), the English Term
Loans, the US Sterling Term Loans and US Tranche A Term Loans and the
Commitment Fee during the period from the date upon which such
financial statements were required to be delivered (without giving
effect to any applicable cure period) until the date upon which they
actually are delivered shall, except as otherwise provided in clause
(c) below, be the Applicable Margin as so increased;
(b) if such financial statements and certificate are delivered
after the date such financial statements and certificate were required
to be delivered and the Applicable Margin decreases from that
previously in effect as a result of the delivery of such
<PAGE>
5
financial statements, then such decrease in the Applicable Margin
shall not become applicable until the date upon which the financial
statements and certificate actually are delivered; and
(c) if such financial statements and certificate are not
delivered prior to the expiration of the applicable cure period, then,
effective upon such expiration, for the period from the date upon
which such financial statements and certificate were required to be
delivered (after the expiration of the applicable cure period) until
the date upon which they actually are delivered, the Applicable Margin
in respect of Revolving Credit Loans (including in the case of Base
Rate Loans, Swing Line Loans), English Term Loans, the US Sterling
Term Loans and US Tranche A Term Loans shall be 2.50%, in the case of
Eurocurrency Loans, and 1.50%, in the case of Base Rate Loans, and
0.50%, in the case of Commitment Fees payable under subsection 2.3 (it
being understood that the foregoing shall not limit the rights of each
of the Agents and the Lenders set forth in Section 9).
"ASSET SALE": any sale, transfer or other disposition (including any
sale and leaseback of assets) by the US Borrower or any of its Subsidiaries
of any property of the US Borrower or any such Subsidiary (including
property subject to any Lien under any Loan Document), other than as
permitted pursuant to (w) subsections 8.6(a) through (c), (x) subsection
8.6(d) to the extent Net Cash Proceeds from such sale or transfer does not
exceed the Equivalent Amount of $3,250,000 in any fiscal year and (y)
subsections 8.6(e) through (j).
"ASSET SALE PREPAYMENT PERCENTAGE": 100%; PROVIDED, that in the event
that the Leverage Ratio as most recently determined in accordance with
subsection 8.1(b) is less than or equal to 3.50 to 1.00, then the Asset
Sale Prepayment Percentage shall be 0%.
"ASSIGNEE": as defined in subsection 12.6(c).
"ASSIGNMENT AND ACCEPTANCE": an assignment and acceptance entered
into by a Lender and an assignee, substantially in the form of Exhibit D.
"AVAILABLE REVOLVING CREDIT COMMITMENT": as to any Specified
Revolving Credit Lender, with respect to any Specified Borrower at any
time, an amount equal to the excess, if any, of (a) the amount of such
Specified Revolving Credit Lender's Specified Revolving Credit Commitment
OVER (b) the sum of (i) the aggregate unpaid principal amount at such time
of all Specified Revolving Credit Loans made by such Specified Revolving
Credit Lender to such Specified Borrower, (ii) an amount equal to such
Specified Revolving Credit Lender's Specified Revolving Credit Commitment
Percentage of the aggregate unpaid principal amount at such time of all
Specified Swing Line Loans of the Specified Borrower (which for purposes of
subsection 2.3 shall be deemed to be zero), and (iii) an amount equal to
such Specified Revolving Credit Lender's Specified Revolving Credit
Commitment Percentage of the Specified Accommodation Outstandings of the
Specified Lender at such time; collectively, as to all the Specified
Revolving Credit Lenders, the "AVAILABLE REVOLVING CREDIT COMMITMENTS."
"BANK GUARANTEE LETTERS OF CREDIT": Standby Letters of Credit issued
by the English Issuing Lender in favor of the Guarantor in respect of the
Guaranteed Loan Notes in an aggregate amount not to exceed L17,823,330.80
and maturing January 13, 2003.
"BASE CAPEX AMOUNT": as defined in subsection 8.8(a).
"BASE RATE": as to any Specified Borrower in any Specified currency,
the interest rate identified as the Base Rate therefor in the
Administrative Schedule.
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6
"BASE RATE LOAN": any Loan bearing interest by reference to the
applicable Base Rate.
"BASE RATE PAYMENT DATE": as to any Specified Borrower, the Specified
Interest Payment Date for the Specified Base Rate Loans set forth in the
Administrative Schedule.
"BENEFITTED SPECIFIED LENDER": as defined in subsection 12.7.
"BOARD": the Board of Governors of the Federal Reserve System (or any
successor thereto).
"BORROWER PERCENTAGE": with respect to any Specified Borrower, at any
date of determination, the percentage of the Term Loans at such date
constituted by the Specified Term Loans of such Specified Borrower at such
time.
"BORROWERS": the collective reference to the US Borrower, the Foreign
Subsidiary Borrowers and, with respect to the Bank Guarantee Letters of
Credit only, English Bidco.
"BORROWING DATE": any Business Day specified in a notice pursuant to
subsection 2.2, 2.6 or 2.12 as a date on which the Specified Borrower
requests the Specified Lenders to make Specified Loans hereunder.
"BUSINESS DAY": as to any Borrower, a day other than a Saturday,
Sunday or other day on which commercial banks in the city in which the
principal office of the Specified Agent is located are authorized or
required by law to close, PROVIDED that when used in connection with a
Eurocurrency Loan, the term "Business Day" shall also exclude any day on
which commercial banks are not open for dealing in deposits in the London
interbank market in the applicable currency, PROVIDED further, that when
such term is used for the purpose of determining the date on which the
Eurocurrency Base Rate is determined under this Agreement for any Loan
denominated in euro for any Interest Period therefor and for purposes of
determining the first and last day of any Interest Period, references in
this Agreement to Business Days shall be deemed to be references to Target
Operating Days, PROVIDED further, that with respect to any day on which any
payments are to be made under this Agreement in a particular currency, the
term Business Day shall also exclude a day on which commercial banks in the
principal financial center of the country of the applicable currency are
located are authorized or required by law to close.
"CAPEX ROLLOVER": as defined in subsection 8.8(a).
"CAPITAL EXPENDITURES": expenditures (including, without limitation,
obligations created under Financing Leases and purchase money Indebtedness
in the year in which created but excluding payments made thereon) of the US
Borrower and its Subsidiaries in respect of the purchase or other
acquisition of fixed or capital assets (excluding any such asset acquired
(w) in connection with ordinary (in the reasonable judgment of the US
Borrower consistent with past practice) replacement and maintenance
programs properly expensed in accordance with GAAP, (x) with the proceeds
of any casualty insurance or condemnation award, (y) with the cash proceeds
of any asset sale made pursuant to subsections 8.6(c), applied within
twelve (12) months from receipt of such proceeds and (z) in any Permitted
Acquisition).
"CAPITAL STOCK": 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.
<PAGE>
7
"CASH EQUIVALENTS": as to any currency, the investments set forth on
the Administrative Schedule for such currency.
"CHANGE OF CONTROL": either (a) J2R Partners III and Onex Corporation
(acting directly or through any Wholly Owned Subsidiary of Onex Corporation
which owns Capital Stock of the US Borrower) shall cease to have the power,
directly or indirectly, to vote or direct the voting of securities having
51% of the voting power for the election of directors of the US Borrower,
PROVIDED that after the consummation of an Initial Public Offering, the
occurrence of the foregoing event shall not be deemed a Change of Control
if at any time and for any reason whatever, (y) no "Person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended), excluding J2R Partners III and Onex Corporation
(acting directly or through any Wholly Owned Subsidiary of Onex Corporation
which owns Capital Stock of the US Borrower), shall become the "beneficial
owner" (as defined in Rules 13(d)-3 and 13(d)-5 under such Act), directly
or indirectly, of more than the lesser of (A) 30% of the shares outstanding
or (B) the percentage of the then outstanding voting stock of the US
Borrower owned by J2R Partners III and Onex Corporation (acting directly or
through any Wholly Owned Subsidiary of Onex Corporation which owns Capital
Stock of the US Borrower), and (z) the board of the US Borrower shall
consist of a majority of Continuing Directors, or (b) a Change of Control
as defined in the Senior Subordinated Note Indenture.
"CHASE": as defined in the preamble hereto.
"CLOSING DATE": the date of the satisfaction or waiver of all
conditions precedent in subsection 6.1.
"CODE": the Internal Revenue Code of 1986, as amended from time to
time and the regulations promulgated thereunder.
"COLLATERAL AGENT": Chase in its capacity as collateral agent for the
Secured Parties under the Loan Documents and the Sharing Agreement.
"COMMITMENTS": the collective reference to the Revolving Credit
Commitments, the Swing Line Commitments and the Accommodation Commitments;
individually, a "COMMITMENT."
"COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated,
which is under common control with the US Borrower within the meaning of
Section 4001 of ERISA or is part of a group which includes the US Borrower
and which is treated as a single employer under Section 414 of the Code.
"CONSOLIDATED CURRENT ASSETS": at any date, the amount which, in
conformity with GAAP, would be set forth opposite the caption "Total
Current Assets" (or any like caption) on a consolidated balance sheet of
the US Borrower and its Subsidiaries at such date, except that there shall
be excluded therefrom cash and Cash Equivalents and equipment and other
fixed assets held for sale and deferred income taxes to the extent
otherwise included therein.
"CONSOLIDATED CURRENT LIABILITIES": at any date, the amount which, in
conformity with GAAP, would be set forth opposite the caption "Total
Current Liabilities" (or any like caption) on a consolidated balance sheet
of the US Borrower and its Subsidiaries at such date, except that there
shall be excluded therefrom the current portion of (a) all Loans, (b) all
long-term Indebtedness for borrowed money (including Financing Leases) and
(c) deferred income taxes, in each case, to the extent included therein.
<PAGE>
8
"CONSOLIDATED EBITDA": for any period, with respect to any Person,
Consolidated Net Income of such Person for such period (A) PLUS, without
duplication and to the extent reflected as a charge in the statement of
such Consolidated Net Income for such period, the sum of (i) total income
and franchise tax expense (including, without duplication, foreign
withholding taxes and any state single business, unitary or similar taxes),
(ii) interest expense, amortization or writeoff of debt discount and debt
issuance costs and commissions and discounts and other fees and charges
associated with Indebtedness (including customary payments made to obtain
Interest Rate Agreements), (iii) depreciation and amortization expense,
(iv) amortization of intangibles (including, but not limited to, goodwill
and organization costs), (v) other noncash charges (including any writeoffs
of purchased technology and stock-related compensation expense), (vi) any
extraordinary and unusual losses (including losses on sales of assets other
than inventory sold in the ordinary course of business) other than any loss
from any discontinued operation, (vii) non-recurring fees and expenses in
connection with the Recapitalization in an aggregate amount not to exceed
$25,000,000, and (viii) non-recurring fees and expenses in connection with
the Nelson Acquisition in an aggregate amount not to exceed $6,000,000, and
(B) MINUS, without duplication, (i) any extraordinary and unusual gains
(including gains on the sales of assets, other than inventory sold in the
ordinary course of business) other than any income from discontinued
operations and (ii) noncash gains included in Consolidated Net Income;
PROVIDED, that for the purposes of determining the Leverage Ratio for any
four-quarter period which includes periods prior to the consummation of the
Nelson Acquisition, Consolidated EBITDA shall include (without duplication)
Consolidated EBITDA determined with respect to Nelson for such prior
periods.
"CONSOLIDATED NET INCOME": for any period, with respect to any
Person, the amount which, in conformity with GAAP, would be set forth
opposite the caption "Net Income/(Loss)" (or any like caption) on a
consolidated statement of operations of such Person and its Subsidiaries
for such period.
"CONSOLIDATED SENIOR DEBT": at any date, with respect to the US
Borrower, the aggregate principal amount of Indebtedness under this
Agreement.
"CONSOLIDATED TOTAL ASSETS": at any date, the amount which, in
conformity with GAAP, would be set forth opposite the caption "Total
Assets" (or any like caption) on a consolidated balance sheet of the US
Borrower and its Subsidiaries at such date, except that there shall be
excluded therefrom cash and Cash Equivalents and equipment and other fixed
assets held for sale.
"CONSOLIDATED TOTAL DEBT": without duplication, at any date, with
respect to the US Borrower, the aggregate principal amount of (a)
Indebtedness under this Agreement, (b) Financing Leases, (c) purchase money
Indebtedness (including, without limitation, seller financing), (d) the
Senior Subordinated Notes and (e) any other Indebtedness for borrowed money
of the US Borrower and its Subsidiaries at such date on a consolidated
basis in conformity with GAAP.
"CONSOLIDATED WORKING CAPITAL": at any date, the excess of
Consolidated Current Assets at such date over Consolidated Current
Liabilities at such date.
"CONTINUING DIRECTORS": the directors of the US Borrower on the
Closing Date and each other director, if, in each case, such other
director's election or nomination for election to the board of directors of
the US Borrower was approved by a majority of the then Continuing Directors
or such other director is nominated for election or is elected to the board
of directors with the affirmative vote of J2R Partners III and Onex
Corporation (acting directly or through
<PAGE>
9
any Wholly Owned Subsidiary of Onex Corporation which owns Capital Stock of
the US Borrower).
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"CREDIT PARTIES": the collective reference to each of the Borrowers
and each of their respective Subsidiaries which from time to time is a
party to any Loan Document.
"CSI": Chase Securities Inc.
"CUSTOMERS": those customers and prospective customers of the
Borrowers and their subsidiaries identified as such from time to time by
the US Borrower to the Lenders in writing and acknowledged as such by the
Administrative Agent.
"DEBT PREPAYMENT PERCENTAGE": 100%.
"DEFAULT": any of the events specified in Section 9, whether or not
any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"DENOMINATED CURRENCY": as defined in subsection 12.11.
"DOLLARS" and "$": dollars in lawful currency of the United States of
America.
"DOMESTIC OBLIGATIONS": the unpaid principal of and interest on
(including, without limitation, interest accruing after the maturity of the
Loans and interest accruing after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to any Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Loans and all
other obligations and liabilities of the US Borrower to the Secured
Parties, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under,
out of, or in connection with, this Agreement, any Notes, the Guarantee and
Collateral Agreement, or the other Loan Documents, or any Interest Rate
Agreement entered into with a Lender or any of its Affiliates and any other
document made, delivered or given in connection therewith or herewith,
whether on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including, without limitation, all reasonable
fees and disbursements of counsel to the Secured Parties that are required
to be paid by the US Borrower pursuant to the terms of this Agreement) or
otherwise.
"DOMESTIC SUBSIDIARY": as to any Person, any Subsidiary of such
Person other than a Foreign Subsidiary of such Person.
"ECF PREPAYMENT PERCENTAGE": 50%; PROVIDED, that in the event that
the Leverage Ratio as determined in accordance with subsection 8.1(b) as of
the last day of any fiscal year is less than or equal to 3.50 to 1.00, then
the ECF Prepayment Percentage for such fiscal year shall be 0%.
"EMU LEGISLATION": legislative measures of the European Union for the
introduction of, changeover to or operation of the euro in one or more
member states.
<PAGE>
10
"ENGLISH ACCOMMODATIONS": the collective reference to (a)
Accommodations issued by the English Issuing Lender for the account of the
English Borrower and (b) the Bank Guarantee Letters of Credit.
"ENGLISH AGENT": as defined in the preamble hereto.
"ENGLISH BIDCO": as defined in the preamble hereto.
"ENGLISH BORROWER": as defined in the preamble hereto.
"ENGLISH ISSUING LENDER": Chase, acting through its London Branch.
"ENGLISH LENDERS": the collective reference to Lenders holding
English Loans or English Revolving Credit Commitments.
"ENGLISH LOANS": any loan made to the English Borrower by any English
Lender pursuant to the Existing Credit Agreement or this Agreement.
"ENGLISH OBLIGATIONS": the unpaid principal of and interest on
(including, without limitation, interest accruing after the maturity of the
English Loans and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the English Borrower or English Bidco, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding) the English Loans and all other obligations and liabilities of
the English Borrower or English Bidco to the English Issuing Lender, the
English Agent, or the English Lenders, whether direct or indirect, absolute
or contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, this Agreement, any
notes thereunder or the other Specified Loan Documents, any Interest Rate
Agreement entered into with an English Lender or any of its Affiliates, or
any obligations of English Bidco in respect of the Bank Guarantee Letters
of Credit and any other document made, delivered or given in connection
therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without
limitation, all reasonable fees and disbursements of counsel to the English
Agent or to the English Lenders that are required to be paid by the English
Borrower or the English Bidco pursuant to the terms of this Agreement) or
otherwise.
"ENGLISH REVOLVING CREDIT COMMITMENT": as to any English Lender, its
obligation to make English Revolving Credit Loans to the English Borrower
pursuant to subsection 2.1 and to participate in English Accommodations in
an aggregate Equivalent Amount not to exceed at any one time outstanding
the sum of (x) the amount set forth opposite such English Lender's name in
Schedule 1.1 under the heading "English Revolving Credit Commitment", as
such amount may be reduced from time to time as provided herein and (y)
such English Lender's English Revolving Credit Commitment Percentage of the
Bank Guarantee Letters of Credit; collectively, as to all the English
Lenders, the "ENGLISH REVOLVING CREDIT COMMITMENTS."
"ENGLISH REVOLVING CREDIT LENDER": any English Lender having an
English Revolving Credit Commitment or that holds outstanding English
Revolving Credit Loans or Specified Accommodation Participating Interests
hereunder.
"ENGLISH REVOLVING CREDIT LOANS": as to the English Borrower, any
revolving credit loans made to such Borrower by the English Revolving
Credit Lenders pursuant to the Existing Credit Agreement or pursuant to
subsection 2.1(a).
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11
"ENGLISH SWING LINE LENDER": any English Lender having a Swing Line
Commitment or that holds outstanding Swing Line Loans.
"ENGLISH TERM LOAN LENDERS": as to the English Borrower, any Lenders
holding outstanding English Term Loans.
"ENGLISH TERM LOANS": as to the English Borrower, any term loans made
to such Borrower by the English Term Loan Lenders pursuant to the Existing
Credit Agreement on the Original Closing Date in an aggregate principal
amount of L10,840,000.
"ENVIRONMENTAL LAWS": any applicable foreign, federal, state,
provincial, local, or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, legally binding requirements of any
Governmental Authority or other Requirements of Law (including common law)
regulating, relating to or imposing liability or standards of conduct
concerning protection of human health or the environment, as now or may at
any time hereafter be in effect.
"EQUITY PREPAYMENT PERCENTAGE": 50%; PROVIDED, that in the event that
the Leverage Ratio as most recently determined in accordance with
subsection 8.1(b) is less than or equal to 3.50 to 1.00, then the Equity
Prepayment Percentage shall be 0%.
"EQUIVALENT AMOUNT": at any time of determination, with respect to
any amount in any currency denominated in a different currency, the amount
at which such amount of different currency could be converted into the
determination currency at such time as reasonably determined by the
Specified Agent.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time and the regulations promulgated and rulings
issued thereunder.
"EURO": the single currency of the participating member states in the
Third Stage.
"EURO AGENT": as defined in the preamble hereto.
"EURO BORROWER": as defined in the preamble hereto.
"EURO LENDERS": the collective reference to Lenders holding Euro
Loans or Euro Revolving Credit Commitments.
"EURO LOANS": any loan made to the Euro Borrower by any Euro Lender
pursuant to the Existing Credit Agreement or this Agreement.
"EURO OBLIGATIONS": the unpaid principal of and interest on
(including, without limitation, interest accruing after the maturity of the
Euro Loans and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Euro Borrower, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding) the
Euro Loans and all other obligations and liabilities of the Euro Borrower
to the Euro Issuing Lender, the Euro Agent, or the Euro Lenders, whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in
connection with, this Agreement, any notes thereunder or the other
Specified Loan Documents, any Interest Rate Agreement entered into with a
Euro Lender or any of its Affiliates, and any other document made,
delivered or given in connection therewith, whether on account of
principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses (including, without limitation, all reasonable fees and
disbursements of counsel to the Euro Agent or to the Euro Lenders that are
<PAGE>
12
required to be paid by the Euro Borrower pursuant to the terms of this
Agreement) or otherwise.
"EURO REVOLVING CREDIT COMMITMENT": as to any Euro Lender, its
obligation to make Euro Revolving Credit Loans to the Euro Borrower
pursuant to subsection 2.1 in an aggregate Equivalent Amount not to exceed
at any one time outstanding the amount set forth opposite such Euro
Lender's name in Schedule 1.1 under the heading "Euro Revolving Credit
Commitment", as such amount may be reduced from time to time as provided
herein; collectively, as to all the Euro Lenders, the "EURO REVOLVING
CREDIT COMMITMENTS."
"EURO REVOLVING CREDIT LENDER": any Euro Lender having a Euro
Revolving Credit Commitment or that holds outstanding Euro Revolving Credit
Loans or Specified Accommodation Participating Interests hereunder.
"EURO REVOLVING CREDIT LOANS": as to the Euro Borrower, any revolving
credit loans made to such Borrower by the Euro Revolving Credit Lenders
pursuant to the Existing Credit Agreement or pursuant to subsection 2.1(a).
"EURO UNIT": the currency unit of the euro as defined in the EMU
Legislation.
"EUROCURRENCY BASE RATE": as to any Specified Borrower in any
Specified currency, the interest rate identified as the Eurocurrency Base
Rate therefor in the Administrative Schedule.
"EUROCURRENCY RATE": with respect to each day during each Interest
Period pertaining to a Eurocurrency Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurocurrency Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"EUROCURRENCY LOAN": any Loan bearing interest by reference to the
applicable Eurocurrency Rate.
"EUROCURRENCY RESERVE REQUIREMENTS": for any day as applied to any
Eurocurrency Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal, and
emergency reserves) under any regulations of any applicable Governmental
Authority for the Specified Lender dealing with reserve requirements
prescribed for eurocurrency funding (in the case of the US Borrower,
currently referred to as "EUROCURRENCY LIABILITIES" in Regulation D of the
Board).
"EVENT OF DEFAULT": any of the events specified in Section 9,
PROVIDED that any requirement for the giving of notice, the lapse of time,
or both, or any other condition, has been satisfied.
"EXCESS CASH FLOW": for any fiscal year of the US Borrower, the
excess of (a) the sum, without duplication, of (i) Consolidated EBITDA for
such fiscal year, (ii) the amount of returned surplus assets (net of cash
costs associated therewith, including income, excise and other taxes
payable thereon) of any Plan during such fiscal year to the extent not
included in Consolidated Net Income to determine Consolidated EBITDA for
such fiscal year (other than any return of amounts representing
overestimates of amounts due under any Plan (domestic or foreign)), (iii)
decreases in Consolidated Working Capital of the US Borrower and its
Subsidiaries for such fiscal year, (iv) cash dividends, cash interest and
other similar cash payments (other than
<PAGE>
13
intercompany items) received by the US Borrower in respect of investments
to the extent not included in Consolidated Net Income to determine
Consolidated EBITDA for such fiscal year and (v) any purchase price
adjustments resulting in a payment to the US Borrower or any of its
Subsidiaries in connection with a Permitted Acquisition permitted
hereunder, over (b) the sum, without duplication, of (i) the aggregate
amount of cash Capital Expenditures (including with respect to any CapEx
Rollover) made by the US Borrower and its Subsidiaries during such fiscal
year and permitted hereunder or committed in such fiscal year to be made in
the subsequent fiscal year, PROVIDED THAT, the Excess Cash Flow of any
subsequent year shall not be reduced by the amount of such commitments,
(ii) any purchase price adjustments resulting in a payment by the US
Borrower or any of its Subsidiaries in connection with a Permitted
Acquisition permitted hereunder (including the Nelson Acquisition), (iii)
the aggregate amount of all reductions of the Revolving Credit Commitments
or payments or prepayments of the Term Loans during such fiscal year other
than pursuant to subsection 2.9(a), (b) or (c), (iv) the aggregate amount
of payments of principal in respect of any Indebtedness permitted hereunder
during such fiscal year (other than under this Agreement), (v) increases in
Consolidated Working Capital of the US Borrower and its Subsidiaries for
such fiscal year, (vi) cash interest expense of the US Borrower and its
Subsidiaries for such fiscal year, (vii) taxes actually paid in such fiscal
year or to be paid in the subsequent fiscal year on account of such fiscal
year to the extent added to Consolidated Net Income to determine
Consolidated EBITDA for such fiscal year, (viii) extraordinary cash losses
to the extent added to Consolidated Net Income to determine Consolidated
EBITDA for such fiscal year, (ix) the amount of all Investments made in
such fiscal year as permitted by clauses (d), (h), (j), and, to the extent
such Investments are financed by cash from business operations of the US
Borrower and its Subsidiaries, (k) of subsection 8.9 and (x) cash payments
made during such fiscal year with respect to noncurrent liabilities,
PROVIDED that (x) increases or decreases in Consolidated Working Capital
resulting from any acquisition (including the Nelson Acquisition) shall be
excluded from the calculation of Excess Cash Flow and (y) net income of any
Foreign Subsidiary of the US Borrower which is not a Credit Party will only
be included to the extent distributed to a Credit Party. Notwithstanding
the foregoing, all payments made and received in connection with the
Recapitalization and the Transactions shall be excluded from the
calculation of Excess Cash Flow.
"EXPENDITURE USE AMOUNTS": at any date, the amount equal to the sum
of (a) all amounts utilized by Subsidiaries of the US Borrower to finance
Capital Expenditures, other than Capital Expenditures which are not in
excess of the Base CapEx Amount for the relevant fiscal year and any CapEx
Rollover to such fiscal year and (b) all amounts utilized by the US
Borrower and its Subsidiaries to finance investments permitted pursuant to
subsection 8.9(k), except to the extent that the consideration for all such
investments made since the Closing Date does not exceed the aggregate of
the amounts set forth in clauses (A), (B), (C) and (D) thereof.
"FEE PROPERTIES": the collective reference to the real properties
owned in fee by the US Borrower and its Subsidiaries described on Part I of
Schedule 5.19, including all buildings, improvements, structures, and
fixtures now or subsequently located thereon.
"FINANCING LEASE": any lease of property, real or personal, the
obligations of the lessee in respect of which are required to be
capitalized on a balance sheet of the lessee in accordance with GAAP.
"FOREIGN SUBSIDIARY": as to any Person, any Subsidiary of such Person
which is organized under the laws of any jurisdiction outside of the United
States of America.
"FOREIGN SUBSIDIARY ACCOMMODATIONS": any Accommodation issued for the
account of any Foreign Subsidiary Borrower by the Specified Issuing Lender.
<PAGE>
14
"FOREIGN SUBSIDIARY AGENTS": the collective reference to the English
Agent and the Euro Agent.
"FOREIGN SUBSIDIARY BORROWERS": the collective reference to the
English Borrower and the Euro Borrower.
"FOREIGN SUBSIDIARY LENDERS": the collective reference to the English
Lenders and the Euro Lenders.
"FOREIGN SUBSIDIARY OBLIGATIONS": the collective reference to the
English Obligations and the Euro Obligations.
"FOREIGN SUBSIDIARY REVOLVING CREDIT COMMITMENTS": the collective
reference to the English Revolving Credit Commitments and the Euro
Revolving Credit Commitments.
"FOREIGN SUBSIDIARY REVOLVING CREDIT LENDERS": the collective
reference to the English Revolving Credit Lenders and the Euro Revolving
Credit Lenders.
"FOREIGN SUBSIDIARY REVOLVING CREDIT LOANS": the collective reference
to the English Revolving Credit Loans and the Euro Revolving Credit Loans.
"GAAP": the generally accepted accounting principles in the United
States of America (or, in the case of financial statements for any period
prior to the date it became a Foreign Subsidiary Borrower, any Foreign
Subsidiary Borrower and its Subsidiaries and in the case of subsections
7.3, 8.3(b), 5.1(b), and 5.10, in the country of organization of such
Foreign Subsidiary Borrower) as in effect from time to time set forth in
the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Board (or in the case
of a Foreign Subsidiary Borrower, for any period prior to the date it
became a Foreign Subsidiary Borrower and in the case of subsections 7.3,
8.3(b), 5.1(b) and (c), and 5.10, the applicable authority in such country
of organization of such Foreign Subsidiary Borrower), or in such other
statements by such other entity as may be in general use by significant
segments of the accounting profession, which are applicable to the
circumstances of the US Borrower as of the date of determination except
that for purposes of subsection 8.1, GAAP shall be determined on the basis
of such principles in effect on the date hereof and consistent with those
used in the preparation of the financial statements referred to in
subsections 5.1(a) and (b), as the case may be. In the event that any
"Accounting Change" (as defined below) shall occur and such change results
in a change in the method of calculation of financial covenants, standards
or terms in this Agreement, then the Borrowers and the Administrative Agent
agree to enter into negotiations in order to amend such provisions of this
Agreement so as to equitably reflect such Accounting Changes with the
desired result that the criteria for evaluating the US Borrowers' financial
condition shall be the same after such Accounting Changes as if such
Accounting Changes had not been made. Until such time as such an amendment
shall have been executed and delivered by the Borrowers, the Administrative
Agent and the Required Lenders, all financial covenants, standards and
terms in this Agreement shall continue to be calculated or construed as if
such Accounting Changes had not occurred. "ACCOUNTING CHANGES" means:
changes in accounting principles required by the promulgation of any rule,
regulation, pronouncement or opinion by the Financial Accounting Standards
Board of the American Institute of Certified Public Accountants (or
successors thereto or agencies with similar functions).
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15
"GOVERNMENTAL AUTHORITY": any nation or government, any state,
province, municipality, or other political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"GUARANTEE AND COLLATERAL AGREEMENT": the Amended and Restated
Guarantee and Collateral Agreement, made by the US Borrower and its
Domestic Subsidiaries in favor of the Collateral Agent for the ratable
benefit of the Secured Parties, substantially in the form of Exhibit G-1,
as the same may be amended, supplemented or otherwise modified from time to
time.
"GUARANTEED LOAN NOTE INSTRUMENTS": the Deed Polls constituting the
Guaranteed Unsecured Floating Rate Loan Notes due 2003 Series A, Series B,
Series C and Series D, and the relevant Deed Polls constituting the
guarantees granted by the Guarantor in relation thereto, dated January 26,
1998, February 4, 1998, February 16, 1998 and February 25, 1998,
respectively, as amended, supplemented or otherwise modified from time to
time.
"GUARANTEED LOAN NOTES": loan notes of English Bidco issued pursuant
to the offer for the outstanding capital stock of the English Borrower at
the election of holders of such capital stock having the terms contained in
the Guaranteed Loan Note Instruments and guaranteed by Guarantor.
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"),
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "PRIMARY OBLIGATIONS") of any other third Person
(the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; PROVIDED,
HOWEVER, that the term Guarantee Obligation shall not include endorsements
of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the stated
or determinable amount of the primary obligation in respect of which such
Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee
Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability (assuming such Person is required to perform) in
respect thereof as determined by such Person in good faith.
"GUARANTOR": Barclays Bank PLC.
"HIDDEN CREEK": Hidden Creek Industries, a New York general
partnership.
"INDEBTEDNESS": of any Person at any date, without duplication (a)
all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services
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16
(other than current trade liabilities incurred in the ordinary course of
business and payable in accordance with customary practices and accrued
expenses incurred in the ordinary course of business) or which is evidenced
by a note, bond, debenture or similar instrument, (b) all net obligations
of such Person under Interest Rate Agreements, (c) all obligations of such
Person under Financing Leases to the extent such obligations are required
to be capitalized in accordance with GAAP, (d) all obligations of such
Person in respect of letters of credit, bankers' acceptances or similar
instruments issued or created for the account of such Person, and (e) all
liabilities secured by any Lien on any property owned by such Person even
though such Person has not assumed or otherwise become liable for the
payment thereof; provided however, that the amount of such Indebtedness of
any Person described in this clause (e) shall, for purposes of this
Agreement, be deemed to be equal to the lesser of (i) the aggregate unpaid
amount of such Indebtedness and (ii) the fair market value of the property
or asset encumbered, as determined by such Person in good faith.
"INITIAL PUBLIC OFFERING": means an underwritten public offering of
common stock of the US Borrower pursuant to a registration statement filed
with the Securities and Exchange Commission in accordance with the
Securities Act of 1933, as amended.
"INSOLVENCY": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"INSOLVENT": pertaining to a condition of Insolvency.
"INTELLECTUAL PROPERTY": as defined in subsection 5.9.
"INTERCOMPANY NOTE": a promissory note made by a Subsidiary of the US
Borrower in favor of a Credit Party, substantially in the form of Exhibit
J.
"INTEREST COVERAGE RATIO": for any period, with respect to the US
Borrower, the ratio of (a) Consolidated EBITDA to (b) consolidated cash
interest expense (including any such cash interest expense in respect of
Indebtedness under Financing Leases and purchase money Indebtedness
permitted under subsection 8.2(e)) of the US Borrower and its Subsidiaries
(such consolidated cash interest expense to include commissions, discounts
and other fees payable on account of letters of credit and banker's
acceptances but to exclude amortization of debt discount (including
discount of liabilities and reserves established under Accounting
Principles Board Opinion No. 16 as in effect on the date hereof) and costs
of debt issuance)); PROVIDED that (i) for the four fiscal quarters ended
December 31, 1999, consolidated cash interest expense shall be deemed to be
(a) consolidated cash interest expense of the US Borrower and its
Subsidiaries (excluding Nelson) for the fiscal quarter ended December 31,
1999 multiplied by 4 plus (b) cash interest expense of Nelson for the four
fiscal quarters ended December 31, 1999, (ii) for the four fiscal quarters
ended March 31, 2000, consolidated cash interest expense shall be deemed to
be (a) consolidated cash interest expense of the US Borrower and its
Subsidiaries (excluding Nelson) for the two fiscal quarters ended March 31,
2000 multiplied by 2 plus (b) cash interest expense of Nelson for the four
fiscal quarters ended March 31, 2000, and (iii) for the four fiscal
quarters ended June 30, 2000, consolidatd cash interest expense shall be
deemed to be (a) consolidated cash interest expense of the US Borrower and
its Subsidiaries (excluding Nelson) for the three fiscal quarters ended
June 30, 2000 multipled by 4/3 plus (b) cash interest expense of Nelson for
the four fiscal quarters ended June 30, 2000.
"INTEREST PAYMENT DATE": (a) as to any Base Rate Loan, the Base Rate
Payment Date set forth on the Administrative Schedule, (b) as to any
Eurocurrency Loan having an Interest Period of three (3) months or less,
the last day of such Interest Period and (c) as to any Eurocurrency Loan
having an Interest Period longer than three (3) months, each day which is
three (3) months
<PAGE>
17
or a whole multiple thereof, after the first day of such Interest Period as
well as the last day of such Interest Period.
"INTEREST PERIOD": with respect to any Eurocurrency Loan:
(a) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurocurrency
Loan and ending at the end of any Permitted Interest Period, as
selected by the Specified Borrower in its notice of borrowing or
notice of conversion, as the case may be, given with respect thereto;
and
(b) thereafter, each period commencing on the last day of the
immediately preceding Interest Period applicable to such Eurocurrency
Loan and ending at the end of any Permitted Interest Period, as
selected by the Specified Borrower by irrevocable notice to the
Specified Agent not less than three Business Days prior to the last
day of the then current Interest Period with respect thereto;
PROVIDED that, all of the foregoing provisions relating to Interest Periods
are subject to the following:
(1) if any Interest Period pertaining to a Eurocurrency Loan
would otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
(2) no Interest Period shall extend beyond the Scheduled
Revolving Credit Commitment Termination Date in the case of Revolving
Credit Loans or the scheduled date final payment is due on any tranche
or class of Term Loans in the case of such tranche or class of Term
Loans;
(3) no Interest Period with respect to any tranche or class of
the Term Loans shall extend beyond any date upon which repayment of
principal thereof is required to be made if, after giving effect to
the selection of such Interest Period, the aggregate principal amount
of such tranche or class of Term Loans with Interest Periods ending
after such date would exceed the aggregate principal amount of such
tranche or class of Term Loans permitted to be outstanding after such
scheduled repayment; and
(4) any Interest Period pertaining to a Eurocurrency Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of a calendar month.
"INTEREST RATE AGREEMENT": any interest rate protection agreement,
interest rate, commodity or currency future, interest rate option, interest
rate cap or other interest rate, commodity or currency hedge arrangement,
to or under which any Lender (or any Affiliate thereof) and the US Borrower
or its Subsidiaries are parties on the date hereof or become parties after
the date hereof.
"INVESTMENTS": as defined in subsection 8.9.
"ISSUING LENDERS": the collective reference to the US Issuing Lender
and the English Issuing Lender.
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18
"JUDGMENT CONVERSION DATE": as defined in subsection 12.11(a).
"JUDGMENT CURRENCY": as defined in subsection 12.11(a).
"LEASED PROPERTIES": the collective reference to the real properties
leased by the US Borrower and its Subsidiaries described on Part II of
Schedule 5.19 including all buildings, improvements, structures and
fixtures now or subsequently located thereon.
"LENDERS": the collective reference to the US Lenders and the Foreign
Subsidiary Lenders.
"LETTER OF CREDIT": any Standby L/C or Trade L/C, collectively, the
"LETTERS OF CREDIT."
"LETTER OF CREDIT APPLICATION": with respect to (a) a Standby L/C, a
Standby L/C Application and (b) a Trade L/C, a Trade L/C Application;
collectively, the "LETTER OF CREDIT APPLICATIONS".
"LEVERAGE RATIO": at any date, the ratio of (a) Consolidated Total
Debt of the US Borrower and its Subsidiaries to (b) Consolidated EBITDA of
the US Borrower and its Subsidiaries for the period of four consecutive
fiscal quarters most recently ended.
"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement
and any Financing Lease having substantially the same economic effect as
any of the foregoing).
"LOAN DOCUMENTS": the collective reference to this Agreement, the
Notes, the Letter of Credit Applications, the Guarantee and Collateral
Agreement, the Mortgages, any other document, instrument or agreement
guaranteeing, or granting a Lien to secure any Obligations and, as it
relates to the Secured Parties only, the Sharing Agreement.
"LOANS": the collective reference to the US Loans, the English Loans
and the Euro Loans made pursuant to the Existing Credit Agreement or this
Agreement.
"MAJORITY CLASS LENDERS": as defined in subsection 12.1.
"MATERIAL ADVERSE CHANGE": any event, development, or circumstance
that has had or could reasonably be expected to have a Material Adverse
Effect.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
Transactions, (b) the business, operations, property or financial condition
of the US Borrower and its Subsidiaries, taken as a whole, or (c) the
validity or enforceability of this Agreement or any of the other Loan
Documents or the rights or remedies of the Secured Parties hereunder or
thereunder.
"MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without limitation,
friable asbestos, polychlorinated biphenyls and urea-formaldehyde
insulation.
"MATERIAL SUBSIDIARY": of any Person means, at any time, a Subsidiary
of such Person (a) having (i) at least the Equivalent Amount of 5% of the
Consolidated Total Assets (determined as of the last day of the most recent
fiscal quarter) of the US Borrower and its Subsidiaries or (ii) at
<PAGE>
19
least the Equivalent Amount of 5% of the consolidated total revenues for
the twelve month period ending on the last day of the most recent fiscal
quarter of such Person or (b) which guarantees or is a party to any
Subordinated Debt Document or a Loan Document; PROVIDED, that, in no event
may Subsidiaries which have in the aggregate more than 10% of the
Consolidated Total Assets or 10% of the consolidated total revenues (as so
computed) of the US Borrower be excluded from this definition and
notwithstanding the foregoing each Foreign Subsidiary Borrower shall be a
Material Subsidiary.
"MORTGAGED PROPERTIES": the collective reference to the Fee
Properties owned by the US Borrower and its Subsidiaries listed on Part I
of Schedule 5.19.
"MORTGAGES": the collective reference to the mortgages and deeds of
trust encumbering each of the Mortgaged Properties executed and delivered
or to be executed and delivered by the US Borrower or its Domestic
Subsidiaries, substantially in the form of Exhibit G-2, with such
modifications (including, without limitation, any amendments to any
mortgages given in connection with the Existing Credit Agreement) as are
determined by the Administrative Agent as necessary or desirable to create
a valid and enforceable first mortgage Lien securing the obligations and
liabilities of any Borrower or any guarantor under any Loan Document, as
the same may be amended, supplemented, replaced, restated, or otherwise
modified from time to time.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"NATIONAL CURRENCY UNIT": the unit of currency (other than a euro
unit) of a Participating Member State.
"NELSON": as defined in the recitals hereto.
"NELSON ACQUISITION": as defined in the recitals hereto.
"NET CASH PROCEEDS": (a) in connection with any Asset Sale
(including any sale and leaseback of assets and any sale of accounts
receivable in connection with a receivables financing transaction) or any
casualty or condemnation event the cash proceeds (including any cash
payments received by way of deferred payment of principal pursuant to a
note or installment receivable or purchase price adjustment receivable or
otherwise, but only as and when received) of such Asset Sale or such
casualty or condemnation event net of all reasonable legal fees, notarial
fees, accountants' fees, investment banking fees, survey costs, title
insurance premiums, required debt payments (other than pursuant hereto) and
other customary fees actually incurred in connection therewith and net of
taxes paid or reserved to be paid or reasonably expected to be payable as a
result thereof and net of purchase price adjustments reasonably expected to
be payable in connection therewith and net of any other reserves reasonably
estimated by the US Borrower or any Subsidiary in connection with such
Asset Sale or such casualty or condemnation event and (b) in connection
with any issuance by the US Borrower or any of its Subsidiaries of equity
or debt securities or instruments or the incurrence of loans other than
Indebtedness permitted by subsection 8.2, the cash proceeds received from
such issuance, net of all reasonable investment banking fees, legal fees,
notarial fees, accountants fees, underwriting discounts and commissions and
other customary fees and expenses (including, but not limited to, filing
and printing costs), actually incurred in connection therewith; PROVIDED
HOWEVER that (y) with respect to any reserves described in clause (a)
above, any amount released from such reserves (other than for the purpose
for which it was created) shall constitute "Net Cash Proceeds" when
released and (z) with respect to any issuance of debt instruments or
securities as described in clause (b) above, only to the extent that such
net cash proceeds are used to
<PAGE>
20
refinance any Indebtedness permitted by this Agreement, then such net cash
proceeds shall not constitute "Net Cash Proceeds" for the purpose of this
Agreement.
"NON-EXCLUDED TAXES": as defined in subsection 4.7.
"NON-FUNDING LENDER": as defined in subsection 4.4(c).
"NOTES": the collective reference to the Revolving Credit Notes, the
Swing Line Notes, and the Term Notes.
"NOTICE TIME": as to any notice of borrowing, prepayment, conversion
or rollover by any Specified Borrower, the Specified Notice Time set forth
in the Administrative Schedule.
"OBLIGATIONS": the collective reference to the Domestic Obligations
and the Foreign Subsidiary Obligations.
"ORIGINAL CLOSING DATE": April 21, 1999.
"PARTICIPATING LENDER": as to any Accommodation, any Specified
Revolving Credit Lender (other than the Specified Issuing Lender) with
respect to its Specified Accommodation Participating Interest in such
Accommodation.
"PARTICIPATING MEMBER STATE": any member state which has the euro as
its lawful currency.
"PARTICIPATION CERTIFICATE": a certificate in substantially the form
of Exhibit B.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA or any successor thereto.
"PERMITTED ACQUISITION": the acquisition by the US Borrower or a
Subsidiary of the US Borrower of a business that is similar, related or
supportive to the US Borrower and its Subsidiaries' business or those
consented to by the Required Lenders.
"PERMITTED EXPENDITURE AMOUNTS": at any date, the amount equal to (a)
the sum of (i) the Net Cash Proceeds of any issuance of Capital Stock of
the US Borrower which was not required to be applied pursuant to the
provisions of subsection 2.9(a) (other than Net Cash Proceeds of Capital
Stock described in the first parenthetical clause of subsection 2.9(a)),
(ii) the Net Cash Proceeds of any Asset Sale which was not required to be
applied pursuant to the provisions of subsection 2.9(b) and (iii) any
portion of the Excess Cash Flow of the US Borrower for fiscal years
completed since the Closing Date which was not required to be applied
pursuant to the provisions of subsection 2.9(c) MINUS (b) the aggregate
amount of Expenditure Use Amounts as of such date.
"PERMITTED INTEREST PERIOD": as to any Eurocurrency Loan, the
permitted interest period lengths set forth in the Administrative Schedule
and shall include, in any event, during any period prior to the primary
syndication of the Loans, any shorter period as may be agreed to by the
Lenders.
"PERSON": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
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21
"PLAN": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which a Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"PLEDGED SECURITIES": as defined in the Guarantee and Collateral
Agreement.
"POUNDS STERLING OR L": legal currency of the United Kingdom.
"PROCESS AGENT": as defined in subsection 12.13(f).
"PROPERTIES": as defined in subsection 5.15.
"QUALIFIED ISSUER": as defined in Section VI of the Administrative
Schedule.
"RATABLE PORTION": for each Specified Lender, the amount of such
Lender's PRO RATA portion of any applicable Specified Loan.
"RECAPITALIZATION": the transactions consummated pursuant to the
Recapitalization Agreement.
"RECAPITALIZATION AGREEMENT": the Recapitalization Agreement, dated
as of March 29, 1999, among the US Borrower, the stockholders parties
thereto and JLF Acquisition LLC, as amended, supplemented or otherwise
modified in accordance with subsection 8.10.
"REGULATION T, U OR X": Regulation T, U or X of the Board as in
effect from time to time.
"RELATED BUSINESS": Any business involving, ancillary to or related
to the business in which the US Borrower or any of its Subsidiaries is
engaged on the date hereof.
"RELATED FUND": with respect to any Lender that is a fund that
invests in bank loans, any other fund that invests in bank loans and is
advised or managed by the same investment advisor as such Lender or by an
affiliate of such investment advisor.
"REORGANIZATION": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"REPORTABLE EVENT": any of the events set forth in Section 4043(b) of
ERISA and the regulations thereunder, other than those events as to which
the thirty day notice period is waived under subsections .13, .14, .16,
.18, .19 or .20 of PBGC Reg. Section 2615.
"REQUIRED LENDERS": at any time, Lenders the Total Credit
Percentages of which aggregate at least a majority.
"REQUIREMENT OF LAW": as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of
such Person, and any law, treaty, statute, rule, regulation, common law or
determination of an arbitrator or a court or other Governmental Authority
and all official directives, consents, approvals, authorizations,
restrictions and policies of any Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
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22
"RESPONSIBLE OFFICER": as to any Person, the chief executive officer,
the president, the chief financial officer, managing or other director, any
vice president, secretary, any assistant secretary, treasurer or any
assistant treasurer of such Person.
"RESTRICTED PAYMENTS": as defined in subsection 8.7.
"REVOLVING CREDIT COMMITMENTS": the collective reference to the US
Revolving Credit Commitments and the Foreign Subsidiary Revolving Credit
Commitments.
"REVOLVING CREDIT COMMITMENT PERCENTAGE": as to any Specified
Revolving Credit Lender, the percentage of the aggregate Specified
Revolving Credit Commitments constituted by its Specified Revolving Credit
Commitment.
"REVOLVING CREDIT COMMITMENT PERIOD": with respect to any Specified
Borrower, the Specified Revolving Credit Commitment Period set forth in the
Administrative Schedule.
"REVOLVING CREDIT COMMITMENT TERMINATION DATE": with respect to any
Specified Borrower, the Specified Revolving Credit Commitment Termination
Date set forth in the Administrative Schedule.
"REVOLVING CREDIT LENDERS": the collective reference to the US
Revolving Credit Lenders and the Foreign Subsidiary Revolving Credit
Lenders.
"REVOLVING CREDIT LOANS": the collective reference to the US
Revolving Credit Loans and the Foreign Subsidiary Revolving Credit Loans.
"REVOLVING CREDIT NOTE" and "REVOLVING CREDIT NOTES": as defined in
subsection 2.7(e).
"SCHEDULED REVOLVING CREDIT COMMITMENT TERMINATION DATE": April 21,
2005 or, if such date is not a Business Day, the Business Day next
preceding such date.
"SECURED PARTIES": the collective reference to the Collateral Agent,
the Administrative Agent, the Foreign Subsidiary Agents, and the Lenders.
"SENIOR DEBT RATIO": at any date, the ratio of (a) Consolidated
Senior Debt of the US Borrower and its Subsidiaries to (b) Consolidated
EBITDA of the US Borrower and its Subsidiaries for the period of four
consecutive fiscal quarters most recently ended.
"SENIOR SUBORDINATED NOTE INDENTURE": the Indenture dated as of May
28, 1999 entered into by the US Borrower in connection with the issuance of
the Senior Subordinated Notes, together with all instruments and other
agreements entered into by the US Borrower in connection therewith, as the
same may be amended, supplemented or otherwise modified from time to time
in accordance with subsection 8.10.
"SENIOR SUBORDINATED NOTES": the subordinated notes of the US
Borrower issued pursuant to the Senior Subordinated Note Indenture.
"SHARING AGREEMENT": the Sharing Agreement, among the Collateral
Agent, the Administrative Agent and the Foreign Subsidiary Agents,
substantially in the form of Exhibit I, as the same may be amended,
supplemented or otherwise modified from time to time.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
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23
"SOLVENT" and "SOLVENCY": with respect to any Person on a particular
date, that on such date, (a) the fair value of the property (on a going
concern basis) of such Person is greater than the total amount of
liabilities, including, without limitation, contingent liabilities, of such
Person, (b) the present fair saleable value of the assets (on a going
concern basis) of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person does not intend to, and does
not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature, and (d) such Person is
not engaged in business or a transaction, and is not about to engage in
business or a transaction, for which such Person's property would
constitute an unreasonably small capital; PROVIDED for purposes of any
Person organized under the laws of England and Wales, the term "SOLVENT"
shall mean that with respect to such Person on a particular date, that on
such date, such Person has the ability to pay its debts as and when they
fall due and could not be deemed to be unable to pay its debts for purposes
of the Insolvency Act of 1986.
"SPECIFIED": when used in relation to any Borrower, any Loans (or
portion, type or class thereof), Accommodations, Assignee, Commitment,
Agent, Issuing Lender, Lenders (or subclass thereof), Obligations (or
portion thereof), Accommodation Outstandings and/or any other defined term
herein, the applicable Borrower and/or the Loans to, Accommodations for the
benefit of, Commitments to, Agent in respect of, Issuing Lender in respect
of, Lenders to, Obligations owing by, and other terms relating to such
Borrower or defined term, as the context may require.
"SPECIFIED PARTICIPANT": as defined in subsection 12.6(b).
"SPECIFIED REFUNDED SWING LINE LOANS": as defined in subsection
2.12(b).
"SPECIFIED REGISTER": as defined in subsection 12.6(d).
"STANDBY L/C": an irrevocable letter of credit issued by a Specified
Issuing Lender pursuant to this Agreement for the account of the related
Specified Borrower in respect of obligations of such Specified Borrower
incurred pursuant to contracts made or performances undertaken or to be
undertaken or like matters relating to contracts to which such Specified
Borrower is or proposes to become a party, including, without limiting the
foregoing, for insurance, trade payable or Indebtedness support purposes.
"STANDBY L/C APPLICATION": as defined in subsection 3.2.
"SUBSEQUENT PARTICIPANT": any member state that adopts the euro as
its lawful currency after January 1, 1999.
"SUBSIDIARY": as to any Person, a corporation, partnership, limited
liability company, or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time
owned, directly or indirectly through one or more intermediaries, or both,
by such Person, including, as to any Person incorporated in England or
Wales, (A) a subsidiary within the meaning of Section 736 of the Companies
Act 1985, and (B) unless the context otherwise requires, any Person being a
subsidiary undertaking within the meaning of Section 258 of the Companies
Act 1985 AND (for all purposes of this Agreement other than the calculation
of financial condition covenants under section 8.1) the affairs and
policies of which the US Borrower or any other Subsidiary of the US
Borrower controls or has the power to control. Unless otherwise qualified,
all references to a "Subsidiary"
<PAGE>
24
or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the US Borrower.
"SWING LINE COMMITMENT": any Specified Swing Line Lender's obligation
to make Specified Swing Line Loans pursuant to subsection 2.12 as set forth
in the Administrative Schedule.
"SWING LINE LENDERS": the collective reference to the US Swing Line
Lenders and the English Swing Line Lenders.
"SWING LINE LOAN PARTICIPATION CERTIFICATE": a certificate in
substantially the form of Exhibit C.
"SWING LINE LOANS": as to any Specified Swing Line Lender, any swing
line loans made to the Specified Borrower by such Lender.
"SWING LINE NOTE": as defined in subsection 2.7(e).
"TARGET OPERATING DAY": any day that is not (a) a Saturday or Sunday,
(b) Christmas Day or New Year's Day or (c) any other day on which the
Trans-European Real-time Gross Settlement Operating System (or any
successor settlement system) is not operating (as determined by the Euro
Agent).
"TERM LOANS": the collective reference to the US Term Loans and the
English Term Loans.
"TERM LOAN LENDERS": the collective reference to the US Term Loan
Lenders and the English Term Loan Lenders.
"TERM NOTE" and "TERM NOTES": as defined in subsection 2.7(e).
"THIRD STAGE": the third stage of the European economic and monetary
union pursuant to the Treaty establishing the European Community (as
amended from time to time).
"TOTAL CREDIT PERCENTAGE": as to any Lender at any time, the
percentage of the aggregate Revolving Credit Commitments and outstanding
Term Loans then constituted by its Revolving Credit Commitments and its
outstanding Term Loans (or, if the Revolving Credit Commitments have
terminated or expired, the percentage of the aggregate outstanding Loans
and risk interests in the aggregate Accommodation Outstandings and Swing
Line Loans then constituted by its outstanding Loans, and its risk
interests in Accommodation Outstandings and Swing Line Loans).
"TOWER SUBORDINATED DEBT": as defined in subsection 6.1(e).
"TRADE L/C": a commercial documentary letter of credit issued by a
Specified Issuing Lender pursuant to subsection 3.1 for the account of a
Specified Borrower for the purchase of materials, goods or services in the
ordinary course of business.
"TRADE L/C APPLICATION": as defined in subsection 3.2.
"TRANCHE": the reference to Eurocurrency Loans of a Specified
Borrower the Interest Periods with respect to all of which begin on the
same date and end on the same later date
<PAGE>
25
(whether or not such Loans shall originally have been made on the same
day); Tranches may be identified as "EUROCURRENCY TRANCHES."
"TRANSACTION DOCUMENTS": the Acquisition Agreement and all other
agreements, instruments or certificates delivered in connection with the
Transactions.
"TRANSACTIONS": as defined in the recitals hereto.
"TRANSFEREE": as defined in subsection 12.6(f).
"TREATY ON EUROPEAN UNION": the Treaty of Rome of March 25, 1957, as
amended by the Single European Act 1986 and the Maastricht Treaty (which
was signed at Maastricht on February 7, 1992, and came into force on
November 1, 1993), as amended from time to time.
"TYPE": as to any Loan, its nature as a Base Rate Loan or a
Eurocurrency Loan.
"UNDERLYING LEASE": as defined in subsection 5.8.
"UNIFORM CUSTOMS": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No.
500, and any revisions thereof.
"US BORROWER": as defined in the preamble hereto.
"US BORROWER PRO FORMA BALANCE SHEET": as defined in subsection
5.1(c).
"US ISSUING LENDER": Chase.
"US LENDERS": the collective reference to Lenders holding US Loans or
US Revolving Credit Commitments.
"US LETTERS OF CREDIT": any Letter of Credit issued for the account
of the US Borrower by the US Issuing Lender.
"US LOAN": any loan made to the US Borrower by any US Lender pursuant
to the Existing Credit Agreement or this Agreement.
"US REVOLVING CREDIT COMMITMENT": as to any US Revolving Credit
Lender, its obligation to make US Revolving Credit Loans to the US Borrower
pursuant to subsection 2.1 and to participate in Swing Line Loans and US
Letters of Credit in an aggregate amount not to exceed at any one time
outstanding the amount set forth opposite such Revolving Credit Lender's
name in Schedule 1.1 under the heading "US Revolving Credit Commitment", as
such amount may be reduced from time to time as provided herein;
collectively, as to all the US Revolving Credit Lenders, the "US REVOLVING
CREDIT COMMITMENTS."
"US REVOLVING CREDIT LENDER": any US Lender having a US Revolving
Credit Commitment or that holds outstanding US Revolving Credit Loans or
Specified Accommodation Participating Interests hereunder.
"US REVOLVING CREDIT LOANS": as to the US Borrower, any revolving
credit loans made to the US Borrower by the US Revolving Credit Lenders
pursuant to the Existing Credit Agreement or pursuant to subsection 2.1(a).
<PAGE>
26
"US STERLING TERM LOANS": as to the US Borrower, any term loans made
to such Borrower by the US Sterling Term Loan Lenders pursuant to the
Existing Credit Agreement on the Original Closing Date in an aggregate
principal amount of 10,840,000.
"US STERLING TERM LOAN LENDERS": as to the US Borrower, any Lenders
holding outstanding US Sterling Term Loans.
"US SWING LINE LENDER": any US Lender having a Swing Line Commitment
or that holds outstanding Swing Line Loans.
"U.S. TAX COMPLIANCE CERTIFICATE": as defined in subsection
4.7(b)(ii).
"US TERM LOANS": the collective reference to the US Tranche A Term
Loans, the US Tranche B Term Loans and the US Sterling Term Loans.
"US TERM LOAN LENDERS": the collective reference to the US Tranche A
Term Loan Lenders, the US Tranche B Term Loan Lenders and the US Sterling
Term Loan Lenders.
"US TRANCHE A TERM LOANS": as to the US Borrower, any term loans made
to such Borrower by the US Tranche A Term Loan Lenders pursuant to the
Existing Credit Agreement on the Original Closing Date in an aggregate
principal amount of $70,000,000 or pursuant to subsection 2.5(a) on the
Closing Date in an aggregate principal amount of $85,000,000.
"US TRANCHE A TERM LOAN LENDERS": as to the US Borrower, any Lenders
holding outstanding US Tranche A Term Loans.
"US TRANCHE B TERM LOANS": as to the US Borrower, any term loans made
to such Borrower by the US Tranche B Term Loan Lenders pursuant to the
Existing Credit Agreement on the Original Closing Date in an aggregate
principal amount of $190,000,000.
"US TRANCHE B TERM LOAN LENDERS": as to the US Borrower, any Lenders
holding outstanding US Tranche B Term Loans.
"WHOLLY OWNED SUBSIDIARY": as to any Person, any Subsidiary of which
such Person owns, directly or indirectly, all of the Capital Stock of such
Subsidiary other than directors' qualifying shares or any shares held by
nominees.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in any Note or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein and in any Note, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the US
Borrower and its Subsidiaries not defined in subsection 1.1 and accounting terms
partly defined in subsection 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
<PAGE>
27
(e) Whenever any amount denominated in a currency other than Dollars
needs to be determined for purposes of Section 8 (other than subsection 8.1)
such determination shall be made on the Equivalent Amount of such other currency
on the date on which the particular transaction giving rise to the need to
calculate such Equivalent Amount occurred.
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS
2.1 REVOLVING CREDIT COMMITMENTS. (a) THE LENDERS' REVOLVING CREDIT
COMMITMENTS. Subject to the terms and conditions hereof, each Specified
Revolving Credit Lender severally agrees to make Specified Revolving Credit
Loans to the related Specified Borrower from time to time during the Specified
Revolving Credit Commitment Period in an aggregate principal amount or
Equivalent Amount thereof in the relevant currency, if applicable, at any one
time outstanding, when added to such Specified Lender's Specified Revolving
Credit Commitment Percentage of all Specified Accommodation Outstandings and
outstanding Specified Swing Line Loans, not to exceed, after giving effect to
the use of the proceeds thereof, the amount of such Specified Lender's Specified
Revolving Credit Commitment; PROVIDED, that (i) the Specified Borrower shall not
request and the Specified Revolving Credit Lender shall not make any Specified
Revolving Credit Loan if, after giving effect to the making thereof, the
Equivalent Amount of the aggregate Revolving Credit Loans, Accommodation
Outstandings and Swing Line Loans would exceed the US Revolving Credit
Commitments and (ii) neither the English Borrower nor the Euro Borrower shall
request and neither the English Revolving Credit Lenders nor the Euro Revolving
Credit Lenders shall make any English Revolving Credit Loans or Euro Revolving
Credit Loans, as the case may be, if, after giving effect to the making thereof,
the Equivalent Amount of the aggregate of the English Revolving Credit Loans,
the Accommodations issued by the English Issuing Lender for the account of the
English Borrower, the Swing Line Loans made to the English Borrower and the Euro
Revolving Credit Loans, in each case, then outstanding would exceed $25,000,000.
During the Specified Revolving Credit Commitment Period, the Specified Borrower
may use the Specified Revolving Credit Commitments by borrowing, prepaying the
Specified Revolving Credit Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof.
The Specified Revolving Credit Loans may from time to time be of any
available Type, as determined by the Specified Borrower and notified to the
Specified Agent in accordance with subsections 2.2 and 2.10.
(b) ENGLISH BIDCO'S CONFIRMATION. English Bidco acknowledges and
confirms that (i) Chase issued the Bank Guarantee Letters of Credit with an
aggregate face amount not exceeding L17,823,330.80 to the Guarantor in respect
of the Guaranteed Loan Notes and (ii) English Bidco agreed to reimburse Chase on
each date on which Chase notifies English Bidco of (x) the date and amount of a
demand presented under the Bank Guarantee Letters of Credit, (y) the amount of
such demand paid by Chase, and (z) any taxes, fees, charges or other costs or
expenses incurred by Chase in connection with such payment. English Bidco
hereby represents, warrants, agrees, covenants and reaffirms that: (i) it has no
(and it permanently and irrevocably waives, and releases Chase from, any, to the
extent arising on or prior to the Closing Date) defense, setoff, claim, or
counterclaim against Chase with regard to its English Obligations in respect of
the Bank Guarantee Letters of Credit and (ii) reaffirms its obligation to
reimburse Chase as set forth above.
2.2 PROCEDURE FOR REVOLVING CREDIT BORROWING. Any Specified Borrower
may borrow under the related Specified Revolving Credit Commitment during the
Specified Revolving Credit Commitment Period on any Business Day, PROVIDED that
such Specified Borrower shall give the Specified Agent irrevocable notice by the
Specified Notice Time specifying (i) the amount and currency to be borrowed,
(ii) the requested Borrowing Date, (iii) the Type or Types of Loan, and (iv) if
the borrowing is to be entirely or partly of Eurocurrency Loans, the respective
amounts of each such Type
<PAGE>
28
of Specified Loan and the respective lengths of the initial Interest Periods
therefor. Each borrowing under the Specified Revolving Credit Commitments shall
be in a minimum amount equal to (A) in the case of Base Rate Loans, the
Equivalent Amount of $250,000 (or, if the then Specified Available Revolving
Credit Commitments are less than the Equivalent Amount of $1,000,000, such
lesser amount) and (B) in the case of Eurocurrency Loans, the Equivalent Amount
of $1,000,000. Upon receipt of any such notice from the Specified Borrower, the
Specified Agent shall promptly notify each Specified Revolving Credit Lender
thereof. Each Specified Revolving Credit Lender will make the amount of its pro
rata share of each borrowing available to the Specified Agent for the account of
the Specified Borrower at the office of the Specified Agent specified in
subsection 12.2 prior to 11:00 a.m. local time of the Specified Agent, on the
Borrowing Date requested by the Specified Borrower in funds immediately
available to the Specified Agent. Such borrowing will then be made available to
the Specified Borrower by the Specified Agent crediting the account of the
Specified Borrower on the books of such office with the aggregate of the amounts
made available to the Specified Agent by the Specified Revolving Credit Lenders
and in like funds as received by the Specified Agent.
2.3 COMMITMENT FEE; ADMINISTRATIVE AGENT FEES. (a) The US Borrower
agrees to pay to the Administrative Agent for the account of each Revolving
Credit Lender a commitment fee for the period from and including the Closing
Date to, but not including, the Scheduled Revolving Credit Commitment
Termination Date or such other earlier date on which the Revolving Credit
Commitments are terminated (whether pursuant to Section 9 or otherwise),
computed at a rate per annum equal to the Applicable Margin for Commitment Fees
on the average daily excess, if any, during the period for which payment is
made, of (i) the amount of such Revolving Credit Lender's US Revolving Credit
Commitment OVER (ii) the sum of the Equivalent Amount of (A) the aggregate
unpaid principal amount at such time of all Revolving Credit Loans made by such
Revolving Credit Lender, and (B) an amount equal to such Revolving Credit
Lender's Revolving Credit Commitment Percentage of the Accommodation
Outstandings at such time, payable quarterly in arrears on the last day of each
March, June, September, and December and on the Scheduled Revolving Credit
Commitment Termination Date.
(b) Each Borrower shall pay to Chase for the accounts of the Agents
the amounts payable by it set forth in the Fee Letter dated September 10, 1999
or in any subsequent agreement in the amounts and on the dates set forth
therein.
2.4 TERMINATION OR REDUCTION OF REVOLVING CREDIT COMMITMENTS. (a)
Any Specified Borrower shall have the right, upon not less than three (3)
Business Days' notice to the Specified Agent, to terminate the Specified
Revolving Credit Commitments or, from time to time, reduce the unutilized
portion of the amount of the Specified Revolving Credit Commitments, PROVIDED
that any such termination of the Specified Revolving Credit Commitments shall be
accompanied by prepayment (or payment of cash collateral, as applicable in the
case of Specified Accommodations) in full of the Specified Revolving Credit
Loans, Specified Swing Line Loans and Specified Accommodation Obligations then
outstanding in excess of the Specified Revolving Credit Commitments as so
reduced, together with accrued interest thereon to the date of such prepayment,
cancellation of all Specified Accommodations and the payment of any unpaid
commitment fee then accrued hereunder. Any such reduction shall be in a minimum
Equivalent Amount of $1,000,000, and shall reduce permanently the amount of the
Specified Revolving Credit Commitments then in effect and shall further include
any amounts due in respect thereof under subsection 4.8. Upon termination of
the Specified Revolving Credit Commitments, any Specified Accommodation then
outstanding which has been fully cash collateralized shall no longer be
considered an "Accommodation" as defined in subsection 1.1, and any Specified
Accommodation Participating Interest heretofore granted by the Specified Issuing
Lender to the Specified Revolving Credit Lenders in such Specified Accommodation
shall be deemed terminated but the fees payable under subsection 3.3 shall
continue to accrue to the Specified Issuing Lender with respect to such
Specified Letter of Credit until the expiry thereof.
<PAGE>
29
(b) In the case of any reduction of any Specified Revolving Credit
Commitments hereunder, to the extent, if any, that the sum of the Specified
Revolving Credit Loans, Specified Swing Line Loans and the Specified
Accommodation Outstandings exceeds the Specified Revolving Credit Commitments as
so reduced, the Specified Borrower shall make a prepayment equal to such excess
amount, the proceeds of which shall be applied FIRST, to payment of the
Specified Swing Line Loans then outstanding, SECOND, to payment of the Specified
Revolving Credit Loans then outstanding, THIRD, to payment of any Specified
Accommodation Obligations then outstanding and LAST, to cash collateralize any
outstanding Specified Accommodation on terms reasonably satisfactory to the
Specified Lenders holding a majority of the Specified Revolving Credit
Commitments.
(c) Any Specified Revolving Credit Commitments once terminated or
reduced may not be reinstated.
2.5 TERM LOANS. (a) US TRANCHE A TERM LOANS. (i) Certain of the
US Tranche A Term Loan Lenders have made US Tranche A Term Loans to the US
Borrower on the Original Closing Date in the aggregate principal amount of
$70,000,000. Prior to the date hereof the US Borrower has made principal
payments of the US Tranche A Term Loans in an aggregate amount equal to
$2,105,263.16. Subject to the terms and conditions hereof, each of the US
Tranche A Term Loan Lenders (including any US Tranche A Term Loan Lenders which
are becoming US Tranche A Term Loan Lenders on the date hereof) severally agrees
to make the Additional US Tranche A Term Loans to the US Borrower on the Closing
Date in an amount not to exceed the difference between (x) the amount set forth
under the heading "US Tranche A Term Loan Commitment" opposite such Lender's
name on Schedule 1.1 and (y) the amount of the US Tranche A Term Loan made by
such US Tranche A Term Loan Lender on the Original Closing Date. The US Tranche
A Term Loans may from time to time be (a) Eurocurrency Loans, (b) Base Rate
Loans or (c) a combination thereof, as determined by the US Borrower and
notified to the Administrative Agent in accordance with subsection 2.10.
(ii) AMORTIZATION OF US TRANCHE A TERM LOANS. The aggregate US
Tranche A Term Loans of all US Tranche A Term Loan Lenders shall be payable in
21 consecutive quarterly installments (except with respect to the last
installment which shall be due and payable on April 21, 2005) on the dates and
in a principal amount equal to the amount set forth below (together with all
accrued interest thereon) opposite the applicable installment date (or, if less,
the aggregate amount of the US Tranche A Term Loans then outstanding):
<TABLE>
<CAPTION>
Installment Amount
----------- ------
<S> <C>
March 31, 2000 $7,280,704.67
June 30, 2000 $3,640,352.33
September 30, 2000 $3,640,352.33
December 31, 2000 $3,640,352.33
March 31, 2001 $3,640,352.33
June 30, 2001 $7,280,704.67
September 30, 2001 $7,280,704.67
December 31, 2001 $7,280,704.67
March 31, 2002 $7,280,704.67
June 30, 2002 $7,280,704.67
September 30, 2002 $7,280,704.67
December 31, 2002 $7,280,704.67
March 31, 2003 $7,280,704.67
June 30, 2003 $9,100,880.83
September 30, 2003 $9,100,880.83
December 31, 2003 $9,100,880.83
March 31, 2004 $9,100,880.83
June 30, 2004 $9,100,880.83
<PAGE>
30
September 30, 2004 $9,100,880.83
December 31, 2004 $9,100,880.83
April 21, 2005 $9,100,819.67
</TABLE>
(b) US TRANCHE B TERM LOANS. (i) The US Tranche B Term Loan Lenders
have made US Tranche B Term Loans to the US Borrower on the Original Closing
Date in the aggregate principal amount of $190,000,000. Prior to the date
hereof the US Borrower has made principal payments of the US Tranche B Term
Loans in an aggregate amount equal to $37,894,736.84. The US Tranche B Term
Loans may from time to time be (a) Eurocurrency Loans, (b) Base Rate Loans or
(b) a combination thereof, as determined by the US Borrower and notified to the
Administrative Agent in accordance with subsection 2.10.
(ii) AMORTIZATION OF US TRANCHE B TERM LOANS. The aggregate US
Tranche B Term Loans of all US Tranche B Term Loan Lenders shall be payable in
28 consecutive quarterly installments (except with respect to the last
installment which shall be due and payable on October 21, 2006) on the dates and
in a principal amount equal to the amount set forth below (together with all
accrued interest thereon) opposite the applicable installment date (or, if less,
the aggregate amount of the US Tranche B Term Loans then outstanding):
<TABLE>
<CAPTION>
Installment Amount
----------- ------
<S> <C>
March 31, 2000 $800,554.02
June 30, 2000 $200,138.50
September 30, 2000 $200,138.50
December 31, 2000 $200,138.50
March 31, 2001 $200,138.50
June 30, 2001 $200,138.50
September 30, 2001 $200,138.50
December 31, 2001 $200,138.50
March 31, 2002 $200,138.50
June 30, 2002 $200,138.50
September 30, 2002 $200,138.50
December 31, 2002 $200,138.50
March 31, 2003 $200,138.50
June 30, 2003 $200,138.50
September 30, 2003 $200,138.50
December 31, 2003 $200,138.50
March 31, 2004 $200,138.50
June 30, 2004 $200,138.50
September 30, 2004 $200,138.50
December 31, 2004 $200,138.50
March 31, 2005 $200,138.50
June 30, 2005 $200,138.50
September 30, 2005 $200,138.50
December 31, 2005 $200,138.50
March 31, 2006 $200,138.50
June 30, 2006 $200,138.50
September 30, 2006 $200,138.50
October 21, 2006 $146,101,108.04
</TABLE>
(c) US STERLING TERM LOANS. (i) The US Sterling Term Loan Lenders
have made US Sterling Term Loans to the US Borrower on the Original Closing Date
in the aggregate principal amount of 10,840,000. The US Sterling Term Loans
may from time to time be (a) Eurocurrency Loans, (b)
<PAGE>
31
Base Rate Loans or (b) a combination thereof, as determined by the US Borrower
and notified to the Administrative Agent in accordance with subsection 2.10.
(ii) AMORTIZATION OF US STERLING TERM LOANS. The aggregate US
Sterling Term Loans of all US Sterling Term Loan Lenders shall be payable in 21
consecutive quarterly installments (except with respect to the last installment
which shall be due and payable on April 21, 2005) on the dates and in a
principal amount equal to the amount set forth below (together with all accrued
interest thereon) opposite the applicable installment date (or, if less, the
aggregate amount of the US Sterling Term Loans then outstanding):
<TABLE>
<CAPTION>
Installment Amount
----------- ------
<S> <C>
March 31, 2000 L516,190
June 30, 2000 L258,095
September 30, 2000 L258,095
December 31, 2000 L258,095
March 31, 2001 L258,095
June 30, 2001 L516,190
September 30, 2001 L516,190
December 31, 2001 L516,190
March 31, 2002 L516,190
June 30, 2002 L516,190
September 30, 2002 L516,190
December 31, 2002 L516,190
March 31, 2003 L516,190
June 30, 2003 L645,238
September 30, 2003 L645,238
December 31, 2003 L645,239
March 31, 2004 L645,239
June 30, 2004 L645,239
September 30, 2004 L645,239
December 31, 2004 L645,239
April 21, 2005 L645,239
</TABLE>
(d) ENGLISH TERM LOANS. (i) The English Term Loan Lenders have made
English Term Loans to the English Borrower on the Original Closing Date in the
aggregate principal amount of 10,840,000. The English Term Loans may from time
to time be (a) Eurocurrency Loans, (b) Base Rate Loans or (b) a combination
thereof, as determined by English Borrower and notified to the English Agent in
accordance with subsection 2.10.
(ii) AMORTIZATION OF ENGLISH TERM LOANS. The aggregate English Term
Loans of all English Term Loan Lenders shall be payable in 21 consecutive
quarterly installments (except with respect to the last installment which shall
be due and payable on April 21, 2005) on the dates and in a principal amount
equal to the amount set forth below (together with all accrued interest thereon)
opposite the applicable installment date (or, if less, the aggregate amount of
the English Term Loans then outstanding):
<TABLE>
<CAPTION>
Installment Amount
----------- ------
<S> <C>
March 31, 2000 L516,190
June 30, 2000 L258,095
September 30, 2000 L258,095
December 31, 2000 L258,095
March 31, 2001 L258,095
June 30, 2001 L516,190
<PAGE>
32
September 30, 2001 L516,190
December 31, 2001 L516,190
March 31, 2002 L516,190
June 30, 2002 L516,190
September 30, 2002 L516,190
December 31, 2002 L516,190
March 31, 2003 L516,190
June 30, 2003 L645,238
September 30, 2003 L645,238
December 31, 2003 L645,239
March 31, 2004 L645,239
June 30, 2004 L645,239
September 30, 2004 L645,239
December 31, 2004 L645,239
April 21, 2005 L645,239
</TABLE>
2.6 PROCEDURE FOR TERM LOAN BORROWINGS. The Specified Subsidiary
Borrower shall give the Specified Agent irrevocable notice by the Specified
Notice Time requesting that the Specified Term Loan Lenders make the Specified
Term Loans on the requested Borrowing Date and specifying (i) the amount and
currency to be borrowed, (ii) the requested Borrowing Date, (iii) the Type or
Types of Loan, and (iv) if the borrowing is to be entirely or partly of
Eurocurrency Loans, the respective amounts of each such Type of Specified Loan
and the respective lengths of the initial Interest Periods therefor. Upon
receipt of such notice the Specified Agent shall promptly notify each Specified
Term Loan Lender thereof. Each Specified Term Loan Lender will make an amount
equal to the Specified Term Loans to be made by such Lender available to the
Specified Agent for the account of the Specified Borrower at the office of the
Specified Agent specified in subsection 12.2 prior to 11:00 a.m. local time of
the Specified Agent, on the Borrowing Date requested by the Specified Borrower
in funds immediately available to the Specified Agent. Such borrowing will then
be made available to the Specified Borrower by the Specified Agent crediting the
account of the Specified Borrower on the books of such office with the aggregate
of the amounts made available to the Specified Agent by the Specified Term Loan
Lenders and in like funds as received by the Specified Agent.
2.7 REPAYMENT OF LOANS. (a) Each Specified Borrower hereby
unconditionally promises to pay to the Specified Agent for the account of: (i)
each Specified Revolving Credit Lender, the then unpaid principal amount of each
Specified Revolving Credit Loan of such Specified Lender, on the Specified
Revolving Credit Commitment Termination Date (or such earlier date on which the
Specified Revolving Credit Loans become due and payable pursuant to Section 9);
(ii) each Specified Swing Line Lender, the then unpaid principal amount of the
Specified Swing Line Loans of such Swing Line Lender, on the Specified Revolving
Credit Commitment Termination Date (or such earlier date on which the Specified
Swing Line Loans become due and payable pursuant to Section 9); (iii) each US
Tranche A Term Loan Lender, such Lender's Ratable Portion of the amounts
specified in subsection 2.5(a)(ii) (or, if less, the aggregate amount of the US
Tranche A Term Loans of such Lender then outstanding), on the dates specified in
subsection 2.5(a)(ii) (or such earlier date on which the US Tranche A Term Loans
become due and payable pursuant to Section 9); (iv) each US Tranche B Term Loan
Lender, such Lender's Ratable Portion of the amounts specified in subsection
2.5(b)(ii) (or, if less, the aggregate amount of the US Tranche B Term Loans of
such Lender then outstanding), on the dates specified in subsection 2.5(b)(ii)
(or such earlier date on which the US Tranche B Term Loans become due and
payable pursuant to Section 9); (v) each US Sterling Term Loan Lender, such
Lender's Ratable Portion of the amounts specified in subsection 2.5(c)(ii) (or,
if less, the aggregate amount of the US Sterling Term Loans of such Lender then
outstanding), on the dates specified in subsection 2.5(c)(ii) (or such earlier
date on which the US Sterling Term Loans become due and payable pursuant to
Section 9); and (vi) each English Term Loan Lender, such Lender's Ratable
Portion of the amounts specified in subsection 2.5(c)(ii) (or, if less, the
aggregate amount of the English Term Loans of such Lender then
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outstanding), on the dates specified in subsection 2.5(c)(ii) (or such earlier
date on which the English Term Loans become due and payable pursuant to Section
9). Each Specified Borrower hereby further agrees to pay interest on the unpaid
principal amount of its Specified Loans from time to time outstanding from the
date hereof until payment in full thereof at the rates per annum, and on the
dates, set forth in subsection 4.1.
(b) Each Specified Lender (including each Specified Swing Line
Lender) shall maintain in accordance with its usual practice an account or
accounts evidencing indebtedness of the Specified Borrower to such Specified
Lender resulting from each Specified Loan of such Specified Lender from time to
time, including the amounts of principal and interest payable and paid to such
Specified Lender from time to time under this Agreement.
(c) Each Specified Agent shall maintain a Specified Register pursuant
to subsection 12.6(d), and a subaccount therein for each Specified Lender, in
which shall be recorded (i) the amount of each Specified Loan made hereunder and
any Note evidencing such Loan, the Type thereof and each Interest Period
applicable thereto, (ii) the amount of any principal or interest due and payable
or to become due and payable from the Specified Borrower to each Specified
Lender hereunder and (iii) both the amount of any sum received by such Specified
Agent hereunder from each Specified Borrower and each Specified Lender's share
thereof.
(d) The entries made in each Specified Register and the accounts of
each Specified Lender maintained pursuant to subsection 2.7(b) shall, to the
extent permitted by applicable law and absent manifest error, be PRIMA FACIE
evidence of the existence and amounts of the obligations of each Specified
Borrower therein recorded; PROVIDED, HOWEVER, that the failure of any Specified
Lender or any Specified Agent to maintain the applicable Specified Register or
any such account, or any error therein, shall not in any manner affect the
obligation of each Specified Borrower to repay (with applicable interest) its
Specified Loans owing to the Specified Lender in accordance with the terms of
this Agreement.
(e) The US Borrower agrees that, upon request to the US Agent by any
Specified Lender, the US Borrower will execute and deliver to such Specified
Lender (i) a promissory note of the US Borrower evidencing the Specified
Revolving Credit Loans of such Specified Lender, substantially in the form of
Exhibit A-1 with appropriate insertions as to date and principal amount (each as
amended, supplemented, replaced or otherwise modified from time to time, a
"REVOLVING CREDIT NOTE"), and/or (ii) a promissory note of the Specified
Borrower evidencing the Specified Term Loan of such Specified Lender,
substantially in the form of Exhibit A-2 with appropriate insertions as to
Borrower, currency, date, and principal amount (each as amended, supplemented,
replaced or otherwise modified from time to time, a "TERM NOTE"), and/or (iii) a
promissory note of such Specified Borrower evidencing the Specified Swing Line
Loans of the Specified Swing Line Lender, substantially in the form of Exhibit
A-3 with appropriate insertions as to date and principal amount (as amended,
supplemented, replaced or otherwise modified from time to time, the "SWING LINE
NOTE").
2.8 OPTIONAL PREPAYMENTS. Any Borrower may, at any time and from
time to time, prepay such Specified Borrower's Specified Loans, in whole or in
part, without premium or penalty except as set forth in subsection 4.8, upon at
least three (3) Business Days' irrevocable notice to the Specified Agent,
specifying the date and amount of prepayment and whether the prepayment is of
(i) a specific Type of Loan and, if of a combination thereof, the amount
allocable to each and (ii) (1) Specified Term Loans, (2) Specified Revolving
Credit Loans, or (3) a combination thereof, as the case may be, and if of a
combination thereof, the amount allocable to each. Upon receipt of any such
notice the Specified Agent shall promptly notify each Specified Term Loan Lender
or Specified Revolving Credit Lender, as the case may be, thereof. If any such
notice is given, the amount specified in such notice shall be due and payable on
the date specified therein, together with, in the case of prepayments of the
Eurocurrency Loans only, accrued interest to such date on the amount prepaid.
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34
Optional prepayments of the Term Loans shall be applied to each class
or tranche of Term Loans and to the installments thereof as the US Borrower
shall so elect. Amounts prepaid on account of any Term Loans may not be
reborrowed. Partial prepayments shall be in an aggregate principal Equivalent
Amount of at least $1,000,000 and shall include any amounts due in respect
thereof under subsection 4.8.
2.9 MANDATORY PREPAYMENTS.
(a) Subsequent to the Closing Date, unless the Required Lenders and
the US Borrower shall otherwise agree, if the US Borrower or any of its
Subsidiaries shall issue any class of Capital Stock for cash (other than (i) any
Capital Stock issued to finance a Permitted Acquisition permitted hereunder,
(ii) Capital Stock issued by any Subsidiary pursuant to a capital contribution
to such Subsidiary by the US Borrower or any other Subsidiary, (iii) Capital
Stock issued to officers, directors or employees as compensation or as part of
an incentive program or (iv) Capital Stock issued by the US Borrower to any
Affiliate, as determined prior to the making of such capital contribution, of
the US Borrower pursuant to a capital contribution to the US Borrower by such
Affiliate) or incur any Indebtedness other than any Indebtedness permitted
pursuant to subsection 8.2 (other than clause (n) thereof), within five (5)
Business Days of the date of such issuance or incurrence, each Borrower shall
prepay an amount of its Specified Term Loans equal to its Specified Borrower
Percentage of the Equity Prepayment Percentage, in the case of the issuance of
any such Capital Stock, or the Debt Prepayment Percentage, in the case of the
incurrence of any such Indebtedness, of the Net Cash Proceeds thereof as set
forth in paragraph (d) of this subsection 2.9.
(b) Unless the Required Lenders and the US Borrower shall otherwise
agree, if the US Borrower or any of its Subsidiaries shall consummate any Asset
Sale or receive any cash proceeds of any casualty or condemnation, on the date
which is twelve months after the date of consummation of such Asset Sale or
receipt of such proceeds, each Borrower shall prepay an amount of its Specified
Term Loans equal to its Specified Borrower Percentage of the Asset Sale
Prepayment Percentage of the Net Cash Proceeds thereof as set forth in paragraph
(d) of this subsection 2.9 to the extent that such Net Cash Proceeds from the
Asset Sale or casualty or condemnation event have not been reinvested in the
business of the US Borrower or any of its Subsidiaries within twelve months of
the date of such Asset Sale or such casualty or condemnation event.
(c) Unless the Required Lenders and the US Borrower shall otherwise
agree, if for any fiscal year, commencing with the fiscal year ending December
31, 2000, there shall be Excess Cash Flow for such fiscal year, each Borrower
shall prepay an amount of its Specified Term Loans equal to its Specified
Borrower Percentage of the ECF Prepayment Percentage of such Excess Cash Flow as
set forth in paragraph (d) of this subsection 2.9. Each such prepayment shall
be made on or before the date which is seven (7) Business Days after the earlier
of (A) the date on which the financial statements referred to in subsection
7.1(a) are required to be delivered to the Lenders and (B) the date on which
said financial statements are actually delivered.
(d) Mandatory prepayments of the Term Loans shall be applied (i) PRO
RATA to each class or tranche of Term Loans ratably based upon the then
outstanding principal amounts of the Term Loans (with each class or tranche of
Term Loan to be allocated that percentage of the amount to be applied as is
equal to a fraction (expressed as a percentage), the NUMERATOR of which is the
then outstanding principal amount of such class or tranche of Term Loans, as the
case may be, and the DENOMINATOR of which is equal to the then outstanding
principal amount of all Term Loans); (ii) to reduce the then remaining
installments of such Term Loans ratably based upon the then amounts of such
installments of such Term Loans; and (iii) subject to clauses (i) and (ii),
prepayments shall be applied FIRST to Base Rate Loans and SECOND, PRO RATA, to
Eurocurrency Loans, PROVIDED, that in the event the mandatory prepayment of any
class or tranche of Term Loans as a result of an asset sale or disposition by
any Foreign Subsidiary Borrower or any of its Subsidiaries would result in any
adverse tax
<PAGE>
35
impact to the US Borrower or any other Foreign Subsidiary Borrower, the portion
allocable to the Term Loans of each affected Borrower shall instead be applied
to the Term Loans of the applicable Foreign Subsidiary Borrower. Amounts
prepaid on account of any of the Term Loans may not be reborrowed.
(e) Notwithstanding anything to the contrary in subsections 2.9(d) or
4.4, with respect to the amount of any mandatory prepayment described in
subsection 2.9 that is allocated to US Tranche B Term Loans (such amount, the
"US TRANCHE B PREPAYMENT AMOUNT"), at any time when US Tranche A Term Loans
remain outstanding, the relevant Borrower will, in lieu of applying such amount
to the prepayment of US Tranche B Term Loans, as provided in paragraph (d)
above, on the date specified in subsection 2.9 for such prepayment, give the
Administrative Agent telephonic notice (promptly confirmed in writing)
requesting that the Administrative Agent prepare and provide to each US Tranche
B Term Loan Lender a notice (each, a "PREPAYMENT OPTION NOTICE") as described
below. As promptly as practicable after receiving such notice from the relevant
Borrower, the Administrative Agent will send to each Tranche B Term Loan Lender
a Prepayment Option Notice, which shall be in the form of Exhibit R, and shall
include an offer by the relevant Borrower to prepay on the date (each a
"MANDATORY PREPAYMENT DATE") that is 10 Business Days after the date of the
Prepayment Option Notice, the relevant Term Loans of such Lender by an amount
equal to the portion of the Prepayment Amount indicated in such Lender's
Prepayment Option Notice as being applicable to such Lender's US Tranche B Term
Loans. On the Mandatory Prepayment Date, (i) the relevant Borrower shall pay to
the Administrative Agent the aggregate amount necessary to prepay that portion
of the outstanding relevant US Tranche B Term Loans in respect of which US
Tranche B Lenders have accepted prepayment as described above (such Lenders, the
"ACCEPTING LENDERS"), and such amount shall be applied to reduce the US Tranche
B Prepayment Amounts with respect to each Accepting Lender and (ii) the relevant
Borrower shall pay to the Administrative Agent an amount equal to the portion of
the US Tranche B Prepayment Amount not accepted by the Accepting Lenders, and
such amount shall be applied to the prepayment of the US Tranche A Term Loans.
(f) With respect to any Specified Borrower, if at any time the sum of
its Specified Revolving Credit Loans, Specified Swing Line Loans and Specified
Accommodation Outstandings exceeds the Specified Revolving Credit Commitments
(including at any time after any reduction of the Specified Revolving Credit
Commitments pursuant to subsection 2.4), the Specified Borrower shall make a
payment in the amount of such excess which payment shall be applied in the order
and in the manner set forth in subsection 2.4(b). To the extent that after
giving effect to any prepayment of the Specified Loans required by the preceding
sentence, the sum of the Specified Revolving Credit Loans, Specified Swing Line
Loans and Specified Accommodation Outstandings exceeds the Specified Revolving
Credit Commitments then in effect, the Specified Borrower shall, without notice
or demand, immediately cash collateralize the then outstanding Specified
Accommodation Obligations in an amount equal to such excess upon terms
reasonably satisfactory to the Specified Agent.
(g) If at any time the sum of the Equivalent Amount of the Revolving
Credit Loans, Swing Line Loans and Accommodation Outstandings exceeds the US
Revolving Credit Commitments (including at any time after any reduction of the
US Revolving Credit Commitments pursuant to subsection 2.4), the Borrowers shall
make a payment in the amount of such excess which payment shall be applied in
the order and in the manner set forth in subsection 2.4(b). To the extent that
after giving effect to any prepayment of the Loans required by the preceding
sentence, the sum of the Equivalent Amount of the Revolving Credit Loans, Swing
Line Loans and Accommodation Outstandings exceeds the Revolving Credit
Commitments then in effect, the Borrowers shall, without notice or demand,
immediately cash collateralize the then outstanding Accommodation Obligations in
an amount equal to such excess upon terms reasonably satisfactory to the
Specified Agent with respect to the relevant Accommodation Obligations.
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36
(h) The provisions of this subsection 2.9 shall not be in derogation
of any other covenant or obligation of the US Borrower and its Subsidiaries
under the Loan Documents and shall not be construed as a waiver of, or a consent
to departure from, any such covenant or obligation.
(i) Notwithstanding the foregoing provisions of this subsection 2.9,
if at any time the mandatory prepayment of any Specified Term Loans pursuant to
this Agreement would result, after giving effect to the procedures set forth in
this Agreement, in the Specified Borrower incurring costs, under subsection 4.5,
4.6 or 4.7 as a result of Eurocurrency Loans ("AFFECTED EUROCURRENCY LOANS")
being prepaid other than on the last day of an Interest Period applicable
thereto, which costs are required to be paid pursuant to subsection 4.8, then
the Specified Borrower may, in its sole discretion, initially deposit a portion
(up to 100%) of the amounts that otherwise would have been paid in respect to
the Affected Eurocurrency Loans with the Specified Agent (which deposit must be
equal in amount to the amount of the Affected Eurocurrency Loans not immediately
prepaid) to be held as security for the obligations of the Specified Borrower to
make such mandatory prepayment pursuant to a cash collateral agreement to be
entered into in form and substance reasonably satisfactory to the Specified
Agent, with such cash collateral to be directly applied upon the first
occurrence (or occurrences) thereafter of the last day of an Interest Period
applicable to the relevant Specified Term Loan that is a Eurocurrency Loan (or
such earlier date or dates as shall be requested by the Specified Borrower), to
repay an aggregate principal amount of such Specified Term Loan equal to the
Affected Eurocurrency Loans not initially repaid pursuant to this sentence.
(j) Notwithstanding anything to the contrary contained herein,
nothing herein shall require any Foreign Subsidiary Borrower to make any payment
to any Lenders (other than its Specified Lenders), it being acknowledged that no
Foreign Subsidiary Borrower is in any way liable for any of the Domestic
Obligations or any Obligations of any other Foreign Subsidiary Borrower (other
than the English Borrower with respect to the Bank Guarantee Letters of Credit
and the English Term Loans to the extent assumed or guaranteed by it).
2.10 CONVERSION AND CONTINUATION OPTIONS. (a) Subject to the terms
and conditions hereof and to the extent available to it, any Specified Borrower
may elect from time to time to convert its Base Rate Loans to Eurocurrency Loans
by giving the Specified Agent at least three (3) Business Days' prior
irrevocable notice of such election; PROVIDED that at no time may any Specified
Borrower elect to convert any or all of its Specified Swing Line Loans from Base
Rate Loans to Eurocurrency Loans. Any such notice of conversion to Eurocurrency
Loans shall specify the length of the initial Interest Period or Interest
Periods therefor. Upon receipt of any such notice the Specified Agent shall
promptly notify each affected Specified Term Loan Lender or Specified Revolving
Credit Lender, as the case may be, thereof. All or any part of outstanding Base
Rate Loans may be converted as provided herein, PROVIDED that (i) no Base Rate
Loan may be converted into a Eurocurrency Loan when any Event of Default has
occurred and is continuing and the Specified Agent has or the Required Lenders
have determined that such a conversion is not appropriate and (ii) any such
conversion may only be made if, after giving effect thereto, subsection 2.11
shall not have been contravened.
(b) Any Eurocurrency Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Specified Borrower giving notice to the Specified Agent, in accordance with the
applicable provisions of the term "INTEREST PERIOD" set forth in subsection 1.1,
of the length of the next Interest Period to be applicable to such Loans,
PROVIDED that no Eurocurrency Loan may be continued as such (i) when any Event
of Default has occurred and is continuing and the Specified Agent has or the
Required Lenders have determined that such a continuation is not appropriate or
(ii) if, after giving effect thereto, subsection 2.11 would be contravened and
PROVIDED, FURTHER, that if the Specified Borrower shall fail to give any
required notice as described above in this paragraph or if such continuation is
not permitted pursuant to the preceding proviso, such Eurocurrency Loans shall
be automatically continued as Eurocurrency Loans on the last day of such then
expiring Interest Period with a new Interest Period of one (1) month.
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(c) Subject to the terms and conditions hereof and to the extent
available to it, any Specified Borrower may elect from time to time to convert
its Eurocurrency Loans to Base Rate Loans, by giving the Specified Agent at
least two (2) Business Days' prior irrevocable notice of such election, PROVIDED
that, unless such Specified Borrower elects to pay to the Specified Agent for
the account of the Specified Lenders the amount of any breakage costs and other
Eurocurrency Loan related costs to be incurred by such Specified Borrower under
this Agreement with respect to the prepayment or conversion of such Eurocurrency
Loan prior to the end of an Interest Period, any such conversion of Eurocurrency
Loans may only be made on the last day of an Interest Period with respect
thereto.
(d) For greater certainty, the conversion of any Loan to another
basis of Loan, as provided in this subsection 2.10, shall not constitute a
repayment of amounts owing under the Specified Loans under this Agreement nor a
new advance of funds hereunder.
2.11 MINIMUM AMOUNTS OF TRANCHES. All borrowings, conversions and
continuations of Loans hereunder and all selections of Interest Periods
hereunder shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of the Loans
comprising each Eurocurrency Tranche shall be in a minimum Equivalent Amount of
$1,000,000 and so that there shall not be more than 12 Eurocurrency Tranches at
any one time outstanding.
2.12 SWING LINE COMMITMENTS. (a) Subject to the terms and
conditions hereof, each Specified Swing Line Lender agrees to make Swing Line
Loans to the Specified Borrower from time to time during the Specified Revolving
Credit Commitment Period in an aggregate principal amount at any one time
outstanding not to exceed the Specified Swing Line Commitment of such Specified
Swing Line Lender, PROVIDED that at no time (i) may the sum of the Specified
Swing Line Loans, the Specified Revolving Credit Loans and Specified
Accommodation Outstandings exceed the Specified Revolving Credit Commitments,
(ii) may the aggregate of the Swing Line Loans, the Revolving Credit Loans and
the Accommodation Outstandings exceed the US Revolving Credit Commitments or
(iii) may the Equivalent Amount of the aggregate of the English Revolving Credit
Loans, the Accommodations issued by the English Issuing Lender for the account
of the English Borrower, the Swing Line Loans made to the English Borrower and
the Euro Revolving Credit Loans, in each case, then outstanding exceed
$25,000,000. During the Specified Revolving Credit Commitment Period, the
Specified Borrower may use the Specified Swing Line Commitment by borrowing,
prepaying the Specified Swing Line Loans in whole or in part, and reborrowing,
all in accordance with the terms and conditions hereof. All Specified Swing
Line Loans shall be Base Rate Loans. The Specified Borrower shall give the
Specified Swing Line Lender irrevocable notice (which notice must be received by
the Specified Swing Line Lender prior to 12:00 noon local time of the Specified
Swing Line Lender) on the requested Borrowing Date specifying the amount of the
requested Specified Swing Line Loan which shall be in an aggregate minimum
Equivalent Amount of $100,000. The proceeds of the Specified Swing Line Loan
will be made available by the Specified Swing Line Lender to the Specified
Borrower at the office of the Specified Swing Line Lender by 2:00 p.m. local
time on the Borrowing Date by crediting the account of the Specified Borrower at
such office with such proceeds. The Specified Borrower may at any time and from
time to time, prepay the Specified Swing Line Loans, in whole or in part,
without premium or penalty, by notifying the Specified Swing Line Lender prior
to 12:00 noon local time on any Business Day of the date and amount of
prepayment. If any such notice is given, the amount specified in such notice
shall be due and payable on the date specified therein. Partial prepayments
shall be in a minimum principal Equivalent Amount of $100,000.
(b) Any Specified Swing Line Lender, at any time in its sole and
absolute discretion may, on behalf of the Specified Borrower (which hereby
irrevocably directs the Specified Swing Line Lender to act on its behalf), and
without regard to the minimum amounts in subsection 2.2, request each Specified
Revolving Credit Lender including the Specified Swing Line Lender to make a
Specified Revolving Credit Loan in an amount equal to such Specified Lender's
Revolving Credit Commitment Percentage of the amount of the Specified Swing Line
Loans outstanding on the date such notice is
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given (the "SPECIFIED REFUNDED SWING LINE LOANS"). Unless any of the events
described in paragraph (f) of Section 9 shall have occurred with respect to the
Specified Borrower (in which event the procedures of paragraph (d) of this
subsection 2.12 shall apply) each Specified Revolving Credit Lender shall make
the proceeds of its Specified Revolving Credit Loan available to the Specified
Agent for the account of the Specified Swing Line Lender at the office of the
Specified Agent specified in subsection 12.2 prior to 1:00 p.m. local time of a
Specified Agent in funds immediately available on the Business Day next
succeeding the date such notice is given. The proceeds of such Specified
Revolving Credit Loans shall be immediately applied to repay the Specified
Refunded Swing Line Loans. Effective on the day such Specified Revolving Credit
Loans are made, the portion of such Loans so paid shall no longer be outstanding
as Specified Swing Line Loans, shall no longer be due under any Specified Swing
Line Note and shall be Specified Revolving Credit Loans made by the Specified
Revolving Credit Lenders in accordance with their respective Specified Revolving
Credit Commitment Percentages. Each Specified Borrower authorizes the Specified
Swing Line Lender to charge its accounts with the Specified Agent (up to the
amount available in each such account) in order to immediately pay the amount of
such Specified Refunded Swing Line Loans to the extent amounts received from the
Specified Revolving Credit Lenders are not sufficient to repay in full such
Specified Refunded Swing Line Loans.
(c) Notwithstanding anything herein to the contrary, no Specified
Swing Line Lender shall be obligated to make any Specified Swing Line Loans if
the conditions set forth in subsection 6.2 have not been satisfied.
(d) If prior to the making of a Specified Revolving Credit Loan
pursuant to paragraph (b) of this subsection 2.12 one of the events described in
paragraph (f) of Section 9 shall have occurred and be continuing with respect to
the Specified Borrower, each Specified Revolving Credit Lender will, on the date
such Specified Revolving Credit Loan was to have been made pursuant to the
notice in subsection 2.12(b), purchase an undivided participating interest in
the Specified Refunded Swing Line Loan in an amount equal to (i) its Specified
Revolving Credit Commitment Percentage MULTIPLIED BY (ii) the Specified Refunded
Swing Line Loans. Each Specified Revolving Credit Lender will immediately
transfer to the Specified Swing Line Lender, in immediately available funds, the
amount of its participation, and upon receipt thereof the Specified Swing Line
Lender will deliver to such Specified Revolving Credit Lender a Specified Swing
Line Loan Participation Certificate dated the date of receipt of such funds and
in such amount.
(e) Whenever, at any time after any Specified Revolving Credit Lender
has purchased a participating interest in a Specified Swing Line Loan, the
Specified Swing Line Lender receives any payment on account thereof, the
Specified Swing Line Lender will distribute to such Specified Revolving Credit
Lender its participating interest in such amount (appropriately adjusted, in the
case of interest payments, to reflect the period of time during which such
Specified Revolving Credit Lender's participating interest was outstanding and
funded); PROVIDED, HOWEVER, that in the event that such payment received by the
Specified Swing Line Lender is required to be returned, such Specified Revolving
Credit Lender will return to the Specified Swing Line Lender any portion thereof
previously distributed by the Specified Swing Line Lender to it.
(f) Each Specified Revolving Credit Lender's obligation to make the
Loans referred to in subsection 2.12(b) and to purchase participating interests
pursuant to subsection 2.12(d) shall be absolute and unconditional and shall not
be affected by any circumstance, including, without limitation, (i) any set-off,
counterclaim, recoupment, defense, or other right which such Specified Revolving
Credit Lender or the Specified Borrower may have against the Specified Swing
Line Lender, the Specified Borrower or any other Person for any reason
whatsoever; (ii) the occurrence or continuance of a Default or an Event of
Default; (iii) any adverse change in the condition (financial or otherwise) of
the Specified Borrower; (iv) any breach of this Agreement or any other Specified
Loan Document by the Specified Borrower, any Subsidiary or any other Specified
Lender; or (v) any other circumstance, happening or event whatsoever, whether or
not similar to any of the foregoing.
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SECTION 3. ACCOMMODATIONS
3.1 THE ACCOMMODATION COMMITMENTS. (a) Subject to the terms and
conditions hereof, each Specified Issuing Lender, in reliance on the agreements
of the other Specified Revolving Credit Lenders set forth in subsection 3.4(a),
agrees to issue or accept Specified Accommodations for the account of the
related Specified Borrower on any Business Day during the Specified Revolving
Credit Commitment Period in such form as may be approved from time to time by
the Specified Issuing Lender; PROVIDED, that, no Specified Issuing Lender shall
issue or accept any Specified Accommodation if, after giving effect to such
issuance, (i) the Specified Accommodation Outstandings would exceed the
Specified Issuing Lender's Accommodation Commitment, (ii) the sum of the
Specified Revolving Credit Loans, Specified Swing Line Loans, and Specified
Accommodation Outstandings of the Specified Revolving Credit Lenders would
exceed the Specified Revolving Credit Commitments of the Specified Revolving
Credit Lenders, (iii) the aggregate of the Swing Line Loans, the Revolving
Credit Loans and the Accommodation Outstandings would exceed the US Revolving
Credit Commitments or (iv) the Equivalent Amount of the aggregate of the English
Revolving Credit Loans, the Accommodations issued by the English Issuing Lender
for the account of the English Borrower, the Swing Line Loans made to the
English Borrower and the Euro Revolving Credit Loans, in each case, then
outstanding would exceed $25,000,000. Notwithstanding the foregoing, the letter
of credit described on Schedule 3.1 shall, from and after the Closing Date, be
deemed to be a US Letter of Credit issued pursuant to this Section 3.1(a) with
the Lender listed on such schedule being deemed to be the US Issuing Lender in
respect of such US Letter of Credit. Each Specified Accommodation shall (i) be
(w) the Bank Guarantee Letters of Credit, (x) a Standby L/C, (y) a Trade L/C or
(z) a bankers' acceptance, to the extent included in the Specified Accommodation
Commitment and (ii) expire or mature no later than five (5) Business Days prior
to the Scheduled Revolving Credit Commitment Termination Date. No Accommodation
(other than the Bank Guarantee Letters of Credit) shall have an expiry or
maturity date more than one year after its date of issuance or creation;
PROVIDED, that, any Specified Letter of Credit (other than the Bank Guarantee
Letters of Credit) may provide for the renewal thereof for additional periods
not to exceed one (1) year (which shall in no event extend beyond the Scheduled
Revolving Credit Commitment Termination Date). Each Specified Accommodation
shall be denominated in the currency of the Specified Revolving Credit
Commitment.
(b) Each Specified Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the
jurisdiction of the Specified Issuing Lender's office.
(c) No Specified Issuing Lender shall at any time be obligated to
issue or accept any Specified Accommodation hereunder if such issuance would
conflict with, or cause the Specified Issuing Lender or any Specified
Participating Lender to exceed any limits imposed by, any applicable Requirement
of Law.
3.2 PROCEDURE FOR ISSUANCE OF SPECIFIED ACCOMMODATIONS. Any
Specified Borrower may from time to time request that the Specified Issuing
Lender issue or accept a Specified Accommodation by delivering to the Specified
Issuing Lender and the Specified Agent at their respective address for notices
specified herein a draft of the Specified Accommodation to be accepted by the
Specified Issuing Lender, or a commercial letter of credit application in the
Issuing Lender's then customary form (a "TRADE L/C APPLICATION"), or a standby
letter of credit application in the Specified Issuing Lender's then customary
form (a "STANDBY L/C APPLICATION"), completed to the reasonable satisfaction of
the Specified Issuing Lender, and such other certificates, documents and other
papers and information as may be customary for Accommodations of the kind being
requested and as the Specified Issuing Lender may reasonably request. Upon
receipt of any Letter of Credit Application and appropriate documentation, the
Specified Issuing Lender will process such documents, certificates and other
papers and information delivered to it in connection therewith in accordance
with its customary procedures and, upon receipt by the Specified Issuing Lender
of confirmation from the Specified Agent
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that issuance of such Specified Accommodation will not contravene subsection
3.1, the Specified Issuing Lender shall promptly issue or accept the Specified
Accommodation requested thereby (but in no event shall the Specified Issuing
Lender be required to issue or accept any Specified Letter of Credit earlier
than three (3) Business Days (or such earlier date as the Specified Issuing
Lender may approve) after its receipt of the appropriate documentation therefor
and all such other certificates, documents and other papers and information
relating thereto) by issuing the original of such Specified Letter of Credit to
the beneficiary thereof or as otherwise may be agreed by the Specified Issuing
Lender and the Specified Borrower or delivering the accepted draft to the
Specified Borrower (or as directed by it). The Specified Issuing Lender shall
furnish a copy of such Specified Letter of Credit to the Specified Borrower and
the Specified Agent promptly following the issuance thereof. Each Specified
Agent shall provide a notice of the aggregate amount of Specified Accommodation
Outstandings periodically, but at least annually, to the Specified Lenders.
3.3 FEES, COMMISSIONS AND OTHER CHARGES. (a) Each Specified
Borrower shall pay to the Specified Agent, for the account of the Specified
Issuing Lender and the Specified Participating Lenders, a letter of credit
commission or acceptance fee, as applicable, with respect to each Specified
Accommodation, in an amount equal to the Applicable Margin applicable to
Specified Revolving Credit Loans bearing interest at the Eurocurrency Rate plus
1/4 of 1% per annum of the average daily face amount of such Specified
Accommodation, payable quarterly in arrears on the last day of each March, June,
September and December and on the Specified Revolving Credit Commitment
Termination Date. A portion of such commission or fee, as applicable, equal to
1/4 of 1% of the average daily face amount of such Specified Accommodation shall
be payable to the Specified Issuing Lender for its own account, and the
remaining portion of such commission shall be payable to the Specified Issuing
Lender and the Specified Participating Lenders to be shared ratably among them
in accordance with their respective Specified Revolving Credit Commitment
Percentages. Such commission and fee shall be nonrefundable.
(b) In addition to the foregoing fees and commissions, each Specified
Borrower shall pay or reimburse the Specified Issuing Lender for such normal and
customary costs and expenses as are incurred or charged by such Specified
Issuing Lender in issuing, effecting payment under, amending or otherwise
administering any Specified Accommodation.
(c) The Specified Agent shall, promptly following its receipt
thereof, distribute to the Specified Issuing Lender and the Specified
Participating Lenders all fees and commissions received by the Specified Agent
for their respective accounts pursuant to this subsection.
3.4 ACCOMMODATION PARTICIPATIONS. (a) Effective on the date of
issuance or acceptance of each Specified Accommodation (or, in the case of the
Bank Guarantee Letters of Credit, the Closing Date), the Specified Issuing
Lender irrevocably agrees to grant and hereby grants to each Specified
Participating Lender, and each Specified Participating Lender irrevocably agrees
to accept and purchase and hereby accepts and purchases from the Specified
Issuing Lender, on the terms and conditions hereinafter stated, for such
Specified Participating Lender's own account and risk an undivided interest
equal to such Specified Participating Lender's Specified Revolving Credit
Commitment Percentage in the Specified Issuing Lender's obligations and rights
under each Specified Accommodation issued by such Specified Issuing Lender and
the amount of each draft paid by the Specified Issuing Lender thereunder. Each
Specified Participating Lender unconditionally and irrevocably agrees with the
Specified Issuing Lender that, if a draft is paid under any Specified
Accommodation (including a draft drawn by the Guarantor under the Bank Guarantee
Loan Note Letter of Credit) for which such Specified Issuing Lender is not
reimbursed in full by the Specified Borrower in accordance with the terms of
this Agreement, such Specified Participating Lender shall pay to the Specified
Agent, for the account of the Specified Issuing Lender, upon demand at the
Specified Agent's address specified in subsection 12.2, an amount equal to such
Specified Participating Lender's Specified Revolving Credit Commitment
Percentage of the amount of such draft, or any part thereof, which is not so
reimbursed. On the date that any Specified Assignee becomes a Specified
Revolving Credit Lender party to this Agreement in
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41
accordance with subsection 12.6, participating interests in any outstanding
Specified Accommodation held by the transferor Specified Revolving Credit Lender
from which such Assignee acquired its interest hereunder shall be
proportionately reallotted between such Specified Assignee and such transferor
Specified Revolving Credit Lender. Each Specified Participating Lender hereby
agrees that its obligation to participate in each Specified Accommodation, and
to pay or to reimburse the Specified Issuing Lender for its participating share
of the drafts drawn or amounts otherwise paid thereunder, is absolute,
irrevocable and unconditional and shall not be affected by any circumstances
whatsoever (including, without limitation, the occurrence or continuance of any
Default or Event of Default), and that each such payment shall be made without
offset, abatement, withholding or other reduction whatsoever.
(b) If any amount required to be paid by any Specified Participating
Lender to the Specified Issuing Lender pursuant to subsection 3.4(a) in respect
of any unreimbursed portion of any draft paid by the Specified Issuing Lender
under any Specified Letter of Credit is paid to the Specified Issuing Lender
after the date such payment is due, such Specified Participating Lender shall
pay to the Specified Agent, for the account of the Specified Issuing Lender, on
demand, an amount equal to the product of (i) such amount, multiplied by (ii)
the daily average Base Rate (or if there is no Base Rate available, daily
Eurocurrency Rate) for the Specified Borrower during the period from and
including the date such payment is required to the date on which such payment is
immediately available to the Specified Issuing Lender, multiplied by (iii) a
fraction the numerator of which is the number of days that elapse during such
period and the denominator of which is 360 for Eurocurrency Loans, or 365 or 366
for Base Rate Loans, as applicable. A certificate of the Specified Issuing
Lender submitted to any Specified Participating Lender with respect to any
amounts owing under this subsection shall be conclusive in the absence of
manifest error.
(c) Whenever, at any time after any Specified Issuing Lender has paid
a draft under any Specified Accommodation and has received from any Specified
Participating Lender its PRO RATA share of such payment in accordance with
subsection 3.4(a), such Specified Issuing Lender receives any reimbursement on
account of such unreimbursed portion, or any payment of interest on account
thereof, the Specified Issuing Lender will pay to the Specified Agent, for the
account of such Specified Participating Lender, its PRO RATA share thereof;
PROVIDED, HOWEVER, that in the event that any such payment received by the
Specified Issuing Lender shall be required to be returned by the Specified
Issuing Lender, such Specified Participating Lender shall return to the
Specified Agent for the account of the Specified Issuing Lender, the portion
thereof previously distributed to it.
3.5 REIMBURSEMENT OBLIGATION OF THE SPECIFIED BORROWER. Each
Specified Borrower agrees to reimburse its Specified Issuing Lender on each date
on which such Specified Issuing Lender notifies such Specified Borrower of the
date and amount of a draft presented under any Specified Accommodation and paid
by the Specified Issuing Lender for the amount of (a) such draft so paid and (b)
any taxes, fees, charges or other costs or expenses incurred by the Specified
Issuing Lender in connection with such payment. Each such payment shall be made
to the Specified Issuing Lender at its address for notices specified herein in
lawful money of the currency in which such Specified Accommodation is issued and
in immediately available funds. Interest shall be payable on any and all
amounts remaining unpaid by the Specified Borrower under this subsection from
the date such amounts become payable until payment in full, at the rate which
would be payable on Specified Revolving Credit Loans which are Base Rate Loans,
denominated in the same currency as the relevant Specified Accommodation (or, if
there is no Base Rate available, daily Eurocurrency Rate).
3.6 OBLIGATIONS ABSOLUTE. Each Specified Borrower's obligations
under this Section 3 shall be absolute and unconditional under any and all
circumstances and irrespective of any set-off, counterclaim or defense to
payment which such Specified Borrower or any other Person may have or have had
against its Specified Issuing Lender or any beneficiary of a Specified
Accommodation. Each Specified Borrower also agrees with its Specified Issuing
Lender that such Specified Issuing Lender shall not be responsible for, and such
Specified Borrower's obligations under subsection 3.5 shall not be
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42
affected by, among other things, the enforceability, validity or genuineness of
documents or of any endorsements thereon, even though such documents shall in
fact prove to be unenforceable, invalid, fraudulent or forged, or any dispute
between or among the Specified Borrower and any beneficiary of any Specified
Accommodation or any other party to which such Specified Accommodation may be
transferred or any claims whatsoever of the Specified Borrower against any
beneficiary of such Specified Accommodation or any such transferee, except for
errors or omissions caused by the Specified Issuing Lender's gross negligence or
wilful misconduct. The Specified Issuing Lender shall not be liable for any
error, omission, interruption or delay in transmission, dispatch or delivery of
any message or advice, however transmitted, in connection with any Specified
Accommodation, except for errors or omissions caused by the Specified Issuing
Lender's gross negligence or wilful misconduct. The Specified Borrower agrees
that any action taken or omitted by the Specified Issuing Lender under or in
connection with any Specified Accommodation or the related drafts or documents,
if done in the absence of gross negligence or wilful misconduct and in
accordance with the standards of care specified in the Uniform Commercial Code
of the State of New York, including, without limitation, Article V thereof or
the standards of care specified in the laws of the jurisdiction of the Specified
Issuing Lender's issuing office, as applicable, shall be binding on the
Specified Borrower and shall not result in any liability of such Specified
Issuing Lender to the Specified Borrower.
3.7 ACCOMMODATION PAYMENTS. If any draft shall be presented for
payment under any Specified Accommodation, the Specified Issuing Lender shall
promptly notify the Specified Borrower and the Specified Agent of the date and
amount thereof. The responsibility of the Specified Issuing Lender to the
Specified Borrower in connection with any draft presented for payment under any
Specified Accommodation shall, in addition to any payment obligation expressly
provided for in such Specified Accommodation, be limited to determining that the
documents (including each draft) delivered under such Specified Accommodation in
connection with such presentment are in conformity with such Specified
Accommodation.
3.8 LETTER OF CREDIT APPLICATIONS. To the extent that any provision
of any Specified Letter of Credit Application, including any reimbursement
provisions contained therein, related to any Specified Letter of Credit is
inconsistent with the provisions of this Section 3, the provisions of this
Section 3 shall prevail.
SECTION 4. GENERAL PROVISIONS
4.1 INTEREST RATES AND PAYMENT DATES. (a) Each Eurocurrency Loan
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurocurrency Rate determined for such
day plus the Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per annum equal
to the Specified Base Rate plus the Applicable Margin.
(c) Upon the occurrence and during the continuance of any Event of
Default specified in subsection 9(a), the Specified Loans and any overdue
amounts hereunder shall bear interest at a rate per annum which is (x) in the
case of the Specified Loans, the rate that would otherwise be applicable thereto
pursuant to the foregoing provisions of this subsection plus 2% per annum or (y)
in the case of overdue interest, commitment fee or other amount, the rate
described in paragraph (b) (or, if no Base Rate is available, paragraph (a) for
Interest Periods of one day) of this subsection 4.1 plus 2% per annum.
(d) Interest shall be payable in arrears on each Interest Payment
Date, PROVIDED that interest accruing pursuant to paragraph (c) of this
subsection shall be payable from time to time on demand.
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43
4.2 COMPUTATION OF INTEREST AND FEES. (a) Unless otherwise
indicated in the Administrative Schedule, interest on Loans, fees, interest on
overdue interest, and other amounts payable hereunder shall be calculated, on
the basis of a 365-or 366-day year, in each case, for the actual days elapsed.
The Specified Agent shall as soon as practicable notify the Specified Borrower
and the Specified Revolving Credit Lenders or the Specified Term Loan Lenders,
as the case may be, of each determination of a Eurocurrency Rate. Any change in
the interest rate on a Specified Loan resulting from a change in the Specified
Base Rate or the Specified Eurocurrency Rate shall become effective as of the
opening of business on the day on which such change becomes effective. The
Specified Agent shall as soon as practicable notify the Specified Borrower and
the Specified Revolving Credit Lenders or the Specified Term Loan Lenders, as
the case may be, of the effective date and the amount of each such change in
interest rate.
(b) Each determination of an interest rate by a Specified Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Specified Borrower and the Specified Lenders and the other parties hereto in
the absence of manifest error. The Specified Agent shall, at the request of the
Specified Borrower, deliver to the Specified Borrower a statement showing the
quotations used by the Specified Agent in determining any interest rate pursuant
to subsection 4.1(a) or (b).
(c) If any provision of any Loan Document would oblige any Borrower
to make any payment of interest or other amount payable to any Lender in an
amount or calculated at a rate which would be prohibited by law or would result
in a receipt by that Lender of interest at such prohibited rate (as such terms
are construed under the applicable Requirement of Law), then notwithstanding
such provision, such amount or rate shall be deemed to have been adjusted with
retroactive effect to the maximum amount or rate of interest, as the case may
be, as would not be so prohibited by law or so result in a receipt by that
Lender of interest at a criminal rate, such adjustment to be effected, to the
extent necessary, as follows:
(i) firstly, by reducing the amount or rate of interest required
to be paid to the affected Lender under subsection 4.1; and
(ii) thereafter, by reducing any fees, commissions, premiums and
other amounts required to be paid to the affected Lender which would
constitute interest for purposes of any applicable Requirement of Law.
4.3 INABILITY TO DETERMINE INTEREST RATE. If prior to the first day
of any Interest Period:
(a) the Specified Agent shall have determined (which determination,
absent manifest error, shall be conclusive and binding upon the Specified
Borrower) that, by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the Specified
Eurocurrency Rate for such Interest Period, or
(b) the Specified Agent shall have received notice from holders of a
majority of the Specified Loans subject to such Interest Period that the
Specified Eurocurrency Rate determined or to be determined for such
Interest Period will not adequately and fairly reflect the cost to such
Specified Lenders (as conclusively certified by such Specified Lenders) of
making or maintaining their affected Specified Loans during such Interest
Period,
the Specified Agent shall give telecopy or telephonic notice thereof to the
Specified Borrower and the Specified Lenders as soon as practicable thereafter.
If such notice is given (x) any Specified Eurocurrency Loans requested to be
made on the first day of such Interest Period shall be made as Base Rate Loans,
(y) any Specified Loans that were to have been converted on the first day of
such Interest Period to Eurocurrency Loans shall be converted to or continued as
Base Rate Loans and (z) any
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outstanding Specified Eurocurrency Loans shall be converted, on the last day of
the Interest Periods therefor, to Base Rate Loans. Until such notice has been
withdrawn by the Specified Agent (which the Specified Agent agrees to do when
the circumstances that prompted the delivery of such notice no longer exist), no
further Eurocurrency Loans shall be made or continued as such, nor shall the
Specified Borrower have the right to convert such Specified Loans to
Eurocurrency Loans. Notwithstanding the foregoing, until such notice has been
withdrawn by the Specified Agent (which the Specified Agent agrees to do when
the circumstances that prompted the delivery of such notice no longer exist), if
a Base Rate is not available to the Specified Borrower, any Specified Loans or
Specified Obligations or other amounts due hereunder not subject to an Interest
Period determined prior to such notice shall bear interest at a rate determined
from time to time by the Specified Agent to be its cost of maintaining its share
of such Specified Loans, Specified Obligations or other amounts plus the
Applicable Margin and any overdue percentage (to the extent chargeable at such
time) pursuant to subsection 4.1(c).
4.4 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing, conversion
or continuation pursuant to subsection 2.10, of Specified Loans (other than
Specified Swing Line Loans) by a Specified Borrower from the Specified Lenders
and any reduction of the Specified Commitments of the Specified Lenders
hereunder shall be made PRO RATA according to the respective principal amounts
of such Specified Loans held by the Specified Lenders or the respective
Specified Commitments of the Specified Lenders, as the case may be.
(b) Whenever (i) any payment received by a Specified Agent under this
Agreement or any Specified Note or (ii) any other amounts received by such
Specified Agent for or on behalf of the Specified Borrower (including, without
limitation, proceeds of collateral or payments under any guarantee) is
insufficient to pay in full all amounts then due and payable to such Specified
Agent and the Specified Lenders under this Agreement and any Specified Note and
the other Loan Documents, such payment shall be distributed by the Specified
Agent and applied by the Specified Agent and the Specified Lenders in the
following order: FIRST, to the payment of fees and expenses due and payable to
the Specified Agent under and in connection with this Agreement and the other
Specified Loan Documents; SECOND, to the payment of all expenses due and payable
under subsection 12.5, ratably among the Specified Agent and the Specified
Lenders in accordance with the aggregate amount of such payments owed to the
Specified Agent and each such Specified Lenders; THIRD, to the payment of fees
due and payable under subsections 2.3 and 3.3(a) (which, in the case of the
Specified Lenders, shall be distributed ratably among such Lenders in accordance
with the Specified Revolving Credit Commitment Percentage of each such Lender
and, in the case of the Specified Issuing Lender, the amount retained by such
Specified Issuing Lender for its own account pursuant to subsection 3.3(a)) and
to the payment of interest then due and payable under the Specified Loans,
ratably in accordance with the aggregate amount of interest and fees owed to
each such Specified Lender; FOURTH, to the payment of the principal amount of
the Specified Loans and the Specified Accommodation Obligations (including any
amounts required to be cash collateralized) then due and payable and, in the
case of proceeds of collateral or payments under any guarantee, to the payment
of any other Obligations to any Secured Party Lender not covered in First
through Third above ratably secured by such collateral or ratably guaranteed
under any such guarantee, ratably among the Secured Parties Lenders in
accordance with the aggregate principal amount and, in the case of proceeds of
collateral or payments under any guarantee, the obligations secured or
guaranteed thereby owed to each such Specified Lender.
(c) If any Specified Revolving Credit Lender (a "NON-FUNDING LENDER")
has (x) failed to make a Specified Revolving Credit Loan required to be made by
it hereunder, and the Specified Agent has determined that such Specified Lender
is not likely to make such Specified Loan or (y) given notice to the Specified
Borrower or the Specified Agent that it will not make, or that it has
disaffirmed or repudiated any obligation to make, any Specified Loans, any
payment made on account of the principal of the Specified Loans outstanding
shall be made as follows:
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(i) in the case of any such payment made on any date when and to the
extent that, in the determination of the Specified Agent, the Specified
Borrower would be able, under the terms and conditions hereof, to reborrow
the amount of such payment under the Specified Commitments and to satisfy
any applicable conditions precedent set forth in subsection 6.2 to such
reborrowing, such payment shall be made on account of the outstanding
Specified Revolving Credit Loans held by the Specified Lenders other than
the Non-Funding Lender PRO RATA according to the outstanding principal
amounts of the Specified Revolving Credit Loans of such Specified Lenders;
(ii) otherwise, such payment shall be made on account of the
outstanding Specified Revolving Credit Loans held by the Specified
Revolving Credit Lenders PRO RATA according to the respective outstanding
principal amounts of such Loans; and
(iii) any payment made on account of interest on the Specified
Revolving Credit Loans shall be made PRO RATA according to the respective
amounts of accrued and unpaid interest due and payable on such Loans with
respect to which such payment is being made.
The Specified Borrower agrees to give the Specified Agent such assistance in
making any determination pursuant to this paragraph as the Specified Agent may
reasonably request. Any such determination by the Specified Agent shall be
conclusive and binding on the Specified Lenders.
(d) All payments (including prepayments) to be made by a Specified
Borrower on account of principal, interest and fees shall be made without
set-off or counterclaim and shall be made to its Specified Agent, for the
account of the Specified Lenders at the Specified Agent's office listed in
subsection 12.2 or in the Administrative Schedule, in the currency in which such
amounts are denominated and in immediately available funds. The Specified Agent
shall promptly distribute such payments in accordance with the provisions of
subsections 4.4(b) and (c) promptly upon receipt in like funds as received. If
any payment hereunder (other than payments on the Eurocurrency Loans) would
become due and payable on a day other than a Business Day, such payment shall
become due and payable on the next succeeding Business Day and, with respect to
payments of principal, interest thereon shall be payable at the applicable rate
during such extension. If any payment on a Eurocurrency Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day (and with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension), unless the result of such extension would be to extend such
payment into another calendar month in which event such payment shall be made on
the immediately preceding Business Day.
(e) A payment shall be deemed to have been made by the Specified
Agent on the date on which it is required to be made under this Agreement if the
Specified Agent has, on or before that date, taken all relevant steps to make
that payment. With respect to the payment of any amount denominated in euro,
the Euro Agent shall not be liable to the Euro Borrower or any of the Euro
Lenders in any way whatsoever for any delay, or the consequences of any delay,
in the crediting to any account of any amount required by this Agreement to be
paid by the Specified Agent if the Specified Agent shall have taken all relevant
steps to achieve, on the date required by this Agreement, the payment of such
amount in immediately available, freely transferable, cleared funds in the euro
unit to the account with the bank in the principal financial center in the
Participating Member State which the Euro Borrower or, as the case may be, any
Euro Lender shall have specified for such purpose. In this paragraph (e), "all
relevant steps" means all such steps as may be prescribed from time to time by
the regulations or operating procedures of such clearing or settlement system as
the Euro Agent may from time to time determine for the purpose of clearing or
settling payments of euro.
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(f) Unless the Specified Agent shall have been notified in writing by
any Lender prior to a Borrowing Date that such Specified Lender will not make
the amount that would constitute its relevant Ratable Portion of the Specified
Loans on such date available to the Specified Agent, the Specified Agent may
assume that such Specified Lender has made such amount available to the
Specified Agent on such Borrowing Date, and the Specified Agent may, in reliance
upon such assumption, make available to the Specified Borrower a corresponding
amount. If such amount is made available to the Specified Agent on a date after
such Borrowing Date, such Specified Lender shall pay to the Specified Agent on
demand an amount equal to the product of (i) the daily average Base Rate (or, if
a Base Rate is not available to such Specified Borrower, a Eurocurrency Rate
with an Interest Period of one day) during such period, times (ii) the amount of
such Specified Lender's relevant Ratable Portion of such Specified Loans, times
(iii) a fraction the numerator of which is the number of days that elapse from
and including such Borrowing Date to the date on which such Specified Lender's
relevant Ratable Portion of such Specified Loans shall have become immediately
available to the Specified Agent and the denominator of which is 365/366 or 360,
as applicable. A certificate of the Specified Agent submitted to any Specified
Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error. If such Specified Lender's
relevant Ratable Portion of such Specified Loans is not in fact made available
to the Specified Agent by such Specified Lender within three (3) Business Days
of such Borrowing Date, the Specified Agent shall be entitled to recover such
amount with interest thereon at the rate per annum applicable to Base Rate Loans
denominated in the relevant currency (or, if a Base Rate is not available to the
Specified Borrower, a Eurocurrency Rate with an Interest Period of one day), on
demand, from the Specified Borrower. The failure of any Specified Lender to
make any Specified Loan to be made by it shall not relieve any other Specified
Lender of its obligation, if any, hereunder to make its Specified Loan on such
Borrowing Date, but no Specified Lender shall be responsible for the failure of
any other Specified Lender to make the Specified Loan to be made by such other
Specified Lender on such Borrowing Date.
(g) Any amount payable by the Specified Agent to the Specified
Lenders under this Agreement in the currency of a Participating Member State
shall be paid in the euro unit.
(h) If, in relation to the currency of any Subsequent Participant,
the basis of accrual of interest or fees expressed in this Agreement with
respect to such currency shall be inconsistent with any convention or practice
in the London Interbank Market for the basis of accrual of interest or fees in
respect of the euro, such convention or practice shall replace such expressed
basis effective as of and from the date on which such Subsequent Participant
becomes a Participating Member State; PROVIDED, that if any Loan in the currency
of such Subsequent Participant is outstanding immediately prior to such date,
such replacement shall take effect, with respect to such Loan, at the end of the
then current Interest Period.
(i) Without prejudice and in addition to any method of conversion or
rounding prescribed by any EMU Legislation and (i) without prejudice to the
respective liabilities for indebtedness of the Specified Borrowers to the
Specified Lenders and the Specified Lenders to the Specified Borrowers under or
pursuant to this Agreement and (ii) without increasing the Specified Revolving
Credit Commitment of any Specified Lender:
(i) the Revolving Credit Commitments and each reference in this
Agreement to a minimum amount (or an integral multiple thereof) in a
national currency denomination of a Subsequent Participant to be paid
to or by the Specified Agent shall, immediately upon such Subsequent
Participant becoming a Participating Member State, be replaced by a
reference to such reasonably comparable and convenient amount (or an
integral multiple thereof) in the euro unit as the Specified Agent may
from time to time specify; and
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(ii) except as expressly provided in this subsection 4.4, each
provision of this Agreement shall be subject to such reasonable
changes of construction as the Specified Agent may from time to time
specify to be necessary or appropriate to reflect the adoption of the
euro in any Participating Member State and any relevant market
conventions or practices relating to the euro.
4.5 ILLEGALITY. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Specified Lender to make or
maintain Eurocurrency Loans as contemplated by this Agreement, (a) the
commitment of such Specified Lender hereunder to make Eurocurrency Loans,
continue Eurocurrency Loans as such, and convert Base Rate Loans to Eurocurrency
Loans, as applicable, shall forthwith be cancelled and (b) such Specified
Lender's Loans then outstanding as Eurocurrency Loans, if any, shall be
converted automatically to Specified Base Rate Loans on the respective last days
of the then current Interest Periods with respect to such Specified Loans or
within such earlier period as required by law; PROVIDED that before making any
such demand, each Specified Lender agrees to use reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions and so long as
such efforts would not be disadvantageous to it, in its reasonable discretion,
in any legal, economic or regulatory manner) to designate a different lending
office if the making of such a designation would allow the Specified Lender or
its lending office to continue to perform its obligations to make Eurocurrency
Loans. If any such conversion of a Eurocurrency Loan occurs on a day which is
not the last day of the then current Interest Period with respect thereto, the
Specified Borrower shall pay to such Specified Lender such amounts, if any, as
may be required pursuant to subsection 4.8. If circumstances subsequently
change so that any affected Lender shall determine that it is no longer so
affected, such Specified Lender will promptly notify the Specified Borrower and
the Specified Agent, and upon receipt of such notice, the obligations of such
Specified Lender to make or continue Eurocurrency Loans or to convert Base Rate
Loans into Eurocurrency Loans, as applicable, shall be reinstated.
Notwithstanding the foregoing, until such notice has been withdrawn by the
Specified Lender (which the Specified Lender agrees to do when the circumstances
that prompted the delivery of such notice no longer exist), if a Base Rate is
not available to the Specified Borrower, any Specified Loans or Specified
Obligations or other amounts due hereunder not subject to an Interest Period
determined prior to such notice shall bear interest at a rate determined from
time to time by the Specified Lender to be its cost of maintaining its share of
such Specified Loans, specified Obligations or other amounts plus the Applicable
Margin and any applicable overdue percentage pursuant to subsection 4.1(c).
4.6 REQUIREMENTS OF LAW. (a) If the adoption of or any change in
any Requirement of Law or in the interpretation or application thereof or
compliance by any Specified Lender with any request or directive (whether or not
having the force of law) from any central bank or other Governmental Authority
made subsequent to the date hereof:
(i) shall subject any Specified Lender to any tax of any kind
whatsoever with respect to this Agreement, any Specified Eurocurrency Loan,
any Specified Note, any Specified Accommodation, Letter of Credit
Application, or change the basis of taxation of payments to such Specified
Lender in respect thereof (except for taxes covered by subsection 4.7 and
the establishment of a tax based on the net income of such Specified Lender
or changes in the rate of tax on the net income of such Specified Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit (including, without limitation, letters of
credit or bankers acceptances) by, or any other acquisition of funds by,
any office of such Lender; or
(iii)shall impose on such Specified Lender any other condition;
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48
and the result of any of the foregoing is to increase the cost to such Specified
Lender, by an amount which such Specified Lender reasonably deems to be
material, of making, converting into, continuing or maintaining Eurocurrency
Loans or to increase the cost to such Specified Lender, by an amount which such
Specified Lender reasonably deems to be material, of issuing or maintaining any
Specified Accommodation or participation therein or to reduce any amount
receivable hereunder in respect thereof, then, in any such case, the Specified
Borrower shall promptly pay such Specified Lender, upon its written demand and
presentation of supporting calculations and any reasonably available supporting
documentation, any additional amounts necessary to compensate such Specified
Lender for such increased cost or reduced amount receivable, PROVIDED, in
respect of Accommodations and Eurocurrency Loans, that before making any such
demand, each Specified Lender agrees to use reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions and so long as such
efforts would not be disadvantageous to it, in its reasonable discretion, in any
legal, economic or regulatory manner) to designate a different Accommodation
lending office or a different Eurocurrency lending office, as the case may be,
if the making of such designation would allow the Specified Lender, its
Eurocurrency Loan lending office, or its Accommodation lending office, as the
case may be, to continue to perform its obligations to make Accommodations or
Eurocurrency Loans, as applicable, or to continue to fund or maintain
Accommodations or Eurocurrency Loans, as applicable, and avoid the need for, or
materially reduce the amount of, such increased cost. If any Specified Lender
becomes entitled to claim any additional amounts pursuant to this subsection, it
shall promptly notify (in any event no later than ninety (90) days after such
Specified Lender becomes entitled to make such claim) the Specified Borrower in
writing, through the Specified Agent, of the event by reason of which it has
become so entitled. Such demand shall be accompanied by a statement summarizing
the basis for the additional amounts payable under this subsection including
reasonably detailed calculations of such additional amounts. Such statement
submitted by such Specified Lender, through the Specified Agent, to the
Specified Borrower shall be conclusive in the absence of manifest error. If the
Specified Borrower so notifies the Specified Agent within five (5) Business Days
after any Specified Lender notifies the Specified Borrower of any increased cost
pursuant to the foregoing provisions of this subsection 4.6, the Specified
Borrower may convert all Eurocurrency Loans of such Specified Lender then
outstanding into Base Rate Loans if a Base Rate option is available in
accordance with subsection 2.10 and, additionally, reimburse such Specified
Lender for any cost in accordance with subsection 4.8. This covenant shall
survive the termination of this Agreement and the payment of the Specified Loans
and all other amounts payable hereunder.
(b) If any Specified Lender shall have determined that the adoption
of or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Specified Lender or
any corporation controlling such Specified Lender with any request or directive
regarding capital adequacy (whether or not having the force of law) from any
Governmental Authority made subsequent to the date hereof does or shall have the
effect of reducing the rate of return on such Specified Lender's or such
corporation's capital as a consequence of its obligations hereunder or under any
Specified Accommodation to a level below that which such Specified Lender or
such corporation could have achieved but for such change or compliance (taking
into consideration such Specified Lender's or such corporation's policies with
respect to capital adequacy) by an amount reasonably deemed by such Specified
Lender to be material, then from time to time, after submission by such
Specified Lender to the Specified Borrower (with a copy to the Specified Agent)
of a prompt written request therefor and presentation of supporting calculations
and any reasonably available supporting documentation, the Specified Borrower
shall pay to such Specified Lender such additional amount or amounts as will
compensate such Specified Lender for such reduction. This covenant shall
survive the termination of this Agreement and the payment of the Specified Loans
and all other amounts payable hereunder.
4.7 TAXES. (a) Except as provided below in this subsection, all
payments made by each Specified Borrower under this Agreement and any Specified
Notes shall be made free and clear of, and without deduction or withholding for
or on account of, any present or future income, stamp or other
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49
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any Specified
Governmental Authority, excluding net income taxes, franchise taxes imposed in
lieu of net income taxes, and branch profits taxes imposed on any Specified
Agent or any Specified Lender as a result of a present or former connection
between such Specified Agent or such Specified Lender and the jurisdiction of
the Governmental Authority imposing such tax or any political subdivision or
taxing authority thereof or therein (other than any such connection arising
solely from such Agent or such Specified Lender having executed, delivered or
performed its obligations or received a payment under, or enforced, this
Agreement or any other Loan Document). If any such non-excluded taxes, levies,
imposts, duties, charges, fees, deductions or withholdings ("NON-EXCLUDED
TAXES") are required by law to be withheld from any amounts payable to the
Specified Agent or any Specified Lender hereunder or under any Specified Notes,
the amounts so payable to the Specified Agent or such Specified Lender shall be
increased to the extent necessary to yield to the Specified Agent or such
Specified Lender (after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts specified in this
Agreement and any Specified Notes, PROVIDED, HOWEVER, that the Specified
Borrower shall be entitled to deduct and withhold any Non-Excluded Taxes and
shall not be required to increase any such amounts payable to any Specified
Lender with respect to any Non-Excluded Taxes (i) that are attributable to such
Specified Lender's failure to comply with the requirements of paragraphs (b),
(c) or (d) of this subsection 4.7, (ii) that are United States withholding taxes
imposed on amounts payable to a US Lender either at the time the US Lender
becomes a party to this Agreement or as a result of an event occurring after the
US Lender becomes a US Lender other than a change in law or regulation or the
introduction of any law or regulation or a change in interpretation or
administration of any law, except to the extent that such US Lender's assignor
(if any) was entitled, at the time of assignment, to receive additional amounts
from the Borrower with respect to such Non-Excluded Taxes pursuant to Section
4.7(a) or (iii) that are United Kingdom withholding taxes imposed on amounts
payable to an English Lender either at the time the English Lender becomes a
party to this Agreement or as a result of an event occurring after the English
Lender becomes a English Lender other than a change in law or regulation or the
introduction of any law, except to the extent that such English Lender's
assignor (if any) was entitled at the time of assignment, to receive additional
amounts from the Borrower with respect to such Non-Excluded Taxes pursuant to
Section 4.7(a). Whenever any Non-Excluded Taxes are payable by the Specified
Borrower, as promptly as possible thereafter the Specified Borrower shall send
to the Specified Agent for its own account or for the account of such Specified
Lender, as the case may be, a certified copy of an original official receipt
received by the Specified Borrower showing payment thereof. If the Specified
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Specified Agent the required copies of
receipts or other required documentary evidence, the Specified Borrower shall
indemnify the Specified Agent and the Specified Lenders for any incremental
taxes, interest or penalties that may become payable by the Specified Agent or
any Specified Lender as a result of any such failure. The agreements in this
subsection shall survive the termination of this Agreement and the payment of
the Specified Loans and all other amounts payable hereunder.
(b) With respect to US Lenders, each US Lender that is not a United
States Person as defined in Section 7701(a)(30) of the Code shall:
(i) in the case of any such US Lender other than a US Lender
described in clause (ii) of this subsection:
(x) on or before the date of any payment by the US Borrower
under this Agreement or any Notes to such US Lender, deliver to
the US Borrower and the Administrative Agent (A) two duly
completed copies of United States Internal Revenue Service
("IRS") Form 1001 or 4224, or successor applicable form, as the
case may be, certifying that it is entitled to receive payments
under this Agreement and any Notes without any deduction or
withholding of any United States federal income taxes or at a
reduced rate and (B) a duly completed
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50
IRS Form W-8 or W-9, or successor applicable form, as the case
may be, certifying that it is entitled to an exemption from
United States backup withholding tax;
(y) deliver to the US Borrower and the
Administrative Agent two further copies of any such
form or certification on or before the date that any
such form or certification expires or becomes obsolete
and after the occurrence of any event requiring a
change in the most recent form previously delivered by
it to the US Borrower; and
(z) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably
be requested by the US Borrower or the Administrative
Agent; or
(ii) in the case of any such US Lender that is not a "bank"
within the meaning of Section 881(c)(3)(A) of the Code and that does
not comply with sub-paragraph (i) of this paragraph (b),
(x) represent to the US Borrower (for the benefit of the US
Borrower and the Administrative Agent) that it is not a bank
within the meaning of Section 881(c)(3)(A) of the Code and
deliver to the US Borrower on or before the date of any payment
by the US Borrower, with a copy to the Administrative Agent, (A)
a certificate stating that such US Lender (1) is not a "bank"
under Section 881(c)(3)(A) of the Code, is not subject to
regulatory or other legal requirements as a bank in any
jurisdiction, and has not been treated as a bank for purposes of
any tax, securities law or other filing or submission made to any
Governmental Authority, any application made to a rating agency
or qualification for any exemption from tax, securities law or
other legal requirements, (2) is not a 10-percent shareholder
within the meaning of Section 881(c)(3)(B) of the Code and (3) is
not a controlled foreign corporation receiving interest from a
related person within the meaning of Section 881(c)(3)(C) of the
Code (any such certificate a "U.S. TAX COMPLIANCE CERTIFICATE")
and (B) two duly completed copies of IRS Form W-8, or successor
applicable form, certifying to such US Lender's legal entitlement
at the date of such certificate to an exemption from U.S.
withholding tax under the provisions of Section 881(c) of the
Code with respect to payments to be made under this Agreement and
any US Notes;
(y) deliver to the US Borrower and the Administrative Agent
two further copies of IRS Form W-8 on or before the date it
expires or becomes obsolete and after the occurrence of any event
requiring a change in the most recently provided form and, if
necessary, obtain any extensions of time reasonably requested by
the US Borrower or the Administrative Agent for filing and
completing such forms; and
(z) agree, to the extent legally entitled to do so, upon
reasonable request by the US Borrower, to provide to the US
Borrower (for the benefit of the US Borrower and the
Administrative Agent) such other forms as may be reasonably
required in order to establish the legal entitlement of such US
Lender to an exemption from withholding with respect to payments
under this Agreement and any Notes.
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51
Each Person that shall become a US Lender or a Specified Participant pursuant to
subsection 12.6 shall, upon the effectiveness of the related transfer, be
required to provide all of the forms, certifications and statements required
pursuant to this subsection; provided that in the case of a Specified
Participant the obligations of such Specified Participant pursuant to this
paragraph (b) shall be determined as if such Specified Participant were a US
Lender except that such Specified Participant shall furnish all such required
forms, certifications and statements to the US Lender from which the related
participation shall have been purchased. Each US Lender shall promptly notify
the Borrower at any time it determines that it is no longer in a position to
provide any previously delivered certificate to the Borrower (or any other form
of certification adopted by the U.S. taxing authorities for such purpose).
Notwithstanding any other provision of this Section 4.7(b), a US Lender shall
not be required to deliver any form pursuant to this Section 4.7(b) that such US
Lender is not legally able to deliver.
(c) Each Specified Lender shall, upon request by the Specified
Borrower, deliver to the Specified Borrower or the applicable Governmental
Authority, as the case may be, any form or certificate required in order that
any payment by the Specified Borrower under this Agreement or any Specified
Notes may be made free and clear of, and without deduction or withholding for or
on account of any Non-Excluded Taxes (or to allow any such deduction or
withholding to be at a reduced rate) imposed on such payment under the laws of
any jurisdiction, PROVIDED that such Specified Lender is legally entitled to
complete, execute and deliver such form or certificate and such completion,
execution or submission would not materially prejudice the legal position of
such Specified Lender.
(d) Each English Lender represents to English Borrower that at the
date hereof it is either (i) a bank as defined in Section 840A of the Income and
Corporation Taxes Act of 1988 and is within the charge to United Kingdom
corporation tax in respect of all interest received by it under this Agreement
or (ii) entitled by virtue of an applicable double tax treaty to claim such
exemption or relief from United Kingdom income tax as will allow interest
payments hereunder by the English Borrower to be made to it free and clear of
all taxes imposed by United Kingdom and has filed such a claim including all of
the appropriate supporting documents and a gross payment direction will be or
should be, issued in due course to English Borrower by the Inland Revenue.
Notwithstanding anything in this agreement to the contrary, no English Lender
shall be entitled to payments under subsection 4.7(a) pending the issuance of a
gross payment direction under this clause (ii). Notwithstanding any other
provision of this Section 4.7(d), an English Lender shall not be required to
deliver any form pursuant to this Section 4.7(d) that such English Lender is not
legally able to deliver.
(e) If the Specified Agent or Specified Lender receives a refund in
respect of Non-Excluded Taxes paid by the Specified Borrower, which in the good
faith judgment of such Specified Lender is allocable to such payment, it shall
promptly pay such refund, together with any other amounts paid by the Specified
Borrower in connection with such refunded Non-Excluded Taxes, to the Specified
Borrower, net of all reasonable out-of-pocket expenses of such Specified Lender
incurred in obtaining such refund, PROVIDED, HOWEVER, that the Specified
Borrower agrees to promptly return such refund to the Specified Agent or the
Specified Lender as the case may be, if it receives notice from the Specified
Agent or Specified Lender that such Specified Agent or Specified Lender is
required to repay such refund.
4.8 INDEMNITY. Each Specified Borrower agrees to indemnify each
Specified Lender and to hold each Specified Lender harmless from any loss or
expense which such Specified Lender sustains or incurs as a consequence of (a)
default by the Specified Borrower in payment when due of the principal amount of
or interest on any Eurocurrency Loan, (b) default by the Specified Borrower in
making a borrowing of, conversion into or continuation of Eurocurrency Loans
after the Specified Borrower has given a notice requesting the same in
accordance with the provisions of this Agreement, (c) default by the Specified
Borrower in making any prepayment after the Specified Borrower has given a
notice thereof in accordance with the provisions of this Agreement or (d) the
making of a prepayment of Eurocurrency Loans on a day which is not the last day
of an Interest Period with respect thereto,
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52
including, without limitation, in each case, any such loss or expense (but
excluding loss of margin) arising from the reemployment of funds obtained by it
or from fees payable to terminate the deposits from which such funds were
obtained. Calculation of all amounts payable to a Specified Lender under this
subsection 4.8 shall be made as though such Specified Lender had actually funded
its relevant Eurocurrency Loan through the purchase of a deposit bearing
interest at the Eurocurrency Rate in an amount equal to the amount of such
Eurocurrency Loan and having a maturity comparable to the relevant Interest
Period; PROVIDED, HOWEVER, that each Specified Lender may fund each of its
Eurocurrency Loans in any manner it sees fit, and the foregoing assumption shall
be utilized only for the calculation of amounts payable under this subsection
4.8. This covenant shall survive the termination of this Agreement and the
payment of the Specified Loans and all other amounts payable hereunder for a
period of nine (9) months thereafter.
4.9 REPLACEMENT OF SPECIFIED LENDER. If at any time (a) the
Specified Borrower becomes obligated to pay additional amounts described in
subsections 4.5, 4.6 or 4.7 as a result of any condition described in such
subsections or any Specified Lender ceases to make Eurocurrency Loans pursuant
to subsection 4.5, (b) any Specified Lender becomes insolvent and its assets
become subject to a receiver, liquidator, trustee, custodian or other Person
having similar powers, (c) any Specified Lender becomes a "Non-Funding Lender"
or (d) any Specified Lender fails to comply with an amendment, waiver or
modification to this Agreement or the other Loan Documents which has been
approved by the Required Lenders (or any different requisite amount of Lenders
as provided herein), then the Specified Borrower may, on three (3) Business
Days' prior written notice to the Specified Agent and such Specified Lender,
replace such Specified Lender by causing such Specified Lender to (and such
Specified Lender shall) assign pursuant to subsection 12.6(c) all of its rights
and obligations under this Agreement to a Specified Lender or other entity
selected by the Specified Borrower and acceptable to the Specified Agent for a
purchase price equal to the outstanding principal amount of such Lender's
Specified Loans and all accrued interest and fees and other amounts payable
hereunder; PROVIDED that (i) no Specified Borrower shall have the right to
replace its Specified Agent (in its capacity as such), (ii) no Specified Agent
or Specified Lender shall have any obligation to any Specified Borrower to find
a replacement Specified Lender or other such entity, (iii) in the event of a
replacement of a Specified Lender to which the Specified Borrower becomes
obligated to pay additional amounts pursuant to clause (a) of this subsection
4.9, in order for the Specified Borrower to be entitled to replace such a
Specified Lender, such replacement must take place no later than six (6) months
after the Specified Lender shall have demanded payment of additional amounts
under one of the subsections described in clause (a) of this subsection 4.9, as
the case may be, and (iv) in no event shall the Specified Lender hereby replaced
be required to pay or surrender to such replacement Specified Lender or other
entity any of the fees received by such Specified Lender hereby replaced
pursuant to this Agreement. In the case of a replacement of a Specified Lender
to which the Specified Borrower becomes obligated to pay additional amounts
pursuant to clause (a) of this subsection 4.9, the Specified Borrower shall pay
such additional amounts to such Specified Lender prior to such Specified Lender
being replaced and the payment of such additional amounts shall be a condition
to the replacement of such Specified Lender. The Specified Borrower's right to
replace a Non-Funding Lender pursuant to this subsection 4.9 is, and shall be,
in addition to, and not in lieu of, all other rights and remedies available to
the Specified Borrower against such Non-Funding Lender under this Agreement, at
law, in equity, or by statute.
4.10 REDENOMINATION AND ALTERNATIVE CURRENCIES. Each obligation
under this Agreement of a party to this Agreement which has been denominated in
the National Currency Unit of a Subsequent Participant state shall be
redenominated into the euro unit in accordance with EMU Legislation immediately
upon such Subsequent Participant becoming a Participating Member State (but
otherwise in accordance with EMU Legislation).
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53
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this Agreement and
to make their respective Loans and to issue and participate in Accommodations,
each Borrower, only as to itself and its Subsidiaries, hereby represents and
warrants to the Agents and each Lender that:
5.1 FINANCIAL CONDITION. (a) The audited consolidated financial
statements of the US Borrower (or its predecessor) and its Subsidiaries for the
period from April 2, 1996 through December 31, 1996 and the fiscal years ended
December 31, 1997 and December 31, 1998, copies of which have been furnished to
each Lender, have been prepared using accounting methods, procedures and
policies which are in accordance with GAAP and present fairly in all material
respects the financial positions of the US Borrower, its predecessors and its
Subsidiaries on a consolidated basis, in each case, as at the dates thereof, and
the results of operations and statements of cash flows for the periods then
ended. The unaudited consolidated balance sheet of the US Borrower and its
Subsidiaries as at March 31, 1999, and the related unaudited consolidated
statements of income and cash flows for the three-month period ended on such
date, present fairly in all material respects the consolidated financial
condition of the US Borrower and its Subsidiaries as at such date, and the
consolidated results of its operations and its consolidated cash flows for the
three-month period then ended (subject to normal year-end audit adjustments and
the absence of footnotes). Neither the US Borrower nor any of its Subsidiaries
had, as at the date of the most recent balance sheet referred to above, any
Guarantee Obligation, contingent liability or liability for taxes, or any
long-term lease or unusual forward or long-term commitment, including, without
limitation, any interest rate or foreign currency swap or exchange transaction,
which in any such case is material and is not reflected in the foregoing
statements or in the notes thereto and which has any reasonable likelihood of
resulting in a material cost or loss.
(b) The audited consolidated financial statements of the English
Borrower and its Subsidiaries for fiscal years ended March 31, 1997, March 31,
1998 and March 31, 1999, copies of which have been furnished to each Lender,
have been prepared using accounting methods, procedures and policies which are
in accordance with GAAP applied on a basis consistent with that of prior years
and present fairly in all material respects the financial positions of the
English Borrower and its Subsidiaries on a consolidated basis, in each case, as
at the dates thereof, and the results of operations and statements of cash flows
for the periods then ended. Neither the English Borrower nor any of its
Subsidiaries had, as at the date of the most recent balance sheet referred to
above, any Guarantee Obligation, contingent liability or liability for taxes, or
any long-term lease or unusual forward or long-term commitment, including,
without limitation, any interest rate or foreign currency swap or exchange
transaction, which in any such case is material and is not reflected in the
foregoing statements or in the notes thereto and which has any reasonable
likelihood of resulting in a material cost or loss.
(c) The audited consolidated financial statements of the Target for
the fiscal periods ended December 31, 1996, December 31, 1997 and December 31,
1998, copies of which have been furnished to each Lender, have been prepared
using accounting methods, procedures and policies which are in accordance with
GAAP and present fairly in all material respects the financial positions of the
Target, in each case, as at the dates thereof, and the results of operations and
statements of cash flows for the periods then ended. The unaudited balance
sheet of the Target as at June 30, 1999, and the related unaudited statements of
income and cash flows for the six-month period ended on such date, present
fairly in all material respects the financial condition of the Target as at such
date, and the results of its operations and its cash flows for the six-month
period then ended (subject to normal year-end audit adjustments and the absence
of footnotes). The Target does not have, as at the date of the most recent
balance sheet referred to above, any Guarantee Obligation, contingent liability
or liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any interest rate or foreign currency
swap or exchange transaction, which in any such case is
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54
material and is not reflected in the foregoing statements or in the notes
thereto and which has any reasonable likelihood of resulting in a material cost
or loss.
(d) The PRO FORMA balance sheet of US Borrower and its Subsidiaries
(the "US BORROWER PRO FORMA BALANCE SHEET"), certified by a Responsible Officer
of US Borrower, copies of which have been heretofore furnished to each Lender,
is the PRO FORMA balance sheet of US Borrower as at the Closing Date, adjusted
to give effect to (i) the Transactions, and (ii) the financings contemplated by
this Agreement. The US Borrower Pro Forma Balance Sheet was prepared based on
good faith assumptions and is based on the best information available to US
Borrower as of the date of delivery thereof, and reflects on a PRO FORMA basis
the financial position of US Borrower and its combined Subsidiaries as at the
Closing Date. Neither the US Borrower nor any of its Subsidiaries had, as at
the date of the US Borrower Pro Forma Balance Sheet, any material Guarantee
Obligation, contingent liability or, to the best knowledge of the US Borrower,
liability for taxes, or any long-term lease or unusual forward or long-term
commitment which is not reflected in the US Borrower Pro Forma Balance Sheet and
which has any reasonable likelihood of resulting in a material cost or loss.
5.2 NO CHANGE. Since December 31, 1998, there has been no Material
Adverse Change.
5.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. US Borrower and each
of its Subsidiaries (a) is duly organized, validly existing or validly
subsisting and, in the case of the US Borrower, its Domestic Subsidiaries and
any of its Foreign Subsidiaries organized in a jurisdiction where such concept
is applicable, in good standing, as the case may be, under the laws of the
jurisdiction of its organization or incorporation, (b) has the power and
authority, and the legal right, to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign corporation or other
entity and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification, except to the extent that the failure to so qualify
could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect and (d) is in compliance with all Requirements of Law except to the
extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Affect.
5.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each
Credit Party has the power and authority, and the legal right, to make, deliver
and perform this Agreement, any of the Specified Notes and the other Specified
Loan Documents to which it is a party and, with respect to each Specified
Borrower, to borrow hereunder and has taken all necessary action to authorize
the borrowings on the terms and conditions of, or the granting of any security
interests under, this Agreement and any of the Specified Notes and the other
Specified Loan Documents and to authorize the execution, delivery and
performance of this Agreement, any of the Specified Notes and the other
Specified Loan Documents to which it is a party. No consent or authorization
of, filing with, notice to or other act by or in respect of, any Governmental
Authority or any other Person is required in connection with the borrowings
under this Agreement or with the execution, delivery, performance, validity or
enforceability of, or the granting of any security interests under, this
Agreement, any of the Specified Notes or the other Specified Loan Documents to
which any Credit Party is a party, except for (i) those which have been or will
be made or taken and are or will be in full force and effect, (ii) consents
under immaterial Contractual Obligations or other immaterial consents or (iii)
those filings and notices referred to subsection 5.20(d). This Agreement, any
Specified Note and each of the other Specified Loan Documents has been duly
executed and delivered on behalf of the Credit Party party thereto. This
Agreement, any Specified Note and each of the other Specified Loan Documents
constitutes a legal, valid and binding obligation of the Credit Party party
thereto enforceable against such Credit Party in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
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5.5 NO LEGAL BAR. The execution, delivery and performance of this
Agreement, any of the Notes and the other Loan Documents, the borrowings
hereunder and thereunder and the use of the proceeds thereof will not violate
any Requirement of Law or any material Contractual Obligation of any Credit
Party or of any of their Subsidiaries.
5.6 NO MATERIAL LITIGATION. Except as set forth in Schedule 5.6, no
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of any Specified
Borrower, threatened by or against any of the Credit Parties or any of their
Subsidiaries or against any of their respective properties or revenues (a) with
respect to this Agreement, the other Loan Documents, or any of the transactions
contemplated hereby or thereby, (b) with respect to any Transaction Document or
any transactions contemplated thereby, which affects any material provision or
any material transaction contemplated thereby, or (c) which could reasonably be
expected to have a Material Adverse Effect.
5.7 NO DEFAULT. None of the Credit Parties or any of their
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
5.8 OWNERSHIP OF PROPERTY; LIENS. Each of the Credit Parties and
their Subsidiaries (a) in respect of property situated in the United States, has
good and valid title or title in fee simple to, as applicable, or a valid
leasehold interest in, all its material real and immovable property, and good
title to, or a valid leasehold interest in, all its other material property and
(b) in respect of property situated outside the United States, is the legal and
beneficial owner of all its material property, and none of such property
referred to in clauses (a) and (b) hereof is subject to any Lien except as
permitted by subsection 8.3. As of the date hereof, the Fee Properties as
listed on Part I of Schedule 5.19 constitute all the real and immovable
properties (y) in respect of property situated in the United States, owned by
good and valid title or title in fee simple and (z) in respect of property
situated outside the United States, legally or beneficially owned, as
applicable, by the US Borrower or its Subsidiaries and the Leased Properties as
listed on Part II of Schedule 5.19 constitute all of the real and immovable
properties leased by the US Borrower or its Subsidiaries. As of the date
hereof, each of the Leased Properties listed on Part II of Schedule 5.19 which
may be made subject to a recorded Lien without violating the terms of the
applicable Underlying Lease, and each lease agreement under which an interest in
any material Leased Property is held (as amended, an "UNDERLYING LEASE") is in
full force and effect.
5.9 INTELLECTUAL PROPERTY. Each of the Credit Parties and their
Subsidiaries owns, or is validly licensed to use, all trademarks, tradenames,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted except for those the failure to own or license
that could not reasonably be expected to have a Material Adverse Effect (the
"INTELLECTUAL PROPERTY"). Except as set forth on Schedule 5.9, no claim has
been asserted and is pending by any Person challenging or questioning the use of
any such Intellectual Property or the validity or effectiveness of any such
Intellectual Property which could reasonably be expected to have a Material
Adverse Effect, nor do the Credit Parties know of any valid basis for any such
claim which could reasonably be expected to have a Material Adverse Effect. To
the best of the Credit Parties' knowledge, the use of such Intellectual Property
by the Credit Parties and their Subsidiaries does not infringe on the rights of
any Person, except for such claims and infringements that, in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
5.10 TAXES. Except as set forth in Schedule 5.10, each of the Credit
Parties and their Subsidiaries has filed or caused to be filed all federal and
all other material tax returns which, to the knowledge of the Credit Parties,
are required to be filed and has paid all taxes shown to be due and payable on
said returns or on any assessments made against it or any of its property and
all other material taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority
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56
(other than (i) any such taxes, assessments, fees, or other charges the amount
or validity of which are currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have been
provided on the books of the Credit Parties or their Subsidiaries, as the case
may be, and (ii) taxes, assessments, fees or other charges imposed by any
Governmental Authority, other than income taxes imposed by any Governmental
Authority, with respect to which the failure to make payments could not, by
reason of the amount thereof or of remedies available to such Governmental
Authorities, reasonably be expected to have a Material Adverse Effect); no tax
Lien has been filed, and, to the knowledge of the Credit Parties, no claim is
being asserted, with respect to any such tax, fee or other charge other than
those being contested in good faith by appropriate proceedings and with respect
to which reserves in conformity with GAAP have been provided on the books of the
Credit Parties or their Subsidiaries, as the case may be.
5.11 US FEDERAL REGULATIONS. No part of the proceeds of any Loans
will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulations T, U or X as
now and from time to time hereafter in effect or for any purpose which violates
the provisions of the Regulations of the Board. If requested by any US Lender
or the Administrative Agent, the US Borrower will furnish to the Specified Agent
and each Specified Lender a statement to the foregoing effect in conformity with
the requirements of FR Form U-1 or G-3 referred to in said Regulation U.
5.12 ERISA. Except where the liability, individually or in the
aggregate, which could reasonably be expected to result has not had or could not
reasonably be expected to have a Material Adverse Effect: (i) neither a
Reportable Event nor an "accumulated funding deficiency" (within the meaning of
Section 412 of the Code or Section 302 of ERISA) has occurred during the
five-year period prior to the date on which this representation is made or
deemed made with respect to any Single Employer Plan; (ii) each Plan (other than
a Multiemployer Plan) has complied in all material respects with the applicable
provisions of ERISA and the Code; (iii) no termination of a Single Employer Plan
has occurred, and no Lien in favor of the PBGC or a Single Employer Plan has
arisen and remains outstanding, during such five-year period; (iv) the present
value of all accrued benefits under each Single Employer Plan (based on those
assumptions used to fund such Plans) did not, as of the last annual valuation
date prior to the date on which this representation is made or deemed made,
exceed the value of the assets of such Plan allocable to such accrued benefits
by an amount which could reasonably be expected to have a Material Adverse
Effect; (v) none of the Credit Parties nor any Commonly Controlled Entity has
had a complete or partial withdrawal from any Multiemployer Plan, and, to the
best knowledge of the Credit Parties, none of the Credit Parties nor any
Commonly Controlled Entity would become subject to any liability under ERISA if
the Credit Parties or any such Commonly Controlled Entity were to withdraw
completely from all Multiemployer Plans as of the valuation date most closely
preceding the date on which this representation is made or deemed made; (vi) no
such Multiemployer Plan is in Reorganization or Insolvent; and (vii) the present
value (determined using actuarial and other assumptions which are reasonable in
respect of the benefits provided and the employees participating) of the
liability of the Credit Parties and each Commonly Controlled Entity for post
retirement benefits to be provided to their current and former employees under
Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) does
not, in the aggregate, exceed the assets under all such Plans allocable to such
benefits.
5.13 INVESTMENT COMPANY ACT. Neither the US Borrower nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
5.14 SUBSIDIARIES, ETC. As of the date hereof, the only Subsidiaries
of the US Borrower, and the only partnerships, limited liability companies or
other joint ventures in which the US Borrower or any of its Subsidiaries has an
interest are those listed on Schedule 5.14. As of the date hereof, the US
Borrower owns the percentage of the Capital Stock or other evidences of the
ownership of each
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57
Subsidiary, partnership, limited liability company or other joint venture listed
on Schedule 5.14 as set forth on such Schedule. As of the date hereof, no such
Subsidiary, partnership, limited liability company, or other joint venture has
issued any securities convertible into shares of its Capital Stock, and the
outstanding stock and securities (or other evidence of ownership) of such
Subsidiaries, partnerships, limited liability companies, or other joint ventures
owned by the US Borrower and its Subsidiaries are so owned free and clear of all
Liens, warrants, options or rights of others of any kind except as set forth in
Schedule 5.14. As of the date hereof, the Target has no Subsidiaries.
5.15 ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 5.15
hereto:
(a) The facilities and properties owned, leased or operated by the US
Borrower or any of its Subsidiaries (the "PROPERTIES") do not contain, and have
not previously contained, any Materials of Environmental Concern in amounts or
concentrations or under such conditions which (i) constitute or constituted a
violation of, or could reasonably be expected to give rise to liability under,
any Environmental Law in effect at the time of the making of this
representation, or (ii) could materially and adversely interfere with the
continued operation of the Properties, or (iii) materially impair the fair
saleable value thereof, except in each case insofar as such violation,
liability, interference, or reduction in fair market value, or any aggregation
thereof, is not reasonably likely to result in a Material Adverse Effect.
(b) The business of the US Borrower and its Subsidiaries, the
Properties and all operations at the Properties are, and to the knowledge of the
US Borrower have been, in compliance in all material respects with all
applicable Environmental Laws except for noncompliance which is not reasonably
likely to result in a Material Adverse Effect.
(c) Neither the US Borrower nor any of its Subsidiaries has received
any written notice of violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Properties or the business of the
US Borrower and its Subsidiaries, nor does any Specified Borrower have knowledge
or reason to believe that any such notice will be received or is being
threatened, except insofar as such notice or threatened notice, or any
aggregation thereof, does not involve a matter or matters that is or are
reasonably likely to result in a Material Adverse Effect.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a location
which could reasonably be expected to give rise to liability under, any
Environmental Law in effect at the time of the making of this representation,
nor have any Materials of Environmental Concern been generated, treated, stored
or disposed of at, on or under any of the Properties in violation of, or in a
manner that could reasonably be expected to give rise to liability under, any
applicable Environmental Law in effect at the time of the making of this
representation, except insofar as any such violation or liability referred to in
this paragraph, or any aggregation thereof, is not reasonably likely to result
in a Material Adverse Effect.
(e) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of any Specified Borrower, threatened, under any
Environmental Law in effect at the time of the making of this representation to
which the US Borrower or any Subsidiary is or, to the best knowledge of any
Specified Borrower, will be named as a party with respect to the Properties or
the business of the US Borrower and its Subsidiaries, nor are there any consent
decrees or other decrees, consent orders, administrative orders or other orders,
or other administrative or judicial requirements outstanding under any
Environmental Law in effect at the time of the making of this representation
with respect to the Properties or the business of the US Borrower and its
Subsidiaries, except insofar as such proceeding, action, decree, order or other
requirement, or any aggregation thereof, is not reasonably likely to result in a
Material Adverse Effect.
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(f) There has been no release or, to the best knowledge of any
Specified Borrower, threat of release of Materials of Environmental Concern at
or from the Properties, or arising from or related to the operations of the US
Borrower or any Subsidiary in connection with the Properties or otherwise in
connection with the business of the US Borrower and its Subsidiaries, in
violation of or in amounts or in a manner that could reasonably give rise to
liability under Environmental Laws in effect at the time of making this
representation, except insofar as any such violation or liability referred to in
this paragraph, or any aggregation thereof, is not reasonably likely to result
in a Material Adverse Effect.
(g) To the best knowledge of any Specified Borrower, each of the
representations and warranties set forth in subsections 5.15(a) through (f) is
true and correct with respect to each parcel of real property owned or operated
by the US Borrower or any Subsidiary (other than the Properties) except to the
extent that the facts and circumstances giving rise to any such failure to be so
true and correct is not reasonably likely to result in a Material Adverse
Effect.
5.16 REGULATION H. No Mortgage encumbers improved real property
which is located in an area that has been identified by the Secretary of Housing
and Urban Development as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance Act of
1968.
5.17 DELIVERY OF TRANSACTION DOCUMENTS. Each Specified Agent has
received for itself and for each Specified Lender a complete copy of each of the
Transaction Documents (including all exhibits, schedules and disclosure letters
referred to therein or delivered pursuant thereto, if any) and all amendments
thereto, waivers relating thereto and other side letters or agreements affecting
the terms thereof.
5.18 REPRESENTATIONS AND WARRANTIES CONTAINED IN THE TRANSACTION
DOCUMENTS. Each of the Transaction Documents has been duly executed and
delivered by the Credit Parties party thereto and all other parties thereto and
is full force and effect. The representations and warranties of the US Borrower
and its Subsidiaries and, to the best knowledge of the Credit Parties parties
thereto, the other parties, in each of the Transaction Documents, are true and
correct in all material respects.
5.19 DISCLOSURE. As of the Closing Date or, if later, the date it
was furnished, no information, financial statement, report, certificate or other
document prepared or furnished by or on behalf of any Credit Party to any Agent
or any Lender in connection with this Agreement or any other Specified Loan
Document (but excluding all projections and pro forma financial statements which
shall have been prepared in good faith and based upon reasonable assumptions, it
being recognized that such projections are not viewed as facts and actual
results may be different) taken as a whole contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. As of the Closing Date, there is
no fact known to any Credit Party which has, or which could reasonably be
expected to have, a Material Adverse Effect.
5.20 GUARANTEE AND COLLATERAL AGREEMENT; MORTGAGES. (a) The
Guarantee and Collateral Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest in the Pledged Securities described therein
and proceeds thereof and all actions have been taken to cause the Guarantee and
Collateral Agreement to constitute a fully perfected first Lien on, and security
interest in, all right, title and interest of the US Borrower and its Domestic
Subsidiaries, respectively, in such Pledged Securities described therein and in
proceeds thereof superior in right to any other Person.
(b) The Guarantee and Collateral Agreement is effective to create in
favor of the Collateral Agent, for the benefit of the Secured Parties, a legal,
valid and enforceable security interest in the respective collateral described
therein and proceeds thereof, and the Guarantee and Collateral Agreement
constitutes a fully perfected, first priority Lien on, and security interest in,
all right, title and
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interest of the US Borrower and its Domestic Subsidiaries in such collateral and
the proceeds thereof superior in right to any other Person other than Liens
permitted hereby.
(c) The properties listed on Schedule 5.19 constitute all material
real properties owned by the US Borrower or any of its Subsidiaries. The
Mortgages are each effective to create in favor of the Collateral Agent, for the
benefit of the Secured Parties, a legal, valid and enforceable Lien on the
properties described therein owned by the US Borrower and its Domestic
Subsidiaries and proceeds thereof, subject to obtaining necessary consents
(which consents shall be obtained on or prior to the Closing Date) and when the
Mortgages are filed in the offices specified on Schedule 5.19, the Mortgages
shall constitute a fully perfected, first priority Lien on, and security
interest in, all right, title and interest of the US Borrower and its Domestic
Subsidiaries in the Mortgaged Properties and the proceeds thereof, superior in
right to any other Person other than Liens permitted hereby.
(d) Each other Loan Document to which any Credit Party is a party and
which purports to grant a Lien on any property of such Credit Party to secure
the Specified Obligations is effective to create in favor of the Specified
Agent, for the benefit of the Specified Lenders, a legal, valid and enforceable
security interest in the respective collateral described therein and proceeds
thereof, and when appropriate filings and notices have been taken or given, such
Loan Document shall constitute fully perfected, first priority Liens on, and
security interests in, all right, title and interest of such Credit Party in
such collateral and the proceeds thereof superior in right to any other Person
other than Liens permitted hereby.
5.21 SOLVENCY. Each Specified Borrower is, individually and together
with its Subsidiaries, Solvent.
5.22 INSURANCE. The insurance maintained by or reserved against on
the books of the Borrowers and their respective Subsidiaries is for such risks
as are customarily insured against by companies engaged in the same or similar
business. None of the Credit Parties or any of their Subsidiaries is in default
under any provisions of any such policy of insurance or has received notice of
cancellation of any such insurance (other than in connection with the
replacement of any such policy). None of the Credit Parties or any of their
Subsidiaries has made any claims under any policy of insurance with respect to
which the insurance carrier has denied liability, which denial is reasonably
like to result in a Material Adverse Effect.
5.23 SENIOR INDEBTEDNESS. The Domestic Obligations and the US
Borrower's guarantee of the Foreign Subsidiary Obligations constitute
"Designated Senior Indebtedness" of the US Borrower under and as defined in the
Senior Subordinated Note Indenture. The obligations of each Domestic Subsidiary
under the Guarantee and Collateral Agreement constitute "Guarantor Senior
Indebtedness" of such Subsidiary under and as defined in the Senior
Subordinated Note Indenture.
5.24 YEAR 2000 MATTERS. Any reprogramming required to permit the
proper functioning (but only to the extent that such proper functioning would
otherwise be impaired by the occurrence of the year 2000) in and following the
year 2000 of computer systems and other equipment containing embedded
microchips, in either case owned or operated by the US Borrower or any of its
Subsidiaries or used or relied upon in the conduct of their business (including
any such systems and other equipment supplied by others or with which the
computer systems of the US Borrower or any of its Subsidiaries interface), and
the testing of all such systems and other equipment as so reprogrammed, has been
substantially completed. The costs to the US Borrower and its Subsidiaries that
have not been incurred as of the date hereof for such reprogramming and testing
and for the other reasonably foreseeable consequences to them of any improper
functioning of other computer systems and equipment containing embedded
microchips due to the occurrence of the year 2000 could not reasonably be
expected to result in a Default or Event of Default or to have a Material
Adverse Effect.
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SECTION 6. CONDITIONS PRECEDENT
6.1 CONDITIONS TO INITIAL EXTENSIONS OF CREDIT. The agreement of
each US Tranche A Term Loan Lender to make its Additional US Tranche A Term Loan
hereunder and of any US Revolving Credit Lender, any US Swing Line Lender or any
Issuing Lender to make any Loan or issue or create any Accommodation under the
Additional US Revolving Credit Commitments, in each case, on the Closing Date is
subject to the satisfaction of the following conditions precedent on or prior to
October 25, 1999:
(a) LOAN DOCUMENTS. The Administrative Agent shall have received (i)
this Agreement, executed and delivered by a Responsible Officer of each
Borrower, (ii) for the account of each of the Specified Lenders who has
requested a Specified Note pursuant to subsection 2.7(e), a Revolving
Credit Note, a Term Note or a Swing Line Note, as the case may be,
conforming to the requirements hereof and executed and delivered by a
Responsible Officer of the Specified Borrower; (iii) the Guarantee and
Collateral Agreement, executed and delivered by a Responsible Officer of
the US Borrower and each of its Domestic Subsidiaries, (iv) Mortgages,
executed and delivered by a Responsible Officer of the US Borrower or its
Domestic Subsidiaries, and (v) the Sharing Agreement, executed and
delivered by each of the Specified Agents and the Collateral Agent. The
English Agent shall have received such collateral documents and guarantees
as shall have been reasonably requested by the English Agent to effect:
(1) a charge of 65% of the common stock of English Bidco to secure the
Domestic Obligations, (2) a guarantee by English Bidco of the English
Obligations of English Borrower and a charge of all the Capital Stock of
English Borrower owned by English Bidco to secure such guarantee and the
other English Obligations, (3) guarantee by the Material Subsidiaries of
English Borrower of the English Obligations of English Borrower only and a
charge of all the Capital Stock and material assets of the Material
Subsidiaries to secure such guarantee, (4) guarantee by English Borrower
and the Material Subsidiaries of English Borrower of the English
Obligations owed by English Bidco and a charge of all the Capital Stock and
material assets of English Borrower and such Material Subsidiaries to
secure such guarantee, and (5) charge over the assets of English Borrower
to secure the English Obligations owed by English Borrower.
(b) CORPORATE PROCEEDINGS OF THE CREDIT PARTIES. The Administrative
Agent shall have received a copy of the resolutions, in form and substance
reasonably satisfactory to the Administrative Agent, of the Board of
Directors or duly authorized committee of each Credit Party authorizing (i)
the execution, delivery and performance of this Agreement and the other
Loan Documents to which it is a party, (ii) the borrowings and guarantees
contemplated hereunder, and (iii) the granting by it of Liens created
pursuant to the Loan Documents, and (iv) the other transactions
contemplated hereby, certified by the Secretary, Assistant Secretary, or
comparable officer of such Person as of the Closing Date, which certificate
shall state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded and shall be in form and substance
reasonably satisfactory to the Specified Agent.
(c) INCUMBENCY CERTIFICATES. The Administrative Agent shall have
received a certificate of the Secretary or an Assistant Secretary (or
comparable officer) of each Credit Party, dated the Closing Date, as to the
incumbency and signature of the officers of such Person executing each Loan
Document to which it is a party and any certificate or other document to be
delivered by it pursuant hereto and thereto, together with evidence of the
incumbency of such Secretary, Assistant Secretary, or comparable officer.
(d) CORPORATE DOCUMENTS. The Administrative Agent shall have
received true and complete copies of the certificate of incorporation and
by-laws or memorandum and articles thereof (or equivalent documents), as
the case may be, of each Credit Party, certified as of the
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Closing Date as complete and correct copies thereof by the Secretary,
Assistant Secretary, or comparable officer of such Person.
(e) EQUITY AND DEBT FINANCING. The US Borrower shall have received
at least $35,000,000 in cash from the proceeds of common equity issued by
the US Borrower to Onex Corporation, J2R Partners III and certain other
shareholders of the US Borrower and at least $30,000,000 in cash from the
proceeds of convertible subordinated indebtedness issued by the US Borrower
to Tower Automotive, Inc. or any of its affiliates (the "TOWER SUBORDINATED
DEBT"), in each case, on terms reasonably satisfactory to the
Administrative Agent and the Syndication Agent.
(f) CLOSING OF NELSON ACQUISITION; TRANSACTION DOCUMENTS. The Nelson
Acquisition shall have been consummated in accordance with the Acquisition
Agreement and all requirements of applicable law, and the Administrative
Agent shall have received (i) a certified copy of each of the Transaction
Documents, which shall be in form and substance reasonably satisfactory to
the Agents and (ii) a certificate signed by a Responsible Officer of the US
Borrower to the effect that all conditions precedent and other material
transactions contemplated by the Transaction Documents have been satisfied
or consummated, as the case may be, without amendment, waiver or
modification of the material terms thereof. The aggregate purchase price
for the capital stock of the Target in connection with the Nelson
Acquisition shall not exceed $175,000,000 (subject to adjustment in
accordance with Section 2.3 of the Acquisition Agreement). Up to
$20,400,000 of the purchase price for the Nelson Acquisition shall be
financed with cash from the Borrower (without giving effect to the equity
and debt financing described in paragraph (e) above or the proceeds of the
Additional US Tranche A Term Loans or borrowings under the Additional US
Revolving Credit Commitments).
(g) REPAYMENT OF INDEBTEDNESS. Contemporaneously with the Loans made
on the Closing Date, the US Borrower and its Subsidiaries shall repay all
of the existing outstanding Indebtedness of the Target for an aggregate
amount not to exceed approximately $100,000,000, other than any such
Indebtedness which is to remain outstanding after the Closing Date and
which is reasonably satisfactory to the Administrative Agent, and all Liens
in connection with such repaid Indebtedness shall have been (or
contemporaneously shall be) released.
(h) FEES. The Lenders, the Agents, and CSI shall have received all
fees required to be paid and expenses required to be paid for which
invoices have been presented on the Closing Date and the total aggregate
amount of all fees and expenses incurred or to be incurred in connection
with this Agreement, the other Loan Documents, the Nelson Acquisition and
the financings contemplated thereby shall not exceed $6,000,000.
(i) CONSENTS, LICENSES AND APPROVALS. (i) All governmental and
material third party approvals reasonably necessary or in the reasonable
judgment of the Administrative Agent advisable in connection with the
execution, delivery and performance of the Transactions, the financings
contemplated hereby, and the continuing operations of the US Borrower and
its Subsidiaries shall have been obtained and be in full force and effect,
and (ii) all applicable waiting periods shall have expired without any
action being taken or threatened by any competent Governmental Authority
which would restrain, prevent or otherwise impose adverse conditions on the
US Borrower, any of its Subsidiaries, the Transactions, or the financings
thereof.
(j) FINANCIAL INFORMATION. The Administrative Agent shall have
received (i) copies of the financial statements described in subsection
5.1(a) (except the financial statements referred to in Section 5.1(a) and
5.1(b) to the extent already received by each of the Lenders) and unaudited
interim financial statements of the Target for each fiscal month and
quarterly period
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ended subsequent to December 31, 1998 as to which such financial statements
are available, and all of such financial statements shall not, in the
reasonable judgment of the Lenders, reflect any material adverse change in
the financial condition of the Target, as reflected in the financial
statements or projections previously furnished to the Lenders.
(k) INSURANCE. The Administrative Agent shall have received evidence
reasonably satisfactory to it that insurance relating to the US Borrower
and its Subsidiaries complying with the provisions of the Loan Documents
will be in place after the Transactions.
(l) PERFECTION; LIEN SEARCHES. All filings and other actions
reasonably required by any Specified Agent to create and perfect a first
priority security interest in all collateral granted to any Specified Agent
pursuant to any Loan Documents shall have been duly made or taken (or the
Specified Agent shall be reasonably satisfied that such action shall
promptly be taken), and all such collateral shall be free and clear of
other Liens except as permitted hereby. The Administrative Agent shall
have received the results of a recent lien search in each of the
jurisdictions listed on Schedule 5.19 and each other jurisdiction in the
United States where assets of the Target and its Domestic Subsidiaries are
located, and (i) such search shall reveal no Liens on any of the assets of
the Target and its Domestic Subsidiaries other than those permitted
pursuant to subsection 8.3 or (ii) the Administrative Agent shall have
received evidence reasonably satisfactory to it that UCC-3 termination
statements and other Lien release documentation shall have been duly
executed and delivered on the Closing Date, and all other necessary actions
shall have been duly taken, to the extent necessary to effect the release
of all Liens other than those permitted pursuant to subsection 8.3 on the
assets of the Target and its Domestic Subsidiaries. All actions including
pursuant to clause (q) below necessary to perfect or continue the
perfection of each Specified Agent in any of the collateral shall have been
taken or duly provided for.
(m) PERFECTION CERTIFICATE. The Administrative Agent shall have
received a Perfection Certificate in the form of Exhibit H duly completed
by the US Borrower and its Domestic Subsidiaries.
(n) LEGAL OPINIONS. The Administrative Agent shall have received the
following executed legal opinions, each dated the Closing Date:
(i) the executed legal opinion of Kirkland & Ellis, New York
counsel to the Credit Parties, substantially in the form of Exhibit E-1;
and
(ii) such legal opinions of local counsel to the Credit
Parties, in form and substance reasonably satisfactory to the
Administrative Agent as the Administrative Agent may request.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(o) CLOSING CERTIFICATE. The Administrative Agent shall have
received a Closing Certificate substantially in the form of Exhibit F
hereto and dated the Closing Date, executed by a Responsible Officer of
each Credit Party.
(p) PLEDGED STOCK. Each Specified Agent shall have received the
pledged stock to be pledged pursuant to, and the acknowledgements and
consents of the Issuers referred to in, the applicable Loan Documents,
together with undated stock powers endorsed in blank for each stock
certificate representing such pledged stock, or, as applicable, such other
documents or notifications required by the applicable Loan Documents.
<PAGE>
63
(q) SURVEYS. The Collateral Agent shall have received, and the title
insurance company issuing the policy referred to in subsection 6.1(r) (the
"TITLE INSURANCE COMPANY") shall have received, maps or plats of an
as-built survey of the sites of the property covered by each Mortgage
certified to the Collateral Agent and the Title Insurance Company in a
manner satisfactory to them, dated (or, in the case of previously prepared
maps, plats or surveys, recertified) a date satisfactory to the Collateral
Agent and the Title Insurance Company, by an independent professional
licensed land surveyor satisfactory to the Collateral Agent and the Title
Insurance Company, which maps or plats and the surveys on which they are
based shall be made in accordance with the Minimum Standard Detail
Requirements for Land Title Surveys jointly established and adopted by the
American Land Title Association and the American Congress on Surveying and
Mapping in 1962, and, without limiting the generality of the foregoing,
there shall be surveyed and shown on such maps, plats or surveys the
following: (i) the locations on such sites of all the buildings, structures
and other improvements and the established building setback lines; (ii) the
lines of streets abutting the sites and width thereof; (iii) all access and
other easements appurtenant to the sites or necessary or desirable to use
the sites; (iv) all roadways, paths, driveways, easements, encroachments
and overhanging projections and similar encumbrances affecting the site,
whether recorded, apparent from a physical inspection of the sites or
otherwise known to the surveyor; (v) any encroachments on any adjoining
property by the building structures and improvements on the sites; and (vi)
if the site is described as being on a filed map, a legend relating the
survey to said map.
(r) TITLE INSURANCE POLICY. The Collateral Agent shall have received
in respect of each parcel covered by each Mortgage a mortgagee's title
policy (or policies) or marked up unconditional binder for such insurance
dated the Closing Date. Each such policy shall (i) be in an amount
satisfactory to the Collateral Agent; (ii) be issued at ordinary rates;
(iii) insure that the Mortgage insured thereby creates a valid first Lien
on such parcel free and clear of all defects and encumbrances, except such
as may be approved by the Collateral Agent; (iv) name the Collateral Agent
for the ratable benefit of the Secured Parties as the insured thereunder;
(v) be in the form of ALTA Loan Policy - 1970 (Amended 10/17/70 and
10/17/84) (or equivalent policies); (vi) contain such endorsements and
affirmative coverage as the Collateral Agent may request and (vii) be
issued by title companies satisfactory to the Collateral Agent (including
any such title companies acting as co-insurers or reinsurers, at the option
of the Collateral Agent). The Collateral Agent shall have received
evidence satisfactory to it that all premiums in respect of each such
policy, and all charges for mortgage recording tax, if any, have been paid.
(s) FLOOD INSURANCE. If required by law and requested by the
Collateral Agent, the Collateral Agent shall have received (i) a policy of
flood insurance which (A) covers any parcel of improved real property which
is encumbered by any Mortgage, (B) is written in an amount not less than
the outstanding principal amount of the indebtedness secured by such
Mortgage which is reasonably allocable to such real property or the maximum
limit of coverage made available with respect to the particular type of
property under the National Flood Insurance Act of 1968, whichever is less,
and (C) has a term ending not earlier than the maturity of the indebtedness
secured by such Mortgage and (ii) confirmation that the Company has
received the notice required pursuant to Section 208(e)(3) of Regulation H
of the Board of Governors of the Federal Reserve System.
(t) COPIES OF DOCUMENTS. The Administrative Agent shall have
received a copy of all recorded documents referred to, or listed as
exceptions to title in, the title policy or policies referred to in
subsection 6.1(r) and a copy, certified by such parties as the
Administrative Agent may deem appropriate, of all other documents affecting
the property covered by each Mortgage.
(u) OTHER DOCUMENTATION. All other documentation, including, without
limitation, any tax sharing agreement, employment agreement, management
compensation arrangement or
<PAGE>
64
other financing arrangement of each of the Borrowers, or any of their
Subsidiaries shall be reasonably satisfactory in form and substance to the
Agents.
6.2 CONDITIONS TO EACH SPECIFIED LOAN. The agreement of each
Specified Lender to make any Specified Loan requested to be made by it on any
date (including the Closing Date) or of the Specified Revolving Credit Lenders
and the Specified Issuing Lender to issue, accept or participate in any
Specified Accommodation is subject to the satisfaction of the following
conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Credit Parties and their Subsidiaries in or pursuant
to the Loan Documents shall be true and correct in all material respects on
and as of such date as if made on and as of such date, except for any
representation and warranty which is expressly made as of an earlier date,
which representation and warranty shall have been true and correct in all
material respects as of such earlier date.
(b) NO DEFAULT. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the Specified
Loans requested to be made, or Specified Accommodation requested to be
issued or accepted, on such date.
(c) LETTER OF CREDIT APPLICATION. With respect to the issuance of
any Specified Letter of Credit, the Specified Issuing Bank shall have
received a Specified Letter of Credit Application, completed to its
reasonable satisfaction and duly executed by a Responsible Officer;
PROVIDED that if such Specified Letter of Credit is being issued to support
the repayment of any Indebtedness of any Subsidiary of the Specified
Borrower, such Subsidiary shall also execute such Specified Letter of
Credit Application and shall agree to be jointly and severally liable with
the Specified Borrower for any and all obligations arising under or in
connection with such Specified Letter of Credit or the Specified Letter of
Credit Application related thereto.
Each borrowing by a Specified Borrower hereunder and issuance of any Specified
Accommodation shall constitute a representation and warranty by the Specified
Borrower as of the date of such Specified Loan or issuance or acceptance, as the
case may be, that the conditions contained in this subsection 6.2 have been
satisfied.
SECTION 7. AFFIRMATIVE COVENANTS
Each Borrower, as to itself and its Subsidiaries, hereby agrees that,
so long as any Commitment remains in effect, any Loan remains outstanding and
unpaid, any Accommodation is outstanding, or any other Obligations (other than
indemnification obligations not due and payable) are owing to any Secured Party,
each Borrower, as to itself and its Subsidiaries, shall and (except in the case
of delivery of financial information, reports and notices) shall cause each of
its Subsidiaries to:
7.1 FINANCIAL STATEMENTS. Furnish to the Administrative Agent:
(a) as soon as available, but in any event within one hundred twenty
(120) days after the end of each fiscal year of the US Borrower, a copy of
the consolidated (and unaudited consolidating for the US and UK operations
only) balance sheet of the US Borrower and its consolidated Subsidiaries as
at the end of such year and the consolidated (and unaudited consolidating
for the US and UK operations only) statements of income and retained
earnings and consolidated statement of cash flows for such year, setting
forth in each case in comparative form the figures for the previous year,
reported on without a "going concern" or like qualification or exception,
or qualification arising out of the scope of the audit, by independent
certified public accountants of nationally recognized standing;
<PAGE>
65
(b) as soon as available, but in any event not later than sixty (60)
days after the end of each of the first three (3) quarterly periods of each
fiscal year of the US Borrower, the unaudited consolidating for the US and
UK operations only and unaudited consolidated balance sheet of the US
Borrower and its consolidated Subsidiaries as at the end of such quarter
and the related unaudited consolidating for the US and UK operations only
and unaudited consolidated statements of income and retained earnings and
consolidated statement of cash flows of the US Borrower and its
consolidated Subsidiaries for such quarter and the portion of the fiscal
year through the end of such quarter, setting forth in each case in
comparative form (i) the figures for the previous year and (ii) the figures
set forth in the relevant budgets required to be delivered in accordance
with subsection 7.2(c), certified by a Responsible Officer as being fairly
stated in all material respects (subject to normal year-end audit
adjustments and the absence of footnotes);
all such financial statements shall fairly present in all material respects the
consolidated and consolidating for the US and UK operations only financial
position of the US Borrower and its Subsidiaries as of such date and shall be
prepared in reasonable detail and in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and disclosed
therein).
7.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Administrative
Agent:
(a) concurrently with the delivery of the financial statements
referred to in subsection 7.1(a), (i) a certificate of the independent
certified public accountants reporting on such financial statements stating
that in making the examination necessary therefor no knowledge was obtained
of any Default or Event of Default relating to the covenants contained in
subsection 8.1, except as specified in such certificate and (ii) a report
of a reputable insurance broker with respect to the insurance required by
the Guarantee and Collateral Agreement;
(b) concurrently with the delivery of the financial statements
referred to in subsections 7.1(a) and 7.1(b), (x) a certificate of a
Responsible Officer stating that, to the best of such Responsible Officer's
knowledge, (i) each of the Borrowers and their respective Subsidiaries has
observed or performed all of its respective covenants and other agreements,
and satisfied every condition, contained in this Agreement, in the Notes
and the other Loan Documents to which it is a party to be observed,
performed or satisfied by it, in all material respects, and that such
Responsible Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate, (ii) stating that all such
financial statements fairly present in all material respects (subject, in
the case of interim statements, to normal year-end audit adjustments and
the absence of footnotes) and have been prepared in reasonable detail and
in accordance with GAAP applied consistently throughout the periods
reflected therein (except as disclosed therein) and (iii) showing in detail
the calculations supporting such statement in respect of subsections 8.1
and 8.8 and (y) to the extent not previously disclosed to the
Administrative Agent, a listing of any county or state within the United
States where any Credit Party keeps inventory or equipment and of any
Intellectual Property acquired by any Loan Party since the date of the most
recent list delivered pursuant to this clause (y) (or, in the case of the
first such list so delivered, since the Closing Date);
(c) as soon as available but not later than ninety (90) days after
the end of each fiscal year of the US Borrower, a copy of the projections
by the US Borrower of the operating budget and cash flow budget of the US
Borrower and its Subsidiaries for the
<PAGE>
66
succeeding fiscal year, such projections to be accompanied by a certificate
of a Responsible Officer to the effect that such projections have been
prepared in good faith and based upon reasonable assumptions;
(d) as soon as reasonably practicable after the same are filed,
copies of all financial statements and reports which the US Borrower or any
Subsidiary may make to, or file with, the Securities and Exchange
Commission or any successor or analogous Governmental Authority; and
(e) promptly, such additional financial and other information as any
Lender may from time to time reasonably request (including, without
limitation, any supplemental reports with respect to the insurance required
by the Guarantee and Collateral Agreement).
7.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at
or before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature (other than Indebtedness), except where
the amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the US Borrower or its Subsidiaries,
as the case may be and to the extent that failure to comply therewith could not,
in the aggregate, reasonably be expected to have a Material Adverse Effect;
PROVIDED that, notwithstanding the foregoing, the US Borrower and each of its
Subsidiaries shall have the right to pay any such obligation and in good faith
contest, by proper legal actions or proceedings, the validity or amount of such
claims.
7.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. (a) Except as
provided in subsection 8.5, continue to engage in business of the same general
type as now conducted by it and preserve, renew and keep in full force and
effect its corporate existence and take all reasonable action to maintain all
rights, privileges and franchises necessary in the normal conduct of its
business except if (i) in the reasonable business judgment of the US Borrower or
such Subsidiary, as the case may be, it is in its economic interest not to
preserve and maintain such rights or franchises, and (ii) such failure to
preserve and maintain such privileges, rights or franchises could not reasonably
be expected to have a Material Adverse Effect; and (b) comply with all
Contractual Obligations and Requirements of Law except to the extent that
failure to comply therewith could not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect.
7.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) Keep all property
(including the Mortgaged Properties) necessary in its business in good working
order and condition (ordinary wear and tear and damage by casualty excepted);
maintain with financially sound and reputable insurance companies insurance on
all its property in at least such amounts and against at least such risks (but
including in any event public liability, product liability and business
interruption) as are customarily insured against in the same general area by
companies engaged in the same or a similar business or as otherwise reasonably
requested by the Specified Agent; and furnish to the Administrative Agent, upon
written request, full information as to the insurance carried except to the
extent that the failure to do any of the foregoing with respect to any such
property could not reasonably be expected to materially adversely affect the
value or usefulness of such property.
<PAGE>
67
(b) With respect to Inventory and Equipment (as defined in the
Guarantee and Collateral Agreement) (i) maintain, with financially sound and
reputable companies, insurance policies insuring the Inventory and Equipment
against loss by fire, explosion, theft and such other casualties as are
customary for businesses of the same or similar type and (ii) insuring the US
Borrower or any of its Domestic Subsidiary, as the case may be, against
liability for personal injury and property damage relating to such Inventory and
Equipment, such policies to be in such form and amounts and having such coverage
as are customary for businesses of the same or similar type.
(c) All such insurance shall (i) provide that no cancellation in
coverage thereof shall be effective until at least thirty (30) days after
receipt by the Collateral Agent of written notice thereof, (ii) name the
Collateral Agent for the ratable benefit of the Secured Parties as insured
party, lender loss payee or, with respect to the Mortgaged Properties, mortgagee
under a standard mortgage clause, and (iii) if reasonably requested by the
Collateral Agent, include a breach of warranty clause.
7.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and prior to the
occurrence and continuance of a Default or an Event of Default not to exceed two
times a year for each Lender and at any time upon the occurrence and during the
continuance of a Default or Event of Default, permit representatives of any
Specified Lender in connection with such Lender's credit analysis of the US
Borrower to visit and inspect any of its properties and examine and make
abstracts from any of its books and records upon reasonable advance notice at
any reasonable time on any Business Day and to discuss the business, operations,
properties and financial and other condition of the US Borrower and its
Subsidiaries with officers and employees of the US Borrower and its Subsidiaries
and with its independent certified public accountants; PROVIDED that the
Specified Agent or such Specified Lender shall notify the US Borrower prior to
any contact with such accountants and give the US Borrower the opportunity to
participate in such discussions; PROVIDED, that prior to the occurrence of any
Default or Event of Default the Borrowers shall not be required to pay for any
visits by any Lender in excess of one visit per year.
7.7 NOTICES. Promptly give notice to the Administrative Agent and
each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the US Borrower or any of its Subsidiaries or (ii)
litigation, investigation or proceeding which may exist at any time between
the US Borrower or any of its Subsidiaries and any Governmental Authority,
which in either case, could reasonably be expected to have a Material
Adverse Effect;
(c) the following events, if, in the aggregate, they could reasonably
be expected to have a Material Adverse Effect: (i) the occurrence or
expected occurrence of any Reportable Event with respect to any Single
Employer Plan, a failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC or a Single Employer Plan or any
withdrawal from, or the termination, Reorganization or
<PAGE>
68
Insolvency of, any Multiemployer Plan or (ii) the institution of
proceedings or the taking of any other action by the PBGC or the US
Borrower or any Commonly Controlled Entity or any Multiemployer Plan with
respect to the withdrawal from, or the terminating, Reorganization or
Insolvency of, any Single Employer Plan or Multiemployer Plan;
(d) the occurrence of any Material Adverse Change; and
(e) the receipt by the US Borrower or any Subsidiary of any
complaint, order, citation, notice or other written communication from any
Person with respect to the existence or alleged existence of a violation of
any Environmental Laws or Materials of Environmental Concern or any other
environmental, health or safety matter including the occurrence of any
spill, discharge or release in a quantity that is reportable under any
Environmental Law on any Mortgaged Property or any other property owned,
leased or utilized by the US Borrower or any Subsidiary of the US Borrower
but only to the extent that such complaint, order, citation, notice or
written communication in the aggregate could reasonably be expected to have
a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the US Borrower or the applicable Commonly Controlled
Entity proposes to take with respect thereto.
7.8 ENVIRONMENTAL LAWS.
(a) Comply in all material respects with, and will use reasonable
best efforts to ensure compliance in all material respects by all tenants
and subtenants, if any, with, all applicable Environmental Laws, except to
the extent that failure to comply therewith could not, in the aggregate, be
reasonably expected to have a Material Adverse Effect;
(b) Conduct and complete (or cause to be conducted and completed) all
investigations, studies, sampling and testing, and all remedial, removal
and other actions required under Environmental Laws and in a timely fashion
comply in all material respects with all lawful orders and directives of
all Governmental Authorities regarding Environmental Laws, except to the
extent that the same are being contested in good faith by appropriate
proceedings or to the extent that the failure to take such actions could
not in the aggregate be reasonably expected to have a Material Adverse
Effect; and
(c) Defend, indemnify and hold harmless the Specified Agent and the
Specified Lenders, and their respective employees, agents, officers,
directors and controlling persons, from and against any and all claims,
demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or
otherwise, arising out of, or in any way relating to the violation of,
noncompliance with or liability under, any Environmental Law applicable to
the operations of the US Borrower, any of its Subsidiaries or the
Properties, or any orders, requirements or demands of Governmental
Authorities related thereto, including, without limitation, reasonable
attorney's and consultant's fees, investigation and laboratory fees,
response costs, court costs and litigation expenses, except to the extent
that any of the foregoing arise out of or relate to the gross negligence or
wilful misconduct of the Specified Agent or any of the Specified Lenders,
or any post-foreclosure actions not taken in accordance with the Assets
Conservation, Lender
<PAGE>
69
Liability and Deposit Insurance Protection Act of 1996 or any similar
foreign law. The agreements in this paragraph shall survive repayment of
all Specified Loans and all other amounts payable hereunder.
7.9 PLEDGE OF AFTER ACQUIRED PROPERTY. If at any time following the
Closing Date any Specified Borrower or any Subsidiary shall acquire at any time
property of any nature whatsoever with a monetary value on the date of such
acquisition in excess of the Equivalent Amount of $5,000,000 in the aggregate,
the Specified Borrower and any such Subsidiary shall grant to the Specified
Agent for the ratable benefit of the Specified Lenders a first priority or first
ranking (subject to then existing Liens of the type permitted in Section 8.3)
Lien on and security interest in such property as collateral security for the
Specified Obligations pursuant to documentation reasonably satisfactory to the
Specified Agent and take such actions as the Specified Agent shall reasonably
require to ensure the priority and perfection of such Lien, PROVIDED that (i)
only 65% of the voting Capital Stock of any direct Foreign Subsidiary which is a
Material Subsidiary of the US Borrower or its Domestic Subsidiaries need be so
pledged, (ii) no voting Capital Stock or assets of any indirect Foreign
Subsidiary of the US Borrower or its Domestic Subsidiaries need be so pledged
unless such Foreign Subsidiary is also a Material Subsidiary of a Foreign
Subsidiary Borrower and such pledge is only to secure the Specified Obligations
of such Foreign Subsidiary Borrower, in which case subsection 7.10 shall be
complied with, (iii) with respect to real or immovable property, only fee owned
real estate or immovable property in excess of the Equivalent Amount of
$5,000,000 need be mortgaged, and (iv) property subject to a Lien permitted by
subsection 8.3(h) or falling within 8.14(a)(ii) need not be so pledged.
7.10 ADDITIONAL SUBSIDIARIES. If, at any time, any Specified
Borrower or any of its Subsidiaries shall form any new Material Subsidiary after
the date of this Agreement or any Subsidiary becomes a Material Subsidiary, such
Specified Borrower or such Material Subsidiary, as the case may be, shall,
subject to applicable Requirements of Law (i) cause any such Material Subsidiary
to guarantee the Specified Obligations to the extent permitted by law, and
(ii) cause each holder of any Capital Stock of such Material Subsidiary to
pledge 100% of such Capital Stock to the Specified Agent which shall be
accompanied by such resolutions, incumbency certificates and legal opinions as
are reasonably requested by the Specified Agent; PROVIDED, that (i) in the event
such Material Subsidiary is a direct Foreign Subsidiary of the US Borrower or
its Domestic Subsidiaries, (x) only 65% of the voting Capital Stock of such
Foreign Subsidiary need be pledged to the Collateral Agent and (y) such Foreign
Subsidiary need not provide any guarantee or a security interest in its assets,
and (ii) no voting Capital Stock or assets of any indirect Foreign Subsidiary of
the US Borrower or its Domestic Subsidiaries need be so pledged unless such
Foreign Subsidiary is also a Subsidiary of a Foreign Subsidiary Borrower and
such pledge is only to secure the Specified Obligations of such Foreign
Subsidiary Borrower, in which case the foregoing shall be complied with, subject
to applicable Requirements of Law.
7.11 INTELLECTUAL PROPERTY. Whenever the US Borrower or any other
Credit Party, either by itself or through any agent, employee, licensee or
designee, shall file an application for the registration of any Copyright,
Patent or Trademark with the United States Patent and Trademark Office or any
similar office or agency in any other country or any political subdivision
thereof, the US Borrower shall or shall cause such other Credit Party to report
such filing to the Specified Agent within five (5) Business Days after the last
day of the fiscal quarter in which such filing occurs. Upon request of the
Specified Agent, the US Borrower and such Credit Party shall execute and deliver
any and all agreements, instruments, documents, and
<PAGE>
70
papers as the Collateral Agent may reasonably request to evidence the
Administrative Agent's security interest in any Copyright, Patent or Trademark
or such Intellectual Property and the goodwill and general intangibles of the US
Borrower or such Credit Party relating thereto or represented thereby.
7.12 USE OF PROCEEDS. Use the Specified Revolving Credit Commitments
for working capital and general corporate purposes of the Specified Borrower and
its Subsidiaries and Permitted Acquisitions, which shall include up to
$6,000,000 to finance the Nelson Acquisition and the fees and expenses in
connection therewith, PROVIDED that, no more than L15,000,000 of the English
Revolving Credit Commitments may be used for purposes other than the Bank
Guarantee Letters of Credit, reimbursement obligations in respect thereof and
obligations in respect of the related loan notes. Use the Additional US Tranche
A Term Loans to finance the Transactions and to pay fees and expenses in
connection therewith.
7.13 INTEREST RATE PROTECTION AGREEMENTS. Within 90 days following
the Closing Date, ensure that at all times during the two year period following
the date that is 90 days following the Closing Date at least 40% of the sum of
the Senior Subordinated Notes and the Term Loans bears interest at a fixed rate
or is subject to interest rate protection reasonably satisfactory to the
Administrative Agent.
SECTION 8. NEGATIVE COVENANTS
Each Borrower as to itself and its Subsidiaries hereby agrees that, so
long as the Specified Commitments remain in effect, any Specified Loan remains
outstanding and unpaid, any Specified Accommodation remains outstanding or any
other Obligations (other than indemnification obligations not due and payable)
are owing to any Secured Party, each Borrower as to itself and its Subsidiaries
shall not, and (except with respect to subsection 8.1) shall not permit any of
its Subsidiaries to, directly or indirectly:
8.1 FINANCIAL CONDITION COVENANTS.
(a) INTEREST COVERAGE RATIO. Permit the Interest Coverage Ratio for
any period of four consecutive calendar quarters ending during any period
set forth below to be less than the ratio set forth opposite such period
below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through December 31, 1999 1.75 to 1.00
January 1, 2000 through December 31, 2000 2.00 to 1.00
January 1, 2001 through December 31, 2001 2.25 to 1.00
January 1, 2002 and thereafter 2.75 to 1.00
</TABLE>
(b) LEVERAGE RATIO. Permit the Leverage Ratio at the last day of any
fiscal quarter occurring during any period set forth below to be greater
than the ratio set forth opposite such period below:
<PAGE>
71
<TABLE>
<CAPTION>
Fiscal Quarter Ratio
-------------- -----
<S> <C>
Closing Date through December 31, 1999 5.75 to 1.00
January 1, 2000 through December 31, 2000 5.25 to 1.00
January 1, 2001 through December 31, 2001 4.75 to 1.00
January 1, 2002 and thereafter 4.50 to 1.00
</TABLE>
(c) SENIOR DEBT RATIO. Permit the Senior Debt Ratio at the last day
of any fiscal quarter occurring on or after September 30, 2000 to be
greater than 3.00 to 1.00.
(d) MINIMUM CASH RETAINED EARNINGS. At the last day of any fiscal
quarter occurring during any period set forth below, permit (a) the sum of
(i) $175,000,000, (ii) 100% of the Net Cash Proceeds of any equity
securities issued by the US Borrower from the Original Closing Date through
such day of determination (other than those referred to in subsection
6.1(e)) and (iii) 100% of Consolidated Net Income from May 1, 1999 through
such day of determination, to be less than (b) the sum of (i) $156,000,000,
(ii) 75% of the Net Cash Proceeds of any equity securities issued by the US
Borrower from the Original Closing Date through such day of determination
(other than those referred to in subsection 6.1(e)) and (iii) 50% of
Consolidated Net Income for each fiscal quarter (or, in the case of the
first fiscal quarter concluding after the Original Closing Date, the period
from May 1, 1999 to such date of conclusion) of the US Borrower for which
Consolidated Net Income is a positive number commencing from May 1, 1999
through such day of determination.
8.2 LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness of the Credit Parties under the Loan Documents;
(b) Indebtedness among the Credit Parties and their Subsidiaries
arising as a result of intercompany loans (including the conversion into
intercompany indebtedness of any investments made in the form of equity and
permitted hereunder); PROVIDED that any such loan made by a Credit Party is
evidenced by an Intercompany Note pledged by such Credit Party to secure
its Obligations pursuant to documentation reasonably satisfactory to the
Administrative Agent.
(c) Indebtedness of Subsidiaries of the US Borrower outstanding on
the Closing Date and listed on Schedule 8.2 and extensions, renewals or
replacements thereof provided that no such extension, renewal or
replacement shall increase the principal amount thereof;
(d) Indebtedness resulting from the endorsement of negotiable
instruments in the ordinary course of business;
(e) Indebtedness of Subsidiaries of the US Borrower in respect of
obligations under Financing Leases and purchase money Indebtedness in an
aggregate amount outstanding not to exceed Equivalent Amount of $16,250,000
at any one time;
(f) Indebtedness in respect of Interest Rate Agreements for hedging
purposes only and not for speculative purposes;
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72
(g) Indebtedness of any Credit Party (other than the US Borrower) to
any other Credit Party from intercompany transfers of assets made in the
ordinary course of business or to the extent permitted under subsections
8.6 and 8.9;
(h) Guarantee Obligations permitted by subsection 8.4;
(i) Indebtedness subject to Liens permitted under subsections 8.3(b),
(c), (d), and (e);
(j) additional Indebtedness of Subsidiaries of the US Borrower in an
aggregate principal amount outstanding not to exceed the Equivalent Amount
of $19,500,000 at any one time;
(k) Indebtedness of English Bidco and English Borrower in respect of
Guaranteed Loan Notes not to exceed L17,823,330.80;
(l) Indebtedness of a Credit Party which is a Domestic Subsidiary of
the US Borrower incurred to fund part of the cost of a Permitted
Acquisition, PROVIDED, (A) (i) such Indebtedness is owed to the selling
party and is evidenced by a promissory note or (ii) so long as the Senior
Debt Ratio is less than or equal to 2.75 to 1.0 both before and after
giving effect to such Permitted Acquisition, such Indebtedness is in an
aggregate principal amount during the term of this Agreement not in excess
of $65,000,000, (B) any such Indebtedness is subordinated to the
Obligations hereunder on terms reasonably satisfactory to the
Administrative Agent, and (C) immediately after giving effect to the
incurrence of such Indebtedness, no Event of Default exists;
(m) RESERVED;
(n) Indebtedness in respect of the Senior Subordinated Notes;
(o) Indebtedness of the US Borrower owing to outside directors,
employees or members of management in connection with the repurchase of any
Capital Stock permitted pursuant to subsection 8.7(a)(ii); PROVIDED, that
(i) such Indebtedness shall be subordinated to payment of the Obligations
on terms satisfactory to the Administrative Agent and (ii) such
Indebtedness shall provide that no payments of principal, interest or other
amounts may be paid in cash thereon prior to October 21, 2007;
(p) Indebtedness owing to any insurance company in connection with
the financing of any insurance premiums permitted by such insurance company
in the ordinary course of business;
(q) Indebtedness assumed in connection with a Permitted Acquisition
permitted by subsection 8.9(k); PROVIDED, that such Indebtedness was in
existence at the time of such Permitted Acquisition and was not created in
contemplation thereof; and
(r) in the case of the US Borrower, the Tower Subordinated Debt.
8.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
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73
(a) Liens created by the Loan Documents in favor of the Specified
Agent or the Lenders;
(b) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, PROVIDED that adequate reserves with
respect to contested taxes are maintained on the books of the US Borrower
or its Subsidiaries, as the case may be, in conformity with GAAP;
(c) carriers', landlord's, warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
which are not overdue for a period of more than sixty (60) days or which
are being contested in good faith by appropriate proceedings;
(d) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, insurance
contracts, utilities, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(f) easements, rights-of-way, zoning restrictions, restrictions,
minor defects, encroachments or irregularities in title and other similar
encumbrances (i) previously or hereinafter incurred in the ordinary course
of business which, in the aggregate, are not material in amount and which,
in the case of such encumbrances on any of the Properties covered by the
Mortgages, do not in the aggregate materially detract from the value of the
Property subject thereto or, in the case of such encumbrances on any
property, materially interfere with the ordinary conduct of the business of
the US Borrower or its Subsidiaries or (ii) which are set forth in the
"marked up" commitments for title insurance delivered to the Administrative
Agent on the Closing Date or thereafter;
(g) Liens in existence on the Closing Date listed on Schedule 8.3,
securing Indebtedness permitted by subsection 8.2(c) (including extensions,
renewals and replacements of such Indebtedness as permitted under
subsection 8.2(c)), PROVIDED that no such Lien is spread to cover any
additional property (other than after acquired title in or on such property
and proceeds of the existing collateral in accordance with the instrument
creating such Lien) after the Closing Date and that the amount of
Indebtedness secured thereby is not increased except pursuant to the
instrument creating such Lien (without any modification thereof) other than
as set forth in subsection 8.2(c);
(h) purchase money Liens and Liens in respect of Financing Leases
upon or in any property acquired or held by Subsidiaries of the US Borrower
to secure Indebtedness permitted under subsection 8.2(e) incurred solely
for the purpose of financing the acquisition of such property, and Liens
existing on such property at the time of its acquisition or existing on
property of any Person that becomes a Subsidiary after the date hereof at
the time such Person becomes a Subsidiary (other than any such Lien created
in contemplation of such acquisition);
(i) Liens on assets of a Foreign Subsidiary which is not a Credit
Party securing working capital lines of such Foreign Subsidiary to the
extent (x) the Indebtedness secured thereby is permitted under subsection
8.2(j) or (y) is the Indebtedness of the Spanish Subsidiary referred to on
Schedule 8.2;
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74
(j) licenses, leases or subleases permitted hereunder granted to
others not interfering in any material respect in the business of the US
Borrower or any of its Subsidiaries;
(k) attachment or judgment Liens (other than judgment Liens paid or
fully covered by insurance which are not outstanding for more than sixty
(60) days) in an aggregate amount outstanding at any one time not in excess
of the Equivalent Amount of $6,500,000;
(l) Liens arising from precautionary Uniform Commercial Code
financing statement filings with respect to operating leases or consignment
arrangements entered into by Subsidiaries of the US Borrower in the
ordinary course of business;
(m) Liens in favor of a banking institution arising by operation of
law encumbering deposits (including the right of set-off) held by such
banking institutions incurred in the ordinary course of business and which
are within the general parameters customary in the banking industry;
(n) Liens (not otherwise permitted hereunder) which secure
obligations not exceeding (as to Subsidiaries of the US Borrower) the
Equivalent Amount of $13,000,000 in aggregate amount at any time
outstanding; and
(o) Liens existing on any property or asset prior to the acquisition
thereof by Subsidiaries of the US Borrower, PROVIDED THAT (i) such Lien is
not created in contemplation of such acquisition and (ii) such Lien does
not apply to any other property or other assets of any Subsidiary of the US
Borrower.
8.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or
suffer to exist any Guarantee Obligation except:
(a) Guarantee Obligations pursuant to the Loan Documents;
(b) guarantees of Indebtedness by Subsidiaries of the US Borrower
permitted pursuant to subsection 8.2(c) in existence on the Closing Date
and set forth on Schedule 8.4 and extensions, renewals and replacements
thereof, PROVIDED, however, that no such extension, renewal or replacement
shall (i) amend or modify the subordination provisions, if any, contained
in such guarantee in a manner adverse to the Secured Parties, or (ii)
increase the principal amount of such Indebtedness guaranteed by the
original guarantee;
(c) the Specified Accommodation Obligations;
(d) indemnities given in the ordinary course of business in favor of
the companies issuing title insurance policies insuring the title to any
property to induce such issuance;
(e) surety bonds issued in the ordinary course of business in respect
of the type of obligations described in subsection 8.3(e);
(f) indemnities made in the Loan Documents, the Transaction Documents
or in any of the agreements contemplated hereby and thereby and in the
financial advisory agreement described in subsection 8.11(b)(ii) and in the
corporate charter and/or bylaws of the US Borrower and its Subsidiaries;
(g) guarantees by English Borrower of the Guaranteed Loan Notes;
<PAGE>
75
(h) indemnities and guarantees (other than guarantees of Indebtedness
(other than Indebtedness of Subsidiaries of the US Borrower permitted
hereunder)) made in the ordinary course of business, PROVIDED that such
indemnities and guarantees could not in the aggregate reasonably be
expected to have a Material Adverse Effect;
(i) guarantees of Indebtedness of any Subsidiary of the US Borrower
permitted under Section 8.2 to the extent that such Subsidiary has granted
a security interest in its material assets for the benefit of the Lenders;
(j) Guarantee Obligations of Subsidiaries in respect of Indebtedness
under any Interest Rate Agreement permitted under subsection 8.2(f);
(k) additional Guarantee Obligations in aggregate principal amount
not to exceed $6,500,000 at any one time; and
(l) Guarantee Obligations of Subsidiaries under the Senior
Subordinated Note Indenture in respect of the Senior Subordinated Notes.
8.5 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, except (i) any Domestic Subsidiary of a Specified Borrower may be
merged or consolidated with or into such Specified Borrower (PROVIDED that the
Specified Borrower shall be the continuing or surviving corporation) or with or
into any one or more Wholly Owned Subsidiaries of any such Specified Borrower
(PROVIDED that no Domestic Subsidiary of the US Borrower may be merged or
consolidated with or into any Foreign Subsidiary of the US Borrower unless such
Domestic Subsidiary shall be the surviving corporation), (ii) any Subsidiary of
a Specified Borrower may liquidate or dissolve if, in connection therewith, all
of its assets are transferred to such Specified Borrower (or a Subsidiary
thereof which is a Credit Party), (iii) any Subsidiary which is not a Material
Subsidiary may liquidate or dissolve, (iv) any Foreign Subsidiary may be merged
or consolidated with or into another Foreign Subsidiary (PROVIDED that if any
such merger or consolidation involves a Credit Party, such Credit Party shall be
the continuing or surviving corporation), (v) in the case of a Subsidiary of the
US Borrower, to the extent necessary to effect any Permitted Acquisitions and
(vi) any transaction permitted by subsection 8.6(d).
8.6 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, except:
(a) obsolete, negligible, surplus or worn out property disposed of in
the ordinary course of business or property that is no longer used or
useful in the conduct of the US Borrower's business disposed of in the
ordinary course of business;
(b) the sale, transfer or exchange of inventory in the ordinary
course of business;
(c) transfers resulting from any casualty or condemnation of property
or assets;
(d) so long as immediately before and after giving effect thereto no
Default or Event of Default exists, any sale or other transfer of any
property or assets having an aggregate fair market value not exceeding 10%
of Consolidated Total Assets of the US Borrower and its Subsidiaries prior
to giving effect to such disposition, PROVIDED that the Net Cash Proceeds
of each such transaction are applied to the prepayment of the Loans to the
extent required by subsection 2.9;
<PAGE>
76
(e) intercompany sales or transfers of assets made (i) in the
ordinary course of business, (ii) between Credit Parties, (iii) from Credit
Parties to Subsidiaries which are not Credit Parties if such sales or
transfers are for at least fair market value or (iv) between Subsidiaries
which are not Credit Parties;
(f) licenses or sublicenses of intellectual property and general
intangibles and licenses, leases or subleases of other property in the
ordinary course of business and which do not materially interfere with the
business of the US Borrower and its Subsidiaries;
(g) any consignment arrangements or similar arrangements for the sale
of assets in the ordinary course of business;
(h) the sale or discount of overdue accounts receivable arising in
the ordinary course of business, but only in connection with the compromise
or collection thereof;
(i) dispositions permitted by subsection 8.5; and
(j) the sale of assets to the extent that such assets are exchanged
for credit against the purchase price of productive assets, or the proceeds
of such sale are reasonably promptly applied to the purchase price of
productive assets.
8.7 LIMITATION ON RESTRICTED PAYMENTS. Declare or pay any dividend
(other than dividends payable solely in common stock of the US Borrower) on, or
make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any class of Capital Stock of the US Borrower or any of its
Subsidiaries or any warrants or options to purchase any such Capital Stock,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property, obligations
of the US Borrower, any Subsidiary or otherwise (such declarations, payments,
setting apart, purchases, redemptions, defeasances, retirements, acquisitions
and distributions being herein called "RESTRICTED PAYMENTS"), except that:
(a) Subsidiaries of the US Borrower may make Restricted Payments to
other Subsidiaries of the US Borrower and to the US Borrower and the US
Borrower may make the respective Restricted Payments, so long as (except in
the cases of clauses (i), (iii) and (v)) no Event of Default has occurred
and is continuing or would be continuing after giving effect to such
Restricted Payment:
(i) the proceeds of which shall be applied by the US
Borrower directly to pay its out of pocket expenses, for
administrative, legal and accounting services provided by third
parties that are reasonable and customary and incurred in the
ordinary course of business for such professional services, or to
pay franchise fees and similar costs or to pay operating expenses
in the ordinary course of business, including salaries or other
compensation of employees;
(ii) payments, the proceeds of which will be used to
repurchase the Capital Stock or other equity securities of the US
Borrower from outside directors, employees, officers or members
of the management of the US Borrower, or any Subsidiary, at a
price not in excess of fair market value, in an aggregate amount
not in excess of $3,250,000 in any fiscal year and $13,000,000 in
the aggregate during the term of this Agreement plus the cash
proceeds received by the US Borrower as a result of any resales
of any such Capital Stock or other securities and plus the amount
of Indebtedness referred to in subsection 8.2(o);
<PAGE>
77
(iii) payments, the proceeds of which will be used to pay
taxes of the US Borrower as part of a consolidated group;
(iv) payments, the proceeds of which will be used to pay
management fees and expenses to Hidden Creek as described in
subsection 8.11(b)(ii); and
(v) Restricted Payments may be made to the US Borrower to be
applied by the US Borrower to the payment of regularly scheduled
payments on the Senior Subordinated Notes due within five Business
Days to the extent such payments are then permitted by the
subordination provisions contained in the Senior Subordinated Notes.
(b) any Subsidiary of any of the Borrowers may make Restricted
Payments to the Specified Borrower or to their respective Subsidiaries;
(c) Restricted Payments necessary to complete the Transactions; and
(d) the US Borrower may make scheduled interest payments (as scheduled
on the Closing Date) when due on the Tower Subordinated Debt to the extent
permitted under the subordination provisions applicable thereto.
8.8 LIMITATION ON CAPITAL EXPENDITURES. (a) Make or commit to make
any Capital Expenditure except for expenditures in the ordinary course of
business not exceeding, in the aggregate for the US Borrower and its
Subsidiaries during any of the fiscal years of the US Borrower set forth below
the sum of (x) the amount set forth opposite such fiscal year below (the "BASE
CAPEX AMOUNT") and (y) the then unused Permitted Expenditure Amount, PROVIDED
THAT, (b) to the extent Capital Expenditures made in any particular year are
less than the amount set forth below with respect to such year, the amount of
such difference (other than the component thereof described in clause (y)) (the
"CAPEX ROLLOVER") may be carried forward and spent in the subsequent year:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1999 $37,500,000
2000 $50,000,000
2001 and each year thereafter $40,000,000
</TABLE>
(c) Notwithstanding the foregoing, in no event shall Capital
Expenditures be made by the US Borrower.
8.9 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person ("INVESTMENTS"),
except:
(a) extensions of trade credit in the ordinary course of business;
(b) Investments in Cash Equivalents;
(c) (i) Investments (other than Permitted Acquisitions) by the
US Borrower and its Subsidiaries in any of the Credit Parties,
including any new Subsidiary which
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78
becomes a Credit Party and (ii) Investments in Foreign Subsidiaries of the
US Borrower that are not Credit Parties not to exceed the sum of (x)
$6,500,000 in the aggregate plus (y) intercompany indebtedness permitted
by subsection 8.2(b);
(d) loans and advances by the US Borrower or its Subsidiaries to
their respective directors, officers and employees (a) which are in the
form of notes payable by such directors, officers and employees to the US
Borrower or its Subsidiaries and used to finance the purchase of Capital
Stock of the US Borrower or its Subsidiaries or (b) in an aggregate
principal amount not exceeding the Equivalent Amount of $1,300,000 at any
one time outstanding;
(e) loans, advances or Investments in existence on the Closing Date
and listed on Schedule 8.9, and extensions, renewals, modifications or
restatements or replacements thereof, PROVIDED that no such extension,
renewal, modification or restatement shall (i) increase the amount of the
original loan, advance or investment, or (ii) adversely affect the
interests of the Secured Parties with respect to such original loan,
advance or investment or the interests of the Specified Lenders under this
Agreement or any other Loan Document in any material respect;
(f) Investments permitted by subsection 8.2(b), subsection 8.4,
subsection 8.7 and by subsection 8.8;
(g) promissory notes and other similar non-cash consideration
received in the ordinary course of business by the Subsidiaries of the US
Borrower in connection with the dispositions permitted by subsection 8.6;
(h) Investments in Interest Rate Agreements;
(i) Investments (including debt obligations and Capital Stock)
received in connection with the bankruptcy or reorganization of suppliers
and customers and in settlement of delinquent obligations of, and other
disputes with, customers and suppliers arising in the ordinary course of
business;
(j) in addition to the foregoing, Investments by Subsidiaries of the
US Borrower in an aggregate amount not exceeding the Equivalent Amount of
$13,000,000 (at cost, without regard to any write down or write up thereof)
at any one time outstanding;
(k) so long as after giving effect thereto no Default or Event of
Default shall have occurred and be continuing, Investments after the
Closing Date by Subsidiaries of the US Borrower resulting from Permitted
Acquisitions in an aggregate amount which shall include Indebtedness
permitted by subsections 8.2(l) and (q) not to exceed the sum of (A) the
amount of $13,000,000 per annum, (B) the amount of common stock of the US
Borrower issued subsequent to the Closing Date in connection with Permitted
Acquisitions, (C) the amount of the Indebtedness referred to in subsection
8.2(l)(A)(ii) and (D) the then unused Permitted Expenditure Amount,
PROVIDED, that (i) the Administrative Agent shall have received as soon as
practicable, (I) such opinions (including with respect to environmental
matters), certificates and copies of agreements (including any Permitted
Acquisition Documents) as it shall reasonably request and (II) a
certificate of a Responsible Officer of the US Borrower after giving effect
to such Permitted Acquisition showing the aggregate purchase price
(including the assumption of any Indebtedness) for Permitted Acquisitions
made by the US Borrower and its Subsidiaries since the Closing Date, (ii)
such actions as may be required or reasonably requested to ensure that the
Specified Agent, for the ratable benefit of the Specified Lenders, has a
perfected first priority security interest or first ranking hypothec (in
each case, to the extent permitted by any assumed Indebtedness) in any
assets required to be secured pursuant to subsections 7.9 and 7.11 or any
other Loan Document, subject to Liens permitted by subsection 8.3, shall
have been
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taken and (iii) (I) on a pro forma basis for the period of four consecutive
fiscal quarters most recently ended (assuming the consummation of such
Permitted Acquisition and the incurrence or assumption of any Indebtedness
in connection therewith occurred on the first day of such period of four
consecutive fiscal quarters and taking into account for such pro forma
computation only, the reasonable pro forma cost savings associated with
such Permitted Acquisition which are reasonably satisfactory to the
Administrative Agent), the US Borrower shall be in compliance with the
covenants contained in subsection 8.1 and (II) the Administrative Agent
shall have received calculations in reasonable detail reasonably
satisfactory to it showing compliance with the requirements of this clause
(iii) certified by a Responsible Officer of the US Borrower;
(l) Investments which were owned by the target entity of a Permitted
Acquisition and which were acquired by the US Borrower and its Subsidiaries
in connection with such Permitted Acquisition and were not made or created
in contemplation of such Permitted Acquisition; and
(m) the Nelson Acquisition pursuant to the terms of the Acquisition
Agreement.
8.10 LIMITATION ON PAYMENTS AND MODIFICATIONS OF SENIOR SUBORDINATED
NOTE INDENTURE. (a) Make any payment or prepayment on or redemption of any of
the Senior Subordinated Notes or the Tower Subordinated Debt and any payments in
redemption, defeasance or repurchase thereof, except (i) mandatory payments of
interest, fees and expenses required by the terms of the agreement governing or
instrument evidencing such indebtedness but only to the extent permitted under
the subordination provisions applicable thereto and (ii) to the extent that the
Leverage Ratio does not exceed 3.5 to 1.0 after giving effect to the application
described in this clause (ii) and no Default or Event of Default exists, up to
50% of the net proceeds of equity issuances of the US Borrower used to make
voluntary redemptions of outstanding Senior Subordinated Notes under the "equity
clawback" provisions with respect thereto.
(b) Amend, supplement or otherwise modify any of the provisions of
the Senior Subordinated Note Indenture or the Tower Subordinated Debt.
(i) which amends or modifies the subordination provisions
contained therein;
(ii) which shortens the fixed maturity, or increases the rate or
shortens the time of payment of interest on, or increases the amount
or shortens the time of payment of any principal or premium payable
whether at maturity, at a date fixed for prepayment or by acceleration
or otherwise of such Indebtedness, or increases the amount of, or
accelerates the time of payment of, any fees payable in connection
therewith;
(iii) which relates to the affirmative or negative covenants,
events of default or remedies under the documents or instruments
evidencing such Indebtedness and the effect of which is to subject the
US Borrower or any of its Subsidiaries, to any more onerous or more
restrictive provisions; or
(iv) which otherwise adversely affects the interests of the Lenders
as senior creditors or the interests of the Lenders under this Agreement or
any other Loan Document in any respect.
(c) Make any payment in cash on any equity or debt security that may
be made under the terms thereof by the issuance of any security of the same
nature.
(d) Designate any Indebtedness as "Designated Senior Indebtedness"
under the Senior Subordinated Note Indenture.
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(e) RESERVED.
(f) Amend, supplement or otherwise modify any of the Recapitalization
Agreement or the Transaction Documents in any material respect without the
consent of the Administrative Agent.
8.11 LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) Except as set
forth on Schedule 8.11 hereto, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of property or the rendering
of any service, with any Affiliate unless such transaction is (i) otherwise
permitted under this Agreement, (ii) (x) in the ordinary course of the US
Borrower's or such Subsidiary's business and (y) upon fair and reasonable terms
no less favorable to the US Borrower or such Subsidiary, as the case may be,
than it would obtain in a comparable arm's length transaction with a Person
which is not an Affiliate or (iii) required by the Recapitalization Agreement or
the Transaction Documents.
(b) In addition, notwithstanding the foregoing, the US Borrower and
its Subsidiaries shall be entitled to make the following payments and/or to
enter into the following transactions:
(i) the payment of reasonable and customary fees and reimbursement of
expenses payable to directors of the US Borrower;
(ii) the payment to Hidden Creek and its Affiliates of fees plus
out-of-pocket expenses pursuant to financial advisory agreements between
Hidden Creek or such Affiliates and the US Borrower or its Subsidiaries;
(iii) the employment arrangements with respect to the procurement of
services of directors, officers and employees in the ordinary course of
business and the payment of reasonable fees in connection therewith;
(iv) the adoption by the Board of Directors of the US Borrower of a
stock option plan, including any grants thereunder and the issuance of any
common stock upon the exercise of such options;
(v) directors and officers insurance policies and premiums and
indemnity agreements (and any payments pursuant thereto), between the US
Borrower and its Subsidiaries and each individual director and officer of
the US Borrower and its Subsidiaries;
(vi) the sale of equity interests in the US Borrower to employees,
management and directors of the US Borrower or any of its Subsidiaries
(pursuant to subscription agreements to be entered into in connection
therewith); and
(vii) the issuance of the Tower Subordinated Debt and the making of
payments thereunder in accordance with the terms thereof.
8.12 LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement
with any Person providing for the leasing by the US Borrower or any Subsidiary
of real or personal, immovable or movable, property which has been or is to be
sold or transferred by the US Borrower or such Subsidiary to such Person or to
any other Person to whom funds have been or are to be advanced by such Person on
the security of such property or rental obligations of the US Borrower or such
Subsidiary; PROVIDED that this subsection 8.12 shall not prohibit any sale and
leaseback resulting from the incurrence of any lease in respect of any capital
asset entered into within ninety (90) days of the acquisition of such capital
asset for the purpose of providing permanent financing of such capital asset.
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81
8.13 LIMITATION ON CHANGES IN FISCAL YEAR. Permit the fiscal year of
the US Borrower to end on a day other than December 31; PROVIDED that the US
Borrower may change such fiscal year upon the approval of each of the Specified
Agents.
8.14 RESTRICTIONS AFFECTING SUBSIDIARIES. Enter into with any
Person, or suffer to exist any consensual agreement which prohibits or limits
the ability of the US Borrower or any of its Subsidiaries to (a) create, incur,
assume or suffer to exist any Lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired, other than (i) this Agreement and the
other Loan Documents, (ii) any industrial revenue bonds, purchase money
mortgages or Financing Leases or any other agreement or transaction permitted by
this Agreement (in which cases, any prohibition or limitation shall only be
effective against the assets financed thereby) and (iii) any agreements entered
into in connection with foreign working capital lines, the restrictions
contained in which are applicable only to assets of the relevant Foreign
Subsidiary which are not required to be pledged in favor of the Lenders (or any
of them) or (b) pay dividends or make other distributions or pay any
Indebtedness owed to the US Borrower or any of its Subsidiaries except as
permitted by this Agreement and the other Loan Documents.
8.15 LIMITATION ON LINES OF BUSINESS. Enter into any business,
either directly or through any Subsidiary, except for those businesses in which
the US Borrower and its Subsidiaries are engaged on the date of this Agreement
or which are similar, related or supportive businesses or those consented to by
the Required Lenders.
8.16 AMENDMENTS TO CORPORATE DOCUMENTS; TRANSACTION DOCUMENTS;
LICENSES. (a) Amend its certificate of incorporation or by-laws or other
governing documents unless such amendment does not adversely affect the
interests of any Secured Party in any material respect, (b) amend, supplement or
otherwise modify the terms and conditions of the indemnities and licenses
furnished pursuant to the Recapitalization Agreement or any Transaction Document
such that after giving effect thereto such indemnities or licenses shall be
materially less favorable to the interests of the Credit Parties or the Secured
Parties with respect thereto, (c) otherwise amend, supplement or otherwise
modify the terms and conditions of the Recapitalization Agreement or any
Transaction Document except to the extent that any such amendment, supplement or
modification could not reasonably be expected to have a Material Adverse Effect
or (d) increase the rate or amount of, or method of calculation of, the fees
described in subsection 8.11(b)(ii) from the rates and amounts in existence on
the date hereof.
8.17 PASSIVE STATUS OF THE US BORROWER. Permit the US Borrower to
engage in any activities or incur any Indebtedness or Guarantee Obligations
other than (A) maintaining its corporate existence, (B) participating in any tax
and accounting matters in connection with activities permitted hereunder and
under the other Loan Documents, (C) owning the stock of Subsidiaries and
activities incident to its ownership of Subsidiaries, (D) its activities
incident to the performance of the Loan Documents, (E) transactions pursuant to
or in connection with the Transactions, (F) assuming and making payments on the
Senior Subordinated Notes and the Tower Subordinated Debt, (G) the issuance
and/or sale of its common stock or options or warrants in respect of its Capital
Stock, provided that the proceeds thereof are applied as set forth in subsection
2.9, (H) incurring the Indebtedness referred to in subsection 8.2(o) and (I)
making any Restricted Payment permitted by subsection 8.7.
SECTION 9. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any Specified
Loan and/or Specified Note or any Specified Accommodation Obligation when
due in accordance with the terms thereof or hereof; or any Borrower shall
fail to pay any interest on any Specified Loan and/or
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Specified Note, or any other amount payable hereunder by it, within five
(5) days after any such interest or other amount becomes due in accordance
with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by any
Borrower or any of their Subsidiaries herein or in any other Loan Document
or which is contained in any certificate, document or financial or other
statement furnished at any time under or in connection with any Loan
Document shall prove to have been incorrect in any material respect on or
as of the date made or deemed made; or
(c) Any Borrower or any of their Subsidiaries shall default in the
performance or observance of (i) any agreement contained in Section 8
(other than subsections 8.2, 8.3, 8.4, 8.7 and 8.9) or Section 11 of this
Agreement or Section 5 of the Guarantee and Collateral Agreement or (ii)
subsections 8.2, 8.3, 8.4, 8.7 or 8.9 and, in the case of any default under
this clause (ii), such default shall continue unremedied for a period of
ten (10) days; or
(d) Any Borrower or any of their Subsidiaries shall default in the
observance or performance of any other agreement contained in this
Agreement or in any other Loan Document (other than as provided in
paragraphs (a) through (c) of this Section), and such default shall
continue unremedied for a period of thirty (30) days; or
(e) Any Credit Party or any of its Material Subsidiaries shall (i)
default (x) in any payment of principal of or interest on any Indebtedness
(other than any of the Loans) or (y) in the payment of any Guarantee
Obligation (other than the guarantees pursuant to the Loan Documents),
having an outstanding principal amount individually or in the aggregate for
both of clauses (x) and (y) in excess of the Equivalent Amount of
$6,500,000, beyond the period of grace, if any, provided in the instrument
or agreement under which such Indebtedness or Guarantee Obligation was
created; or (ii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or Guarantee
Obligation or contained in any instrument or agreement evidencing, securing
or relating thereto, or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf
of such holder or holders or beneficiary or beneficiaries) to cause, with
the giving of notice if required, such Indebtedness to become due prior to
its stated maturity or such Guarantee Obligation to become payable; or
(f) (i) Any Credit Party or any of its Material Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, liquidation, administration, winding up, insolvency,
receivership, reorganization or relief of debtors, seeking to have an order
for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, administration,
arrangement, adjustment, winding-up, liquidation, dissolution,
receivership, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, administrator,
liquidator, custodian, administrative receiver, conservator or other
similar official for it or for all or any substantial part of its assets,
or any of the Credit Parties or any of their Material Subsidiaries shall
make a general assignment for the benefit of its creditors; or (ii) there
shall be commenced against any Credit Party or any of its Material
Subsidiaries any case, proceeding or other action of a nature referred to
in clause (i) above which (A) results in the entry of an order for relief
or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of sixty (60) days; or (iii) there
shall be commenced against any Credit Party or any of its Material
Subsidiaries any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an
order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within sixty (60)
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days from the entry thereof; or (iv) any Credit Party or any of its
Material Subsidiaries shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts
set forth in clause (i), (ii), or (iii) above; or (v) any Credit Party or
any of its Subsidiaries shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts (other than
intercompany debts) as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the US
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the US Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the US
Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could reasonably be expected to result in a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Specified Borrower or any of their Material Subsidiaries involving,
individually or in the aggregate, a liability (not paid or fully covered by
insurance) of the Equivalent Amount of $6,500,000 or more, and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within sixty (60) days from the entry thereof; or
(i) Any Borrower or any of their Subsidiaries shall incur any
liability (not paid or fully covered by insurance) under any Environmental
Law in an amount which would result in a Material Adverse Effect; or
(j) Any Loan Document shall, at any time, cease to be in full force
and effect (unless released by the Specified Agent, at the direction of the
Required Lenders or as otherwise permitted under this Agreement) or shall
be declared null and void, or the validity or enforceability thereof of any
terms or provisions therein shall be contested by any Credit Party, or any
of the Liens intended to be created by the Loan Documents shall cease to be
or shall not be a valid and perfected Lien having the priority contemplated
thereby; or
(k) (x) A Change of Control shall occur or (y) the US Borrower shall
fail to own directly or indirectly, beneficially and of record 100% of the
Capital Stock of each Foreign Subsidiary Borrower if in each case of (x)
and (y) above, such event shall occur other than by actions taken by the
Administrative Agent or the Collateral Agent under the Loan Documents; or
(l) The subordination provisions contained in the Senior Subordinated
Note Indenture shall cease, for any reason, to be in full force and effect
or enforceable in accordance with their terms;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to a Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon), the maximum amount available to be
drawn under all outstanding Accommodations and all other amounts owing under
this Agreement and
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any Notes shall immediately become due and payable, and (B) if such event is any
other Event of Default, either or both of the following actions may be taken:
(i) with the consent of the Required Lenders, the Administrative Agent may, or
upon the request of the Required Lenders, the Administrative Agent shall, by
notice to the Borrowers declare the Commitments to be terminated forthwith,
whereupon the Commitments shall immediately terminate; and (ii) with the consent
of the Required Lenders, the Administrative Agent may, or upon the request of
the Required Lenders, the Administrative Agent shall, by notice to the Borrowers
declare the Loans hereunder (with accrued interest thereon), the maximum amount
available to be drawn under all outstanding Accommodations and all other amounts
owing under this Agreement and any Notes to be due and payable forthwith,
whereupon the same shall immediately become due and payable. All payments under
this Section 9 on account of undrawn Accommodations shall be made by the
Specified Borrower directly to a cash collateral account established for such
purpose for application to the Specified Borrower's obligations with respect
thereto as drafts are presented under the Specified Accommodations. Any
remaining amounts paid by the Specified Borrower in respect of such undrawn
Specified Accommodations shall be returned to the Specified Borrower after the
last expiry date of the Accommodations and after the Obligations have been paid
in full. Except as expressly provided above in this Section, each Credit Party
hereby waives presentment, demand, protest and all other notices of any kind.
SECTION 10. THE AGENTS
10.1 APPOINTMENT. Each Specified Lender hereby irrevocably
designates and appoints its Specified Agent and person holding a power of
attorney of such Specified Lender under this Agreement and the other Specified
Loan Documents, and each such Specified Lender irrevocably authorizes such
Specified Agent for such Specified Lender, to take such action on its behalf
under the provisions of this Agreement and the other Specified Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Specified Agent by the terms of this Agreement and the other Specified
Loan Documents, together with such other powers as are reasonably incidental
thereto including, without limitation, the execution and delivery of the Sharing
Agreement on behalf of such Specified Lender and the appointment of Chase, as
Collateral Agent thereunder. Notwithstanding any provision to the contrary
elsewhere in this Agreement, no Specified Agent shall have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Specified Loan Document or otherwise exist against the
Specified Agent.
10.2 DELEGATION OF DUTIES. Each Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Agent shall be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
10.3 EXCULPATORY PROVISIONS. The Agents shall not, nor shall any of
their officers, directors, controlling persons, employees, agents,
attorneys-in-fact or Affiliates be (i) liable for any action lawfully taken or
omitted to be taken by it or such Person under or in connection with this
Agreement or any other Loan Document (except for its or such Person's own gross
negligence or wilful misconduct) or (ii) responsible in any manner to any of the
Lenders for any recitals, statements, representations or warranties made by any
Credit Party or any officer thereof contained in this Agreement or any other
Loan Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Specified Agent under or in
connection with, this Agreement or any other Loan Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any Notes or any other Loan Document or for any failure of any
Credit Party to perform its obligations hereunder or thereunder. No Agent shall
be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the
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agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Credit Parties.
10.4 RELIANCE BY THE SPECIFIED AGENTS. The Agents shall be entitled
to rely, and shall be fully protected in relying, upon any Note, writing,
resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to any Credit Party), independent accountants and
other experts selected by the Agent. The Agents shall deem and treat the payee
of any Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Specified Agent. Each Agent shall be fully justified in failing or refusing to
take any action under this Agreement or any other Loan Document unless it shall
first receive such advice or concurrence of the Required Lenders or all the
Lenders, as it deems appropriate or it shall first be indemnified to its
satisfaction by the Specified Lenders against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. Each Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and any Notes and the other Loan
Documents in accordance with a request of the Required Lenders or all the
Lenders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Obligations.
10.5 NOTICE OF DEFAULT. No Agent shall be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default hereunder unless
it has received written notice from a Specified Lender or any Credit Party
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that an Agent
receives such a notice, the Specified Agent shall give notice thereof to the
Specified Lenders and other Agents. The Agents shall each take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Required Lenders or all the Lenders; PROVIDED that unless and until such
Agents shall have received such directions, the Agents may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as they shall deem advisable in the best
interests of the Lenders.
10.6 NON-RELIANCE ON AGENT AND LENDERS. Each Lender expressly
acknowledges that no Agent has, nor has any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates made any representations or
warranties to it and that no act by any Agent hereinafter taken, including any
review of the affairs of any Credit Party, shall be deemed to constitute any
representation or warranty by any Agent to any Lender. Each Lender represents
to the Agents that it has, independently and without reliance upon the Agents or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Credit Parties and made its own decision to make its Specified Loans hereunder
and enter into this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Agents or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of any Credit Party. Except for notices, reports and other
documents expressly required to be furnished to the Specified Lenders by the
Specified Agent hereunder, the Agents shall not have any duty or responsibility
to provide any Lender with any credit or other information concerning the
business, operations, property, condition (financial or otherwise), prospects or
creditworthiness of any Credit Party which may come into the possession of the
Agents or any of their officers, directors, employees, agents, attorneys-in-fact
or Affiliates.
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10.7 INDEMNIFICATION. The Specified Lenders agree to indemnify the
Specified Agent in its capacity as such (to the extent not reimbursed by the
Specified Borrower and without limiting the obligation of the Specified Borrower
to do so), ratably according to their respective Specified Commitment
Percentages in effect on the date on which indemnification is sought under this
subsection, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including, without limitation, at
any time following the payment of the Specified Loans) be imposed on, incurred
by or asserted against the Specified Agent in any way relating to or arising out
of this Agreement, any of the other Loan Documents or any documents contemplated
by or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Specified Agent under or in
connection with any of the foregoing; PROVIDED that no Specified Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
to the extent resulting from the Specified Agent's gross negligence or wilful
misconduct. The Specified Agent shall have the right to deduct any amount owed
to it by any Specified Lender under this subsection from any payment made by it
to such Lender hereunder. The agreements in this subsection shall survive the
payment of the Specified Loans and all other amounts payable hereunder.
10.8 AGENTS IN THEIR INDIVIDUAL CAPACITY. The Agent, and their
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Credit Parties as though the Agents were not the
Agents hereunder and under the other Loan Documents. With respect to its
Specified Loans made or renewed by it and any Specified Note issued to it, the
Specified Agent shall have the same rights and powers under this Agreement and
the other Specified Loan Documents as any Specified Lender and may exercise the
same as though it were not a Specified Agent, and the terms "Specified Lender"
and "Specified Lenders" shall include each of the Specified Agents in its
individual capacity.
10.9 SUCCESSOR AGENTS. Any Specified Agent may resign as the
Specified Agent upon ten (10) days' notice to the Lenders and the US Borrower.
If the Specified Agent shall resign as Specified Agent under this Agreement and
the other Loan Documents, then the Required Lenders shall appoint from among the
Specified Lenders a successor agent for the Specified Lenders, which successor
agent shall be subject to the approval of the Specified Borrower, whereupon such
successor agent shall succeed to the rights, powers and duties of the Specified
Agent, and the term "Specified Agent" shall mean such successor agent effective
upon such appointment and approval, and the former Specified Agent's rights,
powers and duties as Specified Agent shall be terminated, without any other or
further act or deed on the part of such former Specified Agent or any of the
parties to this Agreement or any holders of the Specified Loans. After any
retiring Specified Agent's resignation as Specified Agent, the provisions of
this subsection shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Specified Agent under this Agreement and the other
Loan Documents.
10.10 ADDITIONAL MINISTERIAL POWERS OF THE SPECIFIED AGENTS. Each
Specified Agent is hereby irrevocably authorized by each of the Specified
Lenders to execute any document creating any Lien and to release any Lien
covering any asset of the Specified Borrower or any of its Subsidiaries
(including, without limitation, any Properties, accounts receivable or
inventory) that is the subject of a disposition, sale or assignment which is
permitted under this Agreement or, subject to subsection 12.1, which has been
consented to by the Required Lenders.
10.11 SPECIFIED ISSUING LENDER AND COLLATERAL AGENT. Each Specified
Revolving Credit Lender hereby acknowledges that the provisions of this Section
10 shall apply to the Specified Issuing Lender, in its capacity as issuer of any
Specified Accommodation, and to the Specified Swing Line Lender, in its capacity
as provider of any Specified Swing Line Loans, and in its capacity under the
other Loan Documents, each in the same manner as such provisions are expressly
stated to apply to a Specified Agent. Each Lender hereby acknowledges that the
provisions of this Section 10 shall apply to
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Chase, as Collateral Agent under the other Loan Documents, in the same manner as
such provisions are expressly stated to apply to the Specified Agents.
10.12 ENGLISH AGENT AS TRUSTEE. (a) The English Agent in its
capacity as trustee or otherwise under the Loan Documents:
(i) is not liable for any failure, omission, or defect in
perfecting or registering the security constituted or created by any
Loan Document;
(ii) may accept without inquiry such title as any Credit Party
may have to any asset secured by any Loan Document; and
(iii) is not under any obligation to hold any Loan Document or
any other document in connection with the Loan Documents or the assets
secured by any Loan Document (including title deeds) in its own
possession or take any steps to protect or preserve the same. The
English Agent may permit any Credit Party to retain any Loan Document
or other document in its possession.
(b) Except as otherwise provided in the Loan Documents, all moneys
which under the trusts contained in the Loan Documents are received by the
English Agent in its capacity as trustee or otherwise may be invested in the
name of or under the control of the English Agent in any investment authorized
by English law for the investment by trustee of trust money or in any other
investments which may be selected by the English Agent. Additionally, the same
may be placed on deposit in the name or under the control of the English Agent
at such bank or institution (including the English Agent) and upon such terms as
the English Agent may think fit.
SECTION 11. GUARANTEE
11.1 GUARANTEE. To induce the Lenders to execute and deliver this
Agreement, to make Loans, and to issue and participate in Accommodations, and in
consideration thereof, the US Borrower hereby unconditionally and irrevocably
guarantees, as primary obligor and joint and several co-debtor and not merely as
surety to the Agents, the Secured Parties and their successors, indorsees,
transferees and assigns, the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of the
Foreign Subsidiary Obligations, and the US Borrower further agrees to pay the
expenses which may be paid or incurred by the Agents or the Secured Parties in
collecting any or all of the Foreign Subsidiary Obligations and/or enforcing any
rights under this Section 11 or under the Foreign Subsidiary Obligations in
accordance with subsection 12.5. The guarantee contained in this Section 11
shall remain in full force and effect until the Foreign Subsidiary Obligations
are paid in full and each of the Foreign Subsidiary Revolving Credit Commitments
is terminated, notwithstanding that from time to time prior thereto any Foreign
Subsidiary Revolving Credit Borrower may be free from any Specified Obligations.
11.2 WAIVER OF SUBROGATION. Notwithstanding any payment or payments
made by the US Borrower in respect of the Foreign Subsidiary Obligations or any
setoff or application of funds of the US Borrower by any Agent or any Lender,
until payment in full of the Foreign Subsidiary Obligations and the termination
of each of Foreign Subsidiary Revolving Credit Commitments, the US Borrower
shall not be entitled to be subrogated to any of the rights of the Agents or the
Lenders against the Borrowers or any collateral security or guarantee or right
of offset held by any Agent or any Lender for the payment of the Foreign
Subsidiary Obligations, nor shall the US Borrower seek any reimbursement from
any Borrower in respect of payments made by the US Borrower hereunder.
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11.3 MODIFICATION OF FOREIGN SUBSIDIARY OBLIGATIONS. The US Borrower
hereby consents that, without the necessity of any reservation of rights against
the US Borrower and without notice to or further assent by the US Borrower, any
demand for payment of the Foreign Subsidiary Obligations made by any Agent, any
Issuing Lender, any Lender may be rescinded by the Agent, the Issuing Lender, or
the Lenders, and the Foreign Subsidiary Obligations continued, and the Foreign
Subsidiary Obligations, or the liability of any other party upon or for any part
thereof, or any collateral security or guarantee therefor or right of offset
with respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or
released by any Agent, any Issuing Lender, or any Lender, and that this
Agreement, any Notes, and the other Loan Documents, including, without
limitation, any collateral security document or other guarantee or document in
connection therewith may be amended, modified, supplemented or terminated, in
whole or in part, as the Agents, the Issuing Lenders, or the Lenders, may deem
advisable from time to time, and, to the extent permitted by applicable law, any
collateral security or guarantee or right of offset at any time held by any
Agent, any Issuing Lender, or any Lender, for the payment of the Foreign
Subsidiary Obligations may be sold, exchanged, waived, surrendered or released,
all without the necessity of any reservation of rights against the US Borrower
and without notice to or further assent by the US Borrower which will remain
bound hereunder notwithstanding any such renewal, extension, modification,
acceleration, compromise, amendment, supplement, termination, sale, exchange,
waiver, surrender or release. The Agents, the Issuing Lenders, and the Lenders
shall not have any obligation to protect, secure, perfect or insure any
collateral security document or property subject thereto at any time held as
security for the Foreign Subsidiary Obligations. When making any demand
hereunder against the US Borrower, the Agents, the Issuing Lenders, or the
Lenders, may, but shall be under no obligation to, make a similar demand on any
other party or any other guarantor, and any failure by any Agent, any Issuing
Lender, or any Lender, to make any such demand or to collect any payments from
any Borrower or any such other guarantor shall not relieve the US Borrower of
its obligations or liabilities hereunder, and shall not impair or affect the
rights and remedies, express or implied, or as a matter of law, of the Agents,
the Issuing Lenders, or the Lenders, against the US Borrower. For the purposes
of this subsection "demand" shall include the commencement and continuance of
any legal proceedings.
11.4 WAIVER BY THE US BORROWER. The US Borrower waives the benefits
of division and discussion and any and all notice of the creation, renewal,
extension or accrual of the Foreign Subsidiary Obligations and notice of or
proof of reliance by the Agents, the Issuing Lenders, or the Lenders upon the
guarantee contained in this Section 11 or acceptance of the guarantee contained
in this Section 11, and the Foreign Subsidiary Obligations, and any of them,
shall conclusively be deemed to have been created, contracted, continued or
incurred in reliance upon the guarantee contained in this Section 11, and all
dealings between the US Borrower and the Agents, the Issuing Lenders, or the
Lenders shall likewise be conclusively presumed to have been had or consummated
in reliance upon the guarantee contained in this Section 11. The US Borrower
waives diligence, presentment, protest, demand for payment and notice of default
or nonpayment to or upon the Specified Borrower or the US Borrower with respect
to any Specified Obligations. This guarantee shall be construed as a continuing
absolute and unconditional guarantee of payment without regard to the validity,
regularity or enforceability of this Agreement, any Note or any other Loan
Document, including, without limitation, any collateral security or guarantee
therefor or right of offset with respect thereto at any time or from time to
time held by any Agent, any Issuing Lender, or any Lender and without regard to
any defense, setoff or counterclaim which may at any time be available to or be
asserted by any Borrower against any Agent, any Issuing Lender, or any Lender,
or any other Person, or by any other circumstance whatsoever (with or without
notice to or knowledge of any Borrower or the US Borrower) which constitutes, or
might be construed to constitute, an equitable or legal discharge of any
Borrower for any of its Foreign Subsidiary Obligations, or of the US Borrower
under the guarantee contained in this Section 11 in bankruptcy or in any other
instance, and the obligations and liabilities of the US Borrower hereunder shall
not be conditioned or contingent upon the pursuit by any Agent, any Issuing
Lender or any Lender or any other Person at any time of any right or remedy
against any Foreign Subsidiary Borrower or against any other Person which may be
or become liable in respect of any Foreign Subsidiary Obligations or against
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any collateral security or guarantee therefor or right of offset with respect
thereto. The guarantee contained in this Section 11 shall remain in full force
and effect and be binding in accordance with and to the extent of its terms upon
the US Borrower and the successors and assigns thereof, and shall inure to the
benefit of the Lenders and their successors, indorsees, transferees and assigns,
until the Foreign Subsidiary Obligations shall have been satisfied in full and
the Foreign Subsidiary Revolving Credit Commitments shall be terminated,
notwithstanding that from time to time during the term of this Agreement any
Foreign Subsidiary Borrower may be free from any Foreign Subsidiary Obligations.
11.5 REINSTATEMENT. This guarantee shall continue to be effective,
or be reinstated, as the case may be, if at any time payment, or any part
thereof, of any Foreign Subsidiary Obligations is rescinded or must otherwise be
restored or returned by any Agent, any Issuing Lender, or any Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the US
Borrower or any Foreign Subsidiary Borrower or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the US Borrower, any Foreign Subsidiary Borrower or any substantial
part of their respective property, or otherwise, all as though such payments had
not been made.
SECTION 12. MISCELLANEOUS
12.1 AMENDMENTS AND WAIVERS. Neither this Agreement, any Note, any
other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or otherwise modified except in accordance with the provisions of
this subsection. The Required Lenders may, or, with the written consent of the
Required Lenders, the Specified Agent, as the case may be, may, from time to
time, (a) enter into with any Credit Party written amendments, supplements or
modifications hereto and to any Notes and the other Loan Documents for the
purpose of adding any provisions to this Agreement or any Notes or the other
Loan Documents or changing in any manner the rights of the Secured Parties or
any Credit Party or any other Person hereunder or thereunder (including, without
limitation, for the purpose of adding additional Tranches of Term Loans after
the Closing Date) or (b) waive, on such terms and conditions as the Required
Lenders or the Specified Agent, as the case may be, may specify in such
instrument, any of the requirements of this Agreement or any Notes or the other
Loan Documents or any Default or Event of Default and its consequences;
PROVIDED, HOWEVER, that no such waiver and no such amendment, supplement or
modification shall directly (i) reduce the aggregate amount or extend the
scheduled date of maturity of any Loan or of any installment thereof, or reduce
the stated rate of any interest or fee payable hereunder or thereunder or extend
the scheduled date of any payment thereof or increase the aggregate amount or
extend the expiration date of any Lender's Specified Revolving Credit
Commitment, in each case without the consent of each Lender affected thereby,
(ii) amend, modify or waive any provision of this subsection 12.1 (except as
contemplated by clause (xi) below) or reduce the percentage specified in the
definition of Required Lenders or consent to the assignment or transfer by any
Borrower of any of its rights and obligations under this Agreement and the other
Loan Documents or release collateral having an aggregate value in excess of the
Equivalent Amount of $30,000,000 or release the US Borrower from any Guarantee
Obligation under the Loan Documents, in each case, except as set forth in
subsection 10.10, without the written consent of all the Lenders, (iii) amend,
modify or waive any provision of subsection 2.12 and Sections 3 or 10 (to the
extent applicable to Swing Line Notes or Swing Line Lenders) without the written
consent of the then Swing Line Lenders, (iv) except as specified in clause (i)
above, amend, modify or waive any provision of (w) subsection 2.5 (to the extent
such subsection 2.5 relates to the US Tranche A Term Loans) without the written
consent of US Tranche A Term Loan Lenders the US Tranche A Term Loan Percentages
of which aggregate at least a majority, (x) subsection 2.5 (to the extent such
subsection 2.5 relates to the US Tranche B Term Loans) without the written
consent of US Tranche B Term Loan Lenders the US Tranche B Term Loan Percentages
of which aggregate at least a majority, (y) subsection 2.5 (to the extent such
subsection 2.5 relates to the US Sterling Term Loans) without the written
consent of US Sterling Term Loan Lenders the US Sterling Term Loan Percentages
of which aggregate at least a
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majority, (z) subsection 2.5 (to the extent such subsection 2.5 relates to the
English Term Loans) without the written consent of English Term Loan Lenders the
English Term Loan Percentages of which aggregate at least a majority, (v) amend,
modify or waive any provision of subsection 2.1, 2.2, 2.3 or 2.4 or Section 3
without the written consent of the Specified Revolving Credit Lenders the
Specified Revolving Credit Commitment Percentages of which aggregate at least a
majority of the outstanding Specified Revolving Credit Commitments, (vi) amend,
modify or waive any provision of Section 10 without the written consent of each
Agent, (vii) amend, modify or waive the order of application of prepayments
specified in subsection 4.4(b) without the consent of (A) US Revolving Credit
Lenders the Total Credit Percentages (calculated for this purpose without
reference to outstanding US Term Loans, English Term Loans and Foreign
Subsidiary Revolving Credit Commitments) of which aggregate at least a majority,
(B) US Term Loan Lenders the Total Credit Percentages (calculated for this
purpose without reference to outstanding Revolving Credit Commitments and
English Term Loans) of which aggregate at least a majority, (C) Specified
Foreign Subsidiary Revolving Credit Lenders the Total Credit Percentages
(calculated for this purpose without reference to outstanding Term Loans and
other Specified Revolving Credit Commitments) of which aggregate at least a
majority, and (D) Specified English Term Loan Lenders which hold a majority of
the outstanding Specified English Term Loans (the US Lenders and the Foreign
Subsidiary Lenders referred to in clauses (A), (B), (C), and (D), collectively,
the "MAJORITY CLASS LENDERS"), (viii) amend, modify or waive the provisions of
any Specified Accommodation or any Specified Accommodation Obligation without
the written consent of the Specified Issuing Lender, (ix) amend, modify or waive
any provision of any Loan Document that provides for the ratable sharing by the
Secured Parties of the proceeds of any realization on the security for the
Obligations to provide for a non-ratable sharing thereof, without the consent of
the Majority Class Lenders, (x) amend, modify or waive any provision herein that
(A) affects the Revolving Credit Lenders, or Term Loan Lenders (or any tranche
thereof) only, without the prior written consent of a majority in interest of
the Revolving Credit Lenders, Term Loan Lenders (or tranche thereof), as the
case may be, (B) adversely affects the Specified Lenders or Specified Revolving
Credit Lenders or Specified Term Lenders only, without the prior written consent
of a majority in interest of such Specified Lenders or Specified Revolving
Credit Lenders or Specified Term Lenders, as the case may be, or (C) except as
provided in the foregoing provisions of this subsection 12.1, adversely affects
the rights and interests of any of the Specified Lenders differently from those
of any other class of Specified Lenders, without the prior written consent of a
majority in interest of each separate class of Specified Lenders affected
thereby, (xi) if additional Tranches of Term Loans are extended after the
Closing Date with the consent of the Required Lenders as required above, such
Tranches may be included on a PRO RATA basis (as is originally done with the US
Tranche A Term Loans, the US Tranche B Term Loans , the US Sterling Term Loans
and the English Term Loans) in the various prepayments or repayments required
pursuant to subsections 2.8 and 2.9, in any section providing scheduled
installments for any new Tranche of Term Loans and in the definition of Required
Lenders and may share in the Collateral on a ratable basis or (xii) amend or
modify any provision of this Agreement which would require a Lender to make a
Loan with an Interest Period in excess of six months without the prior written
consent of such Lender. Any such waiver and any such amendment, supplement or
modification shall apply equally to each of the Lenders and shall be binding
upon each of the Borrowers, the Agents, the Lenders, and all future holders of
any of the Obligations. In the case of any waiver, the Credit Parties, the
Lenders, and each of the Agents shall be restored to their former position and
rights hereunder and under the outstanding Loans and the other Loan Documents,
and any Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
12.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three (3) Business Days
after being deposited in the mail, postage prepaid, or, in the case of telecopy
notice, when received, addressed as follows in the case of any Borrower, the
Agents, the Issuing Lenders and the Swing Line
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Lenders, and as set forth on the signature pages hereto, or to such other
address as may be hereafter notified by the respective parties hereto and any
future holders of the Loans or any Notes:
The Borrowers: 3101 South Taylor Drive
P.O. Box 1024
Sheboygan, WI 53082-1024
Attention: Thomas C. Dinolfo
Telecopy: (920) 458-4861
With copies to:
Morris Ashby Limited
16 Freebournes Road
Witham
Essex, England CM8 3DX
Attention: David White
Telecopy: 011-44-1376-518-622
and
Hidden Creek Investments
4508 IDS Center
Minneapolis, MN 55402
Attention: Scott Rued and Carl E. Nelson
Telecopy: 612-332-2012
The Administrative The Chase Manhattan Bank
Agent, the US 270 Park Avenue, 47th Floor
Issuing Lender or New York, New York 10017
US Swing Line Attention: Richard W. Duker
Lender: Telecopy: (212) 972-9854
with copies to: The Chase Manhattan Bank
Loan & Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Janet Belden
Telecopy: (212) 552-5658
The English Chase Manhattan International Limited
Agent, the Euro Trinity Tower
Agent and the 9 Thomas More Street
English Issuing London, England E19YT
Lender: Attention: Stephen Clark or Stephen Hurfford
Telecopy: 011-44-171-777-2360
with copies to: The Chase Manhattan Bank
270 Park Avenue, 47th Floor
New York, New York 10017
Attention: Richard W. Duker
Telecopy: (212) 972-9854
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The Collateral The Chase Manhattan Bank
Agent: 270 Park Avenue, 47th Floor
New York, New York 10017
Attention: Richard W. Duker
Telecopy: (212) 972-9854
PROVIDED that any notice, request or demand to or upon the Specified Agent or
the Specified Lenders pursuant to subsection 2.2, 2.4, 2.5, 2.6, 2.7, 2.10, or
4.4 shall not be effective until received.
12.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of any Agent or any Lender, any right, remedy,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
12.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement and the making of the Specified Loans hereunder.
12.5 PAYMENT OF EXPENSES AND TAXES. Each Specified Borrower agrees
(a) to pay or reimburse the Specified Agent for all reasonable out-of-pocket
costs and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and any Notes and the other Loan Documents and any other documents prepared in
connection herewith or therewith (requested by or for the benefit of such
Borrower) other than any Assignment and Acceptance, and the consummation and
administration of the transactions contemplated hereby and thereby, including,
without limitation, the reasonable fees and disbursements of counsel to the
Specified Agent, (b) to pay or reimburse each Specified Lender and the Specified
Agent for all its reasonable out-of-pocket costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement, any Notes, the other Loan Documents and any such other documents,
including, without limitation, the reasonable fees and disbursements of one
counsel representing the Specified Agent and the Specified Lenders in each
jurisdiction and, at any time after and during the continuance of an Event of
Default, to the extent a conflict arises, of one additional counsel to all the
Specified Lenders, and (c) to pay, indemnify, and hold each Specified Lender and
the Specified Agent (and their respective trustees, directors, officers,
employees and agents) harmless from, any and all recording and filing fees and
any and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other similar taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, any Notes, the other Loan Documents and any such
other documents (requested by or for the benefit of such Borrower), and (d) to
pay, indemnify, and hold each Specified Lender and the Specified Agent (and
their respective trustees, directors, officers, employees and agents) harmless
from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, any Notes, the other Loan
Documents, the Acquisition Documents, the Transactions or the use of the
proceeds of the Specified Loans in connection with the Transactions and any such
other documents (all the foregoing in this clause (d), collectively, the
"INDEMNIFIED LIABILITIES"), PROVIDED that the Specified Borrower shall have no
obligation hereunder to the Specified Agent, or any Specified Lender (or their
respective trustees, directors, officers, employees and agents) with respect to
indemnified liabilities arising from the gross negligence or wilful misconduct
of the indemnified party or, in the case of indemnified liabilities arising
under this Agreement, any Notes and the other documents, from material breach by
the
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indemnified party of this Agreement, any Notes or the other Loan Documents, as
the case may be. The agreements in this subsection shall survive repayment of
the Specified Loans and all other amounts payable hereunder.
12.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a)
This Agreement shall be binding upon and inure to the benefit of the Borrowers,
the Lenders, Agents, and all future holders of the Loans and their respective
successors and assigns, except that no Borrower may assign or transfer any of
its rights or obligations under this Agreement without the prior written consent
of each Lender.
(b) Any Specified Lender may, in the ordinary course of its business
and in accordance with applicable law, at any time sell to one or more banks,
insurance companies, mutual funds, or other financial institutions or other
entities ("SPECIFIED PARTICIPANTS") participating interests in any Specified
Loan owing to such Lender, any Note held by such Lender, any Specified
Commitment of such Lender or any other interest of such Lender hereunder and
under the other Loan Documents. In the event of any such sale by a Specified
Lender of a participating interest to a Specified Participant, such Specified
Lender's obligations under this Agreement to the other parties to this Agreement
shall remain unchanged, such Specified Lender shall remain solely responsible
for the performance thereof, such Specified Lender shall remain the holder of
any such Specified Loan for all purposes under this Agreement and the other Loan
Documents, and the Specified Borrower and the Specified Agent shall continue to
deal solely and directly with such Specified Lender in connection with such
Specified Lender's rights and obligations under this Agreement and the other
Loan Documents. No Specified Lender shall permit any Specified Participant to
have the right to consent to any amendment or waiver in respect of this
Agreement or any of the other Loan Documents, except that such Lender may grant
such Specified Participant the right to consent to any amendment or waiver in
respect of this Agreement or the other Loan Documents that would, directly or
indirectly, (i) reduce the aggregate amount or extend the final maturity of any
Specified Loan, or reduce the stated rate of any interest or fee payable
hereunder or extend the scheduled date of any payment thereof or (ii) consent to
the assignment or transfer by the Specified Borrower of any of its rights and
obligations under this Agreement or any of the other Loan Documents. Each
Specified Borrower agrees that if amounts outstanding under this Agreement and
the Specified Loans are due or unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Specified Participant shall be deemed to have the right of setoff in respect of
its participating interest in amounts owing under this Agreement and any Note to
the same extent as if the amount of its participating interest were owing
directly to it as a Specified Lender under this Agreement or any Note, PROVIDED
that in purchasing such participating interest, such Specified Participant shall
be deemed to have agreed to share with the Specified Lenders the proceeds
thereof as provided in subsection 12.7(a) as fully as if it were a Specified
Lender hereunder. The Specified Borrower also agrees that each Specified
Participant shall be entitled to the benefits of subsections 4.5, 4.6 and 4.7
with respect to its participation in the Specified Commitments and the Specified
Loans and Specified Accommodations outstanding from time to time as if it was a
Specified Lender; PROVIDED that in the case of subsection 4.6 and 4.7, such
Specified Participant shall have complied with the requirements of said
subsection and PROVIDED, FURTHER, that no Specified Participant shall be
entitled to receive any greater amount pursuant to any such subsection than the
transferor Specified Lender would have been entitled to receive in respect of
the amount of the participation transferred by such transferor Specified Lender
to such Specified Participant had no such transfer occurred.
(c) Any Specified Lender may, in the ordinary course of its business
and in accordance with applicable law, at any time and from time to time assign
to any other Specified Lender of the same class, any local affiliate thereof or
a Related Fund of such Specified Lender or, with the consent of the Specified
Agent and the Specified Borrower (such consents not to be unreasonably
withheld), to an additional bank, mutual fund, or financial or lending
institution or any fund that is regularly engaged in making, purchasing, or
investing in loans or securities (a "SPECIFIED ASSIGNEE") all or any part of its
rights and obligations under this Agreement and any Specified Notes pursuant to
an Assignment and Acceptance, executed by such Specified Assignee, such
assigning Lender (and, in the case of a Specified
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Assignee that is not then a Specified Lender of the same class, a local
affiliate thereof or a Related Fund of such Specified Lender, by the Specified
Agent) and delivered to the Specified Agent for its acceptance and recording in
the Specified Register; PROVIDED that (x) each such transfer shall be in respect
of a portion of such assigning Lender's rights and obligations under this
Agreement and any Specified Notes equal to or in excess of the Equivalent Amount
of $2,500,000 or, if such assigning Lender's outstanding Commitment on the date
of such assignment is less than the Equivalent Amount of $2,500,000, the
aggregate of such assigning Lender's Commitments hereunder, or as otherwise
agreed by the Specified Borrower and the Specified Agent, (y) no Swing Line
Lender may transfer any portion of its Specified Swing Line Commitment without
the consent of the Specified Borrower (such consent not to be unreasonably
withheld) and (z) if any Lender assigns a part of its rights and obligations
under this Agreement in respect of any of its Specified Revolving Credit Loans
and/or Specified Revolving Credit Commitments to a Specified Assignee, such
Lender shall assign proportionate interests in its other Revolving Credit Loans
and Revolving Credit Commitments. Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such
Assignment and Acceptance, (y) the Specified Assignee thereunder shall be a
party hereto and, to the extent provided in such Assignment and Acceptance, have
the rights and obligations of a Specified Lender hereunder with Specified
Commitments as set forth therein, and (z) the assigning Specified Lender
thereunder shall, to the extent provided in such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Specified Lender's rights and obligations under this Agreement, such assigning
Specified Lender shall cease to be a party hereto).
(d) Each Specified Agent acting, for this purpose, as agent of the
Specified Borrower shall maintain at its address referred to in subsection 12.2
a copy of each Assignment and Acceptance delivered to it and a register (the
"SPECIFIED REGISTER") for the recordation of the names and addresses of the
Specified Lenders and the Specified Commitments of, and principal amount of the
Specified Loans owing to, each Specified Lender from time to time and any
Specified Notes evidencing such Specified Loans. The entries in the Specified
Register shall be conclusive, in the absence of manifest error, and the
Borrowers, the Agents and the Lenders may treat each Person whose name is
recorded in the Specified Register as the owner of the Specified Loans and any
Specified Notes evidencing such Specified Loans recorded therein for all
purposes of this Agreement. No assignment or transfer of any Specified Loan (or
portion thereof) or any Specified Note evidencing such Specified Loan shall be
effected unless and until it has been recorded in the Specified Register as
provided in this subsection 12.6(d). Any assignment or transfer of all or part
of a Specified Note shall be registered on the Register only upon surrender for
registration of assignment or transfer of the Specified Note, accompanied by a
duly executed Assignment and Acceptance, and thereupon one or more new Specified
Notes in the same aggregate principal amount shall be issued to the designated
Assignee and the old Specified Notes shall be returned by the Specified Agent to
the Borrower marked "cancelled". The Specified Register shall be available for
inspection by the Borrowers or any Lender at any reasonable time and from time
to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Specified Lender and a Specified Assignee (and, in the case of a
Specified Assignee that is not, before such assignment, a Specified Lender, an
affiliate thereof or a Related Fund of such Specified Lender, by the Specified
Agent) together with payment, by a Specified Assignee, to the Specified Agent of
a registration and processing fee of the Equivalent Amount of $4,000 (except in
the case of a Specified Assignee that is a Specified Lender, an affiliate
thereof or a Related Fund of such Specified Lender) if the Specified Assignee is
not a Specified Lender prior to the execution of the Specified Assignment and
Acceptance and $1,000 otherwise, the Specified Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Specified
Register and give notice of such acceptance and recordation to the assigning
Specified Lender, the Specified Assignee and the Specified Borrower. On or
prior to such effective date, if requested, the Specified Borrower, at its own
expense, shall execute and deliver to the Specified Agent (in exchange for any
Specified Revolving Credit Note, Specified Swing Line Note or Specified Term
Note of the assigning
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Specified Lender) a new Specified Revolving Credit Note, Specified Swing Line
Note or Specified Term Note, as the case may be, to the order of such Specified
Assignee in an amount equal to the Specified Revolving Credit Commitment,
Specified Swing Line Commitment or portion of the Specified Term Loan, as the
case may be, assumed by it pursuant to such Specified Assignment and Acceptance
and, if the assigning Specified Lender has retained a Specified Revolving Credit
Commitment, Specified Swing Line Commitment or portion of a Specified Term Loan
hereunder, a new Specified Revolving Credit Note, Specified Swing Line Note or
Specified Term Note, as the case may be, to the order of the assigning Specified
Lender in an amount equal to the Specified Revolving Credit Commitment or
Specified Term Loan, as the case may be, retained by it hereunder. Such new
Specified Notes shall be in the form of the Specified Note replaced thereby.
(f) The Specified Borrower authorizes each Specified Lender to
disclose to any Specified Participant or Specified Assignee (each, a "SPECIFIED
TRANSFEREE") and any prospective Specified Transferee any and all financial
information in such Specified Lender's possession concerning the Credit Parties
and their Affiliates which has been delivered to such Specified Lender by or on
behalf of the Credit Parties pursuant to this Agreement or which has been
delivered to such Specified Lender by or on behalf of the Credit Parties in
connection with such Specified Lender's credit evaluation of the Specified
Borrower and its Affiliates prior to becoming a party to this Agreement, under
the condition such Specified Transferee or prospective Specified Transferee
agrees to comply with the provisions of subsection 12.16.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this subsection concerning assignments of Specified Loans
and Specified Notes relate only to absolute assignments and that such provisions
do not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by US Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
12.7 ADJUSTMENTS; SET-OFF. (a) If any Specified Lender (a
"BENEFITTED SPECIFIED LENDER") shall at any time receive any payment of all or
part of the Specified Obligations owing to it or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to
events or proceedings of the nature referred to in subsection 9(f), or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Specified Lender, if any, in respect of the Specified
Obligations owing to such other Specified Lender, such benefitted Specified
Lender shall purchase for cash from the other Specified Lenders a participating
interest in such portion of the Specified Obligations owing to each such other
Specified Lender, or shall provide such other Specified Lenders with the
benefits of any such collateral, or the proceeds thereof, as shall be necessary
to cause such benefitted Specified Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Specified
Lenders; PROVIDED, HOWEVER, that if all or any portion of such excess payment or
benefits is thereafter recovered from such benefitted Specified Lender, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Specified Lenders
provided by law, each Specified Lender shall have the right, without prior
notice to the Specified Borrower, any such notice being expressly waived by the
Specified Borrower to the extent permitted by applicable law, upon any amount
becoming due and payable by the Specified Borrower hereunder or under any
Specified Notes and not paid by the Specified Borrower after expiration of any
applicable grace periods (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Specified Lender or any branch or
agency thereof to or for the credit or the account of the Specified Borrower.
Each Specified Lender agrees promptly to notify the Specified Borrower and the
Specified Agent after any such set-off and
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application made by such Specified Lender, PROVIDED that the failure to give
such notice shall not affect the validity of such set-off and application.
12.8 COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with each of the Borrowers and Agents.
12.9 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12.10 INTEGRATION. This Agreement and the other Loan Documents
represent the agreement of the Credit Parties and the Secured Parties with
respect to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by any of the Agents or any Lender relative to the
subject matter hereof not expressly set forth or referred to herein or in the
other Loan Documents.
12.11 JUDGMENT CURRENCY.
(a) If, for the purpose of obtaining or enforcing judgment against
any Credit Party in any court in any jurisdiction, it becomes necessary to
convert into any other currency (such other currency being hereinafter in this
subsection 12.11 referred to as the "JUDGMENT CURRENCY") an amount due in a
particular currency (the "DENOMINATED CURRENCY") under any Loan Document, the
conversion shall be made at the rate of exchange prevailing on the Business Day
immediately preceding the date of actual payment of the amount due, in the case
of any proceeding in the courts of any jurisdiction that will give effect to
such conversion being made on such date, or the date on which the judgment is
given, in the case of any proceeding in the courts of any other jurisdiction
(the applicable date as of which such conversion is made pursuant to this
subsection 12.11 being hereinafter in this subsection 12.11 referred to as the
"JUDGMENT CONVERSION DATE").
(b) If, in the case of any proceeding in the court of any
jurisdiction referred to in subsection 12.11(a), there is a change in the rate
of exchange prevailing between the Judgment Conversion Date and the time of
actual receipt of the amount due in immediately available funds, the applicable
Credit Party shall pay such additional amount (if any, but in any event not a
lesser amount) as may be necessary to ensure that the amount actually received
in the Judgment Currency, when converted at the rate of exchange prevailing on
the date of payment, will produce the amount of Denominated Currency which could
have been purchased with the amount of the Judgment Currency stipulated in the
judgment or judicial order at the rate of exchange prevailing on the Judgment
Conversion Date.
(c) Any amount due from any Credit Party under this subsection 12.11
shall be due as a separate debt and shall not be affected by judgment being
obtained for any other amounts due under or in respect of any of the Loan
Documents.
(d) The term "RATE OF EXCHANGE" in this subsection 12.11 means the
spot rate of exchange at which the Specified Agent would, on the relevant date
at or about 12:00 noon, be prepared to sell Denominated Currency against the
Judgment Currency.
12.12 GOVERNING LAW. THIS AGREEMENT AND ANY NOTES AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND
<PAGE>
97
ANY NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
12.13 SUBMISSION TO JURISDICTION; WAIVERS. Each of the Borrowers
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgement in
respect thereof, to the non-exclusive general jurisdiction of the courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to such
Borrower at its address set forth in subsection 12.2 or at such other
address of which any Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction;
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this subsection any special, exemplary, punitive or consequential
damages; and
(f) with respect to the Foreign Subsidiary Borrowers, appoints the US
Borrower, as its agent (in such capacity, the "PROCESS AGENT") to receive
on its behalf service of copies of the summons and complaint and any other
process that may be served in any such proceeding. Service may be made on
the Process Agent at its address specified above or on the Specified
Foreign Subsidiary Borrower at its address specified hereunder, in each
case in the manner provided for the giving of notices in subsection 12.2
hereof.
12.14 ACKNOWLEDGEMENTS. Each of the Borrowers hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and any Notes and the other Loan Documents;
(b) no Secured Party has any fiduciary relationship with or duty to
the Credit Parties arising out of or in connection with this Agreement or
any of the other Loan Documents, and the relationship between the Secured
Parties, on one hand, and the Credit Parties, on the other hand, in
connection herewith or therewith is solely that of creditor and debtor; and
(c) no joint venture exists among the Secured Parties or among the
Credit Parties and the Secured Parties.
12.15 WAIVERS OF JURY TRIAL. EACH BORROWER, THE LENDERS, AND EACH
AGENT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS
<PAGE>
98
AGREEMENT OR ANY NOTES OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.
12.16 CONFIDENTIALITY. Each Specified Lender agrees to keep
confidential any information obtained by it pursuant hereto and the other Loan
Documents identified as confidential at the time of delivery in accordance with
such Lender's customary practices and agrees that it will only use such
information in connection with the transactions contemplated by this Agreement
and not disclose any of such information other than (a) to such Lender's
trustees, officers, directors, employees, representatives, attorneys, agents or
affiliates who are involved in the Transactions and are advised of the
confidential nature of such information, (b) to the extent such information
presently is or hereafter becomes available to such Lender on a non-confidential
basis from any source or such information that is in the public domain at the
time of disclosure, (c) to the extent disclosure is required by law, regulation,
subpoena or judicial order or process (provided that notice of such requirement
or order shall be promptly furnished to the Specified Borrower unless such
notice is legally prohibited) or requested or required by bank regulators or
auditors or any administrative body, commission, or other Governmental Authority
to whose jurisdiction such Lender may be subject, (d) to assignees or
participants or potential assignees or participants or to professional advisors
or direct or indirect contractual counterparties in swap agreements provided in
each case such Person agrees to be bound by the provisions of this subsection
12.16, (e) to the extent required in connection with any litigation between any
Credit Party and any Specified Lender with respect to the Specified Loans or
this Agreement and the other Loan Documents, (f) to rating agencies, their
employees, representatives, attorneys, agents or affiliates who are involved in
the Transactions and are advised of the confidential nature of such information
and agree to be bound by provisions of this subsection 12.16, (g) to the
National Association of Insurance Commissioners and (h) with the Specified
Borrower's prior written consent, PROVIDED THAT, in no event shall any
confidential information be disclosed to the Customers. The agreements in this
subsection shall survive repayment of the Specified Loans and all other amounts
payable hereunder.
[rest of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
BORROWERS
---------
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.,
as US Borrower
By: /s/ Carl E. Nelson
----------------------------------
Name: Carl E. Nelson
Title: Vice President
AUTOMOTIVE COMPONENTS INVESTMENTS
LIMITED, as English Bidco
By: /s/ D. White
----------------------------------
Name: D. White
Title: Director
MORRIS ASHBY LIMITED,
as English Borrower and Euro Borrower
By: /s/ D. White
----------------------------------
Name: D. White
Title: Director
AGENTS
------
THE CHASE MANHATTAN BANK,
as Administrative Agent and Collateral
Agent and as a Lender
By: [ILLEGIBLE]
----------------------------------
Name:
Title: Vice President
<PAGE>
CHASE MANHATTAN INTERNATIONAL
LIMITED, as English Agent and Euro
Agent
By: [ILLEGIBLE]
----------------------------------
Name:
Title: Second Vice President
By: /s/ S. Hurford
----------------------------------
Name: S. Hurford
Title: Vice President
BANK OF AMERICA N.A.,
as Syndication Agent and as a Lender
By: /s/ Matthew J. Reilly
----------------------------------
Name: Matthew J. Reilly
Title: Vice President
<PAGE>
BANKBOSTON, N.A.
By: /s/ Maura C. Wadlinger
----------------------------------
Name: Maura C. Wadlinger
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ P.C.M. Ashby
----------------------------------
Name: P.C.M. Ashby
Title: Senior Manger Loan
Operations
BANK ONE, MICHIGAN (F/K/A NBD BANK)
By: /s/ Glenn A. Currin
----------------------------------
Name: Glenn A. Currin
Title: First Vice President
BANK ONE, N.A. (F/K/A FIRST NATIONAL
BANK OF CHICAGO)
By: /s/ Glenn A. Currin
----------------------------------
Name: Glenn A. Currin
Title: First Vice President
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ Karen Volk
----------------------------------
Name: Karen Volk
Title: Authorized Signatory
CAPTIVA II FINANCE LTD.
By: /s/ John H. Cullinane
----------------------------------
Name: John H. Cullinane
Title: Director
<PAGE>
CERES FINANCE LTD.
By: /s/ John H. Cullinane
----------------------------------
Name: John H. Cullinane
Title: Director
CREDIT AGRICOLE INDOSUEZ
By: /s/ Ernest V. Hodge
----------------------------------
Name: Ernest V. Hodge
Title: Vice President
Senior Relationship Manager
By: /s/ Raymond A. Falkenberg
----------------------------------
Name: Raymond A. Falkenberg
Title: Vice President, Manager
CYPRESSTREE INVESTMENT MANAGEMENT
COMPANY, INC.,
As: Attorney-in-Fact and on behalf of
First Allmerica Financial Life
Insurance, as Portfolio Manager
By: /s/ Timothy M. Barns
----------------------------------
Name: Timothy M. Barns
Title: Managing Director
COMERICA BANK
By: /s/ Daryl R. Krause
----------------------------------
Name: Daryl R. Krause
Title: Vice President
CYPRESSTREE SENIOR FLOATING RATE FUND
By: CypressTree Investment Management
Company, Inc., as Portfolio Manager
By: /s/ Timothy M. Barns
----------------------------------
Name: Timothy M. Barns
Title: Managing Director
<PAGE>
CHASE MANHATTAN INTERNATIONAL LIMITED,
as English Agent and Euro Agent
By: /s/ [ILLEGIBLE]
----------------------------------
Name:
Title: Second Vice President
By: /s/ [ILLEGIBLE]
----------------------------------
Name:
Title: Vice President
BANK OF AMERICA N.A.,
as Syndication Agent and as a Lender
By:
----------------------------------
Name:
Title:
CREDIT AGRICOLE INDOSUEZ
By: /s/ Ernest V. Hodge
----------------------------------
Name: Ernest V. Hodge
Title: Vice President
Senior Relationship Manager
By: /s/ Raymond A. Falkenberg
----------------------------------
Name: Raymond A. Falkenberg
Title: Vice President, Manager
DRESDNER BANK AG. NEW YORK AND
GRAND CAYMAN BRANCHES
By: /s/ Beverly G. Cason
----------------------------------
Name: Beverly G. Cason
Title: Vice President
By: /s/ John W. Sweeney
----------------------------------
Name: John W. Sweeney
Title: Vice President
FIRST UNION NATIONAL BANK
By: /s/ Kent Davis
----------------------------------
Name: Kent Davis
Title: Vice President
<PAGE>
FRANKLIN FLOATING RATE TRUST
By: /s/ Chauncey Lufkin
----------------------------------
Name: Chauncey Lufkin
Title: Vice President
HARRIS TRUST AND SAVINGS BANK
By: /s/ [ILLEGIBLE]
----------------------------------
Name:
Title: Vice President
HELLER FINANCIAL, INC.
By: /s/ Scott Ziemke
----------------------------------
Name: Scott Ziemke
Title: Assistant Vice President
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By: /s/ Scott H. Page
----------------------------------
Name: Scott H. Page
Title: Vice President
EATON VANCE SENIOR INCOME TRUST
By: Eaton Vance Management as
Investment Advisor
By: /s/ Scott H. Page
----------------------------------
Name: Scott H. Page
Title: Vice President
EATON VANCE INSTITUTIONAL SENIOR LOAN
FUND
By: Eaton Vance Management, as
Investment Advisor
By: /s/ Scott H. Page
----------------------------------
Name: Scott H. Page
Title: Vice President
<PAGE>
KZH CYPRESSTREE-1 LLC
By: /s/ Peter Chin
----------------------------------
Name: Peter Chin
Title: Authorized Agent
KZH IV LLC
By: /s/ Peter Chin
----------------------------------
Name: Peter Chin
Title: Authorized Agent
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ Brian Sommerfeld
----------------------------------
Name: Brian Sommerfeld
Title: Corporate Banking Officer
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ James R. Dingler
----------------------------------
Name: James R. Dingler
Title: Director
THE MITSUBISHI TRUST & BANKING
CORPORATION
By: /s/ [ILLEGIBLE]
----------------------------------
Name:
Title: Chief Manager
MORGAN STANLEY DEAN WITTER PRIME INCOME
TRUST
By: /s/ Sheila Finnerty
----------------------------------
Name: Sheila Finnerty
Title: Vice President
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND
By: CypressTree Investment Management
Company, Inc. as Portfolio Manager
By: /s/ Timothy M. Barns
----------------------------------
Name: Timothy M. Barns
Title: Managing Director
OCTAGON INVESTMENT PARTNERS II, LLC
By: Octagon Credit Investors, LLC
as sub-investment manager
By: /s/ Michael B. Nechamkin
----------------------------------
Name: Michael B. Nechamkin
Title: Portfolio Manager
OCTAGON LOAN TRUST
By: Octagon Credit Investors,
as manager
By: /s/ Michael B. Nechamkin
----------------------------------
Name: Michael B. Nechamkin
Title: Portfolio Manager
OXFORD STRATEGIC INCOME FUND
By: Eaton Vance Management,
as Investment Advisor
By: /s/ Scott H. Page
----------------------------------
Name: Scott H. Page
Title: Vice President
PERSEUS CDO I, LIMITED
By: Massachussetts Mutual Life Insurance
Company, as Collateral Manager
By: /s/ Jill A. Fields
----------------------------------
Name: Jill A. Fields
Title: Managing Director
SAAR HOLDINGS CDO LIMITED
By: Massachussetts Mutual Life Insurance
Company, as Collateral Manager
By: /s/ Jill A. Fields
----------------------------------
Name: Jill A. Fields
Title: Managing Director
<PAGE>
STEIN ROE & FARNHAM CLO I LTD.,
By: /s/ Kathleen A. Zarn
----------------------------------
Name: Kathleen A. Zarn
Title: Vice President
SCOTIABANK EUROPE PLC
By: /s/ T.A. Burchett
----------------------------------
Name: T.A. Burchett
Title: Relationship Manager
St. Francis Bank, F.S.B.
By: /s/ John C. Tans
----------------------------------
Name: John C. Tans
Title: VP.
STEIN ROE FLOATING RATE LIMITED
LIABILITY COMPANY
By: /s/ Kathleen A. Zarn
----------------------------------
Name: Kathleen A. Zarn
Title: Vice President,
Stein Roe & Farnham
Incorporated, as Advisor to
the Stein Roe Floating Rate
Limited Liability Company
THE TRAVELERS INSURANCE COMPANY
By: /s/ [ILLEGIBLE]
----------------------------------
Name:
Title: 2nd VP
TRAVELERS CORPORATE LOAN FUND INC.
By: Travelers Asset Management
International Corporation
By: /s/ [ILLEGIBLE]
----------------------------------
Name:
Title: 2nd VP
<PAGE>
THE TRAVELERS INSURANCE COMPANY
By: /s/ [ILLEGIBLE]
----------------------------------
Name:
Title: 2nd VP
TRAVELERS CORPORATE LOAN FUND INC.
By: Travelers Asset Management
International Corporation
By: /s/ [ILLEGIBLE]
----------------------------------
Name:
Title: 2nd VP
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Robert A. Rosati
----------------------------------
Name: Robert A. Rosati
Title: Asst. Vice President
VAN KAMPEN CAPITAL SENIOR FLOATING
RATE
By: Van Kampen Investment Advisory
Corp.
By: /s/ [ILLEGIBLE]
----------------------------------
Name:
Title: Vice President
<PAGE>
ADMINISTRATIVE SCHEDULE TO
CREDIT AGREEMENT
I. Available Currencies.
US BORROWER: Dollars and, with respect to the US Sterling Term Loans
only, Pounds Sterling.
ENGLISH BORROWER: Pounds Sterling
EURO BORROWER: Euro
II. Base Rates and Interest Payment Dates.
US BORROWER: DOLLARS - "BASE RATE": for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate
in effect on such day plus 1% and (c) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. For purposes hereof: "PRIME RATE"
shall mean the rate of interest per annum publicly announced from time to
time by the Administrative Agent as its prime rate in effect at its
principal office in New York City; "BASE CD RATE" shall mean the sum of
(a) the product of (i) the Three-Month Secondary CD Rate and (ii) a
fraction, the numerator of which is one and the denominator of which is
one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate;
"THREE-MONTH SECONDARY CD RATE" shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being in
effect on such day (or, if such day shall not be a Business Day, the next
preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate will,
under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if
such rate shall not be so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New
York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Administrative Agent from three New York
City negotiable certificate of deposit dealers of recognized standing
selected by it; and "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any
day, the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for the
day of such transactions received by the Administrative Agent from three
federal funds brokers of recognized standing selected by it. If for any
reason the Administrative Agent shall have determined (which determination
shall be conclusive absent manifest error) that it is unable to ascertain
the Base CD Rate or the Federal Funds Effective Rate, or both, for any
reason, including the inability or failure of the Administrative Agent to
obtain sufficient quotations in accordance with the terms thereof, the
Base Rate shall be determined without regard to clause (b) or (c), or
both, of the first sentence of this definition, as appropriate, until the
circumstances giving rise to such inability no longer exist. Any change
in the Base Rate due to a change in the Prime Rate, the Base CD Rate or
the Federal Funds Effective Rate shall be effective on the effective day
of such change in the Prime Rate, the Base CD Rate or the Federal Funds
Effective Rate, respectively; "C/D ASSESSMENT RATE" shall mean for any day
as applied to the Base CD Rate, the net annual assessment rate (rounded
upward to the nearest 1/100th of 1%) determined by the Administrative
Agent to be payable on such day to the Federal Deposit Insurance
Corporation or any successor ("FDIC") for FDIC's insuring time deposits
made in Dollars at offices of the Administrative Agent in the United
States; and "C/D RESERVE PERCENTAGE" shall mean, for any day as applied to
the CD Base Rate, that percentage (expressed as a decimal) which is in
effect on such day, as prescribed by the Board, for
<PAGE>
2
determining the maximum reserve requirement for a member bank of the
Federal Reserve System in New York City with deposits exceeding one
billion Dollars in respect of new non-personal time deposits in Dollars in
New York City having a three month maturity and in an amount of $100,000
or more.
Interest shall be payable on the last day of each March, June, September,
and December and shall be calculated on the basis of 360 days when based
on the Federal Funds Effective Rate or the CD Base Rate.
US BORROWER: POUNDS STERLING - Same as English Borrower below.
ENGLISH BORROWER: Base Rate means the rate that the English Agent
announces from time to time as its Base Rate, as in effect from time to
time plus 0.25%.
EURO BORROWER: Base Rate means the rate that the Euro Agent determines
from time to time to be its cost of funds for obtaining the requested
amount of euro for the Specified Interest Period, as in effect from time
to time.
III. Eurocurrency Base Rates and Permitted Interest Periods.
US BORROWER: DOLLARS - "EUROCURRENCY BASE RATE": with respect to each
day during each Interest Period pertaining to a Eurocurrency Loan, the
rate per annum equal to the rate at which Chase is offered Dollar deposits
at or about 10:00 a.m., New York City time, two Business Days prior to the
beginning of such Interest Period in the interbank eurodollar market where
the eurodollar and foreign currency and exchange operations in respect of
its Eurocurrency Loans are then being conducted for delivery on the first
day of such Interest Period for the number of days comprised therein and
in an amount comparable to the amount of its Eurocurrency Loan to be
outstanding during such Interest Period.
Permitted Interest Periods shall be one, two, three, six or to the extent
available to all US Lenders, nine or twelve months and interest shall be
calculated on the basis of a 360-day year.
US BORROWER: POUNDS STERLING - Same as English Borrower below.
ENGLISH BORROWER: "EUROCURRENCY BASE RATE": with respect to each day
during each Interest Period pertaining to a Loan, a rate per annum
(rounded upward to the nearest 1/100th of 1%) equal to the sum of (a)
LIBOR for such Interest Period and (b) the rate per annum calculated by
the English Agent in accordance with Schedule 1.1(B); "LIBOR" means in
relation to any Interest Period, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100th of 1%) quoted at or about 11:00 a.m.,
London time, on the Quotation Date for such period on that page of the
Telerate Screen which displays British Bankers Association Interest
Settlement Rates for deposits in Pounds Sterling of the equivalent amount
for such period (such page being currently 3750) or, if such page or such
service shall cease to be available, such other page or such other service
(as the case may be) for the purpose of displaying British Bankers
Association Interest Settlement Rates for Pounds Sterling as the English
Agent, after consultation with the Lenders and the Borrower, shall select
PROVIDED that if no such rate is displayed for Pounds Sterling and the
relevant period and the English Agent has not selected an alternative
service on which two or more such quotations are displayed, "LIBOR" shall
mean the arithmetic mean (rounded upwards, if necessary, to the nearest
1/100th of 1%) of the rates (as notified to the English Agent) at which
each of the Reference Banks was offering to prime banks in the London
Interbank Market deposits in Pounds Sterling of such amount and for such
period at or about 11:00 a.m., London time, on the Quotation Date for such
period; "REFERENCE BANKS" means the principal London offices of The Chase
Manhattan Bank and/or such other bank or banks as may from time to time
<PAGE>
3
be agreed between the English Agent and the English Borrower; and
"QUOTATION DATE" means in relation to any period for which an interest
rate is to be determined hereunder, the day on which quotations would
ordinarily be given by prime banks in the London Interbank Market for
deposits in the currency in relation to which such rate is to be
determined for delivery on the first day of that period, provided that,
if, for any such period, quotations would ordinarily be given on more than
one date, the Quotation Date for that period shall be the last of those
dates.
EURO BORROWER: "EUROCURRENCY BASE RATE": with respect to each day during
each Interest Period pertaining to a Eurocurrency Loan, the rate per annum
equal to the sum of (a) the rate at which Chase is offered euro deposits
at or about 10:00 a.m., London time, two Business Days prior to the
beginning of such Interest Period in the interbank market where the
foreign currency and exchange operations in respect of its Eurocurrency
Loans are then being conducted for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of its Eurocurrency Loan to be outstanding during
such Interest Period and (b) the rate per annum calculated by the English
Agent in accordance with Schedule 1.1(B).
Permitted Interest Periods shall be one, two, three, six or to the extent
agreed to by the English Lenders or the Euro Lenders, as the case may be,
or such other periods as may be available to all of the Specified Lenders
and interest shall be calculated on the basis of a 360-day year.
IV. Available Accommodations
US BORROWER: Letters of Credit in an amount not to exceed $5,000,000.
ENGLISH BORROWER: Letters of Credit in an amount not to exceed L5,000,000
plus the Bank Guarantee Letters of Credit.
V. Swing Line Lenders
US BORROWER: Chase in an amount not to exceed $5,000,000.
ENGLISH BORROWER: Chase in an amount not to exceed L3,000,000; PROVIDED
that the minimum amount provision in subsection 2.12(a)
shall not apply to such Swing Line Loans.
VI. Cash Equivalents.
DOLLARS. (a) securities with maturities of one year or less from the
date of acquisition issued or fully guaranteed or insured by the United
States Government or any agency thereof, (b) certificates of deposit, time
deposits, overnight bank deposits, bankers acceptances and repurchase
agreements of any commercial bank which has, or whose obligations are
guaranteed by an affiliated commercial bank which has capital and surplus
in excess of $500,000,000 having maturities of one year or less from the
date of acquisition, (c) commercial paper of an issuer rated at least A-1
by Standard & Poor's Corporation or P-1 by Moody's Investors Service,
Inc., or carrying an equivalent rating by a nationally recognized rating
agency if both of the two named rating agencies cease publishing ratings
of investments, (d) money market accounts or funds with or issued by
Qualified Issuers, (e) repurchase obligations with a term of not more than
90 days for underlying securities of the types described in clause (a)
above entered into with any bank meeting the qualifications specified in
clause (b) above, and (f) demand deposit accounts maintained in the
ordinary course of business with any Lender or with any bank that is not a
Lender not in excess of $100,000 in the aggregate on deposit with any such
bank; "QUALIFIED
<PAGE>
4
ISSUER" means any commercial bank (a) which has, or whose obligations are
guaranteed by an affiliated commercial bank which has, capital and surplus
in excess of $500,000,000 and (b) the outstanding short-term debt
securities of which are rated at least A-1 by Standard & Poor's
Corporation or at least P-1 by Moody's Investors Service, Inc., or carry
an equivalent rating by a nationally recognized rating agency if both of
the two named rating agencies cease publishing ratings of investments.
POUNDS STERLING. (a) any credit balances, realizable within three (3)
months, on any bank or other deposit, savings or current account held in
the United Kingdom (or any other jurisdiction from which cash is readily
remittable to the United Kingdom); (b) cash in hand; (c) gilt edged
securities; (d) Sterling commercial paper maturing not more than twelve
(12) months from the date of issue and rated A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investor Services Inc.; (e) any deposit with
or acceptance maturing not more than one (1) year after issue accepted by
an institution authorized under the Banking Act 1987 or a Bank; and (f)
Sterling denominated debt securities having not more than one (1) year
until final maturity and listed on a recognized stock exchange and rated
at least AA by Standard & Poor's Corporation or Aa by Moody's Investors
Services Inc.
VII. Specified Notice Times
US BORROWER: DOLLARS AND POUNDS STERLING - (a) Eurocurrency borrowings,
12:00 noon New York City time three Business Days prior to the applicable
event and (b) Base Rate borrowings, 12:00 noon New York City time one
Business Days prior to the applicable event.
ENGLISH BORROWER: 12:00 noon London time three Business Days prior to the
applicable event.
EURO BORROWER: 12:00 noon London time three Business Days prior to the
applicable event.
VIII. Specified Revolving Credit Commitment Periods.
US BORROWER: the period from and including the Original Closing Date to,
but not including, the Specified Revolving Credit Commitment Termination
Date or such earlier date on which the US Revolving Credit Commitments are
terminated (whether pursuant to Section 9 or otherwise).
ENGLISH BORROWER: the period from and including the Original Closing Date
to, but not including, the Scheduled Revolving Credit Commitment
Termination Date or such other earlier date on which the English Revolving
Credit Commitments are terminated (whether pursuant to Section 9 or
otherwise).
EURO BORROWER: the period from and including the Original Closing Date
to, but not including, the Scheduled Revolving Credit Commitment
Termination Date or such other earlier date on which the Euro Revolving
Credit Commitments are terminated (whether pursuant to Section 9 or
otherwise).
IX. Specified Revolving Credit Commitment Termination Date.
US BORROWER: the Scheduled Revolving Credit Commitment Termination Date.
ENGLISH BORROWER: the Scheduled Revolving Credit Commitment Termination
Date.
EURO BORROWER: the Scheduled Revolving Credit Commitment Termination
Date.
<PAGE>
SCHEDULE 1.1 TO
CREDIT AGREEMENT
COMMITMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
US TRANCHE A US TRANCHE B ENGLISH
TERM LOAN TERM LOAN US STERLING TERM TERM LOAN US REVOLVING
US LENDERS COMMITMENT COMMITMENT LOAN COMMITMENT COMMITMENT CREDIT COMMITMENT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
2
SUBLIMITS OF US REVOLVING
CREDIT COMMITMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
ENGLISH
REVOLVING CREDIT EURO REVOLVING
ENGLISH EURO LENDERS COMMITMENT CREDIT COMMITMENT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
TOTAL
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 1.1(B) TO
CREDIT AGREEMENT
1 The rate per annum referred to in clause (b) of the definition of
"Eurocurrency Base Rate" relative to each English Loan and Euro Loan where
(and to the extent that) English Lenders or Euro Lenders, as the case may
be, making such Loans are subject to Additional Cost, will be, subject as
hereinafter provided, for the Interest Period relating to such Loan (or, if
longer than three (3) months, for each consecutive period for three (3)
months within such Interest Period and for any balance of such Interest
Period) (which Interest Period if not longer than three (3) months and each
other such period is herein referred to as a "Relevant Period") the
percentage rate (or the arithmetic average of the percentage rates where
there is more than one Reference Bank supplying the same) supplied by the
Reference Banks (or such of them as supply it to the English Agent or the
Euro Agent, as the case may be) arrived at by applying the following
formula in relation to each Reference Bank:
In relation to a Loan denominated in Pounds Sterling:
Additional Cost = BY + S(Y-Z) + F x 0.01 % per annum
----------------------
100 - (B+S)
In relation to a Loan denominated in any other currency:
Additional Cost = F x 0.01 % per annum
--------
300
Where:
B = The percentage of such Reference Bank's eligible liabilities then
required to be held on a non-interest deposit account with the
Bank of England pursuant to the cash ratio requirements of the
Bank of England.
Y = The rate at which Pounds Sterling deposits in an amount
approximately equal to the principal amount of such Loan are
offered by such Reference Bank to leading banks in the London
Interbank Market at or about 11:00 a.m. London time on the first
day of the Relevant Period for a period comparable to the
Relevant Period.
S = The percentage of such Reference Bank's eligible liabilities then
required to be placed as a special deposit with the Bank of
England.
Z = The percentage interest rate per annum allowed by the Bank of
England on special deposits.
F = The charge payable by such Reference Bank to the Financial
Services Authority under paragraph 2.02 or 2.03 (as appropriate)
of the Fees Regulations but where for this purpose, the figure in
paragraph 2.02b and 2.03b will be deemed to be zero expressed in
pounds per L1 million of the fee base of such Reference Bank.
For purposes of this paragraph, "eligible liabilities" and "special
deposits" shall bear the meanings ascribed to them from time to time by the
Bank of England and "fee base" has the meaning given to it in the Fees
Regulations, and "Fees Regulations" means Banking Supervision (Fees)
Regulations 1999 and/or any other regulations governing the payment of fees
for banking supervision. "Additional Cost" means the cost imputed to the
English Lenders or the Euro Lenders, as the case may be, of compliance with
(a) the Mandatory Liquid Assets requirements of the Bank of England and/or
the banking supervision or other costs of the Financial Services Authority
as determined in accordance with this Schedule 1.1(B) and (b) any other
applicable Governmental Authority or central bank requirement relating to
any Loan made through a branch in the jurisdiction of the currency of that
Loan.
2 In the application of the above formula, B, Y, S, Z and F will be included
in the formula as figures and not as percentages, e.g., if B = 0.5% and Y =
15%, BY will be calculated as 0.5 x 15 and not as 0.5% x 15%.
<PAGE>
3 The Additional Cost computed by the English Agent in accordance with this
Schedule shall be rounded upward, if necessary to four (4) decimal places.
4 The calculation in respect of the Additional Cost for each English Loan
denominated in Pounds Sterling will be made by the English Agent on the
first day of each Relevant Period.
5 Calculations will be made on the basis of a year of 365 days and the actual
number of days elapsed.
6 If no Reference Bank furnishes the appropriate information for the purposes
of this Schedule, the Additional Cost shall be determined by the English
Agent on the basis of such other information and quotations as the English
Agent shall reasonably determine to be appropriate.
7 In the event of a change in circumstances (including the imposition of
alternative or additional official requirements, excluding capital adequacy
requirements) which renders the above formula inappropriate in the
reasonable opinion of the English Agent, the English Agent shall promptly
notify the English Borrower and the English Lenders thereof and (after
consultation with the Reference Banks and the English Borrower) shall
notify the English Borrower of the manner in which the rate for the
purposes of paragraph (b) of the definition of "Eurocurrency Base Rate"
shall thereafter be determined (which manner shall be determined in a bona
fide manner and provide a fair assessment of the additional cost to the
English Lenders of compliance with the relevant requirements of the Bank of
England or other central bank or the Financial Services Authority or any
other applicable Governmental Authority) and the English Borrower and the
English Lenders shall be bound thereby.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.1 DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.2 OTHER DEFINITIONAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS . . . . . . . . . . . . . . . . . . . 30
2.1 REVOLVING CREDIT COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . 30
2.2 PROCEDURE FOR REVOLVING CREDIT BORROWING . . . . . . . . . . . . . . . . 31
2.3 COMMITMENT FEE; ADMINISTRATIVE AGENT FEES. . . . . . . . . . . . . . . . 31
2.4 TERMINATION OR REDUCTION OF REVOLVING CREDIT COMMITMENTS . . . . . . . . 32
2.5 TERM LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.6 PROCEDURE FOR TERM LOAN BORROWINGS . . . . . . . . . . . . . . . . . . . 36
2.7 REPAYMENT OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.8 OPTIONAL PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.9 MANDATORY PREPAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.10 CONVERSION AND CONTINUATION OPTIONS . . . . . . . . . . . . . . . . . . 41
2.11 MINIMUM AMOUNTS OF TRANCHES . . . . . . . . . . . . . . . . . . . . . . 41
2.12 SWING LINE COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 3. ACCOMMODATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.1 THE ACCOMMODATION COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . 44
3.2 PROCEDURE FOR ISSUANCE OF SPECIFIED ACCOMMODATIONS . . . . . . . . . . . 44
3.3 FEES, COMMISSIONS AND OTHER CHARGES. . . . . . . . . . . . . . . . . . . 45
3.4 ACCOMMODATION PARTICIPATIONS . . . . . . . . . . . . . . . . . . . . . . 45
3.5 REIMBURSEMENT OBLIGATION OF THE SPECIFIED BORROWER . . . . . . . . . . . 47
3.6 OBLIGATIONS ABSOLUTE . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.7 ACCOMMODATION PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.8 LETTER OF CREDIT APPLICATIONS. . . . . . . . . . . . . . . . . . . . . . 48
SECTION 4. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.1 INTEREST RATES AND PAYMENT DATES . . . . . . . . . . . . . . . . . . . . 48
4.2 COMPUTATION OF INTEREST AND FEES . . . . . . . . . . . . . . . . . . . . 48
4.3 INABILITY TO DETERMINE INTEREST RATE . . . . . . . . . . . . . . . . . . 49
4.4 PRO RATA TREATMENT AND PAYMENTS. . . . . . . . . . . . . . . . . . . . . 50
4.5 ILLEGALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.6 REQUIREMENTS OF LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.7 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
4.8 INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
4.9 REPLACEMENT OF SPECIFIED LENDER. . . . . . . . . . . . . . . . . . . . . 59
4.10 REDENOMINATION AND ALTERNATIVE CURRENCIES . . . . . . . . . . . . . . . 59
SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 60
5.1 FINANCIAL CONDITION. . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.2 NO CHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
5.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . 61
5.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. . . . . . . . . 61
- i -
<PAGE>
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<S> <C>
5.5 NO LEGAL BAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
5.6 NO MATERIAL LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . 62
5.7 NO DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
5.8 OWNERSHIP OF PROPERTY; LIENS . . . . . . . . . . . . . . . . . . . . . . 62
5.9 INTELLECTUAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . 63
5.10 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
5.11 US FEDERAL REGULATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 63
5.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
5.13 INVESTMENT COMPANY ACT. . . . . . . . . . . . . . . . . . . . . . . . . 64
5.14 SUBSIDIARIES, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
5.15 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 64
5.16 REGULATION H. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
5.17 DELIVERY OF TRANSACTION DOCUMENTS . . . . . . . . . . . . . . . . . . . 66
5.18 REPRESENTATIONS AND WARRANTIES CONTAINED IN THE TRANSACTION DOCUMENTS . 66
5.19 DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
5.20 GUARANTEE AND COLLATERAL AGREEMENT; MORTGAGES.. . . . . . . . . . . . . 66
5.21 SOLVENCY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
5.22 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
5.23 SENIOR INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . 67
5.24 YEAR 2000 MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . 68
6.1 CONDITIONS TO INITIAL EXTENSIONS OF CREDIT . . . . . . . . . . . . . . . 68
6.2 CONDITIONS TO EACH SPECIFIED LOAN. . . . . . . . . . . . . . . . . . . . 73
SECTION 7. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . 73
7.1 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 73
7.2 CERTIFICATES; OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . 74
7.3 PAYMENT OF OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 75
7.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE . . . . . . . . . . . . 75
7.5 MAINTENANCE OF PROPERTY; INSURANCE . . . . . . . . . . . . . . . . . . . 75
7.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS . . . . . . . . . 76
7.7 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
7.8 ENVIRONMENTAL LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
7.9 PLEDGE OF AFTER ACQUIRED PROPERTY. . . . . . . . . . . . . . . . . . . . 78
7.10 ADDITIONAL SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . 78
7.11 INTELLECTUAL PROPERTY.. . . . . . . . . . . . . . . . . . . . . . . . . 79
7.12 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
7.13 INTEREST RATE PROTECTION AGREEMENTS . . . . . . . . . . . . . . . . . . 79
SECTION 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 79
8.1 FINANCIAL CONDITION COVENANTS. . . . . . . . . . . . . . . . . . . . . . 79
8.2 LIMITATION ON INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . 80
8.3 LIMITATION ON LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . 82
8.4 LIMITATION ON GUARANTEE OBLIGATIONS. . . . . . . . . . . . . . . . . . . 83
- ii -
<PAGE>
<CAPTION>
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<S> <C>
8.5 LIMITATION ON FUNDAMENTAL CHANGES. . . . . . . . . . . . . . . . . . . . 84
8.6 LIMITATION ON SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . 85
8.7 LIMITATION ON RESTRICTED PAYMENTS. . . . . . . . . . . . . . . . . . . . 86
8.8 LIMITATION ON CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . 87
8.9 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. . . . . . . . . . . . . . 87
8.10 LIMITATION ON PAYMENTS AND MODIFICATIONS OF SENIOR SUBORDINATED NOTE
INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
8.11 LIMITATION ON TRANSACTIONS WITH AFFILIATES. . . . . . . . . . . . . . . 90
8.12 LIMITATION ON SALES AND LEASEBACKS. . . . . . . . . . . . . . . . . . . 91
8.13 LIMITATION ON CHANGES IN FISCAL YEAR. . . . . . . . . . . . . . . . . . 91
8.14 RESTRICTIONS AFFECTING SUBSIDIARIES . . . . . . . . . . . . . . . . . . 91
8.15 LIMITATION ON LINES OF BUSINESS . . . . . . . . . . . . . . . . . . . . 91
8.16 AMENDMENTS TO CORPORATE DOCUMENTS; TRANSACTION DOCUMENTS; LICENSES. . . 92
8.17 PASSIVE STATUS OF THE US BORROWER.. . . . . . . . . . . . . . . . . . . 92
SECTION 9. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 10. THE AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
10.1 APPOINTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
10.2 DELEGATION OF DUTIES. . . . . . . . . . . . . . . . . . . . . . . . . . 95
10.3 EXCULPATORY PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 95
10.4 RELIANCE BY THE SPECIFIED AGENTS. . . . . . . . . . . . . . . . . . . . 96
10.5 NOTICE OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
10.6 NON-RELIANCE ON AGENT AND LENDERS . . . . . . . . . . . . . . . . . . . 96
10.7 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
10.8 AGENTS IN THEIR INDIVIDUAL CAPACITY . . . . . . . . . . . . . . . . . . 97
10.9 SUCCESSOR AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
10.10 ADDITIONAL MINISTERIAL POWERS OF THE SPECIFIED AGENTS. . . . . . . . . 98
10.11 SPECIFIED ISSUING LENDER AND COLLATERAL AGENT. . . . . . . . . . . . . 98
10.12 ENGLISH AGENT AS TRUSTEE.. . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 11. GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
11.1 GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
11.2 WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . . 99
11.3 MODIFICATION OF FOREIGN SUBSIDIARY OBLIGATIONS. . . . . . . . . . . . . 99
11.4 WAIVER BY THE US BORROWER . . . . . . . . . . . . . . . . . . . . . . .100
11.5 REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
SECTION 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
12.1 AMENDMENTS AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . .101
12.2 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103
12.3 NO WAIVER; CUMULATIVE REMEDIES. . . . . . . . . . . . . . . . . . . . .104
12.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . .104
12.5 PAYMENT OF EXPENSES AND TAXES . . . . . . . . . . . . . . . . . . . . .104
12.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. . . . . . . . .105
12.7 ADJUSTMENTS; SET-OFF. . . . . . . . . . . . . . . . . . . . . . . . . .108
- iii -
<PAGE>
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<S> <C>
12.8 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
12.9 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
12.10 INTEGRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
12.11 JUDGMENT CURRENCY. . . . . . . . . . . . . . . . . . . . . . . . . . .109
12.12 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . .110
12.13 SUBMISSION TO JURISDICTION; WAIVERS. . . . . . . . . . . . . . . . . .110
12.14 ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .110
12.15 WAIVERS OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . .111
12.16 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . .111
</TABLE>
- iv -
<PAGE>
EXHIBITS
A-1 Form of Revolving Credit Note
A-2 Form of Term Note
A-3 Form of Swing Line Note
B Participation Certificate
C Swing Line Loan Participation Certificate
D Assignment and Acceptance
E-1 Form of Opinion of Kirkland & Ellis,
Counsel to the US Borrower
E-2 Form of English Opinion
F Closing Certificate
G-1 Form of Guarantee and Collateral Agreement
G-2 Form of Mortgage
H Form of Perfection Certificate
I Form of Sharing Agreement
J Form of Intercompany Note
K Form of Prepayment Option Notice
SCHEDULES
Administrative Schedule
1.1 Commitments
1.1(B) Eurocurrency Rate Formula
3.1 Existing Letter of Credit
5.6 Litigation
5.9 Intellectual Property
5.10 Taxes
5.14 Subsidiaries, Joint Ventures, etc.
5.15 Environmental Matters
5.19 Filing Locations and Properties
8.2 Existing Indebtedness
8.3 Existing Liens
8.4 Existing Guarantee Obligations
8.9 Existing Investments
8.11 Existing Transactions with Affiliates
- v -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of
October 15, 1999
among
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.,
AS US BORROWER,
AUTOMOTIVE COMPONENTS INVESTMENTS LIMITED,
AS ENGLISH BIDCO,
MORRIS ASHBY LIMITED,
AS ENGLISH BORROWER AND EURO BORROWER,
The Several Lenders
from Time to Time Parties Hereto
BANK OF AMERICA N.A.,
AS SYNDICATION AGENT
CHASE MANHATTAN INTERNATIONAL LIMITED,
AS ENGLISH AGENT AND EURO AGENT
AND
THE CHASE MANHATTAN BANK,
AS ADMINISTRATIVE AGENT
----------------------------
CHASE SECURITIES INC.
and
BANC OF AMERICA SECURITIES LLC,
AS LEAD ARRANGERS AND JOINT BOOK MANAGERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
<PAGE>
EXECUTION
JOINDER AND RIGHTS AGREEMENT
THIS JOINDER AND RIGHTS AGREEMENT (this "AGREEMENT") is made as of
October 14, 1999, by and between J.L. French Automotive Castings, Inc., a
Delaware corporation (the "COMPANY") and each of the Persons listed on the
signature page attached hereto (collectively referred to herein as the "ONEX
INVESTORS") and each individually as an "ONEX INVESTOR").
As of April 21, 1999, the Company and certain of the Company's
stockholders entered into an investor stockholders agreement (as amended from
time to time in accordance with its terms, the "STOCKHOLDERS AGREEMENT") and a
registration rights agreement (as amended from time to time in accordance with
its terms, the "REGISTRATION AGREEMENT").
On the date hereof, the Company, the Onex Investors and certain other
stockholders of the Company entered into a Stock Purchase Agreement (the
"STOCKPURCHASE AGREEMENT"), pursuant to which the Onex Investors purchased in
the aggregate 2,058.251020 shares of the Company's Class B Common Stock par
value $.01 per share (the "CLASS B COMMON") and such other stockholders have
approved an amendment to each of the Stockholders Agreement and the Registration
Agreement permitting the joinder of the Onex Investors to such agreements.
In connection with the issuance of the Class B Common, the parties to
this Agreement desire that each Onex Investor become a party to the Stockholders
Agreement and the Registration Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. ADDITION OF THE ONEX INVESTORS TO THE STOCKHOLDERS AGREEMENT.
The parties hereto agree that, by and upon execution of this Agreement, each
Onex Investor shall be a party to the Stockholders Agreement and shall be
considered a "STOCKHOLDER" and a holder of "COMMON STOCK" thereunder and, except
as otherwise provided herein, each shall be entitled to the rights and benefits
and subject to the duties and obligations of a Stockholder and a holder of
Common Stock thereunder, as fully as if such Onex Investor were an original
signatory thereto in such capacities.
2. ADDITION OF THE ONEX INVESTORS TO THE REGISTRATION AGREEMENT.
The parties hereto agree that, by and upon execution of this Agreement, each
Onex Investor shall be a party to the Registration Agreement and shall be
considered an "INVESTOR" and a holder of "REGISTRABLE SECURITIES" thereunder and
shall be entitled to the rights and benefits and subject to the duties and
obligations of an Investor and a holder of Registrable Securities thereunder, as
fully as if such Onex Investor were an original signatory thereto in such
capacities.
<PAGE>
3. RESTRICTIVE LEGENDS. In lieu of the legend required by Article 7
of the Stockholders Agreement, each certificate evidencing shares of Class B
Common acquired upon conversion of the Convertible Note (or any Company
securities issued with respect to such shares) shall, until such time as such
shares are no longer subject to the provisions of the Stockholders Agreement in
accordance with the provisions thereof, be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON OCTOBER 14, 1999, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION UNDER THE ACT OR APPLICABLE STATE LAW OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AND CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCKHOLDERS
AGREEMENT DATED AS OF APRIL 21, 1999, BY AND AMONG THE ISSUER OF SUCH
SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S STOCKHOLDERS,
AS AMENDED AND MODIFIED FROM TIME TO TIME. THE SECURITIES REPRESENTED
BY THIS CERTIFICATE BECAME SUBJECT TO SUCH STOCKHOLDERS AGREEMENT
PURSUANT TO A JOINDER AND RIGHTS AGREEMENT DATED AS OF OCTOBER 14,
1999, BY AND AMONG THE COMPANY AND THE INITIAL HOLDER OF SUCH
SECURITIES. A COPY OF EACH SUCH AGREEMENT SHALL BE FURNISHED WITHOUT
CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
4. CONTINUING EFFECT. Except as modified by this Agreement, the
Stockholders Agreement shall continue and remain in full force and effect in
accordance with their terms.
5. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
6. CONSENT TO AMENDMENTS. The provisions of this Agreement may be
amended, modified, or waived only with the prior written consent of the Company
and holders of a majority of the Class A Common held by the Onex Investors;
PROVIDED that no such amendment, modification, waiver shall in any way be
construed to constitute an amendment, modification, or
2
<PAGE>
waiver of the Stockholders Agreement (including without limitation with respect
to the Onex Investors' being a party to such agreements and the rights and
obligations of the Onex Investors as a party to such agreement), which agreement
may only be amended, modified, or waived in accordance with the provisions
thereof.
7. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
8. GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF DELAWARE SHALL
GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS OF THE COMPANY
AND ITS STOCKHOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, INTERPRETATION AND ENFORCEABILITY OF THIS AGREEMENT
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR
PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT
WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE
OF NEW YORK.
9. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and Tower and their respective successors and assigns, whether so
expressed or not.
10. DESCRIPTIVE HEADINGS; INTERPRETATION; NO STRICT CONSTRUCTION.
The descriptive headings of this Agreement are inserted for convenience only and
do not constitute a substantive part of this Agreement. Whenever required by
the context, any pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular forms of nouns, pronouns,
and verbs shall include the plural and vice versa. Except as otherwise
expressly provided herein, reference to any agreement, document, or instrument
means such agreement, document, or instrument as amended or otherwise modified
from time to time in accordance with the terms thereof, and if applicable
hereof. The use of the words "include" or "including" in this Agreement shall
be by way of example rather than by limitation. The use of the words "or,"
"either" or "any" shall not be exclusive. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
11. DELIVERY BY FACSIMILE. This Agreement, the agreements referred
to herein, and each other agreement or instrument entered into in connection
herewith or therewith or contemplated hereby or thereby, and any amendments
hereto or thereto, to the extent signed and delivered by means of a facsimile
machine, shall be treated in all manner and respects as an original agreement or
instrument and shall be considered to have the same binding legal effect as if
it were the original signed version thereof delivered in person. At the request
of any party hereto or to any such agreement or instrument, each other party
hereto or thereto shall reexecute original forms
3
<PAGE>
thereof and deliver them to all other parties. No party hereto or to any such
agreement or instrument shall raise the use of a facsimile machine to deliver a
signature or the fact that any signature or agreement or instrument was
transmitted or communicated through the use of a facsimile machine as a defense
to the formation or enforceability of a contract and each such party forever
waives any such defense.
* * * * *
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
By:
---------------------------------
Its:
---------------------------------
Onex Advisor LLC
By:
---------------------------------
Its:
---------------------------------
1170809 Ontario Inc.
By:
---------------------------------
Its:
---------------------------------
1170810 Ontario Inc.
By:
---------------------------------
Its:
---------------------------------
1170812 Ontario Inc.
By:
---------------------------------
Its:
---------------------------------
1170698 Ontario Inc.
By:
---------------------------------
Its:
---------------------------------
<PAGE>
Kaban Investments
By:
---------------------------------
Its:
---------------------------------
------------------------------------------
Mark Briggs
------------------------------------------
Naveen Jeereddi
1299039 Ontario Inc.
By:
---------------------------------
Its:
---------------------------------
------------------------------------------
Robert Lantos
------------------------------------------
Brian King
------------------------------------------
Robert Prichard
------------------------------------------
Serge Gouin
Mercury Trade International Ltd.
By:
---------------------------------
Its:
---------------------------------
<PAGE>
United Trustco Limited
By:
---------------------------------
Its:
---------------------------------
Medavoy 1987 Trust dated January 25, 1999
By:
---------------------------------
Its:
---------------------------------
1376654 Ontario Inc.
By:
---------------------------------
Its:
---------------------------------
1376653 Ontario Inc.
By:
---------------------------------
Its:
---------------------------------
HRON Canadian Investments Ltd.
By:
---------------------------------
Its:
---------------------------------
Brent Belzberg Family Trust
By:
---------------------------------
Its:
---------------------------------
------------------------------------------
Brian Mulroney
------------------------------------------
Don Gales
<PAGE>
------------------------------------------
Arnold Messer
2668921 Manitoba Ltd.
By:
---------------------------------
Its:
---------------------------------
1170821 Ontario Inc.
By:
---------------------------------
Its:
---------------------------------
SMM (Kyzalea)
By:
---------------------------------
Its:
---------------------------------
1170697 Ontario Inc.
By:
---------------------------------
Its:
---------------------------------
1170819 Ontario Inc.
By:
---------------------------------
Its:
---------------------------------
1301449 Ontario Inc.
By:
---------------------------------
Its:
---------------------------------
<PAGE>
1352536 Ontario Inc.
By:
---------------------------------
Its:
---------------------------------
1352537 Ontario Inc.
By:
---------------------------------
Its:
---------------------------------
<PAGE>
EXECUTION
JOINDER AND RIGHTS AGREEMENT
THIS JOINDER AND RIGHTS AGREEMENT (this "AGREEMENT") is made as of
October 14, 1999, by and between J.L. French Automotive Castings, Inc., a
Delaware corporation (the "COMPANY") and Tower Automotive, Inc., a Delaware
corporation ("TOWER").
As of April 21, 1999, the Company and certain of the Company's
stockholders entered into an investor stockholders agreement (as amended from
time to time in accordance with its terms, the "STOCKHOLDERS AGREEMENT") and a
registration rights agreement (as amended from time to time in accordance with
its terms, the "REGISTRATION AGREEMENT").
On the date hereof, the Company issued a Subordinated Convertible Note
to Tower in the aggregate principal amount of $30,000,000 (the "CONVERTIBLE
NOTE") convertible into up to 5,087.5480 shares of the Company's Class A Common
Stock par value $.01 per share (the "CLASS A COMMON").
On the date hereof the Company's stockholders have entered into a
Stock Purchase Agreement whereby, among other things, such stockholders have
approved an amendment to each of the Stockholders Agreement and the Registration
Agreement permitting the joinder of Tower to such agreements.
In connection with the issuance of the Convertible Note, the parties
to this Agreement desire that Tower become a party to the Stockholders Agreement
and Registration Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. ADDITION OF TOWER TO THE STOCKHOLDERS AGREEMENT. The parties
hereto agree that, by and upon execution of this Agreement, Tower shall be a
party to the Stockholders Agreement and shall be considered a "STOCKHOLDER" and
a holder of "COMMON STOCK" thereunder and, except as otherwise provided herein,
each shall be entitled to the rights and benefits and subject to the duties and
obligations of a Stockholder and a holder of Common Stock thereunder, as fully
as if Tower were an original signatory thereto in such capacities.
2. ADDITION OF TOWER TO THE REGISTRATION AGREEMENT. The parties
hereto agree that, by and upon execution of this Agreement, Tower shall be a
party to the Registration Agreement and shall be considered an "INVESTOR" and a
holder of "REGISTRABLE SECURITIES" thereunder and shall be entitled to the
rights and benefits and subject to the duties and obligations of an Investor and
a
<PAGE>
holder of Registrable Securities thereunder, as fully as if Tower were an
original signatory thereto in such capacities.
3. PRE-EMPTIVE RIGHTS. Notwithstanding anything to the contrary
contained herein, Tower hereby agrees that under Article 6 of the Stockholders
Agreement in respect of pre-emptive rights and for the purposes of determinating
"Pro Rate Share" (as defined therein) thereunder, Tower shall be deemed to be a
"Stockholder" and a holder Common Stock only with respect to those shares of
Class A Common then actually held by Tower as a result of conversion of all or
part of the Convertible Note.
4. RESTRICTIVE LEGENDS. In lieu of the legend required by Article 7
of the Stockholders Agreement, each certificate evidencing shares of Class A
Common acquired upon conversion of the Convertible Note (or any Company
securities issued with respect to such shares) shall, until such time as such
shares are no longer subject to the provisions of the Stockholders Agreement in
accordance with the provisions thereof, be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON OCTOBER 14, 1999, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION UNDER THE ACT OR APPLICABLE STATE LAW OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AND CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCKHOLDERS
AGREEMENT DATED AS OF APRIL 21, 1999, BY AND AMONG THE ISSUER OF SUCH
SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S STOCKHOLDERS,
AS AMENDED AND MODIFIED FROM TIME TO TIME. THE SECURITIES REPRESENTED
BY THIS CERTIFICATE BECAME SUBJECT TO SUCH STOCKHOLDERS AGREEMENT
PURSUANT TO A JOINDER AND RIGHTS AGREEMENT DATED AS OF OCTOBER 14,
1999, BY AND AMONG THE COMPANY AND THE INITIAL HOLDER OF SUCH
SECURITIES. A COPY OF EACH SUCH AGREEMENT SHALL BE FURNISHED WITHOUT
CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
5. CONTINUING EFFECT. Except as modified by this Agreement, the
Stockholders Agreement shall continue and remain in full force and effect in
accordance with their terms.
6. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law
2
<PAGE>
or rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of any other provision
of this Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
7. CONSENT TO AMENDMENTS. The provisions of this Agreement may be
amended, modified, or waived only with the prior written consent of the Company
and Tower; PROVIDED that no such amendment, modification, waiver shall in any
way be construed to constitute an amendment, modification, or waiver of the
Stockholders Agreement (including without limitation with respect to Tower's
being a party to such agreements and the rights and obligations of Tower as a
party to such agreement), which agreement may only be amended, modified, or
waived in accordance with the provisions thereof.
8. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
9. GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF DELAWARE SHALL
GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS OF THE COMPANY
AND ITS STOCKHOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, INTERPRETATION AND ENFORCEABILITY OF THIS AGREEMENT
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR
PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT
WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE
OF NEW YORK.
10. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and Tower and their respective successors and assigns, whether so
expressed or not.
11. DESCRIPTIVE HEADINGS; INTERPRETATION; NO STRICT CONSTRUCTION.
The descriptive headings of this Agreement are inserted for convenience only and
do not constitute a substantive part of this Agreement. Whenever required by
the context, any pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular forms of nouns, pronouns,
and verbs shall include the plural and vice versa. Except as otherwise
expressly provided herein, reference to any agreement, document, or instrument
means such agreement, document, or instrument as amended or otherwise modified
from time to time in accordance with the terms thereof, and if applicable
hereof. The use of the words "include" or "including" in this Agreement shall
be by way of example rather than by limitation. The use of the words "or,"
"either" or "any" shall not be exclusive. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
3
<PAGE>
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
12. DELIVERY BY FACSIMILE. This Agreement, the agreements referred
to herein, and each other agreement or instrument entered into in connection
herewith or therewith or contemplated hereby or thereby, and any amendments
hereto or thereto, to the extent signed and delivered by means of a facsimile
machine, shall be treated in all manner and respects as an original agreement or
instrument and shall be considered to have the same binding legal effect as if
it were the original signed version thereof delivered in person. At the request
of any party hereto or to any such agreement or instrument, each other party
hereto or thereto shall reexecute original forms thereof and deliver them to all
other parties. No party hereto or to any such agreement or instrument shall
raise the use of a facsimile machine to deliver a signature or the fact that any
signature or agreement or instrument was transmitted or communicated through the
use of a facsimile machine as a defense to the formation or enforceability of a
contract and each such party forever waives any such defense.
* * * * *
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
By: /s/ Thomas C. Dinolfo
---------------------------------
Its: C.F.O.
---------------------------------
TOWER AUTOMOTIVE, INC.
By: /s/ Anthony A. Barone
--------------------------------------
Its: V.P. and C.F.O.
--------------------------------------
SIGNATURE PAGE TO THE JOINDER AGREEMENT
S-1
<PAGE>
EXECUTION
THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR AN EXEMPTION FROM REGISTRATION THEREUNDER. PRIOR TO ANY SALE OR TRANSFER OF
THIS CERTIFICATE, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT COVERING SUCH SALE OR TRANSFER, THE H OLDER HEREOF SHALL HAVE DELIVERED
TO THE ISSUER HEREOF (THE "COMPANY") AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM REGISTRATION UNDER THE ACT.
THE SECURITIES REPRESENTED BY THIS NOTE ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER PURSUANT TO THE TERMS HEREOF. A COPY OF SUCH RESTRICTIONS SHALL BE
FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST.
J.L. FRENCH AUTOMOTIVE
CASTINGS, INC.
7.50 % CONVERTIBLE SUBORDINATED
PROMISSORY NOTE
--------------------------
Date of Issuance: October 15, 1999 $30,000,000
J.L. French Automotive Castings, Inc., a Delaware corporation (the
"COMPANY"), hereby promises to pay to the order of Tower Automotive, Inc. the
principal amount of $30,000,000 together with interest thereon calculated from
the date hereof in accordance with the provisions of this Note. For purposes
hereof, "NOTES" shall mean this Note and any Note issued upon transfer of all or
any portion of this Note.
1. PAYMENT OF INTEREST.
(a) INTEREST RATE. Interest shall accrue at the rate of seven and
one-half percent (7.50%) per annum (computed on the basis of a 360-day year
and the actual number of days elapsed in any year) on the unpaid principal
amount of this Note outstanding from time to time, or (if less) at the highest
rate then permitted under applicable law.
(b) PAYMENT. The Company shall pay to the holder of this Note all
accrued interest on the last day of each December, March, June and September,
beginning December 31,
<PAGE>
1999; PROVIDED, HOWEVER, that, if a Constraining Circumstance exists and is
continuing on such payment date, only those funds which could be paid without a
Constraining Circumstance occurring and continuing shall be used to pay interest
to the holders of the Notes. Unless prohibited under applicable law, any
accrued interest which is not paid on the date on which it is due and payable
shall bear interest at the same rate at which interest is then accruing on the
principal amount of this Note until such interest is paid. Any accrued interest
which for any reason has not theretofore been paid shall be paid in full on the
date on which the final principal payment on this Note is made. Interest shall
accrue on any principal payment due under this Note until such time as payment
therefor is actually delivered to the holder of this Note.
2. PAYMENT OF PRINCIPAL ON NOTE.
(a) SCHEDULED PAYMENTS. The Company shall pay the principal amount
of this Note (or if the principal amount then outstanding on this Note is less
than such amount, the remaining principal then outstanding), together with all
accrued and unpaid interest on October 15, 2009. The obligation of the Company
to make payment on the foregoing date is hereinafter referred to as the
"SCHEDULED PAYMENT."
(b) PREPAYMENTS. The Company may, at any time and from time to time
without premium or penalty, prepay all or any portion of the outstanding
principal amount of the Notes; provided that (A) such prepayment is not
prohibited by the provisions of paragraph 3 hereof and (B) the Company has paid
all interest on the Notes accrued through the immediately preceding scheduled
interest payment date. In connection with each prepayment of principal
hereunder, the Company shall also pay all accrued and unpaid interest on the
principal amount of the Notes being repaid. To exercise its option to make any
optional prepayment hereunder, the Company must give the holder hereof written
notice of such prepayment not less than five days and not more than thirty days
prior to the date fixed for such prepayment, specifying the date of proposed
prepayment, the aggregate principal amount of all Notes to be prepaid on such
date, the aggregate amount of interest to be paid with such aggregate prepayment
of principal on such date, the principal amount of this Note to be prepaid on
such date, and the amount of interest to be paid with such prepayment of
principal on this Note. The holder of this Note may elect to convert all or a
portion of the principal amount of this Note rather than receive such
prepayment. In the event of such election, the holder shall deliver to the
Company in person or by registered or certified mail, return receipt requested,
such holder's Note on or prior to the date of prepayment and such conversion
shall be effected in accordance with the terms of paragraph 6 hereof.
3. SUBORDINATION.
(a) EXTENT OF SUBORDINATION.
(i) The Subordinated Obligations are expressly "subordinate and
junior in right of payment" (as that phrase is defined in paragraph (ii) below)
to all Senior Obligations.
2
<PAGE>
(ii) "SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT" means that:
(A) no part of the Subordinated Obligations shall have any
claim to the assets or securities of the Company on a parity with or
prior to the claim of the Senior Obligations; and
(B) unless and until the Senior Obligations have been paid in
full in cash and the Commitments under the Senior Credit Agreement
have been terminated, without the express prior written consent of the
Administrative Agent, the holders of this Note will not take, demand
or receive from the Company, and the Company will not make, give or
permit, directly or indirectly, by set-off, redemption, purchase or
in any other manner, any payment of or security for the whole or any
part of the Subordinated Obligations, including, without limitation,
any guarantee, letter of credit or similar credit support facility to
support payment of the Subordinated Obligations; PROVIDED, HOWEVER,
except upon the occurrence and during the continuance of a payment
default under the Senior Credit Agreement or an Event of Default (as
defined in the Senior Credit Agreement), the Company may make, and the
holder of this Note may receive, scheduled payments on account of
interest on this Note in accordance with the terms thereof as in
effect on the date hereof; and
(C) the holder of this Note will not accelerate for any reason
payment of any amount owing under this Note; PROVIDED; HOWEVER, that
upon the occurrence of an acceleration of all amounts owed under the
Senior Credit Agreement the holder of this Note may accelerate the
Schedule Payment, together with any accrued and unpaid interest.
(b) ADDITIONAL PROVISIONS CONCERNING SUBORDINATION
(i) Upon the occurrence of any Insolvency Event:
(A) all Senior Obligations shall be paid in full in cash before
any payment or distribution is made with respect to the Subordinated
Obligations; and
(B) any payment or distribution of assets or securities of the
Company, whether in cash, property or securities, to which the holder
of this Note would be entitled except for the provisions hereof, shall
be paid or delivered by the Company, or any receiver, trustee in
bankruptcy, liquidating trustee, disbursing agent or other Person
making such payment or distribution, directly to the Administrative
Agent, for the account of the Senior Lenders, to the extent necessary
to pay in full in cash all Senior Obligations, before any payment or
distribution shall be made to the holders of this Note.
3
<PAGE>
(ii) If any payment or distribution, whether consisting of
money, property or securities, shall be collected or received by the
Subordinated Lender or any other holder of this Note in respect of the
Subordinated Obligations, except payments permitted to be made at the time of
payment as provided in paragraph 3(a)(ii)(B), the Subordinated Lender or such
holder forthwith shall deliver the same to the Administrative Agent for the
account of the Senior Lenders, in the form received, duly indorsed to the
Administrative Agent, if required, to be applied to the payment or prepayment of
(or, in the case of unmatured obligations in respect of letters of credit, as
collateral for) the Senior Obligations until the Senior Obligations are paid in
full in cash. Until so delivered, such payment or distribution shall be held in
trust by the Subordinated Lender or such holder as the property of the Senior
Lenders, segregated from other funds and property held by the Subordinated
Lender or such holder.
(c) SUBROGATION. Subject to the payment in full in cash of the
Senior Obligations (other than any indemnification obligations under the Senior
Credit Agreement not due and payable), the Subordinated Lender shall be
subrogated to the rights of the Senior Lenders to receive payments or
distributions of assets or securities of the Company in respect of the Senior
Obligations until the Senior Obligations (other than any indemnification
obligations under the Senior Credit Agreement not due and payable) shall be paid
in full in cash. For the purposes of such subrogation, payments or distribution
to the Administrative Agent, for the account of the Senior Lenders, of any
money, property or securities to which the Subordinated Lender would be entitled
except for the provisions hereof shall be deemed, as between the Company and its
creditors other than the Senior Lenders and the Subordinated Lender, to be a
payment by the Company to or on account of Subordinated Obligations, it being
understood that the provisions hereof are, and are intended solely, for the
purpose of defining the relative rights of the Subordinated Lender, on the one
hand, and the Senior Lenders, on the other hand.
(d) The subordination provisions of this Note are not intended to
impact the rights of the holder of this Note to convert this Note into common
equity of the Company in accordance with Section 6 hereof.
4. EVENTS OF DEFAULT.
(a) DEFINITION. For purposes of this Note, an Event of Default shall
be deemed to have occurred if:
(i) the Company fails to pay when due and payable (whether at
maturity or otherwise) the full amount of any principal payment on any Note;
(ii) the Company fails to perform or observe any other provision
contained in the Notes, and such failure is not cured within 30 days after the
occurrence hereof;
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(iii) any representation or warranty, or any writing furnished by
the Company to any holder of the Notes, is false or misleading in any material
respect on the date made or furnished;
(iv) the Company or any Subsidiary makes an assignment for the
benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Company or any Subsidiary bankrupt or insolvent; or any order
for relief with respect to the Company or any Subsidiary is entered under the
Federal Bankruptcy Code; or the Company or any Subsidiary petitions or applies
to any tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Company or any Subsidiary, or of any substantial part of the
assets of the Company or any Subsidiary, or commences any proceeding (other than
a proceeding for the voluntary liquidation and dissolution of any Subsidiary)
relating to the Company or any Subsidiary under any bankruptcy reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Company or any Subsidiary and either
(A) the Company or any such Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein or (B) such petition,
application or proceeding is not dismissed within 60 days; or
(v) a Change of Control occurs.
The foregoing shall constitute Events of Default whatever the reason
or cause for any such Event of Default and whether it is voluntary or
involuntary or is effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body.
(b) CONSEQUENCES OF EVENTS OF DEFAULT.
(i) Subject to the provisions of paragraph 3 (including
paragraph (a)(ii)(C) thereof), if an Event of Default of the type described in
subparagraph 5(a)(iv) has occurred, the aggregate principal amount of the Notes
(together with all accrued interest thereon and all other amounts due and
payable with respect thereto) shall become immediately due and payable without
any action on the part of the holders of the Notes, and the Company shall
immediately pay to the holders of the Notes all amounts due and payable with
respect to the Notes.
(ii) Subject to the provisions of paragraph 3 (including
paragraph (a)(ii)(C) thereof), if any Event of Default (other than under
subparagraph 5(a)(iv)) has occurred and is continuing, the holder may declare
all or any portion of the outstanding principal amount of this Note (together
with all accrued interest thereon and all other amounts due and payable with
respect thereto) to be immediately due and payable and may demand immediate
payment of all or any portion of the outstanding principal amount of this Note
(together with all such other amounts then due and payable). The Company shall
give prompt written notice of any such demand to the other holders of Notes,
each of which may demand immediate payment of all or any portion of such
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holder's Note. If any holder or holders of the Notes demand immediate payment
of all or any portion of the Notes, the Company shall immediately pay to such
holder or holders all amounts due and payable with respect to such Notes.
(iii) Each holder of the Notes shall also have any other rights
which such holder may have been afforded under any contract or agreement at any
time and any other rights which such holder may have pursuant to applicable law.
(iv) The Company hereby waives diligence, presentment, protest
and demand and notice of protest and demand, dishonor and nonpayment of this
Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time and that the holder hereof may accept security for
this Note or release security for this Note, all without in any way affecting
the liability of the Company hereunder.
5. RESTRICTION ON TRANSFER. No holder of any Note shall sell,
transfer, assign, pledge or otherwise dispose of (whether with or without
consideration and whether voluntarily or involuntarily or by operation of law)
any interest in a Note, other than to a wholly owned Subsidiary of such holder
without the prior written consent of the Company.
6. CONVERSION.
(a) CONVERSION PROCEDURE.
(i) At any time and from time to time prior to the payment of
this Note in full, the holder of this Note may convert all or any portion of the
outstanding principal amount of this Note and any accrued but unpaid interest
thereon into a number of shares of the Conversion Stock determined by dividing
the principal amount and any accrued but unpaid interest designated by such
holder to be converted, by the Conversion Price then in effect.
(ii) Except as otherwise expressly provided herein, each
conversion of this Note shall be deemed to have been effected as of the close of
business on the date on which this Note has been surrendered for conversion at
the principal office of the Company. At such time as such conversion has been
effected, the rights of the holder of this Note as such holder to the extent of
the conversion shall cease, and the Person or Persons in whose name or names any
certificate or certificates for shares of Conversion Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Conversion Stock represented thereby.
(iii) Notwithstanding any other provision hereof, if a conversion
of any portion of this Note is to be made in connection with a registered public
offering or a sale of the Company, the conversion of any portion of this Note
may, at the election of the holder hereof, be conditioned upon the consummation
of the public offering or the sale of the Company, in which case such conversion
shall not be deemed to be effective until the consummation of such transaction.
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(iv) As soon as possible after a conversion has been effected
(but in any event within five business days in the case of clause (A) below),
the Company shall deliver to the converting holder:
(A) a certificate or certificates representing the number of
shares of Conversion Stock issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting
holder has specified; and
(B) a new Note representing any portion of the principal amount
which was represented by the Note surrendered to the Company in connection
with such conversion but which was not converted.
(v) The issuance of certificates for shares of Conversion Stock
upon conversion of this Note shall be made without charge to the holder hereof
for any issuance tax in respect thereof or other cost incurred by the Company in
connection with such conversion and the related issuance of shares of Conversion
Stock. Upon conversion of this Note, the Company shall take all such actions as
are necessary in order to insure that the Conversion Stock issuable with respect
to such conversion shall be validly issued, fully paid and nonassessable.
(vi) The Company shall not close its books against the transfer
of Conversion Stock issued or issuable upon conversion of this Note in any
manner which interferes with the timely conversion of this Note. The Company
shall assist and cooperate with any holder of this Note required to make any
governmental filings or obtain any governmental approval prior to or in
connection with the conversion of this Note (including, without limitation,
making any filings required to be made by the Company).
(vii) The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Conversion Stock, solely for the
purpose of issuance upon the conversion of the Note, such number of shares of
Conversion Stock issuable upon the conversion of all outstanding Notes. All
shares of Conversion Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges. The Company shall take all such actions as may be necessary to assure
that all such shares of Conversion Stock may be so issued without violation of
any applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Conversion Stock may be listed
(except for official notice of issuance which shall be immediately delivered by
the Company upon each such issuance).
(b) CONVERSION PRICE. The initial Conversion Price shall be $5896.75
(the "CONVERSION PRICE").
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at
any time subdivides (by any stock split, stock dividend or otherwise) one or
more classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately
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prior to such subdivision shall be proportionately reduced, and if the Company
at any time combines (by reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(d) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
which in each case is effected in such a manner that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as an "Organic Change." Prior to the consummation of any Organic
Change, the Company shall make lawful and adequate provision (in form and
substance satisfactory to the holders of a majority of the principal amount of
the Notes then outstanding) to insure that each of the holders of the Notes
shall thereafter have the right to acquire and receive, in lieu of or addition
to (as the case may be) shares of Conversion Stock immediately theretofore
acquirable and receivable upon the conversion of such holder's Note, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for the number of shares of Conversion Stock immediately theretofore
acquirable and receivable upon conversion of such holder's Note had such Organic
Change not taken place. In any such case, appropriate provision (in form and
substance satisfactory to the holders of a majority of the principal amount of
the Notes then outstanding) shall be made with respect to such holder's rights
and interests to insure that the provisions of this paragraph 6 shall thereafter
be applicable in relation to any shares of stock, securities or assets
thereafter deliverable upon the conversion of the Notes (including, in the case
of any such consolidation, merger or sale in which the successor entity or
purchasing entity is other than the Company, an immediate adjustment of the
Conversion Price to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and a corresponding immediate adjustment in
the number of shares of Conversion Stock acquirable and receivable upon
conversion of the Notes, if the value so reflected is less than the Conversion
Price in effect immediately prior to such consolidation, merger or sale). The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form reasonably satisfactory to the holders of
a majority of the principal amount of the Notes then outstanding), the
obligation to deliver to each such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
(e) NOTICES.
(i) Immediately upon any adjustment of the Conversion Price,
the Company shall send written notice thereof to the holder of this Note,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) In order to permit the holder of this Note to exercise its
conversion rights set forth in this paragraph 6, the Company shall send written
notice to the holder of this Note
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at least 20 days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of Common
Stock or (C) for determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
(f) The Company shall also give at least 20 days prior written notice
of the date on which any Organic Change, dissolution or liquidation shall take
place.
7. REPRESENTATIONS AND WARRANTIES
(a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the holder of this Note that as of the Date of
Issuance:
(i) ORGANIZATION, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has all requisite corporate power and authority to carry
on its businesses as now conducted and presently proposed to be conducted and to
carry out the transactions contemplated by this Agreement, except where the
failure to have such power and authority would not have a material adverse
effect upon the business or financial condition of the Company.
(ii) CAPITAL STOCK AND RELATED MATTERS.
(A) As of the Date of Issuance, (a) the authorized capital
stock of the Company will consist of 20,000 of Class A Common, 30,000
shares of Class B Common, 20,000 shares of Class C Common, 15,000 shares of
Class D-1 Common, 15,000 shares of Class D-2 Common and 20,000 shares of
Class E Common, (b) the Company will have issued, and there will be
outstanding, 9,763.75455 shares of Class A Common, 20,659.90688 shares of
Class B Common, 5,164.97674 shares of Class C Common, 6,590.18691 shares of
Class D-1 Common, 6,817.43451 shares of Class D-2 Common and 2,631.90538
shares of Class E Common, and (c) the Company will have reserved for
issuance upon conversion of the Notes 5,087.5480 shares of Class A Common.
(B) As of the Date of Issuance, the Company will not have
outstanding any stock or securities convertible or exchangeable for any
shares of its capital stock, nor will it have outstanding any rights,
subscriptions, warrants, agreements, commitments or options to subscribe
for or to purchase any capital stock or any stock or securities convertible
into or exchangeable for any capital stock, except for this Note and the
Stockholders Agreement and outstanding offers to members of the Company's
management to acquire shares of Common Stock. As of the Date of Issuance,
all of the outstanding shares of the Company's capital stock will have been
duly authorized, and upon payment therefore will be validly issued and will
be fully paid and nonassessable.
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(iii) AUTHORIZATION; NO BREACH. The execution, delivery and
performance of this Note has been duly authorized by the Company. This Note
constitutes the valid and binding obligation of the Company enforceable in
accordance with its terms, subject to the availability of equitable remedies and
to the laws of bankruptcy and other similar laws affecting creditors' rights
generally. The execution and delivery by the Company of this Note and all other
agreements and instruments contemplated hereby and thereby to be executed by the
Company and the offer, sale and issuance of the Notes, the Conversion Stock upon
conversion of the Notes do not and will not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default
under, (iii) result in the creation of any lien, security interest, charge or
encumbrance upon the Company's capital stock or assets pursuant to, (iv) give
any third party the right to accelerate any obligation under, (v) result in a
violation of, or (vi) require any authorization, consent, approval, exemption or
other action by or notice to or filing with any court or administrative or
governmental body (other than in connection with certain state and federal
securities laws) or any other third party pursuant to, the Company's Certificate
of Incorporation or Bylaws, or any law, statute, rule, regulation, instrument,
order, judgment or decree to which the Company is subject or any agreement or
instrument to which the Company is a party, or by which its assets are bound,
except where the existence of any such conflict, breach, default, right to
accelerate or violation, or the creation of any such lien, security interest,
charge or encumbrance, or the failure to obtain, take or make any such
authorization, consent, approval, exemption, other action, notice or filing,
could not reasonably be expected to, individually or in the aggregate, have a
material adverse effect on the financial condition, operating results, assets,
operations or business prospects of the Company and its Subsidiaries taken as a
whole.
(b) REPRESENTATIONS AND WARRANTIES OF THE HOLDERS. Each holder of
Notes hereby severally represents and warrants to and covenants and agrees with,
the Company that:
(i) such holder has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the securities purchased
hereunder and has had full access to such other information concerning the
Company as such holder may have requested and that in making its decision to
invest in the securities being purchased hereunder it is not in any way relying
on the fact that any other person has decided to be a holder hereunder or to
invest in the securities; and
(ii) such holder (a) is an "accredited investor" as defined in
Rule 501(a) under the Securities Act or (b) by reason of its business and
financial experience, and the business and financial experience of those
retained by it to advise it with respect to its investment in the securities
being purchased hereunder, it, together with such advisors, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of its prospective investment in such
securities, is able to bear the economic risk of such investment and, at the
present time, is able to afford a complete loss of such investment.
8. AMENDMENT AND WAIVER. Except as otherwise expressly provided
herein, the provisions of the Notes may be amended and the Company may take any
action herein prohibited,
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or omit to perform any act herein required to be performed by it, only if the
Company has obtained the written consent of the holders of a majority of the
outstanding principal amount of the Notes, and with respect to amendments to
paragraph 3 hereof and defined terms related thereto, the Administrative Agent.
9. DEFINITIONS. For purposes of the Notes, the following
capitalized terms have the following meaning.
"ADMINISTRATIVE AGENT" means The Chase Manhattan Bank, as
administrative agent under the Senior Credit Agreement, and any successor
thereto or the lead agent under the Senior Credit Agreement.
"AFFILIATES" means, with respect to any Person, each Person that
directly or indirectly controls, is controlled by, or is under common control
with such Person. "Affiliate" shall include all the partners of any Person
which is a partnership and with respect to any Person, all employees of such
Person.
"CLASS A COMMON STOCK" means the Company's Class A Common Stock, par
value $.01 per share.
"CLASS B COMMON STOCK" means the Company's Class B Common Stock, par
value $.01 per share.
"CLASS C COMMON STOCK" means the Company's Class C Common Stock, par
value $.01 per share.
"CLASS D-1 COMMON STOCK" means the Company's Class D-1 Common Stock,
par value $.01 per share.
"CLASS D-2 COMMON STOCK" means the Company's Class D-2 Non-Voting
Common Stock, par value $.01 per share.
"CLASS E COMMON STOCK" means the Company's Class E Common Stock, par
value $.01 per share.
"COMMON STOCK" means, collectively the Company's Class A Common Stock,
the Company's Class B Common Stock, Class C Common Stock, Class D-1 Common
Stock, Class D-2 Common Stock and Class E Common Stock and any capital stock of
any class of the Company hereafter authorized which is not limited to a fixed
sum or percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Company.
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"CHANGE OF CONTROL" means either (i) that Onex American Holdings LLC,
J2R Partners III and their respective Affiliates cease collectively to own 10%
of the then outstanding Common Stock of the Company or (ii) the Company and its
subsidiaries sell all or substantially all of their assets.
"CONVERSION STOCK" means shares of the Company's authorized but
unissued Class A Common Stock; provided that if there is a change such that the
securities issuable upon conversion of the Notes are issued by an entity other
than the Company or there is a change in the class of securities so issuable,
then the term "Conversion Stock" shall mean one share of the security issuable
upon conversion of this Note if such security is issuable in shares, or shall
mean the smallest unit in which such security is issuable if such security is
not issuable in shares.
"CONSTRAINING CIRCUMSTANCE" means either (i) the payment of interest
to the holder of this Note by the Company (or the payment by a Subsidiary of the
Company to the Company of funds for the purpose of paying interest to the holder
of this Note) would result in a breach by the Company (or such Subsidiary) of
one or more covenants in any agreement pursuant to which one or more financial
institutions or pension funds made loans to the Company and/or its Subsidiaries
of at least $10,000,000 or (ii) in the reasonable good faith judgment of the
Board, the Company does not have funds available to permit it to pay accrued but
unpaid interest in full to the holder of this Note.
"INSOLVENCY EVENT" means any of the events described in Section 9(f)
of the Senior Credit Agreement.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"SENIOR CREDIT AGREEMENT" means the Amended and Restated Credit
Agreement, dated as of October 15, 1999, among the Company, Automotive
Components Investments Limited, Morris Ashby Limited, the several banks and
other financial institutions from time to time parties thereto, Bank of America
NA, as syndication agent, Chase Manhattan International Limited, as
administrative agent for the English Lenders and the Euro Lenders, and the
Administrative Agent, and all guarantees, security and collateral documents and
related documents delivered in connection therewith, as such Credit Agreement
may be amended, modified, supplemented or replaced from time to time, including,
without limitation, amendments, modifications, supplements and restatements
thereof giving effect to increases, renewals, extensions, refundings, deferrals,
restructurings, replacements or refinancings of, or additions to, the
arrangements provided in such Credit Agreement (whether provided by the original
Administrative Agent and Lenders under such Credit Agreement or a successor
Administrative Agent or other Lenders).
"SENIOR DEFAULT" means a Default as defined in the Senior Credit
Agreement.
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"SENIOR EVENT OF DEFAULT" means an Event of Default as defined in the
Senior Credit Agreement.
"SENIOR LENDERS" means the holders from time to time of Senior
Obligations.
"SENIOR OBLIGATIONS" means (i) the collective reference to the
Domestic Obligations and the Foreign Subsidiary Obligations (as defined in the
Senior Credit Agreement), (ii) all Indebtedness under the 11-1/2% Senior
Subordinated Notes Due 2009, and (iii) any other indebtedness of the Company
expressly senior by its terms to the Notes.
"STOCKHOLDERS AGREEMENT" means that certain investor stockholders
agreement, dated as of April 21, 1999 among the Company and certain stockholders
of the Company.
"SUBORDINATED LENDER" means Tower Automotive, Inc., a Delaware
corporation.
"SUBORDINATED LOAN" means the loan made by the Subordinated Lender
pursuant to this Note.
"SUBORDINATED LOAN DOCUMENTS" means the collective reference to this
Note and any other documents or instruments that from time to time evidence the
Subordinated Obligations or secure or support payment or performance thereof.
"SUBORDINATED OBLIGATIONS" means the collective reference to the
unpaid principal of and interest on the Subordinated Loan and all other
obligations and liabilities of the Company to the Subordinated Lender
(including, without limitation, interest accruing at the then applicable rate
provided in this Note after the maturity of the Subordinated Loan and interest
accruing at the then applicable rate provided in this Note after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Company, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, this Note, the Subordinated Loan, or any other Subordinated Loan
Documents, in each case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including, without
limitation, all fees and disbursements of counsel to the Subordinated Lender
that are required to be paid by the Company pursuant to the terms of this Note
or any other Subordinated Loan Documents).
"SUBSIDIARY" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or
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other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or
indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in a limited liability company,
partnership, association or other business entity if such Person or Persons
shall be allocated a majority of limited liability company, partnership,
association or other business entity gains or losses or shall be or control
any managing director or general partner of such limited liability company,
partnership, association or other business entity.
10. CANCELLATION. After all principal and accrued interest at any
time owed on this Note has been paid in full, this Note shall be surrendered to
the Company for cancellation and shall not be reissued.
11. PAYMENTS. All payments to be made to the holders of the Notes
shall be made in the lawful money of the United States of America in immediately
available funds.
12. PLACE OF PAYMENT. Payments of principal and interest shall be
delivered to holder hereof at the following address:
Tower Automotive, Inc.
6303 28th Street S.E.
Grand Rapids, Michigan 49546
or to such other address or to the attention of such other person as specified
by prior written notice to the Company.
13. GOVERNING LAW. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Note shall be
governed by, and construed in accordance with, the laws of the State of New
York, without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of New York or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of New York.
14. BUSINESS DAYS. If any payment is due, or any time period for
giving notice or taking action expires, on a day which is a Saturday, Sunday or
legal holiday in the State of New York, the payment shall be due and payable on,
and the time period shall automatically be extended to, the next business day
immediately following such Saturday, Sunday or legal holiday, and interest shall
continue to accrue at the required rate hereunder until any such payment is
made.
* * * *
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IN WITNESS WHEREOF, the Company has executed and delivered this Note
on October 14, 1999.
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
By: /s/ Carl E. Nelson
Its: Vice President
<PAGE>
EXECUTION
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of October 14, 1999 (this
"AGREEMENT"), is made by and among J.L. French Automotive Castings, Inc., a
Delaware corporation (the "COMPANY"), Onex American Holdings LLC, a Delaware
limited liability company ("ONEX"), J2R Partners III, a Minnesota general
partnership ("J2R") and the Persons set forth on SCHEDULE A attached hereto
(Onex, J2R and the Persons set forth on SCHEDULE A are collectively referred to
herein as the "PURCHASERS"). The Purchasers will purchase, severally and not
jointly, the number of shares of securities listed on the "SCHEDULE OF
PURCHASERS" attached hereto. Except as otherwise indicated, capitalized terms
used herein are defined in SECTION 7 hereof.
The Company will acquire Nelson Metal Products Corporation (the
"ACQUISITION") pursuant to a Stock Purchase Agreement, dated as of September 10,
1999, among the Company and certain sellers listed therein (the "PURCHASE
AGREEMENT"). The Purchasers are entering into this Agreement to provide equity
financing for the Acquisition.
The parties hereto agree as follows:
Section 1. AUTHORIZATION OF COMMON STOCK. The Company will
authorize the issuance and sale to the Purchasers of:
(i) 1,112.52858 shares of Class A Common Stock, par value $.01 per
share (the "CLASS A-1 COMMON"), for a purchase price of $4,211.97 per
share;
(ii) 3,560.01378 shares of Class B Common Stock, par value $.01 per
share (the "CLASS B COMMON"), for a purchase price of $5,263.19 per share;
(iii) 890.00344 shares of Class C Common Stock, par value $.01 per
share (the "CLASS C COMMON"), for a purchase price of $6.65 per share.
(iv) 1,080.22121 shares of Class D-1 Common Stock, par value $.01
per share (the "CLASS D-1 COMMON"), for a purchase price of $5,263.19 per
share;
(v) 1,117.46991 shares of Class D-2 Non-Voting Common Stock, par
value $.01 per share (the "CLASS D-2 COMMON"), for a purchase price of
$5,263.19 per share;
(vi) 549.42278 shares of Class E Common Stock, par value $.01 per
share (the "CLASS E COMMON"), for a purchase price of $7.07 per share;
<PAGE>
The Class A Common, Class B Common, Class C Common, Class D-1
Common, Class D-2 Common and Class E Common are hereinafter sometimes referred
to collectively as the "COMMON STOCK."
Section 2. PURCHASE AND SALE OF COMMON STOCK.
2A. PURCHASE AND SALE. The Company will sell to each Purchaser,
and, subject to the terms and conditions set forth herein, each Purchaser will
purchase from the Company the number of shares of Common Stock as set forth
beside such Purchaser's name on the SCHEDULE OF PURCHASERS attached hereto, at
the purchase price per share as set forth in SECTION 1 above. The sale to and
purchase by each Purchaser of the securities to be purchased by such Purchaser
hereunder will constitute a separate sale and purchase.
2B. THE CLOSING. The closing of the separate sales and purchases
of the Common Stock hereunder (the "CLOSING") will take place at the offices of
Kirkland & Ellis, 200 East Randolph Drive, Chicago, Illinois 60601 on the date
hereof. At the Closing, the Company will deliver to each Purchaser a
certificate or certificates evidencing the number of shares of each class of
Common Stock to be purchased by such Purchaser, registered in the name of the
Purchaser against payment of the purchase price therefor by delivery of a
cashier's or certified check or checks of immediately available funds or by wire
transfer of immediately available funds to a bank account designated by the
Company.
Section 3. CONDITIONS OF EACH PURCHASER'S OBLIGATION AT THE
CLOSING. The obligation of each Purchaser to purchase and pay for the Common
Stock to be purchased by such Purchaser at the Closing is subject to the
satisfaction on or before the Closing of the following conditions:
3A. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in SECTION 5 hereof will be true in all
material respects at and as of the Closing as though then made, except to the
extent of changes caused by transactions expressly contemplated herein.
3B. AMENDED CERTIFICATE OF INCORPORATION. The Company's
Certificate of Incorporation will have been amended under the laws of the State
of Delaware as set forth in EXHIBIT A attached hereto (as so amended, the
"AMENDED CERTIFICATE OF INCORPORATION"). The Amended Certificate of
Incorporation will be in full force and effect under the laws of the State of
Delaware as of the Closing and will not have been further amended or modified.
3C. CLOSING DOCUMENTS. The Company will have delivered to each of
the Purchasers the following documents:
(i) an Officer's Certificate from the Company, dated the date of
the Closing, stating that the conditions specified in SECTION 1 and SECTIONS 3A
and 3B, inclusive, have been satisfied; and
2
<PAGE>
(ii) certified copies of the Amended Certificate of Incorporation
and the Bylaws as in effect at the Closing.
3D. WAIVER. Any condition specified in this SECTION 3 may be
waived by any Purchaser as to such Purchaser. No such waiver will be effective
against such Purchaser unless it is set forth in a writing executed by such
Purchaser.
Section 4. RESTRICTIONS ON TRANSFERS.
4A. RESTRICTIONS. Restricted Securities are transferable pursuant
to (i) public offerings registered under the Securities Act, (ii) Rule 144 of
the Securities and Exchange Commission (or any similar rule then in force) if
such rule is available, and (iii) subject to the conditions specified in SECTION
4B, any other legally available means of transfer, including any other exemption
from registration under the Securities Act.
4B. PROCEDURE FOR TRANSFER. In connection with the transfer of
any Restricted Securities (other than a transfer referred to in clauses (i) or
(ii) of SECTION 4A above), the holder thereof will deliver written notice to the
Company describing in reasonable detail the transfer or proposed transfer,
together with an opinion (reasonably satisfactory to the Company) of Kirkland &
Ellis or other counsel which (to the Company's reasonable satisfaction) is
knowledgeable in securities law matters to the effect that such transfer of
Restricted Securities may be effected without registration of such Restricted
Securities under the Securities Act. In addition, if the holder of such
Restricted Securities delivers to the Company an opinion of such counsel to the
effect that no subsequent transfer of such Restricted Securities will require
registration under the Securities Act, the Company will promptly upon such
contemplated transfer deliver new certificates for such Restricted Securities
which do not bear the Securities Act Legend set forth in SECTION 6A below. If
the Company is not required to deliver new certificates for such Restricted
Securities not bearing such legend, the holder thereof will not transfer the
same until the prospective transferee has confirmed to the Company in writing
its agreement to be bound by the conditions contained in this SECTION 4B and
SECTION 6A.
Section 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to the Purchasers that as of the Closing:
5A. ORGANIZATION, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has all requisite corporate power and authority to carry
on its businesses as now conducted and presently proposed to be conducted and to
carry out the transactions contemplated by this Agreement, except where the
failure to have such power and authority would not have a material adverse
effect upon the business or financial condition of the Company.
3
<PAGE>
5B. CAPITAL STOCK AND RELATED MATTERS.
(i) As of the Closing hereunder, (a) the authorized capital stock
of the Company will consist of 20,000 of Class A Common, 30,000 shares of Class
B Common, 20,000 shares of Class C Common, 15,000 shares of Class D-1 Common,
15,000 shares of Class D-2 Common and 20,000 shares of Class E Common and (b)
the Company will have issued, and there will be outstanding, 9,763.75455 shares
of Class A Common, 20,659.90688 shares of Class B Common, 5,164.97674 shares of
Class C Common, 6,590.18691 shares of Class D-1 Common, 6,817.43451 shares of
Class D-2 Common and 3,351.90538 shares of Class E Common.
(ii) As of the Closing hereunder, the Company will not have
outstanding any stock or securities convertible or exchangeable for any shares
of its capital stock, nor will it have outstanding any rights, subscriptions,
warrants, agreements, commitments or options to subscribe for or to purchase any
capital stock or any stock or securities convertible into or exchangeable for
any capital stock, except (i) the Convertible Note (as defined herein) and (ii)
offers to members of the Company's management to acquire shares of Common Stock.
As of the Closing, all of the outstanding shares of the Company's capital stock
will have been duly authorized, and upon payment therefore will be validly
issued and will be fully paid and nonassessable.
5C. AUTHORIZATION; NO BREACH. The execution, delivery and
performance of this Agreement and all other agreements and transactions
contemplated hereby and thereby have been duly authorized by the Company. The
Agreement constitutes the valid and binding obligation of the Company
enforceable in accordance with its terms, subject to the availability of
equitable remedies and to the laws of bankruptcy and other similar laws
affecting creditors' rights generally. The execution and delivery by the
Company of this Agreement and all other agreements and instruments contemplated
hereby and thereby to be executed by the Company, including the filing of the
Amended Certificate of Incorporation with the Secretary of State of Delaware,
and the offering, sale and issuance of the Common Stock hereunder, do not and
will not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation of
any lien, security interest, charge or encumbrance upon the Company's capital
stock or assets pursuant to, (iv) give any third party the right to accelerate
any obligation under, (v) result in a violation of, or (vi) require any
authorization, consent, approval, exemption or other action by or notice to or
filing with any court or administrative or governmental body (other than in
connection with certain state and federal securities laws) or any other third
party pursuant to, the Amended Certificate of Incorporation or the Bylaws, or
any law, statute, rule, regulation, instrument, order, judgment or decree to
which the Company is subject or any agreement or instrument to which the Company
is a party, or by which its assets are bound, except where the existence of any
such conflict, breach, default, right to accelerate or violation, or the
creation of any such lien, security interest, charge or encumbrance, or the
failure to obtain, take or make any such authorization, consent, approval,
exemption, other action, notice or filing, could not reasonably be expected to,
individually or in the aggregate, have a material adverse effect on the
financial condition, operating results or assets of the Company and its
Subsidiaries taken as a whole.
4
<PAGE>
Section 6. PURCHASERS' REPRESENTATIONS AND WARRANTIES.
6A. PURCHASER'S INVESTMENT REPRESENTATIONS. Each Purchaser hereby
represents that it is acquiring the Restricted Securities purchased by such
Purchaser hereunder for its own account with the present intention of holding
such securities for investment purposes and that it has no intention of selling
such securities in a public distribution in violation of federal or state
securities laws; provided that nothing contained herein will prevent the
Purchasers and the subsequent holders of such securities from transferring such
securities in compliance with the provisions of SECTION 4 hereof. Each
certificate for Restricted Securities will be conspicuously imprinted with a
legend substantially in the following form (the "SECURITIES ACT LEGEND"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED ON OCTOBER 14, 1999, AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE TRANSFER OF
SUCH SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE STOCK
PURCHASE AGREEMENT DATED AS OF OCTOBER 14, 1999, BETWEEN THE ISSUER
(THE "COMPANY") AND THE ORIGINAL PURCHASER HEREOF, AND THE COMPANY
RESERVES THE RIGHT TO REFUSE TO TRANSFER SUCH SECURITIES UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. UPON
WRITTEN REQUEST, A COPY OF SUCH CONDITIONS WILL BE FURNISHED BY THE
COMPANY TO THE HOLDER HEREOF WITHOUT CHARGE."
Whenever any shares of Common Stock cease to be Restricted Securities and are
not otherwise restricted securities, the holder thereof will be entitled to
receive from the Company, without expense, upon surrender to the Company of the
certificate representing such shares of Common Stock, a new certificate
representing such shares of Common Stock of like tenor but not bearing a legend
of the character set forth above.
6B. OTHER REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each
Purchaser hereby severally represents and warrants to and covenants and agrees
with, the Company that:
(i) such Purchaser has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the securities purchased
hereunder and has had full access to such other information concerning the
Company as such Purchaser may have requested and that in making its decision to
invest in the securities being purchased hereunder it is not in any way relying
on the fact that any other person has decided to be a Purchaser hereunder or to
invest in the securities;
(ii) such Purchaser (a) is an "accredited investor" as defined in
Rule 501(a) under the Securities Act or (b) by reason of its business and
financial experience, and the business and financial experience of those
retained by it to advise it with respect to its investment in the securities
being purchased hereunder, it, together with such advisors, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks
5
<PAGE>
of its prospective investment in such securities, is able to bear the economic
risk of such investment and, at the present time, is able to afford a complete
loss of such investment; and
(iii) such Purchaser has all requisite power and authority to enter
into, deliver and consummate the transactions contemplated by this Agreement
(including the purchase of the securities to be purchased by such Purchaser
hereunder), and such agreement has been duly authorized, executed and delivered
by such Purchaser and constitutes a valid and binding obligation of such
Purchaser enforceable in accordance with its terms (subject to the availability
of equitable remedies and to the laws of bankruptcy and other similar laws
affecting creditors' rights generally) and, as applicable, does not violate such
Purchaser's charter, by-laws or other organizational documents.
Section 7. WAIVER OF PRE-EMPTIVE RIGHTS; APPROVAL OF JOINDER.
7A. TOWER CONVERTIBLE NOTE. On or about the date hereof the
Company will issue a Subordinated Convertible Note (the "CONVERTIBLE NOTE") to
Tower Automotive, Inc., a Delaware corporation ("TOWER"), convertible into
5,087.5480 shares of Class A Common. The Purchasers, as "Stockholders" under
the Stockholders Agreement and holders of "Registrable Securities" under the
Registration Agreement, hereby waive any and all pre-emptive rights under
Article 6 of the Stockholders Agreement with respect to the issuance of the
Convertible Note and any shares of Common Stock issued upon conversion thereof.
The Purchasers further consent to (i) the addition of Tower as a party to the
Stockholders Agreement and acknowledge that, upon execution of a joinder
agreement thereto, Tower will be a "Stockholder" and a holder of "Common Stock"
for all purposes thereunder and (ii) the addition of Tower as a party to the
Registration Agreement and acknowledge that, upon execution of a joinder
agreement thereto, Tower will be an "Investor" and a holder of "Registrable
Securities" for all purposes thereunder.
7B. ONEX EMPLOYEE STOCKHOLDERS. Pursuant to this agreement,
certain employees of Onex (the "ONEX EMPLOYEE STOCKHOLDERS") are acquiring
Common Stock. The Purchasers, as "Stockholders" under the Stockholders
Agreement and holders of "Registrable Securities" under the Registration
Agreement hereby consent to (i) the addition of each Onex Employee Stockholder
as a party to the Stockholders Agreement and acknowledge that, upon execution of
a joinder thereto, each such Onex Employee Stockholder will be a "Stockholder"
and a holder of "Common Stock" for all purposes thereunder and (ii) the addition
of each Onex Employee Stockholder as a party to the Registration Agreement and
acknowledge that, upon execution of a counterpart thereto, each such Onex
Employee Stockholder will be an "Investor" and a holder of "Registrable
Securities" for all purposes thereunder.
Section 8. DEFINITIONS.
"BYLAWS" means the Bylaws of the company, as such Bylaws may be
modified, amended or amended and restated from time to time.
"OFFICER'S CERTIFICATE" means a certificate signed by any executive
officer of the Company, stating that (i) the person signing such certificate has
made or has caused to be made such
6
<PAGE>
investigations as are necessary in order to permit him to verify the accuracy of
the information set forth in such certificate, and (ii) to the best of such
person's knowledge, such certificate does not misstate any material fact or omit
to state any fact necessary to make the certificate not misleading.
"PERSON" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency, or political subdivision thereof.
"REGISTRATION AGREEMENT" means that certain registration agreement,
dated as of April 21, 1999 among the Company, Onex, J2R and certain other
Stockholders.
"RESTRICTED SECURITIES" means the Common Stock issued hereunder and
any securities issued with respect to such Common Stock by way of any stock
dividend or stock split, or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Restricted Securities, such securities will cease to be Restricted
Securities when they have (a) been effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them,
(b) become eligible for sale pursuant to Rule 144 (excluding Rule 144(k)) of the
Securities and Exchange Commission (or any similar rule then in force), or (c)
been otherwise transferred and new securities for them not bearing the
Securities Act Legend set forth in SECTION 6A have been delivered by the
company in accordance with SECTION 4B. Whenever any particular securities cease
to be Restricted Securities, the holder thereof will be entitled to receive from
the Company, without expense, new securities of like tenor not bearing a
Securities Act Legend of the character set forth in SECTION 6A.
"RULE 144" means Rule 144 promulgated by the Securities and Exchange
Commission under the Securities Act as such rule may be amended from time to
time, or any similar rule then in force.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar federal law then in force.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended, or any similar federal law then in force.
"SECURITIES AND EXCHANGE COMMISSION" includes any governmental body
or agency succeeding to the functions thereof.
"STOCKHOLDERS AGREEMENT" means that certain Investor Stockholder
Agreement, dated as of April 21, 1999, among the Company, Onex, J2R and certain
other stockholders.
"SUBSIDIARY" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that
7
<PAGE>
Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the partnership
or other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof. For purposes hereof, a Person or Persons shall
be deemed to have a majority ownership interest in a limited liability company,
partnership, association or other business entity if such Person or Persons
shall be allocated a majority of limited liability company, partnership,
association or other business entity gains or losses or shall be or control any
managing director or general partner of such limited liability company,
partnership, association or other business entity.
Section 9. MISCELLANEOUS.
9A. REMEDIES. The holders of Common Stock acquired hereunder
(directly or indirectly) will have all of the rights and remedies set forth in
this Agreement and the Amended Certificate of Incorporation, and all of the
rights and remedies which such holders have been granted at any time under any
other agreement or contract, and all of the rights and remedies which such
holders have under any law. Any Person having any rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to recover
damages by reason of any breach of any provision of this Agreement, and to
exercise all other rights granted by law.
9B. AMENDMENTS AND WAIVERS. Except as otherwise provided herein,
any provision hereof may be amended or waived generally and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of at least a majority of the outstanding shares of Common Stock issued
hereunder and, to the extent that any modification, amendment or waiver
adversely affects the rights of the holders of any class of Common Stock, by the
holders of at least a majority of the outstanding shares initially issued
hereunder of such adversely affected class of Common Stock. No course of
dealing between the Company and any holder of Common Stock or any delay on the
part of any such holder in exercising any rights hereunder or under any
agreement contemplated hereby or under the Amended Certificate of Incorporation
or the Bylaws will operate as a waiver of any rights of any such holder.
9C. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein or made in writing by any party
in connection herewith will survive the execution and delivery of this
Agreement, regardless of any investigation made by any Purchaser or on its
behalf.
9D. SUCCESSORS AND ASSIGNS.
(i) Except as otherwise expressly provided herein, all covenants
and agreements contained in this Agreement by or on behalf of any of the parties
hereto will bind and inure to the benefit of the respective successors and
assigns of such parties whether so expressed or not. In addition, and whether
or not any express assignment has been made, the provisions of this Agreement
which are for any Purchaser's benefit as the purchaser or holder of Common Stock
are also for the benefit of and enforceable by any subsequent holder of such
Purchaser's Common Stock.
8
<PAGE>
(ii) If a sale, transfer, assignment or other disposition of any
Common Stock is made in accordance with the provisions of this Agreement to any
Person and such securities remain Restricted Securities immediately after such
disposition, such Person shall, at or prior to the time such securities are
acquired, execute a counterpart of this Agreement with such modifications
thereto as may be necessary to reflect such acquisition, and such other
documents as are necessary to confirm such Person's agreement to become a party
to, and to be bound by, all covenants, terms and conditions of this Agreement as
theretofore amended.
9E. SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable under any applicable law or rule in any jurisdiction,
such provision will be ineffective only to the extent of such invalidity,
illegality or unenforceability in such jurisdiction, without invalidating the
remainder of this Agreement in such jurisdiction or any provision hereof in any
other jurisdiction.
9F. COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
9G. DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
9H. GOVERNING LAW. The corporate law of Delaware will govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity and interpretation of this
Agreement and the exhibits and schedules hereto will be governed by the internal
law, and not the law of conflicts, of New York.
9I. NOTICES. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and shall be delivered personally or by telex or telecopy as
described below or by reputable over night courier, and shall be deemed given on
the date on which such delivery is made. If delivered by telex or telecopy such
notices or communications shall be confirmed by a letter delivered by a
reputable overnight courier service. Notices, demands and communications will
be sent to each Purchaser, other than Onex and J2R, at such Purchaser's address
as indicated in the books and records of the Company's transfer agent and
registrar and to the Company, Onex and J2R at the address indicated below (or at
such other address for a party as shall be specified by such party by notice as
provided herein to the other parties):
9
<PAGE>
NOTICES TO THE COMPANY:
J.L. French Automotive Castings, Inc.
3101 South Taylor Drive
Sheboygan, WI 53082
Attention: Chief Executive Officer
Telecopy: (920) 458-4861
WITH A COPY TO:
Kirkland and Ellis
200 E. Randolph Drive
Chicago, Illinois 60601
Attention: John A. Schoenfeld, Esq.
Telecopy: (312) 861-2200
NOTICES TO ONEX
Onex American Holdings LLC
c/o ONEX Investment Corp.
712 Fifth Avenue, 40th Floor
New York, New York 10019
Attention: Eric J. Rosen
Telecopy: (212) 582-0909
WITH A COPY TO:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: John A. Schoenfeld, Esq.
Telecopy: (312) 861-2200
NOTICES TO J2R
J2R Partners III
c/o Hidden Creek Industries
4508 IDS Center
Minneapolis, Minnesota 55402
Attention: Carl E. Nelson
Telecopy: (612) 332-2012
10
<PAGE>
WITH A COPY TO:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: John A. Schoenfeld, Esq.
Telecopy: (312) 861-2200
* * * * *
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
By:
-------------------------------------
Its:
-------------------------------------
ONEX AMERICAN HOLDINGS LLC
By:
-------------------------------------
Its:
-------------------------------------
J2R PARTNERS III
By:
-------------------------------------
Its:
-------------------------------------
BANCAMERICA CAPITAL INVESTORS II, L.P.
By: BancAmerica Capital Management II, L.P.
Its: General Partner
By: BACM II, GP, LLC
Its: General Partner
By:
-------------------------------------
Its: Authorized Member
THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY
By:
-------------------------------------
Its:
-------------------------------------
NORWEST EQUITY CAPITAL, L.L.C.
By: Itasca NEC, L.L.C., Managing Member
By: , Member
-----------------------------
ROBERT W. BAIRD & CO. INCORPORATED
By:
-------------------------------------
Its:
-------------------------------------
SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT
<PAGE>
BCP II AFFILIATES FUND LIMITED PARTNERSHIP
By: Robert W. Baird & Co. Incorporated
Its: General Partner
By:
-------------------------------------
Its:
-------------------------------------
BAIRD CAPITAL PARTNERS II LIMITED
PARTNERSHIP
By: Baird Capital Partners Management
Company, L.L.C.
Its: General Partner
By:
-------------------------------------
Its:
-------------------------------------
RANDOLPH STREET PARTNERS II
By:
-------------------------------------
Its:
-------------------------------------
WINDWARD/METROPOLITAN, L.L.C.
By:
-------------------------------------
Its:
-------------------------------------
WINDWARD/PARK WACI, L.L.C.
By:
-------------------------------------
Its:
-------------------------------------
------------------------------------------
Charles M. Waldon
------------------------------------------
Dugald K. Campbell
------------------------------------------
Scott D. Rued
------------------------------------------
Carl E. Nelson
CONTINUATION OF SIGNATURE PAGES TO THE STOCK PURCHASE AGREEMENT
<PAGE>
------------------------------------------
David J. Huls
Onex Advisor LLC
By:
-------------------------------------
Its:
-------------------------------------
1170809 Ontario Inc.
By:
-------------------------------------
Its:
-------------------------------------
1170810 Ontario Inc.
By:
-------------------------------------
Its:
-------------------------------------
1170812 Ontario Inc.
By:
-------------------------------------
Its:
-------------------------------------
1170698 Ontario Inc.
By:
-------------------------------------
Its:
-------------------------------------
Kaban Investments
By:
-------------------------------------
Its:
-------------------------------------
------------------------------------------
Mark Briggs
------------------------------------------
Naveen Jeereddi
CONTINUATION OF SIGNATURE PAGES TO THE STOCK PURCHASE AGREEMENT
<PAGE>
1299039 Ontario Inc.
By:
-------------------------------------
Its:
-------------------------------------
------------------------------------------
Robert Lantos
------------------------------------------
Brian King
------------------------------------------
Robert Prichard
------------------------------------------
Serge Gouin
Mercury Trade International Ltd.
By:
-------------------------------------
Its:
-------------------------------------
United Trustco Limited
By:
-------------------------------------
Its:
-------------------------------------
Medavoy 1987 Trust dated January 25, 1999
By:
-------------------------------------
Its:
-------------------------------------
1376654 Ontario Inc.
By:
-------------------------------------
Its:
-------------------------------------
CONTINUATION OF SIGNATURE PAGES TO THE STOCK PURCHASE AGREEMENT
<PAGE>
1376653 Ontario Inc.
By:
-------------------------------------
Its:
-------------------------------------
HRON Canadian Investments Ltd.
By:
-------------------------------------
Its:
-------------------------------------
Brent Belzberg Family Trust
By:
-------------------------------------
Its:
-------------------------------------
------------------------------------------
Brian Mulroney
------------------------------------------
Don Gales
------------------------------------------
Arnold Messer
2668921 Manitoba Ltd.
By:
-------------------------------------
Its:
-------------------------------------
1170821 Ontario Inc.
By:
-------------------------------------
Its:
-------------------------------------
SMM (Kyzalea)
By:
-------------------------------------
Its:
-------------------------------------
CONTINUATION OF SIGNATURE PAGES TO THE STOCK PURCHASE AGREEMENT
<PAGE>
1170697 Ontario Inc.
By:
-------------------------------------
Its:
-------------------------------------
1170819 Ontario Inc.
By:
-------------------------------------
Its:
-------------------------------------
1301449 Ontario Inc.
By:
-------------------------------------
Its:
-------------------------------------
1352536 Ontario Inc.
By:
-------------------------------------
Its:
-------------------------------------
1352537 Ontario Inc.
By:
-------------------------------------
Its:
-------------------------------------
CONTINUATION OF SIGNATURE PAGES TO THE STOCK PURCHASE AGREEMENT
<PAGE>
SCHEDULE A
BancAmerica Capital Investors II, L.P.
The Northwestern Mutual Life Insurance Company
Norwest Equity Capital, L.L.C.
Robert W. Baird & Co. Incorporated
BCP II Affiliates Fund Limited
Baird Capital Partners II Limited Partnership
Randolph Street Partners II
Windward/Metropolitan L.L.C.
Windward/Park WACI, L.L.C.
Charles M. Waldon
S.A. Johnson
Dugald K. Campbell
Karl F. Storrie
Scott D. Rued
Robert R. Hibbs
Carl E. Nelson
David J. Huls
Mary L. Johnson
Judith A. Vijums
Dan F. Moorse
Onex Advisor LLC
1170809 Ontario Inc.
<PAGE>
1170810 Ontario Inc.
1170812 Ontario Inc.
1170698 Ontario Inc.
Kaban Investments
Mark Briggs
Naveen Jeereddi
1299039 Ontario Inc.
Robert Lantos
Brian King
Robert Prichard
Serge Gouin
Mercury Trade International Ltd.
United Trustco Limited
Medavoy 1987 Trust dated January 25, 1999
1376654 Ontario Inc.
1376653 Ontario Inc.
HRON Canadian Investments Ltd.
Brent Belzberg Family Trust
Brian Mulroney
Don Gales
Arnold Messer
2668921 Manitoba Ltd.
1170821 Ontario Inc.
SMM (Kyzalea)
<PAGE>
1170697 Ontario Inc.
1170819 Ontario Inc.
1301449 Ontario Inc.
1352536 Ontario Inc.
1352537 Ontario Inc.
<PAGE>
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Shares of Class A Shares of Class B Shares of Class C Shares of Class D-1
Purchaser Common Stock Common Stock Common Stock Common Stock
- ------------------------ ----------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
J2R Partners III 0 0 890.00344 0
Onex American Holdings 0 1,501.76276 0 0
LLC
BancAmerica Capital 0 0 0 0
Investors II, L.P.
The Northwestern Mutual 0 0 0 744.98007
Life Insurance Company
Norwest Equity Capital, 0 0 0 0
L.L.C.
Robert W. Baird & Co 0 0 0 202.99220
Incorporated
BCP II Affiliates Fund 0 0 0 23.15398
Limited Partnership
Baird Capital Partners 0 0 0 71.84589
II Limited Partnership
Randolph Street Partners 0 0 0 37.24908
II
Windward / Metropolitan 72.82206 0 0 0
L.L.C.
Windward / Park WACI, 858.09060 0 0 0
LLC
<CAPTION>
Shares of Class D-2 Shares of Class E Total Purchase
Purchaser Common Stock Common Stock Price
- ------------------------ ------------------- ----------------- --------------
<S> <C> <C> <C>
J2R Partners III 0 549.42278 $9,803
Onex American Holdings 0 0 $7,904,218.63
LLC
BancAmerica Capital 446.98800 0 $2,352,583
Investors II, L.P.
The Northwestern Mutual 0 0 $3,920,972
Life Insurance Company
Norwest Equity Capital, 670.48191 0 $3,528,874
L.L.C.
Robert W. Baird & Co 0 0 $ 1,068,389
Incorporated
BCP II Affiliates Fund 0 0 $ 121,880
Limited Partnership
Baird Capital Partners 0 0 $ 378,120
II Limited Partnership
Randolph Street Partners 0 0 $ 196,049
II
Windward / Metropolitan 0 0 $ 306,724
L.L.C.
Windward / Park WACI, 0 0 $ 3,614,248
LLC
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shares of Class A Shares of Class B Shares of Class C Shares of Class D-1
Purchaser Common Stock Common Stock Common Stock Common Stock
- ------------------------ ----------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Charles M. Waldon 117.62917 0 0 0
Dugald K. Campbell 29.56102 0 0 0
Scott D. Rued 17.80641 0 0 0
Carl E. Nelson 11.87094 0 0 0
David J. Huls 4.74838 0 0 0
Onex Advisor LLC 0 798.96195 0 0
1170809 Ontario Inc. 0 37.81920 0 0
1170810 Ontario Inc. 0 52.22672 0 0
1170812 Ontario Inc. 0 86.31175 0 0
1170698 Ontario Inc. 0 20.68971 0 0
Kaban Investments 0 6.82021 0 0
Mark Briggs 0 4.54414 0 0
Naveen Jeereddi 0 6.82021 0 0
1299039 Ontario Inc. 0 6.82021 0 0
Robert Lantos 0 34.08504 0 0
Brian King 0 6.82021 0 0
Robert Prichard 0 22.72069 0 0
Serge Gouin 0 45.44938 0 0
<CAPTION>
Shares of Class D-2 Shares of Class E Total Purchase
Purchaser Common Stock Common Stock Price
- ------------------------ ------------------- ----------------- --------------
<S> <C> <C> <C>
Charles M. Waldon 0 0 $ 495,450
Dugald K. Campbell 0 0 $124,510
Scott D. Rued 0 0 $75,000
Carl E. Nelson 0 0 $50,000
David J. Huls 0 0 $20,000
Onex Advisor LLC 0 0 $4,205,171.37
1170809 Ontario Inc. 0 0 $199,053.53
1170810 Ontario Inc. 0 0 $274,884.55
1170812 Ontario Inc. 0 0 $454,284.10
1170698 Ontario Inc. 0 0 $108,896.02
Kaban Investments 0 0 $35,896.76
Mark Briggs 0 0 $23,917.13
Naveen Jeereddi 0 0 $35,896.76
1299039 Ontario Inc. 0 0 $35,896.76
Robert Lantos 0 0 $179,399.55
Brian King 0 0 $35,896.76
Robert Prichard 0 0 $119,585.66
Serge Gouin 0 0 $239,213.44
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shares of Class A Shares of Class B Shares of Class C Shares of Class D-1
Purchaser Common Stock Common Stock Common Stock Common Stock
- ------------------------ ----------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Mercury Trade 0 284.99265 0 0
International Ltd.
United Trustco Limited 0 169.49316 0 0
Medavoy 1987 Trust dated 0 11.36435 0 0
January 25, 1999
1376654 Ontario Inc. 0 23.86273 0 0
1376653 Ontario Inc. 0 2.38707 0 0
HRON Canadian 0 45.44938 0 0
Investments Ltd.
Brent Belzberg Family 0 22.72069 0 0
Trust
Brian Mulroney 0 22.72069 0 0
Don Gales 0 227.23890 0 0
Arnold Messer 0 17.04252 0 0
2668921 Manitoba Ltd. 0 11.36435 0 0
1170821 Ontario Inc. 0 27.91294 0 0
SMM (Kyzalea) 0 18.14168 0 0
1170697 Ontario Inc. 0 12.56400 0 0
<CAPTION>
Shares of Class D-2 Shares of Class E Total Purchase
Purchaser Common Stock Common Stock Price
- ------------------------ ------------------- ----------------- --------------
<S> <C> <C> <C>
Mercury Trade 0 0 $1,500,000.00
International Ltd.
United Trustco Limited 0 0 $892,092.29
Medavoy 1987 Trust dated 0 0 $59,813.89
January 25, 1999
1376654 Ontario Inc. 0 0 $125,596.53
1376653 Ontario Inc. 0 0 $12,563.87
HRON Canadian 0 0 $239,213.44
Investments Ltd.
Brent Belzberg Family 0 0 $119,585.66
Trust
Brian Mulroney 0 0 $119,585.66
Don Gales 0 0 $1,196,025.08
Arnold Messer 0 0 $89,699.78
2668921 Manitoba Ltd. 0 0 $59,813.89
1170821 Ontario Inc. 0 0 $146,914.00
SMM (Kyzalea) 0 0 $95,485.00
1170697 Ontario Inc. 0 0 $66,128.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shares of Class A Shares of Class B Shares of Class C Shares of Class D-1
Purchaser Common Stock Common Stock Common Stock Common Stock
- ------------------------ ----------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
1170819 Ontario Inc. 0 12.56400 0 0
1301449 Ontario Inc. 0 10.30928 0 0
1352536 Ontario Inc. 0 7.33707 0 0
1352537 Ontario Inc. 0 0.69614 0 0
TOTAL 1,112.52858 3,560.01378 890.00344 1,080.22121
<CAPTION>
Shares of Class D-2 Shares of Class E Total Purchase
Purchaser Common Stock Common Stock Price
- ------------------------ ------------------- ----------------- --------------
<S> <C> <C> <C>
1170819 Ontario Inc. 0 0 $66,128.00
1301449 Ontario Inc. 0 0 $54,260.76
1352536 Ontario Inc. 0 0 $38,617.13
1352537 Ontario Inc. 0 0 $3,664.00
TOTAL 1,117.46991 549.42278 $35,000,000.00
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A Amended Certificate of Incorporation
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
The following is a list of subsidiaries of J.L. French Automotive
Castings, Inc. (the "Company"). The common stock of the corporations listed
below is wholly owned, directly or indirectly, by the Company. If indented, the
corporation is a wholly-owned subsidiary of the corporation under which it is
listed.
<TABLE>
<CAPTION>
NAME OF CORPORATION JURISDICTION OF INCORPORATION
- ------------------- -----------------------------
<S> <C>
J.L. French Automotive Castings, Inc. Delaware
French Holdings, Inc. Delaware
J.L. French Corporation Wisconsin
Allotech International, Inc. Wisconsin
J.L. French FSC Corporation Barbados
Nelson Metal Products Corporation Delaware
Automotive Components Investments Ltd. England
Morris Ashby Limited England
Morris Ashby Castings Limited England
Kaye (Presteigne) Limited England
UJP Tools Limited England
MAC Leasing Limited England
Burdon & Miles Limited England
Wilson & Royston Limited England
Foundry Computational Services Limited(1) England
Ansola Acquisition Corp., SRL Spain
Fundiciones Viuda de Ansola, s.a. Spain
Auxicomp Auxiliary Componentes, SL(2) Germany
J.L. French S. de R.L. de C.V.(3) Mexico
</TABLE>
- --------
(1) Foundry Computational Services Limited is inactive. Morris
Ashby Limited owns 51%.
(2) Ansola holds a 20% interest in Auxicomp Auxiliary Componentes, SL, which
is a German company.
(3) J.L. French Automotive Castings, Inc. owns 99.9% of J.L. French S. de
R.L de C.V. French Holdings, Inc. owns the remaining 0.1%.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
October 29, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
J.L. French Automotive Castings, Inc. of our report dated July 8, 1997, except
for Note 23, as to which the date is August 9, 1999, relating to the financial
statements of Morris Ashby plc, which appear in such Registration Statement. We
also consent to the reference to us under the heading "Independent Public
Accountants" in such Registration Statement.
PricewaterhouseCoopers
Birmingham, United Kingdom
October 29, 1999
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
U.S. BANK TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
U.S. Bank Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3983670
(State of Incorporation) (I.R.S. Employer
Identification No.)
4508 IDS Center
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
FRENCH HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 39-1850518
(State of Incorporation) (I.R.S. Employer
Identification No.)
<PAGE>
C/O J.L. French Automotive Castings, Inc.
4508 IDS Center
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
J.L. FRENCH CORPORATION
(Exact name of Registrant as specified in its charter)
Wisconsin 39-1098901
(State of Incorporation) (I.R.S. Employer
Identification No.)
C/O J.L. French Automotive Castings, Inc.
4508 IDS Center
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
ALLOTECH INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Wisconsin 39-1595832
(State of Incorporation) (I.R.S. Employer
Identification No.)
C/O J.L. French Automotive Castings, Inc.
4508 IDS Center
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
11 1/2% SENIOR SUBORDINATED NOTES DUE 2009
(Title of the Indenture Securities)
<PAGE>
GENERAL
1. GENERAL INFORMATION Furnish the following information as to the
Trustee.
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe each
such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority is incorporated by reference to Registration Number
333-70709.
* Incorporated by reference to Registration Number 22-27000.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligors, or affiliates, are based
upon information furnished to the Trustee by the obligors. While the Trustee
has no reason to doubt the accuracy of any such information, it cannot accept
any responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Saint Paul and State of Minnesota on the 28th day of September,
1999.
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Laurie Howard
---------------------------
Laurie Howard
Vice President
/s/ Harry H. Hall, Jr.
- ---------------------------
Harry H. Hall, Jr.
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the
undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION hereby consents that reports
of examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: September 28, 1999
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Laurie Howard
-----------------------
Laurie Howard
Vice President
